<PAGE> 1
As filed with the Securities and Exchange Commission on March 13, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
NANOPHASE TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
ILLINOIS 3399 36-3687863
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
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453 COMMERCE STREET, BURR RIDGE, ILLINOIS 60521, (630) 323-1200
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
ROBERT W. CROSS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NANOPHASE TECHNOLOGIES CORPORATION
453 COMMERCE STREET, BURR RIDGE, ILLINOIS 60521, (630) 323-1200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
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MATTHEW S. BROWN, ESQ. CHRISTOPHER L. KAUFMAN, ESQ.
LAWRENCE D. LEVIN, ESQ. KATHRYN SHAW COLLINS, ESQ.
Katten Muchin & Zavis Latham & Watkins
525 West Monroe Street Sears Tower, Suite 5800
Chicago, Illinois 60661 Chicago, Illinois 60606
(312) 902-5200 (312) 876-7700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON
AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
================================================================================================================================
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE (1) FEE
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Common Stock................................................................. $38,000,000 $11,516
================================================================================================================================
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 13, 1997
PROSPECTUS
______________SHARES
NANOPHASE [LOGO]
COMMON STOCK
---------------------------
All of the _______________ shares of common stock, $.01 par value per
share (the "Common Stock"), of Nanophase Technologies Corporation ("Nanophase"
or the "Company") offered hereby are being offered by the Company. Prior to
this offering there has been no public market for the Common Stock of the
Company. It is currently estimated that the initial public offering price will
be between $_____ and $_____ per share. See "Underwriting" for factors which
will be considered in determining the initial public offering price.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "NTCO."
---------------------------
ANINVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" BEGINNING
ON PAGE 7 AND "DILUTION" ON PAGE 17.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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=======================================================================================================================
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
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Per Share.......................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total (3).......................................... $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deduction of expenses estimated at $500,000, payable by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
________ additional shares of Common Stock, on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $__________,
$__________ and $__________, respectively. See "Underwriting."
The shares of Common Stock are being offered by the Underwriters,
subject to prior sale, when, as, and if delivered to and accepted by the
Underwriters, and subject to various prior conditions, including the right to
reject orders in whole or in part. It is expected that delivery of such shares
will be made against payment therefor at the offices of Furman Selz LLC in New
York, New York on or about __________, 1997.
FURMAN SELZ
OPPENHEIMER & CO., INC.
GRUNTAL & CO., INCORPORATED
-----------------------
The date of this Prospectus is __________________, 1997
<PAGE> 3
[ARTWORK]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET,
IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
The Company's corporate logo and design is a registered trademark of
the Company. All other trade names and trademarks appearing in this Prospectus
are the property of their respective holders.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
(and related notes thereto) included elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus (i) reflects the
conversion of all outstanding shares of Series A, Series B, Series C, Series D
and Series E Convertible Preferred Stock, no par value, of the Company
(collectively, the "Preferred Stock") into _____________ shares of Common Stock
upon the consummation of this offering (the "Preferred Stock Conversion"), (ii)
reflects a _____-for-one stock split to be effected prior to the consummation of
this offering, (iii) reflects the reincorporation of the Company in Delaware to
be effected prior to the consummation of this offering and (iv) assumes no
exercise of the Underwriters' over-allotment option.
THE COMPANY
Nanophase Technologies Corporation ("Nanophase" or the "Company")
develops and markets nanocrystalline materials for use as ingredients and
components in a wide range of commercial applications. The Company produces
nanocrystalline materials in commercial quantities for selected applications.
Nanocrystalline materials are ceramic and metallic materials with particle sizes
measured in nanometers, or billionths of a meter. By processing materials in
this near-atomic size range, the Company is able to engineer the structure of
particles and exploit the properties of their surface atoms to enhance the
performance of basic raw materials such as aluminum, iron, titanium and zinc, as
well as to molecularly engineer new composite materials. Compared to
conventional materials, the Company's nanocrystalline materials generally
exhibit superior chemical, mechanical, electronic, magnetic and optical
properties, and the Company believes it has established a new standard for
high-performance commercially produced nanocrystalline materials.
The Company has identified commercial applications for its
nanocrystalline materials in four primary markets: electronics, structural
ceramics and composites, cosmetics and skin-care, and industrial catalysts. The
Company believes each of these markets provides significant opportunity for
growth, as well as the opportunity to achieve competitive advantages based on
product performance. In each of these markets, the Company's strategy is to
establish collaborative relationships with industry leaders in order to
validate the capabilities of its materials and coordinate the development and
commercial introduction of product applications, and to include in such
relationships specific milestones and a development path that is intended to
lead to significant commercial product revenues. The Company is currently
collaborating with, among others, AG Industries ("Acutus Gladwin"), The Dow
Chemical Company ("Dow"), E.I. DuPont de Nemours & Co. ("DuPont"), Medtronic,
Inc. ("Medtronic"), Philips Electronics N.V. ("Philips") and Schering-Plough
Corporation ("Schering-Plough").
As a result of one of its collaborative relationships, the Company
recently entered into a five-year requirements contract with Moyco Technologies,
Inc. ("Moyco"), a manufacturer of semiconductor polishing slurries, pursuant to
which the Company will supply its nanocrystalline materials to Moyco. Moyco
markets its slurries to Hyundai Corporation ("Hyundai"), International Business
Machines Corporation ("IBM"), Lucent Technologies, Inc. ("Lucent"), Motorola,
Inc. ("Motorola") and Samsung Group ("Samsung"), all of which are currently
evaluating slurries containing the Company's nanocrystalline materials for use
in their next generation semiconductor manufacturing processes. If Moyco
purchases the minimum quantities specified in the contract as a condition to
maintenance of Moyco's exclusivity, it will purchase approximately $30 million
of the Company's materials through the end of 2001. If Moyco fails to purchase
such minimum quantities, the Company may terminate Moyco's exclusivity, or the
Company may terminate the entire contract. The Company has also entered into a
one-year requirements contract with LWT Instruments, Inc. ("LWT") for
anti-abrasive polymers used in oil drilling applications. This contract requires
LWT to purchase a minimum of $375,000 of materials from the Company.
To gain access to foreign markets, in October 1996, Nanophase entered
into an agreement with C.I. Kasei, Ltd., a subsidiary of Itochu Corporation
("Itochu"), for the distribution of the Company's materials in broad-based
industrial markets throughout Asia. In addition, the Company has a global
distribution agreement
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with Whittaker, Clark & Daniels, Inc. ("WCD"), a leading distributor of
cosmetic and skin-care ingredients, for exclusive distribution of the Company's
nanocrystalline materials for cosmetic and skin-care products.
The Company believes that its nanocrystalline materials have broad and
enabling potential beyond the product applications it is currently developing
with its customers. In 1995, the Battelle Memorial Institute, a leading
contract research organization, identified "molecularly engineered" materials
(i.e., nanocrystalline materials) as "super materials" which represent one of
the ten most important technologies for the coming decade. Nanophase was
organized in 1989 to commercialize technologies that are based on principles
developed at Argonne National Laboratory ("Argonne"), and believes that it is
the only company to successfully transition the production of high-performance
nanocrystalline materials from laboratory to commercial scale. In 1995, the
Company's patented PVS process for producing these materials received the R&D
100 Award, given each year by R&D Magazine to recognize the 100 most
technologically significant new products and processes in the world.
Nanocrystalline materials are metallic and ceramic materials that
generally consist of particles that are less than 100 nanometers in diameter
and contain only a few thousand or tens of thousands of atoms, rather than the
millions or billions of atoms in particles of most conventional materials. Most
solid materials, such as ceramics and metals, are crystalline in nature, i.e.,
they consist of microscopic particles, or crystals, in which the atoms or
molecules are stacked in orderly patterns. The attributes of a crystalline
material, including strength, flexibility, color and electronic conductivity,
depend upon the shape and size of the material's individual crystals, the
organization of atoms in the individual crystals, and the relationships and
interactions among the crystals. In contrast to particles of conventional
materials, including other commercially produced nanocrystalline materials, the
particles of the Company's nanocrystalline materials are (i) nearly spherical,
(ii) virtually free of chemical residues, (iii) uniformly small, (iv) not
strongly agglomerated, and (v) easily engineered. The Company believes that
this combination of properties enables the Company to engineer materials that
are superior to conventional materials and establish new standards for a range
of high-performance commercial applications.
The Company has developed technologies for the engineering and
high-volume production of nanocrystalline materials that it believes are
superior to the traditional methods employed by other manufacturers of similar
materials. At the core of the Company's technologies is its proprietary
physical-vapor-syntheses ("PVS") process, which enables the Company to produce
significant quantities of high-quality nanocrystalline materials. The Company
also has developed related technologies to further enhance the materials
produced by its PVS process. The Company's proprietary
discrete-particle-encapsulation ("DPE") process, which completely coats each
individual nanocrystalline particle, can alter or enhance the optical, chemical
and electronic behavior of particles and prevent agglomeration. The Company
also has developed a proprietary net-shaping technology which enables the
Company rapidly to fabricate dimensionally-precise, high-tolerance structural
ceramic components without costly machining.
To take advantage of the broad potential applicability of
nanocrystalline materials, the Company has adopted a strategy to develop a
variety of value-added applications in targeted industries where the potential
for future growth is substantial. The Company intends to establish itself as
the leading manufacturer of nanocrystalline materials for these targeted
applications by continuously enhancing its technologies, product applications
and customer base. Specific elements of the Company's business strategy include
the following:
- Target Innovative Commercial Applications. The Company
identifies and pursues commercial applications where the
value-added benefits of its nanocrystalline materials and
technologies (i) represent breakthrough capabilities, (ii)
are substantial and demonstrable, (iii) are not achievable
with conventional materials, and (iv) offer the Company the
potential for long-term market leadership and sustainable
revenues.
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<PAGE> 6
- Establish Strategic Relationships with Marquee Customers.
Nanophase targets customers who are leaders in their
industries because it believes that such customers (i) are
technologically innovative, (ii) will support product
development and (iii) will require a long-term supply of
superior products in order to maintain their competitive
advantages.
- Expand Product Applications and Broaden the Customer Base.
After developing nanocrystalline materials and product
applications for a customer, the Company seeks to broaden its
relationship with that customer by identifying additional
opportunities for the Company's nanocrystalline materials and
technologies, and seeks to identify other potential customers
in that market or other markets that can benefit from
derivative materials and technologies that do not require
significant re-engineering.
- Maintain Technical and Commercial Leadership. The Company
intends to maintain its status as a leader in the nanocrystal
line materials field through concentrated research and
development efforts, and by continuing to attract top
scientists and engineers.
Nanophase's principal production and research facility is located in
Burr Ridge, Illinois, a suburb of Chicago. The facility has the capacity to
produce approximately 100 tons of nanocrystalline materials per year, depending
on the product mix. The Company's operations in Burr Ridge are registered under
ISO 9001 standards, and the manufacturing operations are compliant with the
current Good Manufacturing Practices ("cGMP") requirements of the U.S. Food and
Drug Administration ("FDA").
Nanophase was incorporated in Illinois on November 30, 1989, and will
be reincorporated in Delaware not later than the effective date of this
offering. Nanophase's principal executive offices are located at 453 Commerce
Street, Burr Ridge, Illinois 60521 and its telephone number is (630) 323-1200.
THE OFFERING
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Common Stock offered by the Company........................... __________ shares
Common Stock to be outstanding after this offering............ __________ shares (1)
Use of proceeds............................................... For the expansion of manufacturing facilities,
additional operating equipment, working capital and
general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol........................ NTCO
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- ------------------
(1) Does not include (i) __________ shares of Common Stock issuable upon the
exercise of outstanding warrants, (ii) _______________ shares of Common
Stock issuable upon the exercise of outstanding options and (iii) ________
shares of Common Stock reserved for issuance upon the
exercise of options that may be granted in the future under the Nanophase
Technologies Corporation Stock Option Plan (the "Stock Option Plan"). See
"Management--Stock Option Plan" and "Description of Capital Stock."
5
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SUMMARY FINANCIAL DATA
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<CAPTION>
CUMULATIVE FROM
INCEPTION
(NOVEMBER 30,
YEARS ENDED DECEMBER 31, 1989) TO
--------------------------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
---------- ---------- ----------- ----------- ----------- ---------------
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Statement of Operations Data:
Commercial revenue....................$ 20,006 $ 25,265 $ 31,144 $ 93,591 $ 485,036 $ 655,042
Grant revenue......................... 336,509 440,967 288,271 182,705 110,770 1,652,054
---------- ---------- ----------- ----------- ----------- ---------------
Total revenue....................... 356,515 466,232 319,415 276,296 595,806 2,307,096
Cost of revenue....................... 326,541 502,945 389,002 686,834 4,019,484 6,181,889
Research and development expense...... 29,638 143,362 456,162 485,059 677,284 1,825,986
Selling, general and administrative
expense............................. 366,378 556,616 799,558 1,150,853 1,661,504 5,295,677
Other income, net..................... 10,191 7,022 37,535 86,576 184,778 324,255
---------- ---------- ----------- ----------- ----------- ---------------
Net loss..............................$ (355,851) $ (729,669) $(1,287,772) $(1,959,874) $(5,577,688) $ (10,672,201)
========== ========== =========== =========== =========== ===============
Pro forma net loss per share (1)......
===========
Shares used in computing the pro forma
net loss per share (1)..............
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DECEMBER 31, 1996
---------------------------
ACTUAL AS ADJUSTED (2)
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Balance Sheet Data:
Cash and cash equivalents........................................ $ 617,204
Working capital.................................................. 3,070,789
Total assets..................................................... 5,539,634
Total stockholders' equity....................................... 5,110,450
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(1) Includes the dilutive effect (equivalent to __________ shares) of options
issued to employees and a consultant during 1996, __________ shares of
Common Stock to be issued upon the Preferred Stock Conversion and the
___-for-one stock split. Does not include as of December 31, 1996
(i) __________ shares of Common Stock issuable upon the exercise of
outstanding warrants, (ii) ___________ shares of Common Stock issuable
upon the exercise of outstanding options and (iii) _______________ shares
of Common Stock reserved for issuance upon the exercise of options that
may be granted in the future under the Stock Option Plan. See
"Management--Stock Option Plan" and "Description of Capital Stock."
(2) As adjusted to give effect to the Preferred Stock Conversion and the sale
of ____________ shares of Common Stock offered hereby at an assumed
initial public offering price of $_____ per share, after deducting
estimated underwriting discounts and commissions and offering expenses as
described in "Use of Proceeds."
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk and immediate and substantial dilution and should only be
made by persons who can afford a loss of their entire investment. In evaluating
an investment in the Common Stock being offered hereby, investors should
consider carefully, among other matters, the following risk factors, as well as
the other information contained in this Prospectus.
DEVELOPMENT STAGE OF THE COMPANY; UNCERTAIN MARKET ACCEPTANCE OF THE COMPANY'S
NANOCRYSTALLINE MATERIALS
The Company was founded in November 1989 and to date has been engaged
principally in research and development activities. While the Company recently
commenced marketing certain nanocrystalline materials, it is in the early stage
of commercialization and its potential product applications are in various
stages of development or under evaluation. As a result, the Company's
nanocrystalline materials have been sold only in limited quantities, generally
for testing and evaluation purposes, and there can be no assurance that a
significant market will develop for such materials. The Company's current and
potential commercial customers establish demanding specifications for
performance and reliability. Although the products incorporating the Company's
nanocrystalline materials have passed certain product performance and
reliability testing by certain current and potential customers, there can be no
assurance that the Company's nanocrystalline materials will continue to pass
such tests in the future, meet future customer performance standards, or offer
sufficient price or performance advantages as required to achieve commercial
success. The Company's failure to develop, manufacture and commercialize
nanocrystalline materials on a timely and cost-effective basis would have a
material adverse effect on the Company's business, results of operations and
financial condition. Because the Company's materials are used as ingredients
in, or components of, other companies' products, the inability of the Company's
customers to achieve market acceptance with respect to end-users of their
products or successfully to manufacture their products could also have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business."
LIMITED OPERATING HISTORY; HISTORY OF LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
Substantially all of the Company's revenues to date have been derived from
government-funded research grants, development contracts and sales of
nanocrystalline products for customer evaluation. The Company has not yet
shipped significant amounts of its materials for commercial use and there can
be no assurance that the Company's nanocrystalline materials will generate
significant revenues from commercial applications. Accordingly, the Company has
only a limited operating history upon which an evaluation of the Company and
its prospects can be based. An investment in the Company must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in the early stages of development.
The Company has incurred net losses in each year since its inception,
and as of December 31, 1996, had an accumulated deficit of $10,672,201. The
Company expects to continue to incur operating losses over at least the next 24
months and may incur losses thereafter. Commercial development of the Company's
nanocrystalline materials will require the commitment of substantial resources
to continuing research and development, establishment of additional
commercial-scale manufacturing facilities, and further development of quality
control, marketing, sales, service and administrative capabilities. The
Company's ability to achieve profitability will depend on many factors,
including the Company's ability to enter into collaborative customer
relationships and the Company's ability, alone or with its customers, to
develop, manufacture, introduce and market commercially acceptable products
based on the Company's nanocrystalline materials and proprietary processes.
There can be no assurance that significant quantities of the Company's
nanocrystalline materials or their product applications will be manufactured,
introduced or marketed successfully, or that the Company will ever achieve a
profitable level of operations or, if
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profitability is achieved, that it can be sustained. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
LIMITED MANUFACTURING CAPACITY AND EXPERIENCE
The Company's success will depend, in part, on its ability to
manufacture its nanocrystalline materials in significant quantities, with
consistent quality, at acceptable cost and on a timely basis. The Company has
limited experience in high-volume manufacturing, and may incur significant
start-up costs and unforeseen expenses in connection with attempts to
manufacture substantial quantities of nanocrystalline materials. In addition,
the Company will need to expand its current facilities or obtain additional
facilities in the near future in order to manufacture substantial quantities of
its products. No assurance can be given that the Company will be able to make
the transition to high-volume production successfully. The Company's primary
operations, including research, engineering, manufacturing, marketing,
distribution and general administration, are housed in a single facility in
Burr Ridge, Illinois. Any material disruption in the Company's operations,
whether due to fire, natural disaster, power loss or otherwise, could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business--Manufacturing and Facilities."
While most of the Company's product applications involve the Company
producing materials which are to be used as ingredients in other companies'
products, the Company's net-shaping applications require the Company to produce
finished components. The Company currently is not capable of producing ceramic
finished components in commercial volume and is in the process of determining
whether it will develop an in-house capability to fabricate net-shaped
components or establish manufacturing arrangements with third parties. There
can be no assurance that the Company will be able to fabricate its net-shaped
components internally or that it will be able to enter into third-party
arrangements on satisfactory terms. See "Business--Manufacturing and
Facilities."
RELIANCE ON COLLABORATIVE DEVELOPMENT RELATIONSHIPS
The Company has established, and will continue to pursue,
collaborative relationships with a variety of corporate customers. Through such
relationships, the Company seeks to develop applications for the Company's
nanocrystalline materials, share development and manufacturing resources and
coordinate the development, manufacturing, commercialization and marketing of
nanocrystalline product applications. The Company's future success will depend,
in part, on its continued relationships with these customers, its ability to
enter into similar collaborative relationships, the commitment of the Company's
customers to the potential product applications under development and,
eventually, the customers' success in marketing, or willingness to purchase the
Company's nanocrystalline materials for, such product applications. There can be
no assurance that the Company's customers will not seek to manufacture jointly
developed products internally or obtain them from alternative sources. These
customers may require the Company to share control of its development,
manufacturing and marketing programs, limit its ability to license its
technology to others, or restrict its ability to engage in certain product
development, manufacturing and marketing activities. These relationships may
also be subject to unilateral termination by the Company's customers. If the
Company is unable to initiate or sustain such collaborative relationships, there
can be no assurance that the Company will be able independently to develop,
manufacture, market or sell its current and future nanocrystalline materials or
their product applications. The failure of the Company to initiate or sustain
such collaborative relationships would have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Customers and Applications."
DEPENDENCE ON PATENTS AND PROTECTION OF PROPRIETARY INFORMATION
The Company's success will depend, in part, on its ability to obtain
patent protection for its nanocrystalline materials and processes, to preserve
its trade secrets, and to operate without infringing the patent or other
proprietary rights of others and without breaching or otherwise losing rights
in the
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technology licenses upon which any of the Company's products are based. The
Company has been granted two United States patents, has filed three
applications for other United States patents and licenses eleven patents held
by others. No assurance can be given that the patent applications filed by the
Company will result in issued patents or that the scope and breadth of any
claims allowed in any patents issued to the Company or its licensors will
exclude competitors or provide competitive advantages to the Company. In
addition, there can be no assurance that any patents issued to the Company or
its licensors will be held valid if subsequently challenged or that others will
not claim rights in the patents and other proprietary technology owned or
licensed by the Company, or that others have not developed or will not develop
similar products or technologies without violating any of the Company's
proprietary rights. The Company's inability to obtain patent protection,
preserve its trade secrets or operate without infringing the proprietary rights
of others, as well as the Company's loss of any license to technology that it
now has or acquires in the future, would have a material adverse effect on the
Company's business, results of operations and financial condition.
Patent applications in the United States are currently maintained in
secrecy until patents issue, and patent applications in foreign countries are
maintained in secrecy for a period of time after filing. Accordingly,
publication of discoveries in the scientific literature or of patents
themselves or laying open of patent applications in foreign countries tends to
lag behind actual discoveries and filings of related patent applications. Due
to this factor and the large number of patents and patent applications related
to nanocrystalline materials, comprehensive patent searches and analysis
associated with nanocrystalline materials are often impractical or not
cost-effective. Therefore, there can be no assurance that the Company's patent
and publication searches have been comprehensive, or that materials or
processes used by the Company for its planned products do not or will not
infringe upon existing technology described in United States patents or will
not infringe upon claims of patent applications of others in the future.
Because of the volume of patents issued and patent applications filed relating
to nanocrystalline materials, there is a significant risk that current and
potential competitors and other third parties have filed or will file patent
applications for, or have obtained or will obtain patents or other proprietary
rights relating to, materials or processes used or proposed to be used by the
Company. In any such case, to avoid an infringement, the Company would have to
either license such technology or design around any such patents. There can be
no assurance that the Company will be able either to successfully design around
these third-party patents or obtain licenses to such technology or that, if
obtainable, such licenses would be available on terms acceptable to the
Company.
Litigation, which could result in substantial cost to, and diversion
of effort by, the Company, may be necessary to enforce patents issued or
licensed to the Company, to defend the Company against infringement claims made
by others, or to determine the ownership, scope or validity of the proprietary
rights of the Company and others. An adverse outcome in any such litigation
could subject the Company to significant liabilities to third parties, require
the Company to seek licenses from third parties, and/or require the Company to
cease using certain technology, any of which could have a material adverse
effect on the Company's business, results of operations and financial
condition. The Company may also become involved in interference proceedings
declared by the United States Patent and Trademark Office ("PTO") in connection
with one or more of the Company's owned or licensed patents or patent
applications to determine priority of invention. Any such proceeding could
result in substantial cost to the Company, as well as a possible adverse
decision as to priority of invention of the patent or patent application
involved. In addition, the Company may become involved in reissue or
reexamination proceedings in the PTO in connection with the scope or validity
of the Company's owned or licensed patents. Any such proceeding could have a
material adverse effect on the Company's business, results of operations and
financial condition, and an adverse outcome in such proceeding could result in
a reduction of the scope of the claims of any such patents or such patents
being declared invalid. In addition, from time to time, to protect its
competitive position, the Company may initiate reexamination proceedings in the
PTO with respect to patents owned by others. Such proceedings could result in
substantial cost to, and diversion
9
<PAGE> 11
of effort by, the Company, and an adverse decision in such proceedings could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company also relies on trade secrets and proprietary know-how in
the conduct of its business and uses employee and third-party confidentiality
and non-disclosure agreements to protect such trade secrets and know-how. There
can be no assurance that the obligation to maintain the confidentiality of such
trade secrets or proprietary information will not wrongfully be breached by
employees, consultants, advisors or others, that the Company will have adequate
remedies for any breach, or that the Company's trade secrets or proprietary
know-how will not otherwise become known or be independently developed or
discovered by third parties. In addition, because the Company's employees have
not entered into noncompetition agreements with the Company, they may become
competitors of the Company upon termination of employment. See
"Business--Intellectual Property and Proprietary Rights."
RAPID TECHNOLOGICAL CHANGE
Rapid changes have occurred, and are likely to continue to occur, in
the development of advanced materials and processes. The future success of the
Company will depend, in large part, upon its ability to keep pace with advanced
materials technologies, industry standards and market trends and to develop and
introduce new and improved products on a timely basis. The Company will require
substantial resources to expand its commercial manufacturing capacity, further
develop its technologies and develop and introduce innovative product
applications. There can be no assurance that the Company's development efforts
will not be rendered obsolete by the research efforts and technological
advances of others or that other advanced materials will not prove more
advantageous than those produced by the Company.
LIMITED MARKETING EXPERIENCE; RELIANCE ON DISTRIBUTION AGREEMENTS
The Company has limited experience marketing and selling its products.
To market its nanocrystalline materials directly, the Company will be required
to develop a marketing and sales force that can effectively demonstrate the
advantages of its nanocrystalline product applications compared to competitive
products containing conventional or advanced materials. The Company currently
has arrangements for distribution of certain of its nanocrystalline materials
and expects to enter into additional distribution or other arrangements with
third parties regarding the commercialization or marketing of its materials.
The Company's future success will depend in part on its continued relationships
with distributors, its ability to enter into other similar distribution
arrangements, the continuing interest of the Company's distributors in current
and potential product applications and, eventually, the distributors' success
in marketing, or willingness to purchase, any of the Company's nanocrystalline
materials. There can be no assurance that the Company will be successful in its
marketing efforts, that it will be able to establish adequate sales and
distribution capabilities, that it will be able to enter into or maintain
marketing and distribution arrangements with third parties on financially
acceptable terms, or that any third parties with whom it enters into such
arrangements will be successful in marketing the Company's products. See
"Business--Customers and Applications" and "--Marketing."
COMPETITION
The advanced materials industry is highly competitive. The market for
materials having the characteristics and potential uses of the Company's
nanocrystalline materials is the subject of intensive research and development
efforts by both governmental entities and private enterprises around the world.
The Company believes that the level of competition will increase further as
more product applications with significant commercial potential are developed.
The nanocrystalline product applications being developed by the Company will
compete directly with products incorporating conventional and advanced
materials and technologies. While the Company is not currently aware of the
existence of commercially available competitive products with the same
attributes as those offered by the Company, there can be
10
<PAGE> 12
no assurance that such competitive products will not be introduced by third
parties, or that competing materials based on different or new technologies may
not become commercially available. There can be no assurance that the Company's
competitors will not succeed in developing or marketing materials, technologies
and products that exhibit superior performance, are more commercially desirable
or are more cost effective than those developed or marketed by the Company. In
addition, many potential competitors of the Company have substantially greater
financial and technical resources, larger research and development staffs, and
greater manufacturing and marketing capabilities than the Company. Failure of
the Company's current and potential nanocrystalline product applications to
improve performance sufficiently at an acceptable price, achieve commercial
acceptance or otherwise compete with conventional materials would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business--Competition."
FUTURE CAPITAL NEEDS
The Company believes that funds from operations, cash on hand and
investments, together with the net proceeds of this offering, will be adequate
to fund the Company's current operating plans for approximately 18 months. The
Company believes that its future capital requirements will depend, however, on
many factors, including continued progress in its research and development and
product testing programs, the magnitude of these programs, the costs necessary
to increase the Company's manufacturing capabilities and to market any
resulting materials and product applications, and customer acceptance of the
Company's current and potential materials and product applications. Additional
factors that may affect the Company's future capital requirements are the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patents
and other proprietary rights or in obtaining licenses, the ability of the
Company to establish collaborative relationships, and the amount and timing of
future revenues. Depending on its requirements, the Company may seek additional
funding through public or private financing, collaborative relationships,
government contracts or licensing agreements. There can be no assurance that
such additional financing will be available on acceptable terms or at all. If
adequate funds are not available on acceptable terms, the Company may be
required to delay, scale-back or eliminate manufacturing and marketing of one
or more of its materials or product applications or research and development
programs, or to obtain funds through arrangements with customers or others that
may require the Company to relinquish rights to certain of its technologies or
nanocrystalline materials that the Company would not otherwise relinquish.
Inadequate funding also could impair the Company's ability to compete in the
marketplace and could result in its dissolution. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend, in large part, upon its ability to
attract and retain highly qualified research and development, management,
manufacturing and marketing and sales personnel. Due to the specialized nature
of the Company's business, it may be difficult to locate and hire qualified
personnel, and to retain such personnel once hired. The loss of the services of
any of the Company's executive officers or other key personnel, or the failure
of the Company to attract and retain other skilled and experienced personnel on
acceptable terms, could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management."
PRODUCT LIABILITY RISKS
The Company may be subject to product liability claims in the event
that any of its nanocrystalline product applications are alleged to be
defective or cause harmful effects. Because the Company's nanocrystalline
materials are used as ingredients in, or components of, other companies'
products, to the extent certain of the Company's customers become subject to
claims, suits or complaints relating to their products, such as medical
implants and cosmetic and skin-care products, there can be no assurance that
such claims will not be asserted against the Company. The Company currently
does not
11
<PAGE> 13
maintain separate insurance coverage for product liability claims. The cost of
defending or settling product liability claims may be substantial and there can
be no assurance that the Company could do so on acceptable terms or that such
claims, if successful or settled, would not have a material adverse effect on
the Company's business, results of operations and financial condition.
INTERNATIONAL SALES
In 1996, 43% of the Company's total revenues were derived from product
sales and development agreements with international customers, and the Company
expects that it will continue to derive a substantial percentage of revenues
from international customers in the future. There can be no assurance that the
Company will be able successfully to market, sell and deliver its
nanocrystalline materials in international markets. In addition, there are
certain risks inherent in conducting international business, including exposure
to currency fluctuations, longer payment cycles, greater difficulties in
accounts receivable collection, political instability, difficulties in
complying with a variety of foreign laws and unexpected changes in regulatory
requirements. There can be no assurance that one or more of such factors will
not have a material adverse effect on the Company's business, results of
operations and financial condition.
GOVERNMENTAL REGULATIONS
The Company's coating facility, which is located in Chicago, is a
"small quantity generator" of hazardous materials under the Federal Resource
Conservation and Recovery Act ("RCRA") and, as a result, is subject to
stringent federal, state and local regulations governing the handling, storage
and disposal of such materials. It is possible that current or future laws and
regulations could require the Company to make substantial expenditures for
preventive or remedial action, reduction of chemical exposure or waste
treatment or disposal. There can be no assurance that the Company's operations,
business or assets will not be materially and adversely affected by the
interpretation and enforcement of current or future environmental laws and
regulations. In addition, although management believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the Company's coating
operations do pose a risk of accidental contamination or injury. To date, the
Company has not been required to make substantial expenditures for preventive
or remedial action with respect to the hazardous materials it generates. The
damages in the event of an accident or the costs of such preventive or remedial
actions could exceed the Company's resources or otherwise have a material
adverse effect on the Company's business, results of operations and financial
condition.
In addition, both of the Company's facilities and all of its
operations are subject to the plant and laboratory safety requirements of
various occupational safety and health laws. The Company believes it has
complied in all material respects with regard to governmental regulations
applicable to it. There can be no assurance, however, that the Company will
continue to comply with applicable government regulations or that such
regulations will not materially restrict or impede the Company's operations in
the future.
The manufacture and use of certain products which contain the
Company's nanocrystalline materials are subject to governmental regulation. As
a result, the Company is required to adhere to the cGMP requirements of the FDA
and similar regulations in other countries which include testing, control and
documentation requirements enforced by periodic inspections. Such regulations
can increase the Company's cost of doing business and/or render certain
potential markets prohibitively expensive. See "Business--Governmental
Regulations."
12
<PAGE> 14
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced, and expects to continue to experience,
quarterly fluctuations in its results of operations as a result of a variety of
factors, including the timing and amount of expenses associated with expansion
of the Company's operations, the timing of collaborative relationships with, and
performance of, customers, the timing of new product application offerings,
changes in the Company's revenue mix among its product application offerings,
and changes in the mix between pilot production of new nanocrystalline
materials and full-scale manufacturing of existing nanocrystalline materials.
The Company does not currently have any significant backlog of orders and the
timing of revenues will therefore depend upon the amount and timing of new
orders received for its nanocrystalline materials.
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; DETERMINATION OF OFFERING PRICE;
POSSIBLE VOLATILITY OF COMMON STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
or be sustained after this offering. The initial public offering price for the
Common Stock will be determined by negotiations between the Company and the
Underwriters based upon several factors and may not be indicative of the price
that may prevail in the public market. The stock market has from time to time
experienced significant price and volume fluctuations that may be unrelated to
the operating performance of any particular company. In particular, there has
been significant volatility in the market price of securities of other
technology companies, particularly those that, like the Company, are still
primarily engaged in product development activities. Factors such as
announcements of technology innovations and new product applications by the
Company or its competitors, disputes relating to patents and proprietary
rights, changes in financial estimates by securities analysts, failure to meet
earnings expectations of the market or of analysts, general market conditions
and fluctuations in quarterly operating results may have a significant impact
on the market price of the Common Stock. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Any such
litigation initiated against the Company could result in substantial costs and
a diversion of management's attention and resources, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Underwriting."
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION AND BYLAW PROVISIONS
Upon consummation of this offering and the Preferred Stock Conversion,
the Company's Board of Directors will have the authority to issue up to
13,000,000 shares of undesignated preferred stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the Company's stockholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that
may be issued in the future. The issuance of preferred stock, while providing
desirable flexibility in connection with possible financings, acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue such shares of preferred
stock. Further, certain provisions of the Company's Certificate of
Incorporation and Bylaws and of Delaware law could delay or make more difficult
a merger, tender offer or proxy contest involving the Company. See "Description
of Capital Stock--Preferred Stock" and "--Certain Corporate Provisions."
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock. Upon consummation of this offering, the
Company will have a total of ____________ shares of Common Stock outstanding,
of which the __________ shares offered hereby will be eligible for immediate
sale in the public market
13
<PAGE> 15
without restriction unless they are held by "affiliates" of the Company within
the meaning of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining ______________ shares of Common Stock
outstanding upon completion of this offering will be "restricted securities"
within the meaning of Rule 144 under the Securities Act (the "Restricted
Shares") and ______________ of such Restricted Shares are subject to lock-up
agreements under which the holders of such shares have agreed that they will
not, directly or indirectly, sell or otherwise dispose of any Common Stock for
180 days after the date of this offering without the prior written consent of
Furman Selz LLC ("Furman Selz"). An additional _____________ Restricted Shares
of Common Stock are issuable upon exercise of warrants issued to certain of the
Company's existing stockholders (all of which are currently exercisable) and
____________ shares of Common Stock are issuable at various dates upon exercise
of options heretofore granted to certain employees, officers and consultants of
the Company pursuant to stock option agreements. Upon expiration of the lock-up
agreements (or earlier upon the consent of Furman Selz), _____________ of the
currently outstanding Restricted Shares will be eligible for sale under Rule
144, subject to volume and other limitations of such rule. An additional
_________________ Restricted Shares will then be eligible for sale without any
volume or other limitations pursuant to Rule 144(k). Subject to the lock-up
agreements, the holders of ____________ Restricted Shares of Common Stock and
an aggregate of _________________ shares of Common Stock issuable upon exercise
of the warrants also have been accorded registration rights under the
Securities Act. No prediction can be made as to the effect, if any, that future
sales of shares, or the availability of shares for future sales, will have on
the market price of the Common Stock from time to time or the Company's ability
to raise capital through an offering of its equity securities. See "Description
of Capital Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
DILUTION AND DIVIDEND POLICY
The initial public offering price of the Common Stock offered hereby
is substantially higher than the net book value of the currently outstanding
Common Stock. Therefore, purchasers of the Common Stock offered hereby will
experience immediate and substantial dilution in the net tangible book value of
the Common Stock. The Company has never paid a cash dividend on its Common
Stock and does not expect to pay dividends in the foreseeable future. See
"Dilution" and "Dividend Policy."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the ______________
shares of Common Stock offered hereby, at an assumed initial public offering
price of $_____ per share, are estimated to be approximately $______________
($________________ if the Underwriters' over-allotment option is exercised in
full), after deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company.
The Company currently intends to use the net proceeds for the
expansion of its manufacturing facilities, additional operating equipment,
working capital and general corporate purposes. The working capital purposes
for which the proceeds of this offering will be used include, among other uses,
funding the Company's operations in general and, in particular, expenditures
for product development and marketing. The Company may from time to time seek
to acquire complementary businesses, products, services or technologies. The
Company may use a portion of the net proceeds for one or more of such
transactions, although the Company has no current plans or agreements with
respect to any such transaction. The exact cost, timing and amount of funds
required for specific uses by the Company cannot be precisely determined at
this time. Pending such uses, the Company intends to invest the net proceeds of
this offering in short-term, investment grade, interest-bearing obligations.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its
Common Stock and does not anticipate paying cash dividends or other
distributions on its Common Stock in the foreseeable future, but intends
instead to retain any future earnings for reinvestment in its business. Any
future determination to pay cash dividends will be at the discretion of the
Company's Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital requirements and such other factors
as the Company's Board of Directors deems relevant.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth as of December 31, 1996, the Company's
(i) actual capitalization and (ii) adjusted capitalization to reflect the
Preferred Stock Conversion and the sale by the Company of __________ shares of
Common Stock offered hereby at an assumed initial public offering price of
$____ per share after deducting estimated underwriting discounts and
commissions and expenses of this offering and the application of the net
proceeds therefrom as described under "Use of Proceeds." 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 financial
statements and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
ACTUAL AS ADJUSTED
-------------- ---------------
<S> <C>
Stockholders' equity
Preferred Stock, no par value, ____________ shares authorized;
_____________ shares issued and outstanding, actual; $.01 par value,
no shares issued and outstanding, as adjusted (1)....................... $ 15,782,201 $ --
Common Stock, no par value, ______________ shares authorized; __________
shares issued and outstanding, actual; $.01 par value,
__________ shares issued and outstanding, as adjusted (2)............... 450
Additional paid-in capital................................................ --
Accumulated deficit....................................................... (10,672,201) (10,672,201)
-------------- ---------------
Total stockholders' equity and capitalization........................... $ 5,110,450 $
============== ===============
</TABLE>
- ------------------
(1) Pursuant to the Preferred Stock Conversion, _______________ shares of
Preferred Stock will be converted into ____________ shares of Common
Stock.
(2) Does not include as of December 31, 1996 (i) _____________ shares of
Common Stock issuable upon the exercise of outstanding warrants with an
exercise price of $_____ per share, (ii) _____________ shares of Common
Stock issuable upon the exercise of outstanding options at an average
exercise price of $_____ per share and (iii) _______ shares of Common
Stock reserved for issuance upon the exercise of options that may be
granted in the future under the Stock Option Plan. See "Management--Stock
Option Plan," "Description of Capital Stock" and Note 12 of Notes to the
Financial Statements.
16
<PAGE> 18
DILUTION
The net tangible book value of the Company as of December 31, 1996,
after giving effect to the ____-for-one stock split and the Preferred Stock
Conversion, was approximately $4,944,436 or $__________ per share of Common
Stock. Net tangible book value per share represents the amount of total
tangible assets of the Company reduced by the amount of its total liabilities
and divided by the total number of shares of Common Stock outstanding. After
giving effect to the sale of the _______________ shares of Common Stock offered
hereby at an assumed initial public offering price of $_____ per share, and
after deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company, the pro forma net tangible book value of the
Company as of December 31, 1996 would have been approximately $__________, or
$__________ per share of Common Stock. This represents an immediate increase in
net tangible book value of $__________ per share to existing stockholders and
an immediate dilution of $__________ per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share.................... $
Net tangible book value per share before this offering........... $
Increase in net tangible book value per share
attributable to new investors..................................
------- -----------
Pro forma net tangible book value per share
after this offering..............................................
-----------
Dilution per share to new investors................................ $
===========
</TABLE>
The following table summarizes, on a pro forma basis as of December
31, 1996, the difference between the existing stockholders and new investors
with respect to the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid (before deducting estimated underwriting discounts and commissions
and offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------------ ------------------------------ AVERAGE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... % $ % $
New investors.................. % %
-------------- ------------- -------------- -------------
Total........................ 100.0% $ 100.0%
============== ============= ============== =============
</TABLE>
The foregoing calculations do not give effect to, as of December 31,
1996, (i) ______ shares of Common Stock issuable upon the exercise of
outstanding warrants at an exercise price of $_____ per share, (ii) ___________
shares of Common Stock issuable upon the exercise of outstanding options at an
average exercise price of $_____ per share and (iii) ______ shares of Common
Stock reserved for issuance upon the exercise of options that may be granted in
the future under the Stock Option Plan. To the extent any such options and
warrants are exercised, there will be further dilution to new investors. See
"Capitalization," "Management--Stock Option Plan," "Description of Capital
Stock" and Note 12 of Notes to the Financial Statements.
17
<PAGE> 19
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to,
and should be read in conjunction with, the financial statements and related
notes thereto appearing elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected statement of operations data set forth below for the period from
inception (November 30, 1989) through December 31, 1996 and for the years ended
December 31, 1994, 1995 and 1996 and the balance sheet data as of December 31,
1995 and 1996 are derived from the audited financial statements of the Company,
which are included elsewhere in this Prospectus. The selected statement of
operations data for the years ended December 31, 1992 and 1993 and the balance
sheet data as of December 31, 1992, 1993 and 1994 are derived from audited
financial statements of the Company which are not included in this Prospectus.
<TABLE>
<CAPTION>
CUMULATIVE
FROM
INCEPTION
(NOVEMBER 30,
YEARS ENDED DECEMBER 31, 1989) TO
----------------------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
---------- --------- ---------- ----------- ---------- --------------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Commercial revenue................... $ 20,006 $ 25,265 $ 31,144 $ 93,591 $ 485,036 $ 655,042
Grant revenue........................ 336,509 440,967 288,271 182,705 110,770 1,652,054
---------- --------- ---------- ----------- ---------- ------------
Total revenue...................... 356,515 466,232 319,415 276,296 595,806 2,307,096
Cost of revenue...................... 326,541 502,945 389,002 686,834 4,019,484 6,181,889
Research and development expense..... 29,638 143,362 456,162 485,059 677,284 1,825,986
Selling, general and administrative
expense............................ 366,378 556,616 799,558 1,150,853 1,661,504 5,295,677
---------- --------- ---------- ----------- ---------- ------------
Total operating expense............ 722,557 1,202,923 1,644,722 2,322,746 6,358,272 13,303,552
---------- --------- ---------- ----------- ---------- ------------
Operating expense in excess of
revenue............................ (366,042) (736,691) (1,325,307) (2,046,450) (5,762,466) (10,996,456)
Other income, net.................... 10,191 7,022 37,535 86,576 184,778 324,255
---------- --------- ---------- ----------- ---------- ------------
Net loss........................... $ (355,851) $(729,669) $(1,287,77) $(1,959,874) $(5,577,68) $(10,672,201
========== ========= ========== =========== ========== ============
Pro forma net loss per share (1).....
Shares used in computing the pro
forma net loss per share (1).......
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- -----------------------
AS
ACTUAL ADJUSTED (2)
---------- -----------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents...........$ 70,652 $ 225,230 $ 18,462 $ 261,902 $ 617,204 $
Working capital..................... 184,881 225,988 2,226,184 2,451,627 3,070,789
Total assets........................ 377,042 406,238 2,568,691 3,741,128 5,539,634
Total stockholders' equity.......... 334,603 348,434 2,456,516 3,506,050 5,110,450
</TABLE>
- ------------------
(1) Includes the dilutive effect (equivalent to __________ shares) of options
issued to employees and a consultant during 1996, __________ shares of
Common Stock to be issued upon the Preferred Stock Conversion and the
___-for-one stock split. Does not include as of December 31, 1996 (i)
_______________ shares of Common Stock issuable upon the exercise of
outstanding warrants, (ii) _______________ shares of Common Stock issuable
upon the exercise of outstanding options and (iii) __________ shares of
Common Stock reserved for issuance upon the exercise of options that may
be granted in the future under the Stock Option Plan. See
"Management--Stock Option Plan" and "Description of Capital Stock."
(2) As adjusted to give effect to the Preferred Stock Conversion and the sale
of ___________ shares of Common Stock offered hereby at an assumed initial
public offering price of $____ per share after deducting estimated
underwriting discounts and commissions and offering expenses as described
in "Use of Proceeds."
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Selected Financial Data and financial statements and related notes
thereto appearing elsewhere in this Prospectus. When used in the following
discussions, the words "believes," "anticipates," "intends," "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, including, but not
limited to, those set forth in "Risk Factors," which could cause actual results
to differ materially from those projected. Readers are cautioned not to place
undue reliance on forward-looking statements, which speak only as of the date
hereof.
OVERVIEW
Since its inception in November 1989, Nanophase has been in the
development stage. To date, the Company has focused primarily on the
development of its manufacturing processes in order to accelerate its
transition from laboratory-scale to commercial-scale production. This focus has
resulted in the Company's current capacity to produce significant quantities of
its nanocrystalline materials for commercial sale. The Company has also been
engaged in developing commercial applications and formulations and recruiting
marketing, technical and administrative personnel. The Company has primarily
been capitalized through the private placement of approximately $15,782,000 of
equity securities, net of issuance costs. From inception through December 31,
1996, the Company has also generated revenues of approximately $1,652,000 from
government-funded programs and approximately $655,000 from commercial sources.
During 1996, the Company began emerging from the development stage and
significantly increased its commercial revenues. The Company also began to
scale-up operations in its Burr Ridge manufacturing facility and is now
producing significant quantities of its nanocrystalline materials. The
Company's operating expenses increased substantially as a result of certain
one-time costs associated with the scale-up of operations in anticipation of
increased commercial sales.
RESULTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
Commercial revenue increased to $485,036 in 1996, compared to $93,591
in 1995 and $31,144 in 1994. This increase in commercial revenue was due
primarily to increased acceptance of the commercial potential of the Company's
products. Grant revenue decreased to $110,770 in 1996, compared to $182,705 in
1995 and $288,271 in 1994, because the Company de-emphasized the pursuit of
this revenue. Grant revenue from research-related contracts and cost-sharing
agreements is recorded when the defined reimbursable expenses are incurred by
the Company. Commercial revenue is recorded when products are shipped by the
Company.
Cost of revenue generally includes costs associated with commercial
production and costs of research and development related to grant and
development revenue. Cost of revenue increased to $4,019,484 in 1996, compared
to $686,834 in 1995 and $389,002 in 1994. The increase in cost of revenue for
1996 was generally a result of the scale-up of the Company's operations in
anticipation of increased commercial sales. Specifically, the Company increased
expenditures relating to product and process improvement activities. The
Company also incurred one-time costs in connection with the establishment of
its Chicago coating facility, extensive product development activities, the
scale-up of manufacturing operations, and the certification of its Burr Ridge
facility under ISO standards. The Company expects that cost of revenue will
exceed revenue through at least the end of 1997.
Research and development expense consists of costs associated with the
development of new product applications and coating formulations and the cost
of enhancing the Company's manufacturing
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<PAGE> 21
processes. Research and development expense increased to $677,284 in 1996,
compared to $485,059 in 1995 and $456,162 in 1994. The increase in research and
development expense was attributable primarily to the hiring of additional
research and development personnel, costs associated with the development and
evaluation of new product applications, and increased purchases and use of
research supplies. The Company expects to increase its research and development
expenditures during the next several years in connection with its plans to
continue to enhance and expand its product lines and manufacturing processes.
Selling, general and administrative expense increased to $1,661,504 in
1996, compared to $1,150,853 in 1995 and $799,558 in 1994. This increase was
attributable primarily to the hiring of additional marketing and administrative
personnel, an increase in selling expenses, and the increase in costs
associated with the establishment of the Company's corporate headquarters.
Selling, general and administrative expense is expected to increase
significantly in the next several years to support the Company's business
development efforts.
Interest income was $184,778 in 1996, compared to $86,576 in 1995 and
$37,535 in 1994. The increases have resulted from the Company's investment of
net proceeds from its sales of equity securities pending use of such proceeds
for the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash used in operating activities was $5,795,858 in
1996, compared to $1,860,353 in 1995 and $1,206,497 in 1994. The cash used in
1996 operations was primarily for the scale-up of manufacturing operations, for
development of products, and to fund research and development expenses. Net
cash used in investing activities, including capital expenditures and purchases
and sales of securities in which cash is invested pending its use for the
Company's operations, amounted to $951,806 in 1996, $905,615 in 1995 and
$2,396,125 in 1994. Capital expenditures amounted to $1,173,437 in 1996,
$937,956 in 1995 and $66,303 in 1994 and were primarily for leasehold
improvements and equipment purchases. Net cash provided by private placements
of equity securities was $7,182,088 in 1996, compared to $3,009,408 in 1995 and
$3,395,854 in 1994. As of December 31, 1996, the Company had cash, cash
equivalents and short term investments of $2,614,992.
The Company believes that funds from operations, cash on hand and
investments, together with the net proceeds of this offering, will be adequate
to fund the Company's current operating plans for approximately 18 months. The
Company believes that its actual future capital requirements will depend,
however, on many factors. Depending on future requirements, the Company may
seek additional funding through public or private financing, collaborative
relationships, government contracts or licensing agreements. There can be no
assurance that such additional financing will be available on acceptable terms
or at all, and any such additional financing could be dilutive to the Company's
stockholders.
At December 31, 1996, the Company had a net operating loss
carryforward of approximately $10,800,000 for income tax purposes. Because the
Company may have experienced "ownership changes" within the meaning of the U.S.
Internal Revenue Code (the "Internal Revenue Code") related to prior issuance
of its preferred stock and may experience ownership changes due to this
offering, future utilization of this carryforward may be subject to certain
limitations as defined by the Internal Revenue Code. If not utilized, the
carryforward expires at various dates between 2005 and 2011. As a result of the
annual limitation, a portion of this carryforward may expire before ultimately
becoming available to reduce income tax liabilities.
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<PAGE> 22
BUSINESS
Nanophase develops and markets nanocrystalline materials for use as
ingredients and components in a wide range of commercial applications. The
Company produces nanocrystalline materials in commercial quantities for
selected applications. Nanocrystalline materials are ceramic and metallic
materials with particle sizes measured in nanometers, or billionths of a meter.
By processing materials in this near-atomic size range, the Company is able to
engineer the structure of particles and exploit the properties of their surface
atoms to enhance the performance of basic raw materials such as aluminum, iron,
titanium and zinc, as well as to molecularly engineer new composite materials.
Compared to conventional materials, the Company's nanocrystalline materials
generally exhibit superior chemical, mechanical, electronic, magnetic and
optical properties, and the Company believes it has established a new standard
for high-performance commercially produced nanocrystalline materials.
The Company has identified commercial applications for its
nanocrystalline materials in four primary markets: electronics, structural
ceramics and composites, cosmetics and skin-care, and industrial catalysts. The
Company believes each of these markets provides significant opportunity for
growth, as well as the opportunity to achieve competitive advantages based on
product performance. In each of these markets, the Company's strategy is to
establish collaborative relationships with industry leaders in order to
validate the capabilities of its materials and coordinate the development and
commercial introduction of product applications, and to include in such
relationships specific milestones and a development path that is intended to
lead to significant commercial product revenues. The Company is currently
collaborating with, among others, Acutus Gladwin, Dow, DuPont, Medtronic,
Philips and Schering-Plough. As a result of one of its collaborative
relationships, the Company recently entered into a five-year requirements
contract with Moyco, a manufacturer of semiconductor polishing slurries,
pursuant to which the Company will supply its nanocrystalline materials to
Moyco. Moyco markets its slurries to Hyundai, IBM, Lucent, Motorola and
Samsung, all of which are currently evaluating slurries containing the
Company's nanocrystalline materials for use in their next generation
semiconductor manufacturing processes. The Company has also entered into a
one-year requirements contract with LWT for anti-abrasive polymers used in oil
drilling applications.
To gain access to foreign markets, in October 1996, Nanophase entered
into an agreement with C.I. Kasei, Ltd., a subsidiary of Itochu, for the
distribution of the Company's materials in broad-based industrial markets
throughout Asia. In addition, the Company has a global distribution agreement
with WCD, a leading distributor of cosmetic and skin-care ingredients, for
exclusive distribution of the Company's nanocrystalline materials for cosmetic
and skin-care products.
The Company believes that its nanocrystalline materials have broad and
enabling potential beyond the product applications it is currently developing
with its customers. In 1995, the Battelle Memorial Institute, a leading
contract research organization, identified "molecularly engineered" materials
(i.e., nanocrystalline materials) as "super materials" which represent one of
the ten most important technologies for the coming decade. Nanophase was
organized in 1989 to commercialize technologies that are based on principles
developed at Argonne National Laboratories, and believes that it is the only
company to successfully transition the production of high-performance
nanocrystalline materials from laboratory to commercial scale. In 1995, the
Company's patented PVS process for producing these materials received the R&D
100 Award, given each year by R&D Magazine to recognize the 100 most
technologically significant new products and processes in the world.
NANOCRYSTALLINE MATERIALS
All matter is composed of atoms, or molecules which are combinations
of atoms. Most solid materials, such as ceramics and metals, are crystalline in
nature, i.e., they consist of microscopic particles, or crystals, the atoms or
molecules of which are stacked in orderly patterns. The attributes of
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<PAGE> 23
a crystalline material, including strength, flexibility, color and electronic
conductivity, depend upon the shape and size of the material's individual
crystals, the organization of atoms in the individual crystals, and the
relationships and interactions among the crystals. The particles of
conventional crystalline materials generally have irregular shapes and sizes.
The organization of a crystalline material's atoms or molecules, however, can
be manipulated to form particles that are much smaller and more uniform.
