-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ea1RuYcYWWrxNA8H+ISx0Ir3y2lyyjpL8sKbIQrNXOuSjaZu+hl8Ljc3AuBpF1To PWUUpDN6TFVchuXTeg18hQ== 0000950131-02-003237.txt : 20020814 0000950131-02-003237.hdr.sgml : 20020814 20020814152109 ACCESSION NUMBER: 0000950131-02-003237 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NANOPHASE TECHNOLOGIES CORPORATION CENTRAL INDEX KEY: 0000883107 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PRIMARY METAL PRODUCTS [3390] IRS NUMBER: 363687863 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22333 FILM NUMBER: 02735665 BUSINESS ADDRESS: STREET 1: 453 COMMERCE ST CITY: BURR RIDGE STATE: IL ZIP: 60521 BUSINESS PHONE: 6303231200 MAIL ADDRESS: STREET 1: 453 COMMERCE STREET CITY: BURR RIDGE STATE: IL ZIP: 60521 10-Q 1 d10q.htm FORM 10-Q Prepared by R.R. Donnelley Financial -- Form 10-Q
Table of Contents
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended: June 30, 2002
 
Commission File Number: 0-22333
 
Nanophase Technologies Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
  
36-3687863
(I.R.S. Employer
Identification No.)
 
1319 Marquette Drive, Romeoville, Illinois 60446
(Address of principal executive offices, and zip code)
 
Registrant’s telephone number, including area code: (630) 771-6708
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes   X      No
 
As of August 13, 2002, there were outstanding 15,106,032 shares of common stock, par value $.01, of the registrant.
 

Table of Contents
 
QUARTER ENDED JUNE 30, 2002
 
INDEX
 
    
Page
  
3
  
3
  
3
  
4
  
5
  
6
  
8
  
11
  
12
  
12
  
12
  
12
  
13
  
13
  
14
 

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Item 1.    Financial Statements
 
NANOPHASE TECHNOLOGIES CORPORATION
 
BALANCE SHEETS
(Unaudited)
 
    
June 30,
2002
     
December 31,
2001
  
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
530,965
 
   
$
582,579
 
Investments
   
 
10,175,857
 
   
 
6,842,956
 
Trade accounts receivable, less allowance for doubtful accounts of $25,000 at June 30, 2002 and December 31, 2001
   
 
1,043,149
 
   
 
1,112,952
 
Other receivable, net
   
 
74,006
 
   
 
67,449
 
Inventories, net
   
 
776,815
 
   
 
956,268
 
Prepaid expenses and other current assets
   
 
295,429
 
   
 
381,696
 
    
  
Total current assets
   
 
12,896,221
 
   
 
9,943,900
 
Equipment and leasehold improvements, net
   
 
9,090,981
 
   
 
8,914,745
 
Other assets, net
   
 
349,596
 
   
 
325,743
 
    
  
    
$
22,336,798
 
   
$
19,184,388
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Current portion of long-term debt
   
$
629,854
 
   
$
714,135
 
Current portion of capital lease obligations
   
 
59,238
 
   
 
48,352
 
Accounts payable
   
 
584,959
 
   
 
1,233,466
 
Accrued expenses
   
 
1,223,670
 
   
 
732,427
 
    
  
Total current liabilities
   
 
2,497,721
 
   
 
2,728,380
 
    
  
Long-term debt, less current maturities
   
 
553,812
 
   
 
758,490
 
Long-term portion of capital lease obligations, less current maturities
   
 
66,970
 
   
 
53,900
 
    
  
    
 
620,782
 
   
 
812,390
 
    
  
Contingent liabilities
   
 
—  
 
   
 
—  
 
Stockholders’ equity:
                  
Preferred stock, $.01 par value, 24,088 shares authorized and no shares issued and outstanding
   
 
—  
 
   
 
—  
 
Common stock, $.01 par value, 25,000,000 shares authorized; 15,106,032 and 13,705,931 shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively
   
 
151,060
 
   
 
137,059
 
Additional paid-in capital
   
 
56,568,815
 
   
 
50,260,747
 
Accumulated deficit
   
 
(37,501,580
)
   
 
(34,754,188
)
    
  
Total stockholders’ equity
   
 
19,218,295
 
   
 
15,643,618
 
    
  
    
$
22,336,798
 
   
$
19,184,388
 
    
  
 
See Notes to Financial Statements.
 

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NANOPHASE TECHNOLOGIES CORPORATION
 
(Unaudited)
 
    
Three months ended June 30,
     
Six months ended June 30,
  
    
2002
     
2001
     
2002
     
2001
  
Revenue:
                                    
Product revenue
   
$
1,516,197
 
   
$
957,314
 
   
$
2,829,773
 
   
$
1,937,489
 
Other revenue
   
 
145,649
 
   
 
92,065
 
   
 
239,755
 
   
 
183,815
 
    
  
  
  
Total revenue
   
 
1,661,846
 
   
 
1,049,379
 
   
 
3,069,528
 
   
 
2,121,304
 
    
  
  
  
Operating expense:
                                    
Cost of revenue
   
 
1,401,696
 
   
 
1,006,749
 
   
 
2,696,720
 
   
 
1,857,122
 
Research and development expense
   
 
480,042
 
   
 
362,519
 
   
 
1,003,726
 
   
 
800,189
 
Selling, general and administrative expense
   
 
1,006,104
 
   
 
1,090,995
 
   
 
2,091,319
 
   
 
2,226,949
 
    
  
  
  
Total operating expense
   
 
2,887,842
 
   
 
2,460,263
 
   
 
5,791,765
 
   
 
4,884,260
 
    
  
  
  
Loss from operations
   
 
(1,225,996
)
   
 
(1,410,884
)
   
 
(2,722,237
)
   
 
(2,762,956
)
Interest income
   
 
33,041
 
   
 
165,436
 
   
 
61,177
 
   
 
416,616
 
Interest expense
   
 
(28,792
)
   
 
(8,272
)
   
 
(56,282
)
   
 
(17,664
)
Other, net
   
 
(951
)
   
 
(3,000
)
   
 
(50
)
   
 
(12,000
)
    
  
  
  
Loss before provision for income taxes
   
 
(1,222,698
)
   
 
(1,256,720
)
   
 
(2,717,392
)
   
 
(2,376,004
)
Provisions for income taxes
   
 
(30,000
)
   
 
(30,000
)
   
 
(30,000
)
   
 
(30,000
)
    
  
  
  
Net loss
   
$
(1,252,698
)
   
$
(1,286,720
)
   
$
(2,747,392
)
   
$
(2,406,004
)
    
  
  
  
Net loss per share—basic and diluted
   
$
(0.09
)
   
$
(0.09
)
   
$
(0.20
)
   
$
(0.18
)
    
  
  
  
Weighted average number of common shares outstanding
   
 
14,232,786
 
   
 
13,643,771
 
   
 
13,980,694
 
   
 
13,628,562
 
    
  
  
  
 
 
See Notes to Financial Statements.
 

