As filed with the Securities and Exchange Commission on October 31, 2000
Registration No. __________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
____________________
NANOCOR, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4040331
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1350 West Shure Drive
Arlington Heights, Illinois 60004-7803
(847) 394-8844
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
____________________
Larry Washow
Chairman and Chief Executive Officer
1350 West Shure Drive
Arlington Heights, Illinois 60004-7803
(847) 394-8844
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
____________________
Copy to:
James W. Ashley, Jr., Esq.
Lord, Bissell & Brook
115 South LaSalle Street
Chicago, Illinois 60603
(312) 443-0700
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered each class is to be registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
(Title of class)
Common Stock, par value $0.01 per share
Series A Junior Participating Preferred Stock Purchase Rights
<PAGE>
NANOCOR, INC. Information Required in Registration Statement
Item 1. Business.
The information set forth in the Preliminary Information Statement dated
October 31, 2000 under the captions "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business" is incorporated herein by reference.
Item 2. Financial Information.
The information set forth in the Preliminary Information Statement under
the captions "Pro Forma Financial Information"; "Selected Financial Data";
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"; and "Index to Financial Statements and Financial Statement
Schedules" is incorporated herein by reference.
Item 3. Properties.
The information set forth in the Preliminary Information Statement under
the caption "Business" is incorporated herein by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The information set forth in the Preliminary Information Statement under
the caption "Ownership of Nanocor Common Stock" is incorporated herein by
reference.
Item 5. Directors and Executive Officers.
The information set forth in the Preliminary Information Statement under the
caption "Management" is incorporated herein by reference.
Item 6. Executive Compensation.
The information set forth in the Preliminary Information Statement under
the caption "Management - - Executive Compensation" is incorporated herein by
reference.
Item 7. Certain Relationships and Related Transactions.
The information set forth in the Preliminary Information Statement under
the caption "Relationship Between AMCOL and Nanocor" is incorporated herein by
reference.
Item 8. Legal Proceedings.
None.
<PAGE>
Item 9. Market Price of and Dividends on the Registrant's Securities to be
Registered.
The information set forth in the Preliminary Information Statement under
the captions "Selected Financial Data," "Dividend Policy," and "Description of
Capital Stock" is incorporated herein by reference.
Item 10. Recent Sales of Unregistered Securities.
Not applicable.
Item 11. Description of Registrant's Securities to be Registered.
The information set forth in the Preliminary Information Statement under
the caption "Description of Capital Stock" is incorporated herein by reference.
Item 12. Indemnification of Directors and Officers.
The information set forth in the Preliminary Information Statement under
the caption "Management - - Indemnification of Directors and Executive Officers
and Limitation of Liability" is incorporated herein by reference.
Item 13. Financial Statements and Supplementary Data.
The information set forth in the Preliminary Information Statement under
the captions "Pro Forma Financial Information"; "Selected Financial Data";
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"; and "Index to Financial Statements and Financial Statement
Schedules" is incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements.
The information set forth in the Preliminary Information Statement under
the captions "Pro Forma Financial Information"; "Selected Financial Data" and
"Index to Financial Statements and Financial Statement Schedules" is
incorporated herein by reference.
(b) Exhibits.
<PAGE>
Exhibit
Number Description of Document
3.1 Restated Certificate of Incorporation of Registrant*
3.2 Amended and Restated By-Laws of Registrant*
4.1 Specimen certificate representing the common stock*
4.2 Form of Rights Agreement between Registrant and __________*
10.1 Form of Separation Agreement between AMCOL International Corporation and
Registrant*
10.2 Form of Tax Sharing and Indemnification Agreement between AMCOL
International Corporation and Registrant*
10.3 Form of Nanocor, Inc. 2000 Stock Plan*
10.4 Form of Indemnity Agreement between Registrant and Registrant's directors
and officers*
21.1 List of the Registrant's subsidiaries**
27.1 Financial Data Schedule**
99.1 Preliminary Information Statement of Nanocor, Inc.**
_____________________
* To be filed by amendment.
** Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Nanocor, Inc.
By: /s/ Lawrence E. Washow
Chief Executive Officer
Dated: October 31, 2000
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Document
3.1 Restated Certificate of Incorporation of Registrant*
3.2 Amended and Restated By-Laws of Registrant*
4.1 Specimen certificate representing the common stock*
4.2 Form of Rights Agreement between Registrant and __________*
10.1 Form of Separation Agreement between AMCOL International Corporation and
Registrant*
10.2 Form of Tax Sharing and Indemnification Agreement between AMCOL
International Corporation and Registrant*
10.3 Form of Nanocor, Inc. 2000 Stock Plan*
10.4 Form of Indemnity Agreement between Registrant and Registrant's directors
and officers*
21.2 List of the Registrant's subsidiaries**
27.2 Financial Data Schedule**
99.1 Preliminary Information Statement of Nanocor, Inc.**
____________________
* To be filed by amendment.
** Filed herewith.
<PAGE>
EXHIBIT 21.1
NANOCOR, INC.
SUBSIDIARY LISTING
Company Name Country Ownership %
Nanocor, Ltd. England 100
<PAGE>
EXHIBIT 99.1
AMCOL INTERNATIONAL CORPORATION
ONE NORTH ARLINGTON
1500 WEST SHURE DRIVE, SUITE 500
ARLINGTON HEIGHTS, ILLINOIS 60004-7803
(847) 394-8730
__________, 2000
Dear AMCOL Stockholder:
I am pleased to inform you that on ________, 2000, the Board of Directors
of AMCOL International Corporation declared a distribution to AMCOL's
stockholders of shares of the stock of Nanocor, Inc., currently a wholly-owned
subsidiary of AMCOL. The distribution will occur as of 12:01 a.m. CST on
__________, 2000. Following the distribution, Nanocor will operate its
nanocomposite business as an independent, public company.
The record date for the distribution is __________, 2000. If you are a
stockholder of record of AMCOL stock as of this record date, you will receive
one share of Nanocor stock for every __ shares of AMCOL stock you own (and a
cash payment instead of any fractional shares of Nanocor stock). The
distribution of Nanocor stock will be taxable to AMCOL and you.
No action is required on your part in order to receive your distribution.
You will not be required to pay anything for the new shares or to surrender any
AMCOL shares. The distribution agent will automatically credit your shares of
Nanocor stock to a book-entry account established to hold your Nanocor stock and
will mail you a statement of your Nanocor stock ownership as soon as possible
after __________, 2000.
The enclosed information statement explains the distribution in greater
detail and provides financial and other important information regarding Nanocor.
We urge you to read it carefully.
Your Board of Directors has carefully considered the distribution of the
Nanocor business. The Board and I believe that the distribution is in the best
interests of AMCOL's stockholders. We are enthusiastic about the distribution
and look forward to the future success of Nanocor as an independent company.
Sincerely,
John Hughes
Chairman of the Board
<PAGE>
Subject to Completion, dated October 31, 2000
PRELIMINARY INFORMATION STATEMENT
NANOCOR, INC.
Distribution of ___________ Shares of Common Stock
This Information Statement is being furnished to you in connection with the
distribution by AMCOL International Corporation to holders of its common stock
of all of the outstanding shares of common stock of its subsidiary, Nanocor,
Inc. Following the distribution, AMCOL will not own any shares of Nanocor common
stock and Nanocor will be an independent public company.
The distribution will be made to holders of AMCOL common stock of record as
of the close of business on _______, 2000, the record date. Each such holder
will receive one share of Nanocor stock for every __ shares of AMCOL common
stock held on the record date. Stockholders will receive a cash payment in lieu
of any fractional shares. The distribution of Nanocor common stock and cash for
fractional shares will be taxable. The distribution will be made on _________,
2000.
No stockholder approval of the distribution is required or sought. We are
not asking you for a proxy and you are requested not to send us one. AMCOL
stockholders will not be required to pay for the shares of Nanocor common stock
to be received by them in the distribution, or to surrender or to exchange
shares of AMCOL common stock in order to receive Nanocor common stock, or to
take any other action in connection with the distribution. Each share of Nanocor
common stock will be accompanied by one preferred stock purchase right. There is
no current trading market for Nanocor common stock. After the distribution,
Nanocor expects its stock to be quoted for trading on the OTC Bulletin Board,
under the symbol "___."
In reviewing this information statement, you should carefully consider the
matters described under the caption "Risk Factors" beginning on page 3.
____________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
information statement is truthful or complete. Any representation to the
contrary is a criminal offense.
____________________
This information statement does not constitute an offer to sell or the
solicitation of an offer to buy any securities.
____________________
The date of this information statement is __________, 2000.
<PAGE>
TABLE OF CONTENTS
SUMMARY.......................................................................1
RISK FACTORS..................................................................3
FORWARD-LOOKING STATEMENTS....................................................9
THE DISTRIBUTION..............................................................9
PRO FORMA FINANCIAL INFORMATION..............................................13
SELECTED FINANCIAL DATA......................................................18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...........................................................19
BUSINESS.....................................................................20
MANAGEMENT...................................................................28
OWNERSHIP OF NANOCOR COMMON STOCK............................................35
RELATIONSHIP BETWEEN AMCOL AND NANOCOR.......................................38
DIVIDEND POLICY..............................................................40
DESCRIPTION OF CAPITAL STOCK.................................................40
WHERE YOU CAN FIND MORE INFORMATION..........................................46
INDEX TO FINANCIAL STATEMENTS...............................................F-1
<PAGE>
SUMMARY
This summary highlights selected information from this information
statement and may not contain all of the information that is important to you.
To understand the distribution fully, you should read carefully this entire
information statement.
Nanocor, Inc. Nanocor develops, markets and sells high purity, conditioned
montmorillonite clays under the trade name "Nanomers" for
use in a wide variety of plastic nanocomposites. Nanocor was
incorporated under the laws of Delaware on August 21, 1995.
Distribution Ratio You will receive one share of Nanocor stock for every ___
shares of AMCOL stock that you own as of the close of
business on the record date.
Securities to be
Distributed Based on __________ shares of AMCOL stock outstanding on
__________, 2000, approximately __________ shares of Nanocor
stock, together with associated preferred stock purchase
rights, will be distributed. For more information about the
preferred stock purchase rights, see "Description of Capital
Stock -- Preferred Stock Rights Plan." The shares to be
distributed will constitute all of the outstanding shares of
Nanocor stock immediately after the distribution. After the
distribution, Nanocor will have approximately __________
stockholders of record.
Fractional Shares. Fractional shares of Nanocor common stock will not be
distributed. Fractional shares will be aggregated and sold
in the public market by the distribution agent. The
aggregate proceeds will be distributed ratably to those
stockholders who would otherwise have received fractional
shares.
Actions Required by
AMCOL Stockholders No proxy or vote is necessary for the distribution to occur.
You do not need to, and should not, mail in any certificates
of AMCOL stock to receive shares of Nanocor stock in the
distribution.
Distribution Agent,
Transfer Agent
and Registrar
for the Shares Computershare Investor Services will be the distribution
agent, transfer agent and registrar for the shares of
Nanocor's common stock.
Record Date The record date is the close of business on ____________,
2000.
Distribution Date. The shares of Nanocor common stock will be distributed on
_______________, 2000.
<PAGE>
U.S. Federal Income
Tax Consequences The distribution will be taxable to AMCOL and its
stockholders. See "U.S. Federal Income Tax Consequences of
the Distribution" for further details.
Trading of Nanocor
Stock Nanocor common stock will not be listed on a stock exchange.
Nanocor expects its stock to be quoted for trading on the
OTC Bulletin Board, a regulated quotation service that
displays real-time quotes and other information regarding
over-the-counter equity securities.
Relationship with
AMCOL After the
Distribution Nanocor has entered into a separation agreement and a tax
sharing agreement with AMCOL. The separation agreement sets
forth the arrangements between the parties regarding
Nanocor's separation from AMCOL and the distribution and the
relationship between AMCOL and Nanocor after the
distribution. The tax sharing agreement generally defines
AMCOL's and Nanocor's rights and obligations with respect to
tax matters for periods ending prior to the distribution.
Risk Factors Stockholders should carefully consider the matters discussed
under "Risk Factors."
Contact Information Prior to the distribution, stockholders of AMCOL with
inquiries relating to the distribution should contact:
Paul G. Shelton
Chief Financial Officer
AMCOL International Corporation
1500 West Shure Drive
Arlington Heights, Illinois 60004-7803
(847) 394-8730
After the distribution, stockholders of Nanocor with
inquiries relating to their investment in Nanocor common
stock should contact:
Larry Washow
Chairman and Chief Executive Officer
Nanocor, Inc.
1350 West Shure Drive
Arlington Heights, Illinois 60004-7803
(847) 394-8844
Principal Executive
Offices Nanocor's principal executive offices are located at 1350
West Shure Drive, Arlington Heights, Illinois 60004-7803,
and its telephone number is (847) 394-8844.
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, as well as the
other information contained in this information statement in evaluating Nanocor
and its common stock. If any of the following risks actually occurs, Nanocor's
business could be harmed.
Risks Relating to Nanocor's Business
Nanocor has a limited history of commercial revenue and if it fails to
successfully expand the commercialization of its products, its ability to
increase revenue would be harmed.
Nanomer products are in the early stage of commercialization and most
product applications are in various stages of development or under evaluation.
Nanomers have been sold only in limited quantities, often for evaluation
purposes, and a significant market for Nanomers may never develop. Because the
applications incorporating Nanomers are new and innovative, Nanocor expects the
time-to-market for commercial products utilizing Nanomers to be between two and
three years. Nanocor's failure to develop, manufacture and commercialize its
products on a timely and cost-effective basis or successfully reduce the
time-to-market of commercial products would have a material adverse effect on
Nanocor's business, results of operations and financial condition.
Nanocor has a limited operating history, a history of losses and may not achieve
or sustain profitability.
Nanocor recently began generating sales of Nanomer products. More than 85%
of Nanocor's sales in 1999 and through September 30, 2000 are sales of purified
montmorillonite clays and not sales of Nanomers. It is difficult to evaluate
Nanocor and its prospects based on such a short operating history. You should
consider the risks, expenses and difficulties frequently encountered by
companies in the early stages of development. Nanocor's products may never
generate significant revenues. Nanocor has incurred net losses in each year
since its inception. As of September 30, 2000, Nanocor had an accumulated
deficit of approximately $18.3 million. Nanocor expects to incur operating
losses in 2000 and 2001, and may incur losses in future periods as well. Nanocor
may never achieve or sustain profitability. Nanocor will continue to make
significant expenditures in order to grow its business, including research and
development and sales and marketing expenditures. Nanocor cannot assure you that
it will ever be able to generate a sufficient level of revenue to offset these
expenditures. Nanocor's ability to increase revenue and achieve profitability
will depend on its ability to timely develop, manufacture, introduce and sell
increased amounts of its products.
If plastic nanocomposites do not achieve widespread commercial acceptance,
Nanocor will not be able to sell its Nanomer products and its ability to
increase revenues would be harmed.
Widespread commercial acceptance of plastic nanocomposites is critical to
Nanocor's future success. The market for plastic nanocomposites is relatively
new and rapidly evolving. Nanocor's ability to increase revenues in the future
depends on whether potential customers accept plastic nanocomposites which may
be hindered by:
o the failure of prospective customers to recognize the value of plastic
nanocomposites and replace conventional composites with plastic
nanocomposites; and
o the emergence of new technologies or industry standards that cause
Nanocor's products to be less competitive or obsolete.
<PAGE>
If additional funds are not available as needed, Nanocor may be unable to
develop or grow its business.
Nanocor believes that its current cash balances will be sufficient to meet
its expected operating losses and working capital and capital expenditure
requirements for the next ______ months. Nanocor's future capital requirements
will depend on many factors, including the amount and timing of future revenues,
the magnitude of its development and product testing programs and the costs
necessary to increase its manufacturing capabilities. As a result, Nanocor
cannot assure you that its projections with respect to its operating losses and
its working capital and capital expenditure requirements are accurate. Nanocor
may require additional funds to support its business sooner than expected.
Nanocor may seek to raise additional funds through public or private financing
or debt financings. Nanocor cannot assure you that additional financings will be
available, or if available, will be on reasonable terms, nor can it assure you
that these financings will not be dilutive to its stockholders. If financing is
not available when required or is not available on acceptable terms, Nanocor may
be unable to develop or grow its business. In addition, Nanocor may be unable to
take advantage of business opportunities or respond to competitive pressures.