Particles that are less than 100 nanometers in diameter are generally called
nanocrystals and contain only a few thousand or tens of thousands of atoms,
rather than the millions or billions of atoms in particles of most conventional
materials. Through molecular engineering, the shape and size of such particles
in nanocrystalline materials can be manipulated to produce materials with
superior properties. These nanocrystalline materials behave in enhanced and
novel ways because the properties of, and interactions among, their ultra-small
particles have been significantly altered.
The potential of nanocrystalline materials has been known for decades
and such materials have been produced by a variety of other processes. However,
these other processes are more limited in their ability to engineer the
materials for high-performance applications. Mechanical and chemical processes
are the two most common methods for producing nanocrystalline materials. In
mechanical processes, fine powders are commonly made from large particles
through the use of crushing techniques such as a high-speed ball mill. The
resulting fragmented powders contain particles of inconsistent shapes and
sizes, are relatively coarse, and are not adequate for many high-performance
commercial applications. Nanocrystalline materials can also be made through
chemical processes which utilize chemicals to create a reaction that
precipitates particles of varying size and shape. Chemical processes, like
mechanical processes, often produce nanometric particles of inconsistent shapes
and sizes that are difficult to engineer. Chemical processes also tend to leave
chemical residues on the particle surfaces, making it difficult to precisely
engineer the mechanical, chemical and electronic properties of the materials.
Historically, high-quality nanocrystalline materials have been difficult to
consistently produce in other than laboratory-scale quantities and have not
been produced at commercially affordable costs. The Company believes that these
traditional methods of producing nanocrystalline materials do not provide the
means to realize the full potential of such nanocrystalline materials.
NANOPHASE ADVANTAGE
The Company has developed technologies for the engineering and
high-volume production of nanocrystalline materials which it believes are
superior to the traditional methods employed by other manufacturers of similar
materials. At the core of the Company's technologies is its patented PVS
process, whereby metallic or ceramic materials are vaporized into atoms that
are mixed with a gas to form nanometric particles. The PVS process produces
particles that, in contrast to particles of conventional materials, are (i)
nearly spherical, (ii) virtually free of chemical residues, (iii) uniformly
small, (iv) not strongly agglomerated, and (v) easily engineered. The Company
believes that this combination of properties enables the Company to engineer
materials that are superior to conventional materials and set new standards for
a range of high-performance commercial applications. Through its PVS process,
the Company is able to produce significant quantities of these materials.
The Company also has developed related technologies to further enhance
the materials produced by its PVS process. For example, certain product
applications require surface treatments for nanocrystalline particles so they
can be dispersed in a variety of media. To enable the incorporation of its
materials in dispersions, the Company developed its proprietary DPE process
which prevents particles from agglomerating by completely coating each
individual particle. The coating process also enables the Company to alter the
optical, chemical and electronic behavior of particles to meet the requirements
of particular applications. In addition, certain product applications require
nanocrystalline materials to be formed into structural ceramics of a precise
shape and tolerance. As part of its strategy to enter markets for structural
ceramics, the Company developed its net-shaping technology which enables the
Company
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<PAGE> 24
to rapidly fabricate dimensionally-precise, high tolerance structural ceramic
components without costly machining.
The following attributes of the particles produced by the Company
enable it to produce nanocrystalline materials which it believes to be
superior, for high-performance applications, to both conventional materials and
nanocrystalline materials produced by other means:
SPHERICAL SHAPES AND SMALL SIZES enable particles to slide
over each other, which allows the Company's ceramic materials to
become more ductile and more easily formed. This enables the Company
to rapidly mold variously shaped ceramic components without the costly
and time-consuming machining which is typically used for conventional
ceramics (e.g., 15 to 30 minutes for the Company's process as opposed
to 4 to 8 hours for conventional machining).
CLEAN SURFACES enable particles to flow freely and be
dispersed easily. For example, the Company produces iron oxides that
make cosmetics feel smoother on the skin and blend easily.
NARROW SIZE DISTRIBUTION of nanometric particles ensures that
nanocrystalline materials are virtually free of large particles, which
facilitates engineering of the chemical, mechanical, optical and
electronic properties of the material because these properties vary
according to particle size. For example, the Company produces titanium
dioxide with particles that are large enough to block ultraviolet rays
but are consistently smaller than the wave length of visible light,
which enables sunscreens formulated with these particles to provide an
unprecedented combination of high SPF protection and transparency.
AGGREGATION CONTROL results in loosely agglomerated and
uniformly small particles that can be readily and uniformly dispersed
in a variety of media. For example, the Company produces ultra-fine
abrasives for polishing the surfaces of semiconductors.
DIALABLE CONTROL OF PARTICLE SIZE enables precise engineering
of particles through subtle modifications of the Company's PVS
process. By controlling the evaporation rate of a material's atoms or
the type or pressure of gas used in the production process, the
Company can alter, enhance and tailor the performance of its basic raw
materials for specific product applications. For example, further
decreasing the particle size of a metal oxide increases its number of
surface atoms, which enables the Company to produce metal oxides with
enhanced catalytic performance.
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<PAGE> 25
COMPANY STRATEGY
To take advantage of the broad potential applicability of
nanocrystalline materials, the Company has adopted a strategy to develop a
variety of value-added applications in targeted industries where the potential
for future growth is substantial. The Company intends to establish itself as
the leading manufacturer of nanocrystalline materials for these targeted
application areas by continuously enhancing its technologies, product
applications and customer base. Specific elements of the Company's business
strategy include the following:
Target Innovative Commercial Applications
The Company identifies and pursues commercial applications where the
value-added benefits of its nanocrystalline materials and technologies (i)
represent breakthrough capabilities, (ii) are substantial and demonstrable,
(iii) are not achievable with conventional materials, and (iv) offer the
Company the potential for long-term market leadership and sustainable revenues.
Establish Collaborative Relationships with Marquee Customers
To facilitate the development of product applications that meet market
needs and create markets for its nanocrystalline materials, the Company
establishes collaborative relationships with customers who are leaders in their
industries. The Company targets such customers because it believes that these
customers (i) are technologically innovative, (ii) will support product
development and (iii) require a long-term supply of superior products in order
to maintain their competitive advantages. The collaborative relationships
pursued by the Company include agreed-upon developmental milestones and a
development path that is intended to lead to significant commercial revenues
from the customer.
Expand Product Applications and Broaden the Customer Base
After developing nanocrystalline materials and product applications for a
customer, the Company seeks to broaden its relationship with that customer by
identifying additional opportunities for the Company's nanocrystalline
materials and technologies, and seeks to identify other potential customers in
that market that can benefit from derivative materials and technologies. The
Company also seeks to have the nanocrystalline materials and technologies that
it successfully develops for customers in one market meet the application
requirements of customers in other markets without significant process or
material re-engineering.
Maintain Technical and Commercial Leadership
The Company is committed to maintaining its status as a leader in the
field of nanocrystalline-based materials through ongoing research and
development activities, collaborations with industrial, university and
government entities, and efforts to continuously attract top scientists and
engineers. The Company concentrates its research and development efforts on the
key technological issues that affect the production and engineering of
nanocrystalline materials that have new and superior capabilities tailored for
specific commercial applications. This focus has resulted in the Company's
development of its proprietary core technologies, including the PVS process,
DPE process and net-shaping.
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<PAGE> 26
CUSTOMERS AND APPLICATIONS
The Company has identified four primary markets - electronics,
structural ceramics and composites, cosmetics and skin-care, and industrial
catalysts - each of which offers the Company significant potential for revenue
growth. In addition, the Company believes these markets provide opportunities to
achieve competitive advantages based on product performance. The Company's
strategy is to collaborate with industry leaders in these markets in order to
validate the capabilities of its materials and coordinate the development and
commercial introduction of product applications. The collaborative relationships
pursued by the Company include (i) agreed-upon specifications for the proposed
commercial application of the Company's materials; (ii) confirmation by the
customer that the proposed application appears to be commercially viable and
valuable; (iii) a significant commitment of developmental resources; (iv) agreed
upon developmental milestones, and (v) a development path that is intended to
lead to significant commercial revenues from the customer. Certain details of
the Company's significant customer and product development relationships are
contained in the table below.
<TABLE>
<CAPTION>
====================================================================================================================================
CUSTOMER/PRODUCT NANOPHASE PRODUCT APPLICATION STATUS
DEVELOPMENT PARTNER MATERIAL/TECHNOLOGY
====================================================================================================================================
ELECTRONICS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Moyco Technologies, Inc. Aluminum oxide; Abrasives for semiconductor polishing Shipping products pursuant to five-year
cerium oxide requirements contract; customer evaluations
underway at Hyundai, IBM, Motorola, Lucent
and Samsung
- ------------------------------------------------------------------------------------------------------------------------------------
Philips Electronics N.V. Metal oxide Anti-radiation coatings for computer and Development agreement
TV monitors
- -----------------------------------------------------------------------------------------------------------------------------------
Medtronic, Inc. Precious metal High performance electrodes Samples purchased; tests and
evaluations ongoing
- -----------------------------------------------------------------------------------------------------------------------------------
A leading communications Titanium dioxide High-refractive-index polymers for Samples purchased; feasibility under
technology company optical communications review
- ------------------------------------------------------------------------------------------------------------------------------------
STRUCTURAL CERAMICS AND COMPOSITES
- ------------------------------------------------------------------------------------------------------------------------------------
LWT Instruments, Inc. Aluminum oxide Abrasion-resistant polymers for Shipping product pursuant to requirements
oil drilling sensors contract
- ------------------------------------------------------------------------------------------------------------------------------------
AG Industries Net-shaped Components for continuous steel casting Development agreement
ceramics
- ------------------------------------------------------------------------------------------------------------------------------------
A leading manufacturer of Net-shaped Ceramic mechanical seals Samples purchased; tests and
heavy equipment ceramics evaluations ongoing
- ------------------------------------------------------------------------------------------------------------------------------------
Medtronic, Inc. Net-shaped Samples purchased; tests and
ceramics RF-transparent components evaluations ongoing
- ------------------------------------------------------------------------------------------------------------------------------------
COSMETICS AND SKIN-CARE
- ------------------------------------------------------------------------------------------------------------------------------------
A leading cosmetics Titanium dioxide; Transparent UV blockers and colorants Shipping product
company (1) iron oxide for cosmetics
- ------------------------------------------------------------------------------------------------------------------------------------
Schering-Plough Zinc oxide Topical health-care products Samples purchased; tests and
Corporation (1) evaluations ongoing
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CATALYSTS
- ------------------------------------------------------------------------------------------------------------------------------------
E.I. DuPont de Nemours & Co. Precious metal Chemical-process catalyst Samples purchased; tests and
evaluations ongoing
- ------------------------------------------------------------------------------------------------------------------------------------
The Dow Chemical Company Metal oxides Chemical-process catalysts Samples purchased; tests and
evaluations ongoing
====================================================================================================================================
</TABLE>
- ------------------
(1) These relationships are through the Company's distribution arrangement
with WCD, which is distributing the Company's nanocrystalline materials to
a number of cosmetics and skin-care formulators. See "--Cosmetics and
Skin-Care" and "--Marketing."
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<PAGE> 27
Following is a more detailed description of the Company's targeted
markets and its activities in specific product applications.
ELECTRONICS
Electronics is one of the world's largest and fastest growing markets,
fueled in part by rising demand for increased computing power and information
storage requirements and the rapid growth of communications technologies. The
new levels of performance in electronics that are necessary to meet these
requirements depend, in large part, on advanced materials, especially advanced
ceramics, that enable higher performance and further miniaturization.
Increasingly, critical dimensions and performance criteria for high-speed
electronic pathways and dense platforms are measured in nanometers and
angstroms (tenths of nanometers). It is at this level of performance that
Nanophase believes its engineered nanocrystalline materials have advantages
that can be converted into immediate opportunities.
Nanophase's initial focus in this market has primarily been on three
product applications: (i) semiconductor polishing, (ii) coatings for
electromagnetic radiation protection and (iii) high-performance electrodes. The
Company believes that the uniformly small particle size, nearly spherical
particle morphology and clean particle surface of the Company's materials allow
such materials to provide innovative, value-added benefits for these and other
product applications in the electronics market.
Semiconductor Polishing
Increases in computing power require increased memory capacity, which
is achieved by fabricating smaller circuits on smoother semiconductor surfaces.
These smoother surfaces are obtained by a technique called chemical/mechanical
polishing (CMP), in which an abrasive slurry is used to polish semiconductor
surfaces to a very fine finish.
Polishing slurries utilizing the Company's nanometer-sized aluminum
dioxide ("alumina") and cerium oxide ("ceria"), with their nearly spherical
particle shapes and uniformly small particle sizes, provide semiconductor
polishing that results in (i) significantly smoother surfaces, (ii) a faster
rate of material removal, (iii) more selective removal of material, and (iv)
easier cleaning during the manufacturing process, compared to slurries
utilizing conventional materials. Nanophase has entered into a five-year
requirements contract with Moyco, a manufacturer of semiconductor polishing
slurries, pursuant to which the Company will supply its nanocrystalline alumina
and ceria to Moyco. Moyco markets its slurries to Hyundai, IBM, Lucent,
Motorola and Samsung, all of which are currently evaluating slurries containing
the Company's nanocrystalline materials for use in their next generation
semiconductor manufacturing processes. The Company has agreed to sell the
materials to Moyco for this market on an exclusive basis so long as Moyco
purchases the quarterly and annual minimums specified in the contract. If Moyco
purchases the minimum quantities specified in the contract, it will purchase
approximately $30 million of the Company's materials through the end of 2001.
If Moyco fails to purchase such minimum quantities, the Company may terminate
Moyco's exclusivity, or the Company may terminate the entire contract.
Electromagnetic Radiation Protection
Cathode ray tubes (CRTs) utilized in television and computer monitors
emit electromagnetic radiation due to the high voltages used to generate light.
In the past, little attention was paid to the potential harmful effects of this
radiation. Recent European Economic Community regulations, however, place more
stringent limits on the quantity of radiation that can be emitted by television
and computer monitors. In response to such regulations, CRT manufacturers
require transparent, conductive coatings that meet the new electromagnetic
radiation standards.
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<PAGE> 28
The materials currently used for conductive coating of CRTs have not
been proven to meet all of the new radiation requirements. Nanophase can
produce a proprietary metal oxide mixture which has a narrower particle-size
distribution and cleaner particle surfaces than currently used materials. The
Company's nanocrystalline metal oxide mixture is highly conductive and easily
dispersed and, when applied as a coating to CRTs, is expected by the Company to
meet the increased radiation shielding regulatory requirements, while
maintaining the transparency required for quality video images. The Company is
actively working with Philips pursuant to an agreement to develop a specific
coating for CRTs manufactured by Philips. This agreement includes an expression
of intention by Philips to purchase the Company's coating materials if
developmental milestones are met.
High-Performance Electrodes
Electronic medical devices require new high-performance electrodes
which deliver more precise voltages. In order to achieve such precision, the
surface area of the electrode needs to be increased substantially. As the
surface area of an electrode increases, transient signals caused by
polarization at the electrode surface are reduced. In a development program
with Medtronic, the Company is developing nanocrystalline precious metals that
can be directly deposited on medical-device electrodes to create the additional
surface area required to decrease polarization. The Company believes that its
material provides higher surface area than the conventional technology
currently used. The Company is working with Medtronic to meet specific
performance requirements and establish developmental milestones.
Other Electronics Product Applications
Nanophase has also begun an early stage development program with a
leading communications technology company for applications in optical
communications and interconnection technology. The objective of this program is
to develop highly transparent polymers that reduce costly signal losses which
occur in communication transmissions. The application requirements mandate the
use of ultrafine nanocrystalline materials in order to meet the optical clarity
requirements. This product application is in an early stage of development and
investigation.
STRUCTURAL CERAMICS AND COMPOSITES
Structural ceramics are advanced compounds that offer hardness, high
strength and inertness for a broad range of industrial applications involving
harsh chemical and thermal environments. The free-flowing nature and weak
agglomeration of the Company's nearly spherical nanocrystalline particles
enable the Company to rapidly fabricate high-tolerance, dimensionally precise
structural ceramic parts without costly machining. Because the conventional
methods for forming structural ceramics involve the use of high temperatures,
high pressures or lengthy machining operations, the high costs of fabrication
have limited the usage of dimensionally-precise ceramics to only the most
critical applications. Through its net-shaping process, the Company can mold
nanocrystalline ceramic materials into fully-dense ceramic parts with little or
no machining. This process makes it possible to fabricate a variety of
dimensionally precise structural ceramic components in a short period of time
(e.g., 15 to 30 minutes for the Company's process as opposed to 4 to 8 hours
for conventional machining), at significantly lower temperatures and pressures,
and at substantially lower costs, than conventional fabrication methods.
Composites, like structural ceramics, are engineered structures that
consist of diverse elements and are geared toward high-stress product
applications that require durable, resistant materials. Composites combine the
advantageous qualities of their constituent materials. The properties of these
composites depend heavily on the nature and amount of the materials that are
incorporated into the composites. For example, incorporating a hard material
like alumina into a flexible and light-weight plastic can increase the
plastic's resistance to abrasion and wear. Such an increase is related to the
number of particles of the constituent alumina. Because there are more
particles in one pound of nanocrystalline
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<PAGE> 29
materials than in one pound of more commonly used micron-sized particles,
properties such as abrasion resistance are enhanced by substituting
nanocrystalline materials for conventionally used materials.
Ceramic Components for Continuous Steel Casting
The Company is collaborating with Acutus Gladwin, a leading supplier
of services and products in the steel industry, to produce a ceramic component
for use in continuous steel casting. Continuous steel casting is performed by
pouring molten steel from a ladle through a funnel-shaped nozzle into a mold
which is several hundred feet long. Current nozzles are made of a porous
alumina/graphite material and require frequent replacement due to wear. During
replacement, steel-casting lines using these nozzles must be shut down for 15
to 45 minutes while new components are installed, resulting in down-time costs
of up to approximately $25,000/hour and several tons of second-quality steel
which must be remelted or downgraded for use in lower-quality products.
Nanophase believes that its denser net-shaped ceramics in this application will
substantially increase wear resistance, resulting in significant cost savings
due to decreased downtime and less wasted or sub-standard steel. Under a
development agreement with Acutus Gladwin, the Company has successfully
completed laboratory testing of its material and expects prototypes to be field
tested by the end of 1997.
Composite Polymer for Oil Drilling Machinery
Nanophase has entered into a one-year requirements contract with LWT,
a supplier of instrumentation to the oil drilling industry, for the supply of
abrasion-resistant composite polymers to protect down-hole data logging
equipment. The contract requires LWT to purchase a minimum of $375,000 of
materials from the Company. In this application, instrumentation is lowered
into a drilled shaft in order to provide information to the drill operator on a
continuous basis. Because drilled shafts often pass through hard rock
formations, or very abrasive layers of sandstone, the data logging instruments
must be protected from potential wear. A protective housing, or collar, is used
to protect the data logging equipment. These collars are conventionally coated
with a commercially available ceramic-filled polymer. Conventional fabrication
of these collars is difficult because the polymer is thick and must be applied
by hand. LWT requires a polymer which can be applied by automatic machinery,
has a long service life and is abrasion-resistant. Tests performed by LWT using
the Company's composite materials indicate that such materials provide
abrasion-resistance and meet LWT's requirements.
Ceramic Mechanical Seals
Nanophase is currently fabricating prototype ceramic mechanical seals
for a leading manufacturer of heavy equipment. The ceramic seals are designed
for use in harsh applications to prevent abrasive particles from entering
mechanical joints and to prevent oil from leaking from the joints. Conventional
seals used in these applications either wear or corrode, requiring replacement
after only a few thousand hours of operation. Ceramic seals, because of their
improved abrasion and corrosion resistance, are believed by the Company to be
more reliable and durable than conventional seals. Customer-laboratory tests of
prototype seal designs have shown that Nanophase's ceramic seals can increase
the service life of a seal up to ten-fold compared to currently-used seal
materials, resulting in a reduction of equipment downtime and associated costs.
In addition, Nanophase's net-shaping process reduces or eliminates the costly
diamond grinding that normally would be required to fabricate these ceramic
seals. The Company believes that reduced manufacturing costs make these ceramic
seals cost-effective for a number of high-volume mechanical-seal applications.
The Company expects field testing of its ceramic seals to begin by the end of
1997.
Ceramic Medical-Device Housings
In collaboration with Medtronic, a leading manufacturer of medical
devices, Nanophase is developing a net-shaped ceramic housing for an electronic
medical device. Current housings for this application are fabricated from
metal, and while medically proven and in daily use, they do not allow the
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transmission of Radio Frequency ("RF") signals. Thus, a patient with this type
of device must be monitored via telephone. A ceramic housing would allow the
passage of RF signals and, hence, remote wireless monitoring. Such medical
device, if successfully developed, will require the customer to undertake
long-term clinical testing and seek FDA approval. See "Risk
Factors--Governmental Regulations."
COSMETICS AND SKIN-CARE
The cosmetics and skin-care market is a substantial consumer of
particulate materials as active ingredients and pigments. The Company has
targeted three of its nanocrystalline materials, titanium dioxide ("titania"),
iron oxide and zinc oxide, for applications in the cosmetics and skin-care
market, including sunscreens, cosmetic colorants and antifungal applications.
Nanophase has entered into a global distribution agreement with WCD for
exclusive distribution of its nanocrystalline materials to cosmetic and
skin-care companies. Through this distribution arrangement, the Company (i) has
recently begun commercial sales of its titania to several small cosmetics
companies, such as Medicia Pharmaceutical Corporation and Sunny World Co., Ltd
(of Thailand), for use in sunscreens, (ii) is shipping its iron oxides to a
leading cosmetics company for use as cosmetic colorants, (iii) is qualified for
that same customer as a vendor of titania for two products with SPF protection,
which are scheduled for market introduction in the third and fourth quarters of
1997, respectively, and (iv) is qualified as a vendor of zinc oxide for a
topical health-care formulation produced by Schering-Plough, which is scheduled
for market introduction in the fourth quarter of 1997.
Sunscreens
The market for titania-based sunscreens has rapidly expanded due to
(i) increasing consumer awareness of the harmful effects of ultraviolet ("UV")
rays and (ii) a desire to replace conventional chemical sun-block ingredients,
which can cause irritation, with "chemical-free" ingredients. There has also
been an increased demand for cosmetic formulations that contain UV protection.
Because the Company's nanocrystalline titania is comprised of particles that
are large enough to block UV rays, but are consistently smaller than the wave
length of visible light, it enables chemical-free sunscreen products to provide
an unprecedented combination of high SPF protection and transparency. In this
regard, sunscreens using Nanophase's titania provide SPF protection of 17+ with
transparency, at only 3% weight loading, whereas, based upon independent
performance results, competitive products are able to achieve SPF protection of
no better than 12, require a weight loading of 5% or more and often exhibit a
whitening effect on the skin. The weight loading percentage is a measure of the
amount of material in a product, by weight, in relation to the weight of all of
the materials in the product. The relationship between SPF and weight-loading
is only roughly linear; however, at these performance points, sunscreens using
the Company's titania provide 5.6 SPF points for each percent of weight loading
versus 2.4 SPF points for the best-performing current competitive products.
Nanophase's total-encapsulation coating, based on its DPE process, also makes
Nanophase's titania compatible with certain skin-product ingredients, like
self-tanning ingredients, with which competitive titania is not compatible.
This compatibility enables cosmetics formulators to develop self-tanning
products which offer chemical-free protection from excessive exposure to UV
rays.
Cosmetic Colorants
Through its PVS and DPE processes, the Company has engineered
nanocrystalline brown, red and black iron oxides for use as coloring agents in
cosmetics. Because of their visible transparency, these iron oxides can
intensely color the skin without the caking or streaking effects caused by
conventional opaque coloring agents. This is due to the nanometer-sized
particles of Nanophase's iron oxides which absorb light without significant
visible scattering, thereby providing color without opacity. In addition, the
nearly spherical particles of Nanophase's iron oxides enable them to be
discretely encapsulated and
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readily dispersed to create smooth, free-flowing cosmetic foundations which
cosmetics formulators can blend to more closely match varying skin tones.
Antifungal Applications
Several skin-care companies are currently evaluating Nanophase's
nanocrystalline zinc oxide for use in topical antifungal products. The
Company's zinc oxide contains uniformly small particles which contain a large
number of surface area atoms. Initial testing by the Company and its customers
indicates that this attribute provides enhanced antifungal activity compared to
conventional materials because a lower amount of the Company's zinc oxide is
needed to achieve the desired level of activity. In addition, the Company's
zinc oxide, because of its weakly agglomerated particles, is better suited for
aerosol applicators.
INDUSTRIAL CATALYSTS
Catalysts are materials that help convert, or accelerate the
conversion of, one chemical into another. The Company's PVS process allows for
the fabrication of two distinct types of solid catalysts: (i) a single pure
material, such as iron oxide, which is a widely used chemical-process catalyst
for the synthesis of hydrogen, ammonia and other bulk chemicals, and (ii)
composite materials in which a nanocrystalline metal, such as palladium, is
deposited on a larger substrate. This latter catalyst has a broad range of
applications, including polymer synthesis, hydrogen peroxide production and the
conversion of petroleum feedstock to higher value chemicals.
The activity of a catalyst (i.e., the amount of desired product that
can be produced per unit weight of catalytic material) is an important measure
of its efficacy, and is related to a number of physical properties of the
catalyst, including surface area, particle size and the reactivity of atoms on
the surface of the catalytic material. Nanocrystalline materials offer better
performance as catalysts because they have a higher proportion of catalytically
active surface atoms than conventional materials. In addition to enhanced
reactivity, the Company's materials can potentially reduce costs because less
catalyst is needed to achieve a desired level of activity.
Nanophase is developing a process to directly deposit nanocrystalline
metals on a substrate for use by DuPont as a catalyst in large-scale chemical
production. Early measurements have shown a two to fourfold increase in
catalytic activity over the current, chemically produced DuPont catalyst. The
Company is working with DuPont to meet specific performance requirements for
this catalyst. The Company has also begun an early-stage development program
with Dow to produce catalysts comprised of nanocrystalline metal oxides on
larger substrates. Additional potential applications for PVS-produced
heterogeneous catalysts include wash coats for automotive catalysts and
surface-enhanced catalysts for the chemical process industry.
TECHNOLOGICALLY-SIMILAR APPLICATIONS
Although the Company focuses its efforts on product applications in
the above-mentioned markets, the Company believes there is a broad range of
technologically-similar applications, the performances of which could be
substantially improved by utilizing the Company's materials and technologies
without extensive additional engineering. These possible spin-off applications
include applications for fibers, textiles, plastics, paper, optical polymers,
pigments and other specialty products. These applications are primarily based
on the coating or dispersion of nanocrystalline materials produced by the PVS
process. The Company only pursues those specialty applications which fit into
its business strategy and which receive substantial support from a significant
prospective customer.
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THE COMPANY'S TECHNOLOGIES
Nanophase has developed and employs several related technologies for
the engineering and production of nanocrystalline materials and product
applications, including technologies for the synthesis, surface-treatment and
dispersion of nanocrystalline materials and the fabrication of structural
ceramic components. The Company also is engaged in ongoing research and
technology-licensing activities as part of its strategy to maintain a technical
and commercial leadership position in the field of nanocrystalline materials.
The PVS Process
The Company uses its proprietary PVS process to produce
nanocrystalline powders. The PVS process is based on the formation of a
physical vapor from a selected metallic or ceramic material which is fed
through a plasma reactor and heated to a temperature above its melting point.
As the temperature rises, the atoms of this material evaporate from its surface
into a stream of flowing vapor. These evaporated atoms are then mixed with
selected gases which chemically react with the atoms. Additional gasses then
cool the atoms sufficiently to condense the vapor into solid, nearly spherical
clusters of molecules. The flowing gas transports the resulting clusters to a
collection vessel. The rapid transport and cooling of the nanometric particles
produce a weakly agglomerated powder.
[A DIAGRAM OF THE PVS PROCESS]
The Company holds two patents relating to its PVS process; one covers
the process itself, while the other covers the apparatus used in the process.
The Company's plasma reactor embodies proprietary features which enable the
production of high-quality materials at high-volume and competitive cost.
Nanophase utilizes its PVS process to exploit the relative advantages of
physical versus chemical synthesis of nanocrystalline materials. These
advantages include the production of nanocrystalline materials with particles
that are nearly spherical, virtually free of chemical residue, uniformly small,
not strongly agglomerated, and easily engineered.
The Company believes that the PVS process is a superior commercial
process in the degree of control that can be exercised over particle size and
particle size distribution. By means of controlled and subtle modifications to
the PVS process (e.g., the evaporation rate, the type or pressure of the gas,
or how quickly the flow of gas carries the clusters to the collection vessel),
the Company can control the size of a material's particles, thereby altering
the traits of a substance. The Company is thus able to engineer and produce a
wide range of materials and products without substantial process and product
re-engineering. In 1995, the Company's PVS process received the R&D 100 Award
given each year by R&D Magazine to recognize the 100 most technologically
significant new products and processes in the world.
Surface Treatments (The DPE Process)
Many of the applications that the Company is pursuing require further
engineering of the particles produced in the PVS process in order to meet
specific application requirements. To satisfy these requirements, the Company
has developed a variety of surface-treatment technologies to stabilize, alter
or enhance the performance of nanocrystalline particles, together with
technologies to enable the particles to be dispersed in fluids or polymers. At
the core of these surface-treatment and dispersion technologies is Nanophase's
proprietary DPE process, which enables Nanophase to completely surround each
nanocrystalline particle with a durable coating.
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The DPE process can coat the surface of each nanometer-sized particle
produced by the PVS process with a proprietary polymer that is not removed by
subsequent processing. Traditional coating technologies employ strand-like
polymers that cannot completely cover the surfaces of nanometric particles. The
Company's DPE process uses polymers that are shaped like hands. When the
nanometer-sized particles are coated, the fingers of the hand collapse and
completely encapsulate each particle with a thin polymeric shell. This shell
also can be engineered to contain covalently bound spacer groups of
controllable size that function to prevent particles from sticking to each
other. The coatings enable the particles to be uniformly dispersed in a wide
range of media, including water, cosmetic emollients, plastics and polymers,
thus enabling these materials to be used in applications ranging from highly
transparent sunscreens to dense opaque coatings.
Net-Shaping
Nanophase has developed a proprietary process whereby it net-shapes
its nanocrystalline ceramic materials produced by the PVS process to rapidly
fabricate precise, high-tolerance industrial ceramic parts without costly
machining. This net-shaping technology was developed in collaboration with the
Company's subcontractors, Lockheed Missiles & Space Co., Inc. ("LMSC") and
Caterpillar, Inc., under an Advanced Technology Program ("ATP") contract funded
by the U.S. Department of Commerce.
The Nanophase technologies relevant to net-shaping involve (i) the
production of nanocrystalline ceramic materials in commercial quantities, (ii)
the consolidation of Nanophase's ceramic materials into dense nanocrystalline
preforms without exaggerated particle growth, and (iii) net-shape forming of
fully-dense, precisely-shaped ceramic parts.
[A DIAGRAM OF NET-SHAPING]
The conventional fabrication of structural ceramics involves machining
that uses diamond tools. This process is costly, time consuming and often
produces highly stressed ceramic parts and components with structural flaws.
Nanophase's process enables fabrication of ceramic parts and components using
significantly lower temperatures and pressures than used by conventional
fabrication methods (e.g., 1300- 1500(degree)C and 2000-4000 psi, as compared
to up to 1700(degree)C and 100,000 psi). This technology enables the Company to
fabricate dimensionally precise ceramic components in a short period of time
without costly machining (e.g., 15 to 30 minutes for the Company's process as
opposed to 4 to 8 hours for conventional machining). This rapid deformation
processing is made possible by the consistent ultrafine particle size of the
Company's nanocrystalline ceramic materials, the Company's ability to control
the consolidation of such particles into preforms of high and uniform density,
and the ability of the ultrafine particles to easily slide over one another in
the forming process. The Company's net-shaping technology produces ceramic
products with a variety of detailed shapes, high tolerances and smooth surface
finishes that can be tailored to a customer's needs.
Following the successful completion of the ATP program, the Company
entered into a research, development and prototyping agreement with LMSC
whereby the Company funds LMSC to perform design, prototyping and research and
development tasks related to net-shaping using technology developed during the
ATP project and jointly owned by the Company and LMSC. LMSC currently designs,
engineers and fabricates prototypes to the Company's specifications for the
Company's commercial customers. New technology developed under this arrangement
is wholly-owned by the Company and, under the terms of the arrangement, LMSC
can use the newly-developed technology only for its internal research.
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Other Technologies
The Company constantly seeks to develop new technologies relating to
nanocrystalline-based materials through ongoing research and development
activities and collaborations with industrial, university and government
research programs. For example, the Company is developing a new generation of
metallic and ceramic precursors to be processed into nanocrystalline materials.
Such activities are intended to enable the Company to develop new product
applications and offer more materials with enhanced capabilities.
MANUFACTURING AND FACILITIES
Nanophase operates a 20,000 square-foot production and research
facility in Burr Ridge, Illinois, a suburb of Chicago, which also serves as the
Company's administrative headquarters. The Company also operates a smaller
facility in Chicago, Illinois, for coating nanocrystalline materials using its
DPE process. The Company believes its Burr Ridge facility is the first in the
world that is dedicated to the commercial-scale development and production of
physically synthesized nanocrystalline materials. The Company's operations in
Burr Ridge are registered under ISO 9001 standards, and the manufacturing
operations are in compliance with the cGMP requirements of the FDA.
The Burr Ridge facility has installed capacity to produce
approximately 100 tons of nanocrystalline materials per year, depending on the
product mix. At January 31, 1997, fifteen PVS plasma reactors were operational
and producing various nanocrystalline materials at the Burr Ridge facility.
Additional PVS plasma reactors are scheduled for installation during 1997. Each
PVS plasma reactor is comprised of modular equipment which is designed and
assembled to the Company's proprietary specifications. These modular reactors
provide flexibility in the expansion of the Company's manufacturing capability.
The Company believes that additional manufacturing capacity may be required in
1998. See "Use of Proceeds." Also operational within the Burr Ridge facility is
a quality control laboratory designed for the dual purpose of validating
operations to cGMP and ISO standards, and production process control. This
laboratory is equipped to handle all routine analytical and in-process
techniques that are currently required by the Company. In addition, capability
for specialized analytical and physical measurements currently is available at
Argonne upon terms which the Company believes are reasonable and adequate. The
Company leases its Burr Ridge facility pursuant to an agreement which expires
in September 1999.
Nanophase's coating facility has a capacity of approximately 1,000
kilograms per week, which is believed by the Company to be adequate to support
the Company's anticipated 1997 production plans. The Company subleases its
Chicago facility pursuant to a one-year agreement which automatically renews
unless terminated by either party upon proper notice.
MARKETING
The Company believes that one of its principal strengths is its
marketing department, the members of which have experience in each of the
Company's targeted markets. These individuals are often teamed with the
Company's scientists and researchers to demonstrate the advantages of the
Company's materials and product applications to potential customers. The
Company's scientists, engineers and marketing personnel attend and speak at
advanced materials symposia, publish articles in scientific journals and
participate in selected industry trade shows. In addition, the Company uses a
web page on the internet, advertisements in selected industry and trade
journals, and specification sheets and corporate brochures.
The Company also markets its materials through distributors in certain
application areas where the requirements for ongoing development and technical
support by Nanophase are not substantial, or where the distributor has existing
customer relationships, marketing or post-processing infrastructure, or
companion products or services that may enable Nanophase to enter the market
more quickly. For
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example, pursuant to a global distribution agreement, WCD exclusively
distributes Nanophase's nanocrystalline titania, iron oxides and zinc oxide to
the cosmetics and skin-care market. See "--Customers and Applications--
Cosmetics and Skin-Care."
As part of its strategy to gain access to foreign markets, in October
1996, Nanophase entered into an agreement with C. I. Kasei, Ltd., a subsidiary
of Itochu, for the distribution of Nanophase's materials in broad-based
industrial markets throughout Asia. The agreement is intended to enable
Nanophase to quickly establish foothold positions in Asian markets by utilizing
the technology and market-support capabilities of Itochu. The agreement does
not target specific materials or applications; however, Itochu is pursuing
high-volume industrial applications in electronics, industrial ceramics and
catalysts.
Because virtually all of the product applications for the Company's
materials are new and innovative, in order for the Company to penetrate its
targeted markets, it must participate in a multi-step process that includes
initial discussions of the product application which highlight the advantages
of the Company's nanocrystalline materials, proof of concept, proof of
feasibility within the specific application, and evaluations of cost and
manufacturability. Completion of this evaluation process usually takes at least
18 month, and may take several years.
RESEARCH AND DEVELOPMENT
The near-term objective of the Company's research and
process-development activities is to develop and consistently produce
sufficient commercial quantities of application-specific nanocrystalline
materials to meet the Company's near-term requirements. For the longer term, a
key component of the Company's research and development strategy is to identify
and develop relationships with leading industrial, university and government
research programs across the United States and internationally to leverage the
Company's internal research and development resources. The Company believes
that these research relationships may provide accelerated introduction of new
technologies into its product applications, early indications of new technology
developments which could enhance or compete with the Company's nanocrystalline
materials, and high-value improvements in its current key technologies. The
Company will also continue its efforts to attract and retain top scientists and
engineers, which management believes will enable the Company to maintain a
long-term leadership position in the nanocrystalline materials field.
The Company's total research and development expenses during 1996,
1995 and 1994 were $677,284, $485,059 and $456,162, respectively, and were
$1,825,986 from the Company's inception through December 31, 1996. Research and
development costs reimbursed under government contracts and cooperative
agreements during 1996, 1995 and 1994 were $110,770, $182,705 and $288,271,
respectively, and were $1,652,054 from the Company's inception through December
31, 1996. The future success of the Company will depend in large part upon its
ability to keep pace with evolving advanced materials technologies and industry
standards, and there can be no assurance it will be able to do so. See "Risk
Factors--Rapid Technological Change" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The objective of Nanophase's intellectual property activities is to
implement ongoing strategies that maximize and protect the proprietary rights
of the Company. These strategies encompass (i) obtaining patents and trademarks
based on Nanophase inventions and products, and (ii) licensing third-party
patents to expand the Company's technology base and prevent Nanophase from
being blocked should future developments require use of technology covered by
those patents.
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Nanophase currently owns or licenses an aggregate of 16 United States
patents and patent applications: two issued patents owned directly by
Nanophase; three pending patent applications owned directly by Nanophase; and
eleven patents licensed from third parties.
Two United States patents have been issued to Nanophase: one covering
its PVS process for the synthesis of nanocrystalline materials, and the other
covering the related apparatus. Additional United States patent applications
filed by the Company include applications relating to plasma sensors and the
coating of metal oxides. Foreign patent applications owned directly by
Nanophase are pending in Australia, Europe and Japan for the PVS process and
apparatus.
The Company holds the following licenses of United States patents: an
exclusive license of two patents owned by ARCH Development Corporation which
embody a laboratory-scale method and apparatus for making nanocrystalline
materials; a non-exclusive license from Research Development Corporation of
Japan of four patents which embody early laboratory-scale work in the physical
synthesis of nanocrystalline materials; a non-exclusive license of two patents
owned by Hitachi, Ltd. which are related to the synthesis of nanocrystalline
materials; and a remainder-exclusive license of three patents held by Cornell
University relating to a laboratory-scale process for net-shaping of a limited
range of materials.
The Company requires its employees, consultants, outside scientific
collaborators and other advisors to execute confidentiality and proprietary
rights agreements upon the commencement of employment or consulting
relationships with the Company. These agreements generally provide that all
confidential information developed or made known to the individual during the
course of the individual's relationship with the Company will be kept
confidential and will 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 shall be the exclusive property of
the Company. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets, know-how or
patent rights or will provide the Company with adequate remedies in the event
of unauthorized use or disclosure of such information. In addition, because
none of the Company's employees have entered into noncompetition agreements
with the Company, they may become competitors of the Company upon termination
of employment. See "Risk Factors--Patents and Protection of Proprietary
Information."
COMPETITION
Within each of its targeted markets and product applications,
Nanophase faces current and potential competition from numerous chemical
companies, as well as the in-house capabilities of several of its current and
potential customers. For example, with regard to semiconductor wafer polishing,
Cabot Corporation ("Cabot"), Rodel Incorporated, Fujimi Corporation (of Japan)
and Solution Technology Incorporated, all market polishing slurries for CMP. In
addition, Cabot, Baikowski International Corporation and Norton Company (a unit
of Compagnie De Saint-Gobain) all manufacture their own ultrafine alumina. In
the cosmetics and skin-care market, various companies manufacture their own
sub-micron titania (Tioxide Specialties Limited, Tayca Corporation (of Japan),
Ishihara Sangyo Kaisha, Ltd., Kemira Oy, Degussa AG and DuPont), iron oxide
(Sun Chemical Corporation, Harcros Pigments Incorporated) and zinc oxide (Zinc
Corporation of America) by chemical or other means. In structural ceramics, the
Company competes against manufacturers of ceramic composites who machine such
composites for specific product applications. In the catalysts market, the
Company faces competition from companies that chemically deposit metal oxides
onto substrates. Although Nanophase believes that its materials and
technologies are superior to the competitive materials and technologies that
are utilized by these companies, such companies represent significant
competitive risks to Nanophase because they have substantially greater
financial and technical resources, larger research and development staffs, and
greater manufacturing and marketing capabilities than the Company. See "Risk
Factors--Competition."
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Significant competitive risks are also represented by numerous small
development companies engaged in the development of nanocrystalline materials,
such as Plasma Quench Technologies, Inc., Vacuum Metallurgical Co., Ltd. of
Japan and Nanopowder Enterprises, Inc. Most of these companies are associated
with university or national laboratories and use chemical and physical methods
to produce nanocrystalline materials. Nanophase believes that most of such
companies are engaged primarily in funded research, and is not aware of any
such company with commercial production capability. However, there can be no
assurance that such companies will not represent significant competitive risks
in the future. See "Risk Factors--Competition."
GOVERNMENTAL REGULATIONS
The Company's Chicago facility, which houses its coating operations,
is a "small quantity generator" of hazardous materials under RCRA and, as a
result, is subject to stringent federal, state and local regulations governing
the handling, storage and disposal of such materials. To date, the Company has
not been required to make substantial expenditures for preventive or remedial
action with respect to the hazardous materials it uses. The manufacture and use
of certain of the products which contain the Company's nanocrystalline
materials are also subject to governmental regulation. As a result, the Company
is required to adhere to the FDA's cGMP requirements and similar regulations in
other countries which include testing, control and documentation requirements
enforced by periodic inspections.
In addition, both of the Company's facilities and all of 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 the Company's operations. See "Risk
Factors--Governmental Regulations."
EMPLOYEES
On February 28, 1997, the Company had a total of 50 full-time
employees, 13 of whom hold advanced degrees. Of the full-time employees, 13 are
engaged in research, development and engineering, 18 are engaged in
manufacturing, 4 are engaged in quality control, 6 are engaged in marketing and
sales, and 9 are engaged in general management, finance and administration. The
Company also currently engages two scientists as consultants on a regular
basis, one of whom is Dr. Richard W. Siegel, a co-founder and director of the
Company. None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its relations with its employees to be good.
LEGAL PROCEEDINGS
The Company is not a party to any litigation and is not aware of any
pending or threatened litigation that could have a material adverse effect on
the Company's business, results of operations or financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ---------- -----------------------------------------------
<S> <C> <C>
Robert W. Cross........................... 59 President, Chief Executive Officer and Director
Dennis J. Nowak........................... 46 Vice President - Finance and Administration, Chief
Financial Officer, Treasurer and Secretary
Richard W. Brotzman, Ph.D................. 43 Vice President - Research
Donald J. Freed, Ph.D..................... 54 Vice President - Marketing
Robert M. Kelly........................... 50 Vice President - Cosmetic Products
Dennis J. Nagle........................... 44 Vice President - Manufacturing
John C. Parker, Ph.D...................... 35 Vice President - Technology
Leonard A. Batterson (1)(2)............... 52 Chairman of the Board of Directors
Steven Lazarus (1)(2)..................... 65 Director
Robert W. Shaw, Jr., Ph.D. (1)(2)......... 55 Director
Richard W. Siegel, Ph.D................... 59 Director
</TABLE>
- ------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Robert W. Cross has served as President and Chief Executive Officer of
Nanophase since February 1993. He has extensive experience as an
entrepreneurial chief executive officer in developmental companies and in the
commercialization of complex technologies. He has also served as chief
executive officer of Cross Technologies, Inc. ("CTI") since 1990. CTI is a
holding company that previously developed secure information systems for U.S.
Government and North American Treaty Organization intelligence agencies. For
the 20 years prior, Mr. Cross served primarily as chief executive officer or
interim management for developmental high-technology venture-backed companies.
Mr. Cross' previous positions included Chairman and Chief Executive Officer,
Delta Data Systems Corp.; President and Chief Executive Officer, Columbia Data
Products, Inc.; and Specialist Counsel, Control Video Corp. (predecessor to
America Online). In 1968 and 1969, Mr. Cross was General Counsel to Electronic
Data Systems Corp., Dallas. From 1964 to 1968, he was a corporate finance
attorney with Winthrop, Stimson, Putnam & Roberts in New York. He holds BSBA
and J.D. degrees from Washington University in St. Louis. In 1995, Mr. Cross
served as chairman of the Gorham/Intertech International Conference on
Nanostructured Materials and Coatings.
Dennis J. Nowak has served as Vice President - Finance and
Administration, Chief Financial Officer, Treasurer and Secretary of Nanophase
since joining the Company in September 1996. From October 1991 to September
1996, Mr. Nowak was a partner in the accounting firm of Ernst & Young LLP,
where he specialized in financial management and audit services for emerging
high-technology companies. Mr. Nowak has more than 20 years experience as a
public accountant. He holds a B.S. degree from Indiana University.
Richard W. Brotzman joined the Company in July 1994 and has served as
Vice President - Research of Nanophase since July 1996. He is the inventor of
the Company's coating technology. Dr.
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Brotzman has 15 years experience in research and development of advanced
materials leading to new products. His technical areas of expertise include
interfacial adhesion and chemistry, self-assembled polymeric coatings,
nanosized inorganic powders, powder processing, reactive coupling agents,
solgel derived protective coatings, non-destructive evaluation of composites,
neo-debye relaxation in green inorganic gels, asymmetric membranes and plasma
processing. From January 1991 to July 1994, Dr. Brotzman served as Director of
Research at TPL, Inc., an advanced materials company. He holds a B.S. degree in
chemical engineering from Lafayette College, an M.S. degree in engineering and
applied science from the University of California, Davis and a Ph.D. in
chemistry from the University of Washington.
Donald J. Freed has served as Vice President - Marketing of Nanophase
since April 1995. He has extensive experience in the commercial development of
new technology products, and has been responsible for the successful startup of
advanced-materials initiatives in three Fortune 50 companies. From 1985 to
April 1995, Dr. Freed held senior marketing, strategic planning and
product-development positions with AMP, Inc., and certain of its subsidiaries,
primarily in the development and marketing of advanced materials for
microelectronics and photonics. From 1980 to 1985, he held similar positions
with GTE Corp. and Imperial Chemical Industries, PLC. Previously, Dr. Freed
held various scientific and managerial positions at Bell Laboratories. He holds
a B.A. degree in chemistry from Queens College and an A.M. degree and Ph.D. in
chemistry from Harvard University. Dr. Freed is a member of The Illinois
Coalition and is past chairman of the International Standards Council for
Electronic Interconnection and Packaging Technologies.
Robert M. Kelly has served as Vice President - Cosmetic Products of
Nanophase since joining the Company in March 1996. He has more than 20 years
experience in the marketing of cosmetic, food and pharmaceutical ingredients.
From July 1994 to January 1996, Mr. Kelly was Vice President of Sales and
Marketing at Crompton & Knowles Corporation, a cosmetic, food and
pharmaceutical ingredients company. From January 1992 to July 1994, he was the
director of marketing at Milwaukee Seasonings, Inc., a subsidiary of CPC
International, Inc. Prior to 1992, he held senior marketing management
positions with Warner Jenkinson and Johnson & Johnson. He holds a B.A. degree
in business from Parsons College and an M.B.A from the University of Chicago.
Dennis J. Nagle has served as Vice President - Manufacturing of
Nanophase since joining the Company in July 1996. From March 1991 to March
1996, Mr. Nagle was Manufacturing Manager of the Electronic Chemicals Division
of Ashland Chemical. From April 1977 to March 1991, he held positions of
progressively increasing responsibility in manufacturing management with the
Chemical Division of Olin Corporation. Mr. Nagle holds combined bachelors
degrees in chemical engineering and engineering administration from Michigan
Technological University.
John C. Parker has served as Vice President - Technology of Nanophase
since 1993 and has been a principal scientist with the Company since June 1990.
Dr. Parker was the principal developer of the Company's PVS production system.
He has a broad range of experience in the synthesis, processing and
characterization of semiconductor and ceramic materials. Prior to joining
Nanophase, Dr. Parker was a research associate at Argonne where he participated
in the development and characterization of chemical vapor deposition-grown thin
films and nanocrystalline ceramics. Dr. Parker holds a B.S. degree in physics
from Northeastern Illinois University and an M.S. degree and Ph.D. in physics
from Purdue University. He has published 37 refereed papers and given numerous
scientific and technical presentations at national and international
conferences and private institutions. Dr. Parker co-chaired the symposium on
Nanophase and Nanocomposite Materials at the 1992 and 1996 Materials Research
Society fall meetings.
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Leonard A. Batterson has served as a director and as Chairman of the
Board of Nanophase since 1991. He is Chief Executive Officer of Batterson
Venture Partners LLC, a venture capital investment firm which he founded in
1995. In 1988, he co-founded and continues as Managing General Partner of
Batterson Johnson and Wang L.P., a $33 million high technology venture capital
fund. Prior to 1988, he was Director of the Venture Capital Division of the
Allstate Insurance Company, one of country's oldest, largest and most
successful venture capital operations. Mr. Batterson has been a founding
investor in a number of successful businesses, including America Online, Inc.,
Northfield Laboratories, Health Magazine, Illinois Superconductor Corporation,
Atlantic American Cablevision, and LinksCorp, Inc. Mr. Batterson is Chairman of
the Board of LinksCorp, Inc., a golf course management company, and previously
served as Chairman and Chief Executive Officer of the Dytel Corporation and
Receptor Laboratories, and as Chief Executive Officer of Lamb Enterprises. He
is a director of Illinois Superconductor Corporation, a manufacturer of
wireless telecommunications products. Mr. Batterson's book, Raising Venture
Capital and the Entrepreneur, was published by Prentice Hall. He holds a B.A.
degree from Washington University, a J.D. from Washington University Law School
and an M.B.A. from Harvard Business School.
Steven Lazarus has served as a director of Nanophase since 1991. Mr.
Lazarus is Managing Director of ARCH Venture Partners L.P. From 1986 to 1994,
he served concurrently as President and Chief Executive Officer of ARCH
Development Corporation and Associate Dean of the Graduate School of Business
of the University of Chicago. Prior to joining ARCH Development Corporation,
Mr. Lazarus held a variety of positions at Baxter Travenol Laboratories, Inc.,
the predecessor of Baxter Healthcare Corporation, including Group Vice
President of the Health Care Services Group and Senior Vice President for
Technology. From 1972 to 1974, Mr. Lazarus served in Washington, D.C. as Deputy
Assistant Secretary of Commerce for East-West Trade and was founder and first
Director of the Bureau of East-West Trade. He is a 21-year veteran of the U.S.
Navy, retiring in 1973 with the rank of captain. He holds a bachelors degree
with honors from Dartmouth College and an M.B.A. with high distinction from the
Harvard Graduate School of Business Administration, where he was also a Baker
Scholar. Mr. Lazarus is a director of Amgen Corporation, Primark Corporation
and Illinois Superconductor Corporation, all of which are public companies.
Robert W. Shaw, Jr. has served as a director of Nanophase since 1991.
He is founder and President of Arete Ventures, Inc., and Managing Partner for
the Utech Funds. Dr. Shaw is experienced in both venture capital and consulting
for the electric utility industry. Prior to forming Arete Ventures, Inc. in
1983, Dr. Shaw was Senior Vice President of Booz, Allen & Hamilton's Energy
Division and a member of the firm's board of directors. Earlier in his career,
he conducted materials and electronics research at Bell Laboratories and at the
Cavendish Laboratory in the U.K. He serves as a director and Chairman of
Superconductivity, Inc., Proton Energy Systems, Inc. and Evergreen Solar, Inc.
He holds a Ph.D. in applied physics from Stanford University, an M.P.A. from
American University and M.S. and B.E.P. degrees from Cornell University.
Richard W. Siegel is a co-founder of Nanophase and has served as a
director of Nanophase since 1989. Dr. Siegel is an internationally renowned
scientist in the field of nanocrystalline materials. During his tenure on the
research staff at Argonne from July 1974 to May 1995, he was the principal
scientist engaged in research with the laboratory-scale synthesis process that
was the progenitor of Nanophase's PVS production system. He currently is the
Robert W. Hunt Professor and Head of the Materials Science and Engineering
Department of Rensselaer Polytechnic Institute, a position he has held since
June 1995. During 1995, he was also a visiting professor at the Max Planck
Institute for Microstructure Physics in Germany on an Alexander von Humboldt
Research Prize. He has served on the Council of the Materials Research Society
and as Chairman of the International Committee on Nanostructured Materials. He
also served on the Committee on Materials with Sub-Micron Sized Microstructures
of the National Materials Advisory Board and was the co-chairman of the Study
Panel on Clusters and Cluster-Assembled Materials
39
<PAGE> 41
for the U.S. Department of Energy. Dr. Siegel holds an A.B. degree in physics
from Williams College and an M.S. degree and Ph.D. from the University of
Illinois at Urbana/Champaign.
BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes with
staggered three-year terms. The terms of Mr. Cross and Dr. Shaw expire at the
annual meeting of the Company's stockholders in 1998, the terms of Mr. Lazarus
and Dr. Siegel expire at the annual meeting of the Company's stockholders in
1999, and Mr. Batterson's term expires at the annual meeting of the Company's
stockholders in 2000. At each annual meeting of the Company's stockholders, the
successors to the class of directors whose term expires at such annual meeting
are elected for a three-year term.
ARRANGEMENTS FOR NOMINATION AS DIRECTOR
In connection with the sale of its Preferred Stock, the Company and
certain of its stockholders entered into the Amended and Restated Shareholders'
Agreement, dated as of March 16, 1994, as amended (the "Shareholders'
Agreement"), pursuant to which they agreed that the Company's Board of
Directors shall consist of (i) up to two individuals designated jointly by the
holders of Common Stock, one of whom shall be the President of the Company,
(ii) up to three individuals designated jointly by holders of the Company's
Series C Convertible Preferred Stock ("Series C Preferred"), (iii) one
individual designated jointly by certain holders of the Company's Series D
Convertible Preferred Stock ("Series D Preferred") and (iv) one individual
unrelated to any holder of Preferred Stock designated jointly by the members of
the Company's Board of Directors who were elected pursuant to (i) and (ii). The
Company's stockholders also agreed that as long as Batterson Johnson & Wang
L.P. ("BJ&W") continues to own shares of Series D Preferred, they shall use
their best efforts to elect Mr. Batterson as Chairman of the Company's Board of
Directors. Of the current directors of the Company, Messrs. Cross and Lazarus
were elected as nominees of the holders of Common Stock and Mr. Batterson and
Drs. Shaw and Siegel were elected as nominees of the holders of the Series C
Preferred. The Shareholders' Agreement, including the rights and obligations of
the aforementioned parties to elect directors, will terminate upon the
consummation of this offering.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has appointed an Audit Committee and
a Compensation Committee. The members of the Audit Committee are Messrs.
Lazarus (Chairman) and Batterson and Dr. Shaw. The Audit Committee makes
recommendations concerning the Company's engagement of independent public
accountants, reviews the Company's annual audit, and reviews with the Company's
independent public accountants the Company's internal controls and financial
management policies. The members of the Compensation Committee are Messrs.
Batterson (Chairman) and Lazarus and Dr. Shaw. The Compensation Committee
establishes the Company's general compensation policy and recommends to the
Company's Board of Directors compensation for the Company's officers and key
employees.
COMPENSATION OF DIRECTORS
The Company does not presently compensate its directors for serving in
such capacity. All outside directors, however, are reimbursed for their
reasonable out-of-pocket expenses incurred in attending board and committee
meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Batterson, who is Chairman of the Compensation Committee, is the
managing general partner of BJ&W. On the following dates, the Company issued to
BJ&W the following number of shares of Series D Preferred at the following
prices per share: _______ shares at $____ per share in March 1994;
40
<PAGE> 42
_______ shares at $____ per share in October 1994; ______ shares at $____ per
share in April 1995; and _______ shares at $____ per share in November 1995.
Mr. Lazarus, who is a member of the Compensation Committee, is the
managing director of ARCH Venture Fund II, L.P. ("AVF II"). On the following
dates, the Company issued to AVF II the following number of shares of Series D
Preferred at the following prices per share: _______ shares at $____ per share
in March 1994; _______ shares at $____ per share in October 1994; and _______
shares at $____ per share in November 1995.
Mr. Shaw, who is a member of the Compensation Committee, is the
President of Arete Ventures, Inc., which is a general partner of the managing
general partner of UVCC Fund II ("UVCC II") and UVCC II Parallel Fund, L.P.
("UVCC Parallel"). On the following dates, the Company issued to each of UVCC
II and UVCC II Parallel the following number of shares of Series D Preferred at
the following prices per share: _______ shares at $____ per share in March
1994; _______ shares at $____ per share in October 1994; ______ shares at $____
per share in April 1995; and _______ shares at $____ per share in November
1995.
All of the above described shares of Series D Preferred will be
converted into shares of Common Stock on a one-for-one basis upon the
consummation of this offering. Pursuant to the Amended and Restated
Registration Rights Agreement, dated as of March 16, 1994, as amended (the
"Registration Rights Agreement"), BJ&W, AVF II, UVCC II and UVCC Parallel, as
holders of shares of Common Stock issuable upon conversion of the shares of
Series D Preferred, are entitled to certain demand registration rights. In
addition, whenever the Company proposes to register any of its securities under
the Securities Act, BJ&W, AVF II, UVCC II and UVCC Parallel may also, subject
to certain restrictions, include their shares of Common Stock issuable upon
conversion of the shares of Series D Preferred in such registration. See
"Description of Capital Stock--Registration Rights."
EXECUTIVE COMPENSATION
The following table sets forth information with respect to all
compensation paid by the Company for services rendered during the fiscal year
ended December 31, 1996, to its Chief Executive Officer and the other executive
officers of the Company whose total annual salary and bonus exceeded $100,000
during the fiscal year ended December 31, 1996 (each, a "Named Executive
Officer").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- -------------
THER ANNUAL SECURITIES ALL OTHER
OOMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) C ($) OPTIONS (#) ($)
- ----------------------------------- ------------- ----------- ------------- ------------- ------------
<S> <C> <C> <C>
Robert W. Cross,
President and Chief Executive
Officer.......................... $ 151,800 (1) $ 10,000(1) -- $ 4,685(2)
Donald J. Freed, Ph.D.,
Vice President-Marketing......... 105,625 -- -- --
Richard W. Brotzman, Ph.D.,
Vice President-Research.......... 102,615 -- -- --
</TABLE>
- ------------------
(1) The salary and bonus were paid to Cross Technologies, Inc., of which Mr.
Cross is chief executive officer and the sole employee.
(2) Represents the full dollar value of premiums paid by the Company with
respect to life insurance for the benefit of Mr. Cross and his
beneficiary.
41
<PAGE> 43
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement dated February
1994 with Robert W. Cross which continues his employment as President and Chief
Executive Officer of the Company, which began in February 1993. Mr. Cross'
employment agreement provides for an annual base salary of not less than
$130,000. The agreement further provides that Mr. Cross is entitled to the
reimbursement of expenses relating to commuting between the Company and his
out-of-state residence and his lodging expenses in the Chicago area incurred as
a result of his employment with the Company. Mr. Cross' employment agreement is
automatically renewed for successive one year periods unless 90-day prior
written notice of termination is given by the Company or Mr. Cross. If Mr.
Cross' employment is terminated other than for "cause" (as such term is defined
in Mr. Cross' employment agreement), Mr. Cross will receive severance benefits
in an amount equal to Mr. Cross' base salary for 26 weeks.
The Company has also entered into an employment agreement with Dennis
J. Nowak, pursuant to which Mr. Nowak became Vice President - Finance and
Administration, Chief Financial Officer, Treasurer and Secretary of the Company
effective September 1996. Mr. Nowak's employment agreement provides for an
annual base salary of $140,000, with increases to be determined by the
Company's Board of Directors, at its discretion. In addition, Mr. Nowak was
granted options to purchase _______ shares of Common Stock at an exercise price
of $____ per share, with options for one-fifth of such shares becoming
exercisable on each of the first five anniversaries of Mr. Nowak's employment.
If employed by the Company at such time, the agreement further provides that
Mr. Nowak will be entitled to a bonus of $35,000 upon the Company's successful
completion of an initial public offering and a bonus of $35,000 on the first
anniversary of his employment. No term has been assigned to Mr. Nowak's
employment agreement. If Mr. Nowak's employment is terminated other than for
"cause" (as such term is defined in Mr. Nowak's employment agreement), Mr.
Nowak will receive severance benefits in an amount equal to Mr. Nowak's base
salary for 26 weeks.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options by the Company to the Named Executive Officers during 1996.
<TABLE>
<CAPTION>
PERCENTAGE POTENTIAL REALIZABLE
NUMBER OF OF TOTAL VALUE AT ASSUMED
SHARES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE OR STOCK PRICE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION APPRECIATION FOR
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE(1) POPTION TERM (2)
- -------------------------------------- ------------ ------------ --------- ----------- ------------------
5%($) 10%($)
-------- --------
<S> <C> <C> <C> <C> <C>
Robert W. Cross....................... 6.0 - 03/01/06
11.3 - 11/07/06
Donald J. Freed, Ph.D................. 4.0 - 03/01/06
5.0 - 11/07/06
Richard W. Brotzman, Ph.D............. 4.3 - 03/01/06
6.0 - 11/07/06
</TABLE>
- ------------------
(1) Options expiring on 03/01/06 vest pro rata over the 5 years following the
date of grant. Options expiring on 11/07/06 vest 8 years from the
date of grant, subject to an earlier five-year vesting period if specified
performance targets for 1997 are met.
(2) Potential realizable value is calculated assuming that the fair market
value on the date of the grant, which equals the exercise price,
appreciates at the indicated annual rate (set by the Securities and
Exchange Commission (the "Commission")), compounded annually, for the term
of the option. Using the assumed initial public offering price of $_____
for purposes of this calculation (pursuant to the rules of the
Commission), the potential realizable values of the options granted in
1996 to Mr. Cross and Drs. Freed and Brotzman is approximately
$____________, $____________ and $____________, respectively, at a 5%
assumed annual appreciation rate, and approximately $____________,
$____________, and $____________, respectively, at a 10% assumed annual
appreciation rate. The 5% and 10% assumed rates of appreciation are
mandated by the rules of the Commission and do not represent the Company's
estimate or projection of future increases in the price of its Common
Stock.
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<PAGE> 44
FISCAL YEAR-END OPTION VALUES
The following table contains information regarding the Named Executive
Officers' unexercised options as of December 31, 1996. None of the Named
Executive Officers exercised any options during 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AS OF DECEMBER 31, 1996 (#) OPTIONS AS OF DECEMBER 31, 1996 ($)(1)
------------------------------------- --------------------------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------- ------------------------------------- --------------------------------------------
<S> <C> <C>
Robert W. Cross................... $
Donald J. Freed, Ph.D.............
Richard W. Brotzman, Ph.D.........
</TABLE>
- ------------------
(1) The value per option is calculated by subtracting the exercise price of
the option from the fair market value of the option shares at December 31,
1996 of $________ per share, as determined by the Company's Board of
Directors based on the most recent price prior to December 31, 1996 at
which the Company had issued or agreed to issue Common Stock.
STOCK OPTION PLAN
Effective January 13, 1992, the Company's Board of Directors adopted
the Stock Option Plan, pursuant to which options to acquire up to ____________
shares of Common Stock may be granted to the Company's key employees,
directors, consultants or advisors, and other employees of the Company as the
Company's Board of Directors may from time to time designate. The stock options
expire ten years from the date of grant. _______________ of the outstanding
options vest eight years following the grant date, subject to earlier vesting
if specified performance targets are met. The remaining __________ outstanding
options vest over a five-year period. Exercise prices are determined by the
Company's Board of Directors, but may not be less than the fair market value of
the Common Stock as determined by the Company's Board of Directors as of the
date of issuance of each stock option.
401(K) PLAN
Effective June 30, 1995, the Company adopted the Nanophase
Technologies Corporation 401(k) and Profit Sharing Plan (the "401(k) Plan")
covering all of the Company's employees who meet prescribed service
requirements. Pursuant to the 401(k) Plan, employees may elect to reduce their
current compensation by up to fifteen percent, but not to exceed the
statutorily prescribed annual limit ($9,500 in 1997), and have the amount of
such reduction contributed to the 401(k) Plan. The 401(k) Plan is intended to
qualify under Section 401 of the Internal Revenue Code so that employee
contributions to the 401(k) Plan, and income earned on such contributions, are
not taxable to employees until withdrawn from the 401(k) Plan. Each
participant's contributions are fully vested. The Company, at the sole
discretion of the Company's Board of Directors, may make additional or
"matching" contributions under the 401(k) Plan, which contributions are not to
exceed statutorily prescribed limits. The Company has not made any such
contributions to the 401(k) Plan since its inception.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Pursuant to the provisions of the Delaware General Corporation Law
("DGCL"), the Company, upon its reincorporation in Delaware, will adopt
provisions in its Certificate of Incorporation which eliminate the personal
liability of its directors to the Company or its stockholders for monetary
damages for breach of their fiduciary duty as a director to the fullest extent
permitted by the DGCL except for liability (i) for any breach of their duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. The provisions of the
43
<PAGE> 45
Company's Certificate of Incorporation do not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
The Certificate of Incorporation will also contain provisions which
require the Company to indemnify its directors, and permit the Company to
indemnify its officers and employees, to the fullest extent permitted by
Delaware law, including those circumstances in which indemnification would
otherwise be discretionary, except that the Company shall not be obligated to
indemnify any such person (i) with respect to proceedings, claims or actions
initiated or brought voluntarily by any such person and not by way of defense,
or (ii) for any amounts paid in settlement of an action indemnified against by
the Company without the prior written consent of the Company. Prior to
consummation of this offering, the Company intends to (a) enter into indemnity
agreements with each of its directors providing for such indemnification and
(b) obtain directors' and officers' liability insurance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to transactions described under "Management--Compensation
Committee Interlocks and Insider Participation," the following relationships
and transactions have been effected involving the Company and its directors,
executive officers and principal stockholders.
The Company leased its original office space from ARCH Development
Corporation, formerly an affiliate of Mr. Lazarus, a director of the Company,
under a sublease agreement which expired in November 1996. Monthly lease
payments amounted to $3,600. When the Company moved to its Burr Ridge facility
in 1995, it entered into a sublease of this office space and received monthly
rental payments under the sublease of $2,200 per month through November 1996.
The Company entered into a consulting agreement with Dr. Richard W.
Siegel, a co-founder and director of the Company, in May 1990. Pursuant to this
agreement, Dr. Siegel renders consulting services to the Company with respect
to applications for, and commercialization of, nanocrystalline materials. The
original term of the agreement was for 5 years, and the agreement is renewable
for successive one-year terms unless terminated by Dr. Siegel or the Company.
Payment to Dr. Siegel under this agreement currently amounts to $2,500 per
month.
Pursuant to a severance benefit agreement with Dr. John C. Parker,
Vice President - Technology, the Company has established a trust in the amount
of $78,849, with interest being credited to the trust until the funds held in
trust are equal to $80,000. Payments from the trust to Dr. Parker will be
required in the event the Company terminates his employment, as defined in Dr.
Parker's agreement, before November 15, 1999. Upon the occurrence of an initial
public offering, the funds in the trust will revert to the Company.
The Company intends that any future transactions between the Company
and its officers, directors and affiliates will be on terms no less favorable
to the Company than can be obtained from unaffiliated third parties, and any
transactions with such persons will be approved by a majority of the Company's
outside directors or will be consistent with policies approved by such outside
directors.
44
<PAGE> 46
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock, as of February 28, 1997, and as
adjusted to reflect the sale of Common Stock offered hereby and consummation of
the Preferred Stock Conversion, by (a) each person who is known by the Company
to be the beneficial owner of more than 5% of the outstanding Common Stock, (b)
each director of the Company, (c) each Named Executive Officer and (d) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED (1)
-----------------------------
NUMBER OF SHARES BEFORE AFTER
NAME BENEFICIALLY OWNED (1) OFFERING OFFERING
- ---------------------------------------------------- ---------------------- ------------- -------------
<S> <C> <C> <C>
Batterson Johnson & Wang L.P. ...................... (2) 13.9% %
Grace Investment, Ltd. (3).......................... 13.9%
ARCH Venture Fund Limited Partnership............... (4) 10.0%
ARCH Venture Fund II Limited Partnership (5)........ 9.4%
Harris & Harris Group, Inc. (6)..................... 9.0%
UVCC Fund II........................................ (7) 6.0%
UVCC II Parallel Fund, L.P.......................... (7) 6.0%
Richard W. Siegel, Ph.D............................. (8) 2.9%
Robert W. Cross..................................... (9) 1.2%
Richard W. Brotzman, Ph.D........................... (9) *
Donald J. Freed, Ph.D............................... (9) *
Leonard A. Batterson................................ (10) --
Steven Lazarus...................................... (11) --
Robert W. Shaw, Jr., Ph.D........................... (12) --
All directors and executive officers
as a group (11 persons)........................... (13) 5.5%
</TABLE>
- ------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options or warrants held by that person that are currently
exercisable or exercisable within 60 days of February 28, 1997 at a price
less than or equal to the market price are deemed outstanding. Unless
otherwise indicated below, the persons in the above table have sole voting
and investment power with respect to all shares shown as beneficially
owned by them.
(2) Includes _________ shares issuable upon exercise of warrants presently
exercisable. The address of the stockholder is 303 West Madison Street,
Suite 1110, Chicago, Illinois 60606.
(3) The address of the stockholder is 1560 Sherman Avenue, Suite 900,
Evanston, Illinois 60201.
(4) Includes _________ shares issuable upon exercise of warrants presently
exercisable. The address of the stockholder is 135 South LaSalle Street,
Suite 3702, Chicago, Illinois 60603.
(5) The address of the stockholder is 135 South LaSalle Street, Suite 3702,
Chicago, Illinois 60603.
(6) The address of the stockholder is One Rockefeller Plaza, New York, New
York 10020.
(7) Includes ________ shares issuable upon exercise of warrants presently
exercisable. The address of the stockholder is 6110 Executive Boulevard,
Suite 1040, Rockville, Maryland 20852.
(8) Includes _________ shares issuable upon exercise of warrants presently
exercisable and __________ shares issuable upon exercise of options
presently exercisable.
(9) Consists of shares issuable upon exercise of options presently
exercisable.
(10) Excludes __________ shares and _________ shares issuable upon exercise of
warrants presently exercisable, all of which are beneficially held by
BJ&W. Mr. Batterson is the managing general partner of BJ&W and in such
capacity he shares voting and investment power with respect to shares held
by BJ&W and, therefore, may be deemed to be the beneficial owner of the
shares directly owned by BJ&W. Mr. Batterson disclaims this beneficial
ownership.
(11) Excludes _________ shares and __________ shares issuable upon exercise of
warrants presently exercisable, all of which are beneficially held by ARCH
Venture Fund Limited Partnership ("AVFLP"); ___________ shares held by
ARCH Venture Fund II, L.P. ("AVF II"); and ___________ shares held by ARCH
Fund II Parallel, L.P. ("AFP"). Mr. Lazarus serves as the managing
director of ARCH Venture Partners L.P. and has been granted power of
attorney to act in the name of and for ARCH Development Corporation
("ADC") with respect to ADC's role as general partner of AVFLP. Mr.
Lazarus also serves as managing director of AVF II and AFP. In such
capacities, Mr. Lazarus shares voting and investment power with respect to
shares held by AVFLP, AVF II and AFP and, therefore, may be deemed to be
the beneficial owner of the shares directly owned by AVFLP, AVF II and
AFP. Mr. Lazarus disclaims this beneficial ownership.
(12) Excludes ___________ shares and ___________ shares issuable upon exercise
of warrants presently exercisable, all of which are beneficially held by
UVCC Fund II ("UVCC II"), and ___________ shares and ____________ shares
issuable upon exercise of warrants presently exercisable, all of which are
beneficially held by UVCC II Parallel Fund, L.P. ("UVCC Parallel"). Mr.
Shaw serves as the President of Arete Ventures, Inc., which is a general
partner of the managing general partner of UVCC II and UVCC Parallel. In
such capacity, he shares voting and investment power with respect to
shares directly owned by UVCC II and UVCC Parallel and, therefore, may be
deemed to be the beneficial owner of the shares directly owned by UVCC II
and UVCC Parallel. Mr. Shaw disclaims this beneficial ownership.
(13) Includes _________ shares issuable upon exercise of warrants presently
exercisable and __________ shares issuable upon exercise of options
presently exercisable.
45
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, $.01 par value per share, and 13,000,000 shares of
preferred stock, $.01 par value per share.
The following summary of certain provisions relating to the Common
Stock and Preferred Stock does not purport to be complete and is subject to,
and qualified in its entirety by, provisions of applicable law, and by the
provisions of the Company's Certificate of Incorporation and Bylaws that are
included as exhibits to the Registration Statement of which this Prospectus is
a part.
COMMON STOCK
As of February 28, 1997, after giving effect to the ________-for-one
stock split, __________ shares of Common Stock were outstanding and held by
_____ holders of record. ___________ shares of Common Stock will be outstanding
upon consummation of this offering. Subject to the rights of holders of
preferred stock, the holders of outstanding shares of Common Stock are entitled
to share ratably in dividends declared out of assets legally available therefor
at such time and in such amounts as the Board of Directors may from time to
time lawfully determine. Each holder of Common Stock is entitled to one vote
for each share held. Subject to the rights of holders of any outstanding
preferred stock, upon liquidation, dissolution or winding up of the Company,
any assets legally available for distribution to stockholders as such are to be
distributed ratably among the holders of the Common Stock at that time
outstanding. All shares of Common Stock currently outstanding are, and all
shares of Common Stock offered by the Company hereby when duly issued and paid
for will be, fully paid and nonassessable, not subject to redemption and
assessment and without conversion, preemptive or other rights to subscribe for
or purchase any proportionate part of any new or additional issues of any class
or of securities convertible into stock of any class.
PREFERRED STOCK
As of February 28, 1997, after giving effect to the ____-for-one stock
split, __________ shares of Preferred Stock were outstanding and held by _____
holders of record. Pursuant to the Preferred Stock Conversion, the holders of
all of the issued and outstanding shares of Preferred Stock will convert, upon
the consummation of this offering, into an equal number of shares of Common
Stock. Thus, the following information does not pertain to the currently
outstanding Preferred Stock, but rather the preferred stock that may be issued
in the future as provided in the Company's Certificate of Incorporation.
Preferred stock may be issued by the Company in series from time to time with
such designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions thereof, to the extent that such are not fixed in
the Company's Certificate of Incorporation, as the Board of Directors
determines. The rights, preferences, limitations and restrictions of different
series of preferred stock may differ with respect to dividend rates, amounts
payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and other matters. The Board of Directors
may authorize the issuance of preferred stock which ranks senior to the Common
Stock with respect to the payment of dividends and the distribution of assets
on liquidation. In addition, the Board of Directors is authorized to fix the
limitations and restrictions, if any, upon the payment of dividends on Common
Stock to be effective while any shares of preferred stock are outstanding. The
Board of Directors, without stockholder approval, may issue preferred stock
with voting and conversion rights which could adversely affect the voting power
of the holders of Common Stock. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present intention to issue shares of preferred stock.
WARRANTS
As of February 28, 1997, after giving effect to the _____-for-one
stock split, warrants to purchase a total of __________ shares of Common Stock
will be outstanding at an exercise price of $______ per share. The warrants
expire February 8, 2003 or one year later if at such time the shares of Common
46
<PAGE> 48
Stock underlying the warrants are required to be or are in the process of being
registered under the Securities Act. The number of shares issuable upon
exercise of the warrants is subject to proportionate adjustment in the event of
stock splits, stock dividends and similar events.
CERTAIN CORPORATE PROVISIONS
Upon the consummation of this offering, the Company will be subject to
the provisions of Section 203 of the DGCL. In general, this statute prohibits a
publicly held Delaware corporation from engaging, under certain circumstances,
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person becomes an
interested stockholder, unless either (i) prior to the date at which the
stockholder became an interested stockholder the board of directors approved
either the business combination or the transaction in which the person becomes
an interested stockholder, (ii) the stockholder acquires more than 85% of the
outstanding voting stock of the corporation (excluding shares held by directors
who are officers or held in certain employee stock plans) upon consummation of
the transaction in which the stockholder becomes an interested stockholder or
(iii) the business combination is approved by the board of directors and by
two-thirds of the outstanding voting stock of the corporation (excluding shares
held by the interested stockholder) at a meeting of the stockholders (and not
by written consent) held on or subsequent to the date of the business
combination. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time within the prior three years
did own) 15% or more of the corporation's voting stock. Section 203 defines a
"business combination" to include, without limitation, mergers, consolidations,
stock sales and asset based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
Upon reincorporation in Delaware, the Company's Certificate of
Incorporation and Bylaws will contain a number of provisions relating to
corporate governance and to the rights of stockholders. Certain of these
provisions may be deemed to have a potential "anti-takeover" effect in that
such provisions may delay, defer or prevent a change of control of the Company.
These provisions include (i) a requirement that stockholder action may be taken
only at stockholder meetings; (ii) the authority of the Board of Directors to
issue series of preferred stock with such voting rights and other powers as the
Board of Directors may determine; (iii) notice requirements in the Bylaws
relating to nominations to the Board of Directors and to the raising of
business matters at stockholders meetings; and (iv) the classification of the
Board of Directors into three classes, each serving for staggered three year
terms. See "Management--Executive Officers and Directors."
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the holders of
_______________ outstanding shares of Common Stock (including the shares of
Common Stock issued pursuant to consummation of the Preferred Stock Conversion)
and __________ additional shares of Common Stock issuable upon the exercise of
outstanding warrants (collectively, the "Registrable Securities") are entitled
to certain demand registration rights. Under the Registration Rights Agreement,
subject to certain exceptions, the holders of at least 60% of the Registrable
Securities may require the Company to use its best efforts to register such
Registrable Securities on one occasion for public resale. If the Company is
entitled to register the Registrable Securities on a Form S-2 or Form S-3, one
or more holders of the Registrable Securities may request the Company to
register such Registrable Securities on one of such forms. In addition,
whenever the Company proposes to register any of its securities under the
Securities Act, the holders of Registrable Securities are entitled, subject to
certain restrictions, to include their Registrable Securities in such
registration. Except for a limited circumstance, the Company is required to
bear all registration expenses in connection with the registration of
Registrable Securities (other than underwriting discounts and commissions). See
"Underwriting."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is LaSalle
National Bank, N.A.
47
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock. Sales of substantial amounts of Common Stock in the public market, or
the availability of such shares for sale, could adversely affect the market
price of the Common Stock.
Upon completion of this offering, the Company will have an aggregate
of __________ shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants after February 28, 1997. Of these shares, the _______________ shares
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless held by "affiliates" of the
Company, as that term is defined in Rule 144 promulgated under the Securities
Act. The remaining ____________ shares of Common Stock outstanding upon
completion of this offering will be Restricted Shares.
All directors and officers and certain other stockholders of the
Company have agreed with the Underwriters that, for a period of 180 days from
the date of this Prospectus, they will not offer to sell or otherwise sell,
dispose of or grant rights with respect to any shares of Common Stock, now
owned or hereafter acquired directly by such holders or with respect to which
they have the power of disposition, otherwise than with the prior written
consent of Furman Selz. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701 of the Securities Act, shares subject to lock-up
agreements will not be salable until the agreements expire or unless prior
written consent is received from Furman Selz. Any early waiver of the lock-up
agreement by the underwriters, which, if granted, could permit sales of a
substantial number of shares and could adversely affect the trading price of
the Company's shares, may not be accompanied by an advance public announcement
by the Company. See "Underwriting."
Taking into account the lock-up agreements, the number of shares that
will be available for sale in the public market under the provisions of Rules
144 and 144(k), will be as follows: (i) approximately _____________ Restricted
Shares will be eligible for sale immediately after the effective date of the
Registration Statement, and (ii) the remaining ______________ Restricted Shares
will become eligible for public resale following expiration of the lock-up
agreements, subject in some cases to vesting provisions and volume and manner
of sale limitations.
Beginning 90 days after the effective date of the Registration
Statement, certain shares issued or issuable upon exercise of options granted
by the Company prior to the effective date of the Registration Statement will
also be eligible for sale in the public market pursuant to Rule 701 under the
Securities Act, subject to pre-existing lockup agreements. In general, Rule 701
permits resales of shares issued pursuant to certain compensatory benefit plans
and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, in
reliance upon Rule 144 but without compliance with certain restrictions,
including the holding period requirements, contained in Rule 144.
In general, under Rule 144 as in effect after April 29, 1997, a person
(or persons whose shares are aggregated) who has beneficially owned Restricted
Shares for at least one year, including persons who may be deemed "affiliates"
of the Company, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of one percent of the number
of shares of Common Stock then outstanding or the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the filing of a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. In addition, a
person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned for at
least two years the shares proposed to be sold, would be entitled to sell such
shares under Rule 144(k)
48
<PAGE> 50
without regard to the requirements described above. The Company is unable to
estimate accurately the number of Restricted Shares that will be sold under
Rule 144 because this will depend in part on the market price for the Common
Stock, the personal circumstances of the seller and other factors.
Pursuant to Rule 144 and upon expiration of the one-year holding
period, an additional ____________ shares of Common Stock will be available for
sale upon the exercise of outstanding warrants. As of February 28, 1997,
options to purchase ____________ shares were issued and outstanding under the
Stock Option Plan. See "Management--Stock Option Plan."
49
<PAGE> 51
UNDERWRITING
Each of the Underwriters named below (collectively, the
"Underwriters"), for which Furman Selz, Oppenheimer & Co., Inc. and Gruntal &
Co., Incorporated are acting as representatives (the "Representatives"), has
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company, and the Company has agreed to sell to
each of the Underwriters, the number of shares of Common Stock set forth
opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------- ----------------
<S> <C>
Furman Selz LLC........................................................
Oppenheimer & Co., Inc.................................................
Gruntal & Co., Incorporated............................................
----------------
Total............................................................
================
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock listed above are subject to
the approval of certain legal matters by counsel and various other conditions.
The Underwriting Agreement also provides that the Underwriters are committed to
purchase all of the shares of Common Stock offered hereby, if any are purchased
(without consideration of any shares that may be purchased through the
Underwriters' over-allotment option).
Prior to the offering made hereby, there has been no public market for
the Common Stock. Accordingly, the initial public offering price for the Common
Stock will be determined by negotiations among the Company and the
Representatives. Among the factors to be considered in such negotiations are
the Company's results of operations and current financial condition, estimates
of the business potential and prospects of the Company, the experience of the
Company's management, the economics of the industry in general, the general
condition of the equities market and other relevant factors. There can be no
assurance that any active trading market will develop for the Common Stock or
as to the price at which the Common Stock may trade in the public market from
time to time subsequent to the offering made hereby.
The Representatives have advised the Company that the Underwriters
propose to offer shares of Common Stock to the public initially at the public
offering price set forth on the cover of this Prospectus and to certain dealers
at such price less a concession of not in excess of $_______ per share. The
Underwriters may allow, and such selected dealers may reallow, a concession not
in excess of $_______ per share to certain other dealers. After the initial
public offering of the shares of Common Stock, the public offering price and
other selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to
____________ additional shares of Common Stock at the public offering price set
forth on the cover of this Prospectus, less underwriting discounts and
commissions. To the extent that the Underwriters exercise such option, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase such number of additional shares of Common Stock as is proportionate
to such Underwriter's initial commitment to purchase shares from the Company.
The Underwriters may exercise such option solely to cover over-allotments, if
any, incurred in the sale of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
50
<PAGE> 52
The Company, each officer and director of the Company and certain of
its stockholders have agreed not to offer, pledge, sell, offer to sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
enter into any similar agreement that transfers, in whole or in part, the
economic risk of ownership of the Common Stock, for a period of 180 days from
the date of this Prospectus, without the prior written consent of Furman Selz.
Notwithstanding the foregoing, the Company may issue and sell shares of Common
Stock pursuant to the Underwriters' over-allotment option and upon exercise of
stock options granted pursuant to any stock option plan or employee benefits
plan in effect as of the date of the Underwriting Agreement.
Certain employees of Gruntal & Co., Incorporated ("Gruntal") own an
aggregate of __________ shares of Series E Convertible Preferred Stock of the
Company (the "Series E Preferred"), which shares will be converted into an equal
number of shares of Common Stock upon consummation of this offering. None of
the shares held by the Gruntal employees are being offered hereby. In May 1996,
Gruntal acted as a placement agent in a private placement of shares of Series E
Preferred, for which Gruntal received a customary placement agency fee.
The Representatives have informed the Company that the Underwriters do
not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "NTCO."
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Katten Muchin & Zavis,
Chicago, Illinois, a partnership including professional corporations. A current
partner of Katten Muchin & Zavis owns _________ shares of Preferred Stock,
which will be converted into an equal amount of Common Stock upon consummation
of this offering. Certain legal matters in connection with United States
patents will be passed upon for the Company by McAndrews, Held & Malloy, Ltd.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Latham & Watkins, Chicago, Illinois.
EXPERTS
The financial statements of the Company at December 31, 1995 and 1996
and for each of the three years in the period ended December 31, 1996 and for
the period from inception (November 30, 1989) through December 31, 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
Certain matters dealing with patents and proprietary rights set forth
under "Risk Factors--Patents and Protection of Proprietary Information" and
"Business--Intellectual Property and Proprietary Rights" have been included in
this Prospectus in reliance upon the status of McAndrews, Held & Malloy, Ltd.
as experts in such matters. See "Legal Matters."
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-1 (of which this Prospectus is a part) under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information with respect to the Company and the Common Stock
offered hereby, reference is made to the Registration Statement and such
exhibits and schedules. Statements contained in this Prospectus regarding the
contents of any agreement or other document referred to are not necessarily
complete, and in each instance, reference is made to a copy of such agreement
or other document filed as an exhibit to the Registration Statement. Each such
statement is qualified in all respects by such reference. The Registration
Statement and the exhibits and schedules
51
<PAGE> 53
thereto may be inspected without charge at the public reference facilities
maintained by the Commission, including at the Commission's Public Reference
Room, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at
the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies may be obtained at prescribed rates from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. Such materials also may be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov.com.
52
<PAGE> 54
NANOPHASE TECHNOLOGIES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of December 31, 1995 and 1996............. F-3
Statements of Operations for the years ended December 31,
1994, 1995 and 1996 and cumulative from inception to
December 31, 1996......................................... F-4
Statement of Stockholders' Equity for the period from
inception to December 31, 1996............................ F-5
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and cumulative from inception to
December 31, 1996......................................... F-6
Notes to the Financial Statements........................... F-7
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Nanophase Technologies Corporation
We have audited the accompanying balance sheets of Nanophase Technologies
Corporation (a development stage company) as of December 31, 1995 and 1996, and
the related statements of operations, stockholders' equity, and cash flows for
each of the years in the three year period ended December 31, 1996 and for the
period from inception (November 30, 1989) through December 31, 1996. Our audits
also included the financial statement schedule listed in the index at Item 16.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Nanophase Technologies
Corporation at December 31, 1995 and 1996, and the results of its operations and
its cash flows for each of the years in the three year period ended December 31,
1996 and for the period since inception (November 30, 1989) through December 31,
1996, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
January 31, 1997
F-2
<PAGE> 56
NANOPHASE TECHNOLOGIES CORPORATION
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 261,902 $ 617,204
Investments............................................... 2,221,401 1,997,788
Contract revenue receivable............................... 70,845 274,132
Trade accounts receivable................................. -- 115,369
Inventories............................................... 65,280 445,205
Prepaid expenses and other current assets................. 67,277 50,275
----------- ------------
Total current assets................................... 2,686,705 3,499,973
Equipment, furniture, and leasehold improvements, net....... 924,814 1,794,798
OTHER ASSETS:
Deferred offering costs................................... -- 79,122
Patent costs, less accumulated amortization of $5,156 in
1995 and $6,732 in 1996................................ 52,742 86,892
Cash held in trust........................................ 76,867 78,849
----------- ------------
$ 3,741,128 $ 5,539,634
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 219,411 $ 221,936
Accrued expenses.......................................... 15,667 207,248
----------- ------------
Total current liabilities.............................. 235,078 429,184
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, no par value;
292,728 shares authorized, issued, and outstanding..... 600,000 600,000
Series B convertible preferred stock, no par value;
1,309,772 shares authorized, issued, and outstanding... 851,351 851,351
Series C convertible preferred stock, no par value;
1,143,846 shares authorized, issued, and outstanding... 743,500 743,500
Series D convertible preferred stock, no par value;
6,729,567 shares authorized; 6,705,329 issued and
outstanding at December 31, 1995; 6,729,567 issued and
outstanding at December 31, 1996....................... 6,405,262 6,429,500
Series E convertible preferred stock, no par value; no
shares authorized, issued and outstanding at December
31, 1995; 3,500,000 shares authorized; 3,319,171 shares
issued and outstanding at December 31, 1996............ -- 7,157,850
Common stock, no par value; 17,817,198 shares authorized;
134,000 shares issued and outstanding.................. 450 450
Deficit accumulated during development stage.............. (5,094,513) (10,672,201)
----------- ------------
Total stockholders' equity............................. 3,506,050 5,110,450
----------- ------------
$ 3,741,128 $ 5,539,634
=========== ============
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE> 57
NANOPHASE TECHNOLOGIES CORPORATION
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
CUMULATIVE FROM
INCEPTION
YEARS ENDED DECEMBER 31, (NOVEMBER 30, 1989)
----------------------------------------- TO DECEMBER 31,
1994 1995 1996 1996
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
REVENUE:
Commercial revenue................. $ 31,144 $ 93,591 $ 485,036 $ 655,042
Grant revenue...................... 288,271 182,705 110,770 1,652,054
----------- ----------- ----------- ------------
Total revenue................... 319,415 276,296 595,806 2,307,096
OPERATING EXPENSES:
Cost of revenue.................... 389,002 686,834 4,019,484 6,181,889
Research and development expense... 456,162 485,059 677,284 1,825,986
Selling, general and administrative
expense......................... 799,558 1,150,853 1,661,504 5,295,677
----------- ----------- ----------- ------------
Total operating expenses........ 1,644,722 2,322,746 6,358,272 13,303,552
----------- ----------- ----------- ------------
Operating expenses in excess of
revenue............................ (1,325,307) (2,046,450) (5,762,466) (10,996,456)
OTHER INCOME/(EXPENSE):
Interest income.................... 37,535 86,576 184,778 394,809
Interest expense................... -- -- -- (65,965)
Other.............................. -- -- -- (4,589)
----------- ----------- ----------- ------------
Total other income, net......... 37,535 86,576 184,778 324,255
----------- ----------- ----------- ------------
Net loss............................. $(1,287,772) $(1,959,874) $(5,577,688) $(10,672,201)
=========== =========== =========== ============
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE> 58
NANOPHASE TECHNOLOGIES CORPORATION
(A Development Stage Company)
Statement of Stockholders' Equity
For the period from inception (November 30, 1989) to December 31, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK PREFERRED STOCK DURING
---------------- ------------------------ DEVELOPMENT
DESCRIPTION SHARES AMOUNT SHARES AMOUNT STAGE TOTAL
- ----------------------------------------- ------- ------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares on January 25, 1990... 100 $ 100 -- $ -- $ -- $ 100
Issuance of shares to effect a 900 for 1
stock split of common stock on May 1,
1990................................... 89,900 -- -- -- -- --
Issuance of shares on May 15, 1990....... 10,000 10 -- -- -- 10
Net loss for the year ended December 31,
1990................................... -- -- -- -- (320,143) (320,143)
------- ----- ---------- ----------- ------------ -----------
Balance as of December 31, 1990.......... 100,000 110 -- -- (320,143) (320,033)
Issuance of shares on January 22, 1991... 2,000 20 -- -- -- 20
Issuance of shares on February 26,
1991................................... 18,000 180 -- -- -- 180
Repurchase of shares on May 6, 1991...... (15,600) (156) -- -- -- (156)
Conversion of notes payable on November
21, 1991 into shares of Series A....... -- -- 292,728 600,000 -- 600,000
Conversion of notes payable on November
21, 1991 into shares of Series B....... -- -- 230,770 150,000 -- 150,000
Issuance of Series B shares on November
21, 1991............................... -- -- 1,079,002 701,351 -- 701,351
Issuance of shares on November 21,
1991................................... 32,000 320 -- -- -- 320
Net loss for the year ended December 31,
1991................................... -- -- -- -- (441,204) (441,204)
------- ----- ---------- ----------- ------------ -----------
Balance as of December 31, 1991.......... 136,400 474 1,602,500 1,451,351 (761,347) 690,478
Repurchase of shares on January 8,
1992................................... (2,400) (24) -- -- -- (24)
Net loss for the year ended December 31,
1992................................... -- -- -- -- (355,851) (355,851)
------- ----- ---------- ----------- ------------ -----------
Balance as of December 31, 1992.......... 134,000 450 1,602,500 1,451,351 (1,117,198) 334,603
Issuance of Series C shares on February
8, 1993................................ -- -- 1,143,846 743,500 -- 743,500
Net loss for the year ended December 31,
1993................................... -- -- -- -- (729,669) (729,669)
------- ----- ---------- ----------- ------------ -----------
Balance as of December 31, 1993.......... 134,000 450 2,746,346 2,194,851 (1,846,867) 348,434
Issuance of Series D shares on March 11,
1994................................... -- -- 1,500,329 1,200,262 -- 1,200,262
Issuance of Series D shares on October
25, 1994............................... -- -- 2,195,592 2,195,592 -- 2,195,592
Net loss for the year ended December 31,
1994................................... -- -- -- -- (1,287,772) (1,287,772)
------- ----- ---------- ----------- ------------ -----------
Balance as of December 31, 1994.......... 134,000 450 6,442,267 5,590,705 (3,134,639) 2,456,516
Issuance of Series D shares on April 6,
1995................................... -- -- 154,408 154,408 -- 154,408
Issuance of Series D shares on November
7, 1995................................ -- -- 2,855,000 2,855,000 -- 2,855,000
Net loss for the year ended December 31,
1995................................... -- -- -- -- (1,959,874) (1,959,874)
------- ----- ---------- ----------- ------------ -----------
Balance as of December 31, 1995.......... 134,000 450 9,451,675 8,600,113 (5,094,513) 3,506,050
Issuance of Series D shares on April 25,
1996................................... -- -- 24,238 24,238 -- 24,238
Issuance of Series E shares on May 3,
1996, net of offering costs............ -- -- 3,319,171 7,157,850 -- 7,157,850
Net loss for the year ended December 31,
1996................................... -- -- -- -- (5,577,688) (5,577,688)
------- ----- ---------- ----------- ------------ -----------
Balance as of December 31, 1996.......... 134,000 $ 450 12,795,084 $15,782,201 $(10,672,201) $ 5,110,450
======= ===== ========== =========== ============ ===========
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE> 59
NANOPHASE TECHNOLOGIES CORPORATION
(A Development Stage Company)
Statements of Cash Flow
<TABLE>
<CAPTION>
CUMULATIVE FROM
INCEPTION
YEARS ENDED DECEMBER 31, (NOVEMBER 30, 1989)
--------------------------------------- TO DECEMBER 31,
1994 1995 1996 1996
----------- ----------- ----------- --------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................... $(1,287,772) $(1,959,874) $(5,577,688) $(10,672,201)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation...................... 45,334 126,612 303,453 594,468
Amortization...................... 855 335 6,397 15,826
Loss on sale of equipment and
furniture....................... -- -- -- 4,589
Write off of patents.............. -- 19,857 -- 28,266
Changes in assets and liabilities
related to operations:
Contract revenue receivable....... 6,974 (23,573) (203,287) (274,132)
Trade accounts receivable......... -- -- (115,369) (115,369)
Inventories....................... -- (65,280) (379,924) (445,205)
Prepaid expenses and other current
assets.......................... (12,700) (50,261) 17,002 (50,275)
Patent costs...................... (13,559) (31,072) (40,548) (126,714)
Organization costs................ -- -- -- (4,270)
Accounts payable.................. 249 168,643 (277) 221,936
Accrued liabilities............... 54,122 (45,740) 194,383 207,248
----------- ----------- ----------- ------------
Net cash used in operating
activities........................... (1,206,497) (1,860,353) (5,795,858) (10,615,833)
INVESTING ACTIVITIES:
Acquisition of equipment, furniture,
and leasehold improvements........... (66,303) (937,956) (1,173,437) (2,403,952)
Purchases of held-to-maturity
investments.......................... (2,255,609) (8,512,957) (15,486,131) (26,254,697)
Maturities of held-to-maturity
investments.......................... -- 8,547,165 15,709,744 24,256,909
Purchase of asset held in trust........ (75,000) (1,867) (1,982) (78,849)
Proceeds from sale of equipment and
furniture............................ 787 -- -- 10,097
----------- ----------- ----------- ------------
Net cash used in investing
activities........................... (2,396,125) (905,615) (951,806) (4,470,492)
FINANCING ACTIVITIES:
Proceeds from issuance of preferred
stock................................ 3,395,854 3,009,408 7,182,088 15,032,201
Deferred offering costs................ -- -- (79,122) (79,122)
Proceeds from issuance of common
stock................................ -- -- -- 450
Loans from stockholder................. -- -- -- 790,000
Repayment of loans from stockholder.... -- -- -- (40,000)
Capital lease obligation............... -- -- -- 5,094
Repayment of capital lease
obligation........................... -- -- -- (5,094)
----------- ----------- ----------- ------------
Net cash provided by financing
activities........................... 3,395,854 3,009,408 7,102,966 15,703,529
----------- ----------- ----------- ------------
(Decrease)/increase in cash............ (206,768) 243,440 355,302 617,204
Cash at beginning of period............ 225,230 18,462 261,902 --
----------- ----------- ----------- ------------
Cash at end of period.................. $ 18,462 $ 261,902 $ 617,204 $ 617,204
=========== =========== =========== ============
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE> 60
NANOPHASE TECHNOLOGIES CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1994, 1995, 1996 and for the period from
inception (November 30, 1989) to December 31, 1996
(1) DESCRIPTION OF BUSINESS
Nanophase Technologies Corporation (the "Company") was incorporated on
November 30, 1989, for the purpose of developing nanocrystalline materials for
commercial production and sale in domestic and international markets. Since its
inception, the Company has been in the development stage primarily engaged in
research and development activities, the recruiting of technical, marketing and
administrative personnel, and the development of its manufacturing facility.
These activities have been funded through the issuance of preferred stock,
cooperative development agreements, and government contracts and grants.
Although commercial shipments began in late 1995 and continued in 1996, these
shipments have been limited and primarily relate to cooperative customer
agreements. The Company expects to begin significant commercial production in
1997 at which time it will no longer be a development stage company.
In the course of its development activities, the Company has experienced
net losses and negative cash flows from operations. Historically, the Company
has funded its operations primarily through the issuance of equity securities.
The Company intends to offer additional equity securities during 1997. In the
event the equity offering is not successful, the Company believes that it is
capable of sustaining operations throughout 1997 under plans which could include
a reduction in the Company's operating levels.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Cash equivalents primarily consist of money market accounts which have a
maturity of three months or less from the date of purchase.
Investments
Investments are classified by the Company at the time of purchase for
appropriate designation and such designation is reevaluated as of each balance
sheet date. Investments are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost and are adjusted to
maturity for the amortization of premiums and accretion of discounts. Such
adjustments for amortization and accretion are included in interest income.
Inventory
Inventory is stated at the lower of cost, maintained on a first in, first
out basis, or market.
Equipment, Furniture, and Leasehold Improvements
Equipment and furniture are stated at cost and are being depreciated over
their estimated useful lives using the straight-line method. Leasehold
improvements are stated at cost and are being amortized using the straight-line
method over the shorter of the useful life of the asset or the term of the
lease.
Deferred Offering Costs
Costs directly related to the Company's planned initial public offering
amounting to $79,122 at December 31, 1996 have been deferred. Upon successful
completion of the Company's planned initial public offering, these costs will be
offset against the proceeds received and charged to stockholders' equity.
F-7
<PAGE> 61
Patent Costs
Patent costs are being amortized over the life of the respective patent
using the straight-line method. Patent costs are written off when the Company
determines there is no future economic benefit to the related patent.
Organization Costs
Organization costs were amortized over 60 months using the straight-line
method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates and
assumptions.
Revenue Recognition
Revenues from research-related activities are derived primarily from
contracts and cost-sharing agreements with agencies of the U.S. government (Note
8). Revenues from these contracts and agreements are recorded as the defined
reimbursable expenses are incurred by the Company.
All payments to the Company for work performed on contracts and agreements
with agencies of the U.S. government are subject to adjustment upon audit by
agencies of the U.S. government. The Company believes that such audits, if any,
will not have a significant effect on the financial position or results of
operation of the Company.
Sales of product are recorded as shipments are made by the Company.
Research and Development Expenses
Expenditures for research and development activities are charged to
operations as incurred by the Company.
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement No.
109, "Accounting for Income Taxes." As such, deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Deferred tax assets and liabilities are calculated using the
enacted tax rates and laws that are expected to be in effect when the
anticipated reversal of these differences is scheduled to occur.
Employee Stock Options
The Company accounts for stock options granted to employees in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No.
25). The exercise price of the options granted equals the estimated fair value
of the underlying stock on the date of grant. As such, no compensation expense
has been recognized by the Company for these options. In October 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" (FASB No. 123). FASB
No. 123, which was adopted by the Company in 1996, establishes an alternative
method of accounting for stock-based compensation plans. In 1996, the Company
adopted the disclosure alternative for stock-based compensation (Note 12).
Fair Value of Financial Instruments
The Company's financial instruments include investments, contract revenues
receivable, trade accounts receivable, accounts payable and accrued liabilities.
The fair values of all financial instruments were not materially different from
their carrying values.
F-8
<PAGE> 62
(3) INVESTMENTS
Investments consist of U.S. Treasury bills with an estimated fair value of
$2,221,000 and $1,998,000 at December 31, 1995 and 1996, respectively. All
investments have been classified as held-to-maturity and mature in the
subsequent year.
(4) INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Raw materials............................................... $52,704 $386,080
Finished goods.............................................. 12,576 59,125
------- --------
$65,280 $445,205
======= ========
</TABLE>
(5) EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS
Equipment, furniture, and leasehold improvements consist of the following
at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Machinery and equipment..................................... $ 787,916 $1,662,721
Office equipment............................................ 101,749 113,959
Office furniture............................................ 60,020 49,864
Leasehold improvements...................................... 261,915 447,465
---------- ----------
1,211,600 2,274,009
Less: Accumulated depreciation and amortization............. (286,786) (479,211)
---------- ----------
$ 924,814 $1,794,798
========== ==========
</TABLE>
(6) LEASE COMMITMENTS
The Company leases manufacturing and office space under an agreement that
will expire in September 1999. Monthly minimum lease payments amount to $7,900
for this facility.
The Company also leased its original office space from a stockholder under
a sublease agreement which expired in November 1996. The Company entered into a
sublease of this office space and received monthly rental payments under the
sublease through November 1996. Rent expense, net of sublease income, under this
lease amounted to $35,903, $26,668 and $19,072 for the years ended December 31,
1994, 1995, and 1996, respectively, and $167,678 for the period from inception
through December 31, 1996.
Total rent expense, net of sublease income, under all leases amounted to
$65,903, $122,422, and $175,538 for the years ended December 31, 1994, 1995, and
1996, respectively, and $449,898 for the period from inception through December
31, 1996.
(7) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Accrued contract expense.................................... $ -- $ 40,000
Accrued relocation expense.................................. -- 35,000
Accrued payroll............................................. 9,560 26,290
Other....................................................... 6,107 105,958
------- --------
$15,667 $207,248
======= ========
</TABLE>
F-9
<PAGE> 63
(8) RESEARCH AND DEVELOPMENT AGREEMENTS
In July 1992, the Company entered into a cooperative cost-sharing agreement
with the U.S. Government under the Department of Commerce Advanced Technology
Program. The three-year agreement ended in 1995. Under the terms of the
agreement, the U.S. Government agreed to share costs of the Company's research
efforts up to an aggregate of $944,259, including subcontractor costs. The net
costs associated with the total research effort amounted to $2,992,130. The
difference between these amounts represented indirect costs of $2,047,871 which
were absorbed by the Company.
The Company is party to a number of other research and development
arrangements. These arrangements are generally short-term in nature and provided
$31,144, $54,680 and $236,019 of revenues for the years ended December 31, 1994,
1995, and 1996, respectively, and $367,114 for the period from inception through
December 31, 1996. These arrangements include both cost-plus and fixed-price
agreements.
(9) PATENT LICENSE AGREEMENT
In 1991, the Company was granted an exclusive license by a third party to
make, have made, use and sell products of the type claimed in a U.S. patent. In
consideration for this license, the Company agreed to pay royalties of 1/2% of
net sales of licensed products, as defined. As of December 31, 1996, no royalty
payments were due under this agreement.
In 1994, the Company was granted a non-exclusive license by a third party
to make, use, and sell products of the type claimed in two U.S. patents. In
consideration for this license, the Company agreed to pay royalties of 1% of net
sales, as defined, and made an advance royalty payment of $17,500. As of
December 31, 1996, royalties under this agreement amounting to $2,316 have been
offset against the royalty advance.
In 1996, the Company was granted a non-exclusive license by a third party
to produce and sell ultrafine powders of metal and ceramics claimed in four U.S.
patents. In consideration for this license, the Company agreed to pay $14,000 as
an initial payment, and pay royalties of 3% of net proceeds of sales of the
product, as defined. As of December 31, 1996, royalties under this agreement
amounted to $1,059. The Company was also granted a remainder-exclusive license
by a third party to make, have made, use, import, sell or have sold products of
the type claimed in three U.S. patents. In consideration for this license, the
Company agreed to pay $5,000 as an initial payment, $5,000 upon reaching the
earlier of either defined profitability or the second anniversary of the
agreement, and royalties at the rate of 4% of the defined net sales of the
related products. As of December 31, 1996, no royalty payments were due to this
party under this agreement.