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NANOPHASE TECHNOLOGIES CORPORATION
 
(Unaudited)
 
    
Six months ended June 30,
  
    
2002
     
2001
  
Operating activities:
                  
Net loss
   
$
(2,747,392
)
   
$
(2,406,004
)
Adjustment to reconcile net loss to net cash (used in) operating activities:
         
Depreciation and amortization
   
 
569,170
 
   
 
379,755
 
Allowance for excess inventory quantities
   
 
25,019
 
   
 
(12,172
)
Provision for asset write-down
   
 
—  
 
   
 
14,086
 
Changes in assets and liabilities related to operations:
                  
Trade accounts receivable
   
 
69,803
 
   
 
696,788
 
Other receivable
   
 
(6,557
)
   
 
51,352
 
Inventories
   
 
154,434
 
   
 
(1,129,513
)
Prepaid expenses and other assets
   
 
54,783
 
   
 
25,072
 
Accounts payable
   
 
62,261
 
   
 
758,945
 
Accrued liabilities
   
 
491,243
 
   
 
3,189
 
    
  
Net cash (used in) operating activities
   
 
(1,327,236
)
   
 
(1,618,502
)
Investing activities:
                  
Acquisition of equipment and leasehold improvements
   
 
(573,964
)
   
 
(3,821,301
)
Purchases of held-to-maturity investments
   
 
(55,698,953
)
   
 
(36,035,911
)
Maturities of held-to maturity investments
   
 
52,366,052
 
   
 
41,083,299
 
    
  
Net cash (used in) provided by investing activities
   
 
(3,906,865
)
   
 
1,226,087
 
Financing activities:
                  
Principal payment on debt obligations, including capital leases
   
 
(305,758
)
   
 
(153,259
)
Proceeds from borrowings
   
 
—  
 
   
 
782,333
 
Proceeds from sale of common stock, net, and exercise of stock options
   
 
6,322,069
 
   
 
285,370
 
Payments of accounts payable incurred for the purchase of equipment and leasehold improvements
   
 
(833,824
)
   
 
—  
 
    
  
Net cash provided by financing activities
   
 
5,182,487
 
   
 
914,444
 
    
  
(Decrease) increase in cash and cash equivalents
   
 
(51,614
)
   
 
522,029
 
Cash and cash equivalents at beginning of period
   
 
582,579
 
   
 
473,036
 
    
  
Cash and cash equivalents at end of period
   
$
530,965
 
   
$
995,065
 
    
  
Supplemental cash flow information:
                  
Interest paid
   
$
56,282
 
   
$
—  
 
    
  
Income taxes paid
   
$
30,000
 
   
$
30,000
 
    
  
Supplemental non-cash investing activities:
                  
Capital lease obligations incurred for use of equipment
   
$
40,755
 
   
$
—  
 
    
  
Accounts payable incurred for the purchase of equipment and leasehold improvements
   
$
123,056
 
   
$
—  
 
    
  
 
See Notes to Financial Statements.
 

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NANOPHASE TECHNOLOGIES CORPORATION
 
(Unaudited)
 
(1) Basis of Presentation
 
The accompanying unaudited interim financial statements of Nanophase Technologies Corporation (the “Company”) reflect all adjustments (consisting 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. Operating results for the three and six month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002.
 
These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2001, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission.
 
(2) Description of Business
 
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.
 
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.
 
Revenue from international sources approximated $303,000 and $625,000 for the six months ended June 30, 2002 and 2001, respectively.
 
(3) Investments
 
Investments are classified by the Company at the time of purchase for appropriate designation and such designations are reevaluated as of each balance sheet date. The Company’s policy is to classify money market funds and certificates of deposit as investments. 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 costs 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.
 
(4) Inventories
 
Inventories consist of the following:
 
    
June 30, 2002
     
December 31, 2001
  
Raw materials
   
$
447,717
 
   
$
429,393
 
Finished goods
   
 
985,119
 
   
 
1,157,877
 
    
  
    
 
1,432,836
 
   
 
1,587,270
 
Allowance for excess inventory quantities
   
 
(656,021
)
   
 
(631,002
)
    
  
    
$
776,815
 
   
$
956,268
 
    
  

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NANOPHASE TECHNOLOGIES CORPORATION
 
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 
(5) Stock Options and Warrants
 
During the six months ended June 30, 2002, 30,101 shares of Common Stock were issued pursuant to exercises of stock options, compared to 99,041 shares of Common Stock in the same period in 2001. In the same six-month period in 2002 and 2001 no warrants were converted.
 
(6) Significant Customers and Contingencies
 
Revenue from the Company’s largest customer constituted approximately 71% of the Company’s total revenue for the three- and six-month periods ending June 30, 2002. Amounts included in accounts receivable relating to this particular customer were approximately $715,000 at June 30, 2002. The Company currently has a supply agreement with its largest customer that has contingencies outlined in it which could potentially result in the license of technology and/or, as provided for in that supply agreement, the sale of production equipment, providing capacity sufficient to meet the customer’s production needs, from the Company to the customer, if triggered by the Company’s failure to meet certain performance requirements and/or certain financial condition covenants. The financial condition covenants included in the Company’s supply agreement with the aforementioned customer “triggers” a technology transfer (license or, optionally, an equipment sale) in the event (a) that earnings of the Company for a twelve month period ending with its most recently published quarterly financial statements are less than zero and its cash, cash equivalents and liquid investments are less than $4,000,000, (b) of an acceleration of any debt maturity having a principal amount of more than $10,000,000 or (c) the Company’s insolvency, as further defined within the agreement. In the event of an equipment sale relating to a triggering event, the equipment would be sold to the customer at 115% of the equipment’s net book value. The Company believes that it has complied with all contractual requirements and that it has not had a “triggering event”. The Company further believes that the proceeds of the May 29, 2002 private placement provide sufficient cash balances to avoid the first triggering event referenced above for at least twelve months. If a triggering event were to occur and our largest customer elected to proceed with the transfer and related sale mentioned above, the Company would receive royalty payments from its customer for products sold using our technology; however, the Company would lose both significant revenue and the ability to generate significant revenue to replace that which was lost in the near term. Replacement of necessary equipment that would be purchased and removed by the customer pursuant to this triggering event could take in excess of twelve months. Any additional capital outlays required to rebuild capacity would probably be greater than the proceeds from the purchase of the assets as dictated by the Company’s agreement with the customer. This shortfall might put the Company in a position where it would be difficult to secure additional funding given an already tenuous cash position. Such an event would also result in the loss of many of the Company’s key staff and line employees due to economic realities. The Company believes that its employees are a critical component of its success and would be difficult to replace and train quickly. Given the occurrence of such an event, the Company might not be able to hire and retain skilled employees given the stigma relating to such an event and its impact on the Company. The Company would effectively reduce its size and staffing to a point where it could remain a going concern. Such a change would make it unlikely that, without unforeseen funding, the Company could continue to grow at anything other than an incremental rate.
 