Nanocor relies heavily on collaborative relationships with customers, and if it
is unable to initiate or sustain these relationships or if these relationships
do not result in the sale of commercial products, its business may be harmed.
Nanocor's future success partially depends on its continued relationships
with collaborative customers and its ability to enter into collaborative
relationships with new customers. If Nanocor is unable to initiate or sustain
such collaborative relationships, it may be limited in its ability to
independently develop, manufacture, market or sell current and future Nanomer
products. Nanocor's ability to increase revenues depends on the customers'
timely introduction of Nanomer product applications under development and the
market's acceptance of these customers' products. Any delay in the customers'
introduction of Nanomer product applications will delay Nanocor's receipt of
revenues and may harm Nanocor's business.
Joint development agreements with collaborative customers contain exclusivity
provisions which limit Nanocor's ability to sell jointly developed products to
other customers.
Certain joint development agreements with collaborative customers contain
exclusivity provisions. These exclusivity provisions generally limit Nanocor's
ability to sell the developed product to third parties and require the customer
to purchase the product only from Nanocor. These exclusivity provisions are
applicable for a limited time period, usually between one and two years. Nanocor
is likely to enter into joint development agreements that contain similar
exclusivity provisions in the future. Certain of these joint development
agreements also provide for joint ownership of the intellectual property created
in the development efforts. These customers may decide to manufacture jointly
developed products internally or no longer pursue their development. These joint
development agreements are often subject to unilateral termination by Nanocor's
customers.
Nanocor derives a significant portion of its net sales from certain affiliates
of AMCOL which are not obligated to continue to purchase products from Nanocor.
Sales to other AMCOL subsidiaries has represented a significant portion of
Nanocor's net sales. Sales to AMCOL affiliates represented 85% of Nanocor's net
sales in the nine months ended September 30 2000 and 89% of Nanocor's net sales
in 1999. Although Nanocor will attempt to retain this business, these AMCOL
affiliates are not obligated to continue to purchase products from Nanocor.
Nanocor cannot assure you that purchases of its products by AMCOL affiliates
will not significantly decline.
<PAGE>
Nanocor may not be able to maintain and expand its business if it is not able to
recruit, hire and retain sufficient qualified personnel.
Nanocor's products require sophisticated manufacturing, research and
development, marketing and sales, and technical support. Many of Nanocor's
employees hold advanced science degrees. Nanocor's success depends on its
ability to attract, train and retain qualified personnel. Competition for
personnel in these areas is very strong due to the limited number of people
available with the necessary technical skills and understanding of Nanocor's
products and technology. Nanocor may not be able to hire sufficient personnel to
support its business. If Nanocor fails to attract and retain qualified
personnel, its business, operations and product development efforts would
suffer.
If Nanocor is unable to keep pace with the rapidly changing advanced materials
technologies industry standards and market trends, its business could be harmed.
Rapid changes have occurred, and are likely to continue to occur, in the
development of advanced materials and processes. Nanocor's future success will
depend, in large part, upon its ability to keep pace with advanced materials
technologies, industry standards and market trends. Nanocor will need to
continue to develop and introduce new and improved products on a timely basis
which will require substantial resources. Nanocor's development efforts may be
rendered obsolete by the research efforts and technological advances of others.
Also, other advanced or conventional materials may prove more advantageous than
those produced by Nanocor.
If Nanocor is unable to manage its growth effectively, its business could be
harmed.
As demand for its products grows, Nanocor will need to expand its research
and development, marketing and manufacturing capabilities, as well as its
technical support. Nanocor will also need to improve its financial and
managerial controls, reporting systems and procedures. The technical
complexities of Nanocor's products and the rapidly evolving markets it serves
will require a high level of management effectiveness to manage the expansion of
its operations. If Nanocor is unable to manage its growth effectively, its
business could be harmed.
Nanocor is subject to competition from better-capitalized companies and Nanocor
believes this competition will increase over time.
The advanced materials industry is very competitive. The plastic
nanocomposite market is characterized by significant research and development
efforts by governmental entities and private enterprises worldwide. Nanocor
believes competition will increase in the future as more product applications
with significant commercial potential are developed. Nanomer products compete
directly with conventional and advanced materials and technology. Nanocor's
competitors may succeed in developing materials, technologies and products that
exhibit superior performance, are more commercially desirable or are more cost
effective than its Nanomer products. Many of Nanocor's current and potential
competitors have substantially greater financial and technical resources, larger
research and development staffs, and greater manufacturing and marketing
capabilities than Nanocor. The failure of Nanomer products to improve
performance sufficiently at an acceptable price, achieve commercial acceptance
or otherwise compete with conventional or advanced materials would have a
material adverse effect on Nanocor's business, results of operations and
financial condition.
<PAGE>
Claims that Nanocor infringes third-party intellectual property rights could
result in significant expenses or restrictions on Nanocor's ability to sell its
products.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. Third parties may
assert patent, copyright, trademark and other intellectual property rights to
technologies used in Nanocor's business. Any claims, regardless of merit, could
result in time-consuming, costly litigation, and divert the efforts of Nanocor's
technical and management personnel. If Nanocor is unsuccessful in defending
itself against these types of claims, it may be required to do one or more of
the following:
o stop selling products that use or incorporate the challenged
intellectual property;
o attempt to obtain a license to sell or use the relevant technology or
substitute technology, which license may not be available on
reasonable terms, or at all; or
o redesign those products that use the relevant technology.
In the event a claim against Nanocor was successful and it could not obtain
a license to the relevant technology on acceptable terms or license a substitute
technology or redesign its products to avoid infringement, Nanocor's business
would be significantly harmed.
Nanocor's inability to protect its intellectual property rights may
significantly impair its competitive position.
Nanocor relies on a combination of patent, copyright, trademark and trade
secret laws, as well as confidentiality agreements and licensing arrangements,
to establish and protect its proprietary rights. Although it has numerous issued
patents and pending patent applications, Nanocor cannot assure you that any
patents will issue as a result of its pending patent applications or, if issued,
that any patent claim allowed will be sufficiently broad to protect its
technology. In addition, Nanocor cannot assure you that any existing or future
patents will not be challenged, invalidated or circumvented, or that any right
granted under these patents would provide it with meaningful protection of its
technology. Despite Nanocor's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use Nanocor's
products or technology. Nanocor may be unable to detect the unauthorized use of
its intellectual property or to take appropriate steps to enforce its
intellectual property rights. Policing unauthorized use of Nanocor's products
and technology is difficult. In addition, the laws of some foreign countries do
not protect proprietary rights to the same extent as do the laws of the United
States. Nanocor's inability to adequately protect unauthorized use of its
intellectual property could devalue the proprietary content and impair Nanocor's
ability to compete effectively. Enforcing Nanocor's intellectual property rights
could result in the expenditure of significant financial and managerial
resources.
Nanocor and its products are subject to a number of legal requirements that may
increase its costs of doing business.
Nanocor's properties and business operations are subject to a wide variety
of federal, state, and local environmental, health and safety laws and other
legal requirements, including those relating to the storage, use, discharge and
disposal of toxic, volatile or otherwise hazardous substances used in its
manufacturing processes. Nanocor cannot assure you that these legal requirements
will not impose the need for additional capital expenditures or other
requirements. If Nanocor fails to obtain required permits or otherwise fails to
operate within these or future legal requirements, it may be required to pay
substantial penalties, suspend
<PAGE>
its operations or make costly changes to its manufacturing processes or
facilities. Although Nanocor believes that it is in compliance and has complied
with all applicable legal requirements, it may also be required to incur
additional costs to comply with current or future legal requirements.
Certain products which contain Nanocor's products are subject to regulation
and approval by the U.S. Food and Drug Administration (FDA). The FDA regulations
often impose testing, control and documentation requirements on Nanocor which
increase the cost of doing business. If the FDA were to deny, suspend or revoke
its approval of a product which contained Nanocor's products, Nanocor's business
may suffer.
Nanocor has limited manufacturing capacity and experience and may incur
significant and unforeseen costs in manufacturing substantial quantities of its
products.
Nanocor's success will depend, in part, on its ability to manufacture
Nanomer products in sufficient quantities, with consistent quality, at
acceptable cost and on a timely basis. Nanocor has limited experience in
high-volume manufacturing and may incur significant costs and unforeseen
expenses in connection with attempts to manufacture substantial quantities of
Nanomer products.
Nanocor will need to improve manufacturing efficiency and expand
manufacturing capacity in the future to meet anticipated market demands. Nanocor
may be unable to make the transition from pilot manufacturing to high-volume
manufacturing successfully on a timely basis. Nanocor's surface treatment
process may be unable to successfully produce significant quantities of Nanomer
products with consistent quality, at acceptable cost and on a timely basis.
Risks Relating to the Separation of Nanocor from AMCOL
Nanocor has never operated as an independent company, and may be unable to
implement the changes necessary to operate independently, or may incur
significant additional costs as a stand-alone company.
Prior to the distribution, Nanocor was operated by AMCOL as part of its
broader business operations. AMCOL has historically provided Nanocor with
administrative, management and other corporate functions, as well as financial
support. Following the distribution, Nanocor will operate as a stand-alone
company and must develop and implement the administrative, management and
reporting systems and control functions necessary to support its business.
Because Nanocor has never operated as an independent company, Nanocor cannot
assure you that it will be able to successfully implement the changes necessary
to operate independently or that it will not incur significant additional costs
as a stand-alone company.
Nanocor's financial information may not be representative of its results as a
separate company.
The financial information included in this information statement may not
reflect what Nanocor's results of operation, financial position and cash flows
would have been had it been a stand-alone company during the periods presented.
AMCOL did not account for Nanocor as, and Nanocor was not operated as, a
stand-alone company during these periods. In addition, the financial information
included in this information statement is not necessarily indicative of what
Nanocor's results of operations, financial position and cash flows will be in
the future. Nanocor has not made adjustments to reflect many significant changes
that will occur in its cost structure, funding and operations as a result of its
separation from AMCOL, including changes in Nanocor's management structure and
the increased costs associated with being a public, stand-alone company.
<PAGE>
For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
related notes.
Risks Relating to Ownership of Nanocor Common Stock
Prior to the distribution, there has not been a public market for Nanocor's
stock and Nanocor cannot assure you that an active trading market will develop
or be sustained after the distribution.
Prior to the distribution, there has not been a public market for Nanocor's
common stock. After the distribution, Nanocor expects its common stock to be
quoted for trading on the OTC Bulletin Board, a regulated quotation service that
displays real-time quotes and other information regarding over-the-counter
equity securities. Nanocor cannot assure you that an active trading market will
develop or will be sustained after the distribution. If an active trading market
does not develop, bid and ask prices for shares of Nanocor common stock may not
be available or may vary significantly at any given time and you may not be able
to sell your Nanocor shares at certain times.
The market prices for securities of technology related companies have been
volatile in recent years and Nanocor's stock price could fluctuate significantly
after the distribution.
The market price of Nanocor's stock could fluctuate significantly. Factors
that could affect the stock price include:
o the depth and liquidity of the market for Nanocor common stock;
o investor perceptions of Nanocor and its business;
o Nanocor's financial results;
o announcements or implementation by Nanocor or its competitors of
technical innovations or new products; and
o economic and stock market conditions generally and specifically as
they may impact participants in the advanced materials industry.
In addition, the securities of many companies have experienced extreme
price and volume fluctuations in recent years, often unrelated to the companies'
operating performance. In particular, there has been significant volatility in
the market price of securities of technology related companies which are still
primarily engaged in product development activities, such as Nanocor. These
broad fluctuations may adversely affect the trading price of Nanocor's common
stock.
A large amount of Nanocor's shares will be eligible for immediate sale after the
distribution, which may cause Nanocor's stock price to significantly decline.
After the distribution, Nanocor will have _____ shares of common stock
outstanding. All of these shares will be freely tradeable and eligible for
immediate sale in the public market, other than shares held by affiliates of
Nanocor, as that term is defined under Rule 144 of the Securities Act. A
significant number of stockholders may attempt to sell their shares following
completion of the distribution. Nanocor cannot assure you that any buyers will
be willing to purchase these Nanocor shares. Any sales of substantial amounts of
Nanocor's common stock in the public market, or the perception that such sales
might occur,
<PAGE>
whether as a result of the distribution or otherwise, could cause the market
price of Nanocor's common stock to decline.
Provisions in Nanocor's charter documents and Delaware law may delay or prevent
an acquisition of Nanocor, which could decrease the value of your Nanocor
shares.
Nanocor's restated certificate of incorporation and by-laws and Delaware
law contain provisions that could make it more difficult for a third party to
acquire Nanocor without the consent of its board of directors. These provisions
include a classified board of directors and limitations on actions by
stockholders by written consent. In addition, Nanocor's board of directors has
the right to issue preferred stock without stockholder approval, which could be
used to dilute the stock ownership of a potential hostile acquirer. Delaware law
also imposes some restrictions on mergers and business combinations between
Nanocor and any holder of 15% or more of Nanocor's outstanding common stock.
These provisions apply even if the offer may be considered beneficial by some
stockholders. For a more detailed discussion of these provisions, see
"Description of Capital Stock - - Anti-Takeover Effects of Our Charter and By
Laws and Delaware Law."
FORWARD-LOOKING STATEMENTS
This document contains certain statements about Nanocor that may be
"forward-looking statements." "Forward-looking statements" are statements that
are not historical facts, but instead are expectations, projections or
assumptions, which involve a degree of risk and uncertainty. You may find these
statements under the captions "The Distribution," "Management's Discussion and
Analysis of Results of Operations and Financial Condition," and "Business" in
this information statement. Forward-looking statements may be preceded by the
words "anticipates," "believes," "expects," "intends," "projects," "forecasts,"
and similar expressions. In making any of these forward-looking statements,
Nanocor believes that the expectations are based on reasonable assumptions.
However, they are still predictions. Because predictions involve risk and
uncertainty, there are many factors, which could cause actual events or results
to differ significantly from what Nanocor is currently expressing or implying.
The most significant of these factors are discussed above under the caption
"Risk Factors." Additional risks and uncertainties not presently known to
Nanocor, or that it currently believes to be immaterial may also adversely
affect Nanocor's business.
THE DISTRIBUTION
General
AMCOL's board of directors has approved the distribution of all of the
outstanding shares of Nanocor common stock to the holders of AMCOL common stock.
In the distribution, each holder of AMCOL common stock will receive as a
dividend one share of Nanocor common stock and an associated preferred stock
purchase right for every ___ shares of AMCOL common stock held on __________,
2000, the record date. Please see "Description of Capital Stock - - Preferred
Stock Rights Plan" for a description of these rights.
Manner of Effecting the Distribution
The distribution will be made on __________, 2000, the distribution date,
on a pro-rata basis to holders of record of AMCOL common stock at the close of
business on _________, 2000, the record date. On or before the distribution
date, AMCOL will deliver all of the outstanding shares of Nanocor common stock
to Computershare Investor Services, the distribution agent. Nanocor currently
intends to use a book-entry system to maintain its stock records. Book entry
refers to a method of recording stock ownership in
<PAGE>
which no physical certificates are used. For AMCOL stockholders who own AMCOL
common stock in registered form, the distribution agent will credit their shares
of Nanocor common stock to book entry accounts established to hold their Nanocor
common stock. The distribution agent will send these stockholders a statement
reflecting their Nanocor common stock ownership. For AMCOL stockholders who own
their AMCOL shares through a broker or other nominee, their shares of Nanocor
common stock will be credited to these stockholders' accounts by the broker or
other nominee. As further discussed below, fractional shares will not be
distributed. A delivery of a share of Nanocor common stock in connection with
the distribution also will constitute the delivery of the preferred stock
purchase right associated with such share. Following the distribution,
stockholders whose shares are held in book entry form may request that their
shares of Nanocor common stock be transferred to a brokerage or other account at
any time as well as delivery of physical stock certificates for their shares, in
each case without charge.
AMCOL stockholders will not be required to pay for shares of Nanocor common
stock received in the distribution, or to surrender or exchange shares of AMCOL
common stock to receive Nanocor common stock, or to take any other action in
connection with the distribution. No vote of AMCOL stockholders is required or
sought in connection with the distribution, and AMCOL stockholders have no
appraisal rights in connection with the distribution.