(10) INCOME TAXES
The Company has net operating loss carryforwards for tax purposes of
approximately $10,800,000 at December 31, 1996, which expire between 2005 and
2011. The Company has not paid income taxes since inception.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income taxes consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $2,288,000 $4,212,000
Start-up costs............................................ -- 162,000
Other accrued costs....................................... 2,000 29,000
---------- ----------
Total deferred tax assets.............................. 2,290,000 4,403,000
Deferred tax liability:
Accelerated tax depreciation.............................. (21,000) (53,000)
---------- ----------
Net deferred tax asset...................................... 2,269,000 4,350,000
Less: Valuation allowance................................. (2,269,000) (4,350,000)
---------- ----------
Deferred income taxes....................................... $ -- $ --
========== ==========
</TABLE>
F-10
<PAGE> 64
The valuation allowance increased $2,081,000 for the year ended December
31, 1996 due principally to the increase in the net operating loss carryforward
and uncertainty as to whether future taxable income will be generated prior to
the expiration of the carryforward period. Under the Internal Revenue Code,
certain ownership changes, including the prior issuance of preferred stock and
the contemplated equity offering in 1997, may subject the Company to annual
limitations on the utilization of its net operating loss carryforward.
(11) CAPITAL STOCK
In April 1996, a total of 24,238 shares of Series D convertible preferred
stock were issued for cash amounting to $24,238. In May 1996, a total of
3,319,171 shares of Series E convertible preferred stock were issued for cash
amounting to $7,157,850, net of financing costs of $310,285.
At December 31, 1996, authorized but unissued shares of common stock have
been reserved for future issuance as follows:
<TABLE>
<S> <C>
Series A convertible preferred stock........................ 292,728
Series B convertible preferred stock........................ 1,309,772
Series C convertible preferred stock........................ 1,143,846
Series D convertible preferred stock........................ 6,729,567
Series E convertible preferred stock........................ 3,500,000
Series C warrants........................................... 1,143,846
Options to employees and service provider................... 2,790,200
-----------
16,909,959
===========
</TABLE>
All series of convertible preferred stock have the same voting rights as
the common stock. The Series A, C, D and E convertible preferred stock have the
same dividend rights as the common stock. At the holder's option, the preferred
stock may be converted into common stock at the conversion ratio, which is one
common share for each preferred share. Mandatory conversion occurs upon the
occurrence of a Qualified Initial Public Offering without cost to the holder at
the conversion ratio.
The holders of Series B convertible preferred stock are entitled to receive
cumulative cash dividends in the amount of $.052 per share per annum. Dividends
began to accumulate on the date of issuance of the first shares of Series B and
will be paid to Series B shareholders of record only upon the liquidation of the
Company. Accumulated dividends total $346,208 at December 31, 1996.
Upon liquidation or dissolution of the Company, the Series E stockholders
will be entitled to be paid $2.25 per share, plus all declared but unpaid
dividends thereon before any distribution to the Series D, Series C, Series B,
Series A, or common stockholders. The Series D and Series C stockholders will be
entitled to be paid $0.80 per share (with respect to the Series D purchased
prior to October 1, 1994), $1.00 per share (with respect to the Series D
purchased on or after October 1, 1994), and $1.95 per share (with respect to the
Series C), plus all declared but unpaid dividends thereon before any
distribution to the Series B, Series A, or common stockholders. Series B
preferred stockholders will be entitled to be paid, before any payment or
declaration and setting apart for payment of any amount with respect to the
Series A or common stockholders, an amount equal to $0.65 per share, plus all
accumulated but unpaid dividends thereon. The Series A preferred stockholders
will be entitled to be paid an amount equal to $2.05 per share, after payment to
the Series E, Series D, Series C, and Series B stockholders but before any
distribution is made to the common stockholders.
(12) STOCK OPTIONS AND WARRANTS
The Company has entered into stock option agreements with certain employees
and a board member who is also a service provider. At December 31, 1996, the
Company has granted options to purchase 2,790,200 shares of common stock. The
stock options generally expire ten years from the date of grant. Of the total
number of options granted, 1,390,000 of the outstanding options vest on the
eighth anniversary following their grant date, subject to an earlier five-year
vesting period if specified performance targets for 1997 are met. The remaining
1,400,200 outstanding options vest over a five-year period from their respective
grant dates.
F-11
<PAGE> 65
Exercise prices are determined by the Board of Directors and equal the
estimated fair values of the Company's common stock at the grant date. The table
below summarizes all option activity from date of inception through December 31,
1996:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE EXERCISE
OPTIONS EXERCISE PRICE PRICE
--------- -------------- ----------------
<S> <C> <C> <C>
Options granted during 1992........................... 151,395 $ .065 $ .065
---------
Outstanding at December 31, 1992.................... 151,395 .065 .065
Options granted during 1993........................... 163,000 .065 .065
---------
Outstanding at December 31, 1993.................... 314,395 .065 .065
Options granted during 1994........................... 174,000 .065 .065
Options canceled during 1994.......................... (47,395) .065 .065
---------
Outstanding at December 31, 1994.................... 441,000 .065 .065
Options granted during 1995........................... 322,500 .25 .250
Options canceled during 1995.......................... (12,000) .065 -- .25 .104
---------
Outstanding at December 31, 1995.................... 751,500 .065 -- .25 .144
Options granted during 1996........................... 2,059,600 1.00 -- 2.25 1.916
Options canceled during 1996.......................... (20,900) .065 -- 1.00 .897
---------
Outstanding at December 31, 1996.................... 2,790,200 $.065 -- 2.25 $1.447
=========
</TABLE>
At December 31, 1996, options for 299,300, 67,000 and 4,500 shares of
common stock were exercisable at $0.065, $0.25 and $1.00 per share,
respectively. No options have been exercised or have expired to date.
In connection with the issuance of Series C convertible preferred stock in
1993, the Company issued common stock purchase warrants for 1,143,846 shares at
no additional cost to the Series C convertible preferred stockholders. These
warrants have an exercise price of $0.65 per share and expire upon the tenth
anniversary of issuance. All warrants were outstanding at December 31, 1996.
The Company has elected to follow APB No. 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB No. 123 requires use
of option valuation models that were not developed for the use in valuing
employee stock options. Pro forma information regarding net income is required
by FASB No. 123, which also requires that the information be determined as if
the Company had accounted for the employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively: risk-free interest rates of 4.0% and 4.5%; a dividend
yield of zero percent; and a weighted-average expected life of the option of 7
years. The volatility factor was assumed to be zero as the Company is privately
held and no market existed for its stock in 1995 or 1996.
The Black-Scholes option valuation model was developed for the use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's option, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the respective
option. The Company's pro forma net loss would be $1,963,974 and $5,607,688 for
the years ended December 31, 1995 and 1996, respectively, and $10,706,301 for
the period from inception through December 31, 1996. Because FASB No. 123 is
applicable only to options granted subsequent to December 31, 1994, its pro
forma impact will not be fully reflected until 1999.
F-12
<PAGE> 66
(13) 401(K) PROFIT-SHARING PLAN
Effective June 30, 1995, the Company implemented a 401(k) profit-sharing
plan covering substantially all employees who meet defined service requirements.
The plan provides for deferred salary contributions by the plan participants and
a Company contribution. Company contributions, if any, are at the discretion of
the Board of Directors and are not to exceed the amount deductible under
applicable income tax laws. No Company contributions have been made since
inception of the plan.
(14) SEVERANCE BENEFITS AGREEMENT
Pursuant to an agreement entered into in 1994, the Company has established
a trust for the benefit of an employee. Interest earned will be credited to the
trust until the funds held in trust are equal to $80,000. Payments will be
required in the event the Company terminates the employment of the individual,
as defined, before November 15, 1999. Upon the occurrence of an initial public
offering, the funds held in trust will revert to the Company.
(15) STATEMENT OF CASH FLOWS
During 1991, the Company issued 292,728 shares of Series A preferred stock
and 230,770 shares of Series B preferred stock in exchange for $600,000 and
$150,000, respectively, of promissory notes due to a stockholder.
No interest was paid during the years ended December 31, 1994, 1995, and
1996. Interest paid during the period from inception through December 31, 1996
was $65,965.
(16) RELATED PARTY TRANSACTIONS
The Company has an ongoing consulting agreement with a
director/stockholder. The agreement is on a month-to-month basis. Payments under
this agreement amount to $2,500 per month.
F-13
<PAGE> 67
==============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................................................ 3
Risk Factors...................................................................... 7
Use of Proceeds................................................................... 15
Dividend Policy................................................................... 15
Capitalization.................................................................... 16
Dilution.......................................................................... 17
Selected Financial Data........................................................... 18
Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................... 19
Business.......................................................................... 21
Management........................................................................ 37
Certain Relationships and Related Transactions.................................... 44
Principal Stockholders............................................................ 45
Description of Capital Stock...................................................... 46
Shares Eligible for Future Sale................................................... 48
Underwriting...................................................................... 50
Legal Matters..................................................................... 51
Experts........................................................................... 51
Additional Information............................................................ 51
Index to Financial Statements..................................................... F-1
</TABLE>
UNTIL __________, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
______________ SHARES
NANOPHASE [LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
FURMAN SELZ
OPPENHEIMER & CO., INC.
GRUNTAL & CO., INCORPORATED
, 1997
===============================================================================
<PAGE> 68
PART II
INFORMATION-NOT-REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the Common Stock
pursuant to the Prospectus contained in this Registration Statement. The
Registrant will pay all of these expenses.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission registration fee.............. $ 11,516
NASD filing fee.................................................. 4,300
Nasdaq National Market application fee........................... *
Accountants' fees and expenses................................... *
Blue Sky fees and expenses....................................... *
Legal fees and expenses.......................................... *
Transfer Agent and Registrar fees and expenses................... *
Printing and engraving........................................... *
Miscellaneous expenses........................................... *
-----------
Total.......................................................... $ *
===========
</TABLE>
- ------------------
* To be provided by amendment
All expenses other than the Securities and Exchange Commission
registration fee and NASD filing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Upon the Registrant's reincorporation in Delaware, Article VII of the
Registrant's Certificate of Incorporation will provide that the Registrant
shall indemnify its directors to the full extent permitted by the General
Corporation Law of the State of Delaware and may indemnify its officers and
employees to such extent, except that the Registrant shall not be obligated to
indemnify any such person (i) with respect to proceedings, claims or actions
initiated or brought voluntarily by any such person and not by way of defense,
or (ii) for any amounts paid in settlement of an action indemnified against by
the Registrant without the prior written consent of the Registrant. After
reincorporation in Delaware, the Registrant will enter into indemnity
agreements with each of its directors. These agreements may require the
Registrant, among other things, to indemnify such directors against certain
liabilities that may arise by reason of their status or service as directors,
to advance expenses to them as they are incurred, provided that they undertake
to repay the amount advanced if it is ultimately determined by a court that
they are not entitled to indemnification, and to obtain directors' liability
insurance if available on reasonable terms.
In addition, Article VII of the Registrant's Certificate of
Incorporation will also provide that a director of the Registrant shall not be
personally liable to the Registrant or its stockholders for monetary damages
for breach of his or her fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for willful or
negligent conduct in paying dividends or repurchasing stock out of other than
lawfully available funds or (iv) for any transaction from which the director
derives an improper personal benefit.
II-1
<PAGE> 69
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware which provides for indemnification of directors and officers
in certain circumstances.
Prior to the consummation of this offering, the Registrant intends to
purchase a directors' and officers' liability insurance policy.
Under the terms of the Underwriting Agreement, the Underwriters have
agreed to indemnify, under certain conditions, the Registrant, its directors,
certain of its officers and persons who control the Company within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"), against
certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information reflects a _____-for-one stock split which
will be effected prior to the date of the Prospectus.
In March 1994, the Registrant issued an aggregate of ________ shares
of Series D Convertible Preferred Stock (the "Series D Preferred") to nine
investors in exchange for cash in the aggregate amount of $1,200,262.
In October 1994, the Registrant issued __________ shares of Series D
Preferred to eight investors in exchange for cash in the aggregate amount of
$2,195,592.
In April 1995, the Registrant issued ________ shares of Series D
Preferred to four investors in exchange for cash in the aggregate amount of
$154,408. In November 1995, the Registrant issued ________ shares of Series D
Preferred to nine investors in exchange for cash in the aggregate amount of
$2,855,000.
In April 1996, the Registrant issued __________ shares of Series D
Preferred to one investor in exchange for cash in the amount of $24,238. In May
1996, the Registrant issued _____ shares of Series E Convertible Preferred
Stock (the "Series E Preferred") to 124 investors in exchange for cash in the
aggregate amount of $7,468,135.
Each share of Series D Preferred and Series E Preferred will be
converted into one share of Common Stock upon consummation of this offering.
The sales of shares of Series D Preferred and Series E Preferred are
claimed to be exempt from registration with the Securities and Exchange
Commission pursuant to Section 4(2) of the Act, and/or Regulation D promulgated
thereunder as transactions by an issuer not involving any public offering, in
that the transactions involved the issuance and sale by the Company of its
securities to financially sophisticated institutions or individuals who
represented that they were aware of the Company's activities as well as its
business and financial condition, and who took such securities for investment
purposes and understood the ramifications of the same. Each security holder
represented that they acquired such securities for investment for their own
account and not for distribution. All certificates representing the securities
issued in these transactions have been legended.
II-2
<PAGE> 70
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
1* Form of Underwriting Agreement.
3.1* Form of Certificate of Incorporation of the Registrant.
3.2* Form of Bylaws of the Registrant.
4.1* Specimen stock certificate representing Common Stock.
4.2 Form of Warrants.
5* Opinion of Katten Muchin & Zavis as to the legality of the
securities being registered (including consent).
10.1 The Nanophase Technologies Corporation Stock Option Plan.
10.2* Form of Directors Indemnification Agreement.
10.3 Amended and Restated Registration Rights Agreements dated as of
March 16, 1994, as amended.
10.4 Employment Agreement dated February 3, 1994 between the
Registrant and Robert W. Cross.
10.5 Employment Agreement dated as of September 3, 1996 between the
Registrant and Dennis J. Nowak.
10.6 Severance Benefits Agreement dated as of November 15, 1994
between the Registrant, Steven Lazarus and John C. Parker.
10.7 License Agreement dated June 1, 1990 between the Registrant and
ARCH Development Corporation, as amended.
10.8 License Agreement dated October 12, 1994 between the Registrant
and Hitachi.
10.9 License Agreement dated May 31, 1996 between the Registrant and
Research Development Corporation of Japan.
10.10 License Agreement dated April 1, 1996 between the Registrant
and Cornell Research Foundation.
10.11* Consulting and Stock Purchase Agreement between Richard W.
Siegel and the Registrant dated as of May 9, 1990, as amended
February 13, 1991, November 21, 1991 and January 1, 1992.
10.12 Lease Agreement between the Village of Burr Ridge and the
Registrant, dated September 15, 1994.
10.13 Purchase Order and Purchase and Distribution Agreement dated
February 27, 1997 between the Registrant and Moyco
Technologies, Incorporated, as amended.
10.14 Marketing and Distribution Agreement between the Registrant and
Whittaker, Clark & Daniels, Inc., dated as of November 22,
1995.
10.15 Distribution Agreement between the Registrant and C.I. Kasei,
Ltd., dated as of October 30, 1996.
10.16 Purchase Agreement between Nanophase Technologies Corporation
and LWT Instruments, Inc., dated February 1, 1997.
11* Statement regarding computation of per share earnings.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Katten Muchin & Zavis (contained in its opinion to
be filed as Exhibit 5 hereto).
23.3 Consent of McAndrews, Held & Malloy, Ltd.
24 Power of Attorney (included on signature page hereto).
27 Financial Data Schedule
- ------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts S-1
</TABLE>
II-3
<PAGE> 71
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities
Act, (i) the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective and (ii) each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
and State of Illinois on the 12th day of March, 1997.
NANOPHASE TECHNOLOGIES CORPORATION
By: /s/ ROBERT W. CROSS
-------------------------------------
Robert W. Cross,
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Robert W. Cross and Dennis J. Nowak and each of them his true and
lawful attorney-in-fact and agent, with full p wer of substitution, to sign on
his behalf, individually and in each capacity stated below, all amendments and
post-effective amendments to this Registration Statement on Form S-1 (including
registration statements filed pursuant to Rule 462(b) under the Securities Act
of 1933, and all amendments thereto) and to file the same, with all exhibits
thereto and any other documents in connection therewith, with the Securities
and Exchange Commission under the Securities Act of 1933, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as each might or could do in
person, hereby ratifying and confirming each act that said attorneys-in-fact
and agents may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on March
12, 1997 in the capacities indicated.
<TABLE>
Signature Title
- ---------------------------------------- -------------------------------------------------------------
<S> <C>
/s/ ROBERT W. CROSS President, Chief Executive Officer (Principal
- ---------------------------------------- Executive Officer) and a Director
Robert W. Cross
/s/ DENNIS J. NOWAK Vice President - Finance and Administration, Chief
- ---------------------------------------- Financial Officer, Treasurer and Secretary (Principal
Dennis J. Nowak Financial and Accounting Officer)
/s/ LEONARD A. BATTERSON Chairman of the Board and Director
- ----------------------------------------
Leonard A. Batterson
/s/ STEVEN LAZARUS Director
- ----------------------------------------
Steven Lazarus
/s/ RICHARD W. SIEGEL Director
- ----------------------------------------
Richard W. Siegel
/s/ ROBERT W. SHAW, JR. Director
- ----------------------------------------
Robert W. Shaw, Jr.
</TABLE>
II-5
<PAGE> 73
SCHEDULE II
<TABLE>
<CAPTION>
VALUATION AND QUALIFYING ACCOUNTS
=================================================================================================================
BALANCE AT ADDITIONS BALANCE AT
BEGINNING OF COSTS AND OTHER END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 Deferred tax asset valuation account.. $ 744,300 $ 509,700 $ -- $ -- $1,254,000
=================================================================================================================
1995 Deferred tax asset valuation account.. $1,254,000 $1,015,000 $ -- $ -- $2,269,000
=================================================================================================================
1996 Deferred tax asset valuation account.. $2,269,000 $2,081,000 $ -- $ -- $4,350,000
=================================================================================================================
</TABLE>
S-1
<PAGE> 1
EXHIBIT 4.2
This Warrant and any shares of Common issuable upon the
exercise of this Warrant have not been registered under the Securities Act of
1933, as amended, and may not be transferred unless registered under said Act
or an exemption therefrom is available.
NANOPHASE TECHNOLOGIES CORPORATION
an Illinois corporation
Warrant No. W-___ Original Issue Date: February 8, 1993
FOR VALUE RECEIVED, __________________________________, or its
assigns, is entitled to purchase from NANOPHASE TECHNOLOGIES CORPORATION, an
Illinois corporation (the "Company"), during the period specified in this
Warrant, an aggregate of ____________ fully paid and nonassessable shares
(subject to adjustment as hereinafter provided) of Common Stock, no par value
("Common), of the Company at the purchase price per share provided in Section
1.2 of this Warrant (the "Warrant Exercise Price"), all subject to the terms
and conditions set forth in this Warrant.
This Warrant is one of the Warrants referred to and issued
pursuant to the terms of that certain Series C Preferred Stock and Warrant
Purchase Agreement dated as of February 8, 1993, among the Company and the
purchasers referred to therein (the "Purchase Agreement"), pursuant to which
the purchasers purchased from the Company shares of the Company's Series C
Preferred Stock, no par value (the "Series C Preferred").
Except as otherwise specifically defined in this Warrant, each
capitalized term used in this Warrant shall have the meaning ascribed to such
term in the Purchase Agreement.
Section 1. Period for Exercise and Exercise Price.
1.1 Period for Exercise. The right to purchase shares of
Common represented by this Warrant shall accrue on the date of issuance hereof
(the "Accrual Date"), and shall expire at 5:00 P.M., Chicago local time, on
February 8, 2003 (the "Expiration Date"); provided, however, that if, on the
date which would otherwise be the Expiration Date, the Company is then required
to effect, or is then in the process of effecting, a registration under the
Securities Act in which shares of Common are entitled to be included, then the
Expiration Date shall be the 366th day following the day on which such
registration shall have become effective. From and after the Expiration Date
this Warrant shall be null and void and of no further force or effect.
<PAGE> 2
1.2 Warrant Exercise Price. The Warrant Exercise Price shall
be $.65 per share (subject to adjustment as hereinafter provided).
Section 2. Exercise of Warrant.
2.1 Manner of Exercise. The holder hereof may exercise this
Warrant, in whole but not in part, on or after the Accrual Date but not later
than the Expiration Date, during normal business hours on any business day by
surrendering this Warrant to the Company at the principal office of the
Company, accompanied by a subscription in substantially the form annexed hereto
duly executed by such holder and by payment of the Warrant Exercise Price for
the number of shares of Common for which this Warrant is then exercisable,
either (i) in immediately available funds, or (ii) by delivery of instrument(s)
evidencing indebtedness owing by the Company to the holder in the appropriate
amount (including, without limitation, accrued but unpaid interest with respect
to such indebtedness), or (iii) in a combination of (i) or (ii) above, at the
option of the holder hereof. If the holder delivers a debt instrument
representing the right to receive payment in an amount greater than the
applicable Warrant Exercise Price, then the Company shall issue a replacement
debt instrument in identical form to the instrument tendered after deducting
the amount of the Warrant Exercise Price (exclusive of the amount of such price
that is paid with accrued but unpaid interest, which shall be the first amount
applied to the Warrant Exercise Price) from the principal amount of the debt
instrument.
2.2 Alternate Manner of Exercise. In lieu of payment to
the Company as set forth in Section 3 hereof, the holder of this Warrant may
convert this Warrant (such right as set forth in this Section 2.2 referred to
as the "Conversion Right"), in whole or in part, into the number of shares of
Common (less the number of shares of Common which have been previously
exercised pursuant to this Warrant or as to which the Conversion Right has been
previously exercised) calculated pursuant to the following formula by
surrendering this Warrant (together with the subscription referenced in Section
2.1 above) during normal business hours on any business day at the principal
office of the Company specifying the number of shares of Common the rights to
purchase which the holder desires to convert:
Y (A-B)
-------
X= A
where: X= the number of shares of
Common to be issued to the
holder;
- 2 -
<PAGE> 3
Y= the number of shares of Common subject
to this warrant for which the
Conversion Right is being exercised;
A= the fair market value of one share of
Common; and
B= the Warrant Exercise Price.
As used in this Section 2.2, the fair market value of a share of
Common shall mean the amount determined in good faith by the Board as of the
last day of the quarter ending immediately prior to the date of exercise by a
holder of its rights under this Section 2.2; provided, that if the Common is
listed or admitted to trading on a national securities exchange or automated
quotation system in the United States, then the fair market value of such share
shall be the average of the high and low quotations at which shares of Common
have been sold on such exchange or quotation system on the date of exercise by
the holder of its rights under this Section 2.2, or, if shares of Common are
not traded on such date, or such exchange or quotation system are not open for
business on such date, then the fair market value shall be determined on the
closest date preceding such date on which such exchange or system shall have
been open for business and shares of Common shall have traded.
2.3 When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected on the day on which all requirements of
Section 2.1 or 2.2 shall have been met with respect to such exercise. At such
time the person in whose name any certificate for shares of Common shall be
issuable upon such exercise shall be deemed for all corporate purposes to have
become the holder of record of such shares, regardless of the actual delivery
of certificates evidencing such shares.
2.4 Delivery of Stock Certificates. As soon as practicable
after each exercise of this Warrant, and in any event no later than ten (10)
days after such exercise, the Company at its expense will cause to be issued in
the name of and delivered to the holder hereof or as such holder may direct, a
certificate or certificates for the number of shares of Common to which such
holder shall be entitled upon such exercise.
2.5 Notice of Public Offering. The Company will promptly
give written notice to the holder hereof if the Company becomes required to
effect, or is then in the process of effecting, a registration of any of its
securities under the Securities Act.
Section 3. Adjustment of Purchase Price and Number of Shares.
- 3 -
<PAGE> 4
3.1 Subdivision or Combination of Shares. If the Company at
any time effects a subdivision or combination of the outstanding Common, the
Warrant Exercise Price shall be decreased, in the case of a subdivision, or
increased, in the case of a combination, in the same proportions as the Common
is subdivided or combined, in each case effective automatically upon, and
simultaneously with, the effectiveness of the subdivision or combination which
gives rise to the adjustment.
3.2 Stock Dividends. If the Company at any time pays a
dividend, or makes any other distribution, to holders of Common payable in
shares of Common, or fixes a record date for the determination of holders of
Common entitled to receive a dividend or other distribution payable in shares
of Common, the Warrant Exercise Price shall be decreased by multiplying it by a
fraction:
(y) the numerator of which shall be the total number of
shares of Common outstanding immediately prior to such dividend or
distribution, and
(z) the denominator of which shall be the total number of
shares of Common outstanding immediately after such dividend or
distribution (plus, if the Company paid cash instead of fractional
shares otherwise issuable in such dividend or distribution, the number
of additional shares which would have been outstanding had the Company
issued fractional shares instead of cash),
in each case effective automatically as of the date the Company shall take a
record of the holders of its Common for the purpose of receiving such dividend
or distribution (or if no such record is taken, as of the effectiveness of such
dividend or distribution).
3.3 Reclassification, Consolidation or Merger. If at any
time, as a result of:
(a) a capital reorganization or reclassification
(other than a subdivision, combination or dividend which gives rise to
adjustment of the Warrant Exercise Price pursuant to Sections 3.1 or
3.2 above); or
(b) a merger or consolidation of the Company with
another corporation (whether or not the Company is the surviving
corporation);
the Common issuable upon the exercise of this Warrant shall be changed into or
exchanged for the same or a different number of shares of any class or classes
of stock of the Company or any
- 4 -
<PAGE> 5
other corporation, or other securities convertible into such shares, then, as a
part of such reorganization, reclassification, merger or consolidation,
appropriate adjustments shall be made in the terms of this Warrant) so that:
(y) the holder of this Warrant shall thereafter be
entitled to receive, upon exercise of this Warrant, the kind and
amount of shares of stock, other securities, money and property which
such holder would have received at the time of such capital
reorganization, reclassification, merger or consolidation, if such
holder had exercised its right under this Warrant to purchase Common
immediately prior to such capital reorganization, reclassification,
merger or consolidation, and
(z) this Warrant shall thereafter be adjusted on
terms as nearly equivalent as may be practicable to the adjustments
theretofore provided in this Section 3.
No consolidation or merger in which the Company is not the surviving
corporation shall be consummated unless the surviving corporation shall agree,
in writing, to the provisions of this Section 3.3. The provision of this
Section 3.3 shall similarly apply to successive capital reorganizations,
reclassifications, mergers, and consolidations.
3.4 Ratchet. (a) For purposes of this Section 3.4,
"Additional Shares of Common" means all shares of Common issued by the Company
after the consummation of the transactions contemplated by the "Purchase
Agreement" (as defined in Section 3.7 below), whether or not subsequently
reacquired or retired by the Company, other than:
(1) shares of Common issued in transactions giving
rise to adjustments under Sections 3.1 through 3.3 above;
(2) shares of Common issued upon conversion of shares
of Preferred;
(3) up to 500,000 shares of Common which may be
issued in the discretion of the Board to employees or
directors of, or consultants or advisors to, the Company or
any wholly-owned subsidiary of the Company, and options for
the purchase of such shares; and
(4) shares of Common issued upon exercise of this
Warrant.
- 5 -
<PAGE> 6
(b) Except as otherwise provided in Section 3.5 below, if at
any time the Company issues or is deemed to issue Additional Shares of Common
for a consideration per share less than the Warrant Exercise Price in effect at
such issuance or deemed issuance, then the Warrant Exercise Price shall be
reduced to a price per share equal to the consideration per share, if any, for
which such Additional Shares of Common are issued or deemed to be issued.
3.5 Convertible Securities. (a) "Convertible
Securities" means all rights or options for the purchase of, or stock or other
securities convertible into, Additional Shares of Common or other Convertible
Securities, whenever and each time issued.
(b) The "Effective Price" with respect to any Convertible
Securities means the result of dividing:
(y) the sum of (a) the total consideration, if any,
received by the Company for the issuance of such Convertible
Securities, plus (b) the minimum consideration, if any,
payable to the Company upon exercise or conversion of such
Convertible Securities, plus (c) the minimum consideration, if
any, payable to the Company upon exercise or conversion of any
Convertible Securities issuable upon exercise or conversion of
such Convertible Securities, by
(z) the maximum number of Additional Shares of Common
issuable upon exercise or conversion of such Convertible
Securities or of any Convertible Securities issuable upon
exercise or conversion of such Convertible Securities.
(c) If at any time the Company issues a Convertible Security
with respect to which the Effective Price is less than the Warrant Exercise
Price in effect at such issuance, then the Warrant Exercise Price shall be
reduced to a price per share equal to the Effective Price with respect to such
Convertible Security, effective automatically as of the effectiveness of the
issuance of such Convertible Security.
(d) If an adjustment has been made under this Section 3.5 as
a consequence of any issuance of a Convertible Security, then no further
adjustment shall be made under this Section 3.5 upon the actual issuance of
Additional Shares of Common upon the exercise or conversion of such Convertible
Securities, or upon the issuance of Convertible Securities issuable upon
exercise or conversion of the original Convertible Security.
- 6 -
<PAGE> 7
(e) If an adjustment has been made under this Section 3.5 as
a consequence of any issuance of any Convertible Security and the conversion
rights, options or privileges represented by such Convertible Security (or by
any Convertible Security issued upon exercise or conversion of the original
Convertible Security) shall expire without having been exercised, the Warrant
Exercise Price shall be re-adjusted, effective upon such expiration, to
eliminate the effect of the adjustments previously made as a result of the
issuance of the conversion rights, options or privileges which shall have
expired (without affecting shares of Common already issued upon the exercise of
any Warrants already exercised, and without affecting any other adjustments
made under this Section 3).
3.6 Valuation of Consideration. For purposes of the
operation of Sections 3.4 and 3.5 above, respectively, the consideration
received by the Company for any issue or sale of securities shall:
(1) to the extent it consists of cash, be computed as the
aggregate amount of cash received by the Company;
(2) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in good faith by the
Board; and
(3) to the extent Additional Shares of Common or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Company for a consideration that covers both, be such portion of
the consideration so received that may be reasonably determined in good faith
by the Board to be allocable to such Additional Shares of Common or Convertible
Securities.
3.7 Special Action Affecting Warrant. If (1) a holder of
this Warrant is entitled to exercise the "Right Of First Refusal" set forth in
Section 6 of the Shareholders' Agreement dated November 21, 1991, as amended,
with respect to the issuance of "New Securities" (as defined in said
Shareholders' Agreement) by the Corporation at a price per share which is less
than the Conversion Price then in effect for such holder's Series C Preferred
(the "Equity Financing"), (2) the Corporation has complied with its obligations
under the Right of First Refusal with respect to such Equity Financing (each
such Equity Financing being referred to in this Section 3.7 as a "Mandatory
Offering"), and (c) such holder (a "Non-Participating Holder") does not
exercise such holder's Right of First Refusal to acquire at least his "Pro Rata
Share" (as defined in said Shareholders' Agreement) offered in such Mandatory
Offering, then the provisions of Section 3.4 and 3.5 above shall not, as
applicable, be effective
- 7 -
<PAGE> 8
with respect to such Equity Financing, and no adjustment shall be made to the
Warrant Exercise Price or the number of shares of Common purchasable hereunder
in connection with such Equity Financing; provided, however, that if pursuant
to the request of the Corporation the holders of the Right of First Refusal are
requested to purchase on a pro rata basis less than their Pro Rata Share in
connection with a particular Equity Financing, the Pro Rata Share of each
holder of the Right of First Refusal shall for purposes of the application of
this subsection (a) be deemed reduced to such lesser number as the Corporation
shall have requested.
3.8 Liquidating Dividends, etc. If the Company, at any time
while this Warrant is outstanding, shall make a distribution of its assets to
the holders of its Common as a dividend in liquidation or partial liquidation
or by way of return of capital or other than as a dividend payable out of funds
legally available for dividends under the laws of the State of Delaware, the
holder of this Warrant shall, upon exercise of the holder's rights hereunder,
be entitled to receive, without payment of any consideration therefor, the
assets that would have been payable to the holder as owner of that number of
shares of Common of the Company receivable by a holder of Common had the holder
been a holder of record of such Common on the record date for such
distribution; and an appropriate provision therefor shall be made a part of any
such distribution in accordance with the plan for such distribution.
3.9 Other Action Affecting Common. If at any time the
Company takes any action affecting its Common, other than an action described
in any of Sections 3.1 through 3.5 or 3.7 above which, in the opinion of the
Board would have an adverse effect upon the rights of the holder hereof to
purchase Common, the Warrant Exercise Price or the kind of securities issuable
upon the exercise of this Warrant, or both, shall be adjusted in such manner
and at such time as the Board may in good faith determine to be equitable in
the circumstances.
3.10 Adjustment of Number of Shares. Upon each adjustment to
the Warrant Exercise Price pursuant to any provision of this Section 3, the
number of shares of Common purchasable hereunder shall be adjusted (including
any fractions of such shares) by multiplying such number by a fraction, the
numerator of which shall be the Warrant Exercise Price immediately prior to
such adjustment and the denominator of which shall be the Warrant Exercise
Price immediately thereafter.
3.11 Notice of Adjustment Events. Whenever the Company
contemplates the occurrence of an event which would give rise to adjustments
under this Section 3, the Company shall mail
- 8 -
<PAGE> 9
to the holder of this Warrant, at least 30 days prior to the record date with
respect to such event or, if no record date shall be established, at least 30
days prior to such event, a notice specifying (i) the nature of the
contemplated event, and (ii) the date on which any such record is to be taken
for the purpose of such event, and (iii) the date on which such event is
expected to become effective, and (iv) the time, if any is to be fixed, when
the holders of record of Common (or other securities) shall be entitled to
exchange their shares of Common (or other securities) for securities or other
property deliverable in connection with such event.
3.12 Notice of Adjustments. Whenever the Warrant Exercise
Price or the kind of securities issuable upon the exercise of this Warrant, or
both, shall be adjusted pursuant to this Section 3, the Company shall make a
certificate signed by its President or a Vice President and by its Chief
Financial Officer, Secretary or Assistant Secretary, setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board made any determination hereunder),
and the Warrant Exercise Price and the kind of securities issuable upon the
exercise of this Warrant after giving effect to such adjustment, and shall
cause copies of such certificate to be mailed (by first class mail postage
prepaid) to each holder of any Warrant promptly after each adjustment.
Section 4. Reservation of Stock, etc. The Company covenants
and agrees that it will at all times have authorized, reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
the number of shares of Common from time to time issuable upon the exercise of
this Warrant. The Company further covenants and agrees that this Warrant is,
and any Warrants issued in substitution for or replacement of this Warrant and
all Common will upon issuance be, duly authorized, validly issued, fully paid
and nonassessable.
Section 5. Ownership, Transfer and Substitution of Warrants.
5.1 Ownership of Warrants. The Company may treat the person
in whose name any Warrant is registered on the register kept at the principal
office of the Company as the owner and holder thereof for all purposes,
notwithstanding any notice to the contrary, but in all events recognizing any
transfers made in accordance with the terms of this Warrant.
5.2 Transfer and Exchange of Warrants. Upon the surrender of
any Warrant, properly endorsed, for registration of
- 9 -
<PAGE> 10
transfer or for exchange at the principal office of the Company, and subject to
the provisions of the Stockholders' Agreement, the Company at its expense will
execute and deliver to or upon the order of the holder thereof a new Warrant or
Warrants of like tenor, in the name of such holder or as such holder may
direct, for such number of shares with respect to each such Warrant, the
aggregate number of shares in any event not to exceed the number of shares for
which the Warrant so surrendered could have been exercised.
Section 6. No Rights or Liabilities as Stockholder. Nothing
contained in this Warrant shall be construed as conferring upon the holder
hereof any rights as a stockholder of the Company or as imposing any
liabilities on such holder to purchase any securities or as a stockholder of
the Company, whether such liabilities are asserted by the Company or by
creditors of the Company; provided, however, that this provision shall not be
construed to limit the rights a holder of this Warrant may have pursuant to
other agreements including, without limitation, the Purchase Agreement and the
Stockholders' Agreement.
Section 7. Miscellaneous.
7.1 Amendment and Waiver. This Warrant may be amended with,
and only with, the written consent of the Company and the holder of this
Warrant. Any waiver of any term, covenant, agreement or condition contained in
this Warrant shall not be deemed a waiver of any other term, covenant,
agreement or condition, and any waiver of any default in any such term,
covenant, agreement or condition shall not be deemed a waiver of any later
default thereof or of any default of any other term, covenant, agreement or
condition.
7.2 Representations and Warranties to Survive Closing. All
representations, warranties and covenants contained herein shall survive the
execution and delivery of this Warrant and the issuance of any Common upon the
exercise hereof.
7.3 Severability. In the event that any court or any
governmental authority or agency declares all or any part of any Section of
this Warrant to be unlawful or invalid, such unlawfulness or invalidity shall
not serve to invalidate any other Section of this Warrant, and in the event
that only a portion of any Section is so declared to be unlawful or invalid,
such unlawfulness or invalidity shall not serve to invalidate the balance of
such Section.
7.4 Successors and Assigns. All representations, warranties,
covenants and agreements of the parties contained in
- 10 -
<PAGE> 11
this Warrant or made in writing in connection herewith, shall, except as
otherwise provided herein, be binding upon and inure to the benefit of their
respective successors and assigns.
7.5 Notices. All communications in connection with this
Warrant shall be in writing and shall be deemed properly given if hand
delivered or sent by overnight courier with adequate evidence of delivery or
sent by registered or certified mail, return receipt requested and, if to a
Warrant holder, to the address specified for such Warrant holder in the
Purchase Agreement otherwise at such Warrant holder's address as shown on the
books of the Company or its transfer agent, and if to the Company, at:
Nanophase Technologies Corporation
8205 S. Cass Avenue
Suite 105
Darien, IL 60561
Attention: President
with a copy to:
Mr. Bruce A. Zivian
Fitzpatrick Law Offices
20 N. Wacker Drive, Suite 1849
Chicago, Illinois 60606
or such other addresses or persons as the recipient shall have designated to
the sender by a written notice given in accordance with this Section. Any
notice called for hereunder shall be deemed given when received.
7.6 Governing Law. The validity, meaning and effect of this
Warrant shall be determined in accordance with the laws of the State of
Illinois applicable to contracts between Illinois residents entered into and to
be performed in Illinois.
7.7 Headings. The headings used herein are solely for the
convenience of the parties and shall not serve to modify or interpret the text
of the Sections at the beginning of which they appear.
7.8 Taxes. The Company covenants and agrees that it will pay
when due and payable any and all federal, state and local taxes (other than
income taxes) which may be payable in respect of the exercise, surrender or
transfer of this Warrant pursuant to the terms of this Warrant or the issuance
of any shares of Common as a result thereof.
- 11 -
<PAGE> 12
END OF WARRANT TEXT
************************
- 12 -
<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
as of the day first above written.
NANOPHASE TECHNOLOGIES CORPORATION, an
Illinois corporation
By:____________________________
Its ________________________
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<PAGE> 14
EXERCISE FORM
Date:_________________
Nanophase Technologies Corporation
_________________________
_________________________
Ladies and Gentlemen:
The undersigned, being the registered holder of your Warrant number
W-______ accompanying this letter, hereby irrevocably exercises such Warrant
for ____ shares of Common (as defined in said Warrant), and herewith makes
payment therefor in the amount of $_________, and requests that such shares of
Common be issued in the name of, and delivered to (the undersigned)
(________________), at the address shown below the signature line hereof.
Name of Registered Warrant Holder
Signature of Registered Warrant Holder
====================================
====================================
====================================
Address
- 14 -
<PAGE> 1
Exhibit 10.1
NANOPHASE TECHNOLOGIES CORPORATION
STOCK OPTION PLAN
Nanophase Technologies Corporation, an Illinois corporation (the
"Company"), hereby establishes the Nanophase Technologies Corporation Stock
Option Plan (the "Plan"), effective January 13, 1992 (the "Effective Date").
1. PURPOSE. The purpose of the Plan is to advance the interests
of the Company by encouraging and facilitating the acquisition of a larger
personal financial interest in the Company by those employees and affiliates
upon whose judgment and interest the Company is largely dependent for the
successful conduct of its operation. It is anticipated that the acquisition of
such a financial interest will stimulate the efforts of such employees and
affiliates on behalf of the Company and strengthen their desire to continue in
the service of the Company. It is also anticipated that the opportunity to
obtain such a financial interest will prove attractive to promising new
executive talent and will assist the Company in attracting such individuals.
2. SCOPE OF THE PLAN. An aggregate of 200,000 shares of the
Company's authorized but unissued shares of common stock, no par value
("Stock"), are hereby made available and shall be reserved for issuance under
this Plan. The aggregate number of shares of Stock available under this Plan
shall be subject to adjustment on the occurrence of any of the events and in
the manner set forth in Article 10 hereof. If an option shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares of Stock subject thereto shall (unless the Plan shall have terminated)
become available for grants of other options under the plan.
3. ADMINISTRATION. The Board of Directors of the Company (the
"Board") shall have the exclusive authority, in its discretion, but subject to
the express provisions of the Plan: (a) to grant options, to determine the
purchase price of the Stock covered by each option, the individuals to whom,
and the time or times at which, options shall be granted, and the number of
shares subject to options to be granted; (b) to cancel, with the consent of the
holder, outstanding options and to grant new options in substitution therefor;
(c) to interpret the Plan; (d) to prescribe, amend and rescind rules and
regulations relating to the Plan; (e) to determine the terms and provisions of
the respective option agreements (which need not be identical) by which options
shall be evidenced; (f) to make all other determinations deemed necessary or
advisable for the administration of the Plan; (g) to require withholding from
or payment by a Grantee of any federal, state or local taxes; and (h) to
impose, for any Grantee, such additional conditions, restrictions and
limitations upon exercise and retention of options as the Board shall deem
appropriate.
<PAGE> 2
Members of the Board shall not be prohibited from receiving or
exercising option grants under the Plan to the extent that such Board members
are otherwise eligible to participate in the Plan, except that no Board member
shall participate in decisions related to options granted or to be granted to
that Board member.
4. ELIGIBILITY. Options may be granted to any (a) key employee
employed by the Company, (b) director of the Company, (c) consultant or advisor
to the Company, provided that bona fide services are rendered by such
consultant or advisor and such services are not in connection with the offer
and sale of securities in a capital-raising transaction, or (d) other employee
of the Company as the Board may from time to time designate. In selecting the
individuals to whom options shall be granted, as well as in determining the
number of options granted, the Board shall take into consideration such factors
as it deems relevant in connection with accomplishing the purpose of the Plan.
Subject to the provisions of Article 2 hereof, an individual who has been
granted an option (called a "Grantee") may, if he or she is otherwise eligible,
be granted an additional option or options if the Board shall so determine.
5. OPTION PRICE. The purchase price of the Stock covered by each
option (called the "Option Price") shall be determined by the Board, but shall
not be less than the fair market value of the Stock as determined by the Board
as of the date of issuance of each option. Such price shall be subject to
adjustment as provided in Article 10 hereof.
6. NO CONTRACT OF EMPLOYMENT IMPLIED. No obligation of the
Company to continue the employment of any Grantee for any period of time shall
be implied by the terms of this Plan or any option granted hereunder. Neither
the establishment of, nor the awarding of options under, the Plan shall be
construed to give any employee or Grantee the right to be retained in the
service of the Company (or any of its subsidiaries) or to any benefits not
specifically provided by the Plan, or in any manner modify the Company's right
to modify, amend or terminate any of its pension or retirement plans.
7. NON-TRANSFERABILITY OF OPTIONS. An option granted hereunder
shall by its terms, not be transferable other than by will or the laws of
descent and distribution and may be exercised, during the Grantee's lifetime,
only by the Grantee.
8. TERMINATION OF SERVICE. An unexercised option shall terminate
if the Grantee's employment with the Company (if the Grantee was an employee at
the time the option was granted), or the Grantee's services to the Company (if
the Grantee was a director of, or advisor or consultant to, the Company at the
time the option was granted), shall be terminated for any reason, except that
(and subject to the other provisions of this Article 8):
(A) if Grantee's employment with the Company is terminated for any
reason other than death, disability or misconduct, any unexercised
options to the extent exercisable
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<PAGE> 3
Adopted By The Board - 1/13/92
on the date of termination may be exercised, in whole or in part, at
any time within thirty (30) days from the date of such termination;
(B) if Grantee's employment or provision of services is terminated by
death of the Grantee, any unexercised options to the extent
exercisable on the date of death may be exercised, in whole or in
part, at any time within 90 days after the date of death by the
Grantee's personal representative or by the person to whom the option
is transferred by will or the applicable laws of descent and
distribution; or
(C) if the Grantee's employment or provision of services is terminated
as a result of the permanent disability of the Grantee, any
unexercised options to the extent exercisable at the date of such
termination may be exercised, in whole or in part, at any time within
90 days after the date of such termination, provided that, if the
Grantee dies after termination of employment as a result of permanent
disability and before the expiration of the applicable exercise
period, such options may be exercised by the deceased Grantee's
personal representative, or by the person to whom the option is
transferred by will or the applicable laws of descent and
distribution, within 90 days of the Grantee's death.
Employment, for purposes of this Article 8, shall mean full-time
employment, except as the Board specifies to the contrary with respect to
particular options, either at the time of grant or later.
Misconduct, for purposes of this Article 8, shall include any act of
dishonesty, fraud, embezzlement, breach of fiduciary duty to the Company,
deliberate disregard of Company rules resulting in loss or damage to the
Company, unauthorized disclosure of Company trade secrets or confidential
information, inducing any customer of the Company to breach any contract with
the Company, inducing any employee of the Company to leave its employ, or any
other act constituting reasonable grounds for termination as determined by the
Board in good faith.
Permanent disability, for purposes of this Article 8, shall mean a
mental or physical condition which renders a Grantee unable or incompetent to
carry out the job responsibilities he or she held or tasks to which he or she
was assigned at the time the disability was incurred.
Any of the provisions of this Article 8 to the contrary
notwithstanding, in no event shall any option be exercised after the earlier of
ten (10) years from the Grant Date or the expiration date of an option as
specified in the applicable Option Agreement.
9. TIME OF GRANTING OPTIONS. The Grant Date under the Plan shall
be the date on which such option shall be duly granted.
- 3 -
<PAGE> 4
Adopted By The Board - 1/13/92
10. ADJUSTMENTS. Notwithstanding any other provision of the Plan,
option agreements entered into hereunder shall contain such provisions as the
Board shall determine for adjustment of the number and class of shares covered
thereby, or of the option prices, or both, to reflect a stock dividend, stock
split-up, share combination, recapitalization, merger, consolidation,
acquisition of property or shares, separation, reorganization, liquidation or
the like, of or by the Company. In any such event, the aggregate number and
class of shares available under the Plan shall be appropriately adjusted.
11. TERMINATION OF THE PLAN. The Plan shall terminate on December
31, 2001, and no grants shall be made after such date under this Plan,
provided, however, that the Plan shall terminate at such earlier time as the
Board may determine. Any termination, either partially or wholly, shall not
affect any options then outstanding under the Plan.
12. AMENDMENT OF THE PLAN. The Board may make such modifications
of the Plan as it shall deem advisable. Once granted, no option may be amended
without the written consent of the Grantee.
13. LIQUIDATION. Upon the complete liquidation of the Company,
any unexercised options granted under this Plan shall be deemed canceled,
except as otherwise provided in Article 10 in connection with a merger,
consolidation or reorganization of the Company.
14. OPTION AGREEMENTS. The terms of the options shall be subject
to an Option Agreement which shall be entered into by each Grantee and the
Company and which shall contain such terms as the Board shall deem appropriate.
15. TERM OF OPTIONS. The term of each option granted shall be for
a period of no more than ten (10) years from the Grant Date, and shall be
subject to earlier termination as herein provided.
16. EXERCISE OF OPTIONS. Subject to the provisions of Article 8,
each option shall be exercisable commencing on the date or dates set forth in
the applicable option agreement between the Company and the Grantee, provided,
however, that (a) no option may be exercised if in the opinion of counsel for
the Company, the issuance or sale of Stock pursuant to such exercise shall not
be lawful for any reason, and (b) each option agreement shall provide that all
options granted thereunder shall be immediately exercisable upon the occurrence
of any of the following events prior to the expiration or other termination of
the option: (i) sale (other than a sale by the Company) of more than 80% of
the voting power of the Company in a single transaction or a related series of
transactions; or (ii) sale of substantially all of the assets of the Company;
or (iii) approval by the stockholders of the Company of a reorganization,
merger or consolidation of the Company, as a result of which the persons who
were the stockholders of the Company immediately prior to such reorganization,
merger or consolidation do not own securities immediately after the
- 4 -
<PAGE> 5
Adopted By The Board - 1/13/92
reorganization, merger or consolidation entitled to more than 80% of the voting
power of the reorganized, merged or consolidated company. Voting power, as
used in the preceding sentence, shall refer to those securities entitled to
vote generally in the election of directors, and securities of the Company not
entitled to vote but which are convertible into, or exercisable for, securities
of the Company entitled to vote generally in the election of directors shall be
counted as if converted or exercised, and each unit of voting securities shall
be counted in proportion to the number of votes such unit is entitled to cast.
Options shall be exercised by written notice of intent to exercise options as
to a specific number of shares. The purchase price of any shares as to which
options shall be exercised shall be paid in full at the time of the exercise in
cash, except to the extent that the option agreement provides that such
purchase price may be paid in shares of the common stock of the Company, valued
at fair market value (as defined in Article 5). In the event that the option
agreement provides for such payment in shares, payment of the purchase price
may not be made by pyramiding (i.e., the process of paying option exercise
price with shares simultaneously acquired by option exercise) except to the
extent provided by the option agreement. To the extent provided in the option
agreement, a Grantee may be permitted to pay all or part of the Option Price by
execution of a promissory note payable to the Company with personal recourse
against the Grantee at such time and with such terms, including a reasonable
rate of interest, as the option agreement may specify.
17. SUBSTITUTED OPTIONS. In the event the Board cancels, with the
consent of a Grantee, any option granted under this Plan, and a new option is
substituted therefor, the Grant Date of the canceled option shall be the date
used to determine the earliest date for exercising the new substituted option
under Article 16 so that the Grantee may exercise the substituted option at the
same time as if the Grantee had held the substituted option since the Grant
Date of the canceled option.
18. FUNDING. Benefits payable under the Plan to any person shall
be paid directly by the Company. The Company shall not be required to fund, or
otherwise segregate assets to be used for payment of benefits under the Plan.
19. STOCKHOLDER RIGHTS. A Grantee shall not, by reason of any
options granted hereunder, have any right of a stockholder of the Company with
respect to the shares covered by his or her options until shares of Stock have
been issued to him or her.
20. CONTROLLING LAW. The Plan shall be governed by the laws of
the State of Illinois applicable to contracts made in Illinois between Illinois
residents.
1CJ6.2 1099.01
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<PAGE> 1
Exhibit 10.3
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
Amended and Restated Registration Rights Agreement
("Agreement") dated March 16, 1994, among Nanophase Technologies Corporation,
an Illinois corporation (with its successors and assigns, called the
"Company"), and the persons listed as Holders on the signature pages of a
counterpart of this Agreement.
Capitalized terms used in this Agreement and not otherwise
defined are defined in Section 11 of this Agreement.
PRELIMINARY STATEMENT
The Company and the Holders have previously entered into that
certain Registration Rights Agreement dated as of November 21, 1991, as amended
by a First Amendment to Registration Rights Agreement dated February 8, 1993
(collectively, the "Original Agreement").
Concurrently with the execution of this Agreement, the Company
and certain of the Holders propose to execute a Series D Preferred Stock
Purchase Agreement (the "Series D Purchase Agreement") pursuant to which
certain of the Holders will purchase additional securities of the Company. To
induce such Holders to execute the Series D Purchase Agreement, the Company and
the Holders agree to amend and restate the Original Agreement as follows.
AGREEMENT
Section 1. Required Registrations.
1.1 (a) The Holders of Preferred and Registrable Common
equivalent to more than 60% of the Registrable Common may, by a written notice
to the Company, request that the Company register any Registrable Common
specified in the notice, under the Securities Act on a form other than a Short
Form and under other relevant securities laws, for disposition in accordance
with methods stated in the notice. Such notice may specify an underwriter for
such registration.
1.2 When it receives a registration notice under Section
1.1, the Company shall, within three (3) days, deliver a copy of such
registration notice to each Holder of Convertible Securities or Registrable
Common who is not a party to the registration notice, each of whom may then
specify, by written notice to the Company delivered within fifteen (15) days of
receipt of the notice from the Company, a number of shares of Registrable
Common held by it which it wishes to include in any registration pursuant to
the registration notice under Section 1.1.
<PAGE> 2
1.3 When it receives a registration notice under Section 1.1,
the Company will expeditiously cause a registration statement to be filed, and
use its best efforts to cause such registration statement to become effective
under the Securities Act for the Registrable Common specified in the
registration notice under Section 1.1 and subsequent notices under Section 1.2
to permit disposition by such Holders in accordance with the methods of
disposition described in the registration notice.
Section 2. Registrations on Short Forms.
2.1 If at any time the Company is a registrant entitled to
use a Short Form to register Registrable Common, one or more Holders may, by a
written notice to the Company, request that the Company register Registrable
Common specified in the notice on a Short Form.
2.2 When it receives a Short Form registration notice under
Section 2.1, the Company shall, within three (3) days, deliver a copy of such
registration notice to each Holder of Convertible Securities or Registrable
Common, who is not a party to such registration notice, each of whom may then
specify, by written notice to the Company delivered within fifteen (15) days of
receipt of the notice from the Company, a number of shares of Registrable
Common held by it that it wishes to include in any registration pursuant to the
registration notice under Section 2.1 hereof.
2.3 When it receives a notice under Section 2.1, and
provided that the reasonably anticipated price to the public of the Registrable
Common proposed to be registered by all sellers of such Registrable Common
would total more than $500,000, the Company will expeditiously cause a
registration statement to be filed, and use its best efforts to cause such
registration statement to become effective under the Securities Act on the
Short Form specified in the notice for the Registrable Common specified in the
registration notice under Section 2.1 and subsequent notices under Section 2.2.
