<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
NANOPHASE TECHNOLOGIES CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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<PAGE> 2
NANOPHASE LOGO
453 COMMERCE STREET
BURR RIDGE, ILLINOIS 60521
May 6, 1999
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend the
1999 Annual Meeting of Stockholders of Nanophase Technologies Corporation to be
held at Ashton Place, 341 West 75th Street, Willowbrook, Illinois, on Friday,
June 11, 1999 at 9:00 a.m., local time. The formal notice of the Annual Meeting
appears on the following page.
The attached Notice of Annual Meeting and Proxy Statement describe the
matters that we expect to be acted upon at the Annual Meeting. Immediately after
the Annual Meeting, stockholders will be able to view a presentation by the
Company and have the opportunity to ask questions.
Whether or not you plan to attend the Annual Meeting, it is important that
your shares be represented. Regardless of the number of shares you own, please
sign and date the enclosed proxy card and promptly return it to us in the
enclosed postage paid envelope. If you sign and return your proxy card without
specifying your choices, your shares will be voted in accordance with the
recommendations of the Board of Directors contained in the Proxy Statement.
We look forward to seeing you on June 11, 1999 and urge your to return your
proxy card as soon as possible.
Sincerely,
/s/ Joseph E. Cross
JOSEPH E. CROSS
President and Chief Executive Officer
<PAGE> 3
[NANOPHASE LOGO]
------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 11, 1999
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To the Stockholders of
Nanophase Technologies Corporation:
The Annual Meeting of Stockholders of Nanophase Technologies Corporation
(the "Company") will be held at 9:00 a.m., Chicago time, on Friday, June 11,
1999, at Ashton Place, 341 West 75th Street, Willowbrook, Illinois, for the
following purposes:
(1) To elect two Class II directors to the Company's Board of Directors;
(2) To ratify the appointment by the Board of Directors of Ernst & Young
LLP as the independent auditors of the Company's financial statements
for the year ended December 31, 1999; and
(3) To transact such other business as may properly come before the meeting
or any adjournments thereof.
The foregoing items of business are more fully described in the accompanying
Proxy Statement.
The Board of Directors has fixed the close of business on April 16, 1999 as
the record date for determining stockholders entitled to notice of, and to vote
at, the Annual Meeting.
By order of the Board of Directors,
/s/ DENNIS J. NOWAK
DENNIS J. NOWAK
Secretary
Burr Ridge, Illinois
May 6, 1999
ALL STOCKHOLDERS ARE URGED TO ATTEND THE MEETING IN PERSON OR BY PROXY. WHETHER
OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PAID
ENVELOPE FURNISHED FOR THAT PURPOSE.
<PAGE> 4
NANOPHASE TECHNOLOGIES CORPORATION
453 COMMERCE STREET
BURR RIDGE, ILLINOIS 60521
(630) 323-1200
---------------------
PROXY STATEMENT
---------------------
The accompanying proxy is solicited by the Board of Directors (the "Board
of Directors") of Nanophase Technologies Corporation, a Delaware corporation
(the "Company"), for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at 9:00 a.m., Chicago time, Friday, June 11, 1999, at
Ashton Place, 341 West 75th Street, Willowbrook, Illinois, and any adjournments
thereof. This Proxy Statement and accompanying form of proxy are first being
mailed to stockholders on or about May 6, 1999.
RECORD DATE AND OUTSTANDING SHARES -- The Board of Directors has fixed the
close of business on April 16, 1999, as the record date (the "Record Date") for
the determination of stockholders entitled to notice of, and to vote at, the
Annual Meeting or any adjournments thereof. As of the Record Date, the Company
had outstanding 12,654,577 shares of Common Stock, par value $.01 per share (the
"Common Stock"). Each outstanding share of Common Stock is entitled to one vote
on all matters to come before the Annual Meeting.
VOTING OF PROXIES -- Joseph E. Cross and Dennis J. Nowak, the persons named
as proxies on the proxy card accompanying this Proxy Statement, were selected by
the Board of Directors to serve in such capacity. Messrs. Cross and Nowak are
executive officers of the Company and Mr. Cross is also a director of the
Company. The shares represented by each executed and returned proxy will be
voted in accordance with the directions indicated thereon, or, if no direction
is indicated, such proxy will be voted in accordance with the recommendations of
the Board of Directors contained in this Proxy Statement. Each stockholder
giving a proxy has the power to revoke it at any time before the shares it
represents are voted. Revocation of a proxy is effective upon receipt by the
Secretary of the Company of either (1) an instrument revoking the proxy or (2) a
duly executed proxy bearing a later date. Additionally, a stockholder may change
or revoke a previously executed proxy by voting in person at the Annual Meeting
(attendance at the Annual Meeting will not, by itself, revoke a proxy).
REQUIRED VOTE -- The vote of a plurality of the shares of Common Stock
voted in person or by proxy is required to elect the nominees for Class II
directors. The affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy is required to ratify the appointment of Ernst
& Young LLP as the independent auditors of the Company's financial statements
for the year ended December 31, 1999. Stockholders will not be allowed to
cumulate their votes in the election of directors.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES -- The required quorum for
transaction of business at the Annual Meeting will be a majority of the shares
of Common Stock issued and outstanding as of the Record Date. Votes cast by
proxy or in person at the Annual Meeting will be tabulated by the election
inspectors appointed for the meeting and will determine whether or not a quorum
is present. Abstentions and broker non-votes will be included in determining the
presence of a quorum. Abstentions and broker non-votes will have no effect on
the vote for directors. Abstentions will be considered present and entitled to
vote with respect to ratifying the appointment of the Company's independent
auditors and will have the same effect as votes "against" such proposal. Broker
non-votes will not be considered present and entitled to vote with respect to
ratifying the appointment of the Company's independent auditors and will have no
effect on such proposal.
ANNUAL REPORT TO STOCKHOLDERS -- The Company's Annual Report to
Stockholders for the year ended December 31, 1998, containing financial and
other information pertaining to the Company, is being furnished to stockholders
simultaneously with this Proxy Statement.