Fractional shares of Nanocor common stock will not be issued to AMCOL
stockholders as part of the distribution nor credited to book-entry accounts. In
lieu of receiving fractional shares, each holder of AMCOL common stock who would
otherwise be entitled to receive a fractional share of Nanocor common stock will
receive cash for the fractional interest. As soon as practicable after the
distribution date, the distribution agent will aggregate fractional shares by
holders of record into whole shares and sell them in the open market at then
prevailing market prices and distribute the aggregate proceeds of these sales
(net of brokerage fees) ratably to AMCOL stockholders otherwise entitled to
fractional interests. The amount of this payment will depend on the prices at
which the aggregated fractional shares are sold by the distribution agent in the
open market shortly after the distribution date.
Because the distribution will be effected in the manner described above,
many of Nanocor's stockholders may hold odd lots, or blocks of less than 100
shares. An investor selling an odd lot may be required to pay a higher
commission rate than an investor selling round lots, or blocks of 100 shares.
Background and Reasons for the Distribution
On September 18, 2000 AMCOL announced that its board of directors had
authorized management to explore strategic alternatives to enhance stockholder
value, including a merger or sale of the company and the sale or distribution of
one or more of AMCOL's businesses. Since that date, AMCOL and Lehman Brothers,
its financial advisors, have engaged in discussions with several parties who
indicated an interest in acquiring AMCOL.
Based on these discussions and the advice of its financial advisor, AMCOL's
board of directors believes that the value of Nanocor as a separate independent
company is greater than the value which can be presently obtained for Nanocor's
business in a separate sale or as part of a sale of AMCOL. As a result, on
_________, 2000, AMCOL's board of directors determined that the distribution of
Nanocor to AMCOL's stockholders, as part of a sale of AMCOL, is in the best
interests of AMCOL and its stockholders. AMCOL's distribution of Nanocor is
subject to the execution of a definitive agreement for the sale of AMCOL.
<PAGE>
Results of the Distribution
After the distribution, Nanocor will be an independent public company
owning and operating the nanocomposites business previously operated by AMCOL.
Immediately after the distribution, Nanocor expects to have approximately
__________ holders of record and approximately __________ shares of its common
stock outstanding, based on the number of record stockholders and outstanding
shares of AMCOL common stock on __________, 2000, and the distribution ratio of
one share of Nanocor common stock for every ___ shares of AMCOL common stock.
The actual number of shares of Nanocor common stock to be distributed will be
determined on the record date. The distribution will not affect the number of
outstanding shares of AMCOL common stock or any rights of AMCOL stockholders.
U. S. Federal Income Tax Consequences of the Distribution
The following summary briefly describes the United States federal income
tax consequences of the distribution. This summary is based on the Internal
Revenue Code of 1986, as amended, or the Code, Treasury Regulations promulgated
thereunder and judicial and administrative interpretations of the Code and
Treasury regulations, all as in effect on the date of this information
statement, and is subject to any changes in these or other laws occurring after
such date, possibly with retroactive effect.
No rulings have been or will be requested from the Internal Revenue
Service, or the IRS, as to the matters discussed herein and, as to some of such
matters, such a ruling might not be obtainable even if requested. Accordingly,
no assurance can be given that the IRS will not challenge the federal income tax
treatment of certain matters discussed herein, which challenge, if any, might be
upheld by the courts.
This summary is for general information only and does not address the
effects of any state, local or foreign tax laws on the distribution. The tax
treatment of a holder of AMCOL common stock may vary depending on his or her
particular situation, and some holders may be subject to special rules not
discussed below. The discussion assumes that a holder of AMCOL common stock
holds his or her stock as a capital asset and that the stock was not received,
and will not be treated, as compensation. Except as set forth below, the
following discussion does not address the tax consequences to a holder of AMCOL
common stock that is a non-U.S. person. A non-U.S. person is (i) an alien
individual who is not a resident of the United States, (ii) a corporation or
partnership that is not created or organized under the laws of the United States
or of any state, (iii) an estate that is not subject to United States federal
income tax on a net income basis, or (iv) a trust the administration of which is
not subject to primary supervision of a United States court or with respect to
which no United States person has authority to control all substantial
decisions.
The distribution will be a taxable event to both AMCOL and its
stockholders. AMCOL will be deemed to have sold the distributed Nanocor common
stock for its fair market value and will recognize gain equal to the difference
between that fair market value and AMCOL's tax basis for the Nanocor common
stock being distributed. AMCOL estimates that this recognized gain will be
$__________.
As described in "Background and Reasons for the Distribution," the
distribution is intended to be part of an overall transaction in which all AMCOL
stockholders will dispose of their AMCOL common stock in connection with a sale
of AMCOL. Accordingly, AMCOL believes that the distribution will be treated as a
redemption under Section 302(b)(3) of the Code. For federal income tax purposes,
each AMCOL stockholder will be deemed to have received the Nanocor common stock
and any cash for fractional shares as additional consideration for the sale of
his or her AMCOL common stock in connection with the sale of AMCOL. Thus, each
AMCOL stockholder will recognize gain or loss equal to the difference between
the sum of the consideration received in connection with the sale of AMCOL, the
value of the Nanocor common
<PAGE>
stock received in the distribution, and the amount of cash received for any
fractional shares of Nanocor and the stockholders' adjusted basis for all of the
AMCOL common stock sold or surrendered in connection with the sale of AMCOL. Any
gain or loss would be considered long-term capital gain or loss if the AMCOL
stock sold in connection with the sale of AMCOL has been held for more than one
year and short-term capital gain or loss if the AMCOL stock was owned less than
one year.
If the distribution does not qualify as a redemption, it will be treated as
a taxable dividend. In such case, the fair market value of the Nanocor stock
received and the cash received for any fractional shares will be taxable as
ordinary income with no reduction for any portion of the stockholder's basis in
the AMCOL stock.
Each AMCOL stockholder should consult his or her own tax advisor about the
particular tax consequences of the distribution to such stockholder, including
the application of any state, local and foreign tax laws, and possible changes
in tax laws that may affect the tax consequences described above.
Trading of Nanocor Common Stock
There is not currently a public market for Nanocor's common stock. After
the distribution, Nanocor expects its stock to be quoted for trading on the OTC
Bulletin Board, a regulated quotation service that displays real-time quotes and
other information regarding over-the-counter equity securities.
Nanocor cannot assure you as to the price at which its common stock will
trade or that an active trading market will develop or be sustained after the
distribution. The price at which Nanocor's common stock trades may fluctuate
significantly until an orderly market develops. In addition, the combined
trading prices of AMCOL's common stock and Nanocor's common stock held by
stockholders after the distribution may be less than, equal to or greater than
the trading price of AMCOL's common stock prior to the distribution.
Reason for Furnishing this Information Statement
This information statement is being furnished by AMCOL solely to provide
information to stockholders of AMCOL who will receive shares of Nanocor common
stock in the distribution. It is not, and is not to be construed as, an
inducement or encouragement to buy or sell any of Nanocor's securities. The
information contained in this information statement is believed by Nanocor to be
accurate as of the date set forth on the cover. Changes may occur after that
date, and Nanocor will not update this information, except in the normal course
of its public disclosure obligations and practices.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The unaudited Pro Forma Statements of Operations of Nanocor for the nine
months ended September 30, 2000 and for the year ended December 31, 1999 present
the pro forma results of operations of Nanocor assuming that the transactions
contemplated by the distribution, including the additional capital contribution
from AMCOL, had been completed as of the beginning of the respective periods,
and include all material adjustments necessary to restate Nanocor's historical
results. The adjustments required to reflect such transactions are set forth in
the "Pro Forma Adjustments" column.
The unaudited Pro Forma Balance Sheet of Nanocor as of September 30, 2000
presents the pro forma financial position of Nanocor, assuming that the
transactions contemplated by the distribution described in the preceding
paragraph had been completed as of that date. The adjustments required to
reflect such transactions are set forth in the "Pro Forma Adjustments" column.
The unaudited pro forma financial statements of Nanocor should be read in
conjunction with the historical financial statements and related notes of
Nanocor included elsewhere in this information statement. The pro forma
financial information presented is for informational purposes only and may not
necessarily reflect future results of operations or financial position of
Nanocor or what the results of operations or financial position of Nanocor would
actually have been had Nanocor operated as an independent company during the
periods shown.
<PAGE>
NANOCOR, INC.
Pro Forma Balance Sheet
(Unaudited and dollars in thousands)
<TABLE>
<CAPTION>
ASSETS September 30, 2000
Pro Forma
Historical Adjustments (1) Pro Forma
Current assets:
<S> <C> <C> <C>
Accounts receivable, trade........................................... $ 25 $ -- $ 25
Inventories.......................................................... 231 -- 231
Prepaid expenses..................................................... 8 -- 8
Current deferred tax asset........................................... 30 -- 30
Total current assets............................................. 294 -- 294
Property, plant, equipment, and mineral rights:
Land and mineral rights.............................................. 351 -- 351
Property, plant, and equipment....................................... 13,721 -- 13,721
14,072 -- 14,072
Less accumulated depreciation........................................ 4,166 -- 4,166
9,906 -- 9,906
Other assets 392 -- 392
$ 10,592 $ -- $ 10,592
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY September 30, 2000
Pro Forma
Historical Adjustments Pro Forma
Current liabilities:
<S> <C> <C> <C>
Accounts payable..................................................... $ 126 $ -- $ 126
Accrued liabilities.................................................. 286 -- 286
Total current liabilities........................................ 412 -- 412
Long-term obligations:
Loans and advances from AMCOL........................................ -- -- --
Deferred income tax liabilities........................................... 590 -- 590
Other liabilities......................................................... 20 -- 20
610 -- 610
Stockholder's equity...................................................... 9,570 -- 9,570
$ 10,592 -- $ 10,592
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
NANOCOR, INC.
Pro Forma Statement of Operations
(Unaudited and dollars in thousands)
<TABLE>
<CAPTION>
Nine Months ended
September 30, 2000
Pro Forma
Adjustments (2) Pro
Historical (3) (4) (5) Forma
<S> <C> <C> <C>
Net sales............................................. $ 520 $ -- $ 520
Costs and expenses:
Costs of materials consumed...................... 1,245 -- 1,245
Research and development......................... 1,862 -- 1,862
General, selling and administrative.............. 1,323 -- 1,323
Depreciation and amortization.................... 1,275 -- 1,275
Operating loss................................... (5,185) -- (5,185)
Other income (expense):
Interest expense................................. (1,577) 1,577 --
Other, net....................................... 2 -- 2
(1,575) 1,577 2
Loss before income tax benefit................... (6,760) 1,577 (5,183)
Income tax benefit.................................... (2,602) 2,042 (560)
Net loss......................................... ($ 4,158) ($ 465) ($ 4,623)
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
NANOCOR, INC.
Pro Forma Statement of Operations
(Unaudited and dollars in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
Pro Forma
Adjustments (2) Pro
Historical (3) (4) (5) Forma
<S> <C> <C> <C>
Net sales............................................. $ 478 $ -- $ 478
Costs and expenses:
Costs of materials consumed...................... 1,134 -- 1,134
Research and development......................... 2,269 -- 2,269
General, selling and administrative.............. 1,627 -- 1,627
Depreciation and amortization.................... 1,525 -- 1,525
Operating loss................................... (6,077) -- (6,077)
Other income (expense):
Interest expense................................. (1,561) 1,561 --
Other, net....................................... -- -- --
(1,561) 1,561 --
Loss before income tax benefit................... (7,638) 1,561 (6,077)
Income tax benefit.................................... (2,917) 2,357 (560)
Net loss......................................... ($ 4,721) ($ 796) ($ 5,517)
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
(1) To record the estimated additional capital contribution of $_______ to be
made in cash by AMCOL prior to the distribution.
(2) To record the estimated interest earned on the additional cash capital
contribution made by AMCOL at a rate of _____%.
(3) To eliminate the interest charged by AMCOL and contribute to equity the
intercompany balance at the end of the period.
(4) To record income tax expense attributable to adjustments (2) and (3) at the
combined Federal and State and local rate of 38.5%.
(5) To record the increase in the valuation allowance for deferred tax assets
related to net operating loss carryforwards.
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected financial data of Nanocor. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of Nanocor and the notes thereto included
elsewhere in this information statement. The statement of operations information
for each of the years ended December 31, 1999, 1998 and 1997 and the balance
sheet information as of December 31, 1999 and 1998, was derived from, and is
qualified by reference to, the audited financial statements of Nanocor included
elsewhere in this information statement, and should be read in conjunction with
those financial statements and the notes thereto. The balance sheet information
as of December 31,1997, 1996 and 1995 and the statement of operations
information for the years ended December 31, 1996 and 1995 were derived from
unaudited financial statements not included in this document. The statement of
operations information for the nine months ended September 30, 2000 and 1999 and
the balance sheet information as of September 30, 2000 was derived from, and is
qualified by reference to, the unaudited condensed interim financial statements
of Nanocor included elsewhere in this information statement and should be read
in conjunction with those financial statements and the notes thereto. See "Index
to Financial Statements and Financial Statement Schedules." Per share data has
not been presented because Nanocor was wholly owned by AMCOL during the periods
presented below.
The historical financial information presented below may not necessarily
reflect future results of operations or financial position of Nanocor or what
the results of operations and financial position of Nanocor would actually have
been had Nanocor operated as an independent company during these periods. See
"Risk Factors - - Nanocor's financial information may not be representative of
its results as a separate company" in the body of the information statement.
SUMMARY OF FINANCIAL DATA
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Unaudited) Year Ended December 31,
2000 1999 1999 1998 1997 1996 1995
(Unaudited)
OPERATIONS DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 520 $ 283 $ 478 $ 17 $ -- $ -- $ --
Operating loss (5,185) (4,386) (6,077) (5,009) (5,097) (3,052) (21)
Net loss (4,158) (3,580) (4,721) (3,978) (3,467) (1,953) (11)
BALANCE SHEET DATA
Current assets $ 294 $ 344 $ 337 $ 134 $ 44 $ 81 $ 75
Net property, plant,
equipment, and
mineral rights 9,906 10,806 10,474 11,370 9,657 3,842 534
Total assets 10,592 11,547 11,208 11,742 9,954 3,923 609
Current liabilities 412 357 471 262 718 451 --
Loans from AMCOL -- 21,726 22,165 18,437 12,236 3,078 621
Stockholder's equity (deficit) 9,570 (10,895) (12,036) (7,315) (3,337) 130 (11)
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(Dollars in Thousands)
Sales
Sales increased to $520 in the nine months ended September 30, 2000 from
$283 in the nine months ended September 30, 1999, due to customer acceptance and
diversification of the products. Sales for the first nine months of 2000 and
1999 include sales of $438 and $262 respectively, of purified montmorillonite
clays to AMCOL affiliates. Sales increased to $478 in the fiscal year ended
December 31, 1999 from $17 in the fiscal year ended December 31, 1998. Sales of
purified montmorillonite clays to AMCOL affiliates amounted to $425 in 1999 and
$8 in 1998. There were no sales in 1997.
Cost of materials consumed
The cost of materials consumed includes all costs associated with the
Aberdeen, MS production facility. These costs include personnel, pilot plant
production, utilities, and other fixed costs associated with the production
facility.
The cost of materials consumed increased to $1,245 in the nine months ended
September 30, 2000 from $728 in the nine months ended September 30, 1999. This
increase parallels the increase in sales.
The cost of materials consumed increased to $1,134 in the fiscal year ended
December 31, 1999 from $691 in the fiscal year ended December 31, 1998, mainly
due to higher repairs and supplies as well as increased raw material usage. The
cost of materials consumed decreased from $1,040 in the fiscal year ended
December 31, 1997 to $691 in the fiscal year ended December 31, 1998. This
decrease is mainly due to a reduction in parts usage in conjunction with startup
of the facility in Mississippi and a decrease in employee related expenses.
Research and Development
Research and development expenses increased to $1,862 in the nine months
ended September 30, 2000 from $1,703 in the nine months ended September 30,
1999. This increase is primarily due to increased compensation and outside
testing costs. Research and development expenses increased to $2,269 in the
fiscal year ended December 31, 1999 from $1,982 in the fiscal year ended
December 31, 1998, mainly due to higher facility costs.
Research and development expenses decreased from $2,198 in the fiscal year
ended December 31, 1997 to $1,982 in the fiscal year ended December 31, 1998,
mainly due to staff restructuring.
General, Selling and Administrative Expenses
General, selling and administrative expenses increased to $1,323 in the
nine months ended September 30, 2000 from $1,108 in the nine months ended
September 30, 1999. This increase is primarily due to using management
consultants to help access potential markets and additional compensation costs.