Section 3. Incidental Registration. Each time the
Company proposes to register any of its Securities under the Securities Act, it
will give written notice of its intention to do so to each Holder, which notice
shall identify the proposed underwriter for such offering. Each Holder may
then specify, by written notice to the Company delivered within fifteen (15)
days of receipt of notice from the Company, a number of shares of Registrable
Common held by it which it wishes to include in the Company's proposed
registration. If at least 50% of the shares to be registered in such offering
are held by Holders of Preferred or Registrable Common, then such Holders shall
have the right to approve the underwriter (voting as a group, based upon the
number of shares of Registrable Common held by each to be included in such
offering), which approval shall not be unreasonably withheld. Subject to the
limitations of Section 8, the Company will use its best efforts to effect the
registration under the Securities Act of Registrable Common specified by
Holders under this Section 3.
Page 2
<PAGE> 3
Section 4. Limitations on Registration Rights.
Notwithstanding any contrary provision of this Agreement:
A. the Company shall not be required to effect more than
one registration pursuant to Section 1 (for purposes of this Section
4.A., a registration shall not be deemed "effective" unless the
registration statement is declared effective by the Commission); and
B. Section 3 shall not apply to a registration effected
solely to implement an employee benefit plan or to any other form or
type of registration which does not permit inclusion of Registrable
Common pursuant to Commission rule or practice; and
C. if the registration notice under Section 1 would
result in the first offering of the Company's Securities to the
public, then the registration specified under Section 1.1 must be for
an underwritten public offering to be managed by an underwriter of
recognized national standing reasonably acceptable to the Company and
shall be for a minimum of $10,000,000, at a price of not less than
$3.00 per share, as adjusted for stock splits, stock dividends and
other similar events; and
D. the Company shall not be obligated to effect a
registration pursuant to Section 1 during the period starting with the
date thirty days prior to the Company's estimated date of filing of,
and ending on a date six months following the effective date of, a
registration pertaining to an underwritten public offering of
securities for the account of the Company, provided that the Company
is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective and that the Company's
estimates of the date of filing of such registration statement is made
in good faith; and
E. if (a) there is material non-public information
regarding the Company which the Board reasonably determines not to be
in the Company's best interest to disclose and which the Company is
not otherwise required to disclose, or (b) there is a significant
business opportunity available to the Company which the Board
reasonably determines not to be in the Company's best interest to
disclose, or (c) there is a significant business opportunity available
to the Company and the Board reasonably determines that the Company's
ability to pursue such opportunity would be materially and adversely
affected by a registered public offering of the Company's Securities,
then the Company may postpone filing a registration statement
requested pursuant to Sections 1 or 2 for a period not to exceed 90
days, provided that the Company may not postpone its obligations as
permitted under this Section 4.E. more than once every 12 months.
Page 3
<PAGE> 4
Section 5. Registration Procedures.
5.1 Whenever the Company is required by the provisions of
this Agreement to effect the registration of any Registrable Common under the
Securities Act, the Company will, as expeditiously as possible:
A. in the case of a registration required under Section
1, engage the underwriters designated by the Holders giving notice
under Section 1.1 or in the case of an incidental registration under
Section 3, the underwriter specified in the notice given to the
Holders and approved by the Holders;
B. before filing each registration statement or
prospectus or amendment or supplement thereto with the Commission,
furnish counsel for the Holders of Registrable Common included in such
registration with copies of all such documents proposed to be filed
which shall be subject to the reasonable approval of such counsel;
C. prepare and file with the Commission a registration
statement with respect to such Registrable Common and use its best
efforts to cause such registration statement to become and remain
effective for such period as may be reasonably necessary to effect the
sale of such securities, not to exceed nine months;
D. prepare and file with the Commission (and any
exchange on which the Company's Securities may be or are proposed to
be listed and with the National Association of Securities Dealers,
Inc.) such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for such period and to
comply with the provisions of the Securities Act with respect to the
sale or other disposition of all Registrable Common covered by such
registration statement in accordance with the intended methods of
disposition set forth in such registration statement, but only to the
extent provided in this Section 5;
E. prepare and promptly file with the Commission, and
notify each seller of such Registrable Common as expeditiously as
possible of the necessity for and the filing of, such amendment or
supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, during such
periods as a prospectus relating to such securities is required to be
delivered under the Securities Act, any event shall have occurred as
the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were made,
not misleading;
F. furnish to the underwriters and each seller of such
Registrable Common such numbers of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including
Page 4
<PAGE> 5
each preliminary prospectus) and such other documents as such
underwriters or sellers may reasonably request in order to facilitate
the disposition of the Registrable Common subject to such registration
statement in accordance with such registration statement;
G. use its best efforts to register or qualify any
Registrable Common covered by such registration statement under the
securities or blue sky laws of such jurisdictions within the United
States of America as the seller or the underwriters reasonably
request, and to take any other acts which a seller or the underwriters
may reasonably request under such securities or blue sky laws to
enable the consummation of the disposition in such jurisdictions of
such Registrable Common (provided, however, that the Company may not
be required under this Agreement (i) to qualify generally to do
business as a foreign corporation in any jurisdiction in which it
would not otherwise be required to qualify, or (ii) to subject itself
to taxation in any such jurisdiction, or (iii) to consent to general
service of process in any such jurisdiction);
H. provide a transfer agent and registrar for all
Registrable Common sold under the registration not later than the
effective date of the registration statement;
I. cause all Registrable Common sold under the
registration to be listed on a recognized securities exchange, if any,
or to become eligible for trading on any over-the-counter trading
system, on which similar securities issued by the Company are then
listed or traded;
J. enter into such customary agreements (including
underwriting agreements in customary form) and take all such other
actions as the underwriters, if any, or the Holders of a Majority of
the Registrable Common being sold reasonably request in order to
expedite or facilitate the disposition of such Registrable Common
(including, without limitation, effecting a stock split or a
combination of shares);
K. make available for inspection by the sellers of
Registrable Common, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant
or other agent retained by any such seller or underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all
information reasonably requested by any such seller or underwriter in
connection with such registration statement, all subject to such
limitations as the Company reasonably deems appropriate in order to
protect the Company's confidential or proprietary information; and
Page 5
<PAGE> 6
L. advise each seller of Registrable Common, immediately
after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the Commission suspending the
effectiveness of such registration statement or the initiation or
threatening of any proceeding for such purpose and promptly use
reasonable efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
5.2 It shall be a condition precedent to the inclusion of
the Registrable Common of any Holder in a registration effected pursuant to
this Agreement that such Holder shall furnish to the Company such information
regarding such Holder, the Registrable Common of such Holder to be registered
and the intended method of disposition of such Registrable Common, and shall
execute such indemnities with respect to such information provided by such
Holders, underwriting agreements and other documents, as the Company shall
reasonably request in order to satisfy the requirements applicable to such
registration.
Section 6. Expenses. The Company shall pay all expenses
incurred in effecting the registration of Registrable Common provided for in
this Agreement, including, without limitation, all registration and filing
fees, printing expenses, listing fees, fees and disbursements of counsel for
the Company, reasonable fees and disbursements of a single counsel for the
sellers selected by the Holders of a majority of the Registrable Common subject
to such registration, underwriting expenses other than discounts and
commissions, expenses of any audits incident to or required by any such
registration and expenses of complying with the securities or blue sky laws of
any jurisdictions pursuant to Section 5.1G hereof. Notwithstanding the
foregoing, if a registration is requested by a single Holder pursuant to
Section 1.1(b), and no other Holder elects to have any shares owned by it
included in such registration, then the Holder requesting such registration
shall pay all of the expenses incurred in connection with such registration.
Section 7. Indemnification.
7.1 In the event of any registration of any of its
Registrable Common under the Securities Act pursuant to this Agreement, the
Company agrees, to the extent permitted by law, to indemnify and hold harmless
each seller of such Registrable Common, each partner in, or director and
officer of, each such seller, and each other person, if any, who controls
(within the meaning of the Securities Act) such seller against any losses,
claims, damages or liabilities, joint or several, arising out of or based upon:
(1) any alleged untrue statement of any material fact
contained in any registration statement under which such Securities
were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any summary prospectus
contained therein, or any amendment or supplement to any such
registration statement or prospectus, or
Page 6
<PAGE> 7
(2) any alleged omission to state in any such document a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except, with respect to any seller,
insofar as any such loss, claim, damage or liability is:
(a) caused by or contained in any information furnished in
writing to the Company by such seller expressly for use in connection
with such registration, or
(b) caused by such seller's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplement
thereto as required by the Securities Act or the rules or regulations
thereunder, or
(c) caused by the use of a prospectus or preliminary
prospectus or any amendment or supplement thereto by such seller after
receipt of notice from the Company that it should no longer be used.
In connection with an underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each person who controls (within
the meaning of the Securities Act) such underwriters to the same extent as
provided above with respect to the sellers of Registrable Common and as to such
other matters as such underwriters may reasonably request or which are covered
in such underwriters' customary form of underwriters' agreement. The Company
shall reimburse each person indemnified pursuant to this Section 7.1 in
connection with investigating or defending any loss, claim, damage, liability
or action indemnified against. The reimbursements required by this Section 7.1
shall be made by periodic payments during the course of the investigation or
defense, as and when bills are received or expenses incurred. The indemnities
provided pursuant to this Section 7.1 shall survive transfer of Registrable
Common by a seller.
7.2 In the event of any registration of any of its
Registrable Common under the Securities Act pursuant to this Agreement, each
Holder agrees to furnish to the Company in writing such information and
affidavits as the Company reasonably requests for use in connection with any
registration statement or prospectus in connection with the registration or any
amendment or supplement thereto and, to the extent permitted by law, agrees
severally and not jointly to indemnify and hold harmless the Company, its
directors and officers, each other seller of securities in such registration,
each partner in, or officer or director of, each such seller, and each person
who controls (within the meaning of the Securities Act) the Company or such
other seller against any losses, claims, damages or liabilities, joint or
several, arising out of or based upon:
(1) any alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration
statement under which such Securities were registered under the
Securities Act, any preliminary prospectus or final prospectus
contained therein, or any summary prospectus contained therein, or any
Securities being registered, or any amendment or supplement thereto,
or
Page 7
<PAGE> 8
(2) any alleged omission to state in any such document a
material fact required to be stated therein or necessary to make the
statements therein not misleading,
but only insofar as any such loss, claim, damage or liability is caused by or
contained in any information furnished in writing to the Company by the
indemnifying seller expressly for use in connection with such registration, and
excluding any such loss, claim, damage or liability which is caused by or
contained in such statements, or caused by such omissions, based upon the
authority of an expert as defined in the Securities Act (but only if the
indemnifying seller had no ground to believe, and did not believe, that the
statements made on the authority of an expert were untrue or that there was an
omission to state a material fact. In connection with an underwritten
offering, each seller will indemnify such underwriters, their officers and
directors and each person who controls (within the meaning of the Securities
Act) such underwriters to the same extent as provided above with respect to the
Company and other sellers. Each seller shall reimburse each person indemnified
pursuant to this Section 7.2 in connection with investigating or defending any
loss, claim, damage, liability or action indemnified against. The indemnities
provided pursuant to this Section 7.2 shall survive transfer of Registrable
Common by an indemnifying seller, and transfer of other securities by any other
indemnified seller.
7.3 Indemnification similar to that specified in Sections
7.1 and 7.2 (with such modifications as shall be appropriate) shall be given by
the Company and each Holder of any Registrable Common covered by any
registration or other qualification of Securities under any federal or state
securities law or regulation other than the Securities Act with respect to any
such registration or other qualification effected pursuant to this Agreement.
7.4 In the event the Company or any Holder receives a
complaint, claim or other notice of any loss, claim or damage, liability or
action, giving rise to claim for indemnification under this Section 7, the
person claiming indemnification shall promptly notify the person against whom
indemnification is sought (unless such person is also a party to such
complaint, notice, claim or action) of such complaint, notice, claim or action,
and such indemnifying person shall have the right to investigate and defend any
such loss, claim, damage, liability or action, provided that such indemnifying
person shall not settle any such claim or action unless (i) such settlement is
approved by the person claiming indemnification, or (ii) such settlement
provides for a full, general release from all claims against the person
claiming indemnification. The person claiming indemnification shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof but the fees and expenses of such counsel shall not be at the
expense of the person against whom indemnification is sought and the
indemnifying person shall not be obligated to indemnify any person for any
settlement of any claim or action effected without the indemnifying person's
consent, which consent will not be unreasonably withheld.
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<PAGE> 9
Section 8. Marketing Restrictions.
8.1 If:
A. a registration is to be made pursuant to a
registration notice under Section 1 or Section 2 of this Agreement,
and
B. the offering proposed to be made by the Holder or
Holders for whom such registration is to be made is to be an
underwritten public offering, and
C. the managing underwriters of such public offering
furnish a written opinion that the total amount of Registrable Common
to be included in such offering would exceed the maximum number of
shares of Common (as specified in such opinion) which can be marketed
at a price reasonably related to the current market value of such
Common and without otherwise materially and adversely affecting such
offering,
then the rights of the Holders, of the holders of other Securities having the
right to include Common in such registration and of the Company to participate
in such offering shall be in the following order of priority:
First: the Holders shall be entitled to participate in such
offering to the extent of such maximum number of shares of Common, or
of the aggregate number of shares of Registrable Common that all such
Holders shall have requested be registered, whichever is less, pro
rata among themselves in accordance with the number of shares of
Registrable Common which each such Holder shall have requested be
registered; and then
Second: if such maximum number of shares of Common exceeds
the aggregate number of shares of Registrable Common that all such
Holders shall have requested be registered, the Company and all
holders of other Securities having the right to include such
Securities in such registration shall be entitled to participate in
accordance with the relative priorities, if any, that shall exist
among them and the Company;
and no Securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition by
the Company or any Holder in a transaction which would require registration
under the Securities Act for a period beginning thirty (30) days prior to the
anticipated effective date of such registration statement and continuing until
ninety (90) days after the effective date of the registration statement filed
in connection with such registration or such earlier time consented to by the
managing underwriter, but in no event shall such period exceed 120 days. In
the future, the Company shall require each person to whom the Company grants
such rights, as a condition precedent to the effectiveness of such rights, to
agree to be bound by the foregoing restriction on distribution after conclusion
of the underwritten offering.
Page 9
<PAGE> 10
8.2 If:
A. any Holder of Preferred or Registrable Common
requests inclusion of Registrable Common in a registration statement
filed by the Company under Section 3 of this Agreement, and
B. the offering proposed to be made is to be an
underwritten public offering, and
C. the managing underwriters of such public offering
furnish a written opinion that the total amount of securities to be
included in such offering would exceed the maximum amount of
Securities (as specified in such opinion) which can be marketed at a
price reasonably related to the then current market value of such
Securities and without materially and adversely affecting such
offering,
then the rights of the Holders, of the holders of other Securities having the
right to include such Securities in such registration and of the Company to
participate in such offering shall be in the following order of priority:
First: the Company; and then
Second: the Holders shall be entitled to participate in such
offering, pro rata among themselves in accordance with the number of
shares of Registrable Common which each such Holder shall have
requested be registered; and then
Third: all other holders (including the Company, if such
registration shall have been requested by a person other than the
Company) of Securities having the right to include such Securities in
such registration shall be entitled to participate in accordance with
the relative priorities, if any, that shall exist among them;
and no Securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition by
the Company or any Holder in a transaction which would require registration
under the Securities Act for a period beginning thirty (30) days prior to the
anticipated effective date of such registration statement and continuing until
ninety (90) days after the effective date of the registration statement filed
in connection with such registration or such earlier time consented to by the
managing underwriter, but in no event shall such period exceed 120 days.
8.3 In connection with any offering involving an
underwriting of Registrable Common pursuant to Section 3 of this Agreement, the
Company shall not be required to include any of the Registrable Common of a
Holder in such offering unless such Holder agrees to the terms of the
underwriting agreed to between the Company and the underwriter or underwriters
selected by the Company, provided that no such agreement shall add to the
indemnities or affect the priorities set forth in this Agreement.
Page 10
<PAGE> 11
Section 9. Sale of Preferred to Underwriter.
Notwithstanding anything in this Agreement to the contrary, in lieu of
converting any Preferred to Common prior to or simultaneously with the filing
or the effectiveness of any registration statement filed pursuant to this
Agreement, the Holder of such Preferred may sell such Preferred to the
underwriter of the offering being registered upon the undertaking of such
underwriter to (i) convert such Preferred into Common before making any
distribution pursuant to such registration statement, and (ii) include such
Common among the Securities being offered pursuant to such registration
statement. The Company agrees to cause the Common issuable on conversion of
such Preferred to be issued within such time as will permit the underwriter to
make and complete the distribution contemplated by the underwriting and to
register the Preferred in any registration statement so that the Holder may
make the sale described in the first sentence of this Section 9.
Section 10. Lockup Agreement. Each Holder and the
Company agrees in connection with any registration of any of the Company's
Securities that, upon the request of the Company or the underwriters managing
any underwritten offering of the Company's Securities, he or it will not sell,
make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Securities of the Company (other than the Securities
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time beginning
thirty (30) days prior to the anticipated effective date of such registration
statement and continuing until ninety (90) days after the effective date of
such registration statement, but in no event shall such period exceed one
hundred and twenty (120) days.
Section 11. Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Board" means the Board of Directors of the Company.
"Commission" means the Securities and Exchange Commission, and any
successor thereto.
"Common" means the Company's common stock, no par value.
"Convertible Securities" means the Preferred and any other Security of
the Company which is convertible or exchangeable for Common.
"Holders" means the parties listed on the signature pages hereof, and
any subsequent legal or beneficial owner of Preferred or Registrable Common who
has become a party to this Agreement in accordance with Section 12 hereof.
"Preferred" means, collectively, the Company's Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-1 Preferred
Stock, Series D Preferred Stock and Series D-1 Preferred Stock, each having no
par value.
Page 11
<PAGE> 12
"Registrable Common" means at any time (i) any shares of Common then
outstanding which were issued upon conversion of Preferred; and (ii) any shares
of Common then issuable upon conversion of then outstanding Preferred; and
(iii) any shares of Common then outstanding which were issued as, or were
issued directly or indirectly upon the conversion or exercise of other
Securities issued as, a dividend or other distribution with respect to, or in
replacement of, Preferred or other Registrable Common; (iv) any shares of
Common then issuable directly or indirectly upon the conversion or exercise of
other Securities issued as a dividend or other distribution with respect to, or
in replacement of, Preferred or other Registrable Common, and (v) any shares of
Common then outstanding which were issued upon exercise of any Warrant, and any
shares of Common then issuable upon exercise of any Warrant. For purposes of
determining the equivalent of a given amount of Registrable Common, a person
will be deemed to be the holder of Registrable Common then issuable but not
actually issued whenever such person has the then-existing right (by conversion
or otherwise) to acquire such Registrable Common, even though such acquisition
has not actually been effected.
"Securities" means any debt or equity securities of the Company,
whether now or hereafter authorized, and any instrument convertible or
exchangeable for any such debt or equity securities. "Security" means one of
the Securities.
"Securities Act" means the Securities Act of 1933, as amended prior to
or after the date of this Agreement, or any federal statute or statutes which
shall be enacted to take the place of such Act, together with all rules and
regulations promulgated thereunder.
"Short Form" means Form S-2 or Form S-3 under the Securities Act, and
any other form promulgated after the date of this Agreement applicable in
circumstances substantially comparable to either of those forms, regardless of
its designation.
"Warrant" means any one of those certain warrants of the Company
previously purchased pursuant to that certain Series C Preferred Stock and
Warrant Purchase Agreement dated February 8, 1993, by and among the Company and
the other parties thereto.
Section 12. Assignability of Registration Rights. The
rights set forth in this Agreement shall accrue to each subsequent holder of
Preferred or Registrable Common who shall have executed a written consent after
becoming the holder of such Securities agreeing to be bound by the terms and
conditions of this Agreement as a party to this Agreement.
Section 13. Termination of Registration Rights.
Notwithstanding any contrary provision of this Agreement, the rights to
registration granted under this Agreement shall terminate as to any particular
Registrable Common when such Registrable Common shall have been (i) effectively
registered under the Securities Act and sold by the holder thereof in
accordance with such registration, or (ii) sold to the public pursuant to Rule
144 of the Commission, or any successor rule.
Nanophase - Amended and Restated RRA
Page 12
<PAGE> 13
Section 14. Miscellaneous.
14.1 Amendment. Any provision of this Agreement may be
amended by a written agreement signed by all of the following:
(a) the Company, and
(b) the Holders of Preferred and Registrable Common
equivalent to more than 67% of the Registrable Common.
Notwithstanding the foregoing, no amendment shall confer any
greater rights, or impose any additional restrictions, on any shares of
Preferred as compared to any other shares of Preferred, or any shares of Common
as compared to any other shares of Common, or any Holder as compared to any
other Holder, with the consent of the Holders of Preferred and Registrable
Common equivalent to 100% of the Registrable Common.
14.2 Severability. In the event that any court or any
governmental authority or agency declares all or any part of any Section of
this Agreement to be unlawful or invalid, such unlawfulness or invalidity shall
not serve to invalidate any other Section of this Agreement, and in the event
that only a portion of any Section is so declared to be unlawful or invalid,
such unlawfulness or invalidity shall not serve to invalidate the balance of
such Section.
14.3 Notices. All communications in connection with this
Agreement shall be in writing and shall be deemed properly given if hand
delivered, sent by telecopy or facsimile transmission, with confirmation by the
recipient, or sent by registered or certified mail, return receipt requested,
and, if to a Holder, addressed to the persons and at such addresses as are set
forth below such Holder's name on the signature pages to this Agreement or, if
no such person or address appears, at such Holder's address as shown on the
books of the Company or its transfer agent, and if to the Company, at:
Nanophase Technologies Corporation
8205 S Cass Avenue, Suite 105
Darien, Illinois 60559
Telecopy No. (708) 963-0317
or to such other persons or addresses as the recipient shall have specified by
a notice delivered to the Company (if the recipient is a Holder) or by a notice
delivered to each Holder (if the recipient is the Company) in accordance with
the terms of this Section. Any notice called for hereunder shall be deemed
given when received.
14.4 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois applicable
to agreements between Illinois residents entered into and to be performed
entirely within Illinois.
Nanophase - Amended and Restated RRA
Page 13
<PAGE> 14
14.5 Counterparts. This Agreement may be executed in two
or more counterparts, each which shall be deemed an original but all of which
shall together constitute one and the same instrument.
14.6 Heading. The headings used herein are solely for the
convenience of the parties and shall not serve to modify or interpret the text
of the Sections at the beginning of which they appear.
14.7 Remedies. Each of the parties confirms that damages at
law may not be an adequate remedy for a breach or threatened breach of this
Agreement, and agrees that in the event of a breach or threatened breach of any
of the provisions hereof, the respective rights and obligations of the parties
hereunder shall be enforceable by specific performance, injunction or other
equitable remedy. Nothing contained in this Section 14.7 shall limit any
party's right to seek or obtain any and all remedies available to such party,
whether at law, by statute or otherwise.
END OF TEXT
***********************
Nanophase - Amended and Restated RRA
Page 14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day first above written.
The Company: NANOPHASE TECHNOLOGIES CORPORATION,
an Illinois corporation
By __________________________________
Its President
Holders: ARCH VENTURE FUND LIMITED PARTNERSHIP,
a Delaware limited partnership
By: ARCH Development Corporation, an
Illinois not-for-profit corporation,
its General Partner
By: __________________________________
Its ___________________
ARCH VENTURE FUND II, L.P., a Delaware limited
partnership
By: ARCH MANAGEMENT PARTNERS II, L.P.
a Delaware limited partnership, its general
partner
By: ARCH Venture Partners, L.P., a
Delaware limited partnership,
its general partner
By: Lifework, Inc., an Illinois
corporation, its general
partner
By: ______________________
Its Managing Director
BATTERSON, JOHNSON & WANG, L.P., a Delaware limited
partnership
By: _______________________________________
Leonard A. Batterson, its Managing General
Partner
<PAGE> 16
UVCC FUND II, a Delaware general
partnership
By: Arete Venture Management Associates
II, L.P. its Managing General Partner
By: Arete Ventures, Inc., a Maryland
corporation, its general partner
By: ______________________________
Robert W. Shaw, Jr., President
UVCC II PARALLEL FUND, L.P., a Delaware
limited partnership
By: Arete Ventures L.P. III, General Partner
By: Arete Ventures, Inc., a Maryland
corporation, its general partner
By: ____________________________
Robert W. Shaw, Jr., President
THE COLUMBINE VENTURE FUND II, a Delaware partnership
By: Columbine Venture Management II, its general
partner
By: _________________________________
Its General Partner
ADVANCE MATERIAL TECHNOLOGIES VENTURE PARTNER LIMITED,
a Delaware partnership
By: _______________________________________
Tom H. Delimitros, a General Partner
<PAGE> 17
JHAM LIMITED PARTNERSHIP, a Delaware
partnership
By: _______________________________________
Tom H. Delimitros, a General Partner
AMT CAPITAL, LTD., a Delaware corporation
By: AMT Capital, Inc., its general partner
By: ________________________________
Tom H. Delimitros, President
ILLINOIS DEPARTMENT OF COMMERCE AND COMMUNITY AFFAIRS
By: _________________________________
Its Director
___________________________________________
RICHARD W. SIEGEL
<PAGE> 18
FIRST AMENDMENT TO
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
First Amendment to Amended and Restated Registration Rights Agreement
dated as of April ____, 1996 (this "Amendment"), among NANOPHASE TECHNOLOGIES
CORPORATION, an Illinois corporation (the "Company"), and the persons executing
a counterpart of this Amendment listed as holders on the signature pages to
this Amendment (the "Holders").
PRELIMINARY STATEMENT
The Company and the Holders have previously entered into that
certain Amended and Restated Registration Rights Agreement dated as of March
16, 1994 (the "Registration Rights Agreement").
Concurrently with the execution of this Amendment, the Company
and certain investors (the "Investors") have executed a Series E Preferred
Stock Purchase Agreement (the "Series E Purchase Agreement") pursuant to which
the Investors are purchasing securities of the Company.
To induce the Investors to execute the Series E Purchase
Agreement, the Company and the Holders agree as follows.
AGREEMENT
1. Amendments. The Company and the Holders agree that:
(a) The definition of "Preferred" in Section 11 of the
Registration Rights Agreement is hereby amended and restated in its entirety to
read as follows:
"Preferred" means, collectively, the Company's Series
A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series C-1 Preferred Stock, Series D
Preferred Stock, Series D-1 Preferred Stock, and Series E
Preferred Stock, each having no par value; and
(b) The address of the Company in Section 14.3 of the
Registration Rights Agreement is hereby amended and restated in its entirety to
read as follows:
Nanophase Technologies Corporation
453 Commerce Street
Burr Ridge, Illinois 60521
Telecopy No. (708) 323-1221
<PAGE> 19
2. Continuing Effect. Except as otherwise specifically provided in
this Amendment, the Registration Rights Agreement shall remain in full force
and effect in accordance with its terms. This Amendment may be executed in
multiple counterparts, all of which shall constitute one and the same
instrument.
END OF TEXT
*******************
page 2
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to Amended and Restated Registration Rights Agreement to be executed
on the day first above written.
The Company: NANOPHASE TECHNOLOGIES CORPORATION, an
Illinois corporation
By _____________________________
Its President
Holders: ARCH VENTURE FUND LIMITED PARTNERSHIP, a
Delaware limited partnership
By: ARCH Development Corporation
an Illinois not-for-profit
corporation, its General Partner
By: ____________________________
Its ________________________
ARCH VENTURE FUND II, L.P., a Delaware limited
partnership
By: ARCH MANAGEMENT PARTNERS II, L.P.
a Delaware limited partnership, its general
partner
By: ARCH Venture Partners, L.P., a
Delaware limited partnership,
its general partner
By: ARCH Venture Corporation, an
Illinois corporation, its
general partner
By: ______________________
Its Managing Director
Page 3
<PAGE> 21
ARCH II PARALLEL FUND, L.P., a Delaware limited
partnership
By: ARCH MANAGEMENT PARTNERS II, L.P.
a Delaware limited partnership, its general
partner
By: ARCH Venture Partners, L.P., a
Delaware limited partnership,its
general partner
By: ARCH Venture Corporation, an
Illinois corporation, its
general partner
By: ______________________
Its Managing Director
BATTERSON, JOHNSON & WANG, L.P., a Delaware limited
partnership
By: __________________________________
Leonard A. Batterson, its Managing General Partner
THE COLUMBINE VENTURE FUND II, a Delaware partnership
By: Columbine Venture Management II,
its General Partner
By: _________________________
Its _______________________
UVCC FUND II, a Delaware general partnership
By: Arete Venture Management Associates II, L.P.,
its Managing General Partner
By: Arete Ventures, Inc., a Maryland corporation,
its general partner
By: ______________________________
Robert W. Shaw, Jr., President
Page 4
<PAGE> 22
UVCC II PARALLEL FUND, L.P., a Delaware
limited partnership
By: Arete Ventures L.P. III, General Partner
By: Arete Ventures, Inc., a Maryland corporation,
its general partner
By:______________________________
Robert W. Shaw, Jr., President
ADVANCE MATERIAL TECHNOLOGIES VENTURE PARTNER LIMITED,
a Delaware partnership
By: _________________________
A General Partner
JHAM LIMITED PARTNERSHIP, a Delaware limited partnership
By: _________________________
A General Partner
AMT CAPITAL, LTD., a Delaware corporation
By: AMT Capital, Inc., its general partner
By: ________________________________
Tom H. Delimitros, President
ILLINOIS DEPARTMENT OF COMMERCE AND COMMUNITY AFFAIRS
By: _________________________________
Its Director
___________________________________
RICHARD W. SIEGEL
Nanophase - First Amendment to RRA Page 5
<PAGE> 23
HARRIS & HARRIS GROUP, INC., a New York corporation
By:________________________________________
Its:_______________________________________
GRACE INVESTMENTS, LTD., an Illinois limited partnership
By:________________________________________
Its:_______________________________________
Nanophase - First Amendment to RRA Page 6
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
Employment Agreement dated and effective as of February 3, 1994 (this
"AGREEMENT"), between NANOPHASE TECHNOLOGIES CORPORATION, an Illinois
corporation (with its successors and assigns, referred to as the "COMPANY"),
and ROBERT CROSS (referred to as "CROSS").
PRELIMINARY STATEMENT
Cross is now employed as the president and chief executive officer of the
Company.
The Company desires to continue to employ Cross, and Cross wishes to
continue to be employed by the Company, upon the terms and subject to the
conditions set forth in this Agreement. The Company and Cross also wish to
enter into the other agreements set forth in this Agreement, all of which are
related to Cross's employment under this Agreement.
AGREEMENT
Cross and the Company therefore agree as follows:
1. EMPLOYMENT FOR TERM. The Company hereby employs Cross and Cross
hereby accepts employment with the Company for the period (the "TERM")
beginning as of January 1, 1994, and ending on December 31, 1994, or upon the
earlier termination of the Term pursuant to Section 6. Unless otherwise
terminated as set forth in this Agreement, the Term shall be automatically
renewed for successive one (1) calendar year periods after the first calendar
year of the Term unless written notice of termination shall be given by the
Company or by Cross to the other for any reason or for no reason at least
ninety (90) days prior to the end of the then current calendar year. The end
of the Term for any reason shall end Cross's employment under this Agreement,
but shall not terminate Cross's or the Company's other agreements in this
Agreement.
2. POSITION AND DUTIES. During the Term, Cross shall serve as the
president and chief executive officer of the Company. During the Term, Cross
shall also hold such additional positions and titles as the Board of Directors
of the Company (the "BOARD") may determine from time to time. During the Term,
Cross shall devote substantially all of his business time and best efforts to
his duties as an employee of the Company.
3. COMPENSATION.
(a) BASE SALARY. The Company shall pay Cross a base salary,
beginning on the first day of the Term and ending on the last day of the Term,
of not less than $130,000 per annum, payable on the Company's regular pay cycle
for professional employees.
(b) BONUS PAYMENT. The Company shall pay Cross a bonus of
not less than $26,000 with respect to calendar year 1994 upon a determination
by the Board in its sole judgment of the acceptable achievement of milestones
set forth on the attached Exhibit A for
<PAGE> 2
calendar year 1994 ("MILESTONES"). Such bonus shall be payable in a lump sum
payment promptly upon such determination by the Board.
(c) STOCK OPTIONS. In connection with the execution of this
Agreement, the Company has granted to Cross options to purchase up to 125,000
shares of the Company's common stock (the "INITIAL OPTIONS") under the
Company's 1992 Stock Option Plan ("Plan"). The Company further agrees that the
Company will grant to Cross the additional options to purchase common stock
referred to in the Minutes of the Meeting of the Board held on February 3,
1994, upon a determination by the Board in its sole judgment of the acceptable
achievement of Milestones and the other events referred to in such Minutes (the
"ADDITIONAL OPTIONS", and together with the Initial Options, the "OPTIONS"),
such Options to be granted under and pursuant to the terms of the Plan.
(d) OTHER AND ADDITIONAL COMPENSATION. Sections 3(a), 3(b)
and 3(c) establish minimum salary and option grant levels for Cross during the
Term, and shall not preclude the Board from awarding Cross a higher salary or
more stock options at any time, nor shall they preclude the Board from awarding
Cross additional bonuses or other compensation in the discretion of the Board.
4. EMPLOYEE BENEFITS. During the Term, Cross shall be entitled to
the employee benefits (other than health and medical benefits) made available
by the Company generally to any other employee of the Company, including
reasonable vacation time in accordance with Company policy. In addition, the
Company will purchase and maintain for the benefit of Cross a term life
insurance policy payable to Cross of up to $500,000, provided that the Company
will not be obligated to pay monthly premiums in excess of $500.00.
5. EXPENSES. The Company shall reimburse Cross for actual
out-of-pocket expenses incurred by him in the performance of his services for
the Company in accordance with the Company's policy for such reimbursements
applicable to employees generally and upon receipt by the Company of
appropriate documentation and receipts for such expenses, which expenses shall
include without limitation economy rate travel to and from, and economy rate
transportation and lodging in, the Chicago area.
6. TERMINATION.
(a) GENERAL. The Term shall end immediately upon Cross's
death. The Company may end the Term at any time for any reason or no reason,
in the absolute discretion of the Board (but subject to the Company's
obligations under this Agreement).
(b) NOTICE OF TERMINATION. Promptly after it ends the Term,
the Company shall give Cross notice of the termination, including a statement
of whether the termination was for Cause (as defined in Section 7(a) below).
The Company's failure to give notice
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<PAGE> 3
under this Section 6(b) shall not, however, affect the validity of the
Company's termination of the Term.
7. SEVERANCE BENEFITS.
(a) "CAUSE" DEFINED. "Cause" means (i) willful and gross
malfeasance or willful and gross misconduct by Cross in connection with his
employment; (ii) Cross's gross negligence in performing any of his duties under
this Agreement; (iii) Cross's conviction of, or entry of a plea of guilty to,
or entry of a plea of nolo contendere with respect to, any crime other than a
misdemeanor; (iv) Cross's willful and gross breach of any written policy
applicable to all employees adopted by the Company concerning conflicts of
interest, political contributions, standards of business conduct or fair
employment practices, procedures with respect to compliance with securities
laws or any similar matters, or adopted pursuant to the requirements of any
government contract or regulation; or (v) material breach by Cross of any of
his agreements in this Agreement.
(b) TERMINATION WITHOUT CAUSE. If the Company ends the Term
other than for Cause, the Company shall pay Cross an amount equal in annual
amount to his base salary in effect at the time of termination during the
period (the "Severance Period") of twenty six (26) full weeks after the
effective date of termination, payable in proportionate amounts on the
Company's regular pay cycle for professional employees and (if the last day of
the Severance Period is not the last day of a pay period) on the last day of
the Severance Period.
(c) TERMINATION FOR ANY OTHER REASON. If the Company ends
the Term for Cause, or if Cross resigns as an employee or officer of the
Company, or if Cross dies, then the Company shall have no obligation to pay
Cross any amount, whether for salary, benefits, bonuses, or other compensation
or expense reimbursements of any kind, accruing after the end of the Term, and
such rights shall, except as otherwise required by law (or, with respect to the
Options, as set forth in the Plan or the applicable Option Agreements), be
forfeited immediately upon the end of the Term.
8. ADDITIONAL COVENANTS.
(a) CONFIDENTIALITY. Cross agrees to execute the
Company's standard form of Confidentiality and Proprietary Rights Agreement
promptly upon execution of this Agreement.
(b) "NON-COMPETITION PERIOD" DEFINED. "Non-Competition
Period" means the period beginning at the end of the Term and ending either (i)
365 days after the end of the Severance Period, if the Company is obligated to
make payments under Section 7(b), or (ii) 365 days after the end of the Term,
if the Company is not obligated to make payments under Section 7(b).
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<PAGE> 4
(c) COVENANTS OF NON-COMPETITION AND NON-SOLICITATION.
Cross acknowledges that his services pursuant to this Agreement are unique and
extraordinary, that the Company will be dependent upon Cross for the
development and growth of its business and related functions, and that he will
continue to develop personal relationships with significant customers of the
Company and to have control of confidential information concerning, and lists
of customers of, the Company. Cross further acknowledges that the business of
the Company is national in scope and cannot be confined to any particular
geographic area of the United States. For the foregoing reasons, Cross
covenants and agrees that during the Non-Competition Period Cross shall not,
directly or indirectly, engage in, be financially interested in, represent,
render any advice or services to, or be employed by, any other business
(conducted for profit or not for profit) that is competitive with the nanophase
and ultrafine powder production business of the Company within the United
States. For the reasons acknowledged by Cross at the beginning of this Section
8(c), Cross additionally acknowledges, covenants, and agrees that, during the
Non-Competition Period, Cross shall not, directly or indirectly, whether on his
own behalf or on behalf of any other person or entity, in any manner (A)
solicit the business of or otherwise contact in any commercial capacity any
person or entity that was a customer, supplier, or contractor of the Company
for the purpose of obtaining business of the type performed by the Company, or
(B) solicit for employment any persons who were officers or employees upon the
date of termination of his employment hereunder or at any time during a
ninety-day period preceding such date of the Company or aid any competitive
business organization in any attempt to hire any such officers or employees of
the Company.
(d) EQUITABLE REMEDIES. Cross acknowledges, covenants and
agrees that, in the event he shall violate any provisions of this Section 8,
the Company will not have an adequate remedy at law and will therefore be
entitled to enforce each such provision by temporary or permanent injunctive or
mandatory relief obtained in an action or proceeding without the necessity of
proving damage and without prejudice to any other remedies that may be
available at law or in equity. The foregoing restrictions shall not preclude
Cross from the ownership of not more than three percent (3%) of the voting
securities of any corporation whose voting securities are registered under
Section 12(g) of the Securities Exchange Act of 1934, even if its business
competes with that of the Company.
9. SUCCESSORS AND ASSIGNS.
(a) CROSS. This Agreement is a personal contract, and
the rights and interests that the Agreement accords to Cross may not be sold,
transferred, assigned, pledged, encumbered, or hypothecated by him. Cross
shall not have any power of anticipation, alienation or assignment of the
payments contemplated by this Agreement, all rights and benefits of Cross shall
be for the sole personal benefit of Cross, and no other person shall acquire
any right, title or interest under this Agreement by reason of any sale,
assignment, transfer, claim or judgment or bankruptcy proceedings against
Cross. Except as
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<PAGE> 5
so provided, this Agreement shall inure to the benefit of and be binding upon
Cross and his personal representatives, distributees and legatees.
(b) THE COMPANY. This Agreement shall be binding upon
the Company and inure to the benefit of the Company and of its successors and
assigns, including (but not limited to) any corporation that may acquire all or
substantially all of the Company's assets or business or into or with which the
Company may be consolidated or merged. This Agreement shall continue in full
force and effect in the event that the Company sells all or substantially all
of its assets, merges or consolidates, otherwise combines or affiliates with
another business, dissolves and liquidates, or otherwise sells or disposes of
substantially all of its assets. The Company's obligations under this
Agreement shall cease, however, if the successor to, the purchaser or acquiror
either of the Company or of all or substantially all of its assets, or the
entity with which the Company has affiliated, shall assume in writing the
Company's obligations under this Agreement (and deliver an executed copy of
such assumption to Cross), in which case such successor or purchaser, but not
the Company, shall thereafter be the only party obligated to perform the
obligations that remain to be performed on the part of the Company under this
Agreement.
10. ENTIRE AGREEMENT. This Agreement represents the entire
agreement between the parties concerning Cross's employment with the Company
and supersedes all prior negotiations, discussions, understandings and
agreements, whether written or oral, between Cross and the Company relating to
the subject matter of this Agreement.
11. AMENDMENT OR MODIFICATION, WAIVER. No provision of this
Agreement may be amended or waived unless such amendment or waiver is agreed to
in writing signed by Cross and by a duly authorized officer of the Company
other that Cross. No waiver by any party to this Agreement of any breach by
another party of any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same time, any prior time or any subsequent time.
12. NOTICES. Any notice to be given under this Agreement shall be
in writing and delivered personally or sent by overnight courier or registered
or certified mail, postage prepaid, return receipt requested, addressed to the
party concerned at the address indicated below, or to such other address of
which such party subsequently may give notice in writing:
If to Cross: Robert Cross
P.O. Box 200
Solebury, Pennsylvania 18963
If to the Company: Nanophase Technologies Corporation
8205 S. Cass Avenue, Suite 105
Darien, Illinois 60561
Attention: President
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<PAGE> 6
with a copy to: Bruce A. Zivian, Esq.
Fitzpatrick Law Offices
20 North Wacker Drive, Suite 2200
Chicago, Illinois 60606
Any notice delivered personally or by overnight courier shall be deemed given
on the date delivered and any notice sent by registered or certified mail,
postage prepaid, return receipt requested, shall be deemed given on the date
mailed.
13. SEVERABILITY. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable shall not be affected, and
each provision of this Agreement shall be validated and shall be enforced to
the fullest extent permitted by law. If for any reason any provision of this
Agreement containing restrictions is held to cover an area or to be for a
length of time that is unreasonable or in any other way is construed to be too
broad or to any extent invalid, such provision shall not be determined to be
entirely null, void and of no effect; instead, it is the intention and desire
of both the Company and Cross that, to the extent that the provision is or
would be valid or enforceable under applicable law, any court of competent
jurisdiction shall construe and interpret or reform this Agreement to provide
for a restriction having the maximum enforceable area, time period and such
other constraints or conditions (although not greater than those currently
contained in this Agreement) as shall be valid and enforceable under the
applicable law.
14. SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
15. HEADINGS. All descriptive headings of sections and paragraphs
in this Agreement are intended solely for convenience of reference, and no
provision of this Agreement is to be construed by reference to the heading of
any section or paragraph.
16. WITHHOLDING TAXES. All salary, benefits, reimbursements and
any other payments to Cross under this Agreement shall be subject to all
applicable payroll and withholding taxes and deductions required by any law,
rule or regulation of and federal, state or local authority.
17. APPLICABLE LAW: JURISDICTION. The laws of the State of
Illinois shall govern the interpretation, validity and performance of the terms
of this Agreement, without reference to rules relating to conflicts of law.
Any suit, action or proceeding against Cross with respect to this Agreement, or
any judgment entered by any court in respect thereof, may be brought in any
court of competent jurisdiction in the State of Illinois, as the Company may
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<PAGE> 7
elect in its sole discretion, and Cross hereby submits to the nonexclusive
jurisdiction of such courts for the purpose of any such suit, action,
proceeding or judgment.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NANOPHASE TECHNOLOGIES CORPORATION
By: ________________________________________
Leonard Batterson, Chairman of the Board
__________________________________
ROBERT CROSS
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<PAGE> 1
EXHIBIT 10.5
NANOPHASE TECHNOLOGIES CORPORATION
453 Commerce Street
Burr Ridge, Illinois 60521
Dated as of September 3, 1996
Mr. Dennis Nowak
10113 Wellington Terrace
Munster, Indiana 46321
Dear Dennis:
We are delighted you have agreed to join Nanophase Technologies
Corporation ("NTC"). In this letter, I would like to present the terms of your
employment with NTC.
1. Title and Duties. Subject to (i) confirmation and election by
the Board of Directors of NTC, and (ii) the resignation of the current
Secretary and Treasurer of NTC, you will serve as Vice President, Chief
Financial Officer, Secretary and Treasurer of NTC. In those capacities, you
will have such duties as are assigned to you from time to time by the Board or
by the President and Chief Executive Officer of NTC. You will report to the
President and Chief Executive Officer. During your employment with NTC you
agree that you will devote substantially all of your business time and best
efforts to your duties as an employee and officer of NTC.
2. Compensation. Your base annual salary upon the commencement
of your employment will be $140,000 per year. Thereafter, all increases in
your base salary will be as determined by the Board in their discretion.
Assuming you are still employed by NTC at that time, you will be entitled to
(i) a bonus of $35,000 on the first anniversary of your employment with NTC,
and (ii) a bonus of $35,000 upon the successful consummation of an initial
public offering of the common stock of NTC. You will also be eligible to
receive cash bonuses as determined in the discretion of the Board from time to
time. All base salary will be earned and paid in accordance with NTC's regular
payroll policies for professional employees in effect from time to time.
3. Other Benefits. You will be entitled to the health, life and
other insurance benefits generally made available by NTC to other executive
officers of NTC from time to time, which benefits are subject to change. You
will be entitled to paid annual vacation in accordance with NTC's policy for
executive officers. Further, NTC will reimburse you for actual out-of-pocket
expenses incurred by you in the performance of your services for NTC (in
accordance with NTC's policy for such reimbursements applicable to NTC's
executive officers on the same terms generally offered to such officers), upon
the receipt of appropriate documentation of such expenses.
4. Stock Options. Subject to action by the Board of Directors,
upon the commencement of your employment and your execution of the stock option
agreement we have provided you, you will receive options to purchase 100,000
shares of NTC's common stock at a price of $2.25 per share, subject to the
terms of the stock option agreement and the Nanophase Technologies Corporation
Stock Option Plan effective January 13, 1992, as it may be amended from time to
time. Subsequent grants of options may be
<PAGE> 2
Mr. Dennis Nowak
September 3, 1996
Page 2
made in the discretion of the Board of NTC on such terms and conditions as it
may determine.
5. Severance Payment. If NTC terminates your employment with NTC
other than for Cause (as defined below), NTC shall pay to you an amount equal
in annual amount to your base salary in effect at the time of termination
during the period (the "Severance Period") of twenty six (26) full weeks after
the effective date of termination, payable in proportionate amounts on NTC's
regular pay cycle for professional employees and (if the last day of the
Severance Period is not the last day of a pay period) on the last day of the
Severance Period. No severance will be due you if termination occurs for any
other reason. For purposes of this letter agreement, "Cause" means (i) willful
and gross malfeasance or willful and gross misconduct by you in connection with
your employment with NTC, (ii) gross negligence in performing any of your
duties with NTC, (iii) your conviction of, or entry of a plea of guilty to, or
entry of a plea of nolo contendere with respect to, any crime other than a
misdemeanor; (iv) your willful and gross breach of any written policy
applicable to all employees adopted by NTC concerning conflicts of interest,
political contributions, standards of business conduct or fair employment
practices, procedures with respect to compliance with securities laws or any
similar matters, or adopted pursuant to the requirements of any government
contract or regulation, or (v) the material breach by you of any of your
agreements in this letter agreement.
6. Confidentiality. As a NTC employee, you will have access to
information about the properties and operations of NTC and third parties which
are confidential in nature. Consequently, you have agreed to execute the form
of confidentiality and proprietary rights agreement we have provided to you as
of the date of the commencement of your employment.
7. Miscellaneous.
(a) You acknowledge and agree that (i) your employment with NTC is
"at-will", (ii) NTC has not made any agreements concerning the duration of your
employment, (iii) no agreement concerning the duration of your employment can
be made except in a written agreement executed by you and the President of NTC,
and (iii) your employment may be terminated at any time, with or without cause,
by either you or NTC at any time.
(b) The agreements set forth in this letter are a personal contract,
and your rights set forth above may not be sold, transferred, assigned, pledged
or encumbered by you.
(c) Except as contemplated in Sections 4 and 6 above, this letter
agreement represents the entire agreement between you and NTC concerning your
employment with NTC and supersedes all prior negotiations and agreements,
whether written or oral, relating to your employment with NTC.
(d) No provision of this letter agreement may be amended or waived
unless pursuant to a writing signed by you and the President of NTC. No waiver
by any party to this letter agreement of any breach by another party of any
condition or provision to be performed by
<PAGE> 3
Mr. Dennis Nowak
September 3, 1996
Page 3
such other party shall be deemed a waiver of a similar or dissimilar condition
or provision at the same time, any prior time or any subsequent time.
(e) All salary, bonuses, benefits, reimbursements and any other
payments to you under this agreement shall be subject to all applicable payroll
and withholding taxes and deductions required by any law, rule or regulation of
any federal, state or local authority.
(f) The laws of the State of Illinois shall govern the
interpretation, validity and performance of the terms of this agreement,
without reference to rules relating to conflicts of law. Any suit, action or
proceeding with respect to any matters related to your employment shall be
brought in any court of competent jurisdiction in the State of Illinois.
To acknowledge your agreement to the terms of your employment set
forth above, please sign a copy of this letter where indicated and return it to
me at your earliest convenience.
Nanophase Technologies Corporation
By:
-------------------------------------
Robert W. Cross
President and Chief Executive Officer
Accepted and Agreed the
date first written above
- ----------------------------------
Dennis Nowak
<PAGE> 1
EXHIBIT 10.6
SEVERANCE BENEFITS AGREEMENT
THIS AGREEMENT made this as of the 15th day of November, 1994, by and
between Nanophase Technologies Corporation, an Illinois corporation (the
"COMPANY"), Steven Lazarus ("TRUSTEE"), and Dr. John C. Parker ("PARKER").
WHEREAS, the Company desires to provide certain benefits to Parker in
the event of the termination of his employment with the Company, and the
Company may incur liabilities in connection with such benefits;
WHEREAS, the Company wishes to establish a trust (hereinafter called
"TRUST") and to contribute to the Trust assets that shall be held therein, not
subject to the claims of the Company's creditors, until paid to Parker in such
manner and at such times as specified in this Agreement while this Agreement
remains in effect;
WHEREAS, it is the intention of the Company to make a contribution to
the Trust to provide the Trust with a source of funds to assist the Trust in
meeting its liabilities under this Agreement.
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST
(a) The Company hereby deposits with Trustee in trust the sum of
$75,000 to establish the Trust, which sum shall become the principal of the
Trust to be held, administered, and disposed of by Trustee as provided in this
Agreement. The Company shall have no obligation to deposit any additional sums
to the Trust, and neither Trustee nor Parker or his beneficiaries shall have
any right to compel such additional deposits.
(b) The principal of the Trust, and any earnings thereon shall be
held separate and apart from any other funds of the Company or the Trustee and
shall except as otherwise set forth in this Agreement be used exclusively for
the uses and purposes of satisfying Parker's rights under this Agreement. Any
assets held by the Trust will not be subject to the claims of the Company's
creditors.
(c) The Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other property in trust with
Trustee to augment the principal to be held, administered and disposed of by
Trustee as provided in this Agreement.
SECTION 2. PAYMENTS TO PARKER.
(a) Unless sooner terminated pursuant to this Agreement, Parker shall
be entitled to receive payments of $3,125 on the first and fifteenth day of
each month commencing with the first day of the month following the month in
which the Trustee shall have received a "Notice of Termination" (as defined
below) from Parker, the Trustee shall have confirmed with the Company that such
Notice of Termination has been received by the Company, and the Trustee shall
not have received any written notice of protest from the Company as of the
first such payment date. All such payments shall be paid by the Trustee by
check delivered to Parker by the Trustee at the address set forth in this
Agreement below, or to such other address as Parker shall have notified Trustee
from time to time after the date of this Agreement.
(b) For purposes of this Section 2, a "NOTICE OF TERMINATION" means a
written notice delivered by Parker to both the Company and the Trustee in
accordance with the notice provisions of this Agreement, stating that in fact
one or more of the following events has occurred and is continuing:
<PAGE> 2
(i) the Company shall have (A) filed for protection under the
federal bankruptcy laws, (B) become insolvent and unable to conduct
its business and shall have commenced the liquidation of its assets,
or (C) transferred all or substantially all of its assets for the
benefit of creditors generally;
(ii) sold all or substantially all of its assets, or shall have
merged pursuant to an agreement under which the then existing
shareholders of the Company own less than 50% of the combined entity
following the merger, and the acquiring person or surviving company,
as the case may be, shall not offer Parker employment on terms
substantially equal to those enjoyed by Parker at the time such event
may occur;
(iii) Parker shall have been terminated without "cause", as defined
below.
(c) For purposes of this Section 2, the term "CAUSE" means (i) theft,
embezzlement, misappropriation of funds, (ii) other acts which constitute a
material violation of Parker's contractual obligations with the Company, and
which are directly harmful to the business and affairs of the Company as
determined in good faith by the Company's Board of Directors (the "BOARD"),
(iii) the continuing failure of Parker to fail to perform his duties with the
Company as determined in good faith by the Board for any reason other than
those set forth in (i) and (ii) above, which failures have been set forth in
writing by the Company and delivered to Parker, and Parker has been given a
reasonable opportunity to cure such failures, if appropriate in the
circumstances.
(d) Notwithstanding the foregoing, Parker shall be entitled to
receive the Installment Payments required hereunder from the first date of
payment through and including the earlier to occur of (i) the twenty fourth
such payment, or (ii) the date on which Parker shall accept employment, whether
by direct service with an entity or through a consulting arrangement.
(e) The Trustee shall make provision for the reporting and
withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payment of benefits pursuant to the terms of the
Agreement and shall pay amounts withheld to the appropriate taxing authorities
or determine that such amounts have been reported, withheld and paid by the
Company.
