<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 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)
<TABLE>
<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.)
</TABLE>
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)
-------------------------
Copies to:
MATTHEW S. BROWN, ESQ.
LAWRENCE D. LEVIN, ESQ.
KATTEN MUCHIN & ZAVIS
525 WEST MONROE STREET
CHICAGO, ILLINOIS 60661
(312) 902-5200
CHRISTOPHER L. KAUFMAN, ESQ.
CLIFFORD MENTRUP, ESQ.
LATHAM & WATKINS
SEARS TOWER, SUITE 5800
CHICAGO, ILLINOIS 60606
(312) 876-7700
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: [ ]
CALCULATION OF REGISTRATION FEE
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============================================================================================================
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value................ $57,500,000 $17,425
============================================================================================================
</TABLE>
(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 OCTOBER 1, 1997
PROSPECTUS
, 1997
5,000,000 SHARES
[NANOPHASE LOGO]
COMMON STOCK
All of the 5,000,000 shares of Common Stock (the "Common Stock") of
Nanophase Technologies Corporation ("Nanophase" or the "Company") offered hereby
are being sold 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
information relating to the factors 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."
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK AND SUBSTANTIAL DILUTION AND SHOULD ONLY BE MADE BY PERSONS WHO
CAN AFFORD AN ENTIRE LOSS OF THEIR INVESTMENT. SEE "RISK FACTORS" BEGINNING ON
PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF COMMON STOCK OFFERED HEREBY.
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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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total(3)........................... $ $ $
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses estimated at $750,000, which will be paid by the
Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 750,000 additional shares at the Price to the Public less Underwriting
Discounts and Commissions, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to the Public, Underwriting
Discounts and Commissions, and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of shares will be made in New York, New York on or about
, 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ
OPPENHEIMER & CO., INC.
<PAGE> 3
TARGETED MARKETS FOR THE COMPANY'S NANOCRYSTALLINE MATERIALS
ELECTRONICS
[Picture of semiconductor wafer being polished by a CMP slurry]
Slurries formulated with the Company's nanocrystalline materials
for use in polishing semiconductor wafers.
STRUCTURAL CERAMICS AND COMPOSITES
[Picture of ceramic rings, valve inserts and armor tiles]
Structural ceramics fabricated by the Company's net-shaping process.
COSMETICS AND SKIN-CARE
[Picture of cosmetics and skin-care products]
Cosmetics and skin-care products formulated with the Company's nanocrystalline
materials.
INDUSTRIAL CATALYSTS
[Picture of catalytic cracking tower in an oil refinery]
The Company's noncrystalline materials are used in catalysts for the
petro-chemical and chemical process industries.
------------------------
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.
-------------------------
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. SEE "UNDERWRITING."
2
<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 a 0.579-for-one stock
split to be effected prior to the consummation of this offering, (ii) reflects
the conversion of all outstanding shares of all series of Convertible Preferred
Stock, no par value, of the Company (collectively, the "Preferred Stock") into
8,156,443 shares of Common Stock upon the consummation of this offering (the
"Preferred Stock Conversion"), (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 began manufacturing
nanocrystalline materials in commercial quantities in the fourth quarter of
1996. Nanocrystalline materials are metallic and ceramic materials that
generally consist of particles that are less than 100 nanometers (billionths of
a meter) 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. 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 believes its nanocrystalline materials generally exhibit superior
chemical, mechanical, electronic, magnetic and optical properties. The Company
believes that through its extensive proprietary research and development
programs, combined with its proprietary and patented production processes, it
has established new standards for high-performance commercially produced
nanocrystalline materials.
The Company has identified initial 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 numerous commercial applications
in which its nanocrystalline materials will have significant competitive
advantages based on product performance. Commercial applications currently being
developed in these markets include the following:
- Electronics. Abrasives for chemical/mechanical polishing of semiconductor
wafers (CMP), anti-radiation coatings for cathode ray tubes ("CRTs"),
thin-film materials for semiconductor manufacturing, high-performance
electrodes and photonic materials for flat-panel displays.
- Structural Ceramics and Composites. Ceramic mechanical seals, components
for continuous steel casting, abrasion-resistant polymers for oil
drilling sensors, ceramic armor and remotely monitored medical implants.
- Cosmetics and Skin-Care. Topical health-care products, transparent
ultraviolet ("UV") blockers and colorants for cosmetics.
- Industrial Catalysts. Chemical-process catalysts.
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. These relationships generally include
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"),
Pacific Safety, Inc. ("Pacific Safety") and Philips Electronics N.V.
("Philips"). As a result of its collaborative relationships, the Company entered
into commercial supply contracts with Moyco Technologies, Inc. ("Moyco"), a
manufacturer of semiconductor polishing slurries for use by semiconductor
manufacturers, including Hyundai Corporation ("Hyundai"), Samsung Group
("Samsung"), International Business Machines Corporation
3
<PAGE> 5
("IBM"), Lucent Technologies, Inc. ("Lucent") and Motorola, Inc. ("Motorola");
with Schering-Plough Corporation ("Schering-Plough") pursuant to which the
Company will supply its nanocrystalline zinc oxide to Schering-Plough for use in
topical health-care products; and with LWT Instruments, Inc. ("LWT") for anti-
abrasive polymers used in oil drilling applications. To gain access to foreign
markets, Nanophase has entered into an agreement with a subsidiary of Itochu
Corporation ("Itochu"), formerly C. Itoh, for the distribution of the Company's
materials in broad-based industrial markets throughout Asia. To gain world-wide
access to the cosmetics and skin-care market, the Company has a global
distribution agreement with Whittaker, Clark & Daniels, Inc. ("WCD"), a leading
distributor of cosmetic and skin-care ingredients.
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 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. As a result, the Company is able to engineer the attributes,
including strength, flexibility, color and electronic conductivity, of materials
to yield products that are superior to conventional materials and to establish
new standards for a range of high-performance commercial applications.
At the core of the Company's technologies is its proprietary and patented
physical-vapor-synthesis ("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 and for which a patent is pending, 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 rapid fabrication of dimensionally-precise,
high-tolerance structural ceramic components without costly machining.
Nanophase's principal production and research facility is located in Burr
Ridge, Illinois, a suburb of Chicago. 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.
As of June 30, 1997, the Company had an accumulated deficit of $12,962,989.
Nanophase's principal executive offices are located at 453 Commerce Street, Burr
Ridge, Illinois 60521 and its telephone number is (630) 323-1200.
4
<PAGE> 6
THE OFFERING
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<S> <C>
Common Stock offered by the Company......... 5,000,000 shares
Common Stock to be outstanding after the
offering.................................. 13,234,029 shares(1)
Use of proceeds............................. To expand the Company's manufacturing
facilities and for working capital and other
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol...... NTCO
</TABLE>
- ------------------------------
(1) Does not include (i) 662,287 shares of Common Stock issuable upon the
exercise of outstanding warrants at an exercise price of $1.123 per share,
(ii) 1,620,737 shares of Common Stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $2.489 per share
and (iii) 459,865 shares of Common Stock reserved for issuance upon the
exercise of options that may be granted in the future under the Nanophase
Technologies Corporation Amended and Restated 1992 Stock Option Plan (the
"Stock Option Plan"). See "Management--Stock Option Plan" and "Description
of Capital Stock."
5
<PAGE> 7
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Commercial revenue... $ 20,006 $ 25,265 $ 31,144 $ 93,591 $ 485,036 $ 107,032 $ 1,032,467
Government research
contracts.......... 212,183 -- 64,015 27,995 110,770 20,312 --
--------- --------- ----------- ----------- ----------- ----------- -----------
Total revenue...... 232,189 25,265 95,159 121,586 595,806 127,344 1,032,467
Cost of revenue...... 202,215 61,978 164,746 532,124 4,019,484 1,968,546 2,162,081
Research and
development
expense............ 29,638 143,362 456,162 485,059 677,284 327,620 376,532
Selling, general and
administrative
expense............ 366,378 556,616 799,558 1,150,853 1,661,504 823,139 816,389
Interest income...... 10,191 7,022 37,535 86,576 184,778 79,686 31,747
--------- --------- ----------- ----------- ----------- ----------- -----------
Net loss............. $(355,851) $(729,669) $(1,287,772) $(1,959,874) $(5,577,688) $(2,912,275) $(2,290,788)
========= ========= =========== =========== =========== =========== ===========
Pro forma net loss per
share(1)............. $ (0.76) $ (0.29)
=========== ===========
Shares used in
computing the pro
forma net loss per
share(1)............. 7,370,220 8,022,811
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $2,490,130 $
Working capital........................................... 2,658,388
Total assets.............................................. 6,271,808
Total stockholders' equity................................ 4,936,149
</TABLE>
- ------------------------------
(1) Includes the anti-dilutive effect (equivalent to 534,540 shares) of options
issued to employees and a consultant since August 1996. Does not include as
of June 30, 1997 (i) 662,287 shares of Common Stock issuable upon the
exercise of outstanding warrants at an exercise price of $1.123 per share,
(ii) 729,077 shares of Common Stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $2.489 per share
and (iii) 459,865 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 sale of 5,000,000 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."
6
<PAGE> 8
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.
LIMITED HISTORY OF COMMERCIAL SALES; UNCERTAIN MARKET ACCEPTANCE OF THE
COMPANY'S NANOCRYSTALLINE MATERIALS
The Company was founded in November 1989 and through December 31, 1996 was
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. Because virtually all of the
product applications for the Company's materials are new, in order to penetrate
its targeted markets, the Company 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 months, and may take several years. 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 or successfully complete its customers'
multi-step evaluation processes 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 through December 31, 1996 were
derived from government research contracts, commercial development contracts and
sales of nanocrystalline products for customer evaluation. The Company has only
recently begun shipping 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 June 30, 1997, had an accumulated deficit of $12,962,989. The Company may
continue to incur operating losses and there can be no assurance that the
Company will become profitable. 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
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<PAGE> 9
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 profitability is achieved, that
it can be sustained. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
DEPENDENCE ON A LIMITED NUMBER OF KEY CUSTOMERS
A limited number of key customers have initially accounted for a
substantial portion of the Company's commercial revenue. The Company's customers
are significantly larger than, and are able to exert a high degree of influence
over, the Company. The loss of one or more of the Company's customers or failure
to attract new customers would have a material adverse effect on the Company's
business, results of operations and financial condition. In February 1997, the
Company entered into a five-year requirements contract with Moyco, one of its
key customers, pursuant to which the Company will supply its nanocrystalline
materials to Moyco for use in Moyco's semiconductor polishing slurries. In
August 1997, Moyco and Ashland Chemical Company ("Ashland") signed a non-binding
letter of intent pertaining to the potential purchase by Ashland of Moyco's
intellectual properties, technologies and certain other intangible assets for
the chemical/ mechanical polishing of semiconductor wafers. Sales to Moyco or
Ashland, as the case may be, are currently expected to constitute a significant
portion of the Company's revenues over the next three years. In March 1997,
Cabot Corporation ("Cabot") filed a claim against Moyco which alleges that the
slurries manufactured by Moyco, which contain the Company's nanocrystalline
materials, infringe a patent owned by Cabot. Moyco has denied Cabot's
allegations of patent infringement. In April 1997, Moyco filed a civil action
against Cabot alleging that Cabot's patent is invalid and that Cabot improperly
interfered with contractual relationships between Moyco and third parties. If
Cabot prevails in its patent infringement claim against Moyco or Moyco is
otherwise prevented from manufacturing slurries which contain the Company's
materials, then Moyco's purchase of the Company's materials may be significantly
reduced which would have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Customers and
Applications--Electronics--Semiconductor Polishing."
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."
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, may incur significant start-up costs
and unforeseen expenses in connection with attempts to manufacture substantial
quantities of nanocrystalline materials, and
8
<PAGE> 10
will need to increase the efficiency of its manufacturing operations
significantly to reach its production goals. 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. While the
Company maintains property and business interruption insurance, such insurance
may not adequately compensate the Company for all losses that it may incur. 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 plans to 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."
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
technology licenses upon which any of the Company's products are based. The
Company has been granted two United States patents which expire in July 2013,
has filed three applications for other United States patents and licenses eleven
patents held by others, which licenses generally last the life of their
respective patents. 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.
9
<PAGE> 11
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 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
10
<PAGE> 12
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 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 its future capital requirements will depend, 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
RISK OF RESCISSION OF SERIES F OFFERING
In June, August and September 1997, the Company issued shares of Series F
Convertible Preferred Stock (the "Series F Preferred") for an aggregate of
$3,876,107 to approximately 60 investors, all of whom are "accredited investors"
within the meaning of rules promulgated under the Securities Act. The offering
and sale of the Series F Preferred was not registered under the Securities Act,
but may not have qualified for an exemption from the registration requirements
of the Securities Act. Consequently, purchasers of Series F Preferred may have a
right to rescind their purchases of the Series F Preferred (which will convert
into 748,089 shares of Common Stock upon consummation of this offering), and
receive $5.18 in exchange for
11
<PAGE> 13
each share of Common Stock issued upon conversion of the Series F Preferred,
together with interest. The Company does not believe that the holders of Series
F Preferred are legally entitled to rescind their purchases of such securities,
but there can be no assurance that the Company's position would prevail. Even if
the holders of Series F Preferred are entitled to rescind their purchases, the
Company does not believe that any rescission would adversely affect its
financial condition following consummation of this offering.
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 maintains separate insurance coverage
in the amount of $1 million 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
For the six months ended June 30, 1997, 25% 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, including ethanol, 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. The
Company believes it has complied in all material respects with regard to
environmental regulations applicable to it and does not anticipate generating
substantially increased amounts of such materials. 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
12
<PAGE> 14
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."
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."
ANTI-TAKEOVER PROVISIONS
Upon consummation of this offering, 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
13
<PAGE> 15
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
Upon consummation of this offering, the Company will have a total of
13,234,029 shares of Common Stock outstanding (13,984,029 if the Underwriters
exercise in full their over-allotment option), of which the 5,000,000 (5,750,000
if the Underwriters exercise in full their over-allotment option) shares offered
hereby will be eligible for immediate sale in the public market without
restriction unless they are held by "affiliates" of the Company within the
meaning of Rule 144 ("Rule 144") under the Securities Act of 1933, as amended
(the "Securities Act"), in which case they will be subject to the volume and
other limitations of such rule. 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. The remaining 8,234,029
shares of Common Stock outstanding upon completion of this offering will be
"restricted securities" within the meaning of Rule 144 (the "Restricted Shares")
and all of such Restricted Shares are subject to the lock-up provisions of stock
purchase agreements entered into with the Company pursuant to which the holders
of such Restricted Shares have agreed that they will not, directly or
indirectly, sell or otherwise dispose of any shares of Common Stock for a period
of 180 days after the date of this Prospectus without the prior written consent
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). Upon expiration
of the lock-up provisions of the stock purchase agreements (or earlier upon the
consent of DLJ), 7,485,940 of the Restricted Shares outstanding upon completion
of this offering will be eligible for sale under Rule 144, subject to, in some
cases, the volume and other limitations of such rule. An additional 662,287
Restricted Shares are issuable upon exercise of currently exercisable warrants
issued to certain of the Company's existing stockholders and 1,620,737
Restricted Shares 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. Certain of such optionholders have also
agreed not to sell, offer for sale or otherwise dispose of any shares of Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of DLJ.
Subject to the lock-up provisions of the stock-purchase agreements, the
holders of all of the Restricted Shares that will be outstanding upon
consummation of this offering and all of the Restricted Shares issuable upon
exercise of the warrants 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
being 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 approximately $35 to $40 million of
the net proceeds for the expansion of its manufacturing facilities over the next
24 months, including installing additional PVS plasma reactors, purchasing
additional equipment and making leasehold improvements. The remaining net
proceeds will be used for working capital and other general corporate purposes.
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. The Company could also potentially
use a portion of the net proceeds to fund a rescission of shares of Series F
Preferred. See "Risk Factors-Risk of Rescission of Series F Offering." 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 June 30, 1997, the Company's (i)
actual capitalization, (ii) capitalization on a pro forma basis to reflect the
issuance of 326,097 shares of Series F Preferred in August and September 1997
and the Preferred Stock Conversion, and (iii) adjusted capitalization on a pro
forma basis to reflect the issuance of 326,097 shares of Series F Preferred in
August and September 1997, the Preferred Stock Conversion and the sale by the
Company of 5,000,000 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>
AS OF JUNE 30, 1997
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
<S> <C> <C> <C>
Stockholders' equity:
Preferred Stock, no par value, 9,829,054 shares
authorized, 7,830,346 shares issued and
outstanding, actual; no par value, 13,000,000
shares authorized, no shares issued and
outstanding, pro forma; $.01 par value,
13,000,000 shares authorized, no shares issued
and outstanding, pro forma as adjusted........ $ 17,898,688 $ -- $ --
Common Stock, no par value, 12,632,158 shares
authorized; 77,586 shares issued and
outstanding, actual; $.01 par value,
25,000,000 shares authorized, 8,234,029 shares
issued and outstanding, pro forma; $.01 par
value, 25,000,000 shares authorized,
13,234,029 shares issued and outstanding,
pro forma as adjusted(1)...................... 450 82,340 132,340
Additional paid-in capital....................... -- 19,506,416
Accumulated deficit........................... (12,962,989) (12,962,989) (12,962,989)
------------ ------------ ------------
Total stockholders' equity and
capitalization......................... $ 4,936,149 $ 6,625,767 $
============ ============ ============
</TABLE>
- ------------------------------
(1) Does not include as of June 30, 1997 (i) 662,287 shares of Common Stock
issuable upon the exercise of outstanding warrants at an exercise price of
$1.123 per share, (ii) 1,603,367 shares of Common Stock issuable upon the
exercise of outstanding options at a weighted average exercise price of
$2.489 per share and (iii) 459,865 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 pro forma net tangible book value of the Company as of June 30, 1997,
after giving effect to the sale of 326,097 shares of Series F Preferred after
June 30, 1997 was $6,151,966 or $0.75 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 5,000,000 shares of Common Stock being offered by the Company 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 June 30,
1997 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> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before this
offering............................................... $0.75
Increase in pro forma 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 June 30, 1997,
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 PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 10,499,683 67.7% $24,327,284 % $ 2.32
New investors............................ 5,000,000 32.3
---------- ----- ----------- -----
Total............................... 15,499,683 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The foregoing calculations give effect to, as of June 30, 1997, (i) 662,287
shares of Common Stock issuable upon the exercise of outstanding warrants at an
exercise price of $1.123 per share and (ii) 1,603,367 shares of Common Stock
issuable upon the exercise of outstanding options at a weighted average exercise
price of $2.489 per share. Does not give effect to 459,865 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 "Capitalization," "Management--Stock
Option Plan," "Description of Capital Stock" and Note 12 of Notes to the
Financial Statements.
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<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 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. The selected financial
data for the six month periods ended June 30, 1996 and 1997 have been derived
from unaudited financial statements of the Company which, in the opinion of
management, include all adjustments that are necessary for a fair statement of
the results of the interim periods, and all adjustments of a recurring nature.
Results for the six months ended June 30, 1997 are not necessarily indicative of
results to be expected during the remainder of the current fiscal year or for
any future period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commercial revenue........... $ 20,006 $ 25,265 $ 31,144 $ 93,591 $ 485,036 $ 107,032 $ 1,032,467
Government research
contracts.................. 212,183 -- 64,015 27,995 110,770 20,312 --
--------- --------- ----------- ----------- ----------- ----------- -----------
Total revenue............ 232,189 25,265 95,159 121,586 595,806 127,344 1,032,467
Cost of revenue.............. 202,215 61,978 164,746 532,124 4,019,484 1,968,546 2,162,081
Research and development
expense.................... 29,638 143,362 456,162 485,059 677,284 327,620 376,532
Selling, general and
administrative expense..... 366,378 556,616 799,558 1,150,853 1,661,504 823,139 816,389
--------- --------- ----------- ----------- ----------- ----------- -----------
Total operating
expense................ 598,231 761,956 1,420,466 2,168,036 6,358,272 3,119,305 3,355,002
--------- --------- ----------- ----------- ----------- ----------- -----------
Operating expense in excess
of revenue................. (366,042) (736,691) (1,325,307) (2,046,450) (5,762,466) (2,991,961) (2,322,535)
Interest income.............. 10,191 7,022 37,535 86,576 184,778 79,686 31,747
--------- --------- ----------- ----------- ----------- ----------- -----------
Net loss................. $(355,851) $(729,669) $(1,287,772) $(1,959,874) $(5,577,688) $(2,912,275) $(2,290,788)
========= ========= =========== =========== =========== =========== ===========
Pro forma net loss per
share(1)................... $ (0.76) $ (0.29)
=========== ===========
Shares used in computing
the pro forma net loss
per share(1)............... 7,370,220 8,022,811
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 70,652 $225,230 $ 18,462 $ 261,902 $ 617,204 $ 115,492 $2,490,130
Working capital.................... 184,881 225,988 2,226,184 2,451,627 3,070,789 5,968,876 2,658,388
Total assets....................... 377,042 406,238 2,568,691 3,741,128 5,539,634 8,268,228 6,271,808
Total stockholders' equity......... 334,603 348,434 2,456,516 3,506,050 5,110,450 7,781,833 4,936,149
</TABLE>
- ------------------------------
(1) Includes the anti-dilutive effect (equivalent to 534,540 shares) of options
issued to employees and a consultant since August 1996. Does not include as
of June 30, 1997 (i) 662,287 shares of Common Stock issuable upon the
exercise of outstanding warrants at an exercise price of $1.123 per share,
(ii) 729,077 shares of Common Stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $2.489 per share
and (iii) 459,865 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."