<PAGE>
General, selling and administrative expenses increased to $1,627 in the
fiscal year ended December 31, 1999 from $1,554 in the fiscal year ended
December 31, 1998, mainly due to higher facility costs. General, selling and
administrative expenses increased from $1,357 in the fiscal year ended December
31, 1997 to $1,554 in the fiscal year ended December 31, 1998. This increase is
mainly due to expenses related to the hiring of a sales manager.
LIQUIDITY AND CAPITAL RESOURCES
(Dollars in Thousands)
As of September 30, 2000, Nanocor had commitments for working capital and
capital expenditures of approximately $412 and Nanocor expects working capital
requirements and capital expenditures to total $2,223 in fiscal 2001. Nanocor's
future capital requirements will depend on a number of factors, including its
future net sales and the timing and rate of expansion of its business. Nanocor
believes that its current credit arrangements with AMCOL will be sufficient to
fund its expected operating losses and working capital and capital expenditure
requirements through the date of the distribution. AMCOL intends to make a cash
capital contribution of $_____ in connection with the distribution. This
contribution is expected to provide for Nanocor's cash requirements for _____
months. However, Nanocor cannot assure you that its projections with respect to
operating expenses, working capital and capital expenditure requirements are
accurate. Nanocor may require additional funds to support its working capital
and operating expenses or for other purposes sooner than expected. Additional
financing may not be available when needed, or if available, financing may not
be on terms favorable to Nanocor or its stockholders. Additional financing may
result in significant dilution. If financing is not available when required or
is not available on acceptable terms, Nanocor may be unable to develop or
enhance its business. In addition, it may be unable to take advantage of
business opportunities or respond to competitive pressures. Any of these events
could significantly harm Nanocor's business, financial condition and results of
operations.
Following the distribution, Nanocor will need to seek additional financing
to fund its business.
BUSINESS
Nanocor develops, markets and sells high purity, conditioned
montmorillonite clays under the tradename "Nanomers" for use in a wide variety
of plastic nanocomposites. Plastic nanocomposites are specially engineered
composite materials that exhibit superior mechanical, thermal, barrier and
flame-retardant properties with lower densities than conventional composites,
resulting in significantly lighter plastic articles. Nanocor began developing
Nanomers in 1995 as a wholly owned subsidiary of AMCOL. It commenced active
sales promotion in 1999. Nanocor has identified commercial applications for
Nanomer products in the consumer packaging, engineered products and performance
coatings markets. Nanocor has established collaborative relationships with
industry leaders in its primary target markets to facilitate the development and
commercial introduction of Nanomer products. Nanocor currently works with,
among others, Eastman Chemical Co., Bayer AG, Honeywell Performance Polymers,
Inc. and Toyota Central Research and Development Laboratories.
Nanocor has recently begun to make modest sales of Nanomer products.
Nanomer products have been sold for inclusion in plastic nanocomposites to be
used in product applications, as well as for use as samples in nanocomposite
development efforts. Nanocor has also sold purified montmorillonite clay. Most
of these sales have been made to certain AMCOL affiliates and to resin producers
who also perform surface treatments. More than 85% of Nanocor's sales in 1999
and through September 30, 2000 are sales of purified montmorillonite clays and
not sales of Nanomers.
<PAGE>
Development of the Nanocomposites Industry
All matter is composed of molecules, which are combinations of atoms. Solid
materials generally consist of microscopic particles in which atoms or molecules
are stacked in orderly patterns. The physical performance properties of a
particular material, such as its strength, flexibility, thermal stability and
permeability, depend on the organization of atoms and molecules in the
individual particles and the shape, size and interactions of these particles.
The physical performance properties of plastic, glass, ceramic, steel and
other materials may be improved by combining dissimilar materials. Among other
improvements, these combined materials may be made stronger, more flexible or
more resistant to heat. When two or more dissimilar materials are combined they
form what is known as a composite material.
Generally, physical performance levels increase as the degree of contact
between the composite materials improves, and the degree of contact improves as
the size of the component materials becomes smaller. If one of the components in
the composite material is of nanometer size (one-billionth of a meter) in at
least one-dimension (length, width or thickness), the material is known as a
nanocomposite. Nanocomposites interact at the near-molecular level which results
in significant performance enhancements. The level and type of performance
enhancements varies depending on the molecular structure of the particular
nanocomposite. For this reason, nanocomposites are usually engineered to satisfy
specific performance requirements of a particular application. For example, one
type of nanocomposite may be used to create a stronger plastic and another type
may be used to create a plastic which tolerates higher temperatures.
Nanocomposites are particularly attractive as an alternative to
conventional plastic composites when weight is an important factor. Most
conventional composites contain high-density and heavy additives such as talc,
fiberglass or carbon fibers. These additives often constitute as much as 20% to
40% of the weight of the composite. Nanocomposites can deliver equal or better
physical performance properties at much lower densities and weight than
conventional composites.
Although the plastics industry is currently a prime focus for nanocomposite
technology, the glass, ceramic and steel industries are also developing and
researching the use of nanocomposites technology. A variety of nanometer size
materials may be used to create nanocomposites, including naturally occurring
clays and a variety of synthetic chemical structures. Clays are an attractive
nanometer size material because their cost is generally lower than most of the
synthetic chemical structures.
Plastic Nanocomposites
The technology for the dispersion of montmorillonite clay in plastics
originated in the 1980s at Toyota Motor Company's research facility in Japan.
During the 1990s, the creation of plastic nanocomposites has been the subject of
research and development efforts by academic institutions and industry
participants. Over 140 plastic nanocomposite patents have been issued worldwide,
including 24 to Nanocor. Commercial production of plastic nanocomposites has
only recently begun. Products which are anticipated to utilize plastic
nanocomposite technology include beverage bottles (beer, juices and soft
drinks), films for processed meats, automotive body panels, industrial primer
electrocoatings, fire-retardant fabrics and industrial casings.
<PAGE>
Plastic nanocomposites provide better gas and moisture barrier protection
and have more strength, stiffness, dimensional stability and heat resistance
than plastics without additives. Plastic nanocomposites are generally able to
achieve physical performance improvements comparable to or better than
conventional composites at much lower densities. Plastic nanocomposites are also
able to improve the strength and thermal stability properties of a plastic more
consistently than conventional composites.
Plastic nanocomposites are generally created through a two-step process.
First, the nanometer size clay or synthetic chemical structure is purified and
then conditioned to make it compatible with and dispersible in a plastic. The
conditioning process varies depending on the type of plastic used. In the second
step, the conditioned nanometer size material is dispersed in the plastic.
Nanomer Products
Nanocor develops, markets and sells high purity, conditioned
montmorillonite clays for use in a variety of plastic nanocomposites. These
clays are marketed under the tradename "Nanomers." Nanomer products are
supplied to plastic resin producers or independent compounders who compound them
with the plastic. Nanomer products may eventually be used in the development of
certain ceramic nanocomposites. To date, however, Nanocor has focused on the
plastic nanocomposite market and has not devoted attention to developing
opportunities in the ceramic nanocomposite market. Nanomer products are not
suited for use in glass or steel nanocomposites. Nanocor began developing
Nanomers in 1995 as a wholly owned subsidiary of AMCOL. To date, Nanocor has
identified commercial applications for plastic nanocomposites using Nanomer
products in the consumer packaging, engineered products and performance coatings
markets.
The Process of Creating Nanomer Products
The creation of Nanomer products involves a purification process and a
conditioning process known as surface treatment. Purification is generally
similar for all Nanomer products. The surface treatment process varies
depending on the type of plastic into which the Nanomer will be added and the
intended use of the product.
Purification Process
Nanocor uses a multi-step process to purify the montmorillonite clay.
Certain operations are patented, but others are commonly known in the minerals
purification industry. Generally, the process consists of dispersing the
clay-bearing ore in water and then separating the montmorillonite from other
minerals based on density differences. Each step increases in sophistication,
ultimately yielding montmorillonite clay with purity levels exceeding 98.5%.
Surface Treatment Process
Purified montmorillonite clay contains surfaces which are hydrophilic, or
water tolerant. Most plastics are hydrophobic, or water intolerant. Therefore,
the montmorillonite clay must be conditioned to make its surface compatible with
the plastic into which it will be dispersed. Nanocor uses a variety of
proprietary and non-proprietary chemical agents which modify the montmorillonite
clay's surface to stabilize, alter or enhance its dispersability in the
different types of plastics. These chemical treatments increase the spacing
between the montmorillonite clay platelets to allow plastic resin molecules to
interact with the full surface area of the platelets.
<PAGE>
Nanocor can apply the surface treatments using "wet" or "dry"
methodologies. The wet method is a variation of longstanding technology for
organoclay production. In the wet method, the purified montmorillonite clay and
the surface treatment agents are combined in water or water-alcohol mixtures.
The dry method is patented by Nanocor and often delivers production cost
advantages over the wet method. In the dry method, the purified montmorillonite
clay and the surface treatment agents are combined in a mixer.
Once surface treatment is completed, the montmorillonite clay can be
concentrated to a cake form. This cake is then fed to a tunnel dryer where it is
dried to less than 3% moisture. Dried product is micro-milled and packaged for
shipment.
Nanocor has developed and patented a range of surface treatments which
allow customers considerable flexibility in making plastic nanocomposites.
Nanocor has surface treatments which do the following:
o Interact with amorphous nylon to create a constrained region around
montmorillonite clay platelets and significantly enhance gas barrier
properties.
o Promote Nanomer dispersion in plastic monomers. In this way a
nanocomposite can be created during polymerization, saving additional
steps in the manufacturing process.
o React with polymer molecules to form a "tethered" system, ideal for
higher strength applications.
Advantages of Nanomer Products
Nanocor produces Nanomer products with the following characteristics,
which it believes make them superior to conventional mineral additives:
o High purity, enabling particles to exhibit consistent surface
chemistry. This facilitates Nanocor's ability to provide Nanomers for
a variety of applications that are sensitive to contaminants, such as
consumer goods.
o Controlled platelet sizes, which optimize property enhancements in
many applications.
o Highly dispersible particles that enhance clarity, and create
equivalent property improvements at only one-fifth the addition levels
of many conventional mineral additives.
o Tightly bound surface treatments, which promotes the ability to create
char layers in fire retardancy applications.
o Particles with functionalized surface treatments that react with
polymers to form nanocomposites that are tough but resilient.
<PAGE>
Development of Applications for Nanomer Products
Nanocor uses its expertise and proprietary processes to engineer and
produce Nanomer products designed for specific product applications. It uses
three development methodologies as described below:
o Joint Development. In areas with significant potential, Nanocor often
collaborates with industry leading companies who are potential
customers under joint development agreements. Nanocor's collaborative
partners are usually plastic resin producers. However, Nanocor also
occasionally partners with end-users. The customer will define the
performance objectives for the project, such as obtaining a certain
level of strength or thermal stability in light of the product
application. The parties will then work together to develop a plastic
nanocomposite which achieves these objectives. Certain of these
agreements contain an exclusivity provision which limits Nanocor's
ability to sell the developed product to any third party customers and
requires the customer to buy the developed product only from Nanocor.
These exclusivity provisions are applicable for a limited time period,
usually between one and two years. These joint development agreements
often provide for joint ownership of the intellectual property created
in the development efforts. Nanocor is currently a party to nine joint
development agreements.
o Custom Development. Certain customers are interested in having an
application which Nanocor has already developed tailored to meet the
needs of their specific product. These customer relationships
generally do not contain any exclusivity or joint ownership of
intellectual property provisions. To date, Nanocor has or is in the
process of developing over 45 custom applications for its Nanomer
products.
o Independent Research. Nanocor also engages in independent research and
development efforts to create nanocomposites. Any developed technology
is then marketed to the appropriate potential customers.
Nanocor's Markets
Nanocor has concentrated most of its market development efforts on the
consumer packaging, engineered products and performance coatings markets.
Nanocor believes these markets are some of the most likely to initially benefit
from the superior mechanical, thermal, barrier and flame-retardant properties of
plastic nanocomposites.
Consumer Packaging
The consumer packaging industry is marked by a general trend toward
substituting plastic containers for ones previously made of glass or metal.
Plastics are see-through, shatter proof, lighter weight and offer different
options for container configuration. However, many plastics also distort under
high temperatures, scalp flavors from food products, and permit permeation of
air or gases which damage their contents. Both nanocomposites and conventional
composites are used by plastic container manufacturers to reduce or eliminate
these deficiencies and improve the performance characteristics of their
products. However, containers made with conventional composites will be heavier
than containers made with nanocomposites. In addition to increased shipping and
handling costs, containers made with conventional composites are limited to
applications which can tolerate reduced clarity.
<PAGE>
One of the most attractive characteristics of plastic nanocomposites for
the consumer packaging industry is improved barrier to gas permeation. Many
packaged foods and beverages will be harmed by exposure to oxygen. Plastic
nanocomposites made with Nanomer products demonstrate two to six times better
barrier protection compared to the same plastic without additives, while
maintaining package clarity. Plastic nanocomposites help preserve the freshness,
taste and appearance of oxygen-sensitive food and beverage products.
Nanocor is pursuing a wide range of applications in the consumer packaging
industry, including films and packages for processed meats and snacks, rigid and
semi-rigid containers for beer, soft drinks and tomato-based foods,
plastic-lined juice cartons, temperature resistant packages for boil-in-bag and
microwavable foods, as well as moisture resistant packages for electronics.
Engineered Products
The transportation, appliance and electronics industries have also recently
increased the use of plastics. Durability is one of the most important factors
for these products. In these industries, plastics are an attractive alternative
because they are cheaper and lighter than metal. The superior properties and
lighter weight of plastic nanocomposites offer an advantage over conventional
composites. Plastic nanocomposites also demonstrate more consistent property
improvements than conventional fillers.
A significant portion of engineered products must also meet regulatory fire
retardant standards. Traditional fire retardant products require addition levels
as high as 40% by weight to meet these standards. The addition of these
traditional fire retardant additives causes the plastics to be heavier and
weaker. Nanocomposites are char formers and contribute to fire retardancy. This
permits formulators to significantly reduce the levels of retardant additives,
resulting in stronger, lighter weight, and fire-safe products.
Nanocor is pursuing a range of applications in this market, including
automotive parts, appliance housings and internals, and electronics from
computer components to cable sheathing.
Performance Coatings
Performance coatings are coatings that deliver benefits other than simply
decorative appeal. Examples are anti-corrosive, electrostatically dissipative,
electro-conductive and chemically resistant coatings. Nanocor is developing
coatings applications for filament wound chemical tanks, beverage storage
vessels, industrial floors and automotive electrocoats. Nanocor believes its
Nanomer products are particularly appealing as automotive electrocoats because
they provide a form of corrosion resistance known as crater control. Because
coatings "cure" into a three-dimensional network, montmorillonite clay particles
make it more complex, increasing strength, barrier and thermal stability. All of
these enhancements contribute to the protective functions of coatings. Also,
because the montmorillonite clay surface is electrically charged, it can
dissipate electro-static charge or, in conjunction with electro-conductive
polymers, will improve conductivity. Nanocor has also developed Nanomers for
epoxy-based coatings for sale to formulators.
Marketing
Nanocor markets its products through a combination of business development
and sales activities in close collaborative relationships with customers in each
market segment. Business development activities evaluate and qualify potential
markets, identify the lead customers within the particular market, and develop a
business case strategy for successful market penetration. Once a market is
qualified, Nanocor forms a
<PAGE>
technical/marketing team to provide the customer with an engineered solution to
meet that customer's specific requirements. Nanocor also markets its products
and capabilities by sponsorship, attendance and presentations at advanced
materials symposia, publishing articles in scientific journals, and
participating in industry trade shows for its target markets.
Nanocor's sales and marketing activities are generally concentrated at
plastic resin producers and independent compounders. Since virtually all of the
applications for its products are new, Nanocor must participate in a multi-step
process to penetrate the targeted markets including promoting the technology
along the entire manufacturing chain to the end user. This multi-step process
involves initial discussions of the product application, which highlight the
advantages of its Nanomer products, proof of concept, proof of feasibility, and
evaluations of cost and manufacturability. Major opportunities are usually
codified in a joint development agreement. This process may take between 12
months and 24 months to complete.
