NanoMech lays off employees, closes 2 offices; bankruptcy in works

Springdale-based nanotechnology company NanoMech recently laid off a portion of its workforce and looks to be headed for bankruptcy in order to be sold after being sued twice for not making payments on nearly $10 million in loans.

The company’s board of directors has retained Ben Waisbren of Chicago as chief restructuring officer and global law firm Winston & Strawn LLP to represent the company. Waisbren declined to say how many employees were laid off, but confirmed the company’s offices in Dallas and Detroit were closed.

“The business is working with its senior lender in a cooperative fashion, and we expect to be making an announcement in the next week,” said Waisbren, who is a former partner of the law firm, an investment banker and Hollywood producer. Waisbren 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.

NanoMech plans to file for chapter 11 bankruptcy “in an orderly fashion to process its sale,” according to sources close to the company. Chapter 11 bankruptcy allows for a reorganization of the company’s debt.

Daniel Carroll of Michigan filed a complaint March 25 in the U.S. District Court, Western District of Arkansas, in Fayetteville against NanoMech for not making 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 related to a 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.

Before the most recent lawsuit was filed, 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.

NanoMech has yet to respond to either lawsuit filed against the company, including the one filed Feb. 4 in the Supreme Court of New York, alleging it has not made payments on $7 million in loans. New York-based technology financing company Michaelson Capital Partners sued NanoMech for not paying on the loans provided to the company in April 2018. Michaelson Capital filed suit in the Supreme Court of New York and asked for an $8.91 million judgment against the company.

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 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 at one time. 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.