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Maximizing Enterprise Value During COVID-19!

Join us for a great session with Brother Steven Gerbsman (Hunter College, 1966 Bronx Campus). Steven is the principal at Gerbsman Partners, which focuses on maximizing enterprise value for stakeholders and shareholders in highly leveraged, underperforming, undercapitalized and undervalued companies.

Steven is also a part-time lecturer as an angel investor and has been helping companies maximize their value during the pandemic.

Brother Gerbsman participates as a mentor for MBA students at Stanford University and has also been a guest lecturer at the University of San Francisco’s MBA program, the McDonough School of Business at Georgetown and the Haas School of Business at UC Berkeley’s Venture Capital Executive Program.

Time

Dec 10, 2020 02:00 PM in Eastern Time (US and Canada)

https://us02web.zoom.us/webinar/register/8816069294610/WN_JO7ZKQpATKOjGXTzLGjoqg

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SALE OF Sebacia, Inc.

Gerbsman Partners – http://gerbsmanpartners.com  has been retained by Hercules Capital, Inc. (“Hercules”), the senior secured lender to Sebacia, Inc. (“Sebacia” or the “Company”), https://sebacia.com/ to solicit interest for the acquisition of all or substantially all of the assets of Sebacia, including its Intellectual Property (“IP”), in whole or in part (collectively, the “Sebacia Assets”).  Hercules will succeed to the Sebacia Assets by virtue of a strict foreclosure under Section 9-620 of the Uniform Commercial Code.  Purchasers of the Sebacia Assets will receive all of Sebacia’s right, title, and interest therein, “as is where is” without any representations or warranties. 

Please see the attached for additional detail information regarding the sale of the Sebacia Assets and IP (detail information summary, patent listing and mutual NDA).

Sebacia, Inc. is headquartered at 2905 Premiere Parkway, Suite 150, Duluth, Georgia. Since inception, approximately $84 million of equity capital has been invested in Sebacia.

IMPORTANT LEGAL NOTICE:  

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the Sebacia Assets has been supplied by third parties and obtained from a variety of sources. It has not been independently investigated or verified by Hercules, Gerbsman Partners or their respective agents or contractors.  


Potential purchasers should not rely on any information contained in this memorandum or provided by Hercules or Gerbsman Partners (or their respective staff, agents, contractors, and attorneys) in connection herewith, whether transmitted orally or in writing as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

Hercules and Gerbsman Partners, and their respective staff, agents, contractors, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reason of Hercules’s or Gerbsman Partners’ (or their respective contractors’) negligence or otherwise. 

Any sale of the Sebacia Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of Hercules or Gerbsman Partners. Without limiting the generality of the foregoing, Hercules and Gerbsman Partners and their respective staff, agents, contractors, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the Sebacia Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum contains confidential information and is not to be supplied to any person without Hercules’ or Gerbsman Partners’ prior consent. For further due diligence and information, please sign and return the non-disclosure agreement attached hereto as Exhibit A.  This must be executed by all interested parties who would like to access the on line due diligence room.

Sebacia History and Background

Founded in 2010 as part of The Innovation Factory, Sebacia set out to develop an alternative to the topical and systemic drugs currently available for the treatment of acne.  Starting with the observation that Accutane (isotretinoin) is highly effective in treating acne by targeting the sebaceous gland, but is limited by safety concerns, Sebacia envisioned a highly selective, targeted treatment to photothermally injure the sebaceous gland without the serious side effects of isotretinoin.  This same principle leveraged by Sebacia, selective photothermolysis, is behind highly safe and successful treatments in dermatology such as laser hair removal.

Sebacia leveraged the potential of microparticles — long-studied in several areas of medical research, including intravenous administration for tumor ablation — and laser energy to formulate a topical solution for acne. The intention was to develop a system designed to deliver particles into the gland that could be calibrated to absorb wavelengths of laser light and create localized heating in adjacent tissue while avoiding absorption into the skin. Thus, potentially, selectively heating only the targeted skin structures that are involved in acne.

Sebacia in-licensed two dermatological technologies for the treatment of acne. These key licenses encompass (i) chromophores (i.e., energy-activatable particles) which produce a photothermal effect and (ii) nanoshells for the treatment of pilosebaceous unit[1] related medical applications.