Research and Development
Nanocor's research and development activities focus on developing and
commercializing core technologies that have the capability to serve multiple
markets and provide the technical basis for significant company growth. There
are three components to its research and development strategy:
o Research and development to characterize novel or unique behavior and
characteristics of the Nanomers.
o Design of engineered solutions for customer-specific applications.
o Development of process engineering innovations that enable continuous
improvement in manufacturing yields, throughput and cost. This is
accomplished by developing (1) processes that consistently produce
sufficient commercial quantities of application-specific Nanomers,
(2) additional technologies to allow Nanomers to be dispersed in a
variety of matrices, and (3) processes that minimize surface treatment
chemicals or permit the use of lower cost treatments.
Nanocor's total research and development expenses during the years ended
December 31, 1999, 1998 and 1997 were $2.3 million, $2.0 million and $2.2
million, respectively. Nanocor's total research and development expenses during
the nine months ended September 30, 2000 were $1.9 million. Nanocor's future
success will depend in large part upon its ability to keep pace with evolving
advanced materials technologies and industry standards. Annual research and
development expenditures in the $2 million to $3 million range are expected to
be made for the foreseeable future. See "Risk Factors - - If plastic
nanocomposites do not achieve widespread commercial acceptance, Nanocor will not
be able to sell its Nanomer products and its ability to increase revenues would
be harmed."
Intellectual Property
Nanocor's success and ability to compete is dependent in part upon its
proprietary technology and intellectual property rights. Nanocor relies on a
combination of patent, copyright, trademark and trade secret laws, as well as
confidentiality agreements and license agreements to establish and protect its
proprietary rights.
<PAGE>
As of October 15, 2000, Nanocor had 24 United States patents issued and 18
United States patent applications pending. Pursuant to various joint development
agreements, one of the issued patents is jointly owned with a customer and six
of the pending patent applications were filed on behalf of Nanocor and a
customer. Corresponding patent applications are generally filed in the relevant
foreign countries, including Japan and most European countries. Nanocor also
licenses six patents from third parties.
Nanocor requires its employees, consultants, outside scientific
collaborators and other advisors to sign confidentiality and non-compete
agreements when their employment or consulting relationships begin. These
agreements provide that all confidential information developed or made known to
the individual during the course of that person's relationship with Nanocor will
be kept confidential, and not be disclosed to third parties except in specific
circumstances. In the case of research employees, the agreements also provide
that all inventions made by the individual will be the exclusive property of
Nanocor.
Competition
Nanocor's primary competition comes from conventional composites. The use
of glass fiber and talc are well-established technologies for improving strength
and thermal properties of plastics. To date, plastic nanocomposites have not
achieved widespread commercial acceptance. A customer's decision to use plastic
nanocomposites instead of conventional composites will depend on many factors,
including the relative cost and performance characteristics of the composites.
Nanocor believes it currently faces competition in the clay nanocomposite
industry from four clay companies. These are Southern Clay Products, Inc., a
division of Laporte Industries PLC, and Rheox, Inc., a division of Elementis,
Inc., located in the United States, Sud Chemie, AG located in Germany, and
Kuminine Industries Company, Ltd. located in Japan. Management believes that all
but one of these companies are engaged primarily in funded research, and is not
aware that any of them have large scale commercial production capability.
However, these companies or others who enter the market may represent
significant competitive risks in the future. See "Risk Factors - - Nanocor is
subject to competition from better-capitalized companies and Nanocor believes
this competition will increase over time."
Nanocor also faces competition from other developing technologies aimed at
improving the properties of plastics, including interior and exterior coatings.
Governmental Regulations
The manufacture and use of certain of the products that contain Nanomers
are subject to governmental regulation. As a result, Nanocor is required to
adhere to the current Good Manufacturing Practices requirements of the U.S. Food
and Drug Administration and similar regulations in other countries that include
testing, control and documentation requirements enforced by periodic
inspections.
In addition, Nanocor's facilities and its operations are subject to the
plant and laboratory safety requirements of various occupational safety and
health laws. To date, those regulations have not materially restricted or
impeded operations.
Raw Materials
Nanocor's primary raw material is bentonite ores. Nanocor believes that
adequate supplies of bentonite are readily available from a variety of
suppliers. Nanocor and AMCOL have entered into a supply agreement for bentonite.
<PAGE>
Litigation
Nanocor is not a party to any material litigation.
Employees
As of October 15, 2000, Nanocor employed a total of 29 full-time employees.
Twelve of its employees are dedicated to research and development, five of which
hold Ph.D.'s. Nanocor is not subject to any collective bargaining agreements,
and management believes it has good relationships with employees.
Properties
Nanocor leases approximately 10,000 square feet of laboratory and office
space in Arlington Heights, Illinois, a Chicago suburb. It also owns and
operates a 59,000 square-foot manufacturing facility in Aberdeen, Mississippi.
MANAGEMENT
Executive Officers and Directors
The following table provides information concerning Nanocor's executive
officers and directors.
Name Age Position
John Hughes 57 Director
Peter L. Maul 50 President
Clarence O. Redman 57 Secretary
Lawrence E. Washow 47 Chairman, Chief Executive Officer and
Director
John Hughes will be a member of Nanocor's Board of Directors following the
distribution. Mr. Hughes has been Chairman of the Board of Directors of AMCOL
since May 1998 and a Director of AMCOL since 1984. Mr. Hughes served as Chief
Executive Officer of AMCOL from 1985 through May 2000.
Peter L. Maul has been President of Nanocor since 1995. Mr. Maul has been a
Vice President of AMCOL since 1993.
Clarence O. Redman will be Secretary of Nanocor following the distribution.
Mr. Redman has been a Director of AMCOL since 1989. Mr. Redman has been of
counsel to the law firm of Lord, Bissell & Brook, the law firm that serves as
Corporate Counsel to AMCOL and Nanocor, since October 1997. Prior thereto, Mr.
Redman was an individual and corporate partner and Chief Executive Officer of
the law firm of Keck, Mahin & Cate. In December 1997, Keck, Mahin & Cate filed a
voluntary petition in bankruptcy under Chapter 11 of the United States
Bankruptcy Code.
Lawrence E. Washow will be Chairman and Chief Executive Officer of Nanocor
following the distribution. Mr. Washow has been Chief Executive Officer of AMCOL
since May 2000, President and a Director of AMCOL since 1998 and Chief Operating
Officer of AMCOL since 1997. Prior thereto, Mr. Washow was Senior Vice President
of AMCOL and President of Chemdal International Corporation, an AMCOL
subsidiary.
<PAGE>
Composition of the Board of Directors
Nanocor's bylaws and restated certificate of incorporation provide that the
board shall determine the number of members of Nanocor's board of directors.
Nanocor's board of directors is currently composed of two directors. Before the
completion of the distribution, Nanocor will increase its board to include at
least two directors who will not be employed by Nanocor. Prior to the completion
of the distribution, Nanocor's board of directors will be divided into three
classes as nearly equal in size as possible with staggered, three-year terms. At
each annual meeting of Nanocor's stockholders, the successors to the class of
directors whose term expires at that time will be elected for a three-year term.
Committees
Nanocor's board of directors will have an audit committee and a
compensation committee. Both the audit committee and the compensation committee
will have independent directors as members.
The audit committee will recommend the selection of and review the services
provided by Nanocor's independent auditors, consult with the independent
auditors and review the need for internal auditing procedures and the adequacy
of internal controls and report and make recommendations to the full board.
The compensation committee will determine the compensation of the Chief
Executive Officer, recommend the compensation of Nanocor's key management and
personnel and recommend stock option grants and other benefits.
Director Compensation
Directors of Nanocor do not currently receive cash compensation for their
services as directors or members of committees of the board of directors.
However, non-employee directors will be eligible to receive awards under
Nanocor's 2000 Stock Plan. Nanocor will reimburse directors for their reasonable
expenses incurred in attending board and committee meetings. Except for
eligibility under the 2000 Stock Plan and the reimbursement of expenses, Nanocor
has not yet adopted specific policies on directors' compensation and benefits.
Executive Compensation
The following table sets forth compensation information for Nanocor's chief
executive officer and its other employee executive officer for the fiscal year
ended December 31, 1999. These officers are referred to as the "named officers."
Mr. Washow's information is based on compensation earned as an employee of
AMCOL. Following the distribution, Mr. Washow's annual salary will be $________.
In connection with this distribution, Nanocor has established employee benefit
plans and arrangements so that, following this distribution, the compensation
and employee benefits of Nanocor's executive officers and all of its other
employees will be provided only by Nanocor. See "Employee Benefits Plans."
<PAGE>
<TABLE>
<CAPTION>
All Other
Long-Term Compen-sation
Name and Principal Position Annual Compensation (1)(2) Compensation Awards ($)(4)
Securities
Bonus Underlying
Year Salary ($) ($)(3) Options (#)
Lawrence E. Washow
<S> <C> <C> <C> <C> <C>
Chief Executive Officer of AMCOL 1999 $350,000 $437,500 21,250 $31,280
Peter L. Maul
President of Nanocor 1999 148,000 73,837 7,600 9,125
<FN>
(1) Includes deferred compensation under AMCOL's Savings Plan and AMCOL's
Deferred Compensation Plan.
(2) The incremental cost of non-cash compensation and other personal benefits
during any year presented did not exceed the lesser of $50,000 or 10% of
the total of annual salary and bonus reported for any individual named
above.
(3) The figures in this column reflect bonuses from AMCOL's Executive Incentive
Compensation Plan and Bonus Plan.
(4) The figures in this column include matching contributions under AMCOL's
Savings Plan.
</FN>
</TABLE>
Option Grants in Last Fiscal Year
Shown below is information on grants of incentive stock options from AMCOL
during the fiscal year ended December 31, 1999 to Nanocor's named officers.
<TABLE>
<CAPTION>
Name Individual Grants in 1999
Number of
Securities % of Total Grant
Underlying Options Exercise Expiration Date
Options Granted to Price (3) Date Present
Granted (1) Employees (2) Value (4)
<S> <C> <C> <C> <C>
Lawrence E. Washow 21,250 7.38% $9.00 2/03/09 $74,370
Peter L. Maul 7,600 2.64% 9.00 2/03/09 26,598
<FN>
(1) These Incentive Stock Options ("ISOs") were issued pursuant to AMCOL's 1998
Long-Term Incentive Plan (the "1998 Plan") and may not be exercised until
they vest. These ISOs vest 40% after two years, 60% after three years, 80%
after four years and 100% after five years, provided that on death or
retirement under specified conditions, these ISOs become fully vested. The
exercise price may not be less than the fair market value of the shares
subject to the option on the date of grant. The exercise price may not be
less than 110% of such fair market value if the purchaser is a holder of
more than 10% of AMCOL's outstanding voting securities. In the event of a
change in control, all outstanding options vest.
(2) Based on 288,000 options granted to all employees.
(3) Fair market value on the date of grant.
(4) The estimated grant date present value reflected in the above table is
determined using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the value
of the options reflected in the above table include the following: an
exercise price on the option of $9.00, equal to the fair market value of
the underlying stock on the date of grant; an option term of 6 years;
interest rate of 4.87% representing the interest rates on U.S. Treasury
securities on the date of grant with maturity dates corresponding to the
vesting of the options; volatility of 44.9% and dividends at the rate of
$0.24 per share representing the annualized dividends paid with respect to
a share of common stock at the date of grant. There have been no reductions
to reflect the probability of forfeiture due to termination prior to
vesting, or to reflect the probability of a shortened option term due to
termination of employment prior to the option expiration date.
</FN>
</TABLE>
<PAGE>
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Shown below is information with respect to options exercised by Nanocor's
named officers pursuant to AMCOL's option plans during 1999, and unexercised
options granted in 1999 and prior years under AMCOL's option plans to Nanocor's
named officers and held by them at December 31, 1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Name Acquired Value Options at 12/31/99 12/31/99
on Realized Exercisable/ Exercisable/
Exercise Unexercisable Unexercisable (1)
<S> <C> <C> <C> <C> <C> <C>
Lawrence E. Washow 20,000 $182,333 105,003 / 53,469 $785,263 / $281,791
Peter L. Maul -- -- 23,437 / 25,264 130,107 / 130,459
<FN>
(1) Based on the closing sale price as quoted on The New York Stock Exchange on
that date.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Pension Plans
Remuneration Estimated Annual Retirement Benefits Based on Years of Service
15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
<S> <C> <C> <C> <C> <C> <C> <C>
$150,000 $33,750 $45,000 $56,250 $67,500 $78,750 $84,375
200,000 45,000 60,000 75,000 90,000 105,000 112,500
250,000 56,250 75,000 93,750 112,500 131,250 140,625
300,000 67,500 90,000 112,500 135,000 157,500 168,750
350,000 78,750 105,000 131,250 157,500 183,750 196,875
400,000 90,000 120,000 150,000 180,000 210,000 225,000
450,000 101,250 135,000 168,750 202,500 236,250 253,125
500,000 112,500 150,000 187,500 225,000 262,500 281,250
550,000 123,750 165,000 206,250 247,500 288,750 309,375
</TABLE>
The above table shows the estimated annual retirement benefits payable on a
straight life annuity basis to participating employees, including officers, in
the earnings and years of service classifications indicated under AMCOL's
retirement plans, which cover substantially all of its domestic employees on a
non-contributory basis. The estimated benefits as disclosed below assume that
the plans will be continued and that the employee will elect to receive his
pension at normal retirement age. The table above and the estimates below do not
reflect the reduction in an individual's final monthly compensation due to the
social security monthly covered compensation. This reduction is based upon the
retirement year for a particular individual.
<TABLE>
<CAPTION>
Years of Average Pension
Name Service Compensation Benefit
<S> <C> <C> <C>
Lawrence E. Washow 21 $375,426 $112,142
Peter L. Maul 16 162,907 37,077
</TABLE>
<PAGE>
The above table indicates the average earnings for the highest five
consecutive calendar years and the number of years of credited service under the
pension plans as of December 31, 1999, for Nanocor's named officers. Covered
compensation includes a participant's base salary, commissions, bonuses and
salary reductions under AMCOL's Savings Plan and Deferred Compensation Plan.
Nanocor does not currently intend to adopt a pension plan or supplemental
pension plan.
Employee Benefit Plans
Nanocor, Inc. 2000 Stock Plan
Nanocor adopted the Nanocor, Inc. 2000 Stock Plan, and AMCOL, as the sole
stockholder, has approved this plan.
The following description of the plan is qualified in its entirety by
reference to the full text of the plan.
General; Shares Available for Issuance under the Plan. The 2000 Stock Plan
enables Nanocor to make awards of options, restricted stock and stock
appreciation rights to its directors and employees, including executive
officers. Nanocor believes the plan provides it with flexibility in designing
and providing incentive compensation in order to attract and retain employees
and directors who are in a position to make significant contributions to its
success, to reward employees and directors for past contributions and to
encourage employees and directors to take into account Nanocor's long-term
interests through ownership of common stock. Subject to adjustment for stock
splits and similar events, the maximum number of shares of common stock that may
be issued under the plan is __________, and the aggregate number of shares of
common stock for which awards of restricted stock may be issued under the plan
is __________.
Administration; Participants. The 2000 Stock Plan will be administered by a
committee of two or more of our directors elected by the board. Unless otherwise
determined by the board, the compensation committee of the board will serve as
the plan committee. Nanocor's directors and employees (including directors and
employees of any subsidiaries and affiliates) are eligible to receive awards
under the plan, but no participant may receive awards under the plan in any
calendar year covering more than __________ shares of Nanocor's common stock.
Stock Options. The committee may grant stock options under the 2000 Stock
Plan to directors and employees. Stock options enable the recipient to purchase
shares of Nanocor common stock at a price specified by the committee at the time
the award is made. The plan permits the granting of stock options that qualify
as incentive stock options under Section 422 of the Internal Revenue Code, which
may only be granted to employees, and stock options that do not qualify for
incentive stock option treatment, which may be granted to employees or
directors. The committee determines the per share exercise price of all stock
options. As a general rule, the exercise price for all incentive stock options
may not be less than the fair market value of a share of common stock at the
time of grant. Unless otherwise determined by the committee, the exercise price
for all non-incentive stock options will be the fair market value of a share of
common stock at the time of grant. The committee will determine when an option
may be exercised and its term, but the term may not exceed ten years. Unless
otherwise determined by the committee, options will vest 25% each year over a
four-year period.