(f) The Trustee shall have no duty to inquire whether any facts,
circumstances or events alleged in the Notice of Termination or in any notice
of response by the Company shall in fact be true or shall have in fact
occurred, and shall be entitled to rely on any statement of such facts,
circumstances or events stated in any written notice from the Company or Parker
for all purposes of performing his obligations under this Agreement.
SECTION 3. PAYMENTS TO THE COMPANY.
(a) Except as provided in this Section 3, the Company shall have no
right or power to direct Trustee to return to the Company or to divert to
others any of the Trust assets before all payment of benefits have been made to
Parker or this Agreement shall have terminated in accordance with its terms.
(b) The Trustee shall pay to the Company (i) all interest earned on
the assets of the Trust, at least semi-annually, less any sums expended by the
Trustee to meet allowed expenses which have not previously been reimbursed by
the Company or which may be necessary to pay tax obligations owing with respect
to the income of the Trust, (ii) all principal of the Trust, together with
interest due and owing thereon at the time of such principal payment, at such
time as this Agreement shall terminate in accordance with Section 9(b) below,
or Parker shall no longer be entitled to receive any payments
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<PAGE> 3
from the Trust pursuant to the terms of Section 2 above. The Trustee may
reinvest income for the benefit of the Company in between payment dates.
SECTION 4. INVESTMENT AUTHORITY. In addition to the powers conferred
by law upon trustees, and not by way of limitation thereof, the Trustee is
hereby authorized to exercise the following powers for the sole benefit of the
beneficiary of the Trust: to invest and reinvest the trust estate wholly or
partially in certificates of deposit with a duration of three months or less
issued by banks having net assets in excess of $100,000,000, or in money-market
funds or money market mutual funds having a constant share price sponsored by a
bank having net assets in excess of $100,000,000, as the Trustee may deem
advisable. All rights associated with assets of the Trust shall be exercised
by Trustee or the person designated by Trustee, and shall in no event be
exercisable by or rest with the Company or Parker or his beneficiaries.
SECTION 5. ACCOUNTING BY TRUSTEE. Trustee shall keep accurate and
detailed records of all investments, receipts, disbursements, and all other
transactions required to be made hereunder. Within 30 days following the close
of each calendar year and within 30 days after the removal or resignation of
Trustee, Trustee shall deliver to the Company and Parker a written account of
its administration of the Trust during such year or during the period from the
close of the last preceding year to the date of such removal or resignation,
setting forth all investments, receipts, disbursements, and other transactions
effected by it, including a description of all investments purchased and sold
(accrued interest paid or receivable being shown separately), and showing all
cash and securities held in the Trust at the end of such year or as of the date
of such removal or resignation, as the case may be.
SECTION 6. RESPONSIBILITY OF TRUSTEE.
(a) Trustee shall act with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company or Parker which is
contemplated by, and in conformity with, the terms of this Agreement and is
given in writing by the Company or Parker. In the event of a dispute between
the Company and Parker, Trustee may attempt to resolve the dispute, but in any
event the Trustee shall be entitled to apply to a court of competent
jurisdiction to resolve the dispute.
(b) If Trustee undertakes to resolve any dispute between the Company
and Parker, or undertakes or defends any litigation arising in connection with
this Agreement, the Company agrees to indemnify Trustee against Trustee's
reasonable costs, expenses, and liabilities (including, without limitation,
reasonable attorneys' fees and expenses) relating thereto and to be primarily
liable for such payments.
(c) Trustee may consult with legal counsel (who may also be counsel
for the Company generally) with respect to any of its duties or obligations
hereunder.
(d) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist Trustee in
preforming any of his duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein.
(f) Notwithstanding any powers granted to Trustee pursuant to this
Agreement or to
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<PAGE> 4
applicable law, Trustee shall not have any power that could give this Trust the
objective of carrying on a business and dividing the gains therefrom, within
the meaning of section 301.7701-2 of the Procedure and Administrative
Regulations promulgated pursuant to the Internal Revenue Code.
SECTION 7. COMPENSATION AND EXPENSES OF TRUSTEE. The Company shall
pay all administrative and Trustee's fees and expenses. If not so paid, the
fees and expenses shall be paid from the income of the Trust.
SECTION 8. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) Trustee may resign at any time by written notice to the Company
and Parker, which shall be effective thirty (30) days after receipt of such
notice unless the Company, Parker and Trustee agree otherwise.
(b) Upon resignation of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor Trustee.
The transfer shall be completed within 30 days after receipt of notice of
resignation, removal or transfer, unless the Company extends the time limit.
The Company and Parker agree that if Steven Lazarus shall resign as Trustee or
shall no longer be available to serve as Trustee for any reason, then Keith
Crandell shall be an acceptable successor Trustee to both the Company and
Parker. If Mr. Crandell is not willing or able to serve as successor Trustee,
or shall accept such appointment and thereafter resigns or is no longer
available to so serve, the Company and Parker shall mutually agree on an
independent third person to serve as successor Trustee. If the parties cannot
so agree, the Company may appoint a bank trust department or other party that
may be granted corporate trustee powers under state law, as a successor to
replace Trustee upon resignation or removal, and shall pay the customary fees
of such successor Trustee in such event.
(c) The appointment of a successor Trustee shall be effective when
accepted in writing by the successor Trustee, who shall have all of the rights
and powers of the former Trustee, including ownership rights in the Trust
assets. The former Trustee shall if possible execute any instrument necessary
or reasonably requested by the Company or the successor Trustee to evidence the
transfer.
SECTION 9. AMENDMENT OR TERMINATION.
(a) The Trust created by this Agreement is intended to be and is
irrevocable. Notwithstanding the foregoing, no amendment to this Agreement
shall make the Trust revocable.
(b) The Trust shall terminate upon notice by the Company to the
Trustee of the occurrence of the earliest to occur of the following events: (i)
Parker shall voluntarily terminate his employment with the Company, (ii) Parker
shall die or shall suffer a long term disability (as determined in accordance
with the terms of any disability insurance carried by or for the benefit of
Parker at the time of determination, (iii) the Company shall have consummated
the initial public offering of its securities, shall have obtained a listing
for its securities on a nationally recognized stock exchange (including without
limitation a NASDAQ National Market Systems listing), and any underwriter
imposed "lock-up" period which bars the purchase or sale of shares of the
Company's common stock issued pursuant to previously granted stock options
shall have ended, and (iv) the close of business on November 15, 1999. Upon
termination, the Trustee shall continue to have such powers provided in this
Agreement as are necessary or desirable for the orderly liquidation and
distribution of the sums remaining upon termination.
SECTION 10. MISCELLANEOUS.
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<PAGE> 5
(a) Any provision of this Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof. This Agreement may be signed in multiple
counterparts, each of which when taken together shall constitute one and the
same Agreement. Headings contained in this Agreement are for convenience only
and are not intended to have any substantive effect whatsoever.
(b) Any direction or notice authorized or required to be given by the
Company, Parker or the Trustee under this Agreement shall be deemed delivered
to the party intended to receive such communication if delivered at the address
for such recipient set forth below their respective signatures below, or at
such other address of which such party shall from time to time notify the other
parties to this Agreement in writing in accordance with this paragraph, (i) on
the date it is personally delivered, if delivery is by hand, (ii) on the day
after deposit for delivery by a nationally recognized overnight courier
service, or (iii) three business day following deposit for delivery by
certified or registered first class United States mail, postage prepaid.
(c) Benefits payable to Parker under this Agreement may not be
anticipated, assigned (either at law or in equity), alienated, pledged or
encumbered in any way. This Agreement is for the benefit of Parker only, and
is not intended to be a benefit payable after death to his heirs,
beneficiaries, personal representatives or assigns.
(d) This Agreement shall be governed by and construed in accordance
with the laws of Illinois. This Agreement may not be amended or modified in
any way without the prior written consent of the Company and Parker, and if
such amendment or modification would expand or otherwise change the rights,
obligations and protections of the Trustee hereunder, the Trustee.
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<PAGE> 6
IN WITNESS WHEREOF, each of the undersigned have executed this
Agreement as of the date first written above.
"TRUSTEE" "COMPANY"
Nanophase Technologies Corporation,
an Illinois corporation
___________________________________ By:________________________________
Steven Lazarus Its President
Address: c/o ARCH Venture Partners Address: __________________________
135. S. LaSalle Street Burr Ridge, IL _______
37th Floor
Chicago, Illinois 60603
"PARKER"
____________________________________
John C. Parker
Address: 1597 Clemson Drive
Naperville, IL 60565
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<PAGE> 1
Exhibit 10.7
LICENSE AGREEMENT
License Agreement dated June 1, 1990, between ARCH DEVELOPMENT
CORPORATION, an Illinois not-for-profit corporation ("ARCH"), and NANOPHASE
TECHNOLOGIES CORPORATION, an Illinois corporation ("NTC").
PRELIMINARY STATEMENT
ARCH holds certain rights, title and interest in and to the technology
described below.
NTC desires to obtain the right to exploit the technology in commercial
settings, on the terms and conditions set forth below.
Therefore, in consideration of the mutual obligations set forth
herein, ARCH and NTC agree as follows.
AGREEMENT
I. DEFINITIONS. The following capitalized terms are used in this
Agreement with the following meanings:
"Affiliate" of any entity means any person or entity which directly or
indirectly controls, is controlled by, or is under common control with such
entity.
"Combination Product" means any product sold as a single unit but which
incorporates both (a) one or more Licensed Products and (b) one or more
products, not themselves Licensed Products, which the seller of the
Combination Product also offers for sale separately from the Combination
Product.
"Field of Use" means all uses of nanophase processes or materials
for structural, electrical, chemical or optical applications.
"Improvements" means all modifications, revisions or improvements to the
Inventions (i) to which ARCH shall acquire rights during the term of this
Agreement, and (ii) which improve the performance of the Inventions or any
Licensed Product, reduce the production costs of any Licensed Product, broaden
the applicability of any Licensed Product, increase the marketability of any
Licensed Product, or replace any Licensed Product in the marketplace.
"Invention" means each product, composition, process and use within the
scope of any claim contained in any patent application listed on Schedule I
attached hereto, and each product or
<PAGE> 2
composition made or manufactured by any art, method or process within the
scope of any claim of any such patent application, and all Improvements
thereof.
"Know-How" means the information, technical abilities, know-how, data and
designs in the possession or control of ARCH related to the Inventions that is
necessary or useful to reduce the Inventions to practice or to manufacture
Licensed Products.
"Later Developments" means all discoveries, inventions, or other
proprietary matters now or hereafter owned or controlled by ARCH within the
Field of Use and not constituting Improvements.
"Licensed Product" means any product or composition within the scope of
any claim of any patent application filed with respect to any of the
Inventions or any issued patent within the Patent Rights, or any product or
composition made or manufactured by any art, method, or process within the
scope of any claim of any patent application filed with respect to any of the
Inventions or any issued patent within the Patent Rights, including any
Combination Product.
"Net Sales" means:
(a) with respect to Licensed Products sold for cash other than
Licensed Products sold as an element of a Combination Product, the
price actually charged by NTC or any sublicensee of NTC in the sale of the
Licensed Product, less:
(i) customary trade, quantity or cash discounts, rebates, and
non-affiliated brokers' or agents' commissions actually
allowed and taken;
(ii) amounts repaid or credited to customers on account
of rejections or returns of specified products subject to
royalty hereunder or on account of retroactive price
reductions affecting such products; and
(iii) freight and other transportation costs, including
insurance charges, and duties, tariffs, sales and excise taxes
and other governmental charges based directly on sales, turnover
or delivery of the specified products and paid or allowed by NTC
or a sublicensee; and
(b) with respect to Licensed Products sold or otherwise transferred
other than for cash, and with respect to Licensed Products sold for
cash as an element of a Combination Product, and with respect to Licensed
Products used or consumed by NTC or any sublicensee of NTC in the manufacture
of another product,
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<PAGE> 3
either (i) an amount per unit of Licensed Product equal to the average sale
price of the Licensed Product determined in accordance with clause (a) above
for sale to third parties in the same and the preceding quarterly accounting
period, or (ii) if no sales of the Licensed Product have occurred in the same
and the preceding quarterly accounting period, other than as an element of a
Combination Product, an amount equal to (y) the price actually charged in the
sale of the Combination Product, less:
(i) customary trade, quantity or cash discounts, rebates, and
non-affiliated brokers' or agents commissions actually allowed and
taken;
(ii) amounts repaid or credited to customers on account of
rejections or returns of specified products subject to royalty
hereunder or on account of retroactive price reductions affecting
such products; and
(iii) freight and other transportation costs, including insurance
charges, and duties, tariffs, sales and excise taxes and other
governmental charges based directly on sales, turnover or delivery of
the specified products and paid or allowed by NTC or a sublicensee;
times (z) a fraction, the numerator of which is the direct manufacturing cost
of the Licensed Product, including materials, purchased parts and labor and
calculated in the customary manner used in the seller's internal cost
accounting, and the denominator of which is the total direct manufacturing
cost of the Combination Product, including materials, purchased parts and
labor and calculated in the same manner.
"Patent Costs" means out-of-pocket expenses incurred in connection with
the preparation, filing, prosecution and maintenance of the Patent Rights,
including, among other items, the fees and expenses of attorneys and patent
agents, filing fees and maintenance fees, but excluding costs involved in any
patent infringement claims.
"Patent Rights" means all rights arising from any patents issued on (i)
patent applications listed on Schedule I attached hereto and made a part
hereof, (ii) any other patent applications that may be filed in connection
with any of the Inventions, and (iii) all patent applications which are
divisions, continuations, continuations-in-part, reissues, renewals, foreign
counterparts, substitutions, or extensions of or to such patent applications.
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<PAGE> 4
II. GRANT OF LICENSE.
2.1. Grant. ARCH hereby grants, and agrees to grant, to NTC:
(a) the exclusive (except as otherwise specified in Section 2.2)
worldwide license to make, have made, use and sell Licensed Products within
the Field of Use; and
(b) a non-exclusive worldwide license to use Know-How in
connection with the manufacture, use and sale of Licensed
Products within the Field of Use; and
(c) the exclusive (except as otherwise specified in Section
2.2) right and authority to grant sublicenses of the rights granted
in clause (a) above, and the non-exclusive right and authority to
grant sublicenses of the rights granted in clause (b) above, subject
to the provisions of this Agreement.
2.2. Reservations.
(a) ARCH reserves for itself and for The University of Chicago
(the "University") the irrevocable right to make and use Licensed
Products and to use the Patent Rights and Inventions for its own internal
educational and research purposes. Neither ARCH nor the University shall have
any obligation to pay NTC a royalty or any other fee for the rights reserved
in the preceding sentence, which shall not be transferable (except to any
Affiliate of or successor to ARCH or the University, in which event such
Affiliate shall be bound by the restrictions on transfer set forth herein) or
licensable, and shall not include the right to sell Licensed Products or to
license the Patent Rights or Inventions.
(b) NTC acknowledges that the Inventions were developed at
Argonne National Laboratory, which is operated by the University
pursuant to its agreement with the United States Department of Energy
("DOE") (such agreement, as it may be amended from time to time,
being referred to herein as the "Prime Contract"), and that pursuant
to such Prime Contract DOE has reserved certain rights to the
Inventions. Such rights include, but are not necessarily limited to,
(i) a non-exclusive, nontransferable, irrevocable, paid-up license to
practice or have practiced for or on behalf of the United States
throughout the world and (ii) march-in rights pursuant to 37 C.F.R.
401.6. In the event DOE attempts to acquire additional rights to any
Invention by exercising such march-in rights, ARCH will, upon
receiving notice of such attempt promptly notify NTC and will allow
NTC, at NTC's expense, to oppose such DOE effort in the name of and
on behalf of ARCH.
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<PAGE> 5
2.3. Sublicenses. NTC shall promptly notify ARCH in writing following the
execution by NTC of any sublicense under this Agreement, and shall include a
summary of all material terms. The terms of any such sublicense shall be in
NTC's sole discretion. Upon the termination of this Agreement for any reason
prior to the expiration of the last-to-expire of the Patent Rights, each such
sublicense shall be deemed converted to a temporary direct license from ARCH
to such sublicensee on the terms of such sublicense agreement, which temporary
direct license shall terminate upon the earlier of (i) sixty (60) days after
the termination of this Agreement or (ii) the expiration of the last-to-expire
of the Patent Rights; provided, however, that ARCH agrees that upon request it
will negotiate in good faith with any of the sublicensees under such
sublicense agreements to grant such sublicensee a permanent direct license,
within such sublicensee's existing field of use, on substantially the same
terms as set forth in such sublicense and this Agreement. NTC shall be
entitled to collect any amounts due to it under each sublicense agreement for
the period prior to the termination of this Agreement, subject to NTC's
obligation to pay Royalties to ARCH with respect to such amounts.
III. PAYMENTS.
3.1. Royalties and Sublicense Fees. (a) Beginning with the first sale of
a Licensed Product sold by NTC or any sublicensee of NTC, NTC shall pay ARCH
royalties ("Royalties") equal to five percent (5%) of Net Sales of Licensed
Products sold by NTC or any of its sublicensees. In addition, NTC shall pay
ARCH 50% of all amounts received from any sublicensees that are not based upon
sales for use of Licensed Products, whether such payments are designated as
sublicense fees, or otherwise.
(b) In the event that NTC is obligated to pay a royalty to a third party
to make, have made, use or sell a Licensed Product, NTC may reduce the
Royalties payable to ARCH by an amount equal to the royalty paid to such third
party, provided, however, that in no event will the Royalties otherwise
payable hereunder be reduced by more than 50% for any period.
(c) In the event of a substantial infringement of the Patent Rights by a
third party, the Royalties payable to ARCH shall be reduced by a percentage
equal to the percentage of sales of Licensed Products lost by NTC as a result
of such infringer's action (to be determined in good faith by NTC and ARCH,
taking into account both historical and projected sales, at the time of such
infringement), but in no event by more than 50%, beginning upon the date NTC
shall substantiate to ARCH that a substantial infringement of the Patent
Rights is occurring, and ending upon
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<PAGE> 6
the date such infringement shall cease. For purposes of this Section 3.1(c),
a "substantial infringement" shall be deemed to occur when a third party
shall have sales of products that, if sold by NTC, would constitute Licensed
Products, of more than $10,000 per year.
(d) The requirement for NTC to pay Royalties to ARCH arising from the
manufacture, use or sale of Licensed Products by NTC or any sublicensee of NTC
in a particular jurisdiction shall extend only so long as such manufacture,
use or sale:
(i) is within the scope of any then pending claim of an application
in such jurisdiction; and
(ii) is covered by any claim (other than a claim which has been
determined by a court of competent jurisdiction from which no appeal can
be taken to be invalid or unenforceable) of an issued, unexpired and
in-force patent within the Patent Rights in such jurisdiction.
Only one Royalty shall be due or payable with respect to any single Licensed
Product regardless of how many patents or patent applications within the
Patent Rights cover the manufacture, use or sale of such Licensed Product.
3.2. Payment of Royalties Accounting. (a) Royalties shall
be calculated on a calendar quarter basis for sales occurring in
such quarter. Payment of Royalties with respect to each calendar
quarter shall be due at the same time that NTC's accounting of
sales and receipts with respect to the quarter is due (as
provided in Section 3.2(b) hereof), beginning with the calendar
quarter in which the first sale of a Licensed Product occurs.
(b) Within sixty (60) days after the end of each calendar quarter
during the term of this Agreement (and regardless of whether any sales
of Licensed Products occurred during such period), NTC shall deliver
to ARCH a true and complete accounting of sales of Licensed Products
and receipts from those sales by NTC and its sublicensees during such
period, with a separate accounting of sales and receipts by country.
If no sales of Licensed Products occurred during such period, NTC's
accounting shall consist of a statement to that effect.
3.3. Records. NTC shall keep accurate records in sufficient
detail to permit the Royalties under this Agreement to be determined,
and shall require any sublicensees to do the same. NTC shall permit
its books and records regarding Licensed Products to be examined and
copied from time to time during the term of this Agreement and for a
reasonable period of not less
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<PAGE> 7
than three years after the date to which such records relate, at the request
and sole expense of ARCH, during normal business hours by ARCH or any
representative of ARCH reasonably acceptable to NTC or such sublicensee, and
shall require each of its sublicensees to do the same.
3.4. Foreign Payments. In the event of Net Sales for which NTC or any
sublicensee receives payment in a currency other than currency which is legal
tender in the United States of America, all Royalties with respect to such Net
Sales shall be computed by converting such payment into United States dollars
at the applicable rate of exchange of Citibank, N.A., in New York, New York,
on the last day of the quarter in which the Net Sales occurred. All Royalties
shall be paid to ARCH in United States dollars.
3.5. Interest on Overdue Payments. Payments provided for in this
Agreement shall, when overdue more than thirty (30) days, bear interest at a
fluctuating rate equal from time to time to one percent (1%) per annum plus
the rate then most recently announced by Citibank, N.A., as its Base Rate,
beginning on the thirty-first day after the due date and continuing until
payment is received by ARCH. Any interest accruing under this Section shall be
due to ARCH without demand to NTC.
IV. NO WARRANTIES; INDEMNIFICATION;
4.1. Disclaimer of Warranties. ARCH hereby disclaims all warranties
relating to the Inventions, Patent Rights or Know-How, express or implied.
Without limiting the generality of the foregoing, ARCH expressly does not
warrant (i) the accuracy of the information contained in the Applications,
(ii) the patentability of any of the Inventions, or (iii) the accuracy,
safety, or usefulness for any purpose, of the Patent Rights, Inventions, or
any Know-How made available by ARCH hereunder. Nothing contained in this
Agreement shall be construed as either a warranty or representation by ARCH
that any Patent Rights will issue or as to the validity or scope of any Patent
Rights that may issue. ARCH assumes no liability in respect of any
infringement of any patent or other right of third parties due to the
activities of NTC or any sublicensee under this Agreement.
4.2. Indemnification and Insurance. (a) Neither ARCH, the University,
any Affiliate of either of them, nor any officer, director, trustee,
employee, agent or representative of any of them (each an "Indemnified
Party") shall have any liability whatsoever to NTC or any other person for or
on account of (and NTC and each sublicensee agrees and covenants not to sue
any Indemnified Party in connection with) any injury, loss, or
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<PAGE> 8
damage, of any kind or nature, sustained by, or any damage assessed
or asserted against, or any other liability incurred by or imposed
upon NTC or any other person, arising out of or in connection with
or resulting from (i) the production, use or sale of the Licensed
Products by NTC or its sublicensees,(ii) the use of any Invention or
Know-How by NTC or its sublicensees, or (iii) any advertising or
other promotional activities with respect to either of the
foregoing. NTC shall indemnify and hold each Indemnified Party
harmless against all claims, demands, losses, damages or penalties
(including but not limited to attorney's fees) made against any
Indemnified Party with respect to such matters, whether or not such
claims are groundless and without merit or basis.
(b) Each Indemnified Party agrees to notify NTC in writing as
soon as possible and in any event within thirty (30) days after
receiving written notice of any claim for which indemnity will be
sought by such Indemnified Party hereunder. In such event, NTC shall
be entitled to select counsel of its choosing and direct the defense
thereof. NTC shall have the right to settle any such claim;
provided, however, no such settlement shall involve the surrender by
NTC, on behalf of itself or ARCH, of rights under any Patent Rights
without the prior written consent of ARCH. ARCH agrees to cooperate
with NTC in connection with any such claim, and shall not
unreasonably withhold its consent to any settlement to which it has the
right to consent.
(c) NTC agrees to use its best efforts to list ARCH, at NTC's
expense, as an additional insured under any liability insurance
policy that NTC shall have or obtain that includes any coverage of
claims relating to any of the Inventions, Patent Rights or
Licensed Products. At ARCH's request, NTC will supply ARCH from
time to time with copies of each such policy, and will notify ARCH
in writing at least thirty (30) days prior to any termination of
or change in coverage under any such policies.
4.3. Government Indemnification. This license is entered into by ARCH,
independent from the Prime Contract with the Department of Energy. ARCH is
acting independently from the Government and in its own private capacity and
is not acting on behalf of the U.S. Government, nor as its contractor nor its
agent. Correspondingly, it is understood and agreed that the U.S. Government
is not a party to this Agreement and in no manner shall be liable for nor
assume any responsibility or obligation for any claim, cost or damages arising
out of or resulting from this Agreement, the subject matter licensed, or any
action or lack thereof by ARCH, the University, or NTC with respect thereto.
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V. PROSECUTION AND MAINTENANCE OF LICENSED PATENTS
5.1. ARCH Prosecution. During the term of this Agreement, and
subject to the provisions of Section 5.3 of this Agreement, ARCH
shall be responsible for prosecuting and maintaining the Patent
Rights in the United States and such other jurisdictions that NTC
may elect in writing to ARCH (subject to Section 5.3). Except as
otherwise specified in this Agreement, NTC shall pay when due, or in
ARCH's option reimburse ARCH for, all Patent Costs accruing after
November 30,1989. At NTC's request, ARCH shall provide NTC with
copies of all office actions and other communications received by
ARCH or its patent counsel with respect to the Patent Rights and,
prior to submission to the recipients, copies of all draft filings
with governmental agencies from ARCH or its patent counsel with
respect to the Patent Rights.
5.2. NTC Cooperation. NTC agrees to cooperate with ARCH in
ARCH's preparation, filing, prosecution and maintenance of Patent
Rights, by disclosing such information as may be necessary and by
promptly executing such documents as ARCH may reasonably request to
effect such efforts. NTC shall bear its own costs in connection with
its cooperation with ARCH under this Section. All Patent Rights shall
be filed, prosecuted and maintained in ARCH's name or as ARCH shall
designate.
5.3. NTC Prosecution. (a) In the event that NTC wishes to file
a patent application for any of the Inventions in any jurisdiction
other than the United States in which a patent application for such Invention
has not already been filed, NTC shall identify the jurisdiction and Invention
in writing to ARCH, and ARCH shall have ninety (90) days (or such shorter
period as provided in the following sentence) after it receives such written
notice in which to file such an application. Notwithstanding the foregoing, if
NTC reasonably determines that a filing or other action is required in such
jurisdiction in order to preserve or protect any Patent Rights in such
jurisdiction, it shall so notify ARCH, and ARCH shall have until seven days
prior to such date in which to file such an application. If ARCH declines or
fails to file such an application within ninety (90) days (or such shorter
period) after receiving the written notice, NTC may, in NTC's discretion and at
NTC's sole expense but in ARCH's name, file and prosecute such an application.
(b) In the event that ARCH determines to abandon any patent
application covering the Inventions previously filed by it, ARCH
will give NTC at least ninety (90) days prior written notice of its
intention to abandon such application. NTC may, by written
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notice to ARCH, elect to continue the prosecution of such application
at NTC's sole expense but in ARCH's name.
(c) In the event that NTC determines to abandon any patent
application covering the Inventions previously filed by it under
Section 5.3(a) hereof, NTC will give ARCH at least ninety (90) days
prior written notice of its intention to abandon such application.
ARCH may, by written notice to NTC, elect to continue the
prosecution of such application at ARCH's sole expense.
5.4. Confidentiality. (a) Both NTC and ARCH agree to treat (and,
in the case of NTC, to cause its sublicensees to treat) as
confidential all proprietary information made available by ARCH to NTC
or by NTC to ARCH, provided that the party disclosing such information
marks or otherwise identifies such information as "confidential" or
"proprietary" (if such information is disclosed orally, it shall be
summarized in writing within 30 days and such summary shall be
identified as "confidential" or "proprietary"). ARCH acknowledges that
NTC may find it beneficial to disclose such information provided by
ARCH during the conduct of NTC's business. Under such circumstances,
NTC may make such information available to third parties, provided
that NTC shall first obtain from the recipients a fully-executed
confidentiality agreement which is at least as restrictive as the
confidentiality agreement NTC employs to protect its own secrets of
comparable commercial value of the information being disclosed, and
shall send a copy of such agreements to ARCH at the time of NTC's next
accounting as required by Section 3.2(b) hereof.
(b) Neither NTC nor ARCH shall be bound by the provisions of
Section 5.4 with respect to information which (i) is known to the
recipient at the time of disclosure; or (ii) is in the public
domain at the time of disclosure; or (iii) becomes a part of the
public domain after the time of disclosure, other than through
disclosure by the recipient; or (iv) is required to be disclosed
by law or contract.
(c) Notwithstanding the provisions of Section 5.4(a), each of
ARCH and the University shall, upon thirty (30) days prior written
notice to NTC, be entitled to make disclosures of information
regarding the Inventions in scholarly journals where in its
reasonable judgment such disclosure will not materially compromise
any proprietary rights.
(d) NTC and ARCH shall each take such actions as the other
party may reasonably request from time to time to safeguard the
confidentiality of any information subject to the terms of this
Section 5.4.
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<PAGE> 11
(e) To the extent that United States Export Control Regulations are
applicable, neither NTC nor ARCH shall, without having first fully complied
with such regulations, (i) knowingly transfer, directly or indirectly, any
unpublished technical data obtained or to be obtained from the other party
hereto to a destination outside the United States, or (ii) knowingly ship,
directly or indirectly, any product produced using such unpublished technical
data to any destination outside the United States.
(f) The obligations of NTC and ARCH under this Section 5.4 shall survive
the expiration or earlier termination of all or any other part of this
Agreement.
VI. INFRINGEMENT
6.1. Disclosure. In the event that either ARCH or NTC becomes aware
of the infringement of any Patent Rights, each shall inform the other in
writing of all details available.
6.2. Rights to Prosecute. ARCH shall have the right, but not the
obligation, to enforce the Patent Rights against any infringement. In the
event of infringement by a third party of any Patent Rights within the Field
of Use which NTC wishes to prosecute, NTC shall first make a written request
to ARCH to prosecute such action. If within 90 days of receipt of such request
ARCH shall have been unsuccessful in persuading such alleged infringer to
desist such infringement, and shall not have brought an infringement action
against such alleged infringer, NTC may enforce the Patent Rights by
appropriate legal proceedings.
6.3. NTC Prosecution. In the event that NTC shall be prosecuting an
alleged infringer pursuant to Section 6.2, it shall employ counsel reasonably
satisfactory to ARCH and shall keep ARCH fully informed of all material
developments of such proceedings. NTC shall be responsible for all costs and
expenses of any enforcement activities, including legal proceedings, against
infringers which NTC initiates. ARCH agrees to join in and cooperate with any
enforcement proceedings at NTC's request, and at NTC's expense, provided that
ARCH may be represented by ARCH's counsel in any such legal proceedings, at
ARCH's own expense (subject to reimbursement under Section 6.5(a)), acting in
an advisory but not controlling capacity. In addition, NTC may name ARCH as
party plaintiff as required by law. No settlement, consent judgment, or other
final, voluntary disposition of any suit brought by NTC which waives any
rights within the Patent Rights may be entered into without the prior written
consent of ARCH. In the event that a declaratory
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judgment action alleging the invalidity or non-infringement of the
Patent Rights shall be brought or raised against NTC, ARCH shall
have the right, but not the obligation, to intervene and take over
the sole defense of such action. Any recoveries in any action
brought by NTC under this Section 6.3 shall be allocated as provided
in Section 6.5(a) hereof.
6.4. ARCH Prosecution.
(a) Any actions brought by ARCH at the request of NTC pursuant
to Section 6.2 shall be at the sole cost and expense of NTC,
provided that ARCH agrees to consult with NTC and to keep NTC
reasonably informed regarding such costs and expenses, and any
recoveries shall be allocated as provided in Section 6.5(a) hereof.
(b) Any other actions brought by ARCH shall be at the sole
cost and expense of ARCH, and any recoveries shall be allocated as
provided in Section 6.5(b) hereof, provided that ARCH shall notify
NTC of any such action and NTC may, by written notice to ARCH,
agree to pay all such costs and expenses, in which event the costs
and expenses of such action, and any recoveries, shall be allocated
as provided in Section 6.5(a) hereof.
(c) NTC agrees to join in and cooperate with any
enforcement proceedings at ARCH's request, and at ARCH's
expense, provided, however, that NTC may be represented by NTC's
counsel in any such legal proceedings, at NTC's own expense
(subject to reimbursement under Section 6.5(b)), acting in an
advisory but not controlling capacity. ARCH may name NTC as a
party plaintiff as required by law.
.
6.5. Recoveries.
(a) All recoveries by way of royalties, damages, and claims with
respect to infringement actions instituted, and claims made
(including penalties and interest) (i) prosecuted by NTC pursuant to
Section 6.2 hereof, (ii) prosecuted by ARCH pursuant to the request
of NTC, or (iii) prosecuted by ARCH and paid for by NTC pursuant to
Section 6.4(b) hereof shall belong to NTC. To the extent that NTC's
recoveries with respect to an infringement action or claim exceed
NTC's expenses with respect to such action or claim, NTC shall
reimburse ARCH for ARCH's expenses for separate counsel with respect
thereto, as provided in Section 6.3 hereof. After deduction of such
costs and expenses, any recoveries shall be considered Net Sales
under this Agreement as of the date any such recoveries are paid to
NTC, giving rise to royalty obligations under Article III hereof.
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(b) All recoveries by way of royalties, damages and claims
with respect to any infringement action prosecuted by ARCH other
than those described in Section 6.5(a) shall belong to ARCH. To the
extent that ARCH's recoveries with respect to any such infringement
action or claim exceed ARCH's expenses with respect to such action
or claim, ARCH shall reimburse NTC FOR NTC'S expenses for separate
counsel with respect thereto, as provided in Section 6.4(c) hereof.
VII. TERMINATION.
7.1. Breach of Obligations. ARCH shall have the right (without
prejudice to any of its other rights conferred on it by this
Agreement), upon written notice to NTC, to terminate this Agreement
upon the material breach by NTC of the obligations or conditions
contained in this Agreement, provided that if such breach is
susceptible of cure, NTC shall have five (5) business days, with
respect to any breach of an obligation to pay money, and sixty (60)
days, with respect to a breach not involving a payment of money,
after the receipt of such notice to correct such breach. ARCH's
right to terminate this Agreement, as hereinabove provided, shall
not be affected in any way by its waiver of, or failure to take
action with respect to, any previous breach.
7.2. NTC Right to Terminate. NTC may terminate this Agreement
at any time by written notice to ARCH, giving at least ninety (90)
days prior to the termination date specified in the notice.
7.3. Expiration of Patent Rights. The license granted
under this Agreement shall terminate upon the expiration of the
last to expire Patent Rights, except that NTC's and ARCH's
obligations under Sections 3.3, 4.2, and 5.4 shall continue in
effect as provided in such Sections.
7.4. Effect of Termination. Upon the termination of this
license for any reason prior to the expiration of the last-to expire
of the Patent Rights, all rights granted hereunder shall revert to
ARCH for the sole benefit of ARCH, and NTC agrees to return all
technical data, related documents and improvements supplied by ARCH
specific to the Licensed Products and Inventions to ARCH. If this
Agreement shall terminate pursuant to the provisions of Section 7.3
hereof, or shall be terminated by the agreement of the parties prior
to the expiration of the last-to expire of the Patent Rights, NTC
shall retain the right to possess and use such confidential
information, including Know-How, subject to the restrictions in
disclosure set forth in section 5.4.
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<PAGE> 14
VIII. ADVERTISING. Each party agrees not to use the name of
the other party in any commercial activity, advertising or sales
brochures except with the prior written consent of the other
party. NTC agrees not to use the name of any of the inventors of
the Inventions in any commercial activity, advertising or sales
brochures unless it has obtained the prior written consent of the
inventor.
IX. PERFORMANCE. NTC agrees to use its reasonable best
efforts promptly to commence and thereafter maintain commercial
sales of Licensed Products.
X. LATER DEVELOPMENTS. Subject to any obligations of ARCH in
favor of other persons (including the DOE), ARCH hereby grants NTC
an option to obtain a license on any Later Developments, which
license shall be on the terms set forth in this Agreement except as
ARCH and NTC may by mutual agreement otherwise provide. ARCH shall
use its best efforts to obtain title, pursuant to the
ARCH/University Agreement (as hereinafter defined) or any successor
agreement, to all discoveries, inventions, or other proprietary
matters within the Field of Use made at ANL or the University, and
shall notify NTC of any Later Developments by a writing referring to
this provision within ninety (90) days of acquiring rights to such
Later Developments, all in sufficient detail to allow NTC to
evaluate the commercial potential of such Later Development. NTC shall have
thirty (30) days after such disclosure to exercise such option which shall be
exercised by written notice to ARCH received within such period. If NTC shall
fail to exercise its option within such period, its option for such Later
Development shall be void, and NTC shall have no interest in such Later
Development.
XI. MISCELLANEOUS.
11.1. Assignment. (a) This Agreement may, at any time and
without NTC's consent, be assigned by ARCH without such assignment
operating to terminate, impair or in any way change the obligations
or rights which ARCH would have had, or any of the obligations or
rights which NTC would have had (including rights of NTC to
Improvements and Later Developments), if such assignment had not
occurred. From and after the making of such assignment, the assignee
shall be substituted for ARCH as a party hereto, and ARCH shall no
longer be bound hereby.
(b) This Agreement shall not be assigned by NTC without the
prior written consent of ARCH except to a wholly-owned subsidiary of
NTC or to the successor or assignee of substantially all of its
business related to Licensed Products.
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<PAGE> 15
11.2. Entire Agreement, Amendment and Waiver. This Agreement (including
any schedules and exhibits attached) contains the entire understanding of the
parties with respect to the subject matter hereof. This Agreement may be
amended, modified or altered only by an instrument in writing duly executed by
the parties hereto. The waiver of a provision hereunder may be effected only
by a writing signed by the waiving party and shall not constitute a waiver of
any other provision.
11.3. Notices. Any notice or report required or permitted to be given
or made under this Agreement by one of the parties hereto to the other shall
be in writing and shall be given by personal delivery or by United States
registered or certified mail, return receipt requested, addressed as
follows:
If to ARCH: ARCH Development Corporation
1115-25 East 58th Street
Chicago, Illinois 60637
Attention: President
If to NTC: Nanophase Technologies Corporation
1081 Maple Ave.
Evanston, Illinois 60201
Attention: President
or to such other address of which the intended recipient shall have notified
the sender by a written notice given in accordance with the terms of this
Section. Any notice under this Agreement shall be effective when received.
11.4. Severability. In the event that any one or more of the provisions
of this Agreement should for any reason be held by any court or authority
having jurisdiction over this Agreement, or either of the parties hereto, to
be invalid, illegal or unenforceable, such provision or provisions shall be
reformed to approximate as nearly as possible the intent of the parties, and
the validity of the remaining provisions shall not be affected.
11.5. Governing Law. The interpretation and performance of this
Agreement shall be governed by the laws of the State of Illinois applicable
to contracts made and to be performed in that state.
11.6. Marking. NTC shall place in a conspicuous location on any Licensed
Product (or its packaging where appropriate) made or sold under this
Agreement, a patent notice in accordance with the laws concerning the marking
of patented articles.
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<PAGE> 16
11.7. Implementation. Each party shall, at the request of the other
party, execute any document reasonably necessary to implement the provision
of this Agreement.
11.8. United States Manufacture. Unless DOE shall agree otherwise, NTC
agrees that Licensed Products will be manufactured substantially in the United
States, and further agrees that it will not grant any exclusive sublicenses
under this Agreement to sell Licensed Products in the United States unless the
sublicensee agrees that any License Products will be manufactured
substantially in the United States.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first above written.
ARCH: ARCH DEVELOPMENT CORPORATION, an
Illinois not-for-profit corporation
By:
--------------------------------
Its: President
-------------------------------
NTC: NANOPHASE TECHNOLOGIES CORPORATION,
an Illinois corporation
By:
---------------------------------
Its: Vice-President
--------------------------------
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<PAGE> 17
SCHEDULE I
1. Invention Title: Nanophase Ceramics for Improved Industrial
Products
Inventors: R.W. Siegel, H. Hahn, J.A. Eastman
ANL Case No. ANL-IN-89-80.
2. Invention Title: Industrial Devices from Nanophase Metals
Inventors: R.W. Siegel, H. Hahn, J.A. Eastman
ANL Case No. ANL-IN-89-81.
- 17 -
<PAGE> 18
AMENDMENT TO LICENSE AGREEMENT
THIS AMENDMENT TO LICENSE AGREEMENT ("Amendment") is made as of the 21st
day of November, 1991, by and between ARCH Development Corporation, an Illinois
not-for-profit corporation ("ARCH"), and Nanophase Technologies Corporation, an
Illinois corporation ("NTC").
WHEREAS, ARCH and NTC have previously entered into that certain License
Agreement dated as of June 1, 1990 (the "License");
WHEREAS, as of the execution of this Amendment, ARCH is the controlling
shareholder of NTC;
WHEREAS, contemporaneously with the execution of this Amendment, ARCH and
certain other purchasers (the "Other Purchasers") are purchasing shares of NTC's
Series B Preferred Stock (the "Preferred"); and
WHEREAS, in order to induce the Other Purchasers to purchase the Preferred
for the benefit of NTC and ARCH, ARCH and NTC desire to amend the License as
provided below.
NOW, THEREFORE, in consideration of the covenants set forth below, ARCH and
NTC agree as follows:
1. Section 3.1(a) of the License is hereby amended by deleting the phrase
"five percent (5%)" and replacing it with the phrase "two and one-half percent
(2 & 1/2%)".
2. Except as otherwise specifically provided above, the License Agreement
shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have cause their respective authorized
officers to execute this Agreement as of the day and year first written above.
ARCH DEVELOPMENT CORPORATION, an
Illinois not-for-profit corporation
By:_____________________________
Title________________________
NANOPHASE TECHNOLOGIES CORPORATION,
an Illinois corporation
By:_____________________________
Title________________________
<PAGE> 1
EXHIBIT 10.8
PATENT LICENSE AGREEMENT
This Agreement made and entered into this 12th day of October, 1994 by
and between Hitachi, Ltd., having a place of business at 6, Kanda-Surugadai,
4-chome, Chiyoda-ku, Tokyo 101, Japan (hereinafter "HITACHI"), and Nanophase
Technologies Corporation, having a principal place of business at 8205 S. Cass
Avenue, Suite 105, Darien, Illinois, 60561, U.S.A. (hereinafter "LICENSEE");
WHEREAS, HITACHI owns and controls United States Patent Nos. 4,610,718
and 4,732,369, and has the right to grant a license under said patents;
WHEREAS, LICENSEE desires to acquire a nonexclusive license to make,
use and sell LICENSED PRODUCT (hereinafter defined) under LICENSED
PATENTS (hereinafter defined);
NOW, THEREFORE, in consideration of the premises and covenants
herein set forth, the parties agree as follows:
1. DEFINITIONS
1.1 The term "LICENSED PRODUCT" shall mean any ultra-fine particles
of less than 1 micron in size produced or processed using methods,
processes or apparatus of the type claimed in LICENSED PATENTS.
1.2 The term "LICENSED PATENTS" shall mean United States Patent Nos.
4,610,718 and 4,732,369, and any divisional, continuation,
continuation-in-part, or reissue application for the foregoing patents,
and any renewals, foreign counterparts, substitutions or extensions
of any of the foregoing.
1.3 The term "EFFECTIVE DATE" shall mean the date, after the execution
of this Agreement by both parties hereto, on which HITACHI receives the
amount of Seventeen Thousand Five Hundred United States Dollars
(US$17,500) in accordance with Section 3.1(1) of this Agreement, less
any taxes withheld for payment to the Government of the United States in
accordance with Section 3.5.
1.4 "AFFILIATES" means corporations or other entities of which a
party hereto owns or controls directly or indirectly more than fifty
percent (50%) of the voting stock entitled to vote for the election
of the members of the board of directors or persons performing
similar functions, or, in the case of entities not having voting
stock, equivalent ownership or control thereof, provided that such
entity shall be considered an AFFILIATE for only so long as such
ownership or control exists.
2. GRANT OF LICENSE
HITACHI hereby grants to LICENSEE a world-wide, nonexclusive license
under the LICENSED PATENTS, without the right to sublicense, to
produce or "HAVE PRODUCED" LICENSED PRODUCT by a method or apparatus
in
1
<PAGE> 2
accordance with the LICENSED PATENTS, and to use, sell and otherwise
dispose of LICENSED PRODUCT so produced. LICENSEE shall have the right to
extend the licenses granted hereunder to LICENSEE's AFFILIATES, provided that
LICENSEE provide written notification to HITACHI identifying any such AFFILIATE
prior to extending the licenses granted hereunder to such AFFILIATE, and
provided further that LICENSEE report and submit royalties on behalf of such
AFFILIATES in accordance with Section 3.3 of this Agreement.
A license to "HAVE PRODUCED" as used herein shall mean a license granted
to LICENSEE to subcontract a third party to produce LICENSED PRODUCT only for
the account of, and for use or resale by, LICENSEE or, to the extent
appropriate, LICENSEE's AFFILIATES.
3. COMPENSATION, PAYMENT AND REPORT
3.1 In consideration of the licenses granted by HITACHI to LICENSEE
under LICENSED PATENTS, LICENSEE shall pay to HITACHI:
(1) a lump sum, non-refundable amount of Seventeen Thousand Five Hundred United
States Dollars (US$17,500) as an initial fee payable within ten (10)
days of the execution of this agreement by both parties hereto, which shall
be creditable against running royalties pursuant to Section 3.1(2) hereof,
and
(2) running royalties at the rate of one percent (1.0%) on NET SALES of
LICENSED PRODUCT used, sold or otherwise disposed of by LICENSEE and
its AFFILIATES prior to or during the term of this Agreement.
3.2 For the purpose of this section, NET SALES of LICENSED PRODUCT
shall be determined as follows:
(1) In respect of LICENSED PRODUCT sold or otherwise commercially
disposed of in normal, arm's length commercial transactions, NET SALES
shall be the total sales of LICENSED PRODUCT based on the actual selling
price at which customers are billed in the usual course of business for
such LICENSED PRODUCT, without any deductions other than sales or excise
taxes, if any, and except for rejections or returns. If billed separately,
the selling price of packing material, boxes, cartons and crates in which
LICENSED PRODUCT is packed, as well as freight, handling and insurance
charges and any duties or tariffs, shall not be included in determining NET
SALES.
(2) If LICENSED PRODUCT is not separately sold or otherwise commercially
disposed of as it is but instead is incorporated in another product which
is not itself a LICENSED PRODUCT that is sold or otherwise commercially
disposed of in a normal, arm's length commercial transaction, then the NET
SALES of LICENSED PRODUCT shall be determined by multiplying the total
sales of the product incorporating LICENSED PRODUCT based on the actual
selling price at
2
<PAGE> 3
which customers are billed in the usual course of business for
such product, times the ratio of the manufacturing cost of the
LICENSED PRODUCT to the overall manufacturing cost of the
product incorporating LICENSED PRODUCT.
(3) In the event of sale or other commercial disposition of
LICENSED PRODUCT other than in a normal arm's length commercial
transaction, or in the event of use or other commercial disposal
by LICENSEE or its AFFILIATES of LICENSED PRODUCT (except for
LICENSEE's research and development purposes and except for
incorporation of LICENSED PRODUCT into another product as set
forth in Section 3.2(2) above), then the NET SALES for such
LICENSED PRODUCT shall be calculated based on the average
selling price of such LICENSED PRODUCT sold in normal, arm's
length commercial transactions.
3.3 Royalty reports and payments shall be made in accordance with the
following provisions:
(1) Within Forty Five (45) days of each semi-annual period ending
on June 30 and December 31 (hereinafter "SEMI-ANNUAL PERIOD")
during the term of this Agreement, LICENSEE shall furnish to
HITACHI a statement of royalty specifying NET SALES and the
types of LICENSED PRODUCT sold or otherwise commercially
disposed of by LICENSEE or its AFFILIATES during such
SEMI-ANNUAL PERIOD and the total amount of royalties accrued
under Section 3.1(2) (including any such accrued royalties to be
credited against the initial fee pursuant to Section 3.1(1)
hereof). At the same time, LICENSEE shall make the payment to
HITACHI by telegraphic transfer of the amount of the accrued
royalties which exceeds the balance of the initial fee set forth
in Section 3.1(1) above, if any. If no royalty is payable or
accrued during the SEMI-ANNUAL PERIOD, LICENSEE shall report in
the statement that no royalty is due during such SEMI-ANNUAL
PERIOD.
(2) LICENSEE has conducted a good faith investigation with
respect to sales of LICENSED PRODUCT sold or otherwise
commercially disposed of prior to October 12, 1994, and
LICENSEE has determined based on such good faith investigation
that the NET SALES of LICENSED PRODUCT prior to such date is
$37,089. The accrued royalty of $370.89 shall not be paid in
the form of money to HITACHI, but instead shall reduce the
running royalty credit pursuant to Section 3.1(1) by this
amount.
(3) Within Forty Five (45) days after the date of expiration of
this Agreement or the date of the termination in the event of
early termination of this Agreement, LICENSEE shall furnish to
HITACHI a final statement of royalty and pay the royalty
accrued up to the date of such expiration or termination of
this Agreement.
3
<PAGE> 4
3.4 All payments to be made by LICENSEE to HITACHI hereunder
shall be remitted in U.S. dollars by telegraphic transfer to
the designated bank account of HITACHI. Any payment once made
by LICENSEE to HITACHI shall in no event be refundable. Any
bank charges accrued with respect to such payment by LICENSEE's
bank in this connection shall be borne and paid by LICENSEE.
3.5 All taxes imposed as a result of the existence of this
Agreement or the performance of the parties hereunder shall be
borne and paid by the party required to do so by applicable
law; provided, however, that If so required by applicable law
and relevant income tax treaty, LICENSEE shall withhold the
amount of income taxes levied by the Government of the United
States on each payment to be made by LICENSEE to HITACHI
pursuant to this Agreement, shall promptly effect payment of
the income taxes to the appropriate tax authorities of the
Government of the United States and shall submit to HITACHI
official tax receipts or other evidence issued by said tax
authorities to LICENSEE. The parties agree to cooperate in good
faith at HITACHI's request regarding any additional
documentation or the like that may be required to enable
HITACHI to support a claim for any national tax credit in
respect of any such taxes so withheld, provided that HITACHI
shall be responsible for any material, reasonable,
out-of-pocket expense incurred by LICENSEE as a result thereof.
3.6 LICENSEE shall keep complete and accurate records with
respect to LICENSED PRODUCT for which royalties are or may be
due and payable under this Agreement. Said records shall be
kept and available at all reasonable times for a period of (5)
years following the end of each SEMI-ANNUAL PERIOD for
inspection of an independent certified public accountant or
agent selected by HITACHI and reasonably acceptable to
LICENSEE for the sole purpose of verifying the statements of
royalty submitted by LICENSEE.
3.7 LICENSEE shall pay interest to HITACHI upon any and all
amounts overdue and payable under this Agreement at the rate of
ten percent (10%) per annum for the period from the due date
through the date of payment.
4. TERM AND TERMINATION
4.1 This Agreement shall become effective on the EFFECTIVE
DATE and shall remain in full force and effect until the
expiration date of the last-to-expire of the LICENSED PATENTS.
This Agreement may be terminated at any time by LICENSEE upon
sixty (60) days prior written notice to HITACHI, such
termination to be without prejudice to the rights and
obligations of the parties through the date of termination,
and provided that LICENSEE include in such written notice a
statement of LICENSEE's reasons for so terminating this
Agreement.
4.2 In the event of a material breach of this Agreement by
LICENSEE which is not cured within sixty (60) days after
written notice thereof is received by LICENSEE, this
Agreement may be terminated forthwith by further written
notice to that effect from HITACHI. For the purpose of
4
<PAGE> 5
this section, "material breach" includes, but is not limited to, a breach
the provisions of Article 3 or Article 5 of this Agreement.
4.3 Should LICENSEE become insolvent or be subject to bankruptcy or winding up
proceedings, or in the event of a sale or transfer by LICENSEE of all or
substantially all of the assets of LICENSEE, or in the event that LICENSEE is
merged into or with a third party, then HITACHI may, by written notice,
terminate this Agreement forthwith.
5. ASSIGNMENT
LICENSEE shall not assign this Agreement or any of its rights or obligations
hereunder without the prior written consent of HITACHI.
6. MISCELLANEOUS PROVISIONS
6.1 HITACHI assumes no responsibility whatsoever for the performance,
operation, maintenance or manner of use of any products made, used or sold by
LICENSEE. HITACHI shall have no liability or obligation to defend, indemnify or
hold harmless LICENSEE from any suits, actions or claims by any person or
entity arising out of or relating to the performance, operation, maintenance or
manner of use of any products or otherwise. In no event shall HITACHI be liable
for indirect, Incidental, consequential or special damages of any kind
whatsoever.
6.2 HITACHI shall have no liability or obligation to take any action or bring
or prosecute any action or suit against any third party or parties even if said
third party or parties infringe or allegedly infringe, or illegally or without
proper authorization make use of, any of the LICENSED PATENTS. It is
specifically agreed between the parties that the existence of such infringing
third party, any, shall never be a ground for refusal to pay, or a request
for the reduction of, royalties to be paid by LICENSEE pursuant to Section 3.1
hereof. Licensee shall have no right to take any action or bring or prosecute
any action or suit against any third party or parties even if said third party
or parties infringe or allegedly infringe, or illegally or without proper
authorization make use of, any of the LICENSED PATENTS.
6.3 Nothing in this Agreement shall be construed as:
a) a warranty or representation by HITACHI as to the validity or scope
of any patent or patents;
b) a warranty or representation by HITACHI that any manufacture, use,
sale of LICENSED PRODUCT or the practice of any method covered
by LICENSED PATENTS will be free from infringement of patents,
utility models and/or any other rights owned or controlled by any
third party or parties;
c) an obligation to furnish any technical information or know-how;
or
5
<PAGE> 6
d) conferring a right with respect to any copyright, trademark,
tradename or maskwork rights.