With this technology in hand, Sebacia created proprietary microparticles, called Sebacia Microparticles, that are intended to act as an accessory to commercially available dermatological lasers (1064 nm in the U.S.; 755nm Alexandrite, 800nm diode, and 1064nm Nd:YAG in the EU) for the treatment of inflammatory acne. The microparticles are topically applied and, with the assistance of a proprietary massager, delivered to the sebaceous gland (via the skin pores) which is a key contributor to acne pathophysiology. Once the microparticles are administered, a standard dermatological laser is applied globally to the patient’s face.  The light emitted from the laser is absorbed by the Sebacia Microparticles causing them to instantaneously heat up thereby thermally injuring the tissues adjacent to the microparticles.  Over time, the injured tissues remodel in response to the photothermal injury which reduces the number of acne lesions.  Click on the following link to see a short animation of how Sebacia works:  https://youtu.be/lB1yOzmV5ws.

The following video includes patient and clinician testimonials regarding the Sebacia treatment:  https://youtu.be/kqluczixErA.

Sebacia believes its assets are attractive for a number of reasons:

  • Safe and effective treatment for acne that works by selectively targeting the sebaceous gland.  There are no other non-systemic acne treatments approved that selectively target the sebaceous gland.
  • Cleared for sale in the US, EU, and Australia and regulated as a medical device
  • Clinical results lasting up to 24 months with an excellent safety profile.  Treated >2,500 patients at >100 centers worldwide.
  • Business model generates recurring revenue from high margin single patient use consumable.
  • Works in combination with laser hair removal / vascular lasers creating a new stream of revenue for the capital equipment.
  • Integrates into physician’s current polytherapy treatment approach for acne giving them a non-systemic option to target the sebaceous gland.
  • Significantly improves physician economics for caring for acne patients.  Converts a clinical visit with prescription (physician typically earns a modest co-pay) into a cash-pay in-office procedure that can be delegated to support staff.  Physicians still may earn their co-pay for clinical visits, but they add on $2,100-$3,000 of revenue per Sebacia patient (Sebacia costs the practice $475 per patient).
  • Extensive worldwide patent portfolio that provides proprietary protection lasting into the early to mid-2030’s
  • Proprietary market research demonstrating patient willingness-to-pay and physician adoption drivers
  • Sebacia owns silver photoparticles which have FDA clearance for temporary light hair removal when used in combination with an 800-810nm diode laser.

 

Impact of the Sebacia Treatment 

Acne care is important to patients not just because it improves the appearance of the skin, but treatment also helps patients emotionally and socially.  Current first line therapies fail for 40-50% of patients requiring more aggressive treatments.  Acne can also affect patients into adulthood which makes them desperate for a new treatment that works.  Sebacia offers something innovative & new that avoids the need for systemic medications and antibiotics.  Sebacia’s treatment is local/non-systemic and directly targets one of the underlying causes of acne – excessive sebum production from the sebaceous gland.  For patients, the Sebacia treatment provides the following benefits:

  • Reduces the burden of daily compliance associated with medications
  • Durability lasting up to 24 months after only three office visits
  • No downtime from school or work after treatment
  • Excellent safety and efficacy

For physicians, Sebacia represents the latest innovation in acne care.  Sebacia represents a way for clinicians to target the sebaceous gland selectively using a topical and avoid the side effects of systemic medications.  Sebacia puts the power to treat acne in the clinician’s hands rather than relying on daily compliance from patients.  Sebacia represents a way to generate enhanced economics from acne patients while also using capital equipment (laser hair removal laser) that many of them already own.  For most practices, the Sebacia treatment is delegated from the dermatologist to an extender.  Converting just 10-20% of their current acne patients to Sebacia can generate $300-500k of additional revenue to the practice per year.

Industry Overview:

Acne is the most common skin condition in the United States, with a prevalence ~54M in the USA. These 54M patients generate a total of 40-50M visits to the doctor per year.  There are four primary pathogenic factors which interact in a complex manner to produce acne lesions:

  • Sebum production from the sebaceous gland: Sebum is a naturally occurring oil and wax mixture produced by sebaceous glands. It is intended to lubricate and waterproof the skin; however, when it is overproduced and mixes with bits of hair, skin, dirt or other debris, it can block the pore and cause a pimple to form.
  • Alteration in the keratinization process: Keratinization is the process by which skin cells mature as they move from deep within the skin to the skin’s surface. Patients with abnormal keratinization often develop non-inflammatory lesions called comedones (i.e., blackheads and whiteheads). If these comedones get infected, they can form pustules (i.e., inflammatory lesions)
  • Propionibacterium acnes colonization: When P. acnes bacteria which typically lives on the skin gets inside the pore and multiplies quickly, it causes the pore to become inflamed (i.e., red and swollen). If the inflammation goes deep into the skin, an acne cyst or nodule appears.
  • Release of inflammatory mediators in the skin: When inflammatory mediators are released in the skin, they perpetuate the chronic inflammatory cycle of acne.