<PAGE>
Restricted Stock. The committee may grant restricted stock under the 2000
Stock Plan. An award of restricted stock entitles the recipient to shares of
Nanocor common stock, subject to the conditions imposed by the committee, which
may include a vesting requirement. Unless otherwise determined by the committee,
shares of restricted stock will vest 25% each year over a four-year period.
Until the restrictions lapse, shares of restricted stock are non-transferable.
In general, recipients of restricted stock have all rights of a stockholder with
respect to the shares, including voting and dividend rights, subject only to the
conditions and restrictions generally applicable to restricted stock or to other
restrictions and conditions specifically set forth in the award agreement.
Stock Appreciation Rights. The committee may grant awards of stock
appreciation rights under the 2000 Stock Plan. An award of a stock appreciation
right entitles the recipient to surrender an exercisable award in exchange for a
payment equal to the product of (i) the excess of the fair market value of a
share of common stock on the date of surrender over the fair market value of a
share of common stock on the date the award was made, and (ii) the number of
shares of common stock subject to the award. This payment may be made in cash or
shares of common stock. The committee will determine when a stock appreciation
award may be surrendered and its term. Unless otherwise determined by the
committee, awards of stock appreciation rights will be eligible for surrender at
a rate of 25% each year over a four-year period.
Effect of Termination of Employment. As a general rule, terminations upon
retirement, death or for permanent disability will result in the accelerated
vesting of options and stock appreciation rights and the lapsing of restrictions
on restricted stock. Other terminations will result in the forfeiture of
unvested options, stock appreciation rights and restricted stock and termination
by Nanocor for cause will result in the forfeiture of all vested and unvested
options, stock appreciation rights and restricted stock.
Adjustments for Changes in Capitalization; Change in Control. The committee
will make appropriate adjustments to the maximum number of shares of common
stock that may be delivered under the plan and to outstanding awards to reflect
stock dividends, stock splits, and similar changes in capitalization. The plan
provides that if in the year following a change of control, as defined in the
plan, a participant is terminated without cause or resigns for reasons relating
to relocation or decreased responsibilities or compensation, all options and
stock appreciation rights will vest and all restrictions on restricted stock
will lapse. In the event of an extraordinary corporate transaction such as a
merger, the committee may provide for a cash payment or substitute award to be
delivered to plan participants in exchange for their outstanding awards.
Amendment and Termination. The committee may at any time discontinue
granting awards under the 2000 Stock Plan. Unless an earlier date is imposed by
the board, awards may not be made under the plan after __________, 2010.
Nanocor's board of directors may at any time amend the plan or any outstanding
award for any purpose permitted by law. However, none of these actions may
adversely affect the rights of a holder of any previously granted award.
Grants under Our 2000 Stock Plan. In connection with this distribution,
Nanocor has made initial grants of stock options to some of its directors and
employees under the 2000 Stock Plan. An aggregate of __________ shares of common
stock are issuable upon the exercise of these options, and these options were
granted at an exercise price equal to __________. The following table sets forth
the number of shares of Nanocor common stock underlying these options:
<PAGE>
<TABLE>
<CAPTION>
Name and Position Number of Shares Underlying Options
<S> <C> <C>
Lawrence E. Washow, Chief Executive Officer
Peter L. Maul, President
All non-employee directors as a group (__ persons)
All employees as a group (_____ persons)
</TABLE>
401(k) Plan
Nanocor's employees will be eligible to participate in the Nanocor, Inc.
401(k) retirement and deferred savings plan. This plan is intended to qualify as
a tax-qualified plan under the Internal Revenue Code. Employees are eligible to
participate in the plan on the first day of any quarter coincident with or
immediately following their date of hire by Nanocor. The plan provides that each
participant may contribute up to 16% of his or her pre-tax gross compensation up
to a statutory limit, which is $10,500 in calendar year 2000. All amounts
contributed by participants and earnings on participant contributions are fully
vested at all times. Nanocor may contribute an amount equal to 4% of each
participant's compensation, subject to a maximum includable compensation of
$170,000, which amount is subject to adjustment for cost of living increases
after calendar year 2000. All accounts under the plan are fully vested at all
times.
Indemnification of Directors and Executive Officers and Limitation of Liability
As permitted by the Delaware General Corporation Law, Nanocor's restated
certificate of incorporation provides that its directors shall not be personally
liable for monetary damages to Nanocor or its stockholders for a breach of
fiduciary duty as a director, except liability for:
o a breach of the director's duty of loyalty to Nanocor or its
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o an act related to our unlawful stock repurchase or payment of a
dividend under Section 174 of the Delaware General Corporation Law; or
o transactions from which the director derived an improper personal
benefit.
These limitations of liability do not apply to liabilities arising under
the federal securities laws and do not affect the availability of equitable
remedies such as injunctive relief or rescission. Nanocor's restated certificate
of incorporation also authorizes Nanocor to indemnify its officers, directors
and other agents to the fullest extent permitted under Delaware law.
As permitted by the Delaware General Corporation Law, Nanocor's bylaws
provide that:
o it is required to indemnify its directors and officers to the fullest
extent permitted by the Delaware General Corporation Law, subject to
limited exceptions;
o it is required to advance expenses, as incurred, to its directors and
officers in connection with a legal proceeding to the fullest extent
permitted by the Delaware General Corporation Law, subject to limited
exceptions; and
<PAGE>
o the rights provided in the bylaws are not exclusive.
Nanocor intends to enter into separate indemnification agreements with each
of its directors and officers, which may be broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
These indemnification agreements may require Nanocor to indemnify its directors
and officers against liabilities that may arise by reason of their status or
service as directors or officers, other than liabilities arising from willful
misconduct. These indemnification agreements also may require Nanocor to advance
any expenses incurred by the directors or officers as a result of any proceeding
against them as to which they could be indemnified and to obtain directors' and
officers' insurance if available on reasonable terms.
At present, there is no pending litigation or proceeding involving any of
Nanocor's directors, officers, employees or agents where indemnification by
Nanocor is sought. In addition, Nanocor is not aware of any threatened
litigation or proceeding which may result in a claim for indemnification.
Nanocor intends to maintain directors' and officers' liability insurance.
OWNERSHIP OF NANOCOR COMMON STOCK
All of the outstanding Nanocor stock is currently held by AMCOL. The
following tables set forth projected Nanocor stock ownership for the persons
expected to own more than 5% of Nanocor's stock following the distribution and
for each director and each executive officer. These projections are based on a
distribution of one share of Nanocor stock for every __ shares of AMCOL stock
beneficially owned by the listed persons on ____________, 2000.
Security Ownership of Five Percent Beneficial Owners
<TABLE>
<CAPTION>
Number of Shares and
Name and Address of Beneficial Owner Nature of Beneficial Percent
Ownership (1) of Class
<S> <C> <C>
Bank of Montreal __________ (2) [_____]%
Paul Bechtner Trust
111 West Monroe Street
Chicago, Illinois 60690
Everett P. Weaver ___________ (3)(4) [_____]%
c/o AMCOL International Corporation
1500 West Shure Drive, Suite 500
Arlington Heights, Illinois 60004-7803
William D. Weaver _____________ (3)(5) [_____]%
c/o AMCOL International Corporation
1500 West Shure Drive, Suite 500
Arlington Heights, Illinois 60004-7803
<FN>
(1) Nature of beneficial ownership is direct unless otherwise indicated by
footnote. Beneficial ownership as shown in the table arises from sole
voting and investment power unless otherwise indicated by footnote.
(2) Voting and investment power are shared by the trustees of this trust. See
note (3) below.
(3) Includes___________ shares held in the Paul Bechtner Trust as to which
Messrs. Everett P. Weaver, William D. Weaver and the Bank of Montreal are
co-trustees and share voting and investment power.
(4) Includes __________ shares in a trust as to which voting and investment
power are shared with Mr. Weaver's wife.
<PAGE>
(5) Includes _________ shares held in a living trust and _______ shares in a
charitable remainder unit trust as to which Mr. Weaver exercises sole
voting and investment power. Also includes______ shares held by his wife,
______ shares held in his wife's living trust, _______ shares held by his
wife as trustee for the benefit of her brother, and ______ shares held by
his wife for the benefit of their grandchildren as to which Mr. Weaver may
be deemed to share voting and investment power.
</FN>
</TABLE>
Security Ownership of Directors and Executive Officers
<TABLE>
<CAPTION>
Beneficial Owner Number of Shares and Nature Percent of Class
of Beneficial Ownership (1)
<S> <C> <C>
John Hughes
Peter L. Maul
Clarence O. Redman
Lawrence E. Washow
All Directors and Executive Officers
<FN>
* Percentage represents less than 1% of the total shares of common stock
outstanding as of __________, 2000.
(1) Nature of beneficial ownership is set forth on Page _____.
</FN>
</TABLE>
<PAGE>
<TABLE>
Nature of Beneficial Ownership (Shares Held) as of _____________, 2000
As Trustee
Directly or In the In As By of the Subject to
Beneficial Owner as Joint Company's Limited Trustee or As Family Company's Options
Tenants (1) Savings Partnership Co-Trustee Custodian Members Pension Plan Exercisable
Plan (2) (3) in 60 Days
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Hughes
Peter L. Maul
Clarence O. Redman
Lawrence E. Washow
All Directors and
Executive Officers
<FN>
(1) Includes shares held in joint tenancy with spouses for which voting rights
may be shared.
(2) With the exception of Mr. Redman's shares, which are held in the Clarence
O. Redman PC Savings Plan, the shares are held in AMCOL's Savings Plan.
(3) Messrs. Hughes and Washow share voting rights with an AMCOL officer.
</FN>
</TABLE>
RELATIONSHIP BETWEEN AMCOL AND NANOCOR
In connection with the distribution, AMCOL and Nanocor will enter into a
separation agreement which sets forth the arrangements between the parties
regarding Nanocor's separation from AMCOL and the distribution and the
relationship between AMCOL and Nanocor after the distribution. In addition,
AMCOL and Nanocor will enter into a tax sharing agreement to allocate tax
liabilities between the parties for periods prior to and after the distribution.
We have provided below a description of the material terms of the
separation agreement and the tax sharing agreement. You should read the full
text of these agreements which have been filed with the Securities and Exchange
Commission as exhibits to the registration statement of which this information
statement is a part. See "Where You Can Find More Information."
Separation Agreement
The separation agreement contains the principal terms relating to Nanocor's
separation from AMCOL and distribution and the relationship between AMCOL and
Nanocor after the distribution.
Contribution. On or prior to the distribution date, AMCOL and its
affiliates will contribute and transfer to Nanocor the following assets:
o the outstanding amount of all intercompany advances from AMCOL and its
affiliates to Nanocor through the distribution date; and
o all of AMCOL's and its affiliates' right, title and interests to
specified patents, trademarks, technical information, trade secrets
and other intellectual property used in the operation of Nanocor's
business.
AMCOL will be responsible for all transfer taxes, recording costs, or other
fees and expenses incurred in connection with the contribution and transfer of
the assets described above by AMCOL and its affiliates to Nanocor.
Distribution. On or before the distribution date, AMCOL has agreed to
deliver to the distribution agent all of the outstanding shares of Nanocor
common stock and to cause the distribution agent to distribute those shares on
____________, 2000 to the holders of record of AMCOL common stock on __________,
2000, the record date. The distribution will be effective as of ______ on the
distribution date.
Release of Pre-Distribution Claims. As of the distribution date, Nanocor
will release AMCOL and its affiliates and representatives, and AMCOL will
release Nanocor and its affiliates and representatives, from any liabilities
arising from events occurring on or before the distribution date, including
events occurring in connection with the activities to implement the separation
and the distribution. This provision will not impair a party from enforcing the
separation agreement and the other separation documents or any arrangements
specified in any of these documents.
<PAGE>
Indemnification. Pursuant to the separation agreement, Nanocor has agreed
to indemnify, defend and hold harmless AMCOL and each of its affiliates, and
each of their respective directors, officers, employees, agents, advisors and
representatives, against any and all actions, claims, damages, losses, or
liabilities resulting from, relating to or arising, whether prior to or
following the distribution date, out of or in connection with the operation of
Nanocor's business.
AMCOL has agreed to indemnify, defend and hold harmless Nanocor and each of
its affiliates, and each of their respective directors, officers, employees,
agents, advisors and representatives, against any and all actions, claims,
damages, losses, or liabilities resulting from, relating to or arising, whether
prior to or following the distribution date, out of or in connection with the
operation of AMCOL's businesses (other than Nanocor).
Under the separation agreement, AMCOL and Nanocor, as indemnifying parties,
have various rights. The indemnitee may defend and, with the consent of the
indemnifying party, compromise and settle a claim and will be entitled to
reimbursement for its reasonable attorneys' fees and expenses incurred in
defending the claim and indemnification for any liabilities incurred as a result
of a claim.
An indemnifying party may elect to defend at its own expense and through
counsel chosen by it, any claim by a third party if the claim will, or is likely
to, obligate the indemnifying party to provide indemnification. If any
indemnifying party elects to defend a third-party claim, but in the reasonable
judgment of an indemnitee, the indemnifying party fails to timely, properly and
adequately defend the third-party claim, the indemnitee may do so. There are
restrictions on the ability of the indemnifying party to settle or compromise a
claim if the settlement or compromise would be harmful to the indemnitee.
If an indemnitee recovers amounts from third parties, such as an insurance
company, these amounts will reduce the amount the indemnifying party must pay
unless the indemnitee or its affiliates remain directly or indirectly liable for
those amounts pursuant to self-insurance or re-insurance arrangements.
Access to Information. Both AMCOL and Nanocor have agreed to cooperate and
provide each other with reasonable access to all information, other than
information which is confidential or privileged, that is relevant to the
performance of the separation agreement or any other agreement between the
parties or otherwise relates to its business and the prior relationship between
the parties. Nanocor has also agreed to preserve all books and records relating
to its business for a specified period of time, to thereafter notify AMCOL if it
intends to destroy any of these records, and to give AMCOL the opportunity to
take possession of those records if it desires to do so. In addition, each party
has agreed to use its commercially reasonable efforts to make its directors,
officers, employees and other representatives available as witnesses in
connection with any legal proceedings in which the other party may be involved.
AMCOL and Nanocor have generally agreed not to disclose or release any
information regarding the other party in its possession or provided to it or to
use this information for any purpose other than as permitted under the
separation agreement or any other agreement between the parties, except to the
extent that the information is in the public domain, is later lawfully acquired
from other sources, or has been independently generated.
Dispute Resolution. The separation agreement contains provisions that
govern the resolution of disputes, controversies or claims that may arise
between AMCOL and Nanocor except to the extent otherwise provided in any other
agreement between the parties in connection with the distribution. The
separation agreement provides that the parties will use all commercially
reasonable efforts to settle all disputes arising in connection with the
agreement without resorting to mediation, arbitration or otherwise.
<PAGE>
If these efforts are not successful, either party may submit the dispute for
non-binding mediation. If mediation is not successful in resolving any dispute,
any party may resort to any remedies it may have at common law or otherwise,
including litigation. Neither party will be entitled to consequential, special,
exemplary or punitive damages.
Further Assurances. In addition to the actions specifically provided for
elsewhere in the separation agreement, each of AMCOL and Nanocor has agreed to
use all commercially reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things reasonably necessary to,
proper and advisable, to consummate the transactions contemplated by the
separation agreement and the other agreements between the parties described in
this information statement.
Tax Sharing Agreement
AMCOL and Nanocor will enter into a tax sharing agreement which will govern
AMCOL's and Nanocor's respective responsibilities and obligations after the
distribution with respect to taxes for periods ending on or prior to the
distribution and taxes incurred in connection with the distribution. Generally,
AMCOL will be responsible for all taxes that are allocated to periods prior to
the distribution and all taxes resulting from the distribution, and each of
AMCOL and Nanocor will be responsible for its own tax liabilities for periods
after the distribution. In addition, the tax sharing agreement requires AMCOL
and Nanocor to cooperate with each other and share information in connection
with the preparation of their respective tax returns and in dealing with other
tax matters.
DIVIDEND POLICY
Nanocor does not currently intend to pay cash dividends on the Nanocor
common stock.
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is subject to and qualified
in its entirety by our restated certificate of incorporation and amended and
restated bylaws, which are included as exhibits to the registration statement of
which this information statement is a part, and by the applicable provisions of
Delaware law.
Authorized Stock
Immediately after the distribution, our authorized capital stock will
consist of _________ shares of common stock, $0.01 par value per share, and
__________ shares of preferred stock, $0.01 par value per share. Based on the
number of shares of AMCOL common stock outstanding as of ________, 2000,
approximately ___________ shares of our common stock will be issued to AMCOL
stockholders in the distribution.