(7) Contingent Liabilities
 
In 1998, Harbour Court LPI, a small stockholder of the Company, sued the Company, certain of its current and former officers and the underwriters of the Company’s initial public offering of common stock (the “IPO”). The complaint alleged that defendants had violated the federal Securities Exchange Act of 1934 by making supposedly fraudulent material misstatements of fact and omitting to state

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material facts necessary to prevent other statements from being misleading in connection with soliciting consents to the IPO from certain of the Company’s preferred stockholders. These supposed misrepresentations concerned purported mischaracterization of revenues the Company received from its then-largest customer. The complaint further alleged that the action should be maintained as a plaintiff class action on behalf of certain former preferred stockholders whose shares of preferred stock were converted into common stock on or about the date of the IPO. The complaint sought unquantified damages, interest and attorneys’ fees. In September 2000, each defendant answered the complaint, denying all wrongdoing.
 
Following certain discovery, the Company agreed to settle all claims against all defendants in the preferred shareholders’ complaint for $800,000, plus up to an additional $50,000 for the cost of settlement notices and administration. The settlement did not admit liability by any party. The Court ordered final approval of the settlement in January 2002, and concurrently dismissed with prejudice the preferred shareholders’ complaint. Because the settlement was funded by the Company’s directors and officers liability insurance, the settlement payment did not have a material adverse effect on the Company’s financial position or results of operations.
 
In November 2001, George Tatz, a purchaser of 200 shares of the Company’s common stock, sued the Company and Joseph Cross, its President and CEO. The complaint alleged that defendants violated the federal Securities Exchange Act of 1934 by making supposedly fraudulent material misstatements of fact and omitting to state material facts necessary to prevent other statements from being misleading in connection with the Company’s public disclosures, including certain press releases, concerning the Company’s dealings with Celox, a British customer. The complaint further alleged that the action should be maintained as a plaintiff class action on behalf of certain persons who purchased shares of the Company’s common stock from April 5, 2001 through October 24, 2001. The complaint sought relief including unquantified compensatory damages, attorneys’ and expert witness’ fees. In December 2001, defendants moved to dismiss the complaint on various substantive and procedural grounds. Rather than respond to that motion, plaintiff filed an amended complaint in March 2002. The amended complaint alleges that the Company and four of its officers (Joseph Cross; Daniel Bilicki, its vice president of sales and marketing; Jess Jankowski, its acting chief financial officer; and Gina Kritchevsky, its chief technology officer) are liable under the federal Securities Exchange Act of 1934 for making supposedly fraudulent material misstatements and omissions of fact in connection with the Company’s press releases, publicly-filed reports and other public disclosures concerning the Company’s dealings with the British customer and the Company’s purportedly improper booking, and later reversal, of revenue from a one-time sale to that customer. The amended complaint alleges the same putative class and seeks the same relief as in plaintiff’s initial complaint. Defendants filed a motion to dismiss the amended complaint in April 2002. Briefing on that motion was completed on May 31, 2002. To date, the court has not ruled on the motion to dismiss. Although the Company believes that the allegations of the amended complaint are without merit, it is not feasible to predict at this time the outcome of this litigation or whether its resolution could have a material adverse effect on the Company’s results of operations or financial condition.
 
 
Overview
 
Since January 1, 1997, Nanophase Technologies Corporation (the “Company”) has been engaged in the commercial production and sale of its nanocrystalline materials. All of the Company’s revenue since January 1, 1997 has been generated through commercial sources. From its inception in November 1989 through June 30, 2002, the Company was primarily capitalized through private offerings of approximately $25,758,000 of equity securities and its initial public offering of $28,838,000 of the Company’s common stock (the “Common Stock”), each net of issuance costs. The Company has incurred cumulative losses of $37,501,580 from inception through June 30, 2002.

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Results of Operations
 
Total revenue increased to $1,661,846 for the three months ended June 30, 2002, compared to $1,049,379 for the same period in 2001. Total revenue increased to $3,069,528 for the six months ended June 30, 2002, compared to $2,121,304 for the same period in 2001. Product revenue increased to $1,516,197 for the three months ended June 30, 2002, compared to $957,314 for the same period in 2001. Product revenue increased to $2,829,773 for the six months ended June 30, 2002, compared to $1,937,489 for the same period in 2001. Increases in total product revenue were attributed to additional customers and growth with existing customers. Other revenue increased to $145,649 and $239,755 for the three-and six-month periods ended June 30, 2002, compared to $92,065 and $183,815 for the same periods in 2001. The majority of the revenue generated during the three and six months ended June 30, 2002 was from customers in the healthcare, wear-resistant materials, Chemical Mechanical Planarization (CMP) and catalyst markets. Revenue from the Company’s largest customer constituted approximately 71% of the Company’s total revenue for the three- and six-month periods ended June 30, 2002. For the three- and six-month periods ended June 30, 2001, the same customer accounted for 46% and 60% of the Company’s total revenue, respectively.
 
Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue increased to $1,401,696 and $2,696,720 for the three and six months, respectively, ended June 30, 2002, compared to $1,006,749 and $1,857,122 for the same periods in 2001. The increase in cost of revenue was generally attributed to increased product sales and increased depreciation expense resulting from the completion, and placement in service at the beginning of the year of the majority of the Company’s build out of its manufacturing and powder coating facilities, somewhat offset by efficiencies in the manufacture of the Company’s products. Cost of revenue as a percentage of total revenue decreased from 96% for the three months ended June 30, 2001 to 84% for the three months ended June 30, 2002. Cost of revenue as a percentage of total revenue remained at 88% for the six months ended June 30, 2002 and 2001, respectively. Improvements to gross profit are primarily due to increased revenues, a more favorable product mix, continued gains in operating efficiencies, and nonrecurring other revenue in the amount of $65,000 received in the second quarter. The Company expects to remain operating at a positive annual gross profit margin for the foreseeable future.
 
Research and development expense, which includes all expenses relating to the technology and advanced engineering groups, primarily consists of costs associated with the Company’s development or acquisition of new product applications and coating formulations and the cost of enhancing the Company’s manufacturing processes. The Company is currently engaged in research to enhance its ability to disperse its materials in a variety of organic and inorganic media for use as coatings and polishing materials. A recent technical success was related to the Company’s ability to engineer some of its nanomaterials to remain relatively uniformly dispersed in liquid systems over extended periods of time. The Company’s recent announcement regarding its new CMP partner came about as a direct result of this successful research and subsequent application development. The Company also has an ongoing advanced engineering effort that is primarily focused on the development of new nanomaterials as well as the refinement of existing nanomaterials. Research and development expense increased to $480,042 and $1,003,726 for the three and six months, respectively, ended June 30, 2002, compared to $362,519 and $800,189 for the same periods in 2001. The increase in research and development expense was primarily due to no salary expenses currently being capitalized for construction projects and increased depreciation on assets completed and placed in service during the six months ended June 30, 2002.
 
Selling, general and administrative expense decreased to $1,006,104 and $2,091,319 for the three- and six-month periods, respectively, ended June 30, 2002, compared to $1,090,995 and $2,226,949 for the same periods in 2001. The net decrease was primarily attributed to reduced costs of bad debt expense, telephone, consultants, travel, and investor relations costs. These decreases were somewhat

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offset by increases in salaries and legal expenses.
 
Interest income decreased to $33,041 and $61,177 for the three- and six-month periods, respectively, ended June 30, 2002, compared to $165,436 and $416,616 for the same periods in 2001. This decrease was primarily due to a reduction in funds available for investment and, to a lesser extent, reduced investment yields.
 
Liquidity and Capital Resources
 
The Company’s cash, cash equivalents and investments amounted to $10,706,822 at June 30, 2002, compared to $7,425,535 at December 31, 2001. The net cash used in the Company’s operating activities was $1,327,236 for the six months ended June 30, 2002, compared to $1,618,502 for the same period in 2001. Net cash used in investing activities, which is due to maturities of securities offset somewhat by capital expenditures and purchases of securities, amounted to $3,906,865 for the six months ended June 30, 2002 compared to $1,226,087 of net cash provided by investing activities for the same period in 2001. Capital expenditures, primarily related to the build out of the Company’s new pilot manufacturing and powder blending facilities within its Romeoville, Illinois facility and further expansion of the Company’s existing manufacturing facility in Burr Ridge, Illinois and the purchase of related operating equipment, amounted to $697,020, including $123,056 in non-cash items incurred for accounts payable relating to capital expenditures, for the six months ended June 30, 2002, compared to $3,821,301 for the same period in 2001. Net cash provided by financing activities, is primarily due to the Company securing financing through a private placement and to a lesser extent by the issuance of shares of common stock pursuant to the exercise of options, somewhat offset by principal payments on debt and capital lease obligations and accounts payable incurred for the purchase of equipment and leasehold improvements, amounted to $5,182,487 for the six-month period ended June 30, 2002, compared to $914,444 for the same period in 2001.
 
On May 29, 2002, the Company secured equity funding through a private placement offering. The Company issued 1.37 million shares of additional common stock at $5.00 per share and received gross proceeds of $6.85 million. Net proceeds were approximately $6.2 million after commissions, legal, accounting, and other costs. The Company intends to use the proceeds to fund expected growth in new markets as well as to provide for expanded working capital needs expected to arise as sales volume grows. Management expects that the proceeds received from the private placement offering should be sufficient to enable the Company to avoid a “triggering event” relating to the customer supply agreement, as more fully described in Note 6 of the Company’s financial statements.
 
The Company believes that cash from operations and cash on hand, together with the remaining net proceeds from the Company’s initial public offering of Common Stock (“the Offering”), and with its most recent funding received through a private placement offering, and interest income thereon, will be adequate to fund the Company’s current operating plans. The Company’s actual future capital requirements will depend, however, on many factors, including customer acceptance of the Company’s current and potential nanocrystalline materials and product applications, continued progress in the Company’s research and development activities and product testing programs, the magnitude of these activities and programs, and the costs necessary to increase and expand the Company’s manufacturing capabilities and to market and sell the Company’s materials and product applications. Other important issues that will drive future capital requirements will be the development of new markets and new customers as well as the potential for significant unplanned growth with the Company’s existing customers.
 
At June 30, 2002, the Company had a net operating loss carryforward of approximately $42.5 million for income tax purposes. Because the Company may have experienced “ownership changes” within the meaning of the U.S. Internal Revenue Code in connection with its various prior equity

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offerings, 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 2021. As a result of the annual limitation, a portion of this carryforward may expire before ultimately becoming available to reduce income tax liabilities. At June 30, 2002, the Company also had a foreign tax credit carryforward of $216,000, which could be used as an offsetting tax credit to reduce U.S. income taxes. The foreign tax credit will expire at various dates between 2017 and 2022 if not utilized before that date.
 
Should events arise that make it appropriate for the Company to seek additional financing, it should be noted that additional financing may not be available on acceptable terms or at all, and any such additional financing could be dilutive to the Company’s stockholders. Such a financing could be necessitated by such things as; the loss of existing customers; currently unknown capital requirements which may be needed to retain existing business or remain competitive in the seeking of new business; new regulatory requirements that are outside the Company’s control; or various other circumstances coming to pass that are currently not anticipated by the Company.
 