These factors cause patients to develop inflammatory and non-inflammatory lesions. Non-inflammatory lesions, which are commonly called blackheads and whiteheads, are less severe but often can lead to inflammatory lesions over time. Inflammatory lesions are more difficult to treat and characterize more severe acne. Depending on the size and degree of inflammation, they are referred to as a papule, pustule or nodule.

Clinicians typically follow guidelines from the American Academy of Dermatology for treating acne.  These guidelines recommend starting with topical agents that target more than one of the underlying causes of acne (i.e. a polytherapy approach).  Topical retinoids are a class of drugs that target abnormal keratinization.  These are often combined with anti-microbial or antibiotic class of drugs which target the proliferation of p. acnes bacteria.  Unfortunately, the only pharmaceuticals that can target the sebum production are Accutane (isotretinoin) or Spironolactone (hormonal agent only suitable for women).  According to the AAD guidelines, systemic agents are reserved for tertiary (or secondary in select cases) care once patients have failed multiple topical and systemic agents.  Isotretinoin in particular comes with risk of serious side effects (including a black box warning by FDA) and requires significant time from practices to comply with government/insurance reporting requirements under the iPledge program.  Clinicians recognize the need for a first line topical treatment that can target the sebaceous gland and compliment their other fist line treatments which target the keratinization of the follicles and the p.acnes colonization.  Sebacia fills that need and helps clinicians and their patients avoid the progression from topical drugs to systemic ones.

In addition to the traditional physical symptoms of acne, the condition may cause psychological (e.g., low self-esteem and depression) and long-lasting physical (e.g., dark spots on the skin and permanent scars) effects. For these reasons, clinicians treat acne early and aggressively with effective treatments.

Product Offering

Each patient receiving the Sebacia treatment will experience 3 in-office treatments 1 week apart from each other (on days 0, 7, and 14).  Each of these treatment sessions will last 30-45 minutes and the clincian will use a 3mL vial of gold microparticles.  The gold microparticles are applied to the patient’s face using the reusable massager and a single patient use massager head cover.  A full Sebacia treatment for a patient uses 3 vials of gold microparticles and 3 headcovers.

You can view a short video showing the treatment at the following link:  https://youtu.be/1mHvrqOssrg

Sebacia’s gold microparticles and headcovers are sold in a 9-pack (enough to treat 3 patients).  The retail price of this bundle is $1,430.

Sebacia’s massager is a reusable/rechargeable device which is sold for $300.

PRODUCT DIFFERENTIATION

Sebacia’s technology leverages selective photothermolysis which has been established as a clinically proven mechanism of action for other indications such as laser hair removal.  Sebacia overcomes many of the limitations of other light-based treatments for acne.  Specifically, because Sebacia is selective to the pilosebaceous unit (i.e. the follicle and gland), the Sebacia technology enables much higher peak temperatures in the target tissue than bulk heating techniques.  With non-selective, bulk heating lasers, pain and safety concerns limit the peak temperatures that can be achieved.  With lower peak temperatures, the injury is modest and therefore not durable.

Intellectual Property

Sebacia has licensed patents from Massachusetts General Hospital and Nanospectra BioSciences (licensee from Rice University).  Sebacia has also acquired patent assets from Sienna Biopharmaceuticals and has generated and filed its own intellectual property.  The patent portfolio has broad, interwoven coverage and, as of January 2020, includes 147 owned or licensed patents with 44 in the US and 103 international patents.  Eighty-six percent of Sebacia’s patents have a lifespan of 10 years or more.  The portfolio covers composition of matter along with methods.  Sebacia has numerous applications globally that are being prosecuted.

Below is a table of patents representative of different aspects of the portfolio:

This summary is focused on the commercial product and approved acne indication.  However, the portfolio also has intellectual property covering other apparatuses, compositions and dermatologic/aesthetic indications (e.g. light hair removal).