Common Stock
The holders of our common stock are entitled to one vote per share with
respect to each matter presented to our stockholders on which the holders of
common stock are entitled to vote. Subject to preferences applicable to any
outstanding preferred stock, the holders of common stock are entitled to receive
ratably any dividends declared by our board of directors out of funds legally
available for that purpose. In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to the prior distribution
rights of
<PAGE>
any preferred stock then outstanding. The holders of our common stock have no
preemptive, subscription or conversion rights. The outstanding shares of common
stock are, and all shares of common stock being offered hereby will be upon the
completion of the distribution, fully paid and non-assessable.
Preferred Stock
Our board of directors has the authority, without action by our
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of our common stock. The issuance of preferred stock
could have the effect of delaying, deferring or preventing a change in control
of our company without further action by our stockholders and may adversely
affect the market price, and the voting and other rights, of the holders of our
common stock. The issuance of preferred stock with voting and conversion rights
may adversely affect the voting power of the holders of common stock, including
the loss of voting rights to others.
Our board of directors expects to designate __________ shares of Series A
junior participating preferred stock in connection with the proposed preferred
stock rights plan discussed below. We have no current plans to issue any other
shares of preferred stock.
Anti-Takeover Effects of Our Charter and Bylaws and Delaware Law
Charter and Bylaw Provisions
Our restated certificate of incorporation and bylaws contain certain
provisions that could make it more difficult for a third party to acquire, or
may discourage a third party from attempting to acquire, control of our company.
These provisions, summarized below, are expected to discourage coercive takeover
practices and inadequate takeover bids. These provisions are also designed to
encourage persons seeking to acquire control of us to first negotiate with our
board of directors. We believe that the benefits of increased protection give us
the potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us and outweigh the disadvantages
of discouraging such proposals because negotiation of such proposals could
result in an improvement of their terms.
Classified Board of Directors. Our board of directors is divided into three
classes. The directors in each class will serve for a three-year term, with one
class being elected each year by our stockholders. See "Management - - Executive
Officers and Directors." This system of electing and removing directors may
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the company because it generally makes it more difficult for
stockholders to replace a majority of the directors.
Stockholder Meetings. Our restated certificate of incorporation provides
that special meetings of our stockholders may be called only by the chairman of
the board, our President or a majority of the whole board of directors.
Elimination of Stockholder Action by Written Consent. Our restated
certificate of incorporation eliminates the right of stockholders to act by
written consent without a meeting.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder nominations for the election of directors and stockholder proposals
to be brought at any meeting of our stockholders. These provisions may preclude
stockholders from making nominations for directors at an annual or special
meeting of stockholders or from bringing other matters before an annual meeting
of stockholders.
<PAGE>
Authorization of Rights Plan with Continuing Director Provision. Our
restated certificate of incorporation expressly authorizes our board of
directors to adopt a stockholders rights plan of the type adopted by many public
companies. Such plans grant rights to stockholders to purchase securities of the
company and are intended to discourage purchases of substantial amounts of the
company's stock without the approval of the company's board of directors by
permitting the holders of rights other than the acquirer of the large block of
stock to exercise the rights in certain circumstances. The rights issued
pursuant to such plans can be redeemed by the board of directors in order to
permit the acquisition of a large block of the company's stock. The provision of
our restated certificate of incorporation authorizing the adoption of such a
plan by our board of directors permits the inclusion of a provision limiting the
ability of the board to redeem the rights unless there is a specified number or
percentage of "continuing directors" then in office and a provision that would
permit only "continuing directors" to redeem the rights or make any other
decisions or determinations that are provided for in any such rights plan. Such
provisions could limit a potential acquirer's ability to take control of the
board and thereafter redeem the rights in order to permit the acquisition of a
large block of our stock. Continuing directors are generally defined as
directors in office at the time the rights plan was adopted and any director who
subsequently becomes a member of the board if such director's nomination for
election to the board is recommended or approved by a majority of the continuing
directors then in office.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by the holders of at least 80% of the
outstanding common stock.
Section 203 of the Delaware General Corporation Law
We are subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
o prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;
o upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned (a) by persons who
are directors and also officers, and (b) by employee stock plans in
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
o on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote
of at least 66-2/3% of the outstanding voting stock that is not owned
by the interested stockholder.
<PAGE>
Section 203 defines a business combination to include:
o any merger or consolidation involving the corporation and the
interested stockholder;
o any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
o subject to specific exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
o any transaction involving the corporation that has the effect of
increasing the proportionate share of any class or series of stock of
the corporation beneficially owned by the interested stockholder; or
o the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
Section 203 defines an interested stockholder as any person that, together
with affiliates and associates, owns 15% or more of the outstanding voting stock
of the corporation, or is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time in the three year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
Preferred Stock Rights Plan
Nanocor's board of directors currently intends to declare a dividend
distribution of one preferred stock purchase right for each outstanding share of
Nanocor common stock to be distributed to AMCOL's stockholders. Each right will
entitle the registered holder to purchase, under certain circumstances, from
Nanocor one one-thousandth of a share of Nanocor's Series A junior participating
preferred stock at a price of $______ per one one-thousandth of a preferred
share, subject to adjustment. The terms of the rights will be set forth in a
Rights Agreement between Nanocor and ________________, as rights agent.
The rights will become exercisable upon the earlier to occur of:
o 10 days following a public announcement that a person or group of
affiliated or associated persons has acquired beneficial ownership of
15% or more of the outstanding shares of Nanocor common stock, subject
to certain exceptions (an "Acquiring Person"), or
o 10 business days, or such later date as may be determined by Nanocor's
board of directors prior to the time any person or group of affiliated
or associated persons becomes an Acquiring Person, following the
commencement or announcement of an intention to make a tender offer or
exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the
outstanding shares of Nanocor common stock.
The earlier of the dates specified above is called the Rights Distribution
Date.
<PAGE>
Until the rights become exercisable, the rights will be evidenced by stock
certificates for Nanocor common stock and will be transferable with and only
with the shares of Nanocor common stock. As soon as practicable following the
Rights Distribution Date, separate certificates evidencing the rights will be
mailed to holders of record of Nanocor common stock as of the close of business
on the Rights Distribution Date and the separate right certificates alone will
evidence the rights.
The rights are not exercisable until the Rights Distribution Date. Until a
right is exercised, the holder thereof, as such, will have no rights as a
Nanocor stockholder, including, without limitation, the right to vote or to
receive dividends. The rights will expire 10 years from the date of issuance,
unless the expiration date is extended or unless the rights are earlier redeemed
or exchanged by Nanocor, as described below.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a right, other than rights
beneficially owned by the Acquiring Person and its affiliates and associates
(which will thereafter be null and void), will thereafter have the right to
receive upon exercise that number of shares of Nanocor common stock having a
market value of two times the exercise price of the right. If Nanocor does not
have sufficient shares of common stock to satisfy its obligation to issue common
stock, or if Nanocor's board of directors so elects, Nanocor shall deliver upon
payment of the exercise price of a right an amount of cash or securities
equivalent in value to the shares of Nanocor common stock issuable upon exercise
of a right. If Nanocor fails to meet this obligation within 30 days following
the date a person becomes an Acquiring Person, Nanocor must deliver, upon
exercise of a right but without requiring payment of the exercise price then in
effect, shares of Nanocor common stock (to the extent available) and cash equal
in value to the difference between the value of the Nanocor common stock
otherwise issuable upon the exercise of a right and the exercise price then in
effect. Nanocor's board of directors may extend the 30-day period described
above for up to an additional 60 days to permit the taking of action that may be
necessary to authorize sufficient additional shares of Nanocor common stock to
permit the issuance of Nanocor common stock upon the exercise in full of the
rights.
In the event that, at any time after a person or group of affiliated or
associated persons becomes an Acquiring Person, Nanocor is acquired in a merger
or other business combination transaction or 50% or more of its consolidated
assets or earning power are sold, each holder of a right will thereafter have
the right to receive, upon the exercise thereof at the then current exercise
price of the right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two
times the exercise price of the right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by any person or group
of a majority of the outstanding shares of Nanocor common stock, Nanocor's board
of directors may exchange the rights, other than rights owned by such person or
group which have become null and void, in whole or in part, at an exchange ratio
of one share of Nanocor common stock per right, subject to adjustment.
At any time prior to the time any person or group of affiliated or
associated persons becomes an Acquiring Person, Nanocor's board of directors may
redeem the rights in whole, but not in part, at a price of $0.01 per right. The
redemption of the rights may be made effective at such time, on such basis and
with such conditions as Nanocor's board of directors in its sole discretion may
establish. Immediately upon any redemption of the rights, the right to exercise
the rights will terminate and the only right of the holders of rights will be to
receive the redemption price.
<PAGE>
The exercise price payable, and the number of shares of Nanocor Series A
junior participating preferred stock or other securities or property issuable,
upon exercise of the rights are subject to adjustment from time to time to
prevent dilution:
o in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A junior participating preferred
stock,
o upon the grant to holders of the Series A junior participating
preferred stock of certain rights or warrants to subscribe for or
purchase Series A junior participating preferred stock at a price, or
securities convertible into Series A junior participating preferred
stock with a conversion price, less than the then current market price
of the Series A junior participating preferred stock, or
o upon the distribution to holders of the Series A junior participating
preferred stock of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of earnings or retained
earnings or dividends payable in Series A junior participating
preferred stock) or of subscription rights or warrants (other than
those referred to above).
The number of outstanding rights and the number of one one-thousandths of a
share of Series A junior participating preferred stock issuable upon exercise of
each right are also subject to adjustment in the event of a stock split of
Nanocor common stock or a stock dividend on Nanocor common stock payable in
Nanocor common stock or subdivisions, consolidations or combinations of Nanocor
common stock occurring, in any such case, prior to the Rights Distribution Date.
With certain exceptions, no adjustment in the exercise price of the rights will
be required until cumulative adjustments require an adjustment of at least 1% in
the purchase price.
The Series A junior participating preferred stock purchasable upon exercise
of the rights will not be redeemable. The holders of Series A junior
participating preferred stock shall be entitled to receive when as and if
declared by Nanocor's board of directors out of funds legally available for that
purpose, a quarterly dividend payment in an amount per share, subject to
adjustment, equal to 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions, other than a dividend payable in
Nanocor common stock, declared on Nanocor common stock. In the event of
liquidation, the holders of the Series A junior participating preferred stock
will be entitled to receive an aggregate amount per share, subject to
adjustment, equal to 1,000 times the aggregate payment made per share of Nanocor
common stock. Each share of Series A junior participating preferred stock will
have 1,000 votes, voting together with Nanocor common stock. In the event of any
merger, consolidation or other transaction in which shares of Nanocor common
stock are exchanged, each share of Series A junior participating preferred stock
will be entitled to receive 1,000 times the amount received per share of Nanocor
common stock. The rights are protected by customary anti-dilution provisions.
Because of the nature of the dividend, liquidation and voting rights of the
Series A junior participating preferred stock, the value of the one
one-thousandth interest in a share of Series A junior participating preferred
stock purchasable upon exercise of each right should approximate the value of
one share of Nanocor common stock.
<PAGE>
The terms of the rights may be amended by Nanocor's board of directors
without the consent of the holders of the rights. However, from and after such
time as any person or group of affiliated or associated persons becomes an
Acquiring Person, Nanocor's board of directors may not amend the terms of the
rights in a manner adversely affecting the interests of the holders of the
rights, other than the Acquiring Person and its affiliates and associates.
The rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire Nanocor on
terms not approved by Nanocor's board of directors. The rights should not
interfere with any tender offer or merger approved by Nanocor's board of
directors since the rights may be redeemed by Nanocor at any time prior to the
time that the rights become exercisable.
Transfer Agent and Registrar
The transfer agent and registrar for Nanocor's common stock is
Computershare Investor Services, Two North LaSalle Street, Chicago, Illinois
60602.
WHERE YOU CAN FIND MORE INFORMATION
Nanocor has filed a registration statement on Form 10 to register with the
Securities and Exchange Commission (SEC) the Nanocor common stock. As allowed by
SEC rules, this information statement does not contain all of the information
that stockholders can find in the registration statement or the exhibits and
schedules to the registration statement. You may inspect and copy the
registration statement and the exhibits to the registration statement at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. In addition, the registration statement will also
be available to the public from commercial document retrieval services and at
the SEC's World Wide Web site at http://www.sec.gov.
Following the distribution, Nanocor will be required to file annual,
quarterly and current reports, proxy statements and other information with the
SEC.
Nanocor has not authorized anyone to provide you with information that is
different from what is contained in this information statement. This information
statement is dated _________, 2000. You should not assume that the information
contained in the information statement is accurate as of any date other than
that date, and neither the mailing of this information statement to stockholders
nor the distribution of Nanocor common stock to AMCOL stockholders shall create
any implication to the contrary.
<PAGE>
Index to Financial Statements and Financial Statement Schedules
Page
(1) Financial Statements:
Independent Auditors' Report......................................... F-2
Balance Sheets, September 30, 2000 (unaudited) and December 31, 1999
and 1998........................................................... F-3
Statements of Operations, nine months ended September 30, 2000 and 1999
(unaudited) and years ended December 31, 1999, 1998 and 1997........... F-4
Statements of Stockholder's Equity, nine months ended September 30, 2000
(unaudited) and years ended December 31, 1999, 1998 and 1997.......... F-5
Statements of Cash Flows, nine months ended September 30, 2000 and 1999
(unaudited) and years ended December 31, 1999, 1998 and 1997.......... F-6
Notes to Financial Statements........................................... F-7
All schedules called for under Regulation S-X are not submitted because
they are not applicable or not required, or because the required information is
not material.
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholder of
Nanocor, Inc.:
We have audited the financial statements of Nanocor, Inc. (a development
stage company) as listed in the accompanying index. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nanocor, Inc. as of December
31, 1999 and 1998, and the results of operations and cash flows for each of the
years in the three-year period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
October 27, 2000
<PAGE>
NANOCOR, INC.
(a development stage company)
Balance Sheets
(Dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
2000
(Unaudited) 1999 1998
Current assets:
<S> <C> <C> <C>
Accounts receivable, trade........................................... $ 25 $ 71 $ --
Inventories.......................................................... 231 156 107
Prepaid expenses..................................................... 8 80 5
Current deferred tax asset........................................... 30 30 22
Total current assets............................................. 294 337 134
Property, plant, equipment, and mineral rights:
Land and mineral rights.............................................. 351 471 424
Property, plant and equipment........................................ 13,721 13,075 12,479
14,072 13,546 12,903
Less accumulated depreciation.................................... 4,166 3,072 1,533
9,906 10,474 11,370
Other assets.............................................................. 392 397 238
$ 10,592 $ 11,208 $ 11,742
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY September 30, December 31,
2000
(Unaudited) 1999 1998
Current liabilities:
<S> <C> <C> <C>
Accounts payable..................................................... $ 126 $ 260 $ 58
Accrued liabilities.................................................. 286 211 204
Total current liabilities........................................ 412 471 262
Long-term obligations:
Loans and advances from AMCOL........................................ -- 22,165 18,437
Deferred income tax liabilities........................................... 590 590 350
Other liabilities......................................................... 20 18 8
610 608 358
Stockholder's equity:
Common stock, par value $.01 per share. Authorized
3,000 shares; issued 1,000 shares................................ -- -- --
Additional paid-in capital........................................... 27,858 2,094 2,094
Deficit accumulated through the development stage.................... (18,288) (14,130) (9,409)
9,570 (12,036) (7,315)
$ 10,592 $ 11,208 $ 11,742
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NANOCOR, INC.
(a development stage company)
Statements of Operations
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended
(Unaudited) December 31,
2000 1999 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Net sales............................................. $ 520 $ 283 $ 478 $ 17 $ --
Costs and expenses:
Costs of materials consumed...................... 1,245 728 1,134 691 1,040
Research and development......................... 1,862 1,703 2,269 1,982 2,198
General, selling and administrative.............. 1,323 1,108 1,627 1,554 1,357
Depreciation, depletion and amortization......... 1,275 1,130 1,525 799 501
Operating loss................................... (5,185) (4,386) (6,077) (5,009) (5,096)
Other income (expense):
Interest expense................................. (1,577) (1,121) (1,561) (1,247) (570)
Other, net....................................... 2 -- -- -- 19
(1,575) (1,121) (1,561) (1,247) (551)
Loss before income tax benefit................... (6,760) (5,507) (7,638) (6,256) (5,647)
Income tax benefit.................................... (2,602) (1,927) (2,917) (2,278) (2,180)
Net loss......................................... ($ 4,158) ($ 3,580) ($ 4,721) ($ 3,978) ($ 3,467)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NANOCOR, INC.
(a development stage company)
Statements of Stockholder's Equity
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Deficit
Additional Accumulated
Paid-in Through the
Capital Development Stage Total
Number
of
Shares Amount
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996............................ 1,000 $-- $ 2,094 ($ 1,964) $ 130
Net loss................................................ -- -- -- (3,467) (3,467)
Balance at December 31, 1997............................ 1,000 $-- $ 2,094 ($ 5,431) ($ 3,337)
Net loss................................................ -- -- -- (3,978) (3,978)
Balance at December 31, 1998............................ 1,000 $-- $ 2,094 ($ 9,409) ($ 7,315)
Net loss................................................ -- -- -- (4,721) (4,721)
Balance at December 31, 1999............................ 1,000 $-- $ 2,094 ($ 14,130) ($ 12,036)
Net loss for nine months (Unaudited).................... -- -- -- (4,158) (4,158)
Capital contribution from AMCOL (Unaudited)............. -- -- 25,764 -- 25,764
Balance at September 30, 2000 (Unaudited)............... 1,000 $-- $ 27,858 ($ 18,288) $ 9,570
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NANOCOR, INC.
(a development stage company)
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
2000 1999
(Unaudited) 1999 1998 1997
Cash flow from operating activities:
<S> <C> <C> <C> <C> <C>
Net loss............................................... ($ 4,158) ($ 3,580) ($ 4,721) ($ 3,978) ($ 3,467)
Adjustments to reconcile net loss to net cash
used in operating activities:......................
Depreciation, depletion, and amortization.......... 1,275 1,130 1,525 799 501
Deferred income taxes.............................. -- -- 232 26 52
Gain on sale of depreciable assets................. -- -- -- -- (19)
(Increase) decrease in current assets:
Accounts receivable........................... 46 (53) (71) 11 11
Inventories................................... (75) (113) (49) (107) --
Prepaid expenses.............................. 72 (42) (75) (5) 44
Increase (decrease) in current liabilities:
Accounts payable.............................. (134) 82 202 (371) 213
Accrued liabilities........................... 75 12 7 (83) 53
(Increase) Decrease in other assets................ 5 (159) (159) 15 (253)
Increase in other non-current liabilities.......... 2 -- 10 4 4
Net cash used in operating activities.... (2,892) (2,723) (3,099) (3,689) (2,861)
Cash flow from investing activities:
Proceeds from sale of depreciable assets............... -- -- 3 -- 159
Acquisition of land and depreciable assets............. (707) (565) (632) (2,513) (6,456)
Net cash used in investing activities..... (707) (565) (629) (2,513) (6,297)
Cash flow from financing activities:
Proceeds from loans and advances from AMCOL............ 3,599 3,288 3,728 6,202 9,158
Net cash used in financing activities..... 3,599 3,288 3,728 6,202 9,158
Net increase (decrease) in cash............................. -- -- -- -- --
Cash at beginning of period................................. -- -- -- -- --
Cash at end of period....................................... $ -- $ -- $ -- $ -- $ --
Supplemental disclosures of cash flow information:
Cash paid for:
Interest............................................... $ -- $ -- $ -- $ -- $ --
Income taxes .......................................... $ -- $ -- $ -- $ -- $ --
Capital contribution from AMCOL effected through
forgiveness of intercompany loans and advances......... $ 25,764 $ -- $ -- $ -- $ --
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NANOCOR, INC.
(a development stage company)
Notes to Financial Statements
(Dollars in thousands)
(1) Summary of Significant Accounting Policies
Company Operations
Nanocor, Inc. (Nanocor or the Company) develops, markets and sells high
purity, conditioned montmorillonite clays for use in a variety of plastic
nanocomposites. Nanocor is a wholly owned subsidiary of AMCOL International
Corporation (AMCOL or the Parent). AMCOL has announced its intention to
distribute to its stockholders all of its interest in Nanocor.
Since inception, the Company has devoted substantially all of its efforts
to business planning and development activities. Accordingly, the Company is in
the development stage, as defined by Statement of Financial Accounting Standards
(SFAS) No. 7, Accounting and Reporting by Developmental Stage Enterprises.
Basis of Presentation
The financial statements have been prepared using the historical basis in
the assets and liabilities of the Company and the allocation policies described
in note 2 to the financial statements as of and for all periods presented.
Management believes that the statements of operations include a reasonable
allocation of administrative costs, which are described in note 2, incurred by
AMCOL on behalf of Nanocor. However, these financial statements may not
necessarily reflect Nanocor's results of operations, financial position and cash
flows in the future or what its results of operations, financial position and
cash flows would have been had Nanocor been an independent public company during
the periods presented.
Unaudited Interim Results
The accompanying unaudited interim financial statements as of September 30,
2000 and for the nine month periods ended September 30, 2000 and 1999, have been
prepared in accordance with generally accepted accounting principles. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation have been included. Results for
an interim period are not necessarily indicative of expected results for the
full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.
<PAGE>
NANOCOR, INC.
(a development stage company)
Notes to Financial Statements
(Continued)
(Dollars in thousands)
(1) Summary of Significant Accounting Policies (Continued)
Property, Plant, Equipment, and Mineral Rights
Property, plant, equipment, and mineral rights are carried at cost.
Depreciation is computed using the straight-line method for all of the assets.
Mineral rights are depleted using the units of production method.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be in effect for the year in which those temporary differences are
expected to be recovered or settled.
Revenue Recognition
Product revenue is recognized when products are shipped to customers.
Allowances for discounts, rebates, and estimated returns are recorded at the
time of sale.
Research and Development
Research and development costs are expensed as incurred.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including intangible assets, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net undiscounted cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value as estimated by discounted cash flows.
<PAGE>
NANOCOR, INC.
(a development stage company)
Notes to Financial Statements
(Continued)
(Dollars in thousands)
(2) Transactions with AMCOL
The following represents those transactions and services AMCOL provided to
Nanocor as of and for all periods presented.
Income Taxes
The Company's results of operations are included in the consolidated income
tax returns of AMCOL. Current and deferred income taxes are determined by the
Company as if taxes were computed on a stand-alone basis. Current income taxes
are settled through the advance account with AMCOL. The presentation and
disclosure in Note 5 is made on this basis.
Cash Management and Advances
AMCOL manages the cash not considered necessary for current operating
requirements of certain of its subsidiaries including the Company. Cash not
needed for current operations is advanced to AMCOL at the prime commercial rate;
cash is advanced by AMCOL on the same basis. In addition to these working
capital advances, AMCOL also provides long-term financing to the Company.
All advances from AMCOL are included in advances and loans from AMCOL in
the accompanying balance sheets. Interest income and expense on such loans and
advances are included in interest expense in the accompanying statements of
operations.
Nanocor, Inc. had a revolving credit agreement with AMCOL through September
30, 2000. All amounts outstanding under the credit line were subject to interest
at the prime commercial rate charged by Harris Trust and Savings Bank. The
amounts outstanding under this arrangement at December 31, 1999 and 1998 were
$22,165 and $18,437, respectively. Effective September 30, 2000, the Board of
Directors of AMCOL approved the forgiveness of the Company's obligations through
a capital contribution to the Company equal to the outstanding loan balance on
that date of $25,764. AMCOL expects to continue to make capital contributions
equal to its advances to the Company through the date of the distribution.
Parent Allocation Policies
During the periods presented, the Company was charged a fee by AMCOL for
certain expenses related to treasury, legal, insurance, payroll administration,
human resources, lease expense and various other services. For purposes of
preparing the accompanying financial statements, each of these types of costs
were reviewed individually in order to determine the allocated cost assuming
Nanocor had been operated as a stand-alone public company. The cost allocated to
the Company was estimated based on this review.
<PAGE>
NANOCOR, INC.
(a development stage company)
Notes to Financial Statements
(Continued)
(Dollars in thousands)
(2) Transactions with AMCOL (continued)
In management's opinion, the methods used in allocating expenses are
reasonable. However, they may not necessarily reflect Nanocor's costs in the
future or the amounts that would have been incurred had Nanocor been a separate,
stand-alone entity during the periods presented.
Product Sales
The Company's results of operations reflect sales of purified
montmorillonite clay to certain AMCOL affiliates. Sales to AMCOL affiliates were
$438 in the nine months ended September 30, 2000, and $425 and $8 for the twelve
months ended December 31, 1999 and 1998, respectively.
Stock Option Plans
AMCOL
Eligible employees of the Company participate in AMCOL's stock option
plans. Each option granted has an exercise price of 100% of the market value of
the common stock on date of grant. The contractual life of each option is
generally ten to fifteen years and substantially all options vest in one to four
years. AMCOL accounts for its stock options under the provisions of APB Opinion
No. 25 Accounting for Stock Issued to Employees. Accordingly, no compensation
cost has been recognized for such stock option plans and therefore, no amount of
compensation cost has been allocated to the Company.
Nanocor
Nanocor has adopted the Nanocor, Inc. 2000 Stock Plan, and AMCOL, as the
sole stockholder, has approved the plan. No shares have been reserved and no
grants have been made under this plan.
Employee Benefit Plans
Employees of the Company participate in a savings plan sponsored by AMCOL.
The Company contributes an amount equal to an employee's contribution up to a
maximum of 4% of the employee's annual earnings. Company contributions under the
savings plan were $45 in 1999, $49 in 1998 and $56 in 1997.
<PAGE>
NANOCOR, INC.
(a development stage company)
Notes to Financial Statements
(Continued)
(Dollars in thousands)
(3) Inventories
Inventories consisted of:
<TABLE>
<CAPTION>
September 30, December 31,
2000
(Unaudited) 1999 1998
<S> <C> <C> <C>
In-process inventories............................................. $ 88 $ 31 $ --
Raw material, container, and supplies inventories.................. 143 125 107
$ 231 $ 156 $ 107
</TABLE>
(4) Property, Plant, Equipment, and Mineral Rights
Property, plant, equipment, and mineral rights consisted of the following:
<TABLE>
<CAPTION>
Depreciation/
Amortization
September 30, December 31, Annual Rates
2000
(Unaudited)
1999 1998
<S> <C> <C> <C>
Land and mineral rights........................... $ 351 $ 471 $ 424
Buildings and improvements........................ 2,716 3,545 2,689 6.7%
Machinery and equipment........................... 11,005 9,530 9,790 12.5% to 50.0%
$ 14,072 $ 13,546 $ 12,903
</TABLE>
(5) Income Taxes
The components of income tax benefit for the years ended December 31, 1999,
1998 and 1997 consisted of:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
Provision for income taxes:
Federal:
<S> <C> <C> <C>
Current................................................. ($ 2,767) ($ 1,991) ($ 1,950)
Deferred................................................ 211 24 47
($ 2,556) ($ 1,967) ($ 1,903)
State:
Current................................................. (382) (313) (282)
Deferred................................................ 21 2 5
(361) (311) (277)
($ 2,917) ($ 2,278) ($ 2,180)
</TABLE>
<PAGE>
NANOCOR, INC.
(a development stage company)
Notes to Financial Statements
(Continued)
(Dollars in thousands)
(5) Income Taxes (continued)
The components of the deferred tax assets and liabilities as of December
31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
Deferred tax assets attributable to:
<S> <C> <C>
Compensation, due to temporarily non-deductible accruals............... $ 30 $ 22
Total deferred tax assets.......................................... 30 22
Deferred tax liabilities attributable to:
Plant and equipment, due to differences in depreciation................ (590) (350)
Total deferred tax liabilities..................................... (590) (350)
Net deferred tax liability......................................... ($ 560) ($ 328)
</TABLE>
The following analysis reconciles the statutory Federal income tax rate to
the effective tax rates:
<TABLE>
<CAPTION>
1999 1998 1997
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Income taxes at statutory rate................. ($ 2,673) 35.0% ($ 2,189) 35.0% ($ 1,977) 35.0%
Increase (decrease) in taxes resulting from:
State taxes.................................... (248) 3.3 (203) 3.3 (184) 3.3
Other.......................................... 4 (.1) 114 (1.9) (19) .3
($ 2,917) 38.2% ($ 2,278) 36.4% ($ 2,180) 38.6%
</TABLE>
<PAGE>
NANOCOR, INC.
(a development stage company)
Notes to Financial Statements
(Continued)
(Dollars in thousands)
(6) Leases
The Company leases certain office equipment and facilities. Total rent
expense under operating lease agreements was approximately $109, $107 and $105
in 1999, 1998 and 1997, respectively.
The following is a schedule of future minimum lease payments for operating
leases (with initial terms in excess of one year) as of December 31, 1999:
Operating Leases
Year ending December 31:
2000........................................................ $ 112
2001........................................................ 84
2002........................................................ 87
2003........................................................ 89
Total minimum lease payments................................ $ 372
(7) Accrued Liabilities
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
September 30,
2000
(Unaudited) December 31,
1999 1998
<S> <C> <C> <C>
Accrued property taxes...................................... $ 17 $ 42 $ 10
Accrued vacation pay........................................ 62 78 50
Accrued payroll and bonus................................... 154 62 93
Other....................................................... 53 29 51
$ 286 $ 211 $ 204
</TABLE>
<PAGE>
NANOCOR, INC.
(a development stage company)
Notes to Financial Statements
(Continued)
(Dollars in thousands)
(8) Cumulative Operating Information
The cumulative revenues, expenses, and cash flows of Nanocor from its
inception on August 21, 1995 through December 31, 1999 were as follows:
From Inception to
December 31, 1999
Net sales............................................. $ 495
Costs and expenses:
Costs of materials consumed...................... 3,244
Research and development......................... 7,817
General, selling and administrative.............. 5,393
Depreciation and amortization.................... 3,295
Operating loss................................... (19,254)
Other income (expense):
Interest expense................................. (3,438)
Other............................................ 19
(3,419)
Loss before income tax benefit................... (22,673)
Income tax benefit.................................... (8,543)
Net loss......................................... ($ 14,130)
<PAGE>
NANOCOR, INC.
(a development stage company)
Notes to Financial Statements
(Continued)
(Dollars in thousands)
(8) Cumulative Operating Information (continued)
<TABLE>
<CAPTION>
From Inception to
December 31, 1999
Cash flow from operating activities:
<S> <C>
Net loss............................................... ($ 14,130)
Adjustments to reconcile net loss to net cash
used in operating activities:......................
Depreciation, depletion, and amortization.......... 3,295
Deferred income taxes.............................. 560
Gain on sale of depreciable assets................. (19)
(Increase) decrease in assets:
Accounts receivable........................... (71)
Inventories................................... (156)
Prepaid expenses.............................. (80)
Other......................................... (397)
Increase (decrease) in current liabilities:
Accounts payable.............................. 260
Accrued liabilities........................... 229
Net cash used in operating activities (10,509)
Cash flow from investing activities:
Proceeds from sale of depreciable assets............... 162
Acquisition of land and depreciable assets............. (13,912)
Net cash used in investing activities..... (13,750)
Cash flow from financing activities:
Capital contribution from AMCOL........................ 2,094
Proceeds from loans and advances from AMCOL............ 22,165
Net cash used in financing activities..... 24,259
Net increase (decrease) in cash............................. --
Cash at beginning of period................................. --
Cash at end of period....................................... $ --
</TABLE>
<PAGE>
NANOCOR, INC.
(a development stage company)
Notes to Financial Statements
(Continued)
(Dollars in thousands)
(9) Quarterly Results (Unaudited)
Unaudited summarized results for each quarter in 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 Quarter
First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales.............................. $ 2 $ 115 $ 166 $ 195
Operating loss......................... ($ 1,447) ($ 1,582) ($ 1,357) ($ 1,691)
Net loss............................... ($ 1,163) ($ 1,256) ($ 1,161) ($ 1,141)
</TABLE>
<TABLE>
<CAPTION>
1998 Quarter
First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales................................... $ 9 $ -- $ -- $ 8
Operating loss.............................. ($ 1,535) ($ 1,279) ($ 1,050) ($ 1,145)
Net loss.................................... ($ 1,165) ($ 1,025) ($ 897) ($ 891)
</TABLE>