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.
OVERVIEW
From its inception in November 1989 through December 31, 1996, Nanophase
was in the development stage. During that period, the Company primarily focused
on the development of its manufacturing processes in order to transition from
laboratory-scale to commercial-scale production. As a result, the Company
developed an operating capacity to produce significant quantities of its
nanocrystalline materials for commercial sale. The Company was also engaged in
developing commercial applications and formulations and recruiting marketing,
technical and administrative personnel. From inception through June 30, 1997,
the Company was primarily capitalized through the private placement of
approximately $17,899,000 of equity securities, net of issuance costs.
Through 1995, the majority of the Company's revenues resulted from
government contracts to perform research and development activities. During that
period, the Company also entered into cost-sharing agreements with the U.S.
government and offset amounts received against the related costs. During 1996,
the Company began emerging from the development stage and significantly
increased its commercial revenue. Commercial revenue is recorded when products
are shipped by the Company or when specific milestones are met regarding
development arrangements. Cost of revenue generally includes costs associated
with commercial production and customer development agreements, and costs of
material production and development related to government research contracts. In
1996, the Company also began to scale-up operations in its Burr Ridge
manufacturing facility. The Company incurred substantial operating expenses as a
result of certain one-time costs associated with the scale-up of operations.
Since January 1, 1997, the Company has been engaged in commercial
production and sales of its nanocrystalline materials, and the Company no longer
considers itself in the development stage.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Total revenue increased to $1,032,467 for the six months ended June 30,
1997, compared to $127,344 for the same period in 1996. Commercial revenue
increased to $1,032,467 for the six months ended June 30, 1997, compared to
$107,032 for the same period in 1996. This increase in commercial revenue was
due primarily to increased product sales volume, increased acceptance of the
commercial potential of the Company's products, customer development agreements
and a one-time fee paid by the Company's Asian distributor for training and
certain distribution rights. Revenue from government research contracts
decreased to zero for the six months ended June 30, 1997, compared to $20,312
for the same period in 1996, because the Company did not pursue any further U.S.
government contracts for such six month period.
Cost of revenue increased to $2,162,081 for the six months ended June 30,
1997, compared to $1,968,546 for the same period in 1996. This increase in cost
of revenue was generally attributed to a rapid expansion of the production
infrastructure to support anticipated revenue growth and increased costs which
are commensurate with the increased sales volume and customer development
programs. The Company also incurred development costs to expand its quality
assurance programs and obtain its ISO certification.
Research and development expense consists of costs associated with the
Company's development of new product applications and coating formulations and
the cost of enhancing the Company's manufacturing processes. Research and
development expense increased to $376,532 for the six months ended June 30,
1997, compared to $327,620 for the same period in 1996. The increase in research
and development expense was
19
<PAGE> 21
attributable primarily to the costs of developing new coating formulations and
product applications, increased usage of research supplies, and ongoing
experimentation expenses associated with technological enhancements and product
improvements. The Company expects to increase its research and development
expenditures during the remainder of 1997 in connection with its plans to
continue to enhance and expand its product lines and manufacturing processes.
Selling, general and administrative expense decreased to $816,389 for the
six months ended June 30, 1997, compared to $823,139 for the same period in
1996. This decrease was attributable primarily to a reduction in selling and
advertising expense, recruiting expenses, and outside consulting fees, which was
offset by increases in corporate salaries. 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 decreased to $31,747 for the six months ended June 30,
1997, compared to $79,686 for the same period in 1996. This decrease was
primarily due to a lower outstanding cash balance.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Total revenue increased to $595,806 in 1996, compared to $121,586 in 1995
and $95,159 in 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 commercial acceptance and availability of the
Company's products. Revenue from government research contracts increased to
$110,770 in 1996, compared to $27,995 in 1995 and $64,015 in 1994, as the
Company completed certain development agreements with U.S. governmental
agencies.
Cost of revenue increased to $4,019,484 in 1996, compared to $532,124 in
1995 and $164,746 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 and development. 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.
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.
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.
Interest income was $184,778 in 1996, compared to $86,576 in 1995 and
$37,535 in 1994. The increases 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.
20
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $2,490,130 at June 30, 1997,
compared to $617,204 at December 31, 1996 and $261,902 at December 31, 1995. The
Company's net cash used in operating activities was $1,627,167 for the six
months ended June 30, 1997, compared to $2,811,711 for the same period in 1996.
The net cash used in operating activities for the six months ended June 30, 1997
was primarily for the expansion of the production infrastructure to support
anticipated growth, the further development of products, the funding of research
and development activities, and the funding of trade accounts receivable and
inventory levels, which was offset by an increase in accounts payable and
accrued liabilities. Net cash provided by 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 $1,839,787
for the six months ended June 30, 1997, compared to net cash used of $4,522,757
for the same period in 1996. Capital expenditures amounted to $173,850 for the
six months ended June 30, 1997, compared to $862,400 for the same period in 1996
and were primarily for leasehold improvements and equipment purchases. Net cash
provided by private placements of equity securities was $1,956,287 during the
six month period ended June 30, 1997, compared to $7,188,058 during the same
period for the prior year. The Company recently closed private placements of
Series F Preferred in August and September 1997 for an additional aggregate
amount of $1,689,618.
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 net cash used in 1996
operating activities 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.
The Company believes that funds from operations and cash on hand, together
with the net proceeds of this offering, will be adequate to fund the Company's
current operating plans for the foreseeable future. The Company expects capital
expenditures of approximately $2 million in 1997 and approximately $20 million
to $25 million in 1998, which expenditures will be funded in part by the net
proceeds from this offering. The Company's actual 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. In addition, the Company could potentially be required to fund a
rescission of shares of Series F Preferred. 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. See "Use of Proceeds," "Risk Factors--Future
Capital Needs" and "--Risk of Rescission of Series F Offering."
At June 30, 1997, the Company had a net operating loss carryforward of
approximately $13.0 million 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 2012. As a result of the annual limitation, a
portion of this carryforward may expire before ultimately becoming available to
reduce income tax liabilities.
21
<PAGE> 23
QUARTERLY INFORMATION
The following table presents selected unaudited quarterly results of the
Company for each quarter of 1996 and the first two quarters of 1997. The
financial data is derived from the unaudited financial statements of the Company
which have been prepared by the Company on a basis consistent with the Company's
audited financial statements included elsewhere in this Prospectus and, in the
opinion of management, include all adjustments, including normal recurring
adjustments, that are necessary for a fair statement of the Company's results of
operations for such periods. These operating results are not necessarily
indicative of future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
1996 1997
------------------------------------------------------ -------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commercial revenue................ $ 43,223 $ 63,809 $ 153,981 $ 224,023 $ 429,464 $ 603,003
Government research contracts..... 13,532 6,780 5,895 84,563 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total revenue................. 56,755 70,589 159,876 308,586 429,464 603,003
Cost of revenue................... (743,651) (1,224,895) (957,014) (1,093,924) (1,102,877) (1,059,204)
Research and development
expense......................... (150,483) (177,137) (188,055) (161,609) (161,198) (215,334)
Selling, general and
administrative expense.......... (315,885) (507,254) (386,684) (451,681) (425,497) (390,892)
Interest income................... 24,302 55,384 66,060 39,032 21,917 9,830
----------- ----------- ----------- ----------- ----------- -----------
Net loss.......................... $(1,128,962) $(1,783,313) $(1,305,817) $(1,359,596) $(1,238,191) $(1,052,597)
=========== =========== =========== =========== =========== ===========
</TABLE>
22
<PAGE> 24
BUSINESS
Nanophase develops and markets nanocrystalline materials for use as
ingredients and components in a wide range of commercial applications. The
Company began manufacturing nanocrystalline materials in commercial quantities
in the fourth quarter of 1996. Nanocrystalline materials are metallic and
ceramic materials that generally consist of particles that are less than 100
nanometers (billionths of a meter) 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. 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 believes its nanocrystalline materials
generally exhibit superior chemical, mechanical, electronic, magnetic and
optical properties. The Company believes that through its extensive proprietary
research and development programs, combined with its proprietary and patented
production processes, it has established new standards for high-performance
commercially produced nanocrystalline materials.
The Company has identified initial 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 numerous commercial applications
in which its nanocrystalline materials will have significant competitive
advantages based on product performance. Commercial applications currently being
developed in these markets include the following:
- Electronics. Abrasives for chemical/mechanical polishing of semiconductor
wafers (CMP), anti-radiation coatings for CRTs, thin-film materials for
semiconductor manufacturing, high-performance electrodes and photonic
materials for flat-panel displays.
- Structural Ceramics and Composites. Ceramic mechanical seals, components
for continuous steel casting, abrasion-resistant polymers for oil
drilling sensors, ceramic armor and remotely monitored medical implants.
- Cosmetics and Skin-Care. Topical health-care products, transparent UV
blockers and colorants for cosmetics.
- Industrial Catalysts. Chemical-process catalysts.
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. These relationships generally include
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, Pacific Safety and
Philips. As a result of its collaborative relationships, the Company entered
into commercial supply contracts with Moyco, a manufacturer of semiconductor
polishing slurries for use by semiconductor manufacturers, including Hyundai,
Samsung, IBM, Lucent and Motorola; with Schering-Plough pursuant to which the
Company will supply its nanocrystalline zinc oxide to Schering-Plough for use in
topical health-care products; and with LWT for anti-abrasive polymers used in
oil drilling applications. To gain access to foreign markets, Nanophase has
entered into an agreement with a subsidiary of Itochu, formerly C. Itoh, for the
distribution of the Company's materials in broad-based industrial markets
throughout Asia. To gain world-wide access to the cosmetics and skin-care
market, the Company has a global distribution agreement with WCD, a leading
distributor of cosmetic and skin-care ingredients.
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,
23
<PAGE> 25
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 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 (billionths of a meter) 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 for high-performance applications. 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.
ADVANTAGES OF THE COMPANY'S NANOCRYSTALLINE MATERIALS
The Company has developed new technologies for the engineering and
high-volume production of high-quality nanocrystalline materials which it
believes cannot be accomplished by the traditional methods described above. 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 following attributes of the particles produced by the Company's PVS
process enable it to produce significant quantities of nanocrystalline materials
which it believes to be superior, for a range of 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).
24
<PAGE> 26
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 slurries
used to polish the surfaces of semiconductors, which results in
significantly smoother surfaces and faster and more selective removal of
material.
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.
The Company has developed related technologies to further enhance the
materials produced by its PVS process. Because 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
can apply its other proprietary technologies to further process these particles
to set new standards for a range of additional high-performance commercial
applications. 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 rapid fabrication of
dimensionally-precise, high tolerance structural ceramic components without
costly machining.
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.
25
<PAGE> 27
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. To protect its proprietary core technologies, the Company has been
issued patents with respect to its PVS process and the related apparatus,
applied for patents with respect to its DPE process and licenses patents related
to the synthesis of nanocrystalline materials and net-shaping.
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
26
<PAGE> 28
customer. Certain details of the Company's significant customer and product
development relationships are contained in the table below.
<TABLE>
<CAPTION>
CUSTOMER/PRODUCT NANOPHASE
DEVELOPMENT PARTNER MATERIAL/TECHNOLOGY PRODUCT APPLICATION STATUS
<S> <C> <C> <C>
ELECTRONICS
Moyco Technologies,
Inc................... Aluminum oxide; Abrasives for semiconductor Shipping products pursuant to
cerium oxide polishing five- year requirements
contract; customer evaluations
underway at Hyundai, IBM,
Motorola, Lucent and Samsung
Philips Electronics
N.V................... Metal oxide Anti-radiation coatings for Development agreement
CRTs
Medtronic, Inc.......... Precious metal High-performance electrodes Samples purchased; tests and
evaluations ongoing
A leading electronic
materials company..... Metal oxides Thin-film materials for Samples purchased; tests and
semiconductor manufacturing evaluations ongoing
A Fortune 50
communications
company............... Metal oxides Photonic materials for Joint application for U.S.
flat-panel displays Department of Defense contract
STRUCTURAL CERAMICS AND COMPOSITES
LWT Instruments, Inc.... Aluminum oxide Abrasion-resistant polymers for Shipping product pursuant to
oil drilling sensors requirements contract
AG Industries........... Net-shaped ceramics Components for continuous steel Development agreement; field
casting tests scheduled
A Fortune 100
manufacturer of heavy
equipment............. Net-shaped ceramics Ceramic mechanical seals Prototypes purchased; tests and
evaluations ongoing
Pacific Safety, Inc..... Net-shaped ceramics Ceramic armor Development agreement; tests
and evaluations ongoing
Medtronic, Inc.......... Metal oxides Remotely monitored medical Samples purchased; tests and
implants evaluations ongoing
COSMETICS AND SKIN-CARE
Schering-Plough
Corporation(1)........ Zinc oxide Topical health-care products Shipping product pursuant to
four-year requirements contract
A Fortune 500 cosmetics
company(1)............ Titanium dioxide; Transparent UV blockers and Shipping product
iron oxide colorants for cosmetics
INDUSTRIAL CATALYSTS
E.I. DuPont de Nemours &
Co.................... Precious metal Chemical-process catalysts Samples purchased; tests and
evaluations ongoing
A Fortune 50 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."
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
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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 wafer
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. The Company believes that these attributes will be an important
element in the production of semiconductor wafers with smaller geometries that
will result in increased memory capacity, faster processing speeds and lower
production costs.
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, Samsung, IBM, Lucent and Motorola, 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 following annual minimums
specified in the contract: 23, 50, 80, 140 and 200 tons of alumina and 4, 8, 16,
20 and 30 tons of ceria in 1997, 1998, 1999, 2000 and 2001, respectively. If
Moyco purchases the aggregate 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.
In August 1997, Moyco and Ashland signed a non-binding letter of intent
pertaining to the potential purchase by Ashland of Moyco's intellectual
properties, technologies and certain other intangible assets for the
chemical/mechanical polishing of semiconductor wafers. See "Risk
Factors--Dependence on a Limited Number of Key Customers."
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 scheduled to go into
effect over the next several years, 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.
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
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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, a
leading manufacturer of medical devices, 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.
Thin-Film Materials for Semiconductor Manufacturing
Nanophase has begun an early stage development program with a leading
electronic materials company for developing advanced materials for use in
semiconductor manufacturing. The objective is to develop advanced materials
which can be used to fabricate thin-films on the surfaces of semiconductors to
enable the production of semiconductor wafers with increased memory capacity,
faster processing speeds and lower production costs. Nanocrystalline materials
are used because the products require a uniform and fine-grained structure. This
product application is in an early stage of development and investigation.
Flat-Panel Displays
Nanophase and a Fortune 50 communications company have submitted a joint
proposal to the U.S. Department of Defense for funding to develop photonic
materials and manufacturing technology for a new generation of electronic
displays for a broad range of light-weight, low-power multi-purpose
communication devices. If funded, the two companies will work jointly to develop
the products.
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 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.
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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 meet these
requirements.
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 prototypes are scheduled to be
field tested by the end of 1997.
Ceramic Mechanical Seals
Nanophase is currently fabricating prototype ceramic mechanical seals for a
Fortune 100 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 are commonly made of plastic composite materials and
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 Armor
The Company is currently fabricating net-shaped alumina armor plates under
a development agreement with Pacific Safety, a leading Canadian armor producer.
Ceramic based armor is highly desirable because of its strength and weight
advantage over steel. It can provide the same protection at a significantly
reduced weight. However, current ceramic armor materials, made from hot-pressed
alumina or boron carbide, are either not durable enough or very costly to
fabricate, and thus have limited markets. Based on preliminary studies, the
Company believes that it will be able to produce denser, fine-grained alumina
armor tiles which will have greater durability and impact resistance than
hotpressed alumina tiles and offer a significant economic advantage over boron
carbide.
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Remotely Monitored Medical Implants
In collaboration with Medtronic, 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 transmission of Radio Frequency ("RF") signals. A
ceramic housing would allow the passage of RF signals and, hence, remote
wireless monitoring. Nanophase is also developing materials for medical implants
for Medtronic which can be viewed without using X-rays. Both medical devices, 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 topical health-care 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,
including Geurlain, the Jafra division of Gillette, Inc., Medicia Pharmaceutical
Corporation and Sunny World Co., Ltd (of Thailand), for use in sunscreens, (ii)
is shipping its iron oxides to a Fortune 500 cosmetics company for use as
cosmetic colorants, (iii) is shipping titania dispersions to that same customer
for use in a product with SPF protection, which is presently scheduled for
market introduction in the fourth quarter of 1997, and (iv) has entered into a
commercial supply contract with Schering-Plough for its nanocrystalline zinc
oxide.
Topical Health-Care Applications
The Company has recently entered into a four-year requirements contract
with Schering-Plough pursuant to which the Company will supply its
nanocrystalline zinc oxide to Schering-Plough for certain topical health-care
products. For example, the Company's nanocrystalline materials are being
supplied for use in new anti-fungal sprays and powders presently scheduled for
initial market introduction in the fourth quarter of 1997. Several skin-care
companies are currently evaluating Nanophase's nanocrystalline zinc oxide for
use in other topical health-care products. The Company's zinc oxide contains
uniformly small particles which contain a large number of surface area atoms.
Initial testing by the Company's customers indicates that this attribute
provides enhanced anti-fungal 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 than conventional materials for
aerosol applicators.
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, such as titania. 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 made with conventional titania 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
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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 readily dispersed to create smooth, free-flowing
cosmetic foundations which cosmetics formulators can blend to more closely match
varying skin tones.
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 a Fortune 50 chemical company to produce catalysts comprised of
nanocrystalline metal oxides on larger substrates. Based on the Company's
discussions, both internally and with potential customers, 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. Based on the Company's discussions,
both internally and with potential customers, these 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 patented 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 gases 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 which expire in
2013; 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. The Company has applied for a patent for its
DPE process.
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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 degreesC and 2000-4000 psi, as compared to up to 1700 degreesC
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.
LMSC currently designs, engineers and fabricates prototypes to the Company's
specifications for the Company's commercial customers. Technology developed
during the ATP project is jointly owned by the Company and LMSC. New technology
developed under the current arrangement between LMSC and the Company 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.
Through the first three quarters of 1997, 15 PVS plasma reactors were
operational and producing various nanocrystalline materials at the Burr Ridge
facility. The throughput of each reactor depends on many factors, including the
mix of products produced, the commencement, expiration or termination of
development programs, the status of tests and evaluations of samples and
prototypes and production yields. In the third quarter of 1997, the Burr Ridge
facility operated 24 hours a day, seven days a week.
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. In the third quarter of 1997, the Company began the installation of
eight additional PVS plasma reactors in the Burr Ridge facility. The Company
expects that such PVS plasma reactors will be operational by the end of 1997. In
addition, the Company expects to increase the throughput per reactor as it
increases the efficiency and yields of its PVS process and decreases the amount
of downtime for each reactor. The Company believes that additional manufacturing
capacity will be required in 1998 and intends to use a portion of the net
proceeds from this offering for the expansion of its manufacturing facilities.
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. The Company has options to extend the lease for up to five
additional years.
Based on the Company's current product mix, the Company's coating facility
has the capacity to coat those nanocrystalline materials which it desires to
coat. The Company believes that its coating capacity is adequate to support the
Company's anticipated 1998 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.
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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 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, Nanophase has
entered into an agreement with a subsidiary of Itochu, formerly C. Itoh, 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 months, 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. Although the Company has de-emphasized the
pursuit of revenue from government research contracts, a key component of the
Company's long-term 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
technological and scientific capabilities. 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 the six months
ended June 30, 1997 and fiscal years 1996, 1995 and 1994 were $376,532 and
$677,284, $485,059 and $456,162, respectively. 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.
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.
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<PAGE> 38
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. The patents expire in July 2013. Additional
United States patent applications filed by the Company include applications
relating to nanocrystalline materials, 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. An international
patent application owned by the Company for the coating of ceramic powders is
also pending under the Patent Cooperation Treaty, with Australia, Canada, Europe
and Japan designated for the national phase of the application.
The Company holds the following licenses of United States patents: an
exclusive worldwide 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. Other than the license from Research Development Corporation
of Japan, which remains in force until May 2006 and is extendable upon further
agreement, each of the licenses lasts for the life of their respective patents.
Under each of the licenses, the Company is obligated to pay the licensor
royalties equal to a percentage of net sales of products which embody the
licensed technology.
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,
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."