Safe Harbor Provision
 
Nanophase Technologies Corporation wants to provide investors with more meaningful and useful information. As a result, this Quarterly Report on Form 10-Q (the “Form 10-Q”) contains and incorporates by reference certain “forward-looking statements”, as defined in Section 21E of the Securities Exchange Act of 1934, as amended. Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect the Company’s current expectations regarding its future results of operations, performance, and achievements and are based on information currently available to the Company. The Company has tried, wherever possible, to identify these forward-looking statements by using words such as “intends,” “believes,” “estimates,” “expects,” “plans,” and similar expressions. These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause the Company’s actual results, performance, and achievements in 2002 and beyond to differ materially from those expressed in, or implied by, such statements. These risks, uncertainties, and factors include, without limitation: uncertain demand for, and acceptance of, the Company’s nanocrystalline materials; the Company’s dependence on a limited number of key customers; the Company’s limited manufacturing capacity and experience; the Company’s limited marketing experience; changes in development and distribution relationships; the impact of competitive products and technologies; the Company’s dependence on patents and protection of proprietary information; the resolution of litigation the Company is involved in; and other risks set forth in the Company’s previous filings with the Securities and Exchange Commission. Readers of this Quarterly Report on Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.
 
 
The Company does not have any material market risk sensitive instruments.

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See Note 7 to the Financial Statements for additional information.
 
 
On November 26, 1997 (the “Effective Date”), the Company’s Registration Statement on Form S-1 (File No. 333-36937) relating to the Offering was declared effective by the Securities and Exchange Commission. On May 29, 2002, the Company issued 1,370,000 shares of common stock in a private placement offering, taken collectively with the Company’s November 26, 1997 Offering as “the Offerings.” Since the Effective Date, of its $35,033,231 of net proceeds from the Offerings, the Company has used approximately $9,707,000 for capital expenditures primarily related to the further expansion of the Company’s existing manufacturing facility and the purchase of operating equipment and approximately $14,619,000 for working capital and other general corporate purposes. The remainder of the net proceeds has been invested by the Company, pending its use, in short-term, investment grade, interest-bearing obligations.
 
On May 29, 2002, the Company sold, in a private placement, 1.37 million shares of common stock at $5.00 per share and received gross proceeds of $6.85 million. Net proceeds were approximately $6.2 million after commissions, legal, accounting, and other costs. The Company intends to use the proceeds to fund expected growth in new markets as well as to provide for expanded working capital needs expected to arise as sales volume grows.
 
 
a)     The 2002 Annual Meeting of Stockholders of the Company was held on June 26, 2002.
b)     The stockholders voted to re-elect two Class II directors to the Company’s Board of Directors. Results of the voting were as follows:
 
Directors
   
For
     
Authority Withheld
     
Abstentions
     
Broker Non-Votes
Joseph E. Cross
   
12,054,522
     
522,059
     
—  
     
—  
Richard W. Siegel, Ph.D
   
12,357,255
     
219,326
     
—  
     
—  
 
James A. Henderson, James A. McClung, Ph.D, Jerry K. Pearlman, and Donald S. Perkins continued their terms of office as directors of the Company after the 2002 Annual Meeting of Stockholders.
 
c)     The stockholders also voted to ratify the appointment by the Company’s Board of Directors of McGladrey & Pullen, LLP as the independent auditors of the Company’s financial statements for the year ended December 31, 2002. Results of the voting were as follows:
 
For
     
Against
     
Abstentions
     
Broker Non-Votes
12,427,441
     
45,178
     
103,962
     
—  

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None.
 
 
 
A.
 
Exhibits.
Exhibit 10.23* —   Cooperation Agreement dated June 24, 2002 between the Company and Rodel, Inc.
 
Exhibit 99.1  —  CEO Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Exhibit 99.2  —  CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
*Confidentiality requested, confidential portions have been omitted and filed separately with the Commission as required  by Rule 24b-2.
 
 
B.
 
Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the second quarter of 2002.

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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
NANOPHASE TECHNOLOGIES CORPORATION
 
Date: August 14, 2002
  
By: /s/    JOSEPH E. CROSS
   
   
Joseph E. Cross
President, Chief Executive Officer (principal executive officer) and a Director
Date: August 14, 2002
  
By: /s/    JESS A. JANKOWSKI
   
   
Jess A. Jankowski
Acting Chief Financial Officer, Vice President—Corporate Controller, Secretary, and Treasurer (principal financial and accounting officer)

14
EX-10.23 3 dex1023.txt COOPERATION AGREEMENT Exhibit 10.23 COOPERATION AGREEMENT --------------------- THIS COOPERATION AGREEMENT is made as of the 24th day of June, 2002, by and between NANOPHASE TECHNOLOGIES CORPORATION, a Delaware corporation, with offices at 1319 Marquette Drive, Romeoville, Illinois 60446, ("Nanophase") and RODEL, INC., a Delaware corporation, with offices at 451 Bellevue Road, Newark, DE 19713 ("Rodel"). RECITALS: --------- WHEREAS, Nanophase manufactures and sells nanocrystalline cerium oxides particles ("Ceria") and/or dispersions of Ceria using proprietary processes (the "Particles") for potential use in products for chemical mechanical planarization ("CMP") for semiconductor wafers (such use being hereinafter referred to as the "Field"); and WHEREAS, Rodel supplies consumable products, including slurry products to the CMP market; and WHEREAS, Nanophase and Rodel believe that use of Nanophase's Particles for applications in the Field with Rodel's slurry products will result in superior products for sale to Rodel's CMP customers; and WHEREAS, Rodel desires to purchase, and Nanophase desires to sell, the Particles for applications in the Field in accordance with the terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and promises hereinafter set forth, the parties agree as follows: 1. Cooperation ----------- (a) Nanophase and Rodel mutually agree to use all commercially reasonable efforts to cooperate with one another to develop one or more commercial slurry products incorporating the Particles for applications in the Field (the * * * CONFIDENTIAL TREATMENT REQUESTED 1 "Development Product"). Unless otherwise agreed, each party shall be responsible for its own expenses in connection with the development effort. (b) Without limiting Rodel's general obligation of cooperation under subsection (a), above, Rodel undertakes to (i) provide Nanophase with target specifications, performance data and analytical assistance as may be agreed to characterize Development Product performance, (ii) test and evaluate Development Product samples provided by Nanophase and provide feedback as to the results thereof to Nanophase in a timely manner, (iii) keep Nanophase regularly advised of the general market situation applicable to the Development Products, and (iv) include Nanophase business and technical personnel in meetings with business and technical personnel at Rodel's customers, as appropriate, to discuss and promote the Particles and the Development Products. (c) Without limiting Nanophase's general obligation of cooperation under subsection (a), above, Nanophase undertakes to (i) provide Rodel with reasonable research samples of the Development Product for testing and evaluation as may be agreed, together with related physical, chemical and other information, (ii) devote sufficient resources (including equipment and personnel) as may be agreed to provide for the development effort, and (iii) provide agreed technical support to Rodel and its customers as to the use of the Particles and the Development Products. (d) Any intellectual property created or invented after the date of this Agreement in connection with the Development Product shall be owned as follows, regardless of whether such intellectual property was created or invented by personnel of Nanophase, Rodel or both of them: (i) Nanophase shall own all such intellectual property to the extent related or applicable to the manufacture of Particles for applications in the Field, and (ii) Rodel shall own all such intellectual property to the extent related or applicable to slurry formulation and manufacture for CMP applications. Each party agrees to notify the other promptly of any inventions pertaining to applications in the * * * CONFIDENTIAL TREATMENT REQUESTED 2 Field which are created by the other or its personnel under this Section, and to cooperate with the other and its counsel to take such action and execute such documents as may be required or reasonably requested to effect the allocation of rights set forth herein, including cooperating with the other in the filing and prosecution of all patent applications resulting from any inventions pertaining to applications in the Field in connection with the Development Product. 2. Purchase and Sale ----------------- Subject to the terms and conditions of this Agreement, Nanophase will sell, and Rodel will purchase, all of Rodel's worldwide requirements for Ceria for applications in the Field. 3. Exclusivity ----------- Subject to Rodel's complying with the purchase minimums stated in Section 12(a), the purchase and sale obligations set forth in Section 2 shall be mutually exclusive; i.e,, except as specifically otherwise provided herein, for the term of this Agreement, Nanophase will not sell or sample Ceria Particles for applications in the Field to any manufacturer, seller or end user of CMP slurries other than Rodel, and Rodel will not purchase Ceria Particles for CMP applications from any manufacturer or supplier other than Nanophase. This Section shall not apply to Rodel's purchase of evaluation samples in connection with Section 11(b), nor to Nanophase's sale of evaluation samples to customers other than Rodel who have submitted purchase orders for such samples to Nanophase before the date of this Agreement, but not to exceed 1,000 kilograms for applications in the Field. 4. Forecasts and Orders -------------------- (a) Rodel will provide Nanophase with a rolling eighteen-month forecast of the volume of its Particle requirements at the start of each calendar quarter. The first three months of this forecast shall be firm and accompanied by a purchase order for such forecast. Unless otherwise agreed, Nanophase * * * CONFIDENTIAL TREATMENT REQUESTED 3 need not manufacture more than [ * * * ] of the forecasted six-month volume in any single month period. (b) Rodel will give Nanophase six months prior written notice before Nanophase will be obliged to either (i) have installed capacity or manufacture over [ * * * ] of Particles per annum, or (ii) increase production by more than [ * * * ] kilograms of Particles over the production for the previous six-month period. Provided that Nanophase is given such six-month notice, it will be obliged to manufacture up to [ * * * ] kilograms of Particles in the first year of this Agreement. (c) If Rodel requests that Nanophase commit to manufacture an amount of Particles in excess of [ * * * ] kilograms per annum, the parties will negotiate in good faith a mutually acceptable arrangement for payment of the capital expenditures required in order for Nanophase to manufacture such increased amount. Any failure of Rodel or Nanophase to agree upon such a mutually acceptable arrangement following good faith negotiations shall not constitute either (i) an unwillingness by Nanophase to supply Rodel with Particles under Section 8(a) of this Agreement, or (ii) a breach of any party's obligations under the Agreement. (d) Rodel will submit written purchase orders to Nanophase giving reasonable notice which may not be less than three weeks prior to the requested date of shipment and specifying the required quantities, shipment dates, destinations and other relevant information, and Nanophase will use commercially reasonable efforts to fill the orders (including using reasonable commercial efforts to fill orders for which Rodel may be unable to provide a full three weeks' notice) so that Rodel may meet its delivery commitments to its customers. (e) Other provisions applicable to the purchase and sale of the Particles shall be as provided in Rodel's standard terms and conditions of sale, to the extent not inconsistent with this Agreement. * * * CONFIDENTIAL TREATMENT REQUESTED 4 5. Price and Payment ----------------- (a) Based on the minimum volumes required for Rodel to maintain exclusivity under Section 12(a), the sales price for the Particles shall be [ * * * ] If agreed indices for Ceria raw materials show that the costs of these materials has significantly changed after 2002, the parties will negotiate in good faith to determine the appropriate pricing adjustments. (b) Unless otherwise agreed by the parties with respect to any particular order, all shipment of Particles shall be F.O.B. Nanophase's facility, with title and risk of loss passing at the shipment point. Rodel will make payment in full of all Particles conforming to the specifications described in Exhibit A within thirty (30) days of receipt of invoice. 6. Warranties ---------- (a) Nanophase warrants that (i) to the best of its knowledge, the processes Nanophase applies in manufacturing and selling the Particles do not infringe upon any patent or trade secret of any third party, and (ii) all Particles shipped under this Agreement will conform to the specifications agreed upon in writing, including those set forth in Exhibit A, as the same may hereafter be amended by the parties (the "Specifications"), and (iii) the Particles and their manufacture are and shall be in compliance with all applicable laws, rules and regulations, the noncompliance with which, if Nanophase is unable to cure the noncompliance within 90 days of notification thereof, would result in Nanophase's inability to meet its supply obligations under this Agreement. If, notwithstanding Nanophase's compliance with its warranty given in clause (i) hereof, Nanophase receives notice from a third party alleging that its processes infringe a patent or trade secret of such third party, then Nanophase and Rodel will consult one another in good faith to discuss actions to resolve the claim, including possible financial support by Rodel and consideration by Nanophase in respect thereof. These warranties are in lieu of all other warranties or conditions express or implied. TO THE EXTENT ALLOWABLE BY LAW, * * * CONFIDENTIAL TREATMENT REQUESTED 5 THIS EXCLUSION OF ALL OTHER WARRANTIES OR CONDITIONS EXTENDS TO IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABLE QUALITY AND FITNESS FOR A PARTICULAR PURPOSE, AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USAGE OF TRADE. (b) If any Particles fail to comply with the Specifications, Nanophase will, at Rodel's option, promptly return or exchange the Particles with conforming Particles, or issue a refund or credit of the purchase price. 7. Indemnity Each party (the "indemnifying party") agrees to indemnify and hold the other party, its parents, subsidiaries, affiliates and permitted assigns, and the directors, employees and agents of each of the foregoing entities (all, the "indemnified party"), harmless from and against all liabilities, claims, damages and expenses (including, without limitation, reasonable attorneys' fees) arising out of or in connection with (a) any act or omission of the indemnifying party in breach of this Agreement, (b) any injury or damage to the extent attributable to the fault or negligence of the indemnifying party or (c) violation of any law, rule, regulation or order by the indemnifying party related to this Agreement. This Section 7 shall not apply to relieve either party's liability to the other for breach of such party's obligations to the other party under this Agreement. 8. License (a) In the event (i) Nanophase provides written notice to Rodel that Nanophase is unwilling to supply Rodel with conforming Particles for applications in the Field conforming to the Specifications or (ii) Nanophase acknowledges in writing that it is insolvent, or the board of directors of Nanophase shall authorize any liquidation or winding up of Nanophase, or a petition seeking a receivership or involuntary bankruptcy is filed against Nanophase and such petition is not dismissed within sixty days after service upon Nanophase, or (iii) there is a change of control (as defined in Section 12(c)) of Nanophase to a direct competitor of Rodel in the Field, then, in any such * * * CONFIDENTIAL TREATMENT REQUESTED 6 case, Rodel shall have an exclusive, royalty bearing, transferable license to make, have made, use and sell Ceria particles for applications in the Field under any and all intellectual property owned or controlled by Nanophase or its principals. Such license shall be exercisable by Rodel upon written notice and shall be self-executing. If requested by Rodel, Nanophase will sell such equipment in its possession or control as Nanophase may have available and Rodel may require for full exercise of the license rights granted hereunder. The purchase price of any such equipment shall [ * * * ] (b) In addition to the foregoing, Nanophase agrees to make available the reasonable services of personnel it deems appropriate to provide such technical assistance as Rodel may reasonably request in connection with the manufacture of the Particles for applications in the Field under the licensed intellectual property. Nanophase will provide up [ * * * ] (c) The license provided in this Section 8 shall bear a royalty payable by Rodel to Nanophase [ * * * ]. Aggregate royalties hereunder shall be paid on a quarterly basis and shall be accompanied by a written report of the quantity of Particles used by Rodel on a monthly basis during the period covered by the report. This Section 8 shall survive expiration or termination of this Agreement in the event it is invoked by Rodel for a reason specified in Sections 12(b)(ii) or 12(c), but not by reason of Section 12(b)(i). 9. Confidentiality --------------- In connection with this Agreement, the parties may from time to time exchange certain information and data which the disclosing party deems to be confidential information. As used herein, "confidential information" means any information disclosed in tangible form which is labeled as "confidential", "proprietary" or the like, or, if disclosed orally or visually, is confirmed in writing as "confidential", "proprietary" or the like within thirty (30) days of original disclosure. Confidential information shall not include any information which (a) is or becomes part of the public domain by reason other than the unauthorized disclosure of a party hereto, (b) the receiving party can demonstrate was * * * CONFIDENTIAL TREATMENT REQUESTED 7 already in its possession prior to receipt, or (c) was received in good faith from a third party having the right to disclose the same, or (d) was independently developed by the receiving party as evidenced by the receiving party's written records, or (e) is required to be disclosed by law, regulation, judicial process or administrative order, provided that prompt notice and an opportunity to seek a protective order is given to the other party before the disclosure of confidential information. Each party agrees to keep in confidence and not disclose any confidential information received from the other, and further agrees not to use any such information for any purpose except as permitted by, or in furtherance of, this Agreement. Nothing in this Section 9 is intended to prevent or limit either party's disclosing the relationship contemplated by this Agreement in filings with the U.S. Securities and Exchange Commission, or other public disclosures, relating to publicly traded securities of either party, or the filing of this Agreement as a related exhibit, if such party's counsel reasonably determines that such disclosure is appropriate, and provided that to the extent permitted by law, (i) the party seeking to disclose provides the other party with written notice and (ii) Nanophase uses reasonable efforts to seek such redactions of confidential information contained herein as Rodel may reasonably request. 10. Force Majeure ------------- Neither party shall be liable on account of any failure to fulfill its obligations hereunder if such fulfillment is delayed, hindered or prevented by forces or events beyond its reasonable control, including but not limited to fire, flood, labor difficulties, accident, explosion, riots, war, acts of God, terrorist acts, threats of terrorism generally affecting commerce, shortage of materials, transportation difficulties, and other unforeseen supervening events; provided, that the party claiming any such cause as an excuse for nonperformance has provided written notice thereof to the other party within two weeks of the event that is the basis of the failure to perform, together with the anticipated length of the delay or failure. * * * CONFIDENTIAL TREATMENT REQUESTED 8 11. Product Development and Improvement ----------------------------------- (a) Throughout the term of this Agreement, Nanophase agrees to use commercially reasonable efforts and devote reasonable resources to maintain the Particles for applications in the Field as "state of the art" or better, based on mutually agreed specifications. In addition, pursuant to a protocol to be agreed upon between the parties, Nanophase shall provide Rodel with at least seven (7) months' prior written notice before implementing any manufacturing process change potentially affecting compliance with the Specifications. (b) Notwithstanding any other provision of this Agreement, if Rodel determines that Nanophase's Particles do not meet the material performance criteria of competitive Particles for a particular application in the Field, Rodel shall promptly notify Nanophase in writing and give it reasonably sufficient quantities of such competitive Particles and documentation of the material deficiency in the performance criteria of Nanophase's Particles, including all available data substantiating the performance shortfall (the "Performance Deficiency Notice"). Nanophase shall thereafter have six months to meet or exceed the material performance criteria of the competitive particles for the identified application. If Nanophase is unable to meet or exceed such criteria, then Rodel shall be free to purchase the competitive particle for the particular application. In such case, the parties will promptly meet to discuss whether and upon what terms to continue this Agreement on an exclusive basis as set forth in Sections 2 and 3, hereof. If the parties cannot agree on a course of action within 60 days of the commencement of such discussions, then this Agreement shall continue on a nonexclusive basis in accordance with its terms, and Sections 2, 3 and 12(a) shall be deemed accordingly amended, and Section 8 shall be deleted. 12. Term and Termination * * * CONFIDENTIAL TREATMENT REQUESTED 9 (a) This Agreement shall commence on the date first set forth above and continue for an initial period of five years; provided, that if as of December 31, 2003, [ * * * ], and Rodel has not purchased from Nanophase at least [ * * * ] kilograms of Particles, the parties shall meet in good faith to discuss the progress to date and possible adjustment of any targets, goals or prices previously established with respect to development and sale of Particles for applications in the Field (the "Adjustment Discussions"). If within thirty (30) days after either party has requested Adjustment Discussions, the parties have not agreed on an acceptable path forward on an exclusive basis, then either party may, by written notice delivered at the end of such thirty (30) day period, declare this Agreement to be nonexclusive, whereupon the exclusivity provisions of Sections 2 and 3 hereof shall be deemed void and this Agreement shall continue on a nonexclusive basis for the remainder of the initial term (the "Exclusivity Termination Procedure"). The parties agree to hold similar Adjustment Discussions, and adhere to the same Exclusivity Termination Procedure if (i) during 2004, Rodel has not purchased from Nanophase at least [ * * * ] kilograms of Particles for applications in the Field, or (ii) during 2005, Rodel has not purchased from Nanophase at least [ * * * ] kilograms of Particles for applications in the Field, or (iii) during subsequent years of the initial term of this Agreement, Rodel has not purchased from Nanophase agreed quantities of Particles for applications in the Field. Subject to Rodel's complying with the purchase minimums stated above (or such other quantities as the parties may agree pursuant to the Adjustment Discussions), this Agreement will renew automatically at the end of the initial term for consecutive additional periods of five years each, unless terminated by either party upon written notice delivered at least three (3) months prior to the end of any renewal period. (b) This Agreement may be terminated at any time prior to expiration upon written notice by either party in the event of (i) a material breach by the other which is not cured within thirty (30) days after delivery of written notice * * * CONFIDENTIAL TREATMENT REQUESTED 10 by the nonbreaching party, or (ii) the other party is placed in bankruptcy or receivership. (c) This Agreement may also be terminated at any time prior to expiration upon written notice by either party in the event of a change of control of the other party to an unaffiliated third party. For purposes hereof, a "change in control" means a change in the voting control of the affected party or its direct or indirect parent. Except to the extent a party's counsel reasonably determines that such disclosure is prohibited by applicable statute or regulations of the U.S. Securities and Exchange Commission, the party affected by a change of control shall give the other at least thirty (30) days' prior notice of the contemplated change. If the other party does not elect to terminate this Agreement as provided by this subsection, this Agreement shall continue in accordance with its terms as provided by Section 13, below. 13. Assignment and Succession ------------------------- This Agreement shall not be assigned by either party to any third party, except to an affiliate of such party (defined, for purposes of this Agreement as a company or other legal entity which controls, is controlled by, or is under common control with, Rodel or Nanophase, respectively), without the other party's prior written consent, which consent shall not be unreasonably withheld. This Agreement shall be binding upon, and inure to the benefit of, the respective successors by merger or otherwise and permitted assigns of each party. 14. Miscellaneous Provisions ------------------------ (a) This Agreement embodies all the terms and conditions of the agreement between the parties hereto with respect to the matters set forth herein and supercedes and cancels all previous agreements and understandings, whether oral or written, provided that nothing in this Agreement shall be deemed to supersede or cancel that certain Confidentiality And Non-Use Agreement between Rodel and Nanophase dated November 27, 2001 with * * * CONFIDENTIAL TREATMENT REQUESTED 11 respect to information disclosed by either party to the other prior to the date hereof. (b) The terms of this Agreement may not be modified, waived or discharged except by an express declaration in writing signed on behalf of the parties hereto by their duly authorized officers and referring specifically to this Agreement. (c) The failure of Nanophase or Rodel at any time to require performance by the other of any provision hereof shall in no way affect the full right to require such performance at any time thereafter, nor shall the waiver by Nanophase or Rodel of a breach of any provision hereof be taken or held to be a waiver of any succeeding breach of such provision or as a waiver of the provision itself. (d) The termination or expiration of this Agreement for any reason shall not affect any of the provisions of this Agreement which expressly continue in force after its termination or expiration, including the provisions of Sections 6, 7, 9 and 14, which the parties expressly agree shall survive any expiration or termination hereof. (e) Except as expressly provided herein, nothing in this Agreement shall be construed to make any party hereto the representative or agent of any other party and no party shall so hold itself out, nor shall any party be liable for or bound by any act or omission of any other party. (f) This Agreement in all respects shall be governed by and interpreted in accordance with the laws of the State of Delaware, U.S.A. without giving effect to principles of conflict of laws. Rodel and Nanophase hereby consent and submit to the jurisdiction of the state or federal courts in Delaware and agree that any litigation arising out of or relating to this Agreement shall be heard only in a state or federal court located in such state. * * * CONFIDENTIAL TREATMENT REQUESTED 12 (g) Rodel and Nanophase each agree that during the term of this Agreement, and for eighteen months after the termination of the Agreement, neither party will directly or indirectly hire or engage any current or former employee or contractor of the other party, nor solicit or try to induce any current employee or contractor of the other party, to leave that party's employ or engagement. (h) If any provision of this Agreement is held invalid by a court of competent jurisdiction, such invalidity shall not affect the other provisions of this Agreement. (i) Any notice required or permitted to be given under this Agreement shall be made by personal delivery, courier, or by telecopy or first class mail to the party to whom delivery is intended at its address set forth above, or to such other address as either party shall notify to the other from time to time. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first set forth above. NANOPHASE TECHNOLOGIES RODEL, INC. CORPORATION By: /s/ illegible By: /s/ Joe Cross ------------------------ ------------------------------------ Joe Cross, CEO * * * CONFIDENTIAL TREATMENT REQUESTED 13 Exhibit A Agreed Specifications [ * * * ] * * * CONFIDENTIAL TREATMENT REQUESTED 14 EX-99.1 4 dex991.txt CERTIFICATION OF CEO Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Nanophase Technologies Corporation (the "Company") on Form 10Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph Cross, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Joseph Cross ---------------------------------- Joseph Cross, Chief Executive Officer Date: August 14, 2002 EX-99.2 5 dex992.txt CERTIFICATION OF CFO Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Nanophase Technologies Corporation (the "Company") on Form 10Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jess Jankowski, Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Jess Jankowski -------------------------------------------- Jess Jankowski, Acting Chief Financial Officer Date: August 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----