6.4 The parties hereto shall not disclose any of the terms of this
Agreement to any third party except:
a) with the prior written consent of the other party;
b) to any governmental body having jurisdiction and calling therefor;
c) as otherwise may be required by law or legal process; or
d) to legal counsel representing either party.
6.5 This Agreement sets forth the entire understanding of the parties on the
subject matter herein, and no amendment to this Agreement shall be effective
unless set forth in writing in a document duly executed by both parties.
6.6 All notices required or permitted to be given hereunder shall be in
writing and sent by registered airmail, postage prepaid, or telefax, if
promptly confirmed by registered air mail as mentioned above, to the
address specified below:
IF to HITACHI, Hitachi, Ltd.
New Marunouchi Bldg.
5-1, Marunouchi 1 chome
Chiyoda-ku, Tokyo 100
Japan
Attention: Department Manager
Licensing Department I
Intellectual Property Office
If to LICENSEE, Nanophase Technologies Corporation
8205 S. Cass Avenue
Suite 105
Darien, Illinois 60561, U.S.A.
Attention: President
6.7 This Agreement and matters connected with the performance thereof shall be
construed, interpreted and governed in all respects in accordance with the
laws of the State of Illinois.
6.8 Upon written request of HITACHI, LICENSEE agrees to negotiate with HITACHI
in good faith with respect to a possible license to HITACHI or its AFFILIATES
under patents, patent applications or technology held by LICENSEE on mutually
agreeable terms and conditions; provided, however, that it is understood that
Licensee is not obligated to Grant such a license if mutually agreeable terms
and conditions cannot be obtained through good faith negotiations.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective corporate manner by their duly authorized
representatives on the date written below.
NANOPHASE TECHNOLOGIES HITACHI, LTD.
CORPORATION
By: [Signature] By: Ichiro Nagata
------------------------- ------------------------------
Ichiro Nagata
Director
General Manager
Title: Pres/CEO Title: Industrial Processing Division
---------------------- ---------------------------
Date: 13 Oct 94 Date: November 2, 1994
----------------------- ----------------------------
7
<PAGE> 1
Exhibit 10.9
LICENSE AGREEMENT
This agreement, made and entered into as of the 31st day of May, 1996, by and
between RESEARCH DEVELOPMENT CORPORATION OF JAPAN, a corporation organized and
existing under the Act of Japanese Parliament entitled Research Development
Corporation Act 1961 (established in 1961, amended in 1981, 1989 and 1993)
having its principal place of business at 1-8, Honcho 4-chome, Kawaguchi City,
Saitama Pref., 332, Japan (hereinafter referred to as LICENSOR) and NANOPHASE
TECHNOLOGIES CORPORATION, a corporation organized and existing under the laws
of State of Illinois, the United States of America, having its principal place
of business at 8205 South Cass Avenue - Suite 105, Darien, Illinois 60561, The
United States of America (hereinafter referred to as LICENSEE);
WITNESSETH:
WHEREAS National Research Institute for Metals, Science and Technology Agency
of the Government of Japan (hereinafter referred to as NRIM) is the inventor
of Process for Producing Ultrafine Powders of Metal and Ceramics and the owner
of the patents thereof stated in Article 1; and
WHEREAS LICENSOR has been duly granted by NRIM an exclusive right to license
the said patents to any third party non-exclusively; and
WHEREAS LICENSEE is desirous of acquiring from LICENSOR a license to produce
and sell the ultrafine powders of metal and ceramics by processes and methods
which may be subject to such NRIM's patents; and
WHEREAS LICENSOR is willing to grant such a license to LICENSEE upon the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereby agree as follows:
<PAGE> 2
1. DEFINITION
1.1 As used in this AGREEMENT and its recital, the following terms shall
have the following meaning:
(a) "Patent" shall mean the patents to be licensed by this AGREEMENT,
and the number, the date of grant and the title (inclusive of all
extensions, renewals, continuations, reissues and continuations in
part) of which are as follows;
1. U.S.A. Patent No. 4,376,740
granted on March 15, 1983
titled "Process for Production Fine Metal Particles"
2. U.S.A. Patent No. 4,482,134 granted on November 13, 1984 titled
"Apparatus for Producing Fine Metal Particles"
3. U.S.A. Patent No. 4,642,207
granted on February 10, 1987
titled "Process for Producing Ultrafine Particles of Ceramics"
4. U.S.A. Patent No. 4,889,665
granted on December 26, 1989
titled "Process for Producing Ultrafine Particles of Ceramics"
(b) "Product" shall mean ultrafine powders of metal and ceramics produced
using processes or methods within the scope of any valid claim
included within any Patent which is to be licensed by this AGREEMENT.
(c) "Effective Date of this AGREEMENT" shall mean the date stipulated in
Article 9.
(d) "Term of this AGREEMENT" shall mean the period during which this
AGREEMENT remains in force as defined in Article 9.
<PAGE> 3
2. LICENSE
2.1 Upon the terms and conditions hereinafter more specifically set forth,
LICENSOR hereby grants to LICENSEE and LICENSEE hereby accepts:
A license for Term of this AGREEMENT to employ Patent to non-exclusively
manufacture and use for internal research, Product in the facilities of
LICENSEE in the United States of America and to non-exclusively use for
internal research and sell Product in the United States of America.
3. SUB-LICENSE
3.1 LICENSEE shall have no right to grant any sub-license to a third party
under this AGREEMENT.
4. LICENSE FEE
4.1 In consideration of the right and the license granted herein, LICENSEE
shall pay the following license fees to LICENSOR:
(1) Initial payment: one million and five hundred thousand Japanese
Yen (Yen 1,500,000) to be paid within thirty (30) days from
Effective Date of this AGREEMENT.
(2) Royalty: three (3) percent of the proceeds of sales of Product to
be paid within forty-five (45) days from the last day of
LICENSEE's each fiscal year through Term of this AGREEMENT.
Proceeds of sales shall mean the total of gross proceeds less
cost of raw materials of Product, packing cost, transportation
cost, handling charge of a dealer, insurance, commodity tax and
other trade taxes for Product sold.
4.2 Both parties shall make commercially reasonable efforts to lead this
AGREEMENT to a commercial success which should reflect in royalty
payments.
5. PAYMENT
5.1 Any and all payments under this agreement shall be made in Japanese
Yen by telegraphic transfer to the account of LICENSOR at Head Office
of The Fuji
<PAGE> 4
Bank LTD. (Ordinary Account No. 2709379), and shall be net without any
deduction. Any tax, dues and charges whatsoever imposed in the United
States of America from whatever the reason shall be borne by LICENSEE so
that LICENSOR shall receive the agreed amount.
The day the above mentioned bank receives the money shall be regarded
as the day of fulfillment of the respective payment. In case of delay in
payment, LICENSOR shall have the right to charge interest at the rate of
eight point two five (8.25) percent per annum.
5.2 LICENSEE shall keep true and accurate records, files and books of
account in accordance with generally accepted accounting principles
consistently applied and containing all the data reasonably required for
the full computation and verification of the payments of royalty to be
made hereunder. LICENSEE shall permit LICENSOR or its duly authorized
representatives, at LICENSOR's expense, adequate access to such records,
files and books of account at any time during usual business hours for
inspection purposes.
5.3 LICENSEE shall deliver to LICENSOR every twelve (12) months license
fee reports that shall show computation of royalty due including
reasonably sufficient information on production of Product made hereunder
by LICENSEE. Each of such reports shall be delivered to LICENSOR within
thirty (30) days after the last day of LICENSEE's each fiscal year. In
case no license fee is payable for the period in question, the report
shall so state.
5.4 Any money received by LICENSOR as provided in this AGREEMENT shall not
be refunded to LICENSEE whatever the reason may be.
6. FORCE MAJEURE
6.1 Neither party shall be liable for failure to perform its part of this
AGREEMENT when the failure is due to event beyond its reasonable control.
Occurrence of such force majeure shall be notified to the other party in
writing within ten (10) days from the day such occurrence started and
shall be verified by the respective chamber of commerce or any other
respective authority within twenty (20) days at the latest. Should such
verification be not possible the party claiming the occurrence of force
majeure shall have to present to the other party sufficient proof
thereof. Each party undertakes to use commercially
<PAGE> 5
reasonable efforts in order to re-establish conditions favorable for the
performance of this AGREEMENT, and shall inform the other party of the
steps it has taken. If the contractual performance is, as the result of
force majeure, delayed by more than six (6) months, the other party
will be at liberty to terminate this AGREEMENT.
7. ARBITRATION
7.1 Any disputes between the parties in connection with this AGREEMENT, also
those relating to its validity, shall be settled amicably. In
default of such settlement, all disputes that may arise under or in
relation to this AGREEMENT shall be subject to a final decision of the
Japan Commercial Arbitration Association in Tokyo, Japan whose
proceedings shall take place in Tokyo, Japan.
8. GOVERNING LAW
8.1 This AGREEMENT shall be governed as to all matters including its
validity, construction and performance by the laws of Japan.
9. EFFECTIVE DATE AND TERM
9.1 This AGREEMENT shall become effective on the date on which the AGREEMENT
is approved by NRIM and it shall remain in force thereafter for
ten (10) years from such date. However, upon expiration of License
term, the term of this AGREEMENT shall be extended upon agreement
between LICENSEE and LICENSOR.
10. TERMINATION
10.1 In the event of failure or negligence of either party to fulfill
any provisions hereof to be performed by it, and if the other
party gives written notice of such default, then if such default is
not cured within sixty (60) days after giving such notice, the party
having given such notice shall reserve the right to terminate this
AGREEMENT any time thereafter, by giving written notice of such
termination to the receiving party. Such notice of termination shall
be effective on the date of the notice unless otherwise designated in
the said notice.
<PAGE> 6
10.2 Upon expiration or earlier termination of this AGREEMENT as provided in
this AGREEMENT, all rights and obligations provided in this
AGREEMENT shall forthwith terminate except the obligation concerning
any amount payable to LICENSOR by LICENSEE which would have accrued
under this AGREEMENT on or prior to such termination.
11. NOTICES
11.1 To be legally effective, any notices which the parties are
required or permitted to give to each other pursuant to any of the
provisions of this AGREEMENT shall be sent by registered airmail or
telex confirmed by registered airmail at the addresses as first set
forth above.
12. ENTIRE AGREEMENT
12.1 This AGREEMENT constitutes the entire agreement between the parties
relating to the subject matter hereof. No change of, addition
to, or waiver of the terms and conditions hereof shall be binding upon
either party unless agreed by it in writing.
13. NON-ASSIGNMENT
13.1 Assignment of this AGREEMENT or any part thereof by either
party shall not be effective unless agreed by the other party in
writing.
IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT in
duplicate original to be executed by their duly authorized representatives on
the day and year first above written and each party shall keep one copy of
original.
<PAGE> 7
Date LICENSOR:
May 31, 1996 RESEARCH DEVELOPMENT CORPORATION
- ------------ OF JAPAN
by Hiromichi Matsudaira
-------------------------------
Hiromichi Matsudaira
President
Date LICENSEE:
May 31, 1996 NANOPHASE TECHNOLOGIES
- ------------ CORPORATION
by Robert W. Cross
----------------------------------
Robert W. Cross
President
<PAGE> 8
APPENDIX
Date:
--------------------
President
Research Development Corporation of Japan
1-8, Honcho 4-chome, Kawaguchi City
Saitama Pref. 332, Japan
Dear Sir,
Re: Report for Fine Metal Powders
We are pleased to report to you on our production of Fine Metal Powders and
the royalty thereof for our 1st fiscal year basing on the book of account in
accordance with the Article 5.3 of License Agreement of the 31st day of May,
1996 as follows:
1. Period:
From to
-------------------- -------------------------
2. Production:
Carryover from Previous Term:
Production Quantity:
Quantity Adjusted:
Carryover to Next Term:
Remarks:
3. Sales:
Sales Quantity in pounds:
Sales Amount in U.S. Dollar:
Amount Adjusted:
Amount Deducted:
Amount Subject to Royalty:
Remarks:
<PAGE> 9
4. Royalty:
U.S.$ Amount x % = U.S.$ Amount
5. Breakdown of Amount Deducted:
Subject:
Amount:
6. Estimate for Coming One Year:
Sales Quantity:
Sales Amount:
Royalty:
Remarks:
7. Name and Address of Factory:
8. Person in Charge:
Department:
Name of person:
Telephone & Facsimile:
9. Others:
The breakdown for monthly production and sales is as per attached.
The above amount will be paid to your ordinary account No. 2709379 at the head
office of Fuji Bank Ltd. by (date).
Yours faithfully,
Nanophase Technologies Corporation
- ------------------------------------------
<PAGE> 1
Exhibit 10.10
REMAINDER-EXCLUSIVE LICENSE AGREEMENT
THIS AGREEMENT, effective as of the first day of April, 1996,
(hereinafter "Effective Date") by and between the CORNELL RESEARCH FOUNDATION,
INC., having offices at Cornell Business & Technology Park, 20 Thornwood Drive,
Suite 105, Ithaca, New York 14850, hereinafter referred to as "FOUNDATION" and
NANOPHASE TECHNOLOGIES CORPORATION, having offices at 453 Commerce Street, Burr
Ridge, Illinois 60521, hereinafter referred to as "LICENSEE".
W I T N E S S E T H T H A T:
WHEREAS, United States Patent No. 4,732,719, (CRF D-638) entitled
"Superplastic Forging Nitride Ceramics," was issued on March 22, 1988, a copy
of which is appended as Exhibit A;
WHEREAS, United States Patent No. 4,849,142, (CRF D-643) entitled
"Superplastic Forging Zirconia Ceramics," was issued on July 18, 1989, a copy
of which is appended as Exhibit B;
WHEREAS, United States Patent No. 4,871,496, (CRF D-639A) entitled
"Composites Comprising Silicon Carbide Fibers Dispersed in Magnesia-Aluminate
Matrix and Fabrication Thereof and of Other Composites by Sinter Forging," was
issued on October 3, 1989, a copy of which is appended as Exhibit C;
WHEREAS, the inventions disclosed and claimed in Exhibits A, B, and C
are assigned to FOUNDATION and to Jupiter Technologies, Inc., hereinafter
referred to as "Jupiter," and FOUNDATION is a
<PAGE> 2
wholly owned subsidiary corporation of Cornell University and holds the
ownership interests of patents issued on inventions made by Cornell
University's staff and administers licenses in a manner consistent with the
patent policy of Cornell University, and FOUNDATION has the sole right to issue
licenses to the patents disclosed and claimed in Exhibits A, B, and C;
WHEREAS, FOUNDATION has previously granted a nonexclusive
license with no right to sublicense to Jupiter for the rights to the
patents disclosed and claimed in Exhibits A, B, and C in all fields
of use and an exclusive license in the field of sputtering and laser
ablation targets;
WHEREAS, Corning Incorporated has a nonexclusive license with
no right to sublicense to make and use products claimed in Exhibit
B;
WHEREAS, FOUNDATION represents that it is an assignee of the
above-identified patents and has the right to grant licenses under
said patents;
WHEREAS, the work leading to the inventions disclosed and claimed in
Exhibits A and C was supported in part by an agency of the U.S. Government,
FOUNDATION is obligated to comply with the U.S. Office of Management & Budgets
Circular No. A-124, or 37 CFR Part 401;
WHEREAS, LICENSEE is desirous of securing a license under the
discoveries and invention embodied in said patents to make, have made, use,
have used, import, sell and have sold Licensed Products throughout the world;
WHEREAS, FOUNDATION is willing to grant a license in said
2
<PAGE> 3
patents to LICENSEE upon the terms and conditions hereinafter set forth;
NOR, THEREFORE, in consideration of the covenants and obligations
hereinafter set forth, the parties hereto hereby agree as follows:
I
DEFINITIONS
The following definitions will apply throughout this agreement:
1. Licensed Patents shall mean U.S. Patent No. 4,732,719, U.S. Patent No.
4,849,142, and U.S. Patent No. 4,871,496, and all reissues and
extensions thereof.
2. Licensed Field of Use shall mean the field of net shape
formation of ceramic articles. Without limitation or expansion of the
foregoing, the parties agree that said field shall not include laser
ablation or sputtering targets.
3. Remainder-Exclusive shall mean that FOUNDATION has previously
granted nonexclusive licenses to Jupiter and Corning, and their
successors in interest, with no right to sublicense, and an exclusive
license to Jupiter in the field of sputtering and laser ablation
targets, and that from the Effective Date henceforth, FOUNDATION
shall not issue a license in the Licensed Field of Use to another
throughout the period of
3
<PAGE> 4
exclusivity defined hereinbelow.
4. Licensed Products shall mean any product or use claimed
in Licensed Patents within the Licensed Field of
Use.
5. License Year shall mean each twelve (12) month period beginning
on the Effective Date of this Agreement first written above and
thereafter on the anniversary date thereof.
6. LICENSEE shall mean the above named company and any of its
affiliates in which it owns or controls at least 50% of the voting
stock.
7. Net Sales shall mean the gross amount of money billed by
LICENSEE to its customers on sale or use of Licensed Products
subsequent to the Effective Date where the Licensed Products were
either made, used or sold in the United States less: (1) trade and/or
quantity discounts, rebates and other sales price reductions; (2)
returns and allowances and brokers' and agents commissions actually
paid; and (3) retroactive price reductions; and (4) freight and other
transportation costs, including insurance charges, and duties,
tariffs, sales and excise taxes and other governmental charges based
directly on sales, turnover or delivery of the specified Licensed
Products and actually paid or allowed by LICENSEE.
8. Profitability Date shall mean the thirtieth (30th) day
following the end of LICENSEE's first two consecutive
4
<PAGE> 5
profitable quarters in a License Year. A quarter shall be
deemed profitable for LICENSEE under this Agreement if LICENSEE
recognized revenues from Net Sales of Licensed Products in excess of
its costs associated with the production and Sale of Licensed
Products on a fully allocated basis as determined pursuant to
LICENSEE's normal and customary cost allocation system with respect
to the sales of LICENSEE's products generally.
II
GRANT
Subject only to the rights of and obligations to the U.S. Government as
set forth in U.S. Office of Management & Budget Circular A-124 or 37 CFR Part
401; FOUNDATION hereby grants to LICENSEE for the term set forth below, and
under the royalty basis set forth below, a Remainder-Exclusive license in the
Licensed Field of Use to make, have made, use have used, import, sell or have
sold Licensed Products in the United States; and said license rights shall
include the right to grant sublicenses thereunder.
III
TO HAVE MADE
The right of LICENSEE to make Licensed Products includes the right to
have made by contract with third parties. Such
5
<PAGE> 6
contractual arrangements with third parties shall be subject to and
conditioned upon appropriate supervision and quality assurance and control of
the third party by LICENSEE and the third party shall be bound in writing to
respect all rights of FOUNDATION and to supply all production of Licensed
Products exclusively to LICENSEE.
IV
PAYMENTS IN CONSIDERATION OF THE
EXECUTION OF THIS LICENSE AGREEMENT
FOUNDATION and LICENSEE hereby acknowledge and agree that LICENSEE
shall make a payment of ten thousand dollars ($10,000) to FOUNDATION, five
thousand dollars ($5,000) of which shall be paid upon signing of this Agreement
and five thousand dollars ($5,000) of which shall be paid on the earlier of the
Profitability Date or the second (2nd) anniversary of the Effective Date. Such
payments shall be made as a consideration for entering into this Agreement,
which sum is nonrefundable and will not be considered as an advance payment
on royalties due hereunder.
V
RIGHT OF FIRST NEGOTIATION
TO RIGHTS IN OTHER FIELDS OF USE.
The parties acknowledge a mutual interest in the broadest possible
commercial development of the technology described and claimed in the Licensed
Patents. In order to fulfill this
6
<PAGE> 7
intent, the parties agree that if, in the future, FOUNDATION desires to grant
any rights in the Licensed Patents in other than the Licensed Field of Use to
any third party, FOUNDATION shall promptly notify LICENSEE and provide
LICENSEE with details of the proposed license terms with such third party, and
shall further provide LICENSEE with the right of first negotiation,
exercisable by LICENSEE within thirty (30) days of receipt of such notice from
FOUNDATION. FOUNDATION retains the right to reject LICENSEE's offer and to
grant a license to the third party.
VI
ROYALTIES AND MINIMUM ROYALTIES TO BE
PAID DURING THE LICENSE AGREEMENT
LICENSEE will pay to FOUNDATION running royalties at the rate of four
percent (4%) of Net Sales of Licensed Products made, used or sold by LICENSEE
in the United States;
LICENSEE's obligation to pay royalties shall begin on the Effective
Date and shall be payable thereafter to FOUNDATION in accordance with the
payment schedule set forth in Section VII below.
LICENSEE'S obligation to pay royalty upon each such Licensed Product
shall cease:
(i) if the applicable claims covering such Licensed
Product in the Licensed Patents in any particular
country are held invalid by an unappealed or
unappealable decision of a court of competent
jurisdiction, in that particular country, or
7
<PAGE> 8
(ii) upon expiration of the last Licensed Patent that
claims or covers such Licensed Product.
Beginning with the fourth (4th) License Year, LICENSEE shall pay
FOUNDATION annual minimum royalties of fifteen thousand dollars ($15,000). The
amount of such annual minimum royalties shall be reduced to ten thousand
dollars ($10,000) for each License Year, including the prior License Years,
wherein LICENSEE has engaged in a vigorous development program as evidenced by
the existence and reporting of a reasonable number of documented experiments,
designs or prototypes as would be appropriate in said development program. The
minimum royalty payment, due at the beginning of the License Year, will be
considered as a credit for the royalties due for that License Year under this
Agreement and the royalty reports should reflect the use of such credit. Such
provision is to be construed as an annual minimum royalty payment requirement
and none of the minimum royalty payments are refundable or applicable to
succeeding License Years.
VII
ACCOUNTING AND PAYMENT SCHEDULE
Payment, reporting and financial accounting shall be on a semi-annual
basis and LICENSEE will deliver to FOUNDATION within sixty (60) days after the
end of each six (6) month period of a License Year a report in writing setting
forth: (i) summary reports of documented experiments, designs or prototypes
sufficient to show the progress being made toward the development
8
<PAGE> 9
of Licensed Products, and/or (ii) sales of Licensed Products (including
a negative report if appropriate). Such reports will be accompanied by an
appropriate payment of royalty due for such period. LICENSEE will keep accurate
records, certified by it, showing the information by which LICENSEE arrived at
a royalty determination and will permit an independent public accountant
appointed by FOUNDATION and acceptable to LICENSEE to make such reasonable
inspection during business hours of said records as may be necessary to verify
royalty reports made by LICENSEE; provided any such inspection shall take place
not more often than once every License Year, and provided further that
FOUNDATION's accountant shall examine only such information as is required to
verify LICENSEE's compliance under this Agreement and shall keep any such
information examined confidential and shall not disclose such information
except to FOUNDATION in accordance with the terms of this section.
Conversion from foreign currencies, if any, shall be based upon the
conversion rate on the date that payment is due.
Payments which are delayed beyond the sixty (60) days after the end of
the six month period in which they become due shall be subject to a fifteen
percent (15%) per annum interest charge.
VIII
TERM
This License Agreement shall continue as a Remainder-Exclusive license
for the full term of the last to expire
9
<PAGE> 10
Licensed Patent so long as LICENSEE'S covenants under the Agreement are
being performed and the LICENSEE is in good standing, and provided this
Agreement is not earlier terminated as provided for herein.
IX
DUTY OF DILIGENCE
LICENSEE shall exercise commercially reasonable due diligence to effect the
introduction of Licensed Product(s) into the commercial market as soon as
practical. LICENSEE agrees to develop and exploit Licensed Products with
commercially reasonable diligence by development, manufacture and sale of
Licensed Products for the duration of the term of this Agreement. LICENSEE
further agrees to maintain commercially reasonable quality control over
Licensed Products and generally attend to proper, safe, fair, lawful and
reasonable development and exploitation of the market for Licensed Products.
Upon written request of FOUNDATION, LICENSEE agrees to submit to
FOUNDATION within thirty (30) days a written report of progress made against
its goals for exploitation of the market and its plans and objectives for
future progress.
Failure of LICENSEE to comply with the provisions of this Duty of
Diligence section shall be considered a material breach of this Agreement.
10
<PAGE> 11
X
INFRINGEMENT OF LICENSED
PATENT RIGHTS BY THIRD PARTIES
In the event that any infringement of a Licensed Patent shall come to the
attention of FOUNDATION or LICENSEE, then FOUNDATION and LICENSEE shall duly
inform each other. FOUNDATION, shall, in its sole discretion, determine
whether or not to prosecute a patent infringement action. If FOUNDATION
determines and elects not to prosecute a patent infringement action, and such
patent infringement is in the Licensed Field of Use, then LICENSEE may cause
legal proceedings against the alleged infringer at its own expense.
LICENSEE may defray the expenses of any such lawsuit to the extent of 50%
of royalties payable by LICENSEE during the course of such legal proceedings.
Out of any damages or awards recovered by LICENSEE in such action conducted by
LICENSEE, FOUNDATION will first recover all royalties up to the 50% of
royalties payable by LICENSEE to FOUNDATION and withheld by LICENSEE to defray
costs of such lawsuit. LICENSEE will then recover its expenses for conducting
said litigation beyond the costs defrayed by withheld royalties. FOUNDATION
will also recover any reasonable expenses which it incurred on behalf of the
litigation. Any amount remaining belongs to LICENSEE, if LICENSEE conducts the
litigation, provided that on such amount LICENSEE shall pay FOUNDATION a
royalty as provided for in VII above. If FOUNDATION conducts the litigation
then any amount recovered belongs to FOUNDATION; provided that, to the extent
11
<PAGE> 12
that FOUNDATION's recoveries exceed FOUNDATION's reasonable expenses
with respect to such action or claim, FOUNDATION shall reimburse
LICENSEE for LICENSEE's reasonable costs in connection with
cooperating with FOUNDATION in the prosecution of such action or
claim.
In any proceeding initiated by LICENSEE, LICENSEE shall employ
counsel reasonably satisfactory to FOUNDATION and shall inform
FOUNDATION of all material developments in such proceedings. The
prosecution, settlement, or abandonment of any proceeding initiated by
LICENSEE shall be at LICENSEE's reasonable discretion, provided that
LICENSEE shall not have any right to surrender any of FOUNDATION's
rights to the Licensed Patents or to grant any infringer any rights to
the Licensed Patents other than a sublicense subject to the conditions
which would apply to the grant of any other sublicense.
In any proceedings, FOUNDATION shall be entitled to employ counsel and
control the course of litigation if, in FOUNDATION's sole discretion,
LICENSEE's defense of patent rights is insufficient, or if LICENSEE fails
to carry on vigorous prosecution of said patent rights.
In the event LICENSEE seeks, with justifiable cause, to prosecute more
than one lawsuit at a time, FOUNDATION will not unreasonably withhold
permission where such actions are conducted entirely at LICENSEE's expense
including reimbursement of FOUNDATION's expenses incurred on behalf of such
action.
In any action brought by LICENSEE, LICENSEE undertakes to
12
<PAGE> 13
indemnify for and hold FOUNDATION harmless from any damages, costs or
expenses incurred by reason of such litigation.
XI
ASSIGNMENT
The rights and obligations of LICENSEE are not assignable but with one
exception which is that those rights and obligations may be assigned to its
successor in business if such assignment is approved by FOUNDATION. Such
approval will not be unreasonably withheld.
XII
SUBLICENSING
LICENSEE may grant sublicenses, within the Licensed Field of Use
provided that FOUNDATION finds the sublicensee generally acceptable (such
acceptance will not be unreasonably withheld), that royalty payments as above
shall be made by sublicensee, that all sublicensees shall be obligated to all
the terms and conditions of this Agreement beneficial to or protective of
FOUNDATION and that LICENSEE shall guarantee compliance of the sublicensee on
all such provisions. LICENSEE and FOUNDATION shall share all sublicensing
consideration of any sort, other than royalty payments additive to the amount
payable to FOUNDATION, on the basis of fifty percent (50%) to FOUNDATION and
fifty percent (50%) to LICENSEE.
13
<PAGE> 14
XIII
TERMINATION
FOUNDATION may terminate this License Agreement for noncompliance by
LICENSEE with any of its provisions provided such noncompliance is unremedied
after ninety (90) days following written notice to LICENSEE from FOUNDATION
thereof, or if such noncompliance is of a nature not susceptible to remedy
within such ninety (90) day period, provided LICENSEE has taken all reasonable
action to commence remediation of such noncompliance by giving notice of its
intentions to do so six (6) months before termination.
LICENSEE may terminate this License Agreement by giving notice of its
intentions to do so six (6) months before termination.
XIV
ARBITRATION AND JURISDICTION
All disputes arising out of or relating to any provision of this
Agreement shall be resolved by conciliation and mediation and if mediation is
unsuccessful then disputes shall be finally settled by an Arbitrator selected
by FOUNDATION and LICENSEE. If FOUNDATION and LICENSEE cannot agree on an
Arbitrator, then disputes shall be resolved by an Arbitration Panel comprising
one arbitrator appointed by FOUNDATION, one arbitrator appointed by LICENSEE,
and a Chairman of the Arbitration Panel appointed by the first two
arbitrators. Any such arbitration proceeding shall
14
<PAGE> 15
be conducted in accordance with generally accepted arbitration rules;
shall be held in the State of New York, unless otherwise agreed by the parties;
and judgment upon the arbitration award may be entered in any court having
jurisdiction. Any arbitration hearing shall last no longer than two (2) days.
Each party shall pay its own attorneys' fees. The expense of the dispute
resolution (other than attorneys' fees) shall be shared equally.
In order to initiate procedures for dispute resolution by conciliation,
mediation and arbitration either party may give written notice to the other of
intention to resolve a dispute, and absent satisfactory resolution, then to
arbitrate. Such notice shall contain a statement setting forth the nature of
the dispute and the resolution sought. If, within thirty (30) days after such
notice a resolution by conciliation between the parties themselves or by
mediation has not been achieved to the satisfaction of both parties, and if
within sixty (60) days after said written notice an Arbitrator or Arbitration
Panel has not been appointed with an arbitration schedule satisfactory to both
parties, then either party may proceed with judicial remedies.
FOUNDATION reserves the right and power to proceed with direct judicial
remedies against LICENSEE without conciliation, mediation or arbitration for
breach of the royalty payment and sales reporting provisions of this Agreement
after giving written notice of such breach to LICENSEE followed by an
opportunity period of thirty (30) days in which to cure, or to proceed with
reasonable steps to cure, such breach. In collecting overdue
15
<PAGE> 16
royalty payments and securing compliance with reporting obligations,
FOUNDATION may use all judicial remedies available.
XV
OTHER
LICENSEE agrees that it will not use the indicia or names FOUNDATION or
of Cornell University or any of their personnel in advertising, promotion, or
labeling of Licensed Products without prior written approval of FOUNDATION.
FOUNDATION makes no representations other than those specified in the
WHEREAS clauses. FOUNDATION MAKES NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
FOUNDATION by this Agreement makes no representation as to the
patentability and/or breadth of the inventions and/or discoveries involved in
a Licensed Patent. FOUNDATION by this Agreement makes no representation as to
patents now held or which will be held by others in the field of the Licensed
Products for a particular purpose.
LICENSEE agrees to defend, indemnify and hold FOUNDATION harmless from
and against all liability, demands, damages, expenses or losses for death,
personal injury, illness or property damage (including reasonable attorney's
fees) arising (a) out of use by LICENSEE or its transferees of inventions
licensed or information furnished under this Agreement, or (b) out of any use,
sale or other disposition by LICENSEE or its
16
<PAGE> 17
transferees of products made by use of such inventions or information.
As used in this clause, FOUNDATION includes its Trustees, Officers, Agents and
Employees, and those of Cornell University, and "LICENSEE" includes its
Affiliates, Subsidiaries, Contractors and Sub-Contractors.
In discharge of the above LICENSEE will maintain general liability
insurance in mutually agreed to commercially reasonable amounts with sound
insurers and on such term as FOUNDATION approves in writing against damage to
or destruction of property and injury to or death of individuals and against
such other rinks as FOUNDATION may reasonably request arising out of or in
connection with any of the Licensed Products, FOUNDATION, Cornell University
and their respective officers, trustees, members of their governing boards,
and employees will be named additional insureds under all such insurance. Such
insurance will also provide that FOUNDATION will be given notice of any
modification thereof and at least thirty (30) days prior written notice of
cancellation or termination and the reason therefore. LICENSEE will furnish
FOUNDATION upon request, and in any event on execution of this Agreement and
on each anniversary of the effective date of this Agreement, written
confirmation issued by the insurer or an independent insurance agent
confirming that insurance is maintained in accordance with the above
requirements.
This Agreement shall be interpreted under the Laws of the State of New
York.
17
<PAGE> 18
Reports, notices and other communications to FOUNDATION shall be
addressed to:
H. Walter Haeussler, President
CORNELL RESEARCH FOUNDATION, INC.
Cornell Business & Technology Park
20 Thornwood Drive, Suite 105
Ithaca, New York 14850
and notices and other communications to LICENSEE to:
NANOPHASE TECHNOLOGIES CORPORATION
453 Commerce Street
Burr Ridge, Illinois 60521
Attention: President
with a copy to:
FITZPATRICK EILENBERG & ZIVIAN
20 North Wacker Drive
Chicago, Illinois 60606
Attention: Bruce A. Zivian
18
<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed in duplicate as of the day and year first above written.
ATTEST: CORNELL RESEARCH FOUNDATION, INC.
By /s/ H. Walter Haeussler
-----------------------
H. Walter Haeussler
/s/ Warren R. Danner Title President
----------------- ------------------------------------
Date April 10, 1997
------------------------------------
ATTEST: NANOPHASE TECHNOLOGIES CORPORATION
By /s/ Donald Freed
-------------------------------------
Quinlan B. Ford Title Vice President
-------------------------------------
Date April 15, 1996
-------------------------------------
19
<PAGE> 1
EXHIBIT 10.12
BUILDING LEASE
DATE OF LEASE TERM OF LEASE BASE RENT AMOUNT
BEGINNING ENDING $90,000.00 for first
year
September 15, 1994 9/15/94 9/15/99
LOCATION OF PREMISES: 451 Commerce Security
Burr Ridge, Illinois Deposit $7,500.00
DESCRIPTION OF PREMISES: The property being leased hereunder is as
depicted upon that diagram/site plan attached hereto as Exhibit A,
together with those rights of ingress, egress, storage and loading
set forth herein.
- -----------------------------------------------------------------------------
September 15, 1994 9/15/94 9/15/99 Year
- -----------------------------------------------------------------------------
LOCATION OF PREMISES: 451 Commerce Security
Burr Ridge, Illinois Deposit: $7,500.00
- -----------------------------------------------------------------------------
DESCRIPTION OF PREMISES: The property being leased hereunder is as depicted
upon that diagram/site plan attached hereto as Exhibit A, together with those
rights of ingress, egress, storage and loading set forth herein.
- -----------------------------------------------------------------------------
LESSEE LESSOR
NAME - Nanophase Technologies Corporation NAME - Village of Burr Ridge
ADDRESS - 7660 S. County Line Rd.
- Burr Ridge, Illinois 60521
ADDRESS -
In consideration of the mutual covenants and agreements herein stated,
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor, the
premises designated above (the "Premises"), together with the appurtenances
thereto, for the above Term.
RENT 1. Lessee shall pay Lessor the base rent amount of $90,000.00, in
twelve (12) equal installments in the amount of Seven Thousand Five
Hundred dollars ($7,500.00) as rent for the Premises, at Lessor's
address as shown above, payable on or before the 15th of each
calendar month. The first monthly payment, and the security deposit
in the amount of $7,500.00, shall be due on or before September 15,
1994. Rent shall continue to be due monthly for the term of this
Lease to be calculated based upon the following: for each year after
the first year of this Lease, the base rental amount of $90,000.00
will increase annually by that percentage equal to the annual
percentage increase for the preceding twelve (12) months in the
Consumer Price Index, (Chicago-All Items for all Urban Wage Earners
and Clerical Workers) (CPI-W) but said amount not to exceed a maximum
of 3% annually.
IMPROVE-
MENTS 2. Lessor agrees to make the following improvements: a proper
demising wall for the Premises, and a front employees'
entrance/vestibule (double doors) (or, if the Lessee completes said
entrance, the reasonable cost equivalent to the Village will be paid
by Lessor to Lessee as reimbursement) to the Premise, said
improvements to be located generally where shown on the
diagram(attached hereto as EXHIBIT A, an entrance for Lessee's
employees from the warehouse and manufacturing area to the office
area in the Premises (the location to be as reasonably designated by
Lessee), and water and sewer service to be delivered to Lessee's side
of the demising wall, said service to be located not less than four
feet (4'), nor more than eight feet (8') south of the wall in the
Premises separating Lessee's office space from the manufacturing and
warehouse space. Lessee shall be responsible for all other
improvements to the Premises, including, for example, carpeting,
lighting and fixtures, partitions or ceiling enhancements, provided
that any alteration or addition to the Premises by Lessee requires
the prior written consent of Lessor. Said consent will not be
unreasonably withheld by Lessor.
CONDITION
AND
UPKEEP OF
PREMISES 3. Lessee has examined and knows the condition of the Premises and
has received the same in good order and repair, and acknowledges that
no representations as to the condition and repair thereof have been
made by Lessor, or his agent, prior to or at the execution of this
Lease that are not herein expressed; Lessee will keep the Premises
including all appurtenances, in good repair, replacing all broken
glass and all damaged plumbing fixtures with others of equal quality,
and will keep the Premises, including adjoining areas, in a clean
and healthful condition according to the applicable municipal
ordinances during the term of this Lease at Lessee's expense.
Lessor will remove all snow and ice from the roof when necessary, and
will be responsible for snow removal, as needed, from the sidewalk
abutting the Premises and parking lot serving the Premises. Upon the
termination of this Lease, for any reason, Lessee will yield up the
Premises to Lessor, in good condition and repair, loss by fire and
ordinary wear excepted. Lessor has responsibility for upkeep of all
areas on the exterior of building, including, but not limited to the
roof, parking area, grass area, sidewalks and exterior walls. Lessee
has responsibility for upkeep of all elements on the interior of the
space within the Premises, including, but not limited to, plumbing,
electric, and H.V.A.C. equipment and facilities. Lessor represents
that the plumbing, electric, gas and H.V.A.C. equipment and
facilities is in good working order at the commencement of this
lease. Lessor shall not be obliged to incur any other expense for
repairing any improvements upon said demised premises or connected
therewith, and the Lessee at his own expense will keep all
improvements in good repair (injury by fire, or other causes beyond
Lessee's control accepted) as well as in a good tenantable and
wholesome condition and will comply with all local or general
regulations, laws and ordinances applicable thereto. If Lessee does
not make repairs as required hereunder promptly and adequately,
Lessor may, but need not make such repairs and pay the costs thereof,
and such costs shall be so much additional rent immediately due from
and payable by Lessee to Lessor. Lessee is obligated to provide
Lessor prompt notice of any necessary repairs for which Lessor may be
responsible.
<PAGE> 2
LESSEE'S
ACCESS
TO
PREMISES 4. Lessee shall have rights of reasonable ingress and egress to the
Premises over the paved portions and sidewalks on Lessor's property
as well as ingress and egress rights over Lessor's property to
access Lessee's loading dock and shared use of Lessor's paved
parking area. Lessee shall also be entitled to reasonable use of
that area needed to the south of the Premises to locate its outside
storage tank(s). The storage tank(s) shall be located generally in
that area depicted for such use on Exhibit A. Lessee agrees to
locate and install said tank(s) in a neat and orderly fashion.
Lessee shall petition the Village of Burr Ridge or other applicable
governmental entity for any variations(s) or permit(s) that may be
needed to lawfully locate, construct and/or operate such tanks,
Lessor acknowledges that said storage tanks are an integral part of
Lessee's use of the Premises. If such permit, variation or approval
as is needed to permit the lawful construction and use of such
tanks is denied by the governmental entity with jurisdiction,
Lessee shall have the option, within thirty (30) days after such
denial, to terminate this Lease.
LESSSEE
NOT
TO MISUSE;
SUBLET;
ASSIGNMENT 5. Lessee will not allow the Premises to be used for any purpose
that will increase the rate of insurance thereon for Lessor, and
will not load floors with machinery or goods beyond the floor load
rating prescribed by applicable governmental ordinances, and will
not allow the Premises to be occupied in whole, or in part, by any
other person, and will not sublet the same or any part thereof, nor
assign this Lease without in each case the prior written consent of
the Lessor first had, and Lessee will not permit any transfer by
operation of law, mortgage or other encumbrance of the interest in
the Premises acquired through this Lease. Lessee will not permit
the Premises to be used for any unlawful purpose, or for any
purpose that will injure the reputation of the building or increase
the fire hazard of the building, or disturb the neighborhood,
provided however, it is understood and acknowledged by Lessor that
Lessee will conduct certain warehousing and manufacturing
activities on the Premises and such activities shall be permitted
if in compliance with applicable federal, state and local law.
Lessee will not allow any signs, cards or placards to be posted, or
placed thereon, nor permit any alteration of or addition to any
part of the Premises, except by written consent of Lessor which
consent would not be unreasonably withheld; all alterations and
additions to the Premises shall remain for the benefit of Lessor
unless otherwise provided in the consent aforesaid. Lessor
represents that the Premises are currently zoned for Lessee's
manufacturing, warehousing and office uses.
MECHANIC'S
LIEN 6. Lessee will not permit any mechanic's lien or liens to be placed
upon the Premises or any building or improvement thereon during the
term hereof, and in case of the filing of such lien Lessee will
promptly pay same. If a default in payment shall continue for
thirty (30) days after written notice to Lessee from Lessor to the
Lessee, the Lessor shall have the right and privilege at Lessor's
option of paying the same or any portion of the lien amount without
inquiry as to its validity, and any amounts so paid, including
expenses and interest, shall be so much additional indebtedness
hereunder due from Lessee to Lessor and shall be repaid to Lessor
immediately on tender of bill the lien costs.
IDEMNIFY
FOR
ACCIDENTS 7. Lessee covenants and agrees that it will protect and save and
keep the Lessor forever harmless and indemnified against and from
any penalty or damages or charges imposed for any violation of any
laws or ordinances, whether occasioned by the neglect of Lessee or
those holding under Lessee, and that Lessee will at all times
protect, indemnify and save and keep harmless the Lessor against
and from any and all loss, cost, damage or expense, arising out of
or from any accident or other occurrences on or about the Premises,
causing injury to any person or property whomsoever or whatsoever
and will protect, indemnify and save and keep harmless the Lessor
against and from any and all claims and against and from any and
all loss, cost, damage or expense arising out of any failure of
Lessee in any respect to comply with and perform all the
requirements and provisions hereof. Lessee agrees to obtain from a
responsible insurance company, or companies, at its expense, public
liability insurance in an amount not less than ONE MILLION
($1,000,000.00) DOLLARS with respect to any one person, and ONE
MILLION ($1,000,000.00) DOLLARS with respect to any one accident
and FIVE HUNDRED THOUSAND ($500,000.00) DOLLARS property damage
with respect to any one accident, and a certificate as to such
insurance shall be deposited with Lessor.
-2-
<PAGE> 3
WATER,
GAS AND
ELECTRIC
CHARGES 9. Lessee will pay, in addition to the rent above specified, all
water rents, gas and electric light and power bills taxed, levied
or charged on the Premises, for and during the time for which this
Lease is granted, and in case said water rents and bills for gas,
electric light and power shall not be paid when due, Lessor shall,
upon three days notice to Lessee have the right to pay the same,
which amounts so paid are declared to be so much additional rent
and payable with the installment of rent next due thereafter. Such
services shall be separately metered.
LESSOR'S
ACCESS TO
PREMISES 10. Lessor and its designees shall have the right, upon reasonable
notice to Lessee, to enter upon the Premises at all reasonable
hours (and in emergencies at all times and without notice): (a) to
inspect the same; (b) to make repairs, additions or alterations to
the Premises or the building in which the same are located or any
property owned or controlled by Lessor; provided, however, if
Lessor intends to be reimbursed by Lessee for any such repairs,
additions or alterations, it shall so notify Lessee at least
fourteen (14) days prior to taking any such action in order for
Lessee to determine whether it is responsible for any such repairs,
additions or alterations.
OPTION
PERIOD 11. Lessee has the right to extend the Lease term for five (5)
consecutive 12 month periods. The annual rent escalation for each
of the five 12 month option periods will be determined by using a
factor equal to the average of the Consumer Price Index based on
rent escalations over the initial 60 month term of this Lease.
Responsibility for real estate taxes will continue to be determined
in the manner utilized during the initial 60 month Lease term.
ABANDON-
MENT AND
RELENTTING 12. If Lessee shall abandon or vacate the Premises, or if Lessee's
right to occupy the Premises is terminated by Lessor by reason of
Lessee's breach of any of the covenants herein, the same may be
re-let by Lessor for such rent and upon such terms as Lessor may
reasonably deem fit subject to Illinois statute; and if a
sufficient sum shall not thus be realized monthly, after paying the
out-of-pocket expenses of such re-letting and collecting to satisfy
the rent hereby reserved, Lessee agrees to satisfy and pay all
deficiencies monthly during the remaining period of this Lease.
Lessor shall exercise reasonable efforts to obtain a new lessee to
occupy the Premises following abandonment or vacation thereof by
Lessee at a rate of rental then prevailing in the Burr Ridge area
and upon such other lease terms as are herein contained. Upon
abandonment or vacation of the Premises, Lessee's obligation is to
restore the Premises to its original condition at the commencement
of this Lease and return the Premises to Lessor in good condition
and repair, provided, however, Lessee shall not be required to
remove any improvements to the Premises approved by Lessor (unless
such improvements are special or unique to Lessee's business, as
reasonably determined by Lessor, and are so conditioned by Lessor).
Lessee shall be solely responsible for the complete removal of any
outside storage tank(s) and restoration of the affected location of
the tank(s).
HAZARDS/
HAZARDOUS
SUBSTANCES
13. Lessor hereby represents that no hazardous materials exist on,
within, or under the Premises as of the commencement of Lessee's
occupancy hereunder in violation of applicable environmental
requirements under local, Illinois or Federal law. Lessor hereby
consents to Lessee's use and storage of materials which are
determined to be hazardous in reasonable quantities on the Premises
so long as such materials are necessary or appropriate in
connection with Lessee's manufacturing and warehousing uses on the
Premises and will be used, kept, and stored and disposed of in a
manner that complies with all laws, rules, statutes, and ordinances
regulating any such hazardous material so brought upon or used or
kept in or about the Premises. Lessee shall not cause or permit any
other hazardous material to be brought upon, or kept or used in or
about the premises by Lessee, its agents, employees, contractors,
or invitees. If Lessee or Lessor breach their respective
representations or obligations stated above in this paragraph, or
if the presence of hazardous material on or about the Premises
caused or permitted by Lessee or Lessor results in contamination of
the Premises or Lessor's adjacent property, or if contamination of
the Premises or surrounding area by hazardous material otherwise
occurs the responsible party (Lessee or Lessor) shall indemnify,
defend, and hold harmless the other from any and all claims,
judgments damages, penalties, fines, costs, liabilities, or losses
(including, without limitation, diminution in value of the
-3-
<PAGE> 4
present in the soil or ground water on, under or about the Premises
of Lessor's adjacent Property. Without limiting the above, if the
presence of any hazardous material on or about the Premises caused or
permitted by either Lessor or Lessee results in any contamination of
the Premises or surrounding area, or causes the Premises or
surrounding area to be in violation of any laws, rules, statutes, or
ordinances, the responsible party (Lessee or Lessor) shall promptly
take all actions at its sole expense as are necessary to return the
Premises and surrounding area to the condition existing before the
introduction of any such hazardous material; provided that, if Lessee
is responsible, Lessor's approval of those actions shall first be
obtained, which approval shall not be unreasonably withheld so long
as those actions would not potentially have any material adverse
long-term or short-term effect on the Premises or surrounding area.
As used in this Lease, the term "hazardous material" means any
hazardous or toxic substance, material or waste which is or becomes
regulated by any local governmental authority, the state of
Illinois, or the United States government, including any material
which, when present, would require environmental remediation
("clean-up") under any such local, Illinois or Federal law. Lessee
shall not allow, keep or use on the Premises any inflammable or
explosive liquids or materials save such as may be necessary for use
in the business of the Lessee, and in such case, any such substances
shall be delivered and stored in amount, and used, in accordance
with the rules for the applicable Board of Underwriters and statutes
and ordinances now or hereafter in force. Further, no unlawful
activities of any kind shall be conducted by Lessee on the Premises.
Nothing in this paragraph 13 shall be construed to impose any
additional liability whatsoever upon either of the parties hereto as
a result of any acts or omissions of any third parties, specifically
including any tenants leasing other space from Lessor.
DEFAULT
BY
LESSEE 14. If Lessee shall vacate or abandon the Premises, or in case of
the non-payment of the rent reserved hereby, or any part thereof, or
of the breach of any covenant in this Lease, Lessee's right to the
possession of the Premises thereupon shall terminate upon written
notice to Lessee from Lessor and upon Lessee's failure to cure any
such default within sixty (60) days of receipt of such notice, and
the mere retention of possession thereafter by Lessee shall
constitute a forcible detainer of the Premises; and if the Lessor so
elects, but not otherwise, and upon written notice of such election
to Lessee, this Agreement shall thereupon terminate, and upon the
termination of Lessee's right of possession, as aforesaid, whether
this Agreement be terminated or not, Lessee agrees to surrender
possession of the Premises immediately, without the receipt of any
demand for rent, notice to quit or demand for possession of the
Premises whatsoever, and hereby grants to Lessor full and free
license to enter into and upon the Premises or any part thereof, to
take possession thereof after due process of law, and to expel and
to remove Lessee or any other person who may be occupying the
Premises or any part thereof, and Lessor may repossess itself of the
Premises as of its former estate, but such entry of the Premises
shall not constitute a trespass or forcible entry or detainer, nor a
waiver of any covenants, agreement or promise in this Agreement
contained, to be performed by Lessee. The acceptance of rent,
whether in a single instance or repeatedly, after if falls due, or
after knowledge of any breach hereof by Lessee, or the giving or
making of any notice or demand, whether according to any statutory
provision or not, or any act or series of acts except as an express
written waiver, shall not be construed as a waiver of Lessor's
rights hereunder, or as an election not to proceed under the
provisions of this Agreement.
REAL
ESTATE
TAXES 15. Lessor is responsible for the base real estate taxes during the
Lease term (or pro-rata amount for any year in which the Premises
are not taxable for the entire year), base taxes being defined as
the real property tax amount generated by the current equalized
assessed valuation of the Premises determined as follows. Since the
initial real estate tax amount determined by the Assessor/County
Clerk should be for only a portion of a tax year (September 15 -
December 31), the base tax amount will be established, for use in
subsequent years, in an amount to reflect the full tax amount due if
the initial real estate tax amount had been a 365-day year, i.e.,
the base tax amount shall be increased to reflect an amount which
would be equivalent to the taxes for the entire 1994 tax year based
upon the real estate tax amount set forth in the tax bill to be
issued by the County Clerk for September 15, 1994 through December
31, 1994. The value of any improvements to the Premises subsequent
to September 15, 1994, shall not be included in the base tax amount.
The Village shall establish such base amount in conjunction with the
Assessor/County Clerk's office and shall confirm said amount with
the Lessee. Once the equalized assessed valuation (EAV) is
determined, then the most current tax rate for property within the
same taxing districts shall be applied to said EAV and prorated
accordingly for (the appropriate portion of this year. However, the
base taxes shall be the amount equal to what an entire year's tax
bill would be (e.g., if the EAV was $300,000 and (the current tax
rate would produce a tax of $1,000 for all taxing districts for the
entire year, then the base tax amount would be $1,000 even though
the actual 1994 tax bill may be only $250.00). Following the base
year of 1994, the Lessor is subsequently responsible for the base
real estate taxes plus an amount not to
-4-
<PAGE> 5
statement by the village showing the calculation by which
lessee's share of such tax bill was calculated. The following is
an example of the proper application of this formula:
<TABLE>
<CAPTION>
Entire Amount of Real Lessor Share (maximum
Tax Estate Taxes on Premises increase, year to year,
Year (Hypothetical) is 3% of prior year's share) Lessee Share
---- ------------------------ ---------------------------- ------------
<S> <C> <C> <C>
1994 $1,000.00* $1,000.00 $ 0
1995 $1,100.00 $1,030.00 $ 70.00
1996 $1,200.00 $1,060.90 $140.00
1997 $1,300.00 $1,092.73 $207.27
1998 $1,400.00 $1,125.51 $274.49
</TABLE>
* This, of course, would be prorated for purposes of the
actual tax bill since the Premises was tax exempt for the
portion of the year prior to this Lease being executed, but
what would have been the entire year's taxes (if not tax
exempt for the entire year) is the base amount used to
determine the parties shares of the tax bills for the
future.
Nothing in this paragraph shall limit Lessor or Lessee in the
exercise of any rights afforded by Illinois law to challenge any
assessment amount arrived at by the Assessor/County Clerk provided
that any such challenge shall not delay or excuse the payment
obligations of Lessor and Lessee set forth above.
NO RENT
DEDUCTION
OR SET OFF 16. Lessee's covenant to pay rent is and shall be independent of
each and every other covenant of this Lease. Lessee agrees that any
claim by Lessee against Lessor shall not be deducted from rent nor
set off against any claim for rent in any action.
SECURITY
DEPOSIT 17. The security deposit required herein shall be available to
Lessor for its use or reimbursement to satisfy any of Lessee's
obligations hereunder, if Lessee shall fail to meet or abide by
such obligations. Lessor shall otherwise be allowed to use such
security deposit monies as permitted by law.
RENT AFTER
NOTICE
OR SUIT 18. It is further agreed, by the parties hereto, that after the
service of notice, or the commencement of a suit or after final
judgment for possession of the Premises, Lessor may receive and
collect any rent due, and the payment of said rent shall not waive
or affect said notice, said suit, or said judgment.