<PAGE> 5
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of seven directors. The
directors expect to reduce the size of the Board of Directors to five directors
after Steven Lazarus and Robert W. Shaw, Jr. step down from the Board of
Directors at the Annual Meeting. Article VI of the Company's Certificate of
Incorporation provides that the Board of Directors shall be classified with
respect to the terms for which its members shall hold office by dividing the
members into three classes. At the Annual Meeting, two directors of Class II
will be elected for a term of three years expiring at the Company's 2002 Annual
Meeting of Stockholders. Both of the nominees are presently serving as directors
of the Company. See "Nominees" below.
Except for Dr. Shaw, the four directors whose terms of office do not expire
in 1999 will continue to serve after the Annual Meeting until such time as their
respective terms of office expire or their successors are duly elected and
qualified. See "Other Directors" below.
If at the time of the Annual Meeting any of the nominees should be unable
or decline to serve, the persons named in the proxy will vote for such
substitute nominee or nominees as the Board of Directors recommends, or vote to
allow the vacancy created thereby to remain open until filled by the Board of
Directors, as the Board of Directors recommends. The Board of Directors has no
reason to believe that any nominee will be unable or decline to serve as a
director if elected.
NOMINEES
The names of the nominees for the office of director, together with certain
information concerning such nominees, are set forth below:
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR
NAME AGE POSITION WITH COMPANY SINCE
---- --- --------------------- ---------
<S> <C> <C> <C>
Joseph E. Cross.................... 51 President, Chief Executive Officer 1998
Richard W. Siegel, Ph.D............ 61 Director 1989
</TABLE>
Mr. Cross has served as Chief Executive Officer of the Company since
December 1998 and President and a director of the Company since joining the
Company in November 1998. From November 1998 to December 1998, Mr. Cross served
as the Company's Chief Operating Officer. Prior to joining the Company in
November 1998, Mr. Cross served as President and Chief Executive Officer of
Aptech, a manufacturer of measurement, metering and control devices for the
electric utility market, from August 1996 to October 1998. From December 1993 to
July 1996, Mr. Cross served as President of Aegis Technologies, a
telecommunications company. He holds a B.S. degree and M.B.A. degree from
Southwest Missouri University.
Dr. Siegel is a co-founder of the Company and has served as a director of
the Company since 1989. Dr. Siegel also has served as a consultant to the
Company since 1990 with regard to the application and commercialization of
nanocrystalline materials. Dr. Siegel is an internationally renowned scientist
in the field of nanocrystalline materials. During his tenure on the research
staff at Argonne National Laboratory 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 the Company's physical-vapor-synthesis
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.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR BOTH OF THE
NOMINEES FOR ELECTION AS CLASS II DIRECTORS.
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<PAGE> 6
OTHER DIRECTORS
With the exception of Robert W. Shaw, Jr. and Steven Lazarus, the following
persons will continue to serve as directors of the Company after the Annual
Meeting until their terms of office expire (as indicated below) or until their
successors are duly elected and qualified.
<TABLE>
<CAPTION>
SERVED AS TERM
NAME AGE POSITION WITH COMPANY DIRECTOR SINCE EXPIRES
---- --- --------------------- -------------- -------
<S> <C> <C> <C> <C>
Robert W. Shaw, Jr., Ph.D.(1)..... 57 Director 1991 2001
Edward E. Hagenlocker, Ph.D....... 59 Director 1999 2001
Donald S. Perkins(2).............. 72 Chairman of the Board of Directors 1998 2000
Jerry Pearlman.................... 60 Director 1999 2000
Steven Lazarus(1)(2).............. 67 Director 1991 1999
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Dr. Shaw has served as a director of the Company since 1991. He is founder
and 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.,
Evergreen Solar, Inc. and Northern Power Systems. 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. Dr. Shaw has advised the Company
that he will step down as a director of the Company at the Annual Meeting.
Dr. Hagenlocker has served as a director of the Company since April 1999.
Dr. Hagenlocker served as vice chairman of Ford Motor Company from November 1996
to January 1999 and chairman of Visteon, an automotive systems enterprise, from
September 1997 to January 1999. Dr. Hagenlocker served in various other
capacities after joining Ford as a research scientist in 1964, including
Executive Vice President of Ford North American Automotive Operations from
January 1993 to May 1994, President of Ford Automotive Operations from May 1994
to November 1996 and Chairman, Ford of Europe from August 1996 to November 1996.
Dr. Hagenlocker is a director of Boise Cascade Corporation and Air Products and
Chemicals. Dr. Hagenlocker earned B.S. and M.S. degrees in engineering physics
from Ohio State University, an M.B.A. degree from Michigan State University and
a Ph.D. in physics from Ohio State University.
Mr. Perkins has served as a director of the Company since February 1998.
Mr. Perkins retired from Jewel Companies, Inc., the retail supermarket and drug
chain, in 1983. He had been with Jewel since 1953, serving as President from
1965 to 1970, as Chairman of the Board of Directors from 1970 to 1980, and as
Chairman of the Executive Committee until his retirement. He has served on a
number of corporate boards and is currently a director of Aon Corporation,
LaSalle Hotel Properties, LaSalle Street Fund, Inc., LaSalle U.S. Realty Income
& Growth Fund, Inc., Lucent Technologies, Inc., and Parson Group LLC. Mr.
Perkins is a trustee for The Putnam Funds and Vice Chairman of the Board of
Trustees of Northwestern University. Mr. Perkins holds a B.A. degree from Yale
University and an M.B.A. degree from the Harvard Graduate School of Business
Administration.
Mr. Pearlman has served as a director of the Company since April 1999. Mr.
Pearlman retired as chairman of Zenith Electronics Corporation in November 1995.
