January 28, 2023

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Arvest objects to finance plan in NanoMech bankruptcy case

Fayetteville-chartered Arvest Bank and Daniel Carroll of Michigan have filed objections to financing plans submitted in the bankruptcy case of Springdale-based nanotechnology company NanoMech. Arvest and Carroll were listed as creditors in the bankruptcy case, and Carroll previously sued NanoMech for more than $1 million.

In its objection filed May 3, Arvest cited an April 18 order to allow NanoMech to take on more debt and take priority over the debt owed to Arvest. The order shows NanoMech can receive up to $250,000 in loans. “By seeking to authorize liens that take priority over (Arvest’s) secured claim, (NanoMech) is exposing (Arvest) to additional risk that its secured claim will not be repaid,” Arvest noted in the objection. “This risk would not otherwise exist.”

Also, Arvest and Carroll noted in their objections that the financing plan filing was unclear. Terms used throughout the filing were “ill-defined and used in an inconsistent manner,” according to Arvest’s objection. The financing plan was filed April 15, the same day NanoMech filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. Chapter 11 bankruptcy allows for a reorganization of the company’s debt.

On April 23, NanoMech filed documents looking 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. A hearing has been set for May 10.

If the agreement is approved, the company would sell its assets to Michaelson Capital Partners for $9 million, according to the 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.

NanoMech filed for Chapter 11 bankruptcy a week after filing documents to settle a nearly $9 million lawsuit alleging the company has not made payments on its loans. 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 and Carroll.

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 and Carroll were, $8.91 million and $1 million, respectively. Judge Christopher Sontchi was assigned to the case.

On Feb. 4, Michaelson Capital sued NanoMech 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.

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.

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. The company has yet to respond to Carroll’s lawsuit.

Carroll is being represented by Fayetteville attorney Stephen Parker, Jr. and was president of NanoMech’s automotive and industrial group in Detroit before his position was terminated March 18. NanoMech recently closed its offices in Dallas and Detroit and laid off a portion of its workforce.

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.

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.

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.

Michaelson Capital has a nearly 5% equity position in NanoMech, said Robbie Wills, a Conway attorney representing Michaelson Capital. 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.”

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.