The Company also faces potential competition from Vacuum Metallurgical Co.,
Ltd. of Japan ("Vacuum Metallurgical"), which manufactures nanocrystalline
materials and equipment. Currently, the Company does
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<PAGE> 39
not compete with Vacuum Metallurgical, but there can be no assurance that Vacuum
Metallurgical will not develop products or manufacturing capabilities to compete
with the Company in the future. Potential competitive risks are also represented
by numerous small development companies engaged in the development of
nanocrystalline materials, such as Plasma Quench Technologies, Inc. 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, including ethanol, 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 September 30, 1997, the Company had a total of 61 full-time employees,
11 of whom hold advanced degrees. Of the full-time employees, 11 are engaged in
research, development and engineering, 30 are engaged in manufacturing, 4 are
engaged in quality control, 7 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 against the Company that could have a material
adverse effect on the Company's business, results of operations or financial
condition.
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<PAGE> 40
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........................... 47 Vice President--Finance and Administration, Chief
Financial Officer, Treasurer and Secretary
Richard W. Brotzman, Ph.D................. 44 Vice President--Research
Donald J. Freed, Ph.D..................... 55 Vice President--Marketing
Robert M. Kelly........................... 51 Vice President--Cosmetic Products
Dennis J. Nagle........................... 45 Vice President--Manufacturing
John C. Parker, Ph.D...................... 36 Vice President--Technology
Leonard A. Batterson(1)(2)................ 53 Chairman of the Board of Directors
Steven Lazarus(1)(2)...................... 66 Director
Robert W. Shaw, Jr., Ph.D.(1)(2).......... 55 Director
Richard W. Siegel, Ph.D................... 60 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
Special 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. 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
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<PAGE> 41
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 AT&T 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.
Leonard A. Batterson has served as a director and as Chairman of the Board
of Nanophase since 1991. He is Chairman and Chief Executive Officer of Batterson
Venture Partners L.L.C., 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 venture capital fund. The Batterson Johnson &
Wang L.P. fund, a stockholder of the Company, invest in the following
industries: publishing, communications, telecommunications, medical,
biotechnology, materials, retailing, consumer products, manufacturing, computers
and software. As Managing General Partner, Mr. Batterson manages its daily
operations, investor relationships, reporting and investment strategy. Prior to
1988, he was Director of the Venture Capital Division of the Allstate Insurance
Company. 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 holds a B.A. degree from Washington
University, a J.D. degree from Washington University Law School and an M.B.A.
degree from the Harvard Graduate School of Business Administration.
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<PAGE> 42
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. degree 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, Illinois Superconductor Corporation and New Era of Networks, Inc.,
all of which are public companies.
Robert W. Shaw, Jr. has served as a director of Nanophase since 1991. He is
the founder of Arete Ventures, Inc., President of Arete Corporation 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
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 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.
ADVISORY BOARD
The Company recently formed an advisory board (the "Advisory Board") to
assist the Company in analyzing, developing and implementing its long-term
business growth strategies. The Advisory Board will advise and consult with
management and the Board of Directors of the Company as needed. Though the
members of the Advisory Board have outside commitments that may limit their
availability to the Company, each member has agreed to devote at least a certain
number of hours to the Company over the term of their service. The Company has
entered into a one-year consulting agreement with each of the members of the
Advisory Board, pursuant to which each member has been granted stock options to
purchase 10,000 shares of Common Stock as compensation for his services on the
Advisory Board. Members of the Advisory Board will also be reimbursed for
reasonable out-of-pocket expenses incurred in connection with their services to
the Company.
The members of the Advisory Board are Casey Cowell, James V. Kimsey and
Jonathan N. Zakin.
Casey Cowell is Vice Chairman of 3Com Corporation ("3Com") and is the
founder of U.S. Robotics Corporation ("U.S. Robotics"). Prior to the combination
of U.S. Robotics with 3Com in June 1997,
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<PAGE> 43
Mr. Cowell was Chairman and Chief Executive Officer of U.S. Robotics. Mr. Cowell
also serves as a director of Eagle River Interactive, Inc., May & Speh, Inc.,
and Northwestern Memorial Corp., the parent company of Northwestern Memorial
Hospital, and is a trustee of the Illinois Institute of Technology. Mr. Cowell
holds a bachelors degree in economics from the University of Chicago.
James V. Kimsey is the founder and Chairman Emeritus of America Online,
Inc. ("AOL"). He was formerly Chairman and Chief Executive Officer of AOL, and
continues to serve AOL as a member of its board of directors. Mr. Kimsey also
serves as a director of Capital One Financial Corporation, Capital One Bank,
EduCap, Inc. and BTG Incorporated, and is an advisory director of Batterson
Venture Partners and Carousel Capital. Mr. Kimsey is a graduate of the United
States Military Academy at West Point.
Jonathan N. Zakin was Executive Vice President, Business Development and
Corporate Strategy, of U.S. Robotics prior to its combination with 3Com in June
1997. Currently, Mr. Zakin is a private investor. He holds a bachelors degree in
management from New York University and an M.B.A. degree from the Harvard
Graduate School of Business Administration.
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.
Substantially all of the material provisions of 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.
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<PAGE> 44
COMPENSATION OF DIRECTORS
Each director of the Company who is not an employee or consultant of the
Company (the "Outside Directors") and is first elected to the Board of Directors
after adoption of the Stock Option Plan will be granted stock options to
purchase 10,000 shares of Common Stock at the fair market value of the Common
Stock as determined by a committee appointed by the Company's Board of Directors
(the "Committee") as of the date of issuance of each stock option. On the date
of the annual meeting of the stockholders of the Company, commencing with the
1998 annual meeting, each Outside Director who is elected, re-elected or
continues to serve as a director because his or her term has not expired, shall
be granted stock options to purchase 2,000 shares of Common Stock; provided that
no such automatic grant shall be made to an Outside Director who is first
elected to the Board of Directors at the first such meeting or was first elected
to the Board of Directors within three months prior to such annual meeting.
One-third of the options granted to Outside Directors under the Stock Option
Plan vest each year on the first three anniversaries of the grant date. All
options granted under the Stock Option Plan to Outside Directors will be
exercisable for a period of ten years. The Company does not pay cash
compensation to its directors or Advisors 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: 202,496 shares at $1.382 per share in March 1994; 163,904
shares at $1.727 per share in October 1994; 38,911 shares at $1.727 per share in
April 1995; and 173,700 shares at $1.727 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: 294,971 shares at $1.382 per share in March
1994; 251,639 shares at $1.727 per share in October 1994; and 159,225 shares at
$1.727 per share in November 1995.
Dr. Shaw, who is a member of the Compensation Committee, is the managing
general partner of (i) Arete Ventures Management Associates II, L.P., which is
the managing general partner of UVCC Fund II ("UVCC II") and (ii) Arete Ventures
Limited Partnership III, which is the managing general partner of 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: 94,088 shares at $1.382
per share in March 1994; 83,955 shares at $1.727 per share in October 1994;
5,790 shares at $1.727 per share in April 1995; and 66,585 shares at $1.727 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."
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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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
<S> <C> <C> <C> <C> <C>
Robert W. Cross,.................. $151,800(1) $10,000(1) $-- 199,755 $4,685(2)
President and Chief Executive
Officer
Donald J. Freed, Ph.D.,........... 105,625 -- -- 104,220 --
Vice President -- Marketing
Richard W. Brotzman, Ph.D.,....... 102,615 -- -- 118,695 --
Vice President -- Research
</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.
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 57,900 shares of Common Stock at an exercise price of $3.886
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 which was paid 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.
44
<PAGE> 46
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information regarding 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 STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION OPTION TERM(2)
GRANTED FISCAL YEAR BASE PRICE DATE(1) 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Robert W. Cross................... 69,480 6.0% $1.727 03/01/06(3) $195,467 $ 311,249
130,275 11.3 3.886 11/07/06(4) 824,628 1,313,082
Donald J. Freed, Ph.D............. 46,320 4.0 1.727 03/01/06(3) 130,312 207,499
57,900 5.0 3.886 11/07/06(4) 366,501 583,592
Richard W. Brotzman, Ph.D. ....... 49,215 4.3 1.727 03/01/06(3) 138,456 220,468
69,480 6.0 3.886 11/07/06(4) 439,802 700,310
</TABLE>
- ------------------------------
(1) The grant dates are ten years prior to the respective expiration dates.
(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.
(3) Subject to certain restrictions, these options vest pro rata over a
five-year period on each of the first five anniversaries of the date of
grant.
(4) Subject to certain restrictions, these options vest eight years from the
date of grant, subject to an earlier five-year period if specified
performance targets for 1997 are met.
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................. 65,330/256,015 $243,406/$349,733
Donald J. Freed, Ph.D. ......... --/104,220 --/ 100,005
Richard W. Brotzman, Ph.D. ..... 5,790/141,855 19,999/ 186,250
</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 $3.886 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 Preferred Stock.
45
<PAGE> 47
STOCK OPTION PLAN
Effective January 13, 1992 and as amended and restated on April 6, 1997,
the Company's Board of Directors adopted the Stock Option Plan, pursuant to
which options to acquire up to 2,063,232 shares of Common Stock (1,976,382 of
which are reserved for issuance to employees and consultants and 86,850 of which
are reserved for issuance to Outside Directors) may be granted to the Company's
employees, consultants or Outside Directors, as the Committee may from time to
time designate. During any calendar year, stock options for no more than 100,000
shares of Common Stock may be granted to any individual. The stock options
expire no more than ten years from the date of grant; provided, however, that in
the case of stock options granted to individuals who at the time of such grant
own more than 10% of the voting power of the Company's stock, the options shall
expire no more than five years from the date of grant. 789,756 of the 1,620,737
currently outstanding options vest eight years following the grant date, subject
to accelerated vesting if specified performance targets are met. Of the
remaining 830,981 outstanding options, 813,611 vest over a five-year period and
17,370 vest over a three-year period. Exercise prices are determined by the
Committee, but may not be less than the fair market value of the Common Stock as
determined by the Committee as of the date of issuance of each stock option;
provided, however, that exercise prices for options granted to employees who own
more than 10% of the Company's Common Stock may not be less than 110% of the
fair market value of the Common Stock as determined by the Committee as of the
date of issuance of each such 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 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.
46
<PAGE> 48
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.
Prior to joining the Company in September 1996, Dennis J. Nowak, the
Company's Vice President--Finance and Administration, Chief Financial Officer,
Treasurer and Secretary, was a partner of Ernst & Young LLP, where he was
responsible for overseeing the audit of the Company's financial statements.
Ernst & Young LLP has been the Company's financial accountants since 1993.
Pursuant to a severance benefit agreement with Dr. John C. Parker, the
Company's Vice President--Technology, the Company has established a trust in the
amount of $80,000, with interest being credited to the trust until the funds
held in trust are equal to such amount. 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.
47
<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock, as of September 30, 1997, assuming
consummation of the Preferred Stock Conversion, and as adjusted to reflect the
sale of Common Stock offered hereby, by (i) each person who is known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, (ii) each director of the Company, (iii) each Named Executive
Officer and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)
----------------------- -----------------------
NUMBER OF NUMBER OF
NAME SHARES PERCENT SHARES PERCENT
<S> <C> <C> <C> <C>
Batterson Johnson & Wang L.P.................. 1,068,935(2) 12.7% 1,068,935(2) 8.0%
Grace Investment, Ltd.(3)..................... 1,042,200 12.7 1,042,200 7.8
ARCH Venture Fund Limited Partnership......... 768,088(4) 9.1 768,088(4) 5.7
ARCH Venture Fund II Limited Partnership(5)... 705,835 8.6 705,835 5.3
Harris & Harris Group, Inc.(6)................ 672,916 8.2 672,916 5.1
UVCC Fund II.................................. 450,842(7) 5.4 450,842(7) 3.4
UVCC II Parallel Fund, L.P.................... 450,842(7) 5.4 450,842(7) 3.4
AMT Associates Ltd. .......................... 450,058(8) 5.4 450,058(8) 3.4
Richard W. Siegel, Ph.D....................... 219,729(9) 2.7 219,729(9) 1.7
Robert W. Cross............................... 103,544(10) 1.2 91,482(10) *
Richard W. Brotzman, Ph.D..................... 21,423(10) * 21,423(10) *
Donald J. Freed, Ph.D......................... 9,264(10) * 9,264(10) *
Leonard A. Batterson.......................... --(11) -- --(11) --
Steven Lazarus................................ --(12) -- --(12) --
Robert W. Shaw, Jr., Ph.D..................... --(13) -- --(13) --
All directors and executive officers as a
group (11 persons).......................... 445,442(14) 5.4 445,442(14) 3.4
</TABLE>
- ------------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. Unless otherwise indicated below, the persons in the above
table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Includes 178,154 shares of Common Stock 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 232,491 shares of Common Stock 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 66,808 shares of Common Stock issuable upon exercise of warrants
presently exercisable. The address of the stockholder is 6110 Executive
Boulevard, Suite 1040, Rockville, Maryland 20852.
(footnotes continued on following page)
48
<PAGE> 50
(footnotes continued from previous page)
(8) Consists of 142,497 shares of Common Stock and 43,981 shares of Common
Stock issuable upon exercise of warrants presently exercisable, all of
which are beneficially held by Advanced Material Technologies Venture
Partner Limited ("AMT Venture"); 197,284 shares of Common Stock and 38,553
shares of Common Stock issuable upon exercise of warrants presently
exercisable, all of which are beneficially held by AMT Capital, Ltd. ("AMT
Capital"); and 21,200 shares of Common Stock and 6,543 shares of Common
Stock issuable upon exercise of warrants presently exercisable, all of
which are beneficially held by JHAM Limited Partnership ("JHAM"). AMT
Associates Ltd. is general partner of AMT Venture, AMT Capital and JHAM. In
such capacity, it shares voting and investment power with respect to the
shares of Common Stock held by AMT Venture, AMT Capital and JHAM and,
therefore, may be deemed to be the beneficial owner of the shares of Common
Stock directly owned by AMT Venture, AMT Capital and JHAM. The address of
AMT Associates Ltd. is 8204 Elmbrook, Suite 101, Dallas, Texas 75247.
(9) Includes 28,950 shares of Common Stock issuable upon exercise of warrants
presently exercisable and 38,098 shares of Common Stock issuable upon
exercise of options exercisable currently or within 60 days of September
30, 1997.
(10) Consists of shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of September 30, 1997.
(11) Excludes 890,781 shares of Common Stock and 178,154 shares of Common Stock
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 the shares of Common Stock held by BJ&W and, therefore, may be
deemed to be the beneficial owner of the shares of Common Stock directly
owned by BJ&W. Mr. Batterson disclaims this beneficial ownership.
(12) Excludes 535,597 shares of Common Stock and 232,491 shares of Common Stock
issuable upon exercise of warrants presently exercisable, all of which are
beneficially held by ARCH Venture Fund Limited Partnership ("AVFLP");
705,835 shares of Common Stock held by ARCH Venture Fund II, L.P. ("AVF
II"); and 14,034 shares of Common Stock 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 has sole voting and
investment power with respect to the shares of Common Stock held by AVFLP,
AVF II and AFP and, therefore, may be deemed to be the beneficial owner of
the shares of Common Stock directly owned by AVFLP, AVF II and AFP. Mr.
Lazarus disclaims this beneficial ownership.
(13) Excludes 384,034 shares of Common Stock and 66,808 shares of Common Stock
issuable upon exercise of warrants presently exercisable, all of which are
beneficially held by UVCC Fund II ("UVCC II"), and 384,034 shares of Common
Stock and 66,808 shares of Common Stock issuable upon exercise of warrants
presently exercisable, all of which are beneficially held by UVCC II
Parallel Fund, L.P. ("UVCC Parallel"). Dr. Shaw serves as the managing
general partner of (i) Arete Ventures Management Associates II, L.P., which
is the managing general partner of UVCC II and (ii) Arete Ventures Limited
Partnership III, which is the managing general partner of UVCC Parallel. In
such capacities, he has sole voting power and shares investment power with
respect to shares of Common Stock held by UVCC II and UVCC Parallel and,
therefore, may be deemed to be the beneficial owner of the shares of Common
Stock directly owned by UVCC II and UVCC Parallel. Dr. Shaw disclaims this
beneficial ownership.
(14) Includes 28,950 shares of Common Stock issuable upon exercise of warrants
presently exercisable and 263,811 shares of Common Stock issuable upon
exercise of options exercisable currently or within 60 days of September
30, 1997.
49
<PAGE> 51
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
The Company currently has 77,586 shares of Common Stock outstanding and
held by two holders of record. 13,234,029 shares of Common Stock will be
outstanding upon consummation of the Preferred Stock Conversion and 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
The Company currently has 8,156,443 shares of Preferred Stock outstanding
and held by 176 holders of record. Pursuant to the Preferred Stock Conversion,
all of the issued and outstanding shares of Preferred Stock will convert, upon
the consummation of this offering, into 8,156,443 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
The Company currently has warrants to purchase a total of 662,287 shares of
Common Stock outstanding at an exercise price of $1.123 per share. The warrants
expire February 8, 2003 or one year later if at such time the shares of Common
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.
50
<PAGE> 52
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 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, Chicago, Illinois.
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.
51
<PAGE> 53
Upon completion of this offering, the Company will have an aggregate of
13,234,029 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants after the date hereof. Of these shares, the 5,000,000 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 8,234,029 shares of Common Stock outstanding upon completion
of this offering will be Restricted Shares.
All directors and officers 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 DLJ. The stockholders of the Company, pursuant to
the lock-up provisions of stock purchase agreements to which they and the
Company are a party, and certain optionholders of the Company, pursuant to
lock-up agreements, have agreed not to sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of their shares of Common
Stock for a period of 180 days from the date of this Prospectus, without the
prior written consent of DLJ. 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
provisions or agreements will not be salable until the 180-day lock-up periods
expire or unless prior written consent is received from DLJ. Any early waiver of
the lock-up period 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 provisions and 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 7,485,940
Restricted Shares will be eligible for sale 180 days from the date of this
Prospectus, subject in some cases to the volume limitations and other
restrictions of Rule 144, and (ii) the remaining 748,089 Restricted Shares will
become eligible for sale under Rule 144 in June, August or September 1998, as
the case may be.
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 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) 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 662,287 shares of Common Stock will be available for sale upon the
exercise of outstanding warrants. Options to purchase 1,620,737 shares are
currently issued and outstanding under the Stock Option Plan (of which 379,113
are currently vested). See "Management--Stock Option Plan."
52
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement dated
, 1997 (the "Underwriting Agreement"), the Underwriters named below,
who are represented by Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), Furman Selz LLC and Oppenheimer & Co., Inc. (the "Representatives"),
have severally agreed to purchase from the Company the respective number of
shares of Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Furman Selz LLC.............................................
Oppenheimer & Co., Inc. ....................................
---------
Total.................................................. 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to the approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery all the shares of Common Stock offered hereby
(other that those shares covered by the over-allotment describe below) if any
are purchased.
The Underwriters initially propose to offer the shares of Common Stock in
party directly to the public at the initial public offering price set forth on
the cover of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession of not in excess of $ per
share. The Underwriters may allow, and such selected dealers may reallow to
certain other dealers, a concession not in excess of $ per share. After the
initial offering of the Common Stock, the public offering price and other
selling terms may be changed by the Representatives at any time without notice.
The Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase up to 750,000 additional
shares of Common Stock at the initial public offering price less underwriting
discounts and commissions. The Underwriters may exercise such option solely to
cover overallotments, if any, made in connection with this offering. To the
extent that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such Underwriter's percentage underwriting
commitment as indicated in the preceding table.
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.
The Company, its executive officers and director and certain optionholders
of the Company 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 DLJ. In addition, during such
period, the Company has also agreed not to file any registration agreement with
respect to the registration of any shares of Common Stock or any securities
convertible into or exchangeable for Common Stock without DLJ's prior written
consent. The stockholders of the Company, pursuant to the lock-up provisions of
stock purchase agreements to which they and the Company are a party, have also
agreed not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of their shares of Common Stock for a period
of 180 days from the date of this Prospectus, without the prior written consent
of DLJ.
53
<PAGE> 55
Prior to this offering, there has been no established trading market for
the Common Stock. The initial public offering price for the shares of Common
Stock will be determined by negotiations among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the past and present operations of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the recent market prices of securities of generally
comparable companies and the general condition of the securities markets at the
time of the offering.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "NTCO."
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the shares of Common
Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Common Stock offered hereby may not be offered or sold,
directly or indirectly, nor may this Prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
Common Stock be distributed or published, in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the offering of the Common Stock and the distribution of this
Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
Certain employees of DLJ own an aggregate of 97,272 shares of the Series F
Preferred, which shares will be converted into shares of Common Stock upon
consummation of this offering. None of the shares of Common Stock held by the
DLJ employees are being offered hereby.
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. Upon
consummation of the Preferred Stock Conversion and this offering, a current
partner of Katten Muchin & Zavis will own less than 1% of the outstanding shares
of Common Stock. 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 appearing in
this Prospectus and the 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.
54
<PAGE> 56
Certain matters dealing with patents and proprietary rights set forth under
"Risk Factors--Dependence on 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 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.