The license agreements along with a schedule of royalties is available when an NDA is executed

Manufacturing

All of Sebacia’s manufacturing operations are currently outsourced.  At current low commercial volumes, gross margins are in the low 60’s and there is a plan to improve gross margins to the low 80’s.  The details are available in the on line due diligence room subject to signing an NDA.

Research and Development

 

The Company has developed several R&D projects that could be executed to develop next generation products and unlock new clinical indications.  Below is a list of a few examples:

  • Tuning gold microparticles to different wavelenths of light.  This would enable compatibility with other light/laser sources (e.g. intense pulsed light, alexandrite, diode, Nd:YAG) improving cost of goods and providing more efficient heat generation
  • Next generation formulation – to improve transfollicular delivery and handling characteristics clinically
  • Next generation massager – to improve transfollicular delivery using mechanical vibration or ultrasound technology
  • Light hair removal – using the gold or silver chromophore to target permanent laser hair removal of light hair
  • Oily skin – using the gold microparticle to reduce sebum production
  • Appearance of large pores – using the gold microparticles to reduce the appearance of large pores.

The above projects would require either R&D and/or clinical study work to develop them into a product and gain regulatory approval.

Sales and Marketing

The Company has developed a sales and marketing playbook to support commercial activities in the US and DACH region of Europe.  With limited financial resources, the Company hired a single sales rep in the US and another sales rep in Germany.  The Company partnered with two distributors to serve BeNeLux and Poland.

The brand and style have been fully developed.  A library of digital and print assets are available to support professional and consumer marketing in both

English and German language.  In the US the Company launched a pilot multi-platform digital/social media advertising campaign designed to stimulate consumer awareness in targeted markets.  Consumers were targeted via Facebook/Instagram/YouTube and then directed to a landing page where they could learn more about Sebacia and they could book an appointment online or via a call center.  Those patient leads were chased by a professional call center and booked into a local practice offering Sebacia.

Sebacia’s target markets are moms of adolescents (Gen Z, 80% of the addressable market) and millennial women (20% of the addressable market).

In the US, the Company developed a physician lead generation process that prioritized the following criteria for practices:

  1. Own a suitable laser (1064 nm in the U.S.)
  2. Offer cash pay in-office procedures (e.g. laser hair removal, CoolSculpting, tattoo removal, etc.)
  3. Currently treat acne patients

With the above general criteria, the Company used prescriber data filtered for acne drugs and cross-referenced those practices with the installed base of lasers and other in-office procedures listed above.  Once identified, the Company used direct mail, e-mail, and cold calls to drive purchases among practices.  The Company has also received a significant number of non-solicited leads from physicians. Sebacia may be used by dermatologists, OB/Gyns, plastic surgeons, med spas, etc.

Once the practices decided to purchase Sebacia, the Company used Practice Development Consultants (PDCs) to train the clinicians how to use Sebacia and work with the practice to implement Sebacia’s marketing programs.  Sebacia offers extensive materials to support practices including:

  • Printed materials like brochures, posters, consultation room materials
  • Digital / social media assets
  • E-blast content
  • Content and coaching for digital media advertising
  • Practice website content
  • PR support

Regulatory 

Sebacia microparticles are regulated as a medical device and approved for sale in the US, EU, and Australia.  The indication for use in the US is:

  • Sebacia Microparticles is a Prescription Use product indicated for use as an accessory to 1064 nm lasers to facilitate photothermal heating of sebaceous glands for the treatment of mild to moderate inflammatory acne vulgaris.

The indication for use in the EU is:

  • Sebacia Microparticles are indicated for the photothermal heating of sebaceous follicles associated with facial acne vulgaris.

Former Management Team

Chuck Abraham, Chief Executive Officer.  Chuck was recruited to manage the commercial launch of the product after the Company’s successful completion of European and U.S. clinical trials, CE Mark and FDA Registration. Most recently Chuck led OraMetrix, Inc. to a successful commercialization of its products and services with a cloud-based business model providing custom Orthodontic appliances to doctors for use in patients. Chuck’s additional experience includes commercialization of medical products and services. Prior positions include leadership roles with OraMetrix, Inc., eMerge Interactive, Nellcor Puritan Bennet, and General Electric Medical Systems.