He joined Zenith as controller in 1971 and served as chief executive officer
from 1983 through April 1995. Mr. Pearlman is a director of Smurfit Stone
3
<PAGE> 7
Container Corporation, Ryerson-Tull, Inc., Parson Group LLC, Royal Packing
Industries van Leer N.V., the Bernard van Leer Foundation and the Central
Asia-American Enterprise Fund. He is a trustee of Northwestern University where
he is vice chairman of the capital campaign, chairman of the board of Evanston
Northwestern Healthcare and a director of the Northwestern Healthcare network.
Mr. Pearlman graduated from Princeton with honors from the Woodrow Wilson School
and from Harvard Business School with highest honors.
Mr. Lazarus has served as a director of the Company since 1991. Mr. Lazarus
is Managing Director of ARCH Venture Partners Limited Partnership. From 1986 to
1994, he served concurrently as President and Chief Executive Officer of ARCH
Development Corporation ("ADC") and Associate Dean of the Graduate School of
Business of the University of Chicago. Prior to joining ADC, 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 and New Era of Networks Inc.,
all of which are public companies. Mr. Lazarus has advised the Company that he
will not stand for re-election as a director of the Company when his term
expires at the Annual Meeting.
ARRANGEMENTS FOR NOMINATION AS DIRECTOR -- Mr. Lazarus and Drs. Shaw and
Siegel were initially designated to the Board of Directors pursuant to a
shareholders agreement which substantially terminated upon consummation of the
Company's initial public offering of Common Stock in December 1997.
DIRECTOR COMPENSATION -- Upon first being elected to the Board of
Directors, each director of the Company who is not an employee or consultant of
the Company (an "Outside Director") is granted, pursuant to the Company's
Amended and Restated 1992 Stock Option Plan, as amended (the "Stock Option
Plan"), 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
Board of Directors, as of the date of issuance of such stock options. On the
date of each annual meeting of the stockholders of the Company, each Outside
Director who is re-elected or continues to serve as a director because his or
her term has not expired is granted stock options to purchase 2,000 shares of
Common Stock pursuant to the Stock Option Plan; provided that no such automatic
grant is made to an Outside Director who was first elected to the Board of
Directors within three months prior to such annual meeting. The options granted
to Outside Directors under the Stock Option Plan vest in three equal annual
installments beginning on the first anniversary of the date of grant. All
options granted under the Stock Option Plan to Outside Directors expire ten
years from the date of grant.
The Company does not pay cash compensation to its directors for serving in
such capacity. All Outside Directors, however, are reimbursed for their
reasonable out-of-pocket expenses incurred in attending board and committee
meetings.
MEETINGS -- During the year ended December 31, 1998, the Board of Directors
held ten formal meetings. Each of the Company's current directors attended at
least 75% of the aggregate of the number of board meetings held (during the
period in which he was a director) and the total number of committee meetings on
which he served that were held (during the period in which he was a member of
such committee) during 1998.
COMMITTEES OF THE BOARD OF DIRECTORS -- The Board of Directors has
established an Audit Committee and a Compensation Committee, each comprised
entirely of directors who are not officers or employees of the Company. The
members of the Audit Committee are Mr. Lazarus (Chairman) and Dr. Shaw. The
members of the Compensation Committee are Mr. Perkins (Chairman) and Mr.
Lazarus. Mr. Lazarus and Dr. Shaw have advised the Company that they will no
longer serve as directors of the Company after the Annual Meeting. The Company
does not have a standing nominating committee.
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<PAGE> 8
The Audit Committee generally has responsibility for recommending
independent public auditors to the Board of Directors for selection, reviewing
the plan and scope of the accountants' annual audit, reviewing the Company's
internal control functions and financial management policies, and reporting to
the Board of Directors regarding all of the foregoing. The Audit Committee held
two formal meetings in 1998.
The Compensation Committee generally has responsibility for recommending to
the Board of Directors guidelines and standards relating to the determination of
executive and key employee compensation, reviewing the Company's executive
compensation policies and reporting to the Board of Directors regarding the
foregoing. The Compensation Committee also has responsibility for administering
the Stock Option Plan, determining the number of options, if any, to be granted
to the Company's employees and consultants pursuant to the Stock Option Plan and
reporting to the Board of Directors regarding the foregoing. The Compensation
Committee held three formal meetings in 1998. See "Report of the Compensation
Committee of the Board of Directors."
EXECUTIVE OFFICERS
The table below identifies executive officers of the Company who are not
identified in the tables entitled "Election of Directors -- Nominees" or "--
Other Directors."
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dennis J. Nowak.............................. 48 Vice President -- Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
Gina Kritchevsky, Ph.D. ..................... 45 Vice President -- Technology and Engineering
Daniel S. Bilicki............................ 55 Vice President -- Sales and Marketing
Richard W. Brotzman, Ph.D. .................. 45 Vice President-- Research and Development
Donald J. Freed, Ph.D........................ 57 Vice President-- Business Development
</TABLE>
Mr. Nowak has served as Vice President -- Finance and Administration, Chief
Financial Officer, Treasurer and Secretary of the Company 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.
Dr. Kritchevsky has served as Vice President -- Technology and Engineering
of the Company since joining the Company in February 1999. From June 1998 to
February 1999, Dr. Kritchevsky provided consulting services to companies in a
variety of markets, including electronics packaging and liquid crystal display
technology. From January 1997 to May 1998, Dr. Kritchevsky was Vice President of
Strategic Initiatives for Donnelly Optics Corporation, an optics company. From
1989 to January 1997, Dr. Kritchevsky served in various positions with Donnelly
Corporation, an automotive supplier, including Director of Corporate New
Business Development. She holds a B.S. degree in chemistry and a Ph.D. in
material sciences and engineering from MIT.
Mr. Bilicki has served as Vice President -- Sales and Marketing of the
Company since joining the Company in March 1999. From January 1996 until March
1999, Mr. Bilicki served as President/Director of PT Crosfield Indonesia in
Jakarta, Indonesia, a subsidiary of Crosfield Company, which is a global
chemical company. From January 1994 to December 1995, Mr. Bilicki held the
position of President/Director North America of Crosfield Company. He holds a
B.S. degree from Indiana Institute of Technology and an M.B.A. degree from
Winthrop University.