55
<PAGE> 57
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 and June 30,
1997 (unaudited).......................................... F-3
Statements of Operations for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30, 1996
and 1997 (unaudited)...................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30, 1996
and 1997 (unaudited)...................................... F-6
Notes to the Financial Statements........................... F-7
</TABLE>
F-1
<PAGE> 58
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Nanophase Technologies Corporation
We have audited the accompanying balance sheets of Nanophase Technologies
Corporation as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for the each of the years in
the three year period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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, in conformity with generally accepted accounting principles.
Chicago, Illinois Ernst & Young LLP
January 31, 1997, except for
Notes 11 and 16, as to which the
dates are and
September 30, 1997, respectively
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 11 to the financial
statements.
Chicago, Illinois Ernst & Young LLP
October 1, 1997
F-2
<PAGE> 59
NANOPHASE TECHNOLOGIES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF PRO FORMA
AS OF DECEMBER 31, JUNE 30, JUNE 30,
-------------------------- ------------ ------------
1995 1996 1997 1997
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 261,902 $ 617,204 $ 2,490,130 $ 4,339,948
Investments..................................... 2,221,401 1,997,788 -- --
Trade accounts receivable....................... 70,845 389,501 880,441 880,441
Subscriptions receivable........................ -- -- 160,200 --
Inventories..................................... 65,280 445,205 420,274 420,274
Prepaid expenses and other current assets....... 67,277 50,275 43,002 43,002
----------- ------------ ------------ ------------
Total current assets.......................... 2,686,705 3,499,973 3,994,047 5,683,665
Equipment and leasehold improvements, net......... 924,814 1,794,798 1,723,960 1,723,960
OTHER ASSETS:
Deferred offering costs......................... -- 79,122 375,103 375,103
Patent costs, less accumulated amortization of
$5,156 in 1995, $6,732 in 1996 and $8,794 in
1997.......................................... 52,742 86,892 98,698 98,698
Cash held in trust.............................. 76,867 78,849 80,000 80,000
----------- ------------ ------------ ------------
$ 3,741,128 $ 5,539,634 $ 6,271,808 $ 7,961,426
=========== ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $ 219,411 $ 221,936 $ 784,141 $ 784,141
Accrued expenses................................ 15,667 207,248 551,518 551,518
----------- ------------ ------------ ------------
Total current liabilities..................... 235,078 429,184 1,335,659 1,335,659
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, no par
value; 169,490 shares authorized, issued, and
outstanding................................... 600,000 600,000 600,000 --
Series B convertible preferred stock, no par
value; 758,358 shares authorized, issued, and
outstanding................................... 851,351 851,351 851,351 --
Series C convertible preferred stock, no par
value; 662,287 shares authorized, issued, and
outstanding................................... 743,500 743,500 743,500 --
Series D convertible preferred stock, no par
value; 3,896,419 shares authorized; 3,882,385
issued and outstanding at December 31, 1995;
3,896,419 issued and outstanding at December
31, 1996 and June 30, 1997.................... 6,405,262 6,429,500 6,429,500 --
Series E convertible preferred stock, no par
value; 2,026,500 shares authorized, no shares
authorized, issued and outstanding at December
31, 1995; 1,921,800 shares issued and
outstanding at December 31, 1996 and June 30,
1997.......................................... -- 7,157,850 7,157,850 --
Series F convertible preferred stock, no par
value; no shares authorized, issued and
outstanding at December 31, 1995 and December
31, 1996; 2,316,000 shares authorized and
421,992 shares issued and outstanding at June
30, 1997...................................... -- -- 2,116,487 --
Common stock, no par value at December 31, 1995
and 1996 and June 30, 1997 and $.01 par value
at pro forma June 30, 1997; 10,316,158 shares
authorized at December 31, 1996, and
12,632,158 shares authorized at June 30, 1997;
77,586 shares issued and outstanding at
December 31, 1995 and 1996 and June 30, 1997
and 8,234,029 shares issued and outstanding at
pro forma June 30, 1997....................... 450 450 450 82,340
Additional paid-in capital...................... -- -- -- 19,506,416
Accumulated deficit............................. (5,094,513) (10,672,201) (12,962,989) (12,962,989)
----------- ------------ ------------ ------------
Total stockholders' equity.................... 3,506,050 5,110,450 4,936,149 6,625,767
----------- ------------ ------------ ------------
$ 3,741,128 $ 5,539,634 $ 6,271,808 $ 7,961,426
=========== ============ ============ ============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 60
NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Commercial revenue............. $ 31,144 $ 93,591 $ 485,036 $ 107,032 $ 1,032,467
Government research
contracts................... 64,015 27,995 110,770 20,312 --
----------- ----------- ----------- ----------- -----------
Total revenue............. 95,159 121,586 595,806 127,344 1,032,467
OPERATING EXPENSES:
Cost of revenue................ 164,746 532,124 4,019,484 1,968,546 2,162,081
Research and development
expense..................... 456,162 485,059 677,284 327,620 376,532
Selling, general and
administrative expense...... 799,558 1,150,853 1,661,504 823,139 816,389
----------- ----------- ----------- ----------- -----------
Total operating
expenses............... 1,420,466 2,168,036 6,358,272 3,119,305 3,355,002
----------- ----------- ----------- ----------- -----------
Operating expenses in excess of
revenues....................... (1,325,307) (2,046,450) (5,762,466) (2,991,961) (2,322,535)
Interest income.................. 37,535 86,576 184,778 79,686 31,747
----------- ----------- ----------- ----------- -----------
Net loss......................... $(1,287,772) $(1,959,874) $(5,577,688) $(2,912,275) $(2,290,788)
=========== =========== =========== =========== ===========
Pro forma net loss per share
(unaudited).................... $ (0.76) $ (0.29)
=========== ===========
Pro forma weighted average number
of common shares outstanding
(unaudited).................... 7,370,220 8,022,811
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 61
NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
--------------- ----------------------- ACCUMULATED
DESCRIPTION SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31,
1993.......................... 77,586 $450 1,590,135 $ 2,194,851 $ (1,846,867) $ 348,434
Issuance of Series D shares..... -- -- 868,690 1,200,262 -- 1,200,262
Issuance of Series D shares..... -- -- 1,271,248 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.......................... 77,586 450 3,730,073 5,590,705 (3,134,639) 2,456,516
Issuance of Series D shares..... -- -- 1,742,447 3,009,408 -- 3,009,408
Net loss for the year ended
December 31, 1995............. -- -- -- -- (1,959,874) (1,959,874)
------ ---- --------- ----------- ------------ -----------
Balance as of December 31,
1995.......................... 77,586 450 5,472,520 8,600,113 (5,094,513) 3,506,050
Issuance of Series D shares..... -- -- 14,034 24,238 -- 24,238
Issuance of Series E shares, net
of offering costs............. -- -- 1,921,800 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.......................... 77,586 450 7,408,354 15,782,201 (10,672,201) 5,110,450
Issuance of Series F shares, net
of offering costs
(unaudited)................... -- -- 421,992 2,116,487 -- 2,116,487
Net loss for the six months
ended June 30, 1997
(unaudited)................... -- -- -- -- (2,290,788) (2,290,788)
------ ---- --------- ----------- ------------ -----------
Balance as of June 30, 1997
(unaudited)................... 77,586 $450 7,830,346 $17,898,688 $(12,962,989) $ 4,936,149
====== ==== ========= =========== ============ ===========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 62
NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.......................... $(1,287,772) $(1,959,874) $ (5,577,688) $ (2,912,275) $(2,290,788)
Adjustments to reconcile net
loss to net cash used in
operating activities.........
Depreciation.................... 45,334 126,612 303,453 137,592 198,407
Amortization.................... 855 335 6,397 4,694 2,062
Loss on sale of equipment....... -- -- -- -- 29,281
Write off of patents............ -- 19,857 -- -- --
Changes in assets and
liabilities related to
operations:
Trade accounts receivable.... 6,974 (23,573) (318,656) (63,642) (490,940)
Inventories.................. -- (65,280) (379,924) (208,761) 24,931
Prepaid expenses and other
current assets............. (12,700) (50,261) 17,002 16,893 7,273
Patent costs................. (13,559) (31,072) (40,548) (37,529) (13,868)
Accounts payable............. 249 168,643 2,525 159,023 562,205
Accrued liabilities.......... 54,122 (45,740) 191,581 92,294 294,270
Deferred revenue............. -- -- -- -- 50,000
----------- ----------- ------------ ------------ -----------
Net cash used in operating
activities...................... (1,206,497) (1,860,353) (5,795,858) (2,811,711) (1,627,167)
INVESTING ACTIVITIES:
Acquisition of equipment,
furniture, and leasehold
improvements.................... (66,303) (937,956) (1,173,437) (862,400) (173,850)
Purchases of held-to-maturity
investments..................... (2,255,609) (8,512,957) (15,486,131) (13,524,357) (3,965,214)
Maturities of held-to-maturity
investments..................... -- 8,547,165 15,709,744 9,864,891 5,963,002
Purchase of asset held in trust... (75,000) (1,867) (1,982) (891) (1,151)
Proceeds from sale of equipment
and furniture................... 787 -- -- -- 17,000
----------- ----------- ------------ ------------ -----------
Net cash (used in) provided by
investing activities............ (2,396,125) (905,615) (951,806) (4,522,757) 1,839,787
FINANCING ACTIVITIES:
Proceeds from issuance of
preferred stock, net of offering
costs........................... 3,395,854 3,009,408 7,182,088 7,188,058 1,956,287
Deferred offering costs........... -- -- (79,122) -- (295,981)
----------- ----------- ------------ ------------ -----------
Net cash provided by financing
activities...................... 3,395,854 3,009,408 7,102,966 7,188,058 1,660,306
----------- ----------- ------------ ------------ -----------
Increase (decrease) in cash....... (206,768) 243,440 355,302 (146,410) 1,872,926
Cash at beginning of period....... 225,230 18,462 261,902 261,902 617,204
----------- ----------- ------------ ------------ -----------
Cash at end of period............. $ 18,462 $ 261,902 $ 617,204 $ 115,492 $ 2,490,130
=========== =========== ============ ============ ===========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 63
NANOPHASE TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE SIX MONTH PERIODS ENDED JUNE 30, 1996
AND 1997 AND ALL PRO FORMA DATA ARE UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
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. The
Company was in its development stage for the period from inception through
December 31, 1996, 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 and through cooperative development
agreements and government contracts and grants. Although commercial shipments
began in late 1995 and continued in 1996, these shipments were limited and
primarily related to cooperative development agreements. The Company began
full-scale production in early 1997 at which time it no longer was a development
stage company.
In the course of its corporate development, 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.
Export sales approximated $10,300, $51,400 and $256,500 for the years ended
December 31, 1994, 1995 and 1996, respectively.
Basis of Presentation
The financial statements of the Company as of June 30, 1997 and for the six
month periods ended June 30, 1996 and 1997 contain all adjustments and accruals
(consisting only of normal recurring adjustments) which, in the opinion of
management, are necessary for a fair presentation of the financial position and
operating results of the Company for the interim periods presented.
Pro Forma Presentation (Unaudited)
The pro forma balance sheet at June 30, 1997 gives effect to: (1)
collection of the subscriptions receivable for preferred stock; (2) proceeds of
$1,689,618 from the sale of 326,097 shares of preferred stock issued in August
and September 1997; (3) conversion of the convertible preferred stock into
common stock which will take place upon the closing of the proposed public
offering of common stock; and (4) the change in the par value of the common
stock, as described in Note 11.
(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.
F-7
<PAGE> 64
NANOPHASE TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Equipment and Leasehold Improvements
Equipment is stated at cost and is being depreciated over its estimated
useful life (5-7 years) 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 related to the Company's proposed public offering which totaled to
$79,122 and $375,103 at December 31, 1996 and June 30, 1997, respectively, have
been deferred. Upon successful completion of the Company's proposed public
offering, these costs will be offset against the proceeds received and charged
to stockholders' equity.
Patent Costs
Patent costs are being amortized over the life of the respective patent
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.
Commercial Revenue
Commercial revenue consists of sales of product and revenue from research
and development arrangements with non-governmental entities. Sales of product
are recorded as shipments are made by the Company. Research and development
arrangements include both cost-plus and fixed fee agreements and such revenue is
recognized when specific milestones are met under the arrangements.
Government Research Contracts
The Company accounts for contracts with governmental entities to complete
research and development activities using the percentage of completion method
measured by the relationship of costs incurred to total estimated costs. Amounts
paid to the Company under its cooperative cost-sharing agreement with the U.S.
government are accounted for as offsets against cost of revenues. See Note 11.
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.
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 using the liability method. 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.
F-8
<PAGE> 65
NANOPHASE TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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) which
provides for the use of APB No. 25 for financial statement purposes with pro
forma disclosure of the impact of FASB No. 123.
Fair Value of Financial Instruments
The Company's financial instruments include investments, accounts
receivable, accounts payable and accrued liabilities. The fair values of all
financial instruments were not materially different from their carrying values.
Net Loss and Pro Forma Net Loss Per Common Share
Pro forma net loss per common share and historical net loss per common
share are computed based upon the weighted average number of common shares
outstanding. Common equivalent shares are not included in the pro forma and
historical per share calculations since the effect of their inclusion would be
anti-dilutive, except that common and common equivalent shares issued during the
twelve month period prior to the proposed public offering have been included in
the pro forma calculation as if they were outstanding for all periods presented
using the treasury stock method. In addition, for the pro forma calculation, all
convertible preferred stock is treated as if converted into common shares at
date of issuance.
Net loss per common share computed on a historical basis is as follows:
$2.10, $3.20 and $9.11 for the years ended December 31, 1994, 1995 and 1996,
respectively, and $4.76 and $3.74 for the six month periods ended June 30, 1996
and 1997, respectively. The weighted average number of common shares outstanding
used to calculate these net loss per common share amounts are 612,126 for all
periods.
(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. The
Company did not maintain an investment balance at June 30, 1997. All investments
have been classified as held-to-maturity and mature in subsequent year.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
----------------------- ---------
1995 1996 1997
<S> <C> <C> <C>
Raw materials............................................. $ 47,617 $ 332,167 $ 380,336
Finished goods............................................ 31,561 213,259 393,555
-------- --------- ---------
79,178 545,426 773,891
Inventory reserves........................................ (13,898) (100,221) (353,617)
-------- --------- ---------
$ 65,280 $ 445,205 $ 420,274
======== ========= =========
</TABLE>
F-9
<PAGE> 66
NANOPHASE TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
------------------------ ----------
1995 1996 1997
<S> <C> <C> <C>
Machinery and equipment.................................. $ 787,916 $1,662,721 $1,770,355
Office equipment......................................... 101,749 113,959 116,307
Office furniture......................................... 60,020 49,864 49,864
Leasehold improvements................................... 261,915 447,465 454,932
---------- ---------- ----------
1,211,600 2,274,009 2,391,458
Less: Accumulated depreciation and amortization.......... (286,786) (479,211) (667,498)
---------- ---------- ----------
$ 924,814 $1,794,798 $1,723,960
========== ========== ==========
</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 $8,859 for the six month period ended
June 30, 1996.
Total rent expense, net of sublease income, under these leases amounted to
$65,903, $122,422, and $175,538 for the years ended December 31, 1994, 1995, and
1996, respectively, and $84,479 and $80,088 for the six month periods ended June
30, 1996 and 1997, respectively.
(7) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
------------------ --------
1995 1996 1997
<S> <C> <C> <C>
Accrued subcontract costs................................... $ -- $ 40,000 $175,000
Accrued offering costs...................................... -- -- 101,034
Accrued relocation expense.................................. -- 35,000 35,000
Accrued payroll............................................. 9,560 26,290 9,851
Other....................................................... 6,107 105,958 180,633
------- -------- --------
$15,667 $207,248 $501,518
======= ======== ========
</TABLE>
(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 as operating expenses by the Company. For the years ended
F-10
<PAGE> 67
NANOPHASE TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 and 1995, the Company offset amounts received from the U.S.
government of $224,256 and $154,710, respectively, against cost of revenues in
the statement of operations.
The Company is party to a number of other research and development
arrangements with both governmental and commercial entities. 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 $38,550 and $605,077 of revenues for the six month periods ended June 30,
1996 and 1997, respectively. 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, and June 30, 1997, royalties under this agreement amounting
to $2,316 and $6,184, respectively, 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 and June 30, 1997, royalties under
this agreement approximated to $1,000 and $3,000, respectively. 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 $1,800,000 at December 31, 1996, which expire between 2005 and
2011. The Company has not paid income taxes since inception.
F-11
<PAGE> 68
NANOPHASE TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------- JUNE 30,
1995 1996 -----------
---- ---- 1997
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward..................... $ 2,288,000 $ 4,212,000 $ 5,070,000
Start-up costs capitalized for income tax
purposes......................................... -- 162,000 142,000
Other accrued costs................................. 2,000 29,000 26,000
----------- ----------- -----------
Total deferred tax assets........................ 2,290,000 4,403,000 5,238,000
Deferred tax liability:
Accelerated tax depreciation........................ (21,000) (53,000) (38,000)
----------- ----------- -----------
Net deferred tax asset................................ 2,269,000 4,350,000 5,200,000
Less: Valuation allowance........................... (2,269,000) (4,350,000) (5,200,000)
----------- ----------- -----------
Deferred income taxes................................. $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The valuation allowance increased $2,081,000 and $850,000 for the year
ended December 31, 1996 and six months ended June 30, 1997, respectively, 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 this
proposed public offering, may subject the Company to annual limitations on the
utilization of its net operating loss carryforward.
(11) CAPITAL STOCK
All capital share and per share amounts in the financial statements and
notes to financial statements have been restated to reflect a .579-for-1 reverse
stock split effective upon consummation of this proposed public offering.
Additionally, the par value has been restated to $0.01 for all common stock.
In June 1997, a total of 421,992 shares of Series F convertible preferred
stock were issued for cash amounting to $2,116,487 which included subscriptions
receivable of $160,200 and is net of financing costs of $70,000. The
subscriptions receivable were collected in July 1997.
At June 30, 1997, authorized but unissued shares of common stock have been
reserved for future issuance as follows:
<TABLE>
<S> <C>
Series A convertible preferred stock........................ 169,490
Series B convertible preferred stock........................ 758,358
Series C convertible preferred stock........................ 662,287
Series D convertible preferred stock........................ 3,896,419
Series E convertible preferred stock........................ 2,026,500
Series F convertible preferred stock........................ 2,316,000
Warrants.................................................... 662,287
Options to employees and service provider................... 1,603,367
----------
12,094,708
==========
</TABLE>
All series of convertible preferred stock have the same voting rights as
the common stock. The Series A, C, D, E and F 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
F-12
<PAGE> 69
NANOPHASE TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
share for each preferred share. Mandatory conversion occurs upon the occurrence
of a Qualified Initial Public Offering, as defined, at the conversion ratio.
The holders of Series B convertible preferred stock are entitled to receive
cumulative cash dividends in the amount of $.090 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 $167,678 at December 31, 1996.
Upon liquidation or dissolution of the Company, the Series F stockholders
will be entitled to be paid $5.181 per share, plus all declared but unpaid
dividends thereon before any distribution to the Series E, Series D, Series C,
Series B, Series A, or common stockholders. The Series E stockholders will be
entitled to be paid $3.886 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 $1.382 per share (with respect to the Series D purchased prior to
October 1, 1994), $1.727 per share (with respect to the Series D purchased on or
after October 1, 1994), and $3.368 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 $1.123 per share, plus all accumulated but unpaid dividends
thereon. The Series A preferred stockholders will be entitled to be paid an
amount equal to $3.541 per share, after payment to the Series F, 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 June 30, 1997, the Company
had granted options to purchase 1,603,367 shares of common stock. The stock
options generally expire ten years from the date of grant. Of the total number
of options granted, 792,651 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 810,716
outstanding options vest over a five-year period from their respective grant
dates.
F-13
<PAGE> 70
NANOPHASE TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 through June 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE EXERCISE
OF OPTIONS EXERCISE PRICE PRICE
<S> <C> <C> <C>
Outstanding at December 31, 1993.................... 182,035 $.112 $ .112
Options granted during 1994......................... 100,746 .112 .112
Options canceled during 1994........................ (27,442) .112 .112
---------
Outstanding at December 31, 1994.................... 255,339 .112 .112
Options granted during 1995......................... 186,728 .432 .432
Options canceled during 1995........................ (6,948) .112 -- .432 .180
---------
Outstanding at December 31, 1995.................... 435,119 .112 -- .432 .249
Options granted during 1996......................... 1,192,508 1.727 -- 3.886 3.309
Options canceled during 1996........................ (12,101) .112 -- 1.727 1.549
---------
Outstanding at December 31, 1996.................... 1,615,526 .112 -- 3.886 2.499
Options canceled during 1997........................ (12,159) 3.886 3.886
---------
Outstanding at June 30, 1997........................ 1,603,367 .112 -- 3.886 2.489
=========
</TABLE>
At December 31, 1996, options for 166,347, 38,793 and 2,606 shares of
common stock were exercisable at $.112, $.432 and $.579 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 662,287 shares at no
additional cost to the Series C convertible preferred stockholders. These
warrants have an exercise price of $1.123 per share and expire upon the tenth
anniversary of issuance. All warrants were outstanding at June 30, 1997.
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 the
years ended December 31, 1995 and 1996 and the six month periods ended June 30,
1996 and 1997, respectively: risk-free interest rates of 4.5%, 4.0%, 4.5% and
4.0%; 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. 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 2002.
The Company's
F-14
<PAGE> 71
NANOPHASE TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
pro forma net loss and pro forma net loss per share on a historical basis would
be $1,963,974 and $5,607,688 and $3.21 and $9.16 for the years ended December
31, 1995 and 1996, respectively.
(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) 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.
(16) SUBSEQUENT EVENTS
Subsequent to June 30, 1997, 326,097 shares of Series F Convertible
Preferred Stock were issued for cash amounting to $1,689,618.
F-15
<PAGE> 72
[INSIDE BACK COVER PAGE]
[Picture of the Company's nanocrystalline materials
compared to conventional nanocrystalline materials]
In contrast to nanocrystalline materials produced by conventional
processes, nanocrystalline materials produced by the Company's patented PVS
process are nearly spherical and uniformly small. As a result of these and other
properties, the Company is able to engineer the attributes, including strength,
flexibility, color and electronic conductivity, of materials to yield products
that are superior to conventional materials and to establish new standards for a
range of high-performance commercial applications.
[Picture of equipment inside the Company's manufacturing
facility in Burr Ridge, Illinois]
PVS plasma reactors in the Company's production and research facility in Burr
Ridge, Illinois.
<PAGE> 73
======================================================
NO DEALER, SALESPERSON OR OTHER 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 A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------------
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................................... 23
Management................................. 39
Certain Relationships and Related
Transactions............................. 47
Principal Stockholders..................... 48
Description of Capital Stock............... 50
Shares Eligible for Future Sale............ 51
Underwriting............................... 53
Legal Matters.............................. 54
Experts.................................... 54
Additional Information..................... 55
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.
======================================================
======================================================
5,000,000 SHARES
[NANOPHASE LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ
OPPENHEIMER & CO., INC.
, 1997
======================================================
<PAGE> 74
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......... $17,425
NASD filing fee............................................. 6,250
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. Prior to
consummation of this offering, 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.
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.
II-1
<PAGE> 75
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 0.579-for-one stock split which will
be effected prior to the date of the Prospectus.
In March 1994, the Registrant issued an aggregate of 868,690 shares of
Series D Convertible Preferred Stock (the "Series D Preferred") at $1.387 per
share to nine investors, which included eight venture capital funds and Richard
Siegel, a director and consultant of the Company, in exchange for cash in the
aggregate amount of $1,200,262.
In October 1994, the Registrant issued 1,271,248 shares of Series D
Preferred at $1.727 per share to eight investors which are venture capital funds
in exchange for cash in the aggregate amount of $2,195,592.
In April 1995, the Registrant issued 89,402 shares of Series D Preferred at
$1.727 per share to four investors which are venture capital funds in exchange
for cash in the aggregate amount of $154,408. In November 1995, the Registrant
issued 1,653,045 shares of Series D Preferred at $1.727 per share to nine
investors, which included eight venture capital funds and Richard Siegel, a
director and consultant of the Company, in exchange for cash in the aggregate
amount of $2,855,000.
In April 1996, the Registrant issued 14,034 shares of Series D Preferred at
$1.727 per share to one investor which is a venture capital fund in exchange for
cash in the amount of $24,238. In May 1996, the Registrant issued 1,921,800
shares of Series E Convertible Preferred Stock (the "Series E Preferred") at
$3.886 per share to 124 investors, which included various individuals, trusts,
partnerships and retirement plans, in exchange for cash in the aggregate amount
of $7,468,135.
In June 1997, the Registrant issued 421,992 shares of Series F Convertible
Preferred Stock at (the "Series F Preferred") at $5.181 per share to 39
investors, which included various individuals, trust partnerships and retirement
plans, in exchange for cash in the aggregate amount of $2,186,487. In August
1997, the Registrant issued 183,468 shares of Series F Preferred at $5.181 per
share to 10 investors, which included various individuals, trusts, partnerships
and retirement plans, in exchange for cash in the aggregate amount of $950,613.
In September 1997, the Registrant issued 142,629 shares of Preferred Stock at
$5.181 per share to 15 investors, which included employees of DLJ, various
individuals and a trust, in exchange for cash in the aggregate amount of
$739,005.
Each share of Series D Preferred, Series E Preferred and Series F Preferred
will be converted into one share of Common Stock upon consummation of this
offering.
The sales of shares of Series D Preferred, Series E Preferred and Series F
Preferred are claimed to be exempt from registration with the Securities and
Exchange Commission pursuant to Section 4(2) of the Securities 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> 76
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<S> <C>
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 Amended and Restated
1992 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., (a subsidiary of Itochu) 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
</TABLE>
- ------------------------------
* To be filed by amendment.
II-3
<PAGE> 77
(b) Financial Statement Schedules.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Schedule II -- Report of Independent Auditors S-1
Valuation and Qualifying Accounts S-2
</TABLE>
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> 78
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 1st day of October, 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, Dennis J. Nowak and Lawrence D. Levin and each of them his true
and lawful attorney-in-fact and agent, with full power 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 October
1, 1997 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<C> <S>
/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> 79
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Nanophase Technologies Corporation
We have audited the financial statements of Nanophase Technologies
Corporation as of December 31, 1995 and 1996, and for each of the three years in
the period ended December 31, 1996, and have issued our report thereon dated
January 31, 1997, except as to Note 16, as to which the date is September 30,
1997 (included elsewhere in this Registration Statement). Our audits also
included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Chicago, Illinois Ernst & Young LLP
January 31, 1997
S-1
<PAGE> 80
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ---------------------- BALANCE AT
BEGINNING OF COSTS AND OTHER END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994...........
Deferred tax asset valuation account... $ 744,300 $ 509,700 $-- $-- $1,254,000
========== ========== === === ==========
Year ended December 31, 1995...........
Inventory reserve...................... $ -- $ 13,898 $-- $-- $ 13,898
========== ========== === === ==========
Deferred tax asset valuation account... $1,254,000 $1,015,000 $-- $-- $2,269,000
========== ========== === === ==========
Year ended December 31, 1996...........
Inventory reserve...................... $ 13,898 $ 86,323 $-- $-- $ 100,221
========== ========== === === ==========
Deferred tax asset valuation account... $2,269,000 $2,081,000 $-- $-- $4,350,000
========== ========== === === ==========
</TABLE>
S-2
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <S>
4.2 Form of Warrants.
10.1 The Nanophase Technologies Corporation Amended and Restated
1992 Stock Option Plan.
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., (a subsidiary of Itochu) 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.
23.3 Consent of McAndrews, Held & Malloy, Ltd.
24 Power of Attorney (included on signature page hereto).
27 Financial Data Schedule
</TABLE>
<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
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<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
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<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
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<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.
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<PAGE> 12
END OF WARRANT TEXT
************************
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<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
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<PAGE> 1
EXHIBIT 10.1
NANOPHASE TECHNOLOGIES CORPORATION
an Illinois corporation
Amended and Restated
1992 Stock Option Plan
1. Purpose. The purposes of this Amended and Restated 1992 Stock Option
Plan are to attract and retain the best available personnel, to provide
additional incentive to the Employees, Consultants and Outside Directors of
Nanophase Technologies Corporation, an Illinois corporation (the "Company"), and
to promote the success of the Company's business.
Options granted hereunder may, consistent with the terms of this Plan,
be either Incentive Stock Options or Nonstatutory Stock Options, at the
discretion of the Board or the Committee and as reflected in the terms of a
written option agreement.
2. Definitions. As used in this Plan, the following definitions
shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder.
(c) "Committee" means the Committee appointed by the Board or
otherwise determined in accordance with Section 4(a) of this Plan.
(d) "Common Stock" means the common stock of the Company, no par
value per share.
(e) "Consultant" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting services and is compensated for
such consulting services; provided that the term Consultant excludes directors
who are not compensated for their services or are paid only a director's fee by
the Company.
(f) "Continuous Status as an Employee, Consultant or Outside
Director" means the absence of any interruption or termination of service as an
Employee, Consultant or Outside Director, as applicable. Continuous Status as an
Employee, Consultant or Outside Director shall not be considered interrupted in
the case of sick leave or military leave, any other leave provided pursuant to a
written policy of the Company in effect at the time of determination, or any
other leave of absence approved by the Board or the Committee; provided that
such leave is for a period of not more than the greatest of (i) 90 days, (ii)
the date of the resumption of such service upon the expiration of such leave
which is guaranteed by contract or statute or is provided in a written policy of
the Company which was in effect upon the commencement of such leave, or (iii)
such period of leave as may be determined by the Board or the Committee in its
sole discretion.
(g) "Employee" means any person employed by the Company or any Parent
or Subsidiary of the Company, including employees who are also officers or
directors or both of the Company or any Parent or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
<PAGE> 2
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations promulgated thereunder.
(i) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code, and the
rules and regulations promulgated thereunder.
(j) "Non-Employee Director" shall have the meaning set forth in Rule
16b-3(b)(3)(i), or any successor definition adopted by the Commission, provided
the person is also an "outside director" under Section 162(m) of the Code.
(k) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(l) "Option" means a stock option granted pursuant to this Plan.
(m) "Optioned Stock" means the Common Stock subject to an Option.
(n) "Optionee" means an Employee, Consultant or Outside Director who
receives an Option.
(o) "Outside Director" means any member of the Board of Directors of
the Company who is not an Employee or Consultant.
(p) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(q) "Plan" means this Nanophase Technologies Corporation Amended and
Restated 1992 Stock Option Plan, as amended from time to time.
(r) "Rule 16b-3" means Rule 16b-3, as promulgated by the Securities
and Exchange Commission under Section 16(b) of the Exchange Act, as such rule is
amended from time to time and as interpreted by the Securities and Exchange
Commission.
(s) "Share" means a share of the Common Stock, as adjusted in
accordance with Section of this Plan.
(t) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Scope of Plan. Subject to Section 10 of this Plan, and unless
otherwise amended by the Board and approved by the stockholders of the Company
as required by law, the maximum aggregate number of Shares issuable under this
Plan is 3,563,440, 3,413,440 of which shall be reserved for issuance to
Employees and Consultants and 150,000 of which shall be reserved for issuance to
Outside Directors, and such Shares are hereby made available and shall be
reserved for issuance under this Plan. The Shares may be authorized but
unissued, or reacquired, Common Stock.
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<PAGE> 3
If an Option expires or becomes unexercisable for any reason without
having been exercised in full, the unpurchased Shares subject thereto shall
(unless this Plan shall have terminated) become available for grants of other
Options under this Plan.
4. Administration of Plan.
(a) Procedure. Except as otherwise determined by the Board, this
Plan shall be administered by the Committee. The Committee shall consist of two
or more Outside Directors appointed by the Board, but all Committee members must
be Non-Employee Directors. If the Board fails to appoint such persons, the
Committee shall consist of all Outside Directors who are Non-Employee Directors.
(b) Powers of Committee. Subject to Section 5(b) below and otherwise
subject to the provisions of this Plan, the Committee shall have full and final
authority in its discretion to: (i) grant Incentive Stock Options and
Nonstatutory Stock Options, (ii) determine, upon review of relevant information
and in accordance with Section below, the Fair Market Value of the Common Stock;
(iii) determine the exercise price per share of Options to be granted, in
accordance with this Plan, (iv) determine the Employees and Consultants to whom,
and the time or times at which, Options shall be granted, and the number of
shares to be represented by each Option; (v) cancel, with the consent of the
Optionee, outstanding Options and grant new Options in substitution therefor;
(vi) interpret this Plan; (vii) accelerate or defer (with the consent of
Optionee) the exercise date of any Option; (viii) prescribe, amend and rescind
rules and regulations relating to this Plan; (ix) determine the terms and
provisions of each Option granted (which need not be identical) by which Options
shall be evidenced and, with the consent of the holder thereof, modify or amend
any provisions (including without limitation provisions relating to the exercise
price and the obligation of any Optionee to sell purchased Shares to the Company
upon specified terms and conditions) of any Option; (x) require withholding from
or payment by an Optionee of any federal, state or local taxes; (xi) appoint and
compensate agents, counsel, auditors or other specialists as the Committee deems
necessary or advisable; (xii) correct any defect or supply any omission or
reconcile any inconsistency in this Plan and any agreement relating to any
Option, in such manner and to such extent the Committee determines to carry out
the purposes of this Plan, and; (xiii) construe and interpret this Plan, any
agreement relating to any Option, and make all other determinations deemed by
the Committee to be necessary or advisable for the administration of this Plan.
A majority of the Committee shall constitute a quorum at any meeting,
and the acts of a majority of the members present, or acts unanimously approved
in writing by the entire Committee without a meeting, shall be the acts of the
Committee. A member of the Committee shall not participate in any decisions with
respect to himself under this Plan.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Committee shall be final and binding on all Optionees
and any other holders of any Options granted under this Plan.
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<PAGE> 4
5. Eligibility.
(a) Options may be granted to any Employee, Consultant or Outside
Director as the Committee may from time to time designate, provided that (i)
Incentive Stock Options may be granted only to Employees, and (ii) Options may
be granted to Outside Directors only in accordance with the provisions of
Section 5(b) below. In selecting the individuals to whom Options shall be
granted, as well as in determining the number of Options granted, the Committee
shall take into consideration such factors as it deems relevant in connection
with accomplishing the purpose of this Plan. Subject to the provisions of
Section above, an Optionee may, if he or she is otherwise eligible, be granted
an additional Option or Options if the Committee shall so determine. During any
calendar year, Options for no more than 100,000 shares of Common Stock shall be
granted to any individual Employee, Consultant or Outside Director.
(b) All grants of Options to Outside Directors under this Plan shall
be automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted options or to determine the number of Shares to be
covered by options granted to Outside Directors; provided, that nothing in this
Plan shall be construed to prevent an Outside Director from declining to receive
an Option under this Plan.
(ii) Each Outside Director who is first elected to the Board after
the adoption of this Plan shall be automatically granted on the date of such
election (whether by the stockholders or by the Board of Directors) an Option to
purchase 10,000 Shares (subject to adjustment as provided in Section 10 below,
following consummation of an initial public offering of the Company's
securities). On the date of the Annual Meeting of Stockholders of the Company in
each calendar year commencing with the first Annual Meeting of the Stockholders
of the Company held after the adoption of this Plan, each Outside Director who
is elected or reelected at that meeting, or whose term of office does not expire
at that meeting, shall be automatically granted an option to purchase 2,000
Shares (subject to adjustment as provided in Section 10 below, following
consummation of an initial public offering of the Company's securities);
provided that no such automatic annual grant shall be made to an Outside
Director (i) who is first elected to the Board at such Annual Meeting or was
first elected to the Board within three months prior to such Annual Meeting, or
(ii) if there are not sufficient shares remaining and available to all Outside
Directors eligible for an automatic annual grant at the time at which an
automatic annual grant would otherwise be made under this Section 5(b).
(iii) The terms of each Option granted under this Section 5(b) shall be
as follows:
(A) the term of the option shall be ten (10) years;
(B) the Option shall become exercisable cumulatively with
respect to one-third of the Shares on each of the first, second
and third anniversaries of the date of grant; provided, however,
that in no
4
<PAGE> 5
event shall any option be exercisable prior to obtaining
stockholder approval of this Plan; and
(C) the exercise price per share of Common Stock shall be 100%
of the "Fair Market Value" (as defined in Section 7(b) below) on
the date of grant of the Option.
(c) Each Option granted under Section 5(b) above shall be a Nonstatutory
Stock Option. Each other Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
Notwithstanding such designations, if and to the extent that the aggregate Fair
Market Value of the Shares with respect to which Options designated as Incentive
Stock Options are exercisable for the first time by any Optionee during any
calendar year (under all plans of the Company) exceeds $100,000, such options
shall be treated as Nonstatutory Stock Options. For purposes of this Section
5(c), Options shall be taken into account in the order in which they are
granted, and the Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted.
(d) This Plan shall not confer upon any Optionee any right with respect
to continuation of employment by or the rendition of services to the Company or
any Parent or Subsidiary, nor shall it interfere in any way with his or her
right or the right of the Company or any Parent or Subsidiary to terminate his
or her employment or services at any time, with or without cause. The terms of
this Plan or any Options granted hereunder shall not be construed to give any
Optionee the right to any benefits not specifically provided by this Plan or in
any manner modify the Company's right to modify, amend or terminate any of its
pension or retirement plans.
6. Term of Plan. This Plan shall become effective upon the later to
occur of its adoption by the Board of Directors of the Company (such adoption to
include the approval of at least two Outside Directors) or its approval by vote
of the holders of a majority of the outstanding shares of the Company entitled
to vote on the adoption of this Plan, and shall terminate no later than December
31, 2007. No grants shall be made under this Plan after the date of termination
of this Plan. Any termination, either partially or wholly, shall not affect any
Options then outstanding under this Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the Committee
as follows:
(i) In the case of an Incentive Stock Option granted to any
Employee, the per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant, but if granted to an Employee who,
at the time of the grant of such Incentive Stock Option, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant.
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<PAGE> 6
(ii) In the case of an Incentive Stock Option granted to any person
other than an Outside Director, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant, but if
granted to an Employee who, at the time of the grant of such Incentive Stock
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant. The exercise price of Options granted pursuant to
Section 5(b) above shall be 100% of the Fair Market Value on the date of grant
of the Option.
For purposes of this Section 7(a), if an Option is amended to reduce the
exercise price, the date of grant of such option shall thereafter be considered
to be the date of such amendment.
(iii) With respect to (i) or (ii) above, the per Share exercise price is
subject to adjustment as provided in Section 10 below.
(b) Fair Market Value. The "Fair Market Value" of the Common Stock
shall be determined by the Committee in its discretion; provided, that if the
Common Stock is listed on a stock exchange, the Fair Market Value per Share
shall be the closing price on such exchange on the date of grant of the Option
as reported in the Wall Street Journal (or, (i) if not so reported, as otherwise
reported by the exchange, and (ii) if not reported on the date of grant, then on
the last prior date on which a sale of the Common Stock was reported); or if not
listed on an exchange but traded on the National Association of Securities
Dealers Automated Quotation National Market System ("NASDAQ"), the Fair Market
Value per Share shall be the closing price per share of the Common Stock for the
date of grant, as reported in the Wall Street Journal (or, (i) if not so
reported, as otherwise reported by NASDAQ, and (ii) if not reported on the date
of grant, then on the last prior date on which a sale of the Common Stock was
reported); or, if the Common Stock is otherwise publicly traded, the mean of the
closing bid price and asked price for the last known sale.
(c) Consideration. The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the methods of payment described in
Section 8(b)(ii) below, shall be determined by the Committee (and in the case of
an Incentive Stock Option, shall be determined at the time of grant) to the
extent permitted under applicable laws.
(d) Withholding. No later than the date as of which an amount first
becomes includable in the gross income of the Optionee for Federal income tax
purposes with respect to an option, the Optionee shall pay to the Company (or
other entity identified by the Committee), or make arrangements satisfactory to
the Company or other entity identified by the Committee regarding the payment
of, any Federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the
Committee, withholding obligations may be settled with Common Stock, including
Common Stock underlying the subject option, provided that any applicable
requirements under Section 16 of the Exchange Act are satisfied so as to avoid
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<PAGE> 7
liability thereunder. The obligations of the Company under this Plan shall be
conditional upon such payment or arrangements, and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Optionee.
8. Options.
(a) Term of Option. The term of each Option granted (other than an
Option granted under Section 5(b) above) shall be for a period of no more than
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Option agreement. However, in the case of an Option granted to
an Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided in
the Option Agreement.
(b) Exercise of Options.
(i) Procedure for Exercise; Rights as a Shareholder. Any Option
granted under this Plan (other than an Option granted pursuant to Section 5(b)
above) shall be exercisable at such times and under such conditions as
determined by the Committee, including performance criteria with respect to the
Company and/or the Optionee, and as shall otherwise be permissible under the
terms of this Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Committee, consist of any
consideration and method of payment allowable under Section 7 of this Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. If the
exercise of an Option is treated in part as the exercise of an Incentive Stock
Option and in part as the exercise of a Nonstatutory Stock Option pursuant to
Section 5(b) above, the Company shall issue a separate stock certificate
evidencing the Shares treated as acquired upon exercise of an Incentive Stock
Option and a separate stock certificate evidencing the Shares treated as
acquired upon exercise of a Nonstatutory Stock Option and shall identify each
such certificate accordingly in its stock transfer records. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section of this
Plan.
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<PAGE> 8
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of this
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(ii) Method of Exercise. An Optionee may exercise an Option, in whole
or in part, at any time during the option period by the Optionee's giving
written notice of exercise on a form provided by the Committee (if available) to
the Company specifying the number of shares of Common Stock subject to the
Option to be purchased. Such notice shall be accompanied by payment in full of
the purchase price by cash or check or such other form of payment as the Company
may accept. If approved by the Committee, payment in full or in part may also be
made (A) by delivering other Shares of Common Stock which (I) either have been
owned by the Optionee for more than six (6) months on the date of surrender or
were not acquired directly or indirectly from the Company, and (II) have a Fair
Market Value on the date of surrender (determined without regard to any
limitations on transferability imposed by securities laws) equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (B) by the execution and delivery of a note or other evidence of
indebtedness (and any security agreement thereunder) satisfactory to the
Committee; (C) by authorizing the Company to retain shares of Common Stock which
would otherwise be issuable upon exercise of the Option having a total Fair
Market Value on the date of delivery equal to the exercise price of the subject
Option; (D) by the delivery of cash by a broker-dealer to whom the Optionee has
submitted an irrevocable notice of exercise (in accordance with Part 220,
Chapter II, Title 12 of the Code of Federal Regulations, so-called "cashless"
exercise); or (E) by any combination of the foregoing. In the case of an
Incentive Stock Option, the right to make a payment in the form of already owned
shares of Common Stock of the same class as the Common Stock subject to the
Option may be authorized only at the time the Option is granted. No shares of
Common Stock shall be issued until full payment therefor has been made. An
Optionee shall have all of the rights of a shareholder of the Company holding
the class of Common Stock that is subject to such Option (including, if
applicable, the right to vote the shares and the right to receive dividends),
when the Optionee has given written notice of exercise, has paid in full for
such shares and such shares have been recorded on the Company's official
shareholder records as having been issued or transferred.
(iii) Termination of Status as an Employee, Consultant or Outside
Director. If an Optionee's Continuous Status as an Employee, Consultant or
Outside Director (as the case may be) is terminated for any reason whatever,
such Optionee may, but only within such period of time as provided in the Option
agreement, after the date of such termination (but in no event later than the
date of expiration of the term of such Option as set forth in the Option
agreement), exercise the Option to the extent that such Employee, Consultant or
Outside Director was entitled to exercise it at the date of such termination
pursuant to the terms of the Option agreement. To the extent that such Employee,
Consultant or Outside Director was not entitled to exercise the Option at the
date of such termination, or if such Employee, Consultant or Outside Director
does not exercise such Option (which such Employee, Consultant or Outside
Director was entitled to exercise) within the time specified in the Option
agreement, the Option shall terminate.
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<PAGE> 9
(iv) Company Loan or Guarantee. Upon the exercise of any Option and
subject to the pertinent Option agreement and the discretion of the Committee,
the Company may at the request of the Optionee; (A) lend to the Optionee, with
recourse, an amount equal to such portion of the option exercise price as the
Committee may determine; or (B) guarantee a loan obtained by the Optionee from a
third-party for the purpose of tendering the option exercise price.
9. Non-transferability of Options. Except as otherwise provided in
an Option agreement, an Option granted hereunder shall by its terms not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or the laws of descent and distribution. Except as otherwise
provided in an Option agreement, an Option may be exercised during the
Optionee's lifetime only by the Optionee.
10. Adjustments Upon Changes in Capitalization or Merger.
(a) Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock which have
been authorized for issuance under this Plan but as to which no Options have yet
been granted or which have been returned to this Plan upon cancellation or
expiration of an Option, and the number of shares of Common Stock subject to
each outstanding Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock of the Company or the payment of a stock
dividend with respect to the Common Stock. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Committee. The Committee may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Committee and give each Optionee the right to exercise his or
her Option as to all or any part of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable.
(c) Sale or Merger. "Sale" means: (i) sale (other than a sale by the
Company) of securities entitled to more than 75% 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 reorganization, merger or consolidation
entitled to more than 25% of the voting power of the reorganized, merged or
consolidated company. Immediately prior to a Sale, each Optionee may exercise
his or her Option as to all Shares then subject to the Option, regardless of any
vesting conditions
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<PAGE> 10
otherwise expressed in the Option. Voting power, as used in this Section 10(c),
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.
(d) Purchased Shares. No adjustment under this Section 10 shall
apply to any purchased Shares already deemed issued at the time any adjustment
would occur.
(e) Notice of Adjustments. Whenever the purchase price or the number
or kind of securities issuable upon the exercise of the Option shall be adjusted
pursuant to Section 10, the Company shall give each Optionee written notice
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, and the method by which such adjustment was
calculated.
(f) Certain Cash Payments. If an Optionee would not be permitted to
exercise an Option or any portion thereof (for purposes of this subsection (f)
only, each such Option being referred to as a "Subject Option") or dispose of
the Shares received upon the exercise thereof without loss or liability (other
than a loss or liability for the exercise price, applicable withholding or any
associated transactional cost), or if the Board determines that the Optionee may
not be permitted to exercise the same rights or receive the same consideration
with respect to the Sale of the Company as a shareholder of the Company with
respect to any Subject Options or portion thereof or the Shares received upon
the exercise thereof, then notwithstanding any other provision of this Plan and
unless the Committee shall provide otherwise in an agreement with such Optionee
with respect to any Subject Options, such Optionee shall have the right, whether
or not the Subject Option is fully exercisable or may be otherwise realized by
the Optionee, by giving notice during the 60-day period from and after a Sale to
the Company, to elect to surrender all or part of any Subject Options to the
Company and to receive cash, within 30 days of such notice, in an amount equal
to the amount by which the "Sale Price" (as defined herein) per share of Common
Stock on the date of such election shall exceed the amount which the Optionee
must pay to exercise the Subject Options per share of Common Stock under such
Subject Options (the "Spread") multiplied by the number of shares of Common
Stock granted under the Subject Options as to which the right granted hereunder
shall be applicable and shall have been exercised; provided, however, that if
the end of such 60- day period from and after a Sale is within six months of the
date of grant of a Subject Option held by an Optionee (except an Optionee who
has deceased during such six month period) who is an officer or director of the
Company (within the meaning of Section 16(b) of the Exchange Act), such Subject
Option shall be canceled in exchange for a payment to the Optionee, effective on
the day which is six months and one day after the date of grant of such Subject
Option, equal to the Spread multiplied by the number of shares of Common Stock
granted under the Subject Option. With respect to any Optionee who is an officer
or director of the Company (within the meaning of Section 16(b) of the Exchange
Act), the 60-day period shall be extended, if necessary, to include the "window
period" of Rule 16(b)-3 which first commences on or after the date of the Sale,
and the Committee shall have sole discretion, if necessary, to approve the
Optionee's exercise
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<PAGE> 11
hereunder and the date on which the Spread is calculated may be adjusted, if
necessary, to a later date if necessary to avoid liability to such Optionee
under Section 16(b). For purposes of the Plan, "Sale Price" means the higher of
(a) the highest reported sales price of a share of Common Stock in any
transaction reported on the principal exchange on which such shares are listed
or on NASDAQ during the 60-day period prior to and including the date of a Sale
or (b) if the Sale is the result of a tender or exchange offer or a corporate
transaction, the highest price per share of Common Stock paid in such tender or
exchange offer or a corporate transaction, except that, in the case of Incentive
Stock Options, such price shall be based only on the Fair Market Value of the
Common Stock on the date such Incentive Stock Option is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Committee.
(g) Mitigation of Excise Tax. If any payment or right accruing to an
Optionee under this Plan (without the application of this Section), either alone
or together with other payments or rights accruing to the Optionee from the
Company or an affiliate ("Total Payments") would constitute a "parachute
payment" (as defined in Section 280G of the Code and regulations thereunder),
the Committee may in each particular instance determine to (a) reduce such
payment or right to the largest amount or greatest right that will result in no
portion of the amount payable or right accruing under the Plan being subject to
an excise tax under Section 4999 of the Code or being disallowed as a deduction
under Section 280G of the Code, or (b) take such other actions, or make such
other arrangements or payments with respect to any such payment or right as the
Committee may determine in the circumstances. Any such determination shall be
made by the Committee in the exercise of its sole discretion, and such
determination shall be conclusive and binding on the Optionee. The Optionee
shall cooperate as may be requested by the Committee in connection with the
Committee's determination, including providing the Committee with such
information concerning such Optionee as the Committee may deem relevant to its
determination.
11. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date on which the Committee makes the determination
granting such Option. Notice of the determination shall be given to each
Employee, Consultant or Outside Director to whom an Option is so granted within
a reasonable time after the date of such grant. If the Committee cancels, with
the consent of Optionee, any Option granted under this Plan, and a new Option is
substituted therefor, the date that the canceled Option was originally granted
shall be the date used to determine the earliest date for exercising the new
substituted Option under Section 7 of this Plan so that the Optionee may
exercise the substituted Option at the same time as if the Optionee had held the
substituted Option since the date the canceled Option was granted.
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<PAGE> 12
12. Amendment and Termination of Plan.
(a) Amendment and Termination. The Board or the Committee may amend,
waive or terminate this Plan from time to time in such respects as it shall deem
advisable; provided that, to the extent necessary to comply with Rule 16b-3 or
with Section 422 of the Code (or any other successor or applicable law or
regulation), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as is required by the applicable law, rule
or regulation.
(b) Effect of Amendment or Termination. Any such amendment or
termination of this Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Committee, which agreement must be in writing and signed by the Optionee and
the Company.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
14. Restrictions on Shares. Shares of Common Stock issued upon
exercise of an Option shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee in
its discretion may determine or provide in the grant. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock, cash
or other property prior to (i) the listing of such shares on any stock exchange
(or other public market) on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an affiliate to obtain a deduction with respect to the exercise of an
Option. The Company may cause any certificate for any share of Common Stock to
be delivered to be properly marked with a legend or other notation reflecting
the limitations on transfer of such Common Stock as provided in this Plan or as
the Committee may otherwise require. The Committee may require any person
exercising an Option to make such representations and furnish such information
as it may consider appropriate in connection with the issuance or delivery of
the shares of Common Stock in compliance with applicable law or otherwise.
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<PAGE> 13
Fractional shares shall not be delivered, but shall be rounded to the next lower
whole number of shares.
15. Shareholder Rights. No person shall have any rights of a
shareholder as to shares of Common Stock subject to an Option until, after
proper exercise of the Option or other action required, such shares shall have
been recorded on the Company's official shareholder records as having been
issued or transferred. Subject to the preceding Section and upon exercise of the
Option or any portion thereof, the Company will have thirty (30) days in which
to issue the shares, and the Optionee will not be treated as a shareholder for
any purpose whatsoever prior to such issuance. No adjustment shall be made for
cash dividends or other rights for which the record date is prior to the date
such shares are recorded as issued or transferred in the Company's official
shareholder records, except as provided herein or in an agreement.
16. Registration. If there has been a public offering of the
Company's Common Stock, the Company may register under the Securities Act the
Common Stock delivered or deliverable pursuant to Options on Commission Form S-8
if available to the Company for this purpose (or any successor or alternate form
that is substantially similar to that form to the extent available to effect
such registration), in accordance with the rules and regulations governing such
forms, as soon as such forms are available for registration to the Company for
this purpose. The Company will, if it so determines, use its good faith efforts
to cause the registration statement to become effective as soon as possible and
will file such supplements and amendments to the registration statement as may
be necessary to keep the registration statement in effect until the earliest of
(a) one year following the expiration of the option period of the last Option
outstanding, (b) the date the Company is no longer a reporting company under the
Exchange Act and (c) the date all Optionees have disposed of all shares
delivered pursuant to any Option. The Company may delay the foregoing actions at
any time and from time to time if the Committee determines in its discretion
that any such registration would materially and adversely affect the Company's
interests or if there is no material benefit to Optionees.
17. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to permit the exercise of all Options outstanding under this
Plan. The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained for any
reason.
18. Option Agreements. Options shall be evidenced by written Option
agreements in such form as the Committee shall approve.
19. Information to Optionees. To the extent required by applicable
law, the Company shall provide to each Optionee, during the period for which
such Optionee has one or more Options outstanding, copies of all annual reports
and other information which are provided to all stockholders of the Company.
Except as otherwise noted in the
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foregoing sentence, the Company shall have no obligation or duty to
affirmatively disclose to any Optionee, and no Optionee shall have any right to
be advised of, any material information regarding the Company or any Parent or
Subsidiary at any time prior to, upon or otherwise in connection with, the
exercise of an Option.
20. Funding. Benefits payable under this 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 this Plan.
21. Controlling Law. This Plan shall be governed by the laws of the
state of incorporation of the Company at the time of determination of any issues
raised with respect to the interpretation or enforcement of this Plan, without
application of any conflict of laws principles.
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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.
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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.
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<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
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<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
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<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
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<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.
Page 8
<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 22, 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> 24
SECOND AMENDMENT TO
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
Second Amendment to Amended and Restated Registration Rights Agreement
dated as of June 30, 1997 (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 "AGREEMENT"), as amended pursuant to that certain First Amendment to
Amended and Restated Registration Rights Agreement dated as of April 22, 1996
(the "FIRST AMENDMENT", and together with the Agreement, the "REGISTRATION
RIGHTS AGREEMENT").
Concurrently with the execution of this Amendment, the Company and
certain investors (the "INVESTORS") have executed a Series F Preferred Stock
Purchase Agreement (the "SERIES F PURCHASE AGREEMENT") pursuant to which the
Investors are purchasing securities of the Company.
To induce the Investors to execute the Series F Purchase Agreement,
the Company and the Holders agree as follows.
AGREEMENT
1. Amendments. The Company and the Holders agree that:
(a) Section 10 of the Registration Rights Agreement is
amended and restated in its entirety to read as follows:
"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 one hundred eighty (180)
days after the effective date of such registration statement, but in
no event shall such period exceed one hundred and twenty (180) days."
(b) 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, Series E
Preferred Stock, and Series F Preferred Stock, each having no
par value; and
<PAGE> 25
(c) 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. (630) 323-1221
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> 26
IN WITNESS WHEREOF, the parties hereto have caused this Second
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 limited
partnership, its general
partner
By: ARCH Venture
Corporation, an
Illinois corporation,
its general partner
By: ________________
Its Managing
Director
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
<PAGE> 27
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: ______________________________
Robert W. Shaw, Jr.
General Partner
UVCC II PARALLEL FUND, L.P., a Delaware
limited partnership
By: ARETE VENTURES L.P. III,
its General Partner
By:______________________________
Robert W. Shaw, Jr.
General Partner
ADVANCE MATERIAL TECHNOLOGIES
VENTURE PARTNER LIMITED, a
Delaware partnership
By: _________________________
A General Partner
<PAGE> 28
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
HARRIS & HARRIS GROUP, INC., a New York
corporation
By:_____________________________________
Its:____________________________________
GRACE INVESTMENTS, LTD., an Illinois
limited partnership
By:_____________________________________
Its:____________________________________
<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).
- 3 -
<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
- 4 -
<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
- 5 -
<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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<PAGE> 9
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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<PAGE> 10
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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<PAGE> 12
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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<PAGE> 13
(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.
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<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
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<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
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<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
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<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 10.11
NANOPHASE TECHNOLOGIES CORPORATION
CONSULTING AND STOCK PURCHASE AGREEMENT
CONSULTING AND STOCK PURCHASE AGREEMENT entered into as of May 9, 1990,
between RICHARD W. SIEGEL ("Siegel") and NANOPHASE TECHNOLOGIES CORPORATION, an
Illinois corporation (the "Company").
PRELIMINARY STATEMENT
A. The Company wishes to retain Siegel to provide consulting services to
the Company, on the terms and conditions set forth herein, and in connection
therewith desires to sell Siegel certain shares of common stock of the Company.
B. Siegel desires to provide consulting services to the Company, on such
terms and conditions, and desires to purchase such shares of stock from the
Company.
C. Certain capitalized terms used herein are defined in Article IV
hereof.
THEREFORE, the parties agree as follows:
AGREEMENT
I. CONSULTING SERVICES
1.1 Consulting Services. Siegel hereby agrees to render consulting
services to the Company in the areas described on Exhibit A attached hereto (the
"Scope of the Work"), and on such other matters as Siegel and the Company may
agree from time to time. Siegel agrees to perform his consulting services under
this Agreement solely at facilities provided or designated by the Company for
such purposes, provided that Siegel shall not be required to perform such
services at any location outside of the Chicago area without his consent. Unless
Siegel and the Company shall agree otherwise, Siegel agrees to devote an average
of twenty-four (24) hours per month for each year during the term hereof to
providing consulting services under this Agreement, and the Company agrees to
retain Siegel for the same, the exact times to be agreed upon by Siegel and the
Company.
1.2 Term. Siegel shall provide consulting services to the Company under
this Agreement for a period of five (5) years, unless this Agreement is sooner
terminated by either party as hereinafter provided; provided that such term
shall be renewed for successive one-year terms thereafter unless terminated by
either Siegel or the Company. Siegel may terminate his agreement to provide
consulting services to the Company, and the Company
<PAGE> 2
may terminate its agreement to retain Siegel to provide consulting services, at
any time on ninety (90) days' written notice to the other party. Notwithstanding
the foregoing, either Siegel or the Company may terminate this Agreement at any
time if the other party shall breach his or its obligations hereunder (provided
that the non-breaching party shall give breaching party written notice of such
breach, and breaching party shall have thirty (30) days after receipt of such
notice to cure such breach). Further, Siegel may terminate his agreement to
provide consulting services under this Agreement, and the Company may terminate
its agreement to retain Siegel to provide consulting services, at any time if
any of Siegel's activities or proposed activities hereunder are disapproved in
writing by the University, as operator of ANL, as provided in Section 3.3
hereof.
1.3 Compensation.
(a) Basic Compensation. The Company shall pay Siegel $150.00 per hour
for providing consulting services hereunder, payable monthly in arrears. The
Company shall also reimburse Siegel for all approved out-of-pocket expenses
actually incurred by Siegel in the performance of his services hereunder.
(b) Stock Purchase and Sale. In addition to the basic compensation
described above, the Company agrees to sell Siegel, and Siegel agrees to
purchase from the Company, ten thousand (10,000) shares of common stock, no par
value, of the Company (the "Stock"), on the terms set forth in Article II
hereof.
1.4 Board of Directors. Upon request of the Company, and subject to the
approval of the University, as operator of ANL, Siegel agrees to serve on the
Board of Directors of the Company.
1.5 Indemnification. The Company hereby agrees to indemnify and hold
Siegel harmless from and against any and all claims, liabilities, losses,
damages, costs and expenses (including without limitation attorneys' fees and
defense costs) relating to or arising directly or indirectly out of Siegel's
serving as a consultant to the Company or out of the performance of his
obligations hereunder, except in the case of gross negligence or bad faith on
the part of Siegel.
II. PURCHASE AND SALE OF STOCK
2.1 Purchase Price; Closing. The purchase price for the Stock shall be
$.001 per share, payable in cash at Closing. Payment for the Stock, and delivery
of the certificates evidencing the Stock, shall be effected at the offices of
the Company, 1115-25 East 58th Street, Chicago, Illinois, at 10:00
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<PAGE> 3
A.M. Central Standard Time on May l0, 1990, or at such other time, date and
place upon which the parties shall agree.
2.2 Unvested Shares Repurchase Option.
(a) Company Repurchase Right. If at any time Siegel shall no longer be
an Associate of the Company, the Company shall have the right (the "Repurchase
Option") to purchase all of the shares of stock which are then Unvested Shares
(as defined in Section 2.2(b) hereof) on the terms set forth in this Section
2.2. The Company may exercise its Repurchase Option at any time during the one
hundred eighty (180) days beginning on the Termination Date. If the Company
shall fail to exercise its Repurchase Option for any Unvested Shares during such
period, such Unvested Shares shall become Vested Shares.
(b) Vesting Schedule. The following number of shares of Stock shall be
subject to the Repurchase Option (such shares, together with the shares and
other property referred to in Section 2.2(f), called "Unvested Shares"):
<TABLE>
<CAPTION>
Period Unvested Shares
------ ---------------
<S> <C>
From the date of this Agreement 7 500
through August 31, 1990
From September 1, 1990 5,000
through August 31, 1991
From September 1, 1991 2,500
through August 31, 1992
After September 1, 1992 0
</TABLE>
Shares of Stock that are not subject to the Repurchase Option are referred to as
"Vested Shares". Notwithstanding the above Vesting Schedule, no Unvested Shares
shall become Vested Shares after the Termination Date unless the Company shall
fail to exercise its Repurchase Option within the prescribed period, in which
event all such Unvested Shares shall become Vested Shares in accordance with
Section 2.2(a) hereof.
(c) Acceleration of Vesting. Notwithstanding Section 2.2(b) hereof:
(i) upon the occurrence of any of the following events, 2,500
Unvested Shares shall become Vested Shares:
(A) the Company shall receive a funding grant from
the State of Illinois under the State of Illinois Technology
Challenge Grant program;
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<PAGE> 4
(B) the Company shall receive a funding grant from
either of two SBIR proposals previously submitted by the
Company, or the Company shall receive an equivalent funding
grant from some other source and Siegel shall have actively
participated in the preparation of the application or proposal
for such grant, provided that if the Company shall determine
not to seek any other grant funding, then upon such other
event as the Company and Siegel may agree; and
(C) the Company shall receive reasonably satisfactory
commitments from three (3) persons satisfactory to the
Company's Board of Directors to serve on the Company's
Scientific Advisory Board. (For purposes hereof, the Company
acknowledges that Bernard Kear, Herbert Gleiter, and Ilhan
Aksay are satisfactory to the Board of Directors to serve as
members of the Scientific Advisory Board.)
For the purposes of this Section 2.2(c)(i), Unvested Shares shall vest
in the order such shares would have become Vested Shares had the
provisions of this Section 2.2(c)(i) not been satisfied. Therefore,
upon the first of the above events to occur, the Unvested Shares that
would have become Vested Shares on November 1, 1990, shall become
Vested Shares; upon the second of the above events to occur, the
Unvested Shares that would have become Vested Shares on September 1,
1991, shall become Vested Shares; and upon the third of the above
events to occur, the Unvested Shares that would have become Vested
Shares on September 1, 1992, shall become Vested Shares.
(ii) If the Company's Initial Public Offering shall occur,
then all Unvested Shares shall become Vested Shares.
(d) Repurchase Price. The purchase price per share which the Company
shall pay for Unvested Shares repurchased under the Repurchase Option shall
equal the purchase price per share originally paid by Siegel for the Stock as
specified in Section 2.1, adjusted as provided in Section 2.2(f).
(e) Method of Exercise; Payment for Shares. The Company may exercise
its Repurchase Option by written notice to Siegel or Siegel's legal
representative, signed by an officer or director of the Company and delivered
within the exercise period specified in Section 2.2(a). The notice shall specify
the number of Unvested Shares which the Company has elected to repurchase and
the date on which the repurchase shall be effected. Prior to the close of
business on the date specified by the Company to effect the repurchase, (a) the
Escrow Agent referred to in Section 2.5 shall deliver to the Company stock
certificates lodged with the Escrow Agent and evidencing Unvested Shares being
repurchased,
- 4 -
<PAGE> 5
and (b) any holder of Unvested Shares being repurchased which had been released
from the escrow referred to in Section 2.5 shall deliver to the Company stock
certificates evidencing such Unvested Shares, in either case endorsed for
transfer to the Company or accompanied by endorsed blank assignments separate
from certificate. Upon receipt of such stock certificates, the Company shall pay
the repurchase price therefor to Siegel or Siegel's legal representative or to
the holder thereof, as the case may be, in cash or by check.
(f) Stock Splits, Etc.
(i) If at any time while he holds any Unvested Shares Siegel
shall receive, or shall be entitled to receive, any additional shares
of common stock of the Company, or any other securities or property, by
virtue of his ownership of the Unvested Shares, other than money paid
as a regular cash dividend, whether by stock split, stock dividend, or
otherwise, then any and all such new, substituted, or additional
securities or other property which Siegel receives or is entitled to
receive by virtue of his ownership of the Unvested Shares shall be
immediately subject to the Repurchase Option and shall be included in
the term "Unvested Shares" for all purposes with the same force and
effect as the shares of the Stock then subject to the Repurchase
Option. Such new, additional or substituted shares of Stock or other
property shall be subject to vesting according to the Vesting Schedule
described in Section 2.2(b) hereof, pro rata in accordance with the
number of shares of Unvested Stock then owned by Siegel. Siegel agrees
to accept such new, substituted or additional shares or property in
trust for the Company and deliver the certificates for such shares,
endorsed for transfer to the Company or accompanied by endorsed blank
assignments separate from certificate, or other property, to the Escrow
Agent in accordance with the provisions of Section 2.5 hereof.
(ii) After each such event, the repurchase price per share
shall be adjusted so that the aggregate repurchase price for all
Unvested Stock after the adjustment shall equal the aggregate
repurchase price for such Unvested Stock before the adjustment.
(g) Transfer - Unvested Shares.
(i) Except as provided in Section 2.6 hereof, Siegel shall not
voluntarily Transfer any interest in the Unvested Shares. If any
interest in the Unvested Shares shall be Transferred to any other
person or entity (whether by will, devise, operation of law, or
otherwise), then the Company's
- 5 -
<PAGE> 6
Repurchase option shall be immediately exercisable for all then
Unvested Shares, on the terms set forth herein.
(ii) In addition to any other legends, each certificate
evidencing Unvested Shares shall be imprinted with the following
legend:
"The shares represented by this certificate are subject to a
repurchase right in favor of the issuer or its assignee, as
set forth in a Consulting and Stock Purchase Agreement between
the issuer and the original holder of the shares. The shares
shall remain subject to the repurchase right, despite any
transfer or attempted transfer. The issuer will furnish a copy
of such agreement upon request and free of charge to the
registered holder hereof."
When any Unvested Shares become Vested Shares, the Company shall upon
request issue one or more new certificates evidencing the Vested Shares
not bearing the above legend.
2.3 Investment Representations: Tax Effects of Investment.
(a) Investment Intent. Siegel represents and warrants that he is
acquiring the Stock for his own account for investment and not with a view to,
or for sale or other disposition in connection with, any distribution of the
Stock, nor with any present intention of selling or otherwise disposing of the
Stock.
(b) Business of the Company. Siegel acknowledges that the Company has
no financial and operating history. Siegel acknowledges that he is familiar with
the proposed business and operations of the Company. Siegel acknowledges that he
has had the opportunity to discuss the Company and its plans, operations and
financial condition with its officers and that he has received all information
which he deems necessary to enable him to evaluate the risks, financial and
otherwise, inherent in making an investment in the Stock.
(c) Economic Risk. Siegel acknowledges that an investment in the Stock
is highly speculative, and represents that he is able, without impairing his
financial position, to hold the Stock for an indefinite period of time and to
suffer a complete loss on his investment in the Stock.
(d) Transferability of the Stock. Siegel acknowledges that:
(i) no public market now exists for the Stock or any other
securities of the Company and the Company has no plans to create a
public market for any of its securities; and,
- 6 -
<PAGE> 7
(ii) the Stock is not registered under the Securities Act of
1933, as amended, or under any state securities laws, and cannot be
transferred unless registered under such acts or unless an exemption
from registration is available; and
(iii) transfer of the Stock is restricted by law and by the
terms of this Agreement, and Siegel must therefore hold the Stock
indefinitely, and thus bear the economic risk of his investment
indefinitely, unless a subsequent disposition of the Stock is permitted
under the terms of applicable law and this Agreement.
(e) Tax Effects. Siegel acknowledges that it is his sole
responsibility, and not the Company's, to determine the tax consequences to him,
if any, of the issuance of the Stock, and to file in a timely manner any
election which may be available to him in connection with the issuance of the
Stock.
2.4 Restrictions on Transfers.
(a) Right of First Refusal - Vested Shares. If Siegel desires in good
faith to Transfer to any person or entity other than a Permitted Transferee all
or any part of the Vested Shares owned by him ("Sale Shares"), he shall do so
only for cash, a promissory note, or a combination of cash and a promissory
note, and shall deliver written notice thereof to the Company specifying the
number of Vested Shares which he desires to Transfer and the purchase price and
other terms thereof (a "Transfer Notice"). Upon the delivery of such Transfer
Notice, the Company shall have an option, exercisable for thirty (30) days after
the date of receipt of such Transfer Notice, to buy all, but not less than all,
the Sale Shares from Siegel at the price and on the terms set forth in the
Transfer Notice. If the Company does not elect to purchase all of the Sale
Shares, then Siegel shall be free, for a period of thirty (30) days thereafter,
to consummate the Transfer on terms no less favorable than those set forth in
the Transfer Notice. The Company may assign its right of first refusal under
this Section 2.4(a) to any other person, including other shareholders of the
Company; provided, however, that if the consideration for the Sale Shares
includes a promissory note, Siegel's consent shall be required for any such
assignment, which consent shall not be unreasonably withheld. In the event of
any Transfer (including a Transfer to a Permitted Transferee), the Stock so
transferred shall be subject to the provisions of this Agreement, and the
persons acquiring the Stock will, as a condition precedent to the acquisition of
such shares, execute an agreement containing the provisions of this Section 2.4
and shall agree to be bound thereby, and shall also pay any costs incurred by
the Company as a result of such Transfer. Any Transfer made in violation of this
Section 2.4(a) shall be void. Notwithstanding the foregoing, the right of first
refusal set forth in this Section
- 7 -
<PAGE> 8
2.4(a) shall not apply to any Transfer to a Permitted Transferee. The right of
first refusal set forth in this Section 2.4(a) shall terminate at such time as
the Company shall have completed its Initial Public Offering.
(b) Market Stand-Off. In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended,
Siegel shall not Transfer (except to Permitted Transferees) or otherwise agree
to engage in any transactions with respect to any shares of Stock owned by him
without the prior written consent of the Company or its underwriters, for such
period of time as may be requested by the Company or such underwriter; provided,
however, that in no event shall such period exceed 180 days. In order to enforce
this Section 2.4(b), the Company may impose stop-transfer instructions with
respect to the shares until the end of the applicable standoff period.
(c) Legend - All Shares. So long as the shares held by Siegel shall
remain subject to the Company's right of first refusal under Section 2.4(a), in
addition to any other legends, each certificate evidencing such shares of the
Stock shall be imprinted with the following legend:
"The shares represented by this certificate are subject to a right of
first refusal in favor of the issuer or its assignee, as set forth in a
Consulting and Stock Purchase Agreement between the issuer and the
original holder of the shares. The shares shall remain subject to the
repurchase right and right of first refusal, despite any transfer or
attempted transfer. The issuer will furnish a copy of such agreement
upon request and free of charge to the registered holder hereof."
When the Company's rights under this Section 2.4 shall terminate, the Company
shall upon request issue one or more new certificates evidencing the Vested
Shares not bearing the above legend.
2.5 Escrow. To ensure the availability for delivery of the Unvested
Stock upon exercise of the Repurchase Option, upon the issuance of the Unvested
Stock Siegel and the Company shall enter into Joint Escrow Instructions in the
form attached as Exhibit B to this Agreement, and shall deposit with the Escrow
Agent under those Joint Instructions the certificates evidencing all shares of
the Unvested Stock, duly endorsed for transfer to the Company or accompanied by
endorsed blank assignments separate from certificate. Upon a transfer of any
shares of the Unvested Stock which is permitted under the terms of this
Agreement, the transferee shall execute similar Joint Instructions and deposit
similar stock assignments with the Escrow Agent. Upon the termination of the
Repurchase Option, with respect to any shares
- 8 -
<PAGE> 9
of Stock, the Escrow Agent shall deliver one or more certificates evidencing
those shares of Stock to the holder.
2.6 Repurchase Obligation. In the event that Siegel is required by the
University, as operator of ANL, to divest all of his Stock in the Company, the
Company agrees, upon written notice from Siegel, (a) to purchase all of Siegel's
Vested Shares at a price equal to their Fair Market Value, and (b) to purchase
all of Siegel's Unvested Shares at a price equal to the purchase price
originally paid by Siegel for such Unvested Shares. To the extent that the
Company may not legally purchase Stock from Siegel as required by the preceding
sentence, the Company may (i) assign its right and obligation to any person or
entity selected by the Company, including without limitation one or more
shareholders of the Company, or (ii) defer the consummation of its purchase
until the Company may legally effect the purchase. The Company shall pay the
purchase price due to Siegel in cash, by delivery of the Company's promissory
note bearing interest at 10% per annum and maturing not more than two (2) years
after the date of repurchase, or with a combination of the two.
2.7 Right to Purchase Additional Equity Securities. If the Company
shall hereafter offer any equity security of the Company or any securities
exchangeable for or convertible into equity securities of the Company or any
warrants or other instruments evidencing rights to subscribe for, purchase or
otherwise acquire any equity securities of the Company ("Equity Securities"),
and if the effect of the issuance of such Equity Securities or the exchange,
conversion or exercise of such Equity Securities would be to reduce Siegel's
equity position in the Company (taking the Company as a whole on a fully diluted
basis, assuming the conversion and exchange of all outstanding securities which
are convertible or exchangeable into equity securities and the full exercise of
all outstanding warrants and other rights to acquire equity securities) below
10%, the Company shall promptly notify Siegel thereof and Siegel shall have the
right, by written notice to the Company given within twenty (20) days following
receipt of such notice by Siegel, to purchase on the most favorable terms such
Equity Securities are offered by the Company to other investors such amount of
such Equity Securities which (taking the Company as a whole on a fully diluted
basis, assuming the conversion and exchange of all outstanding securities which
are convertible or exchangeable into equity securities and the full exercise of
all outstanding warrants and other rights to acquire equity securities) would
maintain for Siegel an equity position in the Company equal to Siegel's equity
position in the Company prior to the issuance of such Equity Securities (but in
no event more than 10%). The rights granted to Siegel under this Section 2.7
shall survive the termination for any reason of this Agreement; provided,
however, that such rights shall not apply in the event of, and shall terminate
immediately prior to, the Initial Public Offering.
- 9 -
<PAGE> 10
III. CONFIDENTIALITY, PROPRIETARY RIGHTS, AND CONFLICTS OF INTEREST
3.1 Nondisclosure Obligation. Siegel understands and acknowledges that
as a shareholder and in the course of performing consulting services under this
Agreement he may be exposed to Proprietary Information rightfully belonging to
the Company. Siegel will hold in confidence all such Proprietary Information and
will not at any time, without the prior written consent of the Company, divulge
or disclose to anyone outside the Company, or appropriate for his own use or the
use of any third party, such Proprietary Information. For purposes of this
Section 3.1, "third parties" shall include each of the University and DOE, and
Siegel specifically agrees that he shall not use or disclose such Proprietary
Information in the course of his employment at ANL. Siegel's agreements and
covenants under this Section 3.1 shall survive the termination of this Agreement
and Siegel's termination as a shareholder of the Company.
3.2 Inventions.
(a) Assignment of Inventions. Any Inventions conceived by Siegel within
the Scope of the Work shall be the property of the Company, and Siegel agrees to
execute such assignments or other documents as the Company may reasonably
request to evidence the Company's ownership of such Inventions. The Company
recognizes the obligation of Siegel pursuant to his employment agreement with
the University, and the University with DOE under ANL Prime Contract No.
W-31-109-ENG-38, and agrees that Invention ownership conflicts with respect
thereto shall be presumed in favor of such obligations and against the present
agreement.
(b) Laboratory Notebooks. Siegel agrees to maintain laboratory
notebooks relating to his work under this Agreement, and to promptly disclose
any Invention conceived by him in the performance of his duties hereunder to the
Company.
(c) Rights in Copyrights. Unless otherwise agreed in writing by the
Company, original works of authorship fixed in any tangible form, prepared by
Siegel (alone or jointly with others) in performing work under this Agreement
shall be deemed a "work made for hire" under the copyright laws (hereinafter
called "Copyright Works") and shall be owned by the Company. Siegel understands
that any assignment or release of such Copyright Works can only be made by the
Company. Siegel shall do everything reasonably necessary to enable the Company
or its nominees to protect its rights in such Copyright Works.
(d) Return of Documents. All writing, records, and other documents and
items of tangible property containing any Inventions, Proprietary Information,
or Copyright Works of the
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<PAGE> 11
Company in Siegel's custody or possession shall be the exclusive property of the
Company, shall not be copied and/or removed from the premises of the Company,
except in pursuit of the business of the Company, and shall be delivered to the
Company (i) upon request, or (ii) in any event, upon the termination of this
Agreement.
3.3 Conflicts of Interest.
(a) ANL and DOE Priority. Company acknowledges that Siegel is employed
by the University and therefore Siegel's availability for consulting services
under this Agreement will be restricted. Siegel will not be required to perform
any services requiring the use of ANL facilities, equipment, materials or time.
The University at any time may revoke Siegel's authority to serve as a
consultant for the Company, or to perform any specific task for the Company, in
which event Siegel shall have the right to decline to perform such task or to
terminate this Agreement. Further, Siegel may terminate this Agreement, or
decline to perform any specific tasks, if Siegel reasonably determines that his
duties hereunder are inconsistent with his obligations to the University. Any
conflicts of interest between Siegel's obligations to the Company and to the
University shall be resolved in favor of the University. Notwithstanding any
other provision of this Agreement, it is understood and agreed that Siegel, by
virtue of his employment with the University at ANL, has a prior commitment with
respect to Inventions, and that all rights in any Invention of Siegel are
subject to the terms and conditions of Siegel's patent agreement with the
University and subject to the provisions of ANL Prime Contract No.
W-31-109-ENG-38 between the University and DOE. No modification or amendment to
Article III of this Agreement, including a modification or amendment to the
Scope of the Work, shall be effective without the prior written consent of the
University, as operator of ANL for DOE.
(b) Absence of Conflicting Agreements. The Company does not desire to
acquire from Siegel any trade secret or other information that he may have
acquired or may in the future acquire from others with restriction, including
the University or DOE. Accordingly, Siegel represents and warrants that to the
best of his knowledge he will not divulge to the Company any information,
practices or techniques in violation of the rights of other parties. Siegel
represents and warrants that, except to the extent he is subject to any of the
policies of ANL as a result of his employment thereby, he is not a party to any
agreement or arrangement, whether oral or written, which would prevent him from
carrying out his obligations to the Company under this Agreement.
(c) No Exclusivity. It is understood and agreed that nothing contained
in this Agreement shall prevent Siegel from
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<PAGE> 12
performing services within the Scope of the Work for others, either as an
employee or as a consultant, so long as the performance of such obligations does
not interfere with the performance of his obligations hereunder.
IV. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"ANL" shall mean Argonne National Laboratory.
"Associate" shall mean a person who renders periodic services to the
Company, either as an employee, officer or director of the Company, or as an
independent non-employee consultant to the Company rendering consulting services
pursuant to a written agreement with the Company.
"DOE" shall mean the United States Department of Energy.
"Fair Market Value" shall mean, as of any date, an amount equal to the
fair market value of the Siegel's Vested Shares. If Siegel and the Company
cannot agree on such value, each shall appoint one (1) independent appraiser,
who shall be a person with expertise in valuing privately held and start-up
companies. Such appraisers shall each independently determine the fair market
value of such Shares within forty-five (45) days, and the Fair Market Value
shall be the mean of such valuations; provided however, that if the higher
valuation is more than 50% greater than the lower valuation, then the appraisers
appointed by Siegel and the Company shall appoint a third independent appraiser,
who shall also be a person with expertise in valuing privately held companies,
and such third appraiser shall, within thirty (30) days, determine a value
between the two valuations determined by the first appraisals and such value
shall be the Fair Market Value. Each party shall bear the cost of the appraiser
appointed by it, and the cost of the third appraiser shall be borne equally by
Siegel and the Company.
"Initial Public Offering" shall mean a public sale of equity securities
of the Company pursuant to an effective registration statement under the
Securities Act of 1933, as amended.
"Invention" shall mean any discoveries, concepts and ideas, whether
patentable or not, including but not limited to proprietary or secret processes,
designs, computer software, programs, formulae, inventions, developments,
modifications, procedures, methods, techniques, processes, adaptations, and
applications, as well as improvements thereof, conceived by Siegel (alone or
jointly with others) in performing consulting services under this Agreement.
- 12 -
<PAGE> 13
"Permitted Transferee" shall mean a person's spouse, ancestor or
descendant, or a trust created for the primary benefit of such persons (provided
that such trust, if it provides for a secondary or contingent beneficiary, shall
provide for a secondary or contingent beneficiary who shall be one of the above
persons.)
"Proprietary Information" shall mean any information not generally
known in the relevant trade or industry, which Siegel acquired, learned,
discovered, developed, conceived, originated or prepared in performing
consulting services under this Agreement for the Company or received by Siegel
as a shareholder of the Company, including without limitation the following:
(A) all knowledge and information relating to
commercialization or development of commercial applications for the
Company's technology within the Scope of the Work;
(B) financial or business information of the Company or any
customer of the Company;
(C) information regarding the terms of employment of any of
the Company's employees or consultants; and
(D) any "trade secrets", as defined in the Illinois Trade
Secrets Act in effect on the date hereof, of the Company or any
customer of the Company.
All Proprietary Information in written or other tangible form shall be marked
"Proprietary"; Proprietary Information in an intangible form shall be reduced to
writing within thirty (30) days of its disclosure, and such writing shall be so
marked. Notwithstanding the foregoing, Proprietary Information does not include
(i) information which is or becomes publicly available without any restriction
as to confidentiality (except as may be disclosed by Siegel in violation of this
Agreement), (ii) information acquired by Siegel from a source other than the
Company or any of its employees, which source legally acquired such information
without any restriction as to confidentiality, (iii) information of a general
nature and information of a specific nature regarding the technology of the
Company known to Siegel prior hereto, or (iv) information disclosed by the
Company to any third party other than under conditions of confidence.
"Termination Date" shall mean the date on which Siegel ceases to be an
Associate of the Company.
"Transfer" shall mean any sale, assignment, negotiation, pledge,
hypothecation, and any other dispositions of the Stock, and all other events or
transactions where a lien is created against the Shares.
- 13 -
<PAGE> 14
"University" shall mean The University Of Chicago.
V. MISCELLANEOUS
5.1 Amendment and Waiver.
(a) Any term, covenant, agreement or condition contained in this
Agreement may be amended with, and only with, the written consent of the Company
and Siegel, provided that any amendment to Article III hereof shall require the
consent of the University, as set forth in Section 3.3(a) hereof.
(b) Any waiver of any term, covenant, agreement or condition contained
in this Agreement must be in writing. No such waiver shall 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.
5.2 Representations and Warranties to Survive Closing. All
representations, warranties and covenants contained herein or made in writing by
Siegel or the Company in connection herewith shall survive the execution and
delivery of this Agreement and the issuance of Stock hereunder.
5.3 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.
5.4 Successors and Assigns. The Company may from time to time assign
its Repurchase Option for any particular Unvested Shares to any person or entity
selected by the Company, including without limitation one or more shareholders
of the Company. All representations, warranties, covenants and agreements of the
parties contained in this Agreement 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.
5.5 Shareholder Rights. Until such time as the Company exercises its
Repurchase Option as to any particular Unvested Shares, Siegel (or any successor
in interest) shall have all the rights of a shareholder (including all voting
and dividend rights) with respect to such shares.
- 14 -
<PAGE> 15
5.6 Notices. All communications provided for hereunder shall be hand
delivered or sent by registered mail return receipt requested and, if to Siegel,
addressed as follows:
Dr. Richard W. Siegel
211 West Hickory Street
Hinsdale, Illinois 60521-3309
with a copy to:
David E. Grossman, Esq.
Burns & Levinson
(prior to May 4, 1990) or (after May 4, 1990)
50 Milk Street 125 Summit Street
Boston, MA 02109 Boston, MA 02110-1624
and if to the Company, addressed as follows:
Nanophase Technologies Corporation
c/o ARCH Development Corporation
1115-25 East 58th Street
Chicago, Illinois 60637
Attention: President
with a copy to:
Mr. Thomas M. Fitzpatrick
Law Offices of Thomas M. Fitzpatrick
20 North Wacker Drive, Suite 2243
Chicago, Illinois 60606
or such other addresses or recipients 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.
5.7 Governing Law. Except to the extent federal law is applicable, 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.
5.8 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
Articles or Sections at the beginning of which they appear.
5.9 Remedies. The parties expressly agree that each party shall be
entitled to injunctive and/or equitable relief, without bond, in any court of
competent jurisdiction to prevent or otherwise restrain a breach of this
Agreement.
- 15 -
<PAGE> 16
5.10 Entire Agreement. This Agreement represents the entire agreement
and understanding of the parties hereto with respect to the transactions set
forth herein and no representations, warranties or covenants have been made in
connection with this Agreement except those expressly set forth herein. This
Agreement supersedes all prior negotiations, discussions, correspondence,
communications, understandings and agreements between the parties relating to
the subject matter of this Agreement, and all prior drafts of this Agreement,
all of which are merged into this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
Siegel: /s/ RICHARD W. SIEGEL
---------------------------------------
RICHARD W. SIEGEL
Company: NANOPHASE TECHNOLOGIES CORPORATION,
an Illinois corporation
By:
------------------------------------
Its
--------------------------------
- 16 -
<PAGE> 17
Exhibit A
SCOPE OF THE WORK
Advising and consulting on information in published articles or other
previously disseminated information on nanophase materials with regard to their
application and commercialization.
- 17 -
<PAGE> 18
Exhibit B
JOINT ESCROW INSTRUCTIONS
May 9, 1990
Secretary
Nanophase Technologies Corporation
c/o ARCH Development Corporation
1115-25 East 58th Street
Chicago, Illinois 60637
Dear Sir or Madam:
1. As Escrow Agent for both Nanophase Technologies Corporation, an
Illinois corporation (the "Company"), and Richard W. Siegel, as purchaser of
stock of the Company ("Siegel"), you are hereby authorized and directed to hold
the documents delivered to you pursuant to the terms of that certain Consulting
and Stock Purchase Agreement dated May 9, 1990 (the "Stock Agreement"), to
which a copy of these Joint Escrow Instructions is attached as Exhibit B, in
accordance with these Joint Escrow Instructions (the "Instructions").
Capitalized terms used but not defined in these Instructions are used as defined
in the Stock Agreement.
2. In the event that the Company or any assignee of the Company
(collectively called the "Option Holder") exercises the Repurchase Option set
forth in Article II of the Stock Agreement, the Option Holder shall give you and
Siegel written notice specifying the time and place for the consummation of the
purchase and sale of Stock pursuant to the Repurchase Option. The Option Holder
and Siegel hereby irrevocably authorize and direct you to consummate the
purchase and sale of Stock pursuant to the terms of the Stock Agreement and such
notice.
3. At the closing, you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares of
Stock being transferred, and (c) to deliver same, together with any certificates
evidencing the shares of Stock being transferred, to the Option Holder against
simultaneous delivery to you of the purchase price (by check) for the shares of
Stock being transferred. You shall thereupon deliver the purchase price to
Siegel or as he directs by written instructions to you.
4. Siegel irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of Stock being held
- 18 -
<PAGE> 19
by you hereunder and any additions to or substitutions for said shares. Siegel
irrevocably constitutes and appoints you as his attorney-in-fact and agent for
the term of this escrow to execute with respect to such securities all documents
necessary or appropriate to make such securities negotiable and complete any
transactions contemplated by these Instructions. Subject to the provisions of
this Section 4, Siegel shall exercise all rights and privileges of a stockholder
of the Company while the Stock is held by you.
5. This escrow shall terminate with respect to particular shares of the
Stock upon the purchase of those shares by the option Holder or when, by the
terms of the Stock Agreement or as otherwise agreed by the Company in writing,
the Repurchase Option does not apply to those shares.
6. This escrow shall terminate upon the termination of the Repurchase
Option with respect to all shares of Stock originally issued under the Stock
Agreement and all other shares or other property to which the Repurchase Option
shall apply, all in accordance with the terms of the Stock Agreement. Upon the
termination of this escrow, you shall deliver to Siegel certificates evidencing
all shares of Stock not previously purchased by the Company or its assignees,
and not otherwise released. Upon the termination of this escrow, if you then
have in your possession any other documents, securities or other property
belonging to Siegel, you shall deliver all of the same to Siegel and shall be
discharged of all further obligations hereunder.
7. Your duties hereunder may be altered, amended, modified, or revoked
only by a writing signed by all of the parties hereto.
8. You shall be obligated only for the performance of such parties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument which you reasonably believe to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
escrow agent or as attorney-in-fact for Siegel while acting in good faith and in
the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith. You shall be entitled to rely on any written notice from the
duties hereto without any obligation to verify the truth or accuracy of such
notices.
9. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person, excepting
only orders or process of courts of law, and are hereby expressly authorized to
comply with and obey orders, judgments and decrees of any court. In case you
obey or comply
- 19 -
<PAGE> 20
with any such order, judgment or decree, you shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding that such order, judgment or decree may subsequently be
modified, reversed, vacated, annulled or found to be without jurisdiction.
10. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing these Joint Escrow Instructions
or any document or paper hereunder.
11. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
document or paper hereunder.
12. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations under these Instructions, may rely upon the advice of such counsel,
and may pay such counsel reasonable compensation therefor.
13. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Company or if you shall resign by written
notice to both the Company and Siegel. In the event of any such termination,
your successor as Secretary of the Company shall be successor Escrow Agent,
provided that if a new Secretary is not appointed or elected, the Company shall
designate any officer of the Company as successor Escrow Agent, by a written
notice to Siegel, you and the successor Escrow Agent.
14. If you reasonably require other or further instruments in
connection with these Instructions, the necessary parties shall join in
furnishing such instruments.
15. Siegel and the Company agree that should any dispute arise with
respect to the delivery, ownership or right of possession of the securities held
by you under these Instructions, you are authorized and directed to retain in
your possession without liability to anyone all or any part of such securities
until the dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
16. All communications provided for hereunder shall be hand delivered
or sent by registered mail return receipt requested and, if to Siegel, addressed
as follows:
- 20 -
<PAGE> 21
Dr. Richard W. Siegel
211 West Hickory Street
Hinsdale, Illinois 60521-3309
and if to the Company, addressed as follows:
Nanophase Technologies Corporation
c/o ARCH Development corporation
1115-25 East 58th Street
Chicago, Illinois 60637
Attention: President
and if to you, addressed as follows:
Secretary
Nanophase Technologies Corporation
c/o ARCH Development corporation
1115-25 East 58th Street
Chicago, Illinois 60637
or such other address 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.
17. By signing these Joint Escrow Instructions, you become a party only
to these Instructions, and you do not become a party to the Stock Agreement.
18. All reasonable costs, fees and disbursements that you may incur in
connection with the performance of your duties as Escrow Agent shall be paid by
the Company.
19. These Joint Escrow Instructions shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
- 21 -
<PAGE> 22
20. These Joint Escrow Instructions 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.
Very truly yours,
/s/ RICHARD W. SIEGEL
---------------------------------------
RICHARD W. SIEGEL
NANOPHASE TECHNOLOGIES CORPORATION,
an Illinois corporation
By: [SIG]
-----------------------------------
Its CEO
-------------------------------
Accepted and Agreed to:
Escrow Agent:
- -----------------------------------
Secretary,
Nanophase Technologies Corporation,
an Illinois corporation
- 22 -
<PAGE> 23
February 13, 1991
Dr. Richard W. Siegel
211 West Hickory Street
Hinsdale, Illinois 60521-3309
Dear Richard:
The following will confirm our agreements concerning Sections 2.7 and
2.2(c) of the Consulting and Stock Purchase Agreement (the "Agreement") dated
May 9, 1990, between you and Nanophase. All capitalized terms used herein shall
have the meanings given them in the Agreement. We agree as follows:
1. The term "Equity Securities" as used in Section 2.7 does not include
any Nanophase securities, or options, warrants or other rights to acquire any
Nanophase securities, which Nanophase issues to a Nanophase employee or
consultant in compensation for his/her services to Nanophase.
2. The term "Equity Securities" does not include any warrants, options
or other rights to acquire any Nanophase common or preferred stock at the time
any such rights are issued, but any common or preferred stock which is issued
upon the exercise of any such rights (except any rights described in paragraph 1
above) will constitute "Equity Securities" under Section 2.7 at the time the
common or preferred stock is issued, and that issuance will trigger your rights
under Section 2.7.
3. In the event Nanophase merges or combines with another company and
any Nanophase securities (or rights to acquire Nanophase securities) are issued
as a result of such merger or combination, the 10% benchmark in Section 2.7 will
be measured against the Equity Securities held by the persons who were Nanophase
stockholders immediately before, and not after, the merger or combination.
<PAGE> 24
Dr. Richard W. Siegel
February 13, 1991
Page Two
4. The 2,500 Unvested Shares have become Vested Shares pursuant to
Section 2.2(c) of the Agreement. Accordingly, the escrow arrangement
contemplated by the Joint Escrow Instructions executed in connection with the
Agreement is terminated for all purposes, and the Secretary of Nanophase, in his
capacity as escrow agent thereunder, is delivering to you herewith the
certificate issued in your name for 2,500 shares of Nanophase common stock and
the original executed stock assignment relative thereto which were held by him
pursuant to said escrow arrangement.
5. It is understood that all Nanophase securities heretofore or
hereafter issued to you pursuant to Section 2.7 of the Agreement (including,
without limitation, the 2,000 shares accruing to you under said Section 2.7 as a
result of the issuance of Nanophase stock to James E. Moore) shall be Vested
Shares.
If the above confirms your understanding, please signify your agreement
by signing this letter where indicated below.
Sincerely,
NANOPHASE TECHNOLOGIES CORPORATION
By: /s/ JAMES E. MOORE
-----------------------------------
James E. Moore, President
Accepted and agreed this 25th day of
February __, 1991, by:
/s/ RICHARD W. SIEGEL
- ------------------------------------
Dr. Richard W. Siegel
<PAGE> 25
November 21, 1991
Dr. Richard W. Sieges
211 West Hickory Street
Hinsdale, Illinois 60521-3309
Re: Nanophase Technologies Corporation (the "Company")
Dear Dr. Siegel:
Reference is made to (i) the Consulting and Stock Purchase Agreement
dated as of May 9, 1990, as amended by a letter dated February 13, 1991 (the
"Consulting Agreement"), between you and the Company, (ii) the Series B
Preferred Stock Purchase Agreement (the "Purchase Agreement") between the
Company and the signatories thereto of even date herewith, (iii) the
Shareholders' Agreement of even date herewith (the "Shareholders' Agreement")
between you and the Company and certain other parties who may be signatories
thereto, and (iv) the Registration Rights Agreement of even date therewith (the
"Registration Agreements) between you and the Company and certain other parties
who may be signatories thereto.
You and the Company agree as follows:
1. Conditional upon and subject to the execution of the Series B
Purchase Agreement and your execution of the Shareholders' Agreement, the
Company agrees to sell you 32,000 shares of the Company's common stock (the
"Common"), for the aggregate price of $320.00, payable by check representing
good funds against receipt of a certificate representing the Common. Upon such
payment, the Common will be fully paid and non-assessable, and will be delivered
to you free and clear of all liens, claims and encumbrances whatsoever.
2. You agree that the Common will be deemed to be "Stock" and "Vested
Shares" (as those terms are defined in the Consulting Agreement) as if the
Common had originally been issued pursuant to the Consulting Agreement, and you
agree (subject only to the provisions of paragraphs 4, 5, 6 and 7 below) to hold
the Common pursuant to all of the applicable terms of the Consulting Agreement
and the Shareholders' Agreement. To induce the Company to sell the common, you
hereby remake the representations and warranties to the Company set forth in
Section 2.3 of the Consulting Agreement as of the date hereof.
3. Conditional upon and subject to your execution of the Series B
Purchase Agreement and the Shareholders' Agreement, and in fu11 satisfaction of
your rights under Section 2.7 of the Consulting Agreement for all purposes
through and including the
<PAGE> 26
date hereof, the Company agrees to sell you no less than 77,627 a shares, and no
more than 135,544 shares, of the Company's Series B preferred Stock, no par
value (the "Series B Preferred"), for a per share price of $0.65 and pursuant to
the terms of, and subject to the limitations contained in, the Series B Purchase
Agreement and the Shareholders' Agreement.
4. Section 2.6 of the Consulting Agreement is hereby deleted in its
entirety, and shall be of no further force or effect whatsoever.
5. The terms of Section 4 of the Shareholders' Agreement shall
supersede all of the provisions of Section 2.4(a) of the Consulting Agreement
for so long as the Shareholders' Agreement shall remain in effect, and upon the
termination of the Shareholders' Agreement said Section 2.4(a) shall once again
be of full force and effect in accordance with its terms and the other terms of
the Consulting Agreement.
6. The terms of Section 6 of the Shareholders' Agreement shall
supersede all of the provisions of Section 2.7 of the Consulting Agreement for
so long as the Shareholders' Agreement shall remain in effect, and upon the
termination of the Shareholders' Agreement said Section 2.7 shall once again be
of full force and effect in accordance with its terms and the other terms of the
Consulting Agreement.
7. The terms of Section 7 of the Shareholders' Agreement shall
supersede all of the provisions of Section 2.4(b) of the Consulting Agreement,
and said Section 2.4(b) shall no longer be of any further force or effect
whatsoever, regardless of the continuing existence or effectiveness of the
Shareholders' Agreement from and after the date of this letter agreement.
8. You hereby waive, discharge and forever release the Company from any
and all obligations which the Company may have to you for any sums now owing or
which may become owing pursuant to the Consulting Agreement at any time through
and including November 30, 1991. You agree that you will not bring any action or
claim with respect to any sum so waived, discharged and released.
Except as otherwise specifically provided above, the Consulting
Agreement shall remain in full force and effect in accordance with its terms.
<PAGE> 27
Please signify your acceptance of the foregoing by signing the attached
copies of this Agreement where indicated below.
Sincerely,
NANOPHASE TECHNOLOGIES CORPORATION
By: /s/ THOMAS L. CHURCHWELL
---------------------------------------
Thomas L. Churchwell, President
Accepted and agreed
as of the date written above:
- -----------------------------------
Dr. Richard W. Siegel
<PAGE> 28
February 25, 1992
Dr. Richard W. Siegel
211 West Hickory Street
Hinsdale, Illinois 60521-3309
Re: Nanophase Technologies Corporation (the "Company")
--------------------------------------------------
Dear Dr. Siegel:
Reference is made to (i) the Consulting and Stock Purchase Agreement
dated as of May 9, 1990, as amended by letters dated February 13, 1991, and
November 21, 1991, between you and the Company (collectively, the "Consulting
Agreement"). Except as otherwise specifically provided in this letter agreement,
the following amendments and waivers shall be deemed effective as of January 1,
1992.
You and the Company agree as follows:
1. You waive, discharge and forever release the Company from any
obligation which the Company may have to you for any sums owing pursuant to the
Consulting Agreement for the month of December, 1991. You agree that you will
not bring any action or claim with respect to such sum.
2. The last sentence of Section 1.1 of the Consulting Agreement is
deleted in its entirety, and shall be of no further force or effect.
3. The first sentence of Section 1.3(a) of the Consulting Agreement is
deleted in its entirety and replaced as follows:
"The Company shall pay Siegel a retainer of $2,000.00 per month as full
consideration for his services hereunder, which sum shall be payable in
the month for which such services are rendered."
4. Except as otherwise specifically provided above, the Consulting
Agreement shall remain in full force and effect in accordance with its terms.
In consideration of the execution of this letter agreement and in
recognition of services previously performed by Siegel for the Company, the
Company hereby grants to Siegel (i) an option to purchase 10,000 shares of the
Company's common stock, the option to be vested and exercisable immediately upon
issuance, and (ii) an additional option to purchase 20,000 shares of the
Company's common
<PAGE> 29
stock, the option to vest over a five (5) year period in equal
proportions commencing January 1, 1993, and ending on January 1, 1997
(such option, together with the option described in (i) above, referred
to collectively as the "Options").
The exercise price for all the Options shall be $0.065 per share, and
the Options shall be issued under and subject to all of the terms and conditions
of the Nanophase Technologies Corporation Stock Option Plan adopted on January
13, 1992, as such Plan may be amended in accordance with its terms.
Please signify your acceptance of the foregoing by signing this
Agreement and the attached copies where indicated.
Sincerely,
NANOPHASE TECHNOLOGIES CORPORATION
By: /s/ [SIG]
-----------------------------------
Its President
-------------------------------
Accepted and agreed
as of the date written above:
[SIG]
- -------------------------------------
Dr. Richard W. Siegel
<PAGE> 30
Please signify your acceptance of the foregoing by signing the attached
copies of this Agreement where indicated below.
Sincerely,
NANOPHASE TECHNOLOGIES CORPORATION
By:
-----------------------------------
Thomas L. Churchwell, President
Accepted and agreed
as of the date written above:
[SIG]
- -------------------------------------
Dr. Richard W. Siegel
<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.
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<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
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<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 11
STATEMENT REGARDING COMPUTATION OF LOSS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31 JUNE 30
------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
HISTORICAL:
Weighted average
common shares
outstanding 77,586 77,586 77,586 77,586 77,586
Net effect of dilutive stock options
based on the
treasury method 534,540 534,540 534,540 534,540 534,540
----------- ---------- ----------- ----------- -----------
Total 612,126 612,126 612,126 612,126 612,126
Net loss $(1,287,772) $(1,959,874) $(5,577,688) $(2,912,275) $(2,290,788)
Net income (loss) per
common share $ (2.10) $ (3.20) $ (9.11) $ (4.76) $ (3.74)
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30,1997
----------------- -------------------
<S> <C> <C>
PRO FORMA:
Weighted average common shares outstanding 77,586 77,586
Weighted average preferred shares outstanding 6,758,094 7,410,685
Net effect of dilutive stock options based on the treasury method 534,540 534,540
----------- -----------
Total 7,370,220 8,022,811
Net income (loss) $(5,577,688) $(2,290,788)
Pro forma net loss per share $ (.76) $ (.29)
</TABLE>
<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, except as to Note 16, as to which the
date is September 30, 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
October 1, 1997
<PAGE> 1
EXHIBIT 23.3
[LETTERHEAD OF MCANDREWS, HELD & MALLOY, LTD.]
October 1, 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
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,490,130
<SECURITIES> 0
<RECEIVABLES> 1,040,641
<ALLOWANCES> 0
<INVENTORY> 420,274
<CURRENT-ASSETS> 3,833,847
<PP&E> 2,391,458
<DEPRECIATION> 667,498
<TOTAL-ASSETS> 6,271,808
<CURRENT-LIABILITIES> 1,335,659
<BONDS> 0
0
17,898,688
<COMMON> 450
<OTHER-SE> 12,962,989
<TOTAL-LIABILITY-AND-EQUITY> 6,271,808
<SALES> 1,032,467
<TOTAL-REVENUES> 1,032,467
<CGS> 2,162,081
<TOTAL-COSTS> 3,355,002
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,290,788)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,290,788)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,290,788)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