Jay Widdig, CFO. Jay is responsible for Sebacia’s financial and administration functions, specifically as it relates to the commercial launch of Sebacia’s products. Before joining Sebacia, Jay served as vice president, chief financial officer, treasurer and corporate secretary of OraMetrix, Inc., from 2002 to 2020, a leading industry provider of innovative 3-D technology solutions improving the quality and efficiency of orthodontic care. OraMetrix was acquired by Dentsply Sirona, Inc. in 2018. Before then, Jay was the CFO of Intrusion Inc., a publicly traded network security company and at one point he also held various managerial positions at Cyrix Corporation, a semiconductor company. Cyrix Corporation was acquired by National Semiconductor in 1997. Jay also had the opportunity to serve at Texas Instruments and Halliburton Company in various financial roles.

Cory Anderson, VP, Business Development & Marketing. Cory is responsible for business development, European post approval studies, and development of the marketing strategy for the Sebacia Treatment. Since starting with The Innovation Factory (TIF) over 15 years ago, he has worked in a variety of roles in TIF and TIF’s portfolio companies. These positions include his current role with Sebacia, VP of Business Development for TIF, and Program Manager for both AqueSys and NeoVista. Additionally, Cory is a Principal at Accuitive Medical Ventures. He served as an observer on the MyoScience board (acquired by Pacira) and as an observer on the Aquesys board (acquired by Allergan).

Richard Blomgren, Director, Quality. Richard has been the guiding force for Sebacia Quality and Manufacturing, as part of The Innovation Factory (TIF) management team. In his role as Director of Quality Systems for TIF for the past 12 years, Richard brings more than 20 years expertise in quality, manufacturing, and product development. During his time at TIF, Richard has created and managed quality systems for 10 medical startup companies and helped to successfully transition 7 of these companies out of TIF. Prior to joining TIF, Richard held quality management and quality engineering positions at Teleflex Medical (formerly Rüsch), MMG Healthcare, GEC Marconi Avionics, and Rockwell International.

Pedro Medrano, VP, Engineering & Program Development. Pedro recently joined Sebacia to lead engineering and commercialization readiness projects. After earning a B.S. Degree in Materials Science & Engineering, he spent time researching high-energy density capacitors for use in numerous applications, including Implantable Defibrillators. During his 15 years at St. Jude Medical, Inc., Pedro led numerous global, cross-functional teams in the development of Class III implantable devices and systems. Prior to joining Sebacia, Pedro was the Director of the Project Management Office for Philips’ Nuclear Medicine/Imaging business, where he was responsible for New Product Development and Sustaining programs. He has also held Business Development positions with Novartis’ Eyecare Division (CIBAVISION/Alcon) and The Innovation Factory, where he performed due diligence on refractive laser surgery, Intraocular and Contact Lenses, and drug delivery devices.

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (in the form attached hereto as Exhibit A) to have a presentation from Sebacia’s former management, intellectual capital and the due diligence “data room” documentation (the “Due Diligence Access”). Each interested party, upon obtaining Due Diligence Access, shall be deemed to acknowledge and represent that (i) it is bound by the bidding procedures described herein; (ii) it has an opportunity to inspect and examine the Sebacia Assets and to review all pertinent documents and information with respect thereto; (iii) it is not relying upon any written or oral statements, representations, or warranties of Hercules or Gerbsman Partners, or any of their respective staff, agents, contractors or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of such interested party, and neither Hercules nor Gerbsman Partners (nor any of their respective, staff, agents, contractors or attorneys) make any representations as to the accuracy or completeness of the same.  

Following an initial round of due diligence, interested parties will be invited to participate with a bid for the acquisition of the Sebacia Assets. Each sealed bid must be submitted via email to steve@gerbsmanpartners.com so as to be actually received by Gerbsman Partners and Hercules no later than Friday, January 8, 2021 at 3:00 pm. Eastern Standard Time (the “Bid Deadline”).

Bids should identify with specificity the assets being tendered for so that such assets are reasonably identifiable. 

Hercules reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from the sale. 

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $200,000 (payable to Hercules Capital). Unsuccessful bidders will have their deposit returned to them within 72 hours of Hercules’ acceptance of the successful bid.

Hercules will require the successful bidder to close within 7 days of Hercules’ acceptance of the successful bid.  Any and all of the Sebacia Assets will be sold on an “as is, where is” basis, with no representations or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Sebacia Assets shall be the sole responsibility of the successful bidder, which shall pay the aggregate amount of all such taxes to Hercules concurrently with closing of each sale of the Sebacia Assets.