Dr. Brotzman joined the Company in July 1994 as a senior scientist and has
served as Vice President -- Research and Development of the Company 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
5
<PAGE> 9
protective coatings, non-destructive evaluation of composites, neo-debye
relaxation in green inorganic gels, asymmetric membranes and plasma processing.
From January 1991 to July 1994, Dr. Brotzman served as Director of Research at
TPL, Inc., an advanced materials company. He holds a B.S. degree in chemical
engineering from Lafayette College, an M.S. degree in engineering and applied
science from the University of California, Davis and a Ph.D. in chemistry from
the University of Washington.
Dr. Freed joined the Company in April 1995 as Vice President -- Marketing
and has served as Vice President -- Business Development of the Company since
June 1998. He has extensive experience in the commercial development of new
technology products, and has been responsible for the successful startup of
advanced-materials initiatives in three Fortune 50 companies. From 1985 to April
1995, Dr. Freed held senior marketing, strategic planning and
product-development positions with AMP, Inc., and certain of its subsidiaries,
primarily in the development and marketing of advanced materials for
microelectronics and photonics. From 1980 to 1985, he held similar positions
with GTE Corp. and Imperial Chemical Industries, PLC. Previously, Dr. Freed held
various scientific and managerial positions at Bell Laboratories. He holds a
B.A. degree in chemistry from Queens College and an A.M. degree and Ph.D. in
chemistry from Harvard University. Dr. Freed is a member of The Illinois
Coalition and is past chairman of the International Standards Council for
Electronic Interconnection and Packaging Technologies.
The Board of Directors elects executive officers annually and such
executive officers, subject to the terms of certain employment agreements, serve
at the discretion of the Board of Directors. Messrs. Cross, Nowak and Bilicki
and Dr. Kritchevsky each have employment agreements with the Company. See
"Executive Compensation -- Employment and Consulting Agreements." There are no
family relationships among any of the directors or officers of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE -- Section 16 of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), requires the
Company's officers (as defined under Section 16), directors and persons who
beneficially own greater than 10% of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Based solely on a review of the forms it has
received and on written representations from certain reporting persons that no
such forms were required for them, the Company believes that during 1998 all
Section 16 filing requirements applicable to its officers, directors and 10%
beneficial owners were complied with by such persons, except that John C. Parker
inadvertently failed to timely file a Form 4 for a transaction occurring in July
1998. This transaction was reported on a Form 5 filed by Dr. Parker.
6
<PAGE> 10
EXECUTIVE COMPENSATION
The following table provides information concerning the annual and
long-term compensation for services in all capacities to the Company for the
years ended December 31, 1998, 1997 and 1996 of those persons who were (i)
during 1998, the chief executive officer of the Company and (ii) at December 31,
1998, the four other most highly compensated (based upon combined salary and
bonus) executive officers of the Company whose total salary and bonus exceeded
$100,000 during 1998 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS(1)
ANNUAL COMPENSATION ------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- --------------------------- ---- --------- -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Joseph E. Cross(2).......... 1998 $ 29,487 $ 0 $14,111(3) 100,000 $36,450(4)
President and Chief
Executive Officer
Robert W. Cross(5).......... 1998 $177,565 $ 0 $35,059(6) 87,000 $ 4,685(7)
Former President and Chief 1997 151,311 140,000 41,917(8) 0 4,685(7)
Executive Officer 1996 151,800 10,000 45,648(9) 199,755 4,685(7)
Dennis J. Nowak(10)......... 1998 $159,258 $ 0 $ 0 43,500 $ 0
Vice President -- Finance 1997 178,037(11) 35,000 0 0 0
and Administration, Chief 1996 55,754 0 0 115,800 0
Financial Officer,
Treasurer and Secretary
Donald J. Freed, Ph.D. ..... 1998 $120,753 $ 0 $ 0 27,572 $ 0
Vice President -- Business 1997 112,806 35,000 0 0 0
Development 1996 105,625 0 0 104,220 0
Richard Brotzman, Ph.D. .... 1998 $119,721 $ 0 $ 0 40,600 $ 0
Vice President -- Research 1997 109,779 0 0 0 0
and Development 1996 102,615 0 0 118,695 0
John C. Parker, Ph.D.(12)... 1998 $106,879 $ 3,500 $ 0 31,900 $ 0
Former Vice President -- 1997 86,545 0 0 0 0
Manufacturing and 1996 77,540 0 0 107,115 0
Technology
</TABLE>
- ---------------
(1) None of the Named Officers had any restricted stock holdings as of December
31, 1998.
(2) Joseph E. Cross commenced employment as the President and Chief Operating
Officer of the Company in November 1998 and became its Chief Executive
Officer in December 1998.
(3) Includes $8,602 paid for airfare to and from Chicago, Illinois.
(4) Represents a one-time payment to Mr. Cross for the preparation of his
residence for sale in connection with his intended move to the greater
Chicago metropolitan area.
(5) Robert W. Cross' employment with the Company was terminated in December
1998. Mr. Cross' salary and bonus were paid at his direction to Cross
Technologies, Inc., of which Mr. Cross is chief executive officer and the
sole shareholder.
(6) Represents $10,081 paid for airfare to and from Chicago, Illinois, $13,911
paid for a hotel room in Burr Ridge, Illinois and $11,067 in payments
related to use of a car.
(7) 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.
(8) Includes $16,601 paid for airfare to and from Chicago, Illinois, $15,176
paid for a hotel room in Burr Ridge, Illinois and other perquisites paid by
the Company on behalf of Mr. Cross.
7
<PAGE> 11
(9) Includes $19,742 paid for airfare to and from Chicago, Illinois, $15,969
paid for a hotel room in Burr Ridge, Illinois and other perquisites paid by
the Company on behalf of Mr. Cross.
(10) Mr. Nowak commenced employment with the Company in September 1996.
(11) Includes a lump sum payment of $35,000 paid to Mr. Nowak in September 1997
in consideration of him still being employed by the Company at such time.
(12) Dr. Parker's employment with the Company was terminated in March 1999.
OPTION GRANTS IN 1998 -- The following table provides information on grants
of stock options to the Named Officers during 1998. No stock appreciation rights
were granted to the Named Officers during 1998.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------- ------------- -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Joseph E. Cross................. 100,000 21.51% $2.9375 11/9/08 $184,739 $468,162
Robert W. Cross................. 87,000 18.72 3.8125 7/31/08 208,596 528,624
Dennis J. Nowak................. 43,500 9.36 3.8125 7/31/08 104,298 264,312
Donald J. Freed, Ph.D........... 27,572 5.93 3.8125 7/31/08 66,108 167,531
Richard W. Brotzman, Ph.D....... 40,600 8.73 3.8125 7/31/08 97,345 246,691
John C. Parker, Ph.D............ 31,900 6.86 3.8125 7/31/08 76,485 193,829
</TABLE>
- ---------------
(1) These options are all non-qualified stock options. Subject to certain
restrictions, these options become exercisable in five equal annual
installments, beginning on the first anniversary of the date of grant. These
options were granted in July 1998, except for Joseph E. Cross' options,
which were granted in November 1998.
(2) Potential realizable value is presented net of the option exercise price but
before any federal or state income taxes associated with exercise. These
amounts represent certain assumed rates of appreciation only. Actual gains
will be dependent on the future performance of the Common Stock and the
option holder's continued employment through the vesting period. The amounts
reflected in the table may not necessarily be achieved.
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END 1998 OPTION VALUES -- The
following table provides information regarding each of the Named Officers'
option exercises in 1998 and unexercised options at December 31, 1998.
YEAR-END 1998 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
SHARES YEAR-END 1998(#) YEAR-END 1998($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph E. Cross.............. 0 $ 0 0 100,000 $ 0 $ 0
Robert W. Cross.............. 0 0 172,844 235,501 222,957 57,592
Dennis J. Nowak.............. 0 0 42,338 116,962 0 0
Donald J. Freed, Ph.D........ 0 0 35,690 96,102 9,690 14,535
Richard W. Brotzman, Ph.D.... 0 0 57,650 130,595 41,874 36,496
John C. Parker, Ph.D......... 43,003 206,956 80,204 117,133 121,460 50,656
</TABLE>
- ---------------
(1) The value per option is calculated by subtracting the exercise price per
option from the closing price of the Common Stock on the Nasdaq National
Market on December 31, 1998, which was $2.25.
8
<PAGE> 12
EMPLOYMENT AND CONSULTING AGREEMENTS -- The Company entered into an
employment agreement with Joseph E. Cross dated November 9, 1998 which provides
for an annual base salary of not less than $200,000. In addition, Mr. Cross will
receive a lump sum payment of $50,000 on the first anniversary of the
commencement of this agreement if he is employed by the Company at such time.
The Company also granted to Mr. Cross options to purchase up to 100,000 shares
of Common Stock at an exercise price of $2.9375 per share and options to
purchase up to 50,000 shares of Common Stock at an exercise price of $2.1875,
with options for one-fifth of such shares becoming exercisable on each of the
first five anniversaries of the dates of grant. No term has been assigned to Mr.
Cross' employment agreement. If Mr. Cross 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 52
weeks.
Effective September 3, 1996, the Company also entered into an employment
agreement with Dennis J. Nowak which provides for an annual base salary of
$140,000, with increases to be determined by the 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. Pursuant to his employment agreement,
Mr. Nowak also received a bonus of $35,000 upon the Company's completion of its
initial public offering of Common Stock in December 1997 and a lump sum payment
of $35,000 on the first anniversary of his employment. No term has been assigned
to Mr. Nowak's employment agreement. If Mr. Nowak's employment is terminated
other than for "cause" (as such term is defined in Mr. Nowak's employment
agreement), Mr. Nowak will receive severance benefits in an amount equal to Mr.
Nowak's base salary for 26 weeks.
On March 9, 1999, the Company entered into an agreement for consulting
services with Robert W. Cross, former chief executive officer of the Company,
and Cross Technologies, Inc. ("CTI"). Pursuant to the agreement, from December
17, 1998, the date Mr. Cross ceased serving as an employee and officer of the
Company, through June 17, 2000, CTI, with Mr. Cross as its sole shareholder and
officer, will render reasonable consulting services to the Company as may be
requested by the Company's president from time to time. The Company will pay CTI
consulting fees in the aggregate amount of $307,500 for such services. Any stock
options previously granted by the Company to Mr. Cross remain in effect and are
subject to the terms and conditions of the respective stock option agreements
and the Stock Option Plan. Concurrent with execution of the agreement, Mr. Cross
provided the Company with written notice of his voluntary resignation from the
Board of Directors.
On October 28, 1998, the Company entered into an agreement for continued
employment and separation with John C. Parker. Under the terms of this
agreement, Dr. Parker's employment with the Company was terminated on March 31,
1999, at which time Dr. Parker received a severance payment equal to nine months
of his salary. From April 1, 1999 through March 31, 2000, Dr. Parker will serve
as an independent consultant to the Company with regards to existing
physical-vapor-synthesis process technology. During such period, the Company
will (1) pay Dr. Parker a consulting fee equal to half his gross salary and (2)
pay Dr. Parker's health insurance premiums until he finds other employment. At
the conclusion of his consulting period, a number of Dr. Parker's options will
vest and expire two years from the conclusion of such period.
9
<PAGE> 13
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The objectives of the Compensation Committee in determining the levels and
components of executive compensation are to (1) attract, motivate and retain
talented and dedicated executive officers, (2) provide executive officers with
both cash and equity incentives to further the interests of the Company and its
stockholders, and (3) compensate executive officers at levels comparable to
those of executive officers at other comparable high technology companies. In
setting compensation, the Compensation Committee reviews individual
contributions of particular executives. Generally, the compensation of the
Company's executive officers is composed of a base salary, which often includes
a lump sum payment to executive officers upon the one-year anniversary of their
employment if they are employed by the Company at such time, and targeted cash
bonuses based upon achievement of specified goals. In addition, stock options
are granted to provide the opportunity for compensation based upon the
performance of the Common Stock over time.
BASE SALARIES
In determining the base salaries of the executive officers in 1998, the
Compensation Committee considered the performance of each executive, the nature
of the executive's responsibilities, the salary levels of executives at
comparable high technology companies, including other publicly-held advanced
materials and advanced technologies companies, and the Company's general
compensation practices. Robert W. Cross' employment agreement with the Company
dated February 1994 provided for an annual base salary of not less than
$130,000, and his salary was subject to increase by the Compensation Committee.
Based on the foregoing factors, the Compensation Committee elected to increase
the base salary of Mr. Cross for 1998 by approximately 33% over the amount he
received in 1997 and set Joseph E. Cross' annual base salary for 1998 at
$200,000 plus a lump sum payment of $50,000 payable in November 1999 if Mr.
Cross is employed by the Company at such time.
CASH BONUSES
Discretionary cash bonuses for executive officers are directly tied to
achievement of specified goals of the Company and are a function of the criteria
which the Compensation Committee believes appropriately take into account the
specific areas of responsibility of the particular officer. The Compensation
Committee paid a cash bonus to one of its Named Officers and is considering
whether to pay cash bonuses to two of its other Named Officers for 1998 based on
their performances. Otherwise, the Compensation Committee has not paid, and will
not pay, cash bonuses to its executive officers, including Messrs. Cross, for
1998.
STOCK OPTIONS
Periodically, the Compensation Committee also grants stock options to
executive officers in order to provide a long-term incentive which is directly
tied to the performance of the Company's stock. These options provide an
incentive to maximize stockholder value because they reward optionholders only
if stockholders also benefit. The exercise price of these stock options is the
fair market of the Common Stock on the date of grant. In general, the options
vest in equal annual installments over a five-year period beginning one year
after the date of grant. Vesting periods are used to retain key employees and to
emphasize the long-term aspect of contribution and performance. In making stock
option grants to executives, including Messrs. Cross, in 1998, the Compensation
Committee considered a number of factors, including the performance of such
persons, the Company's performance in 1997, achievement of specific delineated
goals, the responsibilities and the relative position of such persons within the
Company, the compensation of executives in comparable high technology companies
and the number of stock options each such person currently possesses. With
respect to Messrs. Cross, the Compensation Committee also focused on the
magnitude of Robert W. Cross' contributions to the Company and its belief that
Joseph E. Cross' vision and leadership are critical to the Company's future
success.
10
<PAGE> 14
COMPLIANCE WITH SECTION 162(M)
The Compensation Committee currently intends for all compensation paid to
the Named Officers to be tax deductible to the Company pursuant to Section
162(m) of the Internal Revenue Code of 1986, as amended ("Section 162(m)").
Section 162(m) provides that compensation paid to the Named Officers in excess
of $1,000,000 cannot be deducted by the Company for Federal income tax purposes
unless, in general, (1) such compensation is performance-based, established by a
committee of outside directors and objective, and (2) the plan or agreement
providing for such performance-based compensation has been approved in advance
by stockholders. The Compensation Committee believes that the requirements of
Section 162(m) are uncertain at this time and may arbitrarily impact the
Company. In the future, the Compensation Committee may determine to adopt a
compensation program that does not satisfy the conditions of Section 162(m) if
in its judgment, after considering the additional costs of not satisfying
Section 162(m), such program is appropriate.
COMPENSATION COMMITTEE
Donald S. Perkins
Steven Lazarus
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Pursuant to a consulting agreement effective as of October 29, 1998, and
prior to his appointment as Chairman of the Board of Directors, Donald S.
Perkins, who is Chairman of the Compensation Committee, was engaged by the
Company to provide additional services in connection with the Company's
organizational restructuring and refocusing. In consideration for such services,
Mr. Perkins was granted options to purchase 25,000 shares of Common Stock at an
exercise price of $3.50 per share. Such options vest in five equal annual
installments beginning on October 29, 1999; provided, however, that unvested
options will expire upon Mr. Perkins no longer providing such services to the
Company.
Leonard Batterson served as Chairman of the Compensation Committee until
his resignation from the Board of Directors in March 1999. Mr. Batterson is the
managing general partner of Batterson Johnson & Wang L.P. ("BJ&W"), which
beneficially owns greater than 5% of the outstanding Common Stock. Pursuant to
an amended and restated registration rights agreement, as amended, with the
Company, dated as of March 16, 1994, BJ&W is entitled to certain demand
registration rights. In addition, whenever the Company proposes to register any
of its securities under the Securities Act of 1933, as amended, BJ&W may also,
subject to certain restrictions, include its shares of Common Stock in such
registration.
11
<PAGE> 15
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for the
Company, the Nasdaq Market Composite Index and an index of peer companies
selected by the Company during the period commencing on November 26, 1997, the
date of the Company's initial public offering, and ending on December 31, 1998.
The comparison assumes $100 was invested on November 26, 1997 in the Common
Stock, the Nasdaq Market Composite Index and the peer companies selected by the
Company and assumes the reinvestment of all dividends, if any. The performance
graph must begin with the closing price of the Common Stock on the date of the
initial public offering, which was $8.00 (this was also the price at which the
Common Stock was offered in the initial public offering.)
COMPARISON OF CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
NANOPHASE TECHNOLOGIES NASDAQ MARKET COMPOSITE
CORPORATION INDEX PEER GROUP
---------------------- ----------------------- ----------
<S> <C> <C> <C>
'11/26/97' 100.00 100.00 100.00
'12/31/97' 158.59 98.49 109.08
'12/31/98' 17.73 139.63 121.41
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
11/26/97 12/31/97 12/31/98
-----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
- -
[ ] Nanophase Technologies Corporation 100.00 158.59 17.73
-----------------------------------------------------------------------------------------------
- -
P Nasdaq Market Composite Index 100.00 98.49 139.63
-----------------------------------------------------------------------------------------------
- -
L Peer Group 100.00 109.08 121.41
-----------------------------------------------------------------------------------------------
</TABLE>
The companies in the peer group, all of which are advanced materials or
advanced technologies companies, are: Alyn Corporation, Delta & Pine Land
Company and Landec Corporation. DeKalb Genetics Corporation and Mycogen
Corporation were both included in the Company's peer group last year. They are
not included in the Company's peer group this year because both companies were
sold during 1998 and, subsequent to such sales, their securities were no longer
publicly traded on a securities exchange or market.
12
<PAGE> 16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a consulting and stock purchase agreement dated as of May 9,
1990, as amended, between the Company and Richard W. Siegel, a co-founder and
director of the Company, Dr. Siegel advises and consults the Company with
respect to the application and commercialization of nanocrystalline materials.
In consideration for such services in 1998, Dr. Siegel received $30,000, options
to purchase 2,000 shares of Common Stock at an exercise price of $5.25 per share
and options to purchase 11,600 shares of Common Stock at an exercise price of
$3.8125 per share. The options to purchase 2000 shares of Common Stock vest in
three equal annual installments beginning on June 10, 1999 and the options to
purchase 11,600 shares of Common Stock vest in five equal annual installments
beginning on July 31, 1999.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 15, 1999, certain information
with respect to the beneficial ownership of the Common Stock by (i) each person
known by the Company to own beneficially more than 5% of the outstanding shares
of Common Stock, (ii) each Company director, (iii) each of the Named Officers
and (iv) all Company executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED(1) OWNED
---------------- ------------ ------------
<S> <C> <C>
Spurgeon Corporation........................................ 1,871,343(2) 14.8%
Bradford T. Whitmore........................................ 1,871,343(3) 14.8
Grace Investments, Ltd...................................... 1,069,750(4) 8.5
Batterson Johnson & Wang L.P................................ 1,068,934(5) 8.3
Grace Brothers, Ltd......................................... 801,593(6) 6.3
Harris & Harris Group, Inc.................................. 672,916(7) 5.3
Richard W. Siegel, Ph.D..................................... 246,943(8) 1.9
Robert W. Cross............................................. 201,583(9) 1.6
John C. Parker, Ph.D........................................ 94,548(10) *
Richard W. Brotzman, Ph.D................................... 73,283(11) *
Donald J. Freed, Ph.D....................................... 44,954(11) *
Dennis J. Nowak............................................. 42,338(12) *
Donald S. Perkins........................................... 28,999(13) *
Steven Lazarus.............................................. 666(11) *
Robert W. Shaw, Jr., Ph.D................................... 666(14) *
Joseph E. Cross............................................. 200 *
Edward E. Hagenlocker, Ph.D................................. 0 *
Jerry Pearlman.............................................. 0 *
All executive officers and directors as a group (12
persons).................................................. 438,049(15) 3.4
</TABLE>
- ------------
* Denotes beneficial ownership less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (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 801,593 shares of Common Stock held by Grace Brothers, Ltd. and
1,069,750 shares of Common Stock held by Grace Investments, Ltd. Spurgeon
Corporation is a general partner of both Grace entities and shares voting
and investment power with respect to the shares of Common Stock held by
such Grace entities. This information is based on information reported on
Schedule 13G/A dated February 11, 1999 filed with the Commission by
Spurgeon Corporation. The address of the stockholder is 290 South County
Farm Road, Wheaton, Illinois 60187.
13
<PAGE> 17
(3) Includes 801,593 shares of Common Stock held by Grace Brothers, Ltd. and
1,069,750 shares of Common Stock held by Grace Investments, Ltd. Mr.
Whitmore is a general partner of Grace Brothers, Ltd. and is the sole owner
of an entity which is a general partner of Grace Investments, Ltd. In such
capacities, Mr. Whitmore shares voting and investment power with respect to
the shares of Common Stock held by the Grace entities. This information is
based on information reported on Schedule 13G/A dated February 11, 1999
filed with the Commission by Mr. Whitmore. The address of the stockholder
is 1560 Sherman Avenue, Suite 900, Evanston, Illinois 60201.
(4) This number of shares is based on information reported on Schedule 13G/A's
dated February 11, 1999 filed with the Commission by Spurgeon Corporation
and Bradford T. Whitmore. The address of the stockholder is 1560 Sherman
Avenue, Suite 900, Evanston, Illinois 60201.
(5) Includes 178,154 shares of Common Stock issuable upon exercise of warrants
presently exercisable. Leonard A. Batterson, who resigned from the Board of
Directors in March 1999, is the managing general partner of BJ&W. The
address of the stockholder is 303 West Madison Street, Suite 1110, Chicago,
Illinois 60606.
(6) This number of shares is based on information reported on Schedule 13G/A's
dated February 11, 1999 filed with the Commission by Spurgeon Corporation
and Bradford T. Whitmore. The address of the stockholder is 1560 Sherman
Avenue, Suite 900, Evanston, Illinois 60201.
(7) The address of the stockholder is One Rockefeller Plaza, Suite 1430, New
York, New York 10020.
(8) Includes 28,950 shares of Common Stock issuable upon exercise of warrants
presently exercisable and 47,942 shares of Common Stock issuable upon
exercise of options exercisable currently or within 60 days of April 15,
1999.
(9) Consists of 5,000 shares of Common Stock held by Mr. Cross' spouse and
196,583 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of April 15, 1999.
(10) Includes 51,833 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of April 15, 1999.
(11) Consists of shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of April 15, 1999.
(12) Consists of shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of April 15, 1999. Excludes 200
shares of Common Stock which are held by children of Mr. Nowak. Because
such children share Mr. Nowak's household, he may be deemed to be the
beneficial owner of the shares of Common Stock held by his children. Mr.
Nowak disclaims such beneficial ownership.
(13) Includes 3,999 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of April 15, 1999.
(14) Consists of shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of April 15, 1999. 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 Investors II Limited Partnership, 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.
(15) Includes 28,950 shares of Common Stock issuable upon exercise of warrants
presently exercisable and 213,848 shares of Common Stock issuable upon
exercise of options exercisable currently or within 60 days of April 15,
1999.
14
<PAGE> 18
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed Ernst & Young LLP, independent certified public accountants, as
auditors of the Company's financial statements for the year ended December 31,
1999. Ernst & Young LLP has acted as auditors for the Company since 1993.
The Board of Directors has determined to afford stockholders the
opportunity to express their opinions on the matter of auditors and,
accordingly, is submitting to the stockholders at the Annual Meeting a proposal
to ratify the Board of Directors' appointment of Ernst & Young LLP. If a
majority of the shares voted at the Annual Meeting, in person or by proxy, are
not voted in favor of the ratification of the appointment of Ernst & Young LLP,
the Board of Directors will interpret this as an instruction to seek other
auditors.
It is expected that representatives of Ernst & Young will be present at the
meeting and will be available to respond to questions. They will be given an
opportunity to make a statement if they desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS
OF THE COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999.
MISCELLANEOUS AND OTHER MATTERS
SOLICITATION -- The cost of this proxy solicitation will be borne by the
Company. The Company may request banks, brokers, fiduciaries, custodians,
nominees and certain other record holders to send proxies, proxy statements and
other materials to their principals at the Company's expense. Such banks,
brokers, fiduciaries, custodians, nominees and other record holders will be
reimbursed by the Company for their reasonable out-of-pocket expenses of
solicitation. The Company does not anticipate that costs and expenses incurred
in connection with this proxy solicitation will exceed an amount normally
expended for a proxy solicitation for an election of directors in the absence of
a contest.
PROPOSALS OF STOCKHOLDERS -- Proposals of stockholders (1) intended to be
considered at the Company's 2000 Annual Meeting of Stockholders (the "2000
Annual Meeting") and (2) to be considered for inclusion in the Company's proxy
statement and proxy for the 2000 Annual Meeting, must be received by the
Secretary of the Company on or before January 7, 2000.
OTHER BUSINESS -- The Board of Directors is not aware of any other matters
to be presented at the Annual Meeting other than those mentioned in this Proxy
Statement and the Company's Notice of Annual Meeting of Stockholders enclosed
herewith. If any other matters are properly brought before the Annual Meeting,
however, it is intended that the persons named in the proxies will vote such
proxies as the Board of Directors directs.
ADDITIONAL INFORMATION -- The Company will furnish without charge a copy of
its Annual Report on Form 10-K for its year ended December 31, 1998, as filed
with the Commission, upon the written request of any person who is a stockholder
as of the Record Date, and will provide copies of the exhibits to such Form 10-K
upon payment of a reasonable fee which shall not exceed the Company's reasonable
expenses in connection therewith. Requests for such materials should be directed
to Nanophase Technologies Corporation, 453 Commerce Street, Burr Ridge, Illinois
60521, Attention: Dennis J. Nowak.
By order of the Board of Directors
/s/ DENNIS J. NOWAK
DENNIS J. NOWAK
Secretary
Burr Ridge, Illinois
May 6, 1999
ALL STOCKHOLDERS ARE REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY.
15
<PAGE> 19
PROXY PROXY
NANOPHASE TECHNOLOGIES CORPORATION
453 COMMERCE STREET
BURR RIDGE, ILLINOIS 60521
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 11, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder(s) hereby appoints Joseph E. Cross and Dennis J.
Nowak and each of them, with full power of substitution, as attorneys and
proxies for, and in the name and place of, the undersigned, and hereby
authorizes each of them to represent and to vote all of the shares which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of
Nanophase Technologies Corporation to be held at Ashton Place, 341 West 75th
Street, Willowbrook, Illinois, on Friday, June 11, 1999, at 9:00 a.m., local
time, and at any adjournments thereof, upon the matters as set forth in the
Notice of Annual Meeting of Stockholders and Proxy Statement, receipt of which
is hereby acknowledged.
THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE
VOTED AT THE ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO CONTRARY INDICATION IS
MADE, THE PROXY WILL BE VOTED FOR ALL NOMINEES LISTED IN PROPOSAL 1, FOR
PROPOSAL 2, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES
HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(continued, and to be signed and dated, on reverse side)
................................................................................
/\ FOLD AND DETACH HERE /\
<PAGE> 20
<TABLE>
<S><C>
NANOPHASE TECHNOLOGIES CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2.
1. ELECTION OF CLASS II DIRECTORS. For all nominees listed below Withhold authority to vote
(except as marked to the contrary below) [ ] for all nominees listed below [ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME BELOW)
Joseph E. Cross Richard W. Siegel, Ph.D
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY'S FOR AGAINST ABSTAIN
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999. [ ] [ ] [ ]
3. EACH OF THE PERSONS NAMED AS PROXIES HEREIN ARE AUTHORIZED, IN SUCH PERSON'S DISCRETION, TO VOTE UPON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING, OR ANY ADJOURNMENTS THEREOF.
Date: ,1999
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Signature
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Signature (if held jointly)
Please date this Proxy and sign it
exactly as your name(s) appears hereon.
When shares are held by joint tenants,
both should sign. When signing as an
attorney, executor, administrator,
trustee, guardian or other fiduciary,
please indicate your capacity. If you
sign for a corporation, please print
full corporate name and indicate
capacity of duly authorized officer
executing on behalf of the corporation.
If you sign for a partnership, please
print full partnership name and
indicate capacity of duly authorized
person executing on behalf of the
partnership.
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/\ FOLD AND DETACH HERE /\
PLEASE VOTE, SIGN EXACTLY AS NAME APPEARS ABOVE, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
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