PAYMENT
OF
COSTS 19. Lessee will pay and discharge all reasonable costs, attorney's
fees and expenses that shall be made and incurred by Lessor in
enforcing the covenants and agreements of this Lease.
RIGHTS
CUMULA-
TIVE 20. The rights and remedies of Lessor under this Lease are
cumulative. The exercise or use of any one or more thereof shall
not bar Lessor from exercise or use of any other right or remedy
provided herein or otherwise provided by law, nor shall exercise nor
use of any right or remedy by Lessor waive any other right or
remedy.
FIRE AND
CASUALTY 21. In the event the Premises are substantially damaged by fire or
other casualty, Lessor shall, within sixty (60) days, notify Lessee
in writing as to whether said Premises will be rebuilt or
repaired, and in the event Lessor fails to so notify Lessee,
Lessee may, at its option, terminate this Agreement by giving
written notice to Lessor within ten (10) days after the expiration
of said sixty (60) days. If Lessor so notifies Lessee that the
Premises will be rebuilt or repaired, then this Agreement shall
continue in effect upon the same terms and conditions; provided,
however, if Lessor fails to rebuild or repair said Premises within
sixty (60) days following the expiration of the sixty (60) day
period in which Lessor must notify Lessee of such action, then
Lessee may terminate this Agreement upon written notice to Lessor;
and provided further, if Lessor so notifies Lessee that the
Premises will be rebuilt or repaired, Lessee may, at its option,
terminate this Agreement by giving written notice to Lessor within
sixty (60) days after Lessor has so notified Lessee. If Lessor
notifies Lessee that the Premises will not be rebuilt or repaired,
and same are, in fact, not rebuilt or repaired within 180 days
after the occurrence of the fire or other casualty, then this
Agreement shall forthwith terminate. The fixed or basic rent herein
reserved shall
-5-
<PAGE> 6
DEFAULTS 22. If either party shall fail to comply fully with any of its
obligations under this Lease including, without limitation, its
obligations to make repairs, maintain various policies of insurance,
comply with all laws, ordinances and regulations and pay all bills
for utilities), then the non-defaulting party shall give notice to
the defaulting party regarding the nature and extent of such default
and the defaulting party will have sixty (60) days to cure any such
default, and if it fails to cure such default, then the
non-defaulting party shall have the right, at its option, to cure
such breach at the other party's expense. Each party agrees to
reimburse the other (as additional rental or otherwise) for all
costs and expenses incurred as a result thereof together with
interest theron promptly upon demand.
SEVERA-
BILITY 23. Wherever possible each provision of this Lease shall be
interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Lease shall be
prohibited by or invalid under applicable law, such provisions
shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or
the remaining provisions of this Lease.
RELATION-
SHIPS
OF PARTIES 24. Nothing contained in this Agreement shall be construed to
create the relationship of principal and agent, partnership, joint
venture or any other relationship between the parties hereto other
than the relationship of Lessor and Lessee.
NOTICES 25. Every notice, approval, consent or other communication
authorized or required by this Agreement shall not be effective
unless served in writing and sent by United States registered or
certified mail, return receipt requested, directed, if to Lessee
to the Premises, and if to Lessor at the address listed on page 1
hereof or such other address as either party may designate by
notice from time to time.
WAIVER 26. One or more waivers of any covenant or condition by either
party hereto shall not be construed as a wavier of a subsequent
breach of the same or any other covenant or condition, and the
consent or approval by one party to or of any act by the other
party requiring the consenting party's consent or approval shall
not be construed to waive or render unnecessary the consenting
party's consent or approval to or of any subsequent similar act.
ENTIRE
AGREEMENT 27. No oral statement or prior written matter shall have any force
or effect all of which shall merge herein and be superseded hereby.
No waiver of any provision of this Agreement shall be effective
unless in writing, signed by the waiving party. The parties agree
that they are not relying on any representations or agreements
other than those contained in this Agreement. This Agreement shall
not be modified except by a writing subscribed by all parties, nor
may this Agreement be canceled by either party except with the
written consent of the other, unless otherwise specifically
provided herein. The invalidity or unenforceability of any
provisions of this Agreement shall not affect or impair any other
provision. All captions herein are solely for convenience and shall
not be given any legal effect.
Except as otherwise provided in this Agreement, the covenants,
conditions and agreements contained in this Agreement shall bind and inure to
the benefit of Lessor and Lessee and their respective successors and permitted
assigns.
IN WITNESS WHEREOF, the parties hereby set their hands and seals.
LESSOR: LESSEE:
VILLAGE OF BURR RIDGE NANOPHASE TECHNOLOGIES CORPORATION
Cook and DuPage Counties, Illinois Cook County, Illinois
- ------------------------------------- -----------------------------------
President, Village of Burr Ridge President
-6-
<PAGE> 7
- ----------------------------- ---------------------------
Clerk, Village of Burr Ridge Secretary
Dated: September 8, 1994 Dated: September 8, 1994
---------------------------- -------------------------
AMV\BURR RIDGE#2\A:\NANOPHASE.LSE
-7-
<PAGE> 8
[MAP]
Truck Loading/Unloading Area
Legend (Premises)
Paved Parking Area
Paved Side Walk
Demising Wall
Outside Storage Tank Area
Exhibit A
<PAGE> 1
EXHIBIT 10.13
<TABLE>
<S> <C>
BLANKET
PURCHASE ORDER
-------------- [LOGO] ABOVE NUMBER
MUST APPEAR ON
PACKAGES, B/L,
PACKING SLIPS
[MOYCO LOGO] AND INVOICES.
Moyco Technologies, Inc.
CORPORATE OFFICES 7 Ultralap / Abrasives Div. MOYCO UNION BROACH / Dental Division
200 commerce Drive - Montgomeryville - PA 18936 589 Davies Drive - York - PA 17402
(215) 855-4300 - FAX: (215) 362-3809 (717) 840-9335 - FAX:(717) 840-9347
REQUISITIONER VENDOR NO. P.O. DATE P.O. # DELIVERY DATE
Picardi 14090 2/24/97 10517 See Schedule
TO NANOPHASE TECHNOLOGIES SHIP TO MOYCO TECHNOLOGIES
453 Commerce Street 200 Commerce Drive
Burr Ridge, IL 60521 Montgomeryville, PA 18936
(Or as otherwise directed)
FOB: / / CONFIRMATION ONLY
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM NO. QTY UNITS DESCRIPTION UNIT COST EXTENDED PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
SEE ALL ATTACHED DOCUMENTS
WHICH DETAILS THIS PURCHASE ORDER
REFER TO ATTACHED PURCHASE PLAN
AND ORDER DESCRIPTION
POWER MATERIALS AND R&D USED FOR
MOYCO CMP SLURRIES PROVIDED ON
N/A N/A EXCLUSIVE BASIS $30,000,00
See Documents
Incorporated
ALL DOCUMENTS, ADDENDUMS AS WELL AS
TERMS AND CONDITINOS ON REVERSE SIDE
OF THIS PURCHASE ORDER ARE INCORPORATED
HEREIN
ALL DRAWSINGS, REFERENCE MATERIALS AND INTERRELATED IDEAS ASSOCIATED WITH THIS
PROJECT ARE FOR THE SOLE AND EXCLUSIVE USE OF MOYCO INDUSTRIES INC, AND CANNOT
BE USED BY OTHERS UNDER ANY CIRCUMSTANCES WHATSOEVER WITHOUT THE WRITTEN CONSENT OF MOYCO TOTAL $30,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
NO PARTIAL SHIPMENTS WITHOUT PRIOR AUTHORIZATION DO NOT SHIP FREIGHT C.O.D.
TRAFFIC MANAGER, PLEASE NOTE: SUBJECT TO THE TERMS AND CONDITIONS ON THE BACK HEREOF
WHICH ARE INCORPORATED AND MADE A PART THEREOF.
MOYCO TECHNOLOGIES, INC.
USE SINGLE FACE PALLETS --
DO NOT DOUBLE TIER.
/s/ Jerome J. Lipkin Executive Vice President
----------------------------------------------------------------------------
/ / PURCHASING MGR. / / SR BUYER
- ------------------------------------------------------------------------------------------------------------------------------------
WHEN SHIPPING CHARGES ARE NOT PREPAID OUR ROUTING MUST BE OBSERVED, OTHERWISE DIFFERENCE IN TRANSPORTAION CHARGES WILL BE
CHARGED TO SUPPLIER WHEN NO ROUTING IS SPECIFIED. SHIP CHEAPEST STORE DOOR DELIVERY.
Page 1 of 5
No Order will be valid unless signed.
ORIGINAL
</TABLE>
<PAGE> 2
MOYCO/NANOPHASE 5 YEAR PURCHASE AND DISTRIBUTION AGREEMENT
With reference to the Marketing Agreement between Nanophase Technologies
Corporation ("NTC") and Moyco Technologies, Incorporated ("Moyco"), dated
August 29, 1996, NTC and Moyco hereby agree to the following:
1. NTC agrees to supply to Moyco, on an exclusive basis and for a period of
five years from the date last written below ("Effective Date"), NTC Nanotek
Aluminum Oxide, and Cerium Oxide, on a continuing basis, for use by Moyco in
the production of proprietary formulations for the use in chemical mechanical
planarization (CMP) of metal and di-electric layers in the production of
semiconductor devices ("Product") as per the terms of the Moyco 5 year purchase
order.
2. THE PARTIES AGREE TO NEGOTIATE IN GOOD FAITH FOR THE DEVELOPMENT OF
ADDITIONAL MATERIALS FOR EXCLUSIVE SALE TO MOYCO, IN THE FUTURE, FOR CMP
MARKETS. MOYCO RETAINS THE RIGHT OF FIRST REFUSAL REGARDING NEW NTC PRODUCTS
DEVELOPED AND APPLICABLE TO CMP (SUBJECT TO THE AFOREMENTIONED GOOD FAITH
NEGOTIATIONS). A RESEARCH AND DEVELOPMENT FEE OF $100,000 OVER A 2 YEARS
PERIOD WILL BE PAID TO NTC AS PER THE TERMS AND CONDITIONS OF THE MOYCO 5 YEAR
PURCHASE ORDER.
3. Moyco agrees that upon the Effective Date, Moyco shall commence the
execution of deliveries of Nanophase products as per the terms of the Moyco 5
year purchase order from NTC. (refer to Schedule1/Delivery Objectives*).
4. Moyco and NTC agree that, should Moyco fail to comply with the terms and
conditions of the Moyco five year purchase order, this Purchase and
Distribution Agreement may be terminated by NTC upon thirty days notice. In
the event that NTC terminates this Agreement and Purchase Order, Moyco shall
maintain all rights to place orders and purchase the materials indicated herein
on a non-exclusive basis for a period of nine (9) months.
5. Moyco and NTC agree that should NTC fail to meet Moyco specifications,
terms, delivery, and conditions, that this Purchase and Distribution Agreement
may be terminated by Moyco upon 30 days written notice.
6. NTC futher commits that for all product orders drawn in calender years 1997
and 1998 Moyco shall receive a 3% discount from the prices below; thereafter, on
all orders exceeding the contract annual minimum requirements, Moyco shall
receive a 5% discount from the prices below.
7. Pricing for the sale of the Product by NTC to Moyco shall be determined
soley by NTC. NTC commits that through 12/31/98: the price of Nanotek Aluminum
Oxide Product to Moyco shall not exceed $55 per kilogram, and, the price of
Nanotek Cerium Oxide shall not exceed $70.00 per kilogram, excepting that
through 12/31/2000, the price to Moyco for any order of NTC Product shall not
increase by more than the actual increase, if any, in the cost to NTC for
feedstock(s) used by NTC for production of such order.
8. The Moyco 5 Year Purchase Order is for ($USD) 30,000,000.00 over a 5 year
period; and, is subject to standard Moyco purchsae order terms and conditions.
*Schedule 1/Delivery Objectives [NTC shipment rate to Moyco (tons)]:
<TABLE>
<CAPTION>
1097 2097 3097 4097 1997 1998 1999 2000 2001
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Aluminum Oxide (1) (2) (6) (14) (23) (50) (80) (140) (200)
- --------------------------------------------------------------------------------
Cerium Oxide (0.1) (0.4) (2.0) (2.5) (4) (8) (16) (20) (30)
</TABLE>
Cumulative Objective for 1997: (USD) $1,518,150.00
Agreed:
NANOPHASE TECHNOLOGIES CORPORATION MOYCO TECHNOLOGIES, INCORPORATED
BY: /S/ Robert W. Cross BY: /S/ Marvin E. Sternberg
------------------------------- --------------------------------
ROBERT W. CROSS PRESIDENT - NTC MARVIN E. STERNBERG, PRESIDENT
MOYCO
dATE: 2/27/97 DATE: 2/25/97
----------------------------- -------------------------------
Page 2 of 5
<PAGE> 3
<TABLE>
<CAPTION>
ITEM QTY UNITS DESCRIPTION UNIT COST
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
N/A N/A N/A NANOPHASE 5 Year Purchase Order* $30,000,000.00
* refer to Moyco/Nanophase 5 Year Purchase
and Distribution Agreement attached and in-
corporated herein
Payment Terms: 2% - 15 days from Invoice Date; Net 10
R&D PAYMENT TERMS: NET % ON 3/31/97 INVOICE; $5,000.00/MONTH
ON 1/31/98 INVOICE
MOYCO IMMDEIDATE DRAW OFF OF THE PURCHASE ORDER AS FOLLOWS:
ITEM QTY UNITS DESCRIPTION UNIT COST
- --------------------------------------------------------------------------
POWDER 1 TONS NTC Nanotek Aluminum Oixde $50,000.00
(Target Delivery Date** 3/22/97)
POWDER 0.5 TONS NTC Cerium Oxide $31,815.00
(Target Delivery Date** 3/22/97)
R&D 1 N/A CERIA DEVELOPMENT R&D FEE $50,000.00
(Invoice Date: 3/31/97)
for work performed through 3/31/97
POWDER 2 TONS NTC Nanotek Aluminum Oxide $100,000.00
(Target Delivery Date** 5/30/97)
POWDER 0.5 TONS NTC Cerium Oxide $31,815.00
(Target Delivery Date** 5/30/97)
R&D 1 N/A 1998 R&D FEES $50,000.00
(Invoice Date 1/31/98)
- --------------------------------------------------------------------------
MOYCO DRAW OBJECTIVES: 1997 CALENDAR QUARTER 3 AND QUARTER 4
POWDER 6 TONS NTC Nanotek Alumium Oxide $300,000.00
(Target Delivery Date**: 1/30/97)
POWDER 1.5 TONS NTC Cerium Oxide $95,445.00
(Target Delivery Date**: 8/30/97)
POWDER 14 TONS NTC Nanotek Alumium Oxide $700,000.00
(Target Delivery Date**: 11/30/97)
POWDER 2 TONS NTC Cerium Oxide $127,260.00
(Target Delivery Date**: 11/30/97)
** within 10 day window Total Calender Year 1997 DRAW OBJECTIVE: $1,586,335
</TABLE>
Page 3 of 5
<PAGE> 4
- ------------------------------------------------------
30,000,000.00 Cost Break-Out:
<TABLE>
<S> <C>
*Research and Development Fee of $100,000.00 $ 100,000.00
over a two (2) year period. (Item 2 of the Moyco/
Nanophase 5 Year Purchase and Distribution Agree-
ment.
*NTC Aluminum Oxide as per the Moyco/Nano- $24,650,000.00
phase 5 year Purchase and Distribution Agreement
*NTC Cerium Oxide as per the Moyco/Nano- $ 5,250,000.00
phase 5 year Purchase and Distribution Agreement
- --------------------------------------------------------------------------------
</TABLE>
NOTATIONS AND AMMENDMENTS:
It is hereby formally agreed that this Purchase Order is subject to standard
Moyco Terms and Conditions of Sale contained on the reverse side of this
purchase Order, as well as all other incorporated documents.
Page 4 of 5
<PAGE> 5
MOYCO INDUSTRIES INC.
TERMS AND CONDITIONS OF PURCHASE
1. ACCEPTANCE: This purchase order constitutes a binding contract on the
terms set forth herein when it is accepted by Seller either by
acknowledgment or by commencement of performance. No addition, change or
modification of this purchase order shall be binding unless made in writing
and signed by an authorized representative of Buyer.
2. WARRANTY: Seller expressly warrants that all articles, assemblies, parts
and materials delivered under this purchase order will be free from
defects in labor, materials or fabrication. This warranty shall run to
Buyer, its successors, assigns and customers. All warranties shall be
construed as conditions as well as warranties and shall not be deemed to be
exclusive.
3. PACKING: All items shall be packed by Seller in suitable containers
for protection in shipment and storage. All highly polished, highly
finished or precision parts are to be properly greased and packed in
containers as protection against deterioration.
4. PATENT INDEMNITY: Seller agrees to idemnify and hold harmless the Buyer
and its customers against all claims, demands and liability for actual
or alleged infringement of any U.S. or foreign patents, trade-marks or
similar right by the materials or articles delivered by the Seller, and the
Seller will at its own expense defend any action, suit or claim in which
such infringement is alleged, provided Seller is duly notified as to suits
or claims against Buyer, and provided further that Seller's idemnity as to
use shall not apply to articles delivered made to Buyer's drawings or
design.
5. COPYRIGHTS: Seller agrees to grant to Buyer and to the Government a
royalty-free right to reproduce, use and disclose any and all
copyrighted or coyrightable matter required to be delivered by Seller to
Buyer under this purchase order. However, it is not deemed to grant a
license under any patent now or hereafter issued or employ any right to
reproduce anything else called for under this purchase order.
6. MATERIALS FURNISHED: When Buyer furnishes materials to Seller to be worked
upon, Seller will be responsible for the care and safe-guarding of
materials furnished by Buyer. All such materials not used shall be
disposed of as directed by Buyer.
7. TOOLS AND DRAWINGS: Seller agrees that it will use any designs, tools,
patents, drawings, Information and equipment furnished by Buyer only
in the production of the articles called for in the purchase order and not
otherwise unless written consent has been granted by an authorized
representative of the Buyer. Buyer does not warrant the accuracy of tools
and fixtures furnished and all work must be in strict accordance with
specifications. Upon completion or termination, all items shall be
returned to Buyer immediately.
8. LABOR DISPUTES: Whenever an actual or potential labor dispute is delaying
or threatens to delay performance of this contract, Seller will
immediately give notice thereof to the Buyer and further if this order is a
Government contract the Seller shall immediately give notice also to the
nearest Government Department concerned. Such notice shall include all
relevant information with respect to such dispute.
9. DELAYS: Buyer reserves the right to cancel this order in the event
shipments are not made within specified time. Seller willl not, however,
be liable for damages occassioned by delays in delivery due to causes beyond
Seller's control and without his fault or negligence, provided Seller
properly notifies Buyer as soon as such delay becomes evident.
11. TERMINATION (NON-GOVERNMENT ORDERS): Buyer may, at its option, terminate
this purchase order in whole or in part at any time by written or
telegraphic notice to Seller. Upon termination in whole or in part of the
work under this purchase order by Buyer, the Seller will stop work
immediately, notify sub contractors to stop work and protect property in
Seller's possession in which Buyer has or may acquire an interest. If the
parties cannot agree by negotiation within a reasonable time upon the
amount of fair compensation to the Seller of such termination, Buyer will
pay Seller without duplication:
(a) The contract price for articles which have been completed.
12. CONFIDENTIAL: Seller agrees to be responsible within its control for the
safeguarding of all secret, confidential or restricted matters in
connection with the work to be performed by the Seller and to require a
similar agreement of third parties to whom any work in this order may be
alloted.
13. COMPLIANCE WITH LAWS: Seller agrees that in the performance of this
contract that it will comply with all applicable Federal, State and
local laws and executive orders and regulations.
16. SUB-CONTRACTING: The Seller may not sub-contract in whole or in part
any portion of this purchase order, except with prior written consent
of the Buyer.
17. INSURANCE: Seller agrees to be responsible for any bodily injury or
property damage resulting from Seller's performance under this purchase
order, and Seller warrants that adequate insurance is being carried to
cover such liabilities. Seller agrees to carry fire and extended coverage
insurance and be responsible for any of Buyer's property while in Seller's
possession. Seller agrees to maintain Buyer's property in good condition
and not to dispose of said property except in accordance with Buyer's
instructions.
20. PRICE QUALITY: If price is not stated on this order, Seller shall
invoice at lowest prevailing market price. Material is subject to MOYCO's
inspection, and approval within a reasonable time after delivery. If
specifications are not met, material may be returned at Seller's expense
and risk for all damages incidental to the rejection Payment shall not
constitute an acceptance of the material nor impair MOYCO's right to
inspect or any of its remedies.
NOTATIONS:
1.) Items 10, 14, 15, 18, 19, and 21 are stricken from this Purchase
Order.
2.) Item 11, Sections b and c are stricken from this Purchase Order.
3.) Item 11, Section a (Buyer's Right of Termination) shall apply
equally to the Seller subject to the terms stated in Item 4 of
Moyco Nanophase 5 Year Purchase and Distribution Agreement.
AGREED:
/s/ Robert Cross /s/ Marvin E. Sternberg
------------------------------ -----------------------------
Mr. Robert Cross-NTC Mr. Marvin E. Sternberg-MOYCO
2-27-97 2-25-97
---------------- ------------
DATE DATE
Page 5 of 5
<PAGE> 6
ADDENDUM TO MOYCO/NANOPHASE 5 YEAR PURCHASE AND
DISTRIBUTION AGREEMENT
Except as modified by the Moyco/Nanophase Purchase and Distribution Agreement
effective as of February 27, 1997, the Marketing Agreement dated August 28,
1996 shall remain in effect. In particular, and without limitation, we confirm
that:
For as long as this agreement remains in effect, or unless the parties
otherwise agree in writing, NTC will not directly or indirectly provide or sell
any of the Products to anyone other than Moyco knowingly for use in the
Applications.
For as long as this agreement remains in effect, or unless the parties
otherwise agree in writing, Moyco will not directly or indirectly sell or
provide formulations containing aluminum oxide or cerium dioxide other than the
Products knowingly for use in the Applications.
AGREED:
Nanophase Technologies Corporation Moyco Technologies, Incorporated
By: /s/ Donald J. Freed By: [SIG]
-------------------------------- ---------------------------
Donald J. Freed
Its: Vice President Its: Vice President
--------------------------
Date: March 6, 1997 Date: 3/6/97
----------------------------- -------------------------
<PAGE> 7
MARKETING AGREEMENT
Parties: Nanophase Technologies Corporation ("NTC")
453 Commerce Street
Burr Ridge, Illinois 60521
Moyco Technologies, Incorporated ("Moyco")
200 Commerce Drive
Montgomeryville, Pennsylvania 10036
Appointment: NTC hereby appoints, and Moyco hereby accepts appointment
as NTC's globally-exclusive customer of the Products for
the Applications defined below.
Products: NTC NanoTek(TM) Aluminum Oxide, in any form as
determined by NTC and Moyco to be required for use by
Moyco's customers in the Applications defined below (the
Products). From time to time, upon mutual agreement
between NTC and Moyco, additional applications may be
added to this agreement.
Applications: Chemical mechanical planation (CMP) of metal layers in the
production of semiconductor devices (the Applications).
From time to time, upon mutual agreement between NTC and
Moyco, additional applications may be added to this
agreement.
Marketing Objectives: To achieve and maintain a dominant market position for the
Products based upon superior performance of the Products
within the Applications defined above.
Colabrative The parties agree that the primary role of NTC under this
Relationship: agreement shall be to provide Products and related
technology support to Moyco, and the primary role of Moyco
shall be to develop and manufacture formulations for the
Applications incorporating the Products, perform the
marketing functions, and provide the related customer
technical support. Nonetheless, the parties agree to
actively confer and collaborate with each other concerning
significant issues and activities relating to achievement
of the marketing objectives.
Responsibilities Establish and maintain appropriate production and
of NTC: handling facilities to apply the Products on schedules
and in quantities adequate to support the marketing
objectives.
Use its best efforts to achieve and maintain quality
(including elimination of aluminum metal contaminants),
technological superiority, and competitive costs of the
Products. Secure and utilize such chemical analysis
equipment as may be required for this purpose.
Actively collaborate with Moyco in efforts to further
develop and enhance the Products in support of the
marketing objectives. This shall include further
refinement of particle size distribution. Secure and
utilize such electron microscopy equipment as may be
required for this purpose.
Actively provide technical and marketing assistance to
Moyco in support of the marketing objectives. Employ a
dedicated abrasive scientist on the NTC staff. Support
shall include but not be limited to:
Customer technical presentations.
Customer technical support activities.
Hosting visits by Moyco customer and prospective
customers to NTC facilities .
On-going strategic patent review.
Enforce all patents relevant to NANOTEK Aluminum Oxide.
<PAGE> 8
Responsibilities Use the best efforts to achieve and maintain quality,
of Moyco: technological superiority, and competitive costs of its
formulations for the Applications.
Use its best efforts to diligently market and promote its
formulations containing the Products for Applications in
support of the marketing objectives.
Provide NTC with an initial and rolling schedule of confirmed
or planned presentations, samplings and evaluations.
On-going and on a current basis, provide NTC with empirical
feedback from presentations, samplings and evaluations that
are arranged or conducted by Moyco, and otherwise provide NTC
with all information available to Moyco concerning Product
performance, and concerning market requirements relating to
Product performance.
Secure and utilize such equipment and facilities as may be
required to demonstrate and test formulations for the
Applications and to quantify performance. This shall include
but not be limited to a CMP metal polishing tool, meteorology
equipment and a classroom.
Employ technical support staff experienced in CMP polishing
and expert in the underlying sciences relevant to the
Application.
Upon execution of this agreement, order and maintain a buffer
inventory of no less than 750 pounds of the Products. This
quantity shall be above and beyond Moyco's needs for
development, sampling, and customer orders. Upon securing
customer orders for production purposes, Moyco shall maintain
a buffer inventory of the Products of no less than 750 pounds
or the total of estimated customer requirements for two
months, whichever is greater.
Provide NTC monthly with a rolling six-month forecast and
every six months provide NTC with a rolling three-year
forecast, of Moyco's Product requirements for the Applications
defined above.
Mutual For as long as the agreement remains in effect, or unless
the parties otherwise agree in writing, NTC will not directly
or indirectly provide or sell any of the Products to anyone
other than Moyco knowingly for use in the Applications.
Exclusivity: For as long as this agreement remains in effect, or unless
the parties otherwise agree in writing, Moyco will not
directly or indirectly sell or provide formulations
containing aluminum oxide other than the Products
knowingly for use in the Applications.
Pricing: Pricing for the sale of Products by NTC to
Moyco shall be determined solely by NTC. NTC commits that
through 12/31/97 the price to Moyco for NanoTek(TM) Aluminum
Oxide shall not exceed $25 per pound for orders in excess of
2000 pounds with a defined delivery schedule.
When Moyco's purchases of the Products reach an average of
2000 pounds per month over a four month period, NTC shall
rebate that portion of the price paid for purchases since
1/1/96 which exceeded $25 per pound. The rebate shall be in
the form of six pounds of Products to be delivered for each
five pounds of product ordered.
Pricing for the sale of Products by Moyco to Moyco's
customers shall be determined solely by Moyco.
Shipping: FOB NTC facility.
Disclaimers: NTC assumes no risk or liability involved in the use of the
Products, including without limitation liability with regard
to third-party patent claims.
<PAGE> 9
Term of One year, automatic renewal unless terminated as provided below.
Agreement:
Termination without cause: six-month notice.
Termination for failure to deliver, non-payment, or for material
breech of this agreement: Option of non-defaulting party to
terminate if failure not cured within 30 days following notice
of default.
Notices: All notices required or desired to be given hereunder shall be
given by hand delivery, or by registered or certified mail,
return receipt requested, to the addresses listed above, and
shall be effective upon receipt.
Proprietary The parties agree to the terms of the confidentiality agreement
Rights: executed on 2/1/96.
The sale of Products by NTC to Moyco shall not constitute a
license from NTC to Moyco.
Independent Each party is an independent contractor. Neither party is the
Contractors: agent of the other, and neither shall have authority
to bind the other.
Jurisdiction: All disputes arising out of this Agreement shall be decided by a
competent court having jurisdiction over the defendant in
accordance with the laws of the state of Illinois applicable
to contracts made and to be performed in Illinois.
Prior This agreement supersedes the prior agreement of the parties
Agreements: dated 2/1/96.
AGREED:
NANOPHASE TECHNOLOGIES CORPORATION MOYCO TECHNOLOGIES, INCORPORATED
By: /s/ Robert W. Cross By: /s/ Marvin Sternberg
------------------------------- --------------------------------
Robert W. Cross, President Marvin Sternberg, President
Date: 29 August 1996 Date: August 29, 1996
----------------------------- -----------------------------
<PAGE> 1
Exhibit 10.14
MARKETING and DISTRIBUTION AGREEMENT
Nanophase Technologies Corporation of Burr Ridge, Illinois ("NTC")
and Whittaker, Clark & Daniels, Inc., of South Plainfield, New Jersey
("Whittaker"), effective November 22, 1995, agree as follows:
1. NTC hereby appoints, and Whittaker hereby accepts
appointment, as NTC's exclusive global distributor of the
Products (as defined below) for the Applications (as defined
below). The scope of this appointment and the nature of the
products and applications hereunder may be modified or
expanded by mutual agreement of the parties from time to
time.
2. The products covered by this agreement are NTC TiO(2)
and iron oxide in such form (including coated or dispersed) as
may be determined by NTC in its discretion, for use by
Whittaker's customers in the Applications defined below (the
Products).
3. The applications covered by this agreement are cosmetics and
skin care (the Applications).
4. The objective of this agreement is to achieve and
maintain a dominant market position for the Products based
upon superior performance of the Products within the
Applications defined above.
5. The parties agree that the primary role of NTC under this agreement shall
be to provide Products and related technology support for the
Applications defined above, and the primary role of Whittaker shall be
to perform the marketing functions and to provide the related customer
support. Nonetheless, the parties agree to actively confer and
collaborate with each other concerning significant issues and
activities relating to achievement of the marketing
objectives.
6 To achieve the objectives of this agreement, NTC agrees to:
a. Supply the Products to Whittaker on schedules and in quantities
adequate to support the marketing objectives.
b. Use its best efforts to achieve and maintain quality,
technological superiority, and competitive costs of the Products,
and actively provide technical and marketing assistance to
Whittaker, in support of the marketing objectives.
c. Actively collaborate with Whittaker in efforts to further develop
and enhance the Products in support of the marketing objectives.
d. Assist Whittaker in the training of Whittaker and
customer personnel.
e. Assist Whittaker in the preparation of appropriate
technical literature.
f . Assist Whittaker in technical presentations to
Whittaker's customers and prospects.
g. Assist Whittaker in customer technical support.
h. Assist Whittaker in efforts to obtain any regulatory
approvals that may be required.
7. To achieve the objectives of this agreement, Whittaker agrees to:
a. Use its best efforts to diligently
market and promote the Products in support of the
marketing objectives.
b. Provide NTC with an initial and rolling schedule of confirmed or
planned presentations, samplings and evaluations.
c. On-going and on a current basis, provide NTC with empirical
feedback from presentations, samplings and evaluations that are
arranged or conducted by Whittaker, and otherwise provide NTC with
all information available to Whittaker concerning Product
performance, and concerning market requirements relating to
Product performance.
d. Purchase and maintain inventories of Products on schedules and in
quantities adequate to support the marketing objectives, including
sufficient beginning inventories to support initial sampling and
early customer orders, and sufficient on-going inventories to
serve as a buffer and to accommodate prompt shipment to customers
on a day-to-day basis.
<PAGE> 2
e. As soon as practicable after the initial market launch
of the Products, place on-going orders with NTC at least six months
before expected delivery by NTC.
f. Provide NTC monthly with a rolling six-month forecast of
Whittaker's Product requirements.
g. Provide NTC every 6 months with Whittaker's estimates of the
current year's tonnage size and three-year forecast of the total
relevant markets.
8. For as long as this agreement remains in effect, or unless the
parties otherwise agree in writing, NTC will not directly or
Indirectly knowingly sell any of the Products to anyone other
than Whittaker for use in the Applications defined above.
9. For as long as this agreement remains in effect, or unless the
parties otherwise agree in writing, Whittaker will not directly
or indirectly knowingly sell any nanometric TiO(two) other than the
Products for use in the Applications defined above.
10. Pricing for the sale of Products by NTC to Whittaker shall be
detemmined solely by NTC. Pricing for the sale of Products by
Whittaker to Whittaker's customers shall be determined solely by
Whittaker. Standard pricing of NTC is FOB the NTC facility.
11. NTC warrants that the Products comply with all applicable
federal, state and local laws, regulations and rulings.
Specifically, the Products are not adulterated or mislabeled
within the meaning of the Food, Drug and Cosmetic Act. NTC
further warrants that the Products meet the specifications stated
in any lot-specific certificate of analysis. NTC provides no
performance warranty and no implied warranty of merchantability
or fitness for a particular purpose. NTC is not responsible for
consequential damages, and assumes no risk or liability involved
in the use of the Products, including without limitation
liability with regard to third-party patent claims. All
warranties are to Whittaker only, and are limited to the purchase
price paid to NTC.
12. The term of this agreement is one year, with automatic renewal
unless sooner terminated. Either party may terminate this
agreement without cause on six-month notice. In the event of any
material breach of this agreement, the non-defaulting party may
terminate this agreement if the breach is not
cured within 30 days following notice of breach.
13. All notices required or desired to be given hereunder shall be
given by hand delivery, or by registered or certified mail,
return receipt requested, to the addresses stated below, and
shall be effective upon receipt.
14. The parties agree to the terms of the confidentiality and non-use
agreement attached hereto. The sale of Products by NTC to Whittaker
shall not constitute a license from NTC to Whittaker.
15. Each party is an independent contractor. Neither party is the
agent of the other, and neither shall have authority to bind the
other.
AGREED:
Nanophase Technologies Corporation Whittaker, Clark & Daniels, Inc.
453 Commerce Street 1000 Coolidge Street
Burr Ridge, Illinois 60521 South Plainfield, NJ 07080
By: /s/ Robert W. Cross By: /s/ Michael C. Argyelan
------------------------ -------------------------------
Robert W. Cross, President Michael C. Argylaen, President
<PAGE> 3
CONFIDENTIALITY AND NON-USE AGREEMENT
Confidentiality and Non-Use Agreement dated as of November 1, 1995, by
and between Nanophase Technologies Corporation, an Illinois corporation
("Nanophase"), and Whittaker, Clark & Daniels, Inc., a corporation
located in the state of New Jersey ("Recipient").
Nanophase and Recipient may engage in discussions concerning the Purpose
(as defined below). As part of their discussions, Nanophase may disclose
Nanophase Proprietary Information (as defined below) to Recipient, and
Recipient may disclose Recipient Proprietary Information (as defined
below) to Nanophase.
Nanophase and Recipient therefore agree as follows:
1. Purpose. The purpose is to negotiate and operate a marketing
arrangement relating to applications for nanocrystalline materials ("the
Purpose").
2. Information Covered. This Agreement shall apply to all information of
a confidential or proprietary nature disclosed by Nanophase to Recipient
("Nanophase Proprietary Information") or disclosed by Recipient to
Nanophase ("Recipient Proprietary Information") regarding the Purpose,
whether such information is in tangible or intangible form, provided
that all information that is in written form or other tangible medium
shall prior to delivery be marked as "Confidential" or "Proprietary", and
all information disclosed orally or otherwise shall be identified as
being "Confidential" or "proprietary" by a memorandum delivered to the
recipient within sixty days after the date of disclosure. Nanophase
Proprietary Information and Recipient Proprietary Information are
sometimes collectively referred to in this Agreement as the "Proprietary
Information". Notwithstanding the foregoing, this Agreement shall not
apply to Proprietary Information which is:
(a) in the public domain at the time it is disclosed under this
Agreement;
(b) subsequently published or publicly disclosed by persons other than
Nanophase or Recipient;
(c) acquired by the recipient from a third person having no
obligation of confidentiality toward either Nanophase or Recipient;
(d) known to the recipient at the time of disclosure, provided that
the recipient shall have the burden of establishing such prior knowledge
by competent written proof;
(e) developed independently by or on behalf of the recipient, without
reliance on or use of any Proprietary Information of the disclosing party; or
(f) compelled by law to be disclosed, provided that the recipient
shall use its best efforts to give disclosing party ten days prior
written notice of compelled disclosure.
3. Non-Use of Proprietary Information. Nanophase agrees that during the
term of this Agreement it will not use any Recipient Proprietary
Information, and Recipient agrees that during the term of this Agreement
it will not use any Nanophase Proprietary Information, without the prior
written consent of the disclosing party, except for the Purpose.
4. Non-Disclosure of Proprietary, Information. Nanophase and Recipient
each agree to hold all Proprietary Information disclosed to it pursuant
to this Agreement in confidence and not to disclose such Proprietary
Information to any other person or entity. Notwithstanding the foregoing,
Nanophase and Recipient each agree that Proprietary Information disclosed
pursuant to this Agreement may be disclosed to its employees but only to
the extent that such disclosures are necessary to, and the employees to
whom such disclosures are made are engaged in, legitimate activities with
respect to the Purpose, and only if such employees have executed and
delivered prior to disclosure an agreement of such employees to hold such
information in confidence and nether to disclose nor to use such
information except as permitted by this Agreement. Nanophase and
Recipient each agree to take the same measures to preserve the secrecy
and confidentiality of all Proprietary Information disclosed hereunder as
in the case of the recipient's own most closely guarded trade secrets and
proprietary information.
<PAGE> 4
5. Ownership: Not a License. All Nanophase Proprietary Information
shall remain the sole and exclusive property of Nanophase, and all Recipient
Proprietary Information shall remain the sole and exclusive property of
Recipient. This Agreement shall not be construed as a license, or an obligation
to negotiate a license, permitting the recipient to use the disclosing party's
Proprietary Information, except for the Purpose. Nanophase and Recipient each
acknowledge that the rights granted under this Agreement do not include any
rights under, interest in, or title to any patent applications that may be
filed or have been filed by or assigned to the disclosing party in connection
with the Proprietary Information, or patents that may issue therefrom.
Nanophase and Recipient each further acknowledge and agree that (a) this
Agreement shall not be construed as limiting in any way the right of the
disclosing party to enter into agreements from time to time which grant the
right under patents or patent applications to commercialize technology
developed by the disclosing party, and (b) the rights to commercial
applications of the Proprietary Information may have been, or may be, granted
to another party.
6. Return of Documents. All Nanophase Proprietary Information in the
possession of Recipient, and all Recipient Proprietary Information in
the possession of Nanophase, including without limitation written
materials and other information contained in a tangible medium of
expression (including without limitation magnetic or optical
recordings), any copies, extracts, summaries, compilations or
abridgments thereof, shall be returned to the disclosing party
immediately at the request of the disclosing party, and shall in any
case be returned immediately in the event that the purpose is no longer
being pursued. Notwithstanding the foregoing provision, Recipient's
legal counsel may retain one copy of Nanophase Proprietary Information,
and Nanophase's legal counsel may retain one copy of Recipient
Proprietary Information, in its respective confidential files for
archival purposes.
7. Successors and Assigns. This Agreement shall be binding on the
parties and their successors and assigns, provided that neither
Nanophase nor Recipient shall assign any of its rights under this
Agreement to any other party without the prior written consent of the
other party.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois applicable to
contracts made and to be performed entirely within the State of
Illinois.
9. Remedies. Because of the confidential and proprietary nature of the
Proprietary Information that is subject to this Agreement, the parties
agree that this Agreement may be enforced by injunction, specific
performance, or other equitable relief, without prejudice to any other
rights and remedies that the parties may have hereunder.
10. Notices. All notices required or desired to be given hereunder
shall be deemed delivered when given by hand delivery, or three days after
deposit for delivery by United States registered or certified mail, return ,
receipt requested, to the addresses listed below the parties' signatures, and
shall be effective upon delivery.
11. Severability. In the event that any court or any governmental
authority or agency declares all or any part of any section of this
Agreement to be unlawful or invalid, such unlawfulness or invalidity
shall not serve to invalidate any other section of this Agreement, and
in the event that only a portion of any section is so declared to be
unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate the balance of such section.
12. Term of Agreement. The obligations of the parties hereunder shall
terminate five years from the last disclosure of Proprietary Information
under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Nanophase Technologies Corporation Whittaker, Clark & Daniels, Inc.
453 Commerce Street 1000 Coolidge Street
Burr Ridge, Illinois 60521 South Plainfield, NJ 07080
By: /s/ Robert W. Cross By: /s/ Michael C. Argyelan
------------------------------- ------------------------------
Robert W. Cross, President Michael C. Argyelan, President
<PAGE> 1
[NANOPHASE LOGO]
EXHIBIT 10.15
DISTRIBUTION AGREEMENT
Nanophase Technologies Corporation of Burr Ridge, Illinois (NTC) and C.I. Kasei
Co., Ltd., of Tokyo, Japan (CIK) effective October, 30, 1996, agree as follows:
WHEREAS, CIK desires to have the exclusive right for one year to explore the
opportunity for distributing NTC Products (as defined below) in the Territory
(as defined below) upon the terms and conditions set forth in this Agreement;
and
WHEREAS, for such consideration and upon such terms as hereinafter set
forth, NTC is willing to grant such right to CIK;
THEREFORE, NTC and CIK hereby agree as follows:
1. For the period of one year from the effective date
hereof, NTC hereby appoints, and CIK hereby accepts
appointment, as NTC's exclusive distributor in the Territory
(as defined below) for the Products (as defined below) for use
in the Applications (as defined below). The first half year
shall be a period mainly for the preparation of marketing
such as sample distribution to the potential customers,
obtaining the evaluation results from the customer, narrowing
down the range of the Products to each customer,
establishing the marketing plan, etc., and the second half
year shall be a period for starting regular supply to the
potential customers based on the preparation of the marketing
during the first half year, provided however, that CIK will
make regular supply of the Products to customers during said
first half year upon receipt of orders from such customers.
The scope of this appointment and the nature of the products
hereunder may be modified by mutual agreement of the parties
from time to time during the term of this Agreement.
2. For the purpose of protecting the exclusive right and
opportunity of CIK hereunder, NTC agrees for one year from
the effective date hereof to refrain from appointing or
negotiating with any other distributor or potential
distributor in such Territory for such Products for use in
such Applications. As consideration for the agreement of NTC
to so refrain from such appointments and negotiations for
such period, CIK agrees to pay NTC the non-refundable sum of
$50,000. Such amount shall be fully earned by NTC upon the
effective date hereof and shall be paid within two weeks after
the effective date hereof.
3. The parties acknowledge that the purpose of distributing such Products
in such Territory is to achieve and maintain dominant market positions
for such Products based upon superior performance of such Products in
such Applications.
4. The Products covered by this Agreement are NTC titanium dioxide, iron
oxide, aluminum oxide and zinc oxide, in such forms as may be determined
by NTC in its discretion, for use by CIK's customers (the Products).
5. The Territory is Asian countries, including, but not
limited to, China, India, Japan, Korea, Malaysia, the
Philippines, Singapore and Taiwan (the Territory).
6. The Applications covered by this Agreement are all applications except
cosmetics, skin care and aluminum oxide in any form for use in
chemical/mechanical planarization (CMP) of metal layers in the
production of semiconductor (devices the Applications).
7. The parties agree that the primary role of NTC under this Agreement
shall be to provide Products and related technology support for the
Products, and the primary role of CIK shall be to perform the marketing
functions and to provide the related customer support. Nonetheless, the
parties agree to actively confer and collaborate with each other
concerning significant issues and activities relating to achievement of
the marketing objectives.
8. To achieve the objectives of this Agreement, NTC agrees to:
a. Supply the Products to CIK on schedules and in quantities
adequate to support the marketing objectives.
<PAGE> 2
[NANOPHASE LOGO]
b. Use its best efforts to achieve and maintain
quality, technological superiority, and competitive
costs of the Products, and actively provide technical
and marketing assistance to CIK in support of the
marketing objectives, including without limitation
assisting CIK in the preparation of appropriate
technical literature, training of CIK and customer
personnel, and technical presentations to CIK customers
and prospects.
c. Actively collaborate with CIK in efforts to
further develop and enhance the Products in support of
the marketing objectives.
d. Assist CIK in efforts to obtain any regulatory approvals
that may be required.
9. To achieve the objectives of this Agreement, CIK agrees to:
a. Use its best efforts to diligently market and
promote the Products in support of the marketing
objectives.
b. Provide NTC with an initial and rolling
schedule of confirmed or planned presentations,
samplings and evaluations.
c. On-going and on a current basis, provide NTC
with empirical feedback from presentations, samplings
and evaluations that are arranged or conducted by CIK,
and otherwise provide NTC with all information
available to CIK concerning Product performance, and
concerning market requirements relying to Product
performance.
d. Within one month after the effective date of
this Agreement, purchase, on a L/C basis, 1500 kgs of
the Products for Immediate shipment, selected from
aluminum oxide, iron oxide, titanium dioxide and Zinc
oxide at the price agreed to by NTC as follows:
Price, $/Kg (FOB NTC Plant Burr Ridge, IL)
Alumina 55
Iron oxide 53
Titanium dioxide 53
Zinc oxide 47
The assortment of the Products shall be fixed by CIK when it
issues its purchase order hereunder.
e. Purchase and maintain inventories of Products
on schedules and in quantities adequate to support the
marketing objectives, including sufficient on-going
inventories to serve as a buffer and to accommodate
prompt shipment to customers on a day-to-day basis.
f. As soon as practicable after initial market launch of the
Products, place on-going orders with NTC at least three months
before expected delivery by NTC.
g. Provide NTC monthly with a rolling six-month forecast of CIK's
Product requirements.
h. Provide NTC every 3 months with CIK's estimates of the current
year's tonnage size and one-year forecast of the total relevant
markets.
10. For as long as this Agreement remains in effect, unless the parties
otherwise agree in writing, NTC will not directly or indirectly
knowingly sell any of the products to anyone other than CIK for use in
the Territory, except that NTC shall retain its right to sell any of the
Products in the Territory for use in cosmetics, skin care applications
or aluminum oxide in any form for use in chemical/mechanical
planarization (CMP) of metal layers in the production of semiconductor
devices.
11. For as long as this Agreement remains in effect, unless the parties
otherwise agree in writing, CIK will not directly or indirectly,
knowingly sell any products, including, but not limited to,
nanometer-sized products, which could, in NTC's sole opinion, compete
with the Products for use in the applications.
<PAGE> 3
[NANOPHASE LOGO]
12. Pricing for the sale of Products by NTC to CIK shall be determined
solely by NTC. Pricing for the sale of Products by CIK to CIK's
customers shall be determined solely by CIK. Standard posing of NTC is
FOB the NTC facility.
13. NTC warrants that the Products meet the specifications stated in any
lot-specific certificate of analysis. NTC provides no performance
warranty and no implied warranty of merchantability or fitness for a
particular purpose. NTC is not responsible for consequential damages,
and assumes no risk or liability involved in the use of the Products,
including without limitation liability with regard to third party
patent claims. However, NTC warrants and represents to the best of its
knowledge there exists no valid third-party patent which will cover the
Products and that NTC will do its best to avoid third-party patent
claims against the Products. All warranties by NTC are to CIK only, and
are limiteded to the purchase price paid to NTC.
14. In the event of any material breach of this Agreement, the
non-defaulting party may terminate this Agreement if the breach is not
cured within 30 days following notice of breach.
15. The term of this Agreement shall be automatically extended for one year
without additional payment by CIK unless either party shall send to the
other party a written notice not to extend this Agreement 30 days prior
to the expiration of this Agreement. In the event that the distribution
arrangement between the parties is further extended by mutual agreement
beyond the term hereof, and in the event that sales of Products in the
Territory increase to the point where manufacturing in the Territory
becomes appropriate to accommodate customer demand, as determined by
mutual agreement between the parties, the parties agree to negotiate in
good faith concerning the local production in the form of joint venture
or any other form of local production in the Territory, as determined by
mutual agreement by the parties.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois.
17. All notices required or desired to be given hereunder shall be given by
hand delivery, or by registered or certified mail, return receipt
requested, to the addresses stated below, and shall be effective upon
receipt.
18. The parties agree to the terms of the confidentiality and non-use
agreement executed on August 13, 1996. The sale of Products by NTC to
CIK shall not constitute a license from NTC to CIK.
19. Each party is an independent contractor. Neither party is the agent of
the other, and neither shall have authority to bind the other.
AGREED:
Nanophase Technologies Corporation C. I, Kasei Co., Ltd.
453 Commerce Street 18-1, 1-Chome, Kyobashi, Chuo-ku
Burr Ridge, lllinois 60521 Tokyo, Japan
By: /s/ Donald J. Freed By /s/ Shigeo Sano
- ----------------------------- ---------------------------
Donald J. Freed, Vice President Shigeo Sano, Senior Managing
Director
<PAGE> 1
EXHIBIT 10.16
PURCHASE AGREEMENT
<TABLE>
<S> <C>
Parties: Nanophase Technologies Corporation ("NTC)
435 Commerece Street
Burr Ridge, Illinois 60621
LWT Instruments, Inc ("LWT")
#100, 630 - 4 Avenue S.W.
Calgary, Alberta T2P0J9
Appointment: NTC hereby appoints,, and LWT hereby accepts appointment, as NTC's globally-
exclusive customer of the Product for the Application defined below.
Product: Abrasion-resistant composite applied by filament winding comprising Shell 862 resin and
NTC NanoTek(R) Aluminum Oxide of at least 20% by weight, having a viscosity of less
than 2500 centipoise at application conditions, and capable of providing abrasion
resistance equal to, or greater than Armorstone Caratrowel Ceramic Lining Compound in
the application, for use by LWT in the production of oil field tubulars and progressive
cavity pump/motor stators for use in the Application defined below (the product).
Application: Down hole data logging in the oil well industry.
Responsibilities Establish and maintain appropriate production and handling facilities to supply the
Of NTC: Product on schedules and in quantities adequate to support the rerquirements.
Resopnsilities Within four months of the execution of this agreement, execute orders for LWT's
of LWT: requirements for the Product, but in no case at a rate of less that 150 gallons of Product
per month for a period of no less than 10 months.
Mutual For as long as this agreement remains in effect or unless the parties otherwise agree in
Exclusivity: writing, NTC will not knowingly, directly or indirectly, provide or sell the Product to
anyone other than LWT for use in the Application.
Pricing: NTC commits that through 12/31/97, the price to LWT for the Product shall not exceed
$250 per gallon, FOB NTC Plant, for orders in excess of 150 gallons with a defined
delivery schedule and that Product requiring NTC Nanotek(R) Aluminum Oxide at
concentrations greater than 30% by weight shall have the aforementioned price
increased by an amount no greater than NTC's actual cost for such additional NTC
Nanotek(R) Aluminum Oxide required.
Disclaimers: NTC assumes no risk or liability involved in the use of the Products, including without
limitation liability with regard to third-party patent claims.
Term of Three years unless terminate as provided below with renewal for additional one year
Agreement: periods by mutual written agreement, between the parties. Termination or failure to
deliver, non-payment, or for material breach of this amendment: Option of non-
defaulting party to terminate if failure not cured within 30 days following notice of default.
Notices: All notices required or desired to be given hereunder shall be given by hand delivery, or
by registered or certified mail, return receipt requested, to the addresses listed above,
and shall be effective upon receipt.
Proprietary The parties agree to the terms of the confidentiality agreement executed on 12/11/96.
Rights: The sale of Product by NTC to LWT shall not constitue a license from NTC to LWT.
Independent Each party is an independent contractor. Neither party is the agent of the other, and
Contractors: neither shall have authority to bind the other.
Jusidiction: All disputes arising out of this Amendment shall be decided by a competent court having
jurisdiction over the defendant in accordance with the laws of the state of Ilinois
applicable to contracts made and to be performed in Illinois.
Agreed:
</TABLE>
NANOPHASE TECHNOLOGIES CORPORATION LWT, INCORPORATED
By: /s/ Donald J. Freed By: /s/ Dan Fonerieau
----------------------------- ----------------------------
Donald J. Freed, Vice President Dan Fonerieau, Director
Date: JANURARY 31, 1997 Date: Feb 3/97
----------------------------- ----------------------------
Dan Fonerieau, Director
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 31, 1997, in the Registration Statement (Form
S-1) and related Prospectus of Nanophase Technologies Corporation dated March
13, 1997.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Chicago, Illinois
March 11, 1997
<PAGE> 1
EXHIBIT 23.3
[LETTERHEAD OF MCANDREWS, HELD & MALLOY, LTD.]
March 11, 1997
Robert W. Cross, President and
Chief Executive Officer
Nanophase Technologies Corporation
453 Commerce Street
Burr Ridge, Illinois 60521
Re: Form S-1 Registration Statement
Our File Nanophase/71297
We hereby consent to be named as an expert in the "Legal Matters" and
"Experts" sections of the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission by Nanophase Technologies Corporation.
Very truly yours,
/s/ ROBERT W. FIESELER
---------------------------
Robert W. Fieseler
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 617,204
<SECURITIES> 1,997,788
<RECEIVABLES> 389,501
<ALLOWANCES> 0
<INVENTORY> 445,205
<CURRENT-ASSETS> 3,499,973
<PP&E> 2,274,009
<DEPRECIATION> 479,211
<TOTAL-ASSETS> 5,539,634
<CURRENT-LIABILITIES> 429,184
<BONDS> 0
0
15,782,201
<COMMON> 450
<OTHER-SE> (10,672,201)
<TOTAL-LIABILITY-AND-EQUITY> 5,539,634
<SALES> 485,036
<TOTAL-REVENUES> 595,806
<CGS> 4,019,484
<TOTAL-COSTS> 6,358,272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,577,688)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,577,688)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,577,688)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