For additional information, please see below and/or contact:

 

Steven R. Gerbsman                                                          

Gerbsman Partners

steve@gerbsmanpartners.com                         

 

Kenneth Hardesty

Gerbsman Partners

ken@gerbsmanpartners.com

Update to “The Bidding Process, Procedures for the Sale of The NanoSteel Company, Inc.

Further to Gerbsman Partners sales letter of November 10, 2020 regarding the sale of The NanoSteel Company, Inc.  (“NanoSteel”)  I am attaching “Exhibit A, NanoSteel NDA”, “NanoSteel presentation”, “NanoSteel Patent information” and the “Table of Contents” for NanoSteel Data Room due diligence information”.

Please be advised that the NanoSteel Assets are being offered for sale pursuant to Section 9-610 of the Uniform Commercial Code (“the Code”) in a private proceeding.  Purchasers of the NanoSteel Assets will receive all of NanoSteel’s right, title, and interest in and to the purchased portion of Horizon’s collateral, which consists of substantially all of NanoSteel’s assets, as provided under the Code, with an express waiver of all warranties to the fullest extent permitted under Section 9-610(e)(2) of the Code.

Please review the “Important Legal Notice” below in that potential purchasers should not rely on any information contained provided by Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing as a statement, opinion, or representation of fact.  Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit. 

Ken, Jim and I will be following up to review the updated Bidding Process, schedule due diligence meetings and answer any questions regarding the “Date Certain M&A Process”.

Any and all the assets of NanoSteel will be sold on an “as is, where is” basis and will be subject to “The Bidding Process for Interested Buyers”, outlined below.

Gerbsman Partners (www.gerbsmanpartners.com) has been retained by NanoSteel to solicit interest for the acquisition of all, or substantially all, the assets of NanoSteel. 

Founded in 2002 to develop steel products based on research completed at the U.S. Department of Energy, NanoSteel launched its initial products in 2003 as steel-based coatings while continuing to expand the technology into sheet steel. NanoSteel has created an extensive portfolio of over 100 patents worldwide (filed & granted) supporting its sheet steel technology. Venture investors including EnerTech Capital, Fairhaven Capital, and Chrysalix Venture Capital, as well as strategic investors General Motors, Lear Corp., and Trinity Rail Corp, funded NanoSteel with approximately $85M of capital from 2005 – 2020.

The sale is being conducted with the cooperation of Horizon and NanoSteel.  Certain former NanoSteel employees and management have advised Horizon that they will be available to assist purchasers with due diligence and assist with a prompt transfer of the NanoSteel Assets.

IMPORTANT LEGAL NOTICE:  

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the NanoSteel Assets has been supplied by third parties and obtained from a variety of sources. It has not been independently investigated or verified by Horizon or Gerbsman Partners or their respective agents.  

Potential purchasers should not rely on any information contained in this memorandum or provided by Horizon or Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

Horizon and Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reason of Horizon’s or Gerbsman Partners’ negligence or otherwise. 

Any sale of the NanoSteel Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of Horizon or Gerbsman Partners. Without limiting the generality of the foregoing, Horizon and Gerbsman Partners and their respective staff, agents, and attorneys,  hereby expressly disclaim any and all implied warranties concerning the condition of the NanoSteel Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum contains confidential information and is not to be supplied to any person without Horizon’s or Gerbsman Partners’ prior consent. This memorandum and the information contained herein are subject to the non-disclosure agreement attached hereto as Exhibit A.

 The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (in the form attached hereto as Exhibit A) to have access to key members of NanoSteel’s former management, intellectual capital and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, upon obtaining Due Diligence Access, shall be deemed to acknowledge and represent that (i) it is bound by the bidding procedures described herein; (ii) it has an opportunity to inspect and examine the NanoSteel Assets and to review all pertinent documents and information with respect thereto; (iii) it is not relying upon any written or oral statements, representations, or warranties of Horizon or Gerbsman Partners, or any of their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of such interested party, and neither Horizon nor Gerbsman Partners (nor any of their respective, staff, agents, or attorneys) make any representations as to the accuracy or completeness of the same.  

Following an initial round of due diligence, interested parties will be invited to participate with a bid for the acquisition of the NanoSteel Assets. Each sealed bid must be submitted via email to steve@gerbsmanpartners.com(with a copy to Horizon Technology Finance Corporation, Diane Earle, Chief Credit Officer, diane@horizontechfinance.com), so as to be actually received by Gerbsman Partners and Horizon no later than Tuesday, December 15, 2020 at 3:00 pm. Eastern Standard Time (the “Bid Deadline”). 

Bids should identify with specificity the assets being tendered for so that such assets are reasonably identifiable. Please be advised that the NanoSteel fixed asset list set forth on Exhibit B attached hereto may not be complete. 

Horizon reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from the sale. 

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $200,000 (payable to Horizon Technology Finance Corporation). Unsuccessful bidders will have their deposit returned to them within 72 hours of Horizon’s acceptance of the successful bid.

Horizon will require the successful bidder to close within 7 days of Horizon’s acceptance of the successful bid.  Any and all of the NanoSteel Assets will be sold on an “as is, where is” basis, with no representations or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the NanoSteel Assets shall be the sole responsibility of the successful bidder, which shall pay the aggregate amout of all such taxes to Horizon concurrently with closing of each sale of the NanoSteel Assets.

For additional information, please see below and/or contact:

Steven R. Gerbsman                                                                                                                          

steve@gerbsmanpartners.com                                 

Kenneth Hardesty

ken@gerbsmanpartners.com

SALE OF The NanoSteel Company, Inc.

Gerbsman Partners – http://gerbsmanpartners.com  has been retained by Horizon Technology Finance Corporation (https://horizontechfinance.com), as collateral agent (in such capacity, “Horizon”) for the senior secured lenders to The NanoSteel Company, Inc. (“NanoSteel”), (http://nanosteelco.com), to sell all or substantially all of NanoSteel’s assets, including its Intellectual Property (“IP”), in whole or in part (collectively, the “NanoSteel Assets”).  Please see attached detail Sales Notice, NanoSteel presentation, NDA, Fixed Asset list and Master Patent list.

Please be advised that the NanoSteel Assets are being offered for sale pursuant to Section 9-610 of the Uniform Commercial Code (“the Code”) in a private proceeding.  Purchasers of the NanoSteel Assets will receive all of NanoSteel’s right, title, and interest in and to the purchased portion of Horizon’s collateral, which consists of substantially all of NanoSteel’s assets, as provided under the Code, with an express waiver of all warranties to the fullest extent permitted under Section 9-610(e)(2) of the Code. 

Founded in 2002 to develop steel products based on research completed at the U.S. Department of Energy, NanoSteel launched its initial products in 2003 as steel-based coatings while continuing to expand the technology into sheet steel. NanoSteel has created an extensive portfolio of over 100 patents worldwide (filed & granted) supporting its sheet steel technology. Venture investors including EnerTech Capital, Fairhaven Capital, and Chrysalix Venture Capital, as well as strategic investors General Motors, Lear Corp., and Trinity Rail Corp, funded NanoSteel with approximately $85M of capital from 2005 – 2020.

The sale is being conducted with the cooperation of Horizon and NanoSteel.  Certain former NanoSteel employees and management have advised Horizon that they will be available to assist purchasers with due diligence and assist with a prompt transfer of the NanoSteel Assets.

IMPORTANT LEGAL NOTICE:  

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the NanoSteel Assets has been supplied by third parties and obtained from a variety of sources. It has not been independently investigated or verified by Horizon or Gerbsman Partners or their respective agents.  

Potential purchasers should not rely on any information contained in this memorandum or provided by Horizon or Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

Horizon and Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reason of Horizon’s or Gerbsman Partners’ negligence or otherwise. 

Any sale of the NanoSteel Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of Horizon or Gerbsman Partners. Without limiting the generality of the foregoing, Horizon and Gerbsman Partners and their respective staff, agents, and attorneys,  hereby expressly disclaim any and all implied warranties concerning the condition of the NanoSteel Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose. 

This memorandum contains confidential information and is not to be supplied to any person without Horizon’s or Gerbsman Partners’ prior consent. This memorandum and the information contained herein are subject to the non-disclosure agreement attached hereto as Exhibit A.

SUMMARY OF HISTORICAL INFORMATION[1]

NanoSteel (or “the Company”) is an advanced materials company specializing in the design and commercialization of patented steels with exceptional mechanical properties derived from their nano-scale microstructure.  Targeting a $40B addressable market, the Company’s primary focus is the design of proprietary alloys for use as sheet steel in automotive and railcar light-weighting applications to improve efficiency and increase revenue generating payload capacity while maintaining strict safety standards. NanoSteel has successfully completed alloy design, full scale production trials, weld qualifications, stamping / forming studies, customer testing, and end customer prototype deliveries.

The Company has also granted end-customer licenses for the sheet steel product to General Motors, Lear Corporation and Trinity Rail Corporation.  In addition, it has licensed its non-sheet steel technology to Lincoln Electric for use as a steel coating and separately, its powder technology to Formetrix for use as a 3D printable steel powder.   

Founded in 2002 to develop steel products based on research completed at the U.S. Department of Energy, the Company launched its initial products in 2003 as steel-based coatings while continuing to expand the technology into sheet steel.  In 2010 NanoSteel developed the first nanostructured steel that could be produced in sheet form. The Company achieved additional technological breakthroughs in 2014 which allowed for the first full scale production of NanoSteel sheet steel by a steel producing partner.  In 2018, NanoSteel achieved a critical inflection point by validating repeatable, full-scale commercial grade production and is currently delivering material to railcar and automotive companies for commercial qualification.

The Company has created an extensive portfolio of over 300 patents worldwide, separable into 3 major categories: Coatings, Additive Manufacturing and Sheet Steel.  Each category was constructed to provide the freedom to operate without requiring the use or overlap of the other two.  Venture investors including EnerTech Capital, Fairhaven Capital, and Chrysalix Venture Capital combined with strategic investors General Motors, Lear Corp., and Trinity Rail Corp have supported the Company with approximately $85M of capital from 2005 – 2020.

Target Market: 

NanoSteel’s unique, patented combination of exceptionally high levels of strength and formability combine to provide a new solution to automakers.  Designing structures with NanoSteel allows Auto OEMs to use thinner gauges of steel to reduce part weight, form advanced geometry parts to meet stiffness requirements for ride quality and safety, and leverage their existing manufacturing capital equipment and skilled workforce. Utilizing the technology designed for automotive applications, NanoSteel has expanded its market outside the traditional Automotive market to include applications within the railcar, container and automotive aftermarket segments.

Customers and Partners: 

NanoSteel has strong customer relationships with blue-chip customers across the automotive sector. Key customer relationships include leading producers of light duty passenger vehicles, tanker railcars, all-terrain vehicles (“ATVs”), automotive car seats, auto suspension components and military shipping containers.

NanoSteel is a steel alloy design leader with more than 500 alloys designed and a proven prototype scale system for the rapid design, production and testing of new steel alloys.  A key factor in NanoSteel’s success has been the Company’s relationships with steel producers worldwide which have developed the production capability to produce NanoSteel alloys in full scale production.

Intellectual Property

NanoSteel has generated a substantial body of intellectual property in the form of patents, trademarks, and know-how.  The Company currently has 13 issued US patents and 28 issued international patents, 11 pending patent applications in the US and 55 pending international applications for its sheet steel product line.  The patent portfolio includes innovations on alloy chemistry, microstructure and strengthening mechanisms. Details of the issued patents and trademarks are shown in Appendix A.

ALL INFORMATION PROVIDED HEREIN RELATING TO THE OPERATIONS OF NANOSTEEL’S BUSINESS AND THE MARKET POSITIONS AS IT RELATES TO PERIODS ON OR PRIOR TO OCTOBER 31, 2020, WHEN THE COMPANY CEASED OPERATIONS.

  • Attractive Industry – Steel continues to be the highest volume material used for automotive body structures throughout the world.  New steel alloy designs have been called for by automotive designers to enhance the lightweighting designs in order to meet ever increasing emissions regulations for internal combustion engine vehicles and increase range distances for electric vehicles.
  • Best in Class Technology – NanoSteel’s alloys provide some of the highest level of strength and formability available in sheet steel, necessary for automotive design applications while providing a less expensive option than alternative materials such as aluminum or carbon fiber.
  • Diversified Base of Customers – NanoSteel’s sheet steel alloys are under qualification testing in applications covering most aspects of automotive body structures, tanker railcars, shipping containers, and aftermarket automotive components.
  • Extensive Relationships – NanoSteel maintains strong relationships with both end-users such as automotive and railcar OEMs along with international steel producers.

The reasons why NanoSteel’s assets are attractive are:

•  NanoSteel is considered a leader in the field of advanced high strength steel alloy development.  Its patent portfolio creates a strong barrier to entry for steel companies wishing to design competing alloys with similar combinations of mechanical performance.  However, recent working capital constraