NanoMech files plan to sell assets

Springdale-based nanotechnology company NanoMech looks to sell the assets of the company in an auction to the New York-based technology financing company that initially sued NanoMech for not making payments on $7 million in loans, court documents show.

NanoMech filed documents this week in U.S. Bankruptcy Court for the District of Delaware, and a hearing has been set for May 10. Sources close to the company previously said it would file for Chapter 11 bankruptcy “in an orderly fashion to process its sale.”

If the agreement is approved, the company would sell its asset to Michaelson Capital Partners for $9 million, according to the April 23 filing. The two companies came to an agreement on April 20, and the amount is nearly the same as the amount for which Michaelson Capital had sued NanoMech.

“The proposed transaction, if approved, will generate significant value for the debtor’s estate, and among other things, satisfy a significant portion of the prepetition claims against the debtor and pave the way for the best outcome to this case,” the filing shows.

On April 15, NanoMech filed for Chapter 11 bankruptcy in the Delaware court a week after filing documents to settle a nearly $9 million lawsuit alleging the company has not made payments on its loans. Chapter 11 bankruptcy allows for a reorganization of the company’s debt.

The company owes between $10 million and $50 million to between 100 and 199 creditors, the filing shows. Some of the creditors listed in the filing include those who previously sued NanoMech, including Michaelson Capital Partners and Daniel Carroll of Michigan.

Other creditors include Arvest Bank, with unsecured claims totaling $1.56 million; the Arkansas Economic Development Commission, with unsecured claims totaling $1 million; and Waring & Carmen Partridge Foundation of Kingsville, Texas; with unsecured claims totaling $2 million. Unsecured claims for Michaelson Capital Partners and Carroll were, $8.91 million and $1 million, respectively. Judge Christopher Sontchi was assigned to the case.

On April 3, attorneys for Michaelson Capital and NanoMech filed a proposed judgment that would require NanoMech to pay Michaelson Capital $8.91 million at an annual interest rate of 9%. The companies would be responsible for their own attorneys’ fees, expenses and costs, the proposed judgment shows. John Bougiamas, attorney for Michaelson Capital, and Carrie Hardman, attorney for NanoMech, signed the proposed judgment. Justice Andrew Borrok, who’s assigned to the case, has yet to sign off on the proposed judgment.

Michaelson Capital filed the lawsuit Feb. 4 in the Supreme Court of New York, alleging NanoMech has not made payments on $7 million in loans. Michaelson Capital sued NanoMech for not paying on the loans provided to the company in April 2018 and asked for an $8.91 million judgment — the same amount noted in the proposed judgment.

NanoMech recently closed its offices in Dallas and Detroit and laid off a portion of its workforce. The company’s board of directors has retained Ben Waisbren as chief restructuring officer for NanoMech and global law firm Winston & Strawn LLP to represent the company. Hardman is an attorney for Winston & Strawn.

Waisbren is a former partner of Winston & Strawn, an investment banker and Hollywood producer, and he recently advised the U.S. Department of Justice in a civil forfeiture action regarding the 1MDB fraud case that resulted in the federal agency receiving a $60 million settlement payment.

Carroll filed a complaint March 25 in the U.S. District Court, Western District of Arkansas, in Fayetteville against NanoMech and claims the company has not made payments on a $1 million loan issued June 28, 2018. Carroll on Feb. 21 demanded payment of $1.06 million after NanoMech failed to pay on $7 million in loans in regards to the previous lawsuit. Carroll is being represented by Fayetteville attorney Stephen Parker, Jr.

“Mr. Carroll intends to work with NanoMech, Michaelson Capital Partners and all others involved to see that a mutually equitable resolution is reached,” according to an April 1 statement from Parker.

NanoMech announced July 16, 2018, that Carroll had been appointed president of its automotive and industrial group and would oversee the company’s Detroit office and assemble a sales and engineering team. Parker said Carroll’s position at NanoMech was terminated on March 18. NanoMech has yet to respond to the lawsuit Carroll filed against the company.

Before Carroll filed the lawsuit, Jim Phillips retired from the company as chairman and CEO, according to a March 20 statement from his personal attorney, Todd Lewis of Conner & Winters. “Having worked nonstop for NanoMech over 10 years, Jim looks forward to spending time with his wife of 42 years and their five grandchildren and ‘recharging his batteries,’” Lewis said previously.

John Michaelson, chief investment officer of Michaelson Capital Partners, has said he wants to work with NanoMech’s equity shareholders and investors, including the Arkansas Economic Development Commission, to save the company and keep the technology and jobs in Arkansas. “Unfortunately, as our filings state, the current executive leadership of the company has repeatedly failed to meet its obligations and is in breach of its agreements,” Michaelson said previously. “This action is a last resort to save a great Arkansas company.”

Michaelson Capital has a nearly 5% equity position in NanoMech, said Robbie Wills, a Conway attorney representing Michaelson Capital. “Our company has been disappointed in the current executive leadership of NanoMech, and we look forward to working with the shareholders in the future to address that,” he said previously. Wills also noted NanoMech took on more debt after it received the loans from Michaelson Capital, and this violated a condition of the loans.

When asked if the lawsuit was an attempt by Michaelson Capital to take control of NanoMech, Wills said “Michaelson Capital is a lender and is primarily concerned with getting its loan proceeds repaid. It is a de minimis stockholder, holding a small percentage of the stock of the company. It hopes that the company, with the right management and focus, can grow and be a strong Arkansas company.”

ECONOMIC INCENTIVES
The Arkansas Economic Development Commission provided $10.88 million in loans, grants and tax credits to NanoMech, all before 2015. The incentives NanoMech received have specific requirements that must be met, and these are being reviewed, said Mike Preston, executive director of the Arkansas Economic Development Commission. NanoMech has faced “claw backs” and “penalties,” but because of the lawsuit, the commission declined to provide more details.

“The specialty lubrications manufactured by NanoMech use macromolecular technology developed at the University of Arkansas to improve functionality and have the potential to radically change the energy industry, as well as aerospace, transportation and automotive,” Preston said previously. “It is our desire to see the company become an industry leader, keeping their dedicated employees and stakeholders in Arkansas while competing in the national and international arena.”

NanoMech has paid more than $1 million to the UA, Phillips said in an exclusive interview with the Northwest Arkansas Business Journal the day before the initial lawsuit was made public. It pays licensing fees to the UA to use its technology to produce the products. “The university has licensing agreements with companies that commercialize and use intellectual property — new technology — developed and owned by the university,” said Amy Schlesing, executive director of strategic communications for the UA.

NanoMech had between 20 and 25 employees at offices in Houston and Springdale. About 75% of the company’s business comes from the oil and gas industry. Since it was established in 2002, NanoMech has received between $45 million and $50 million in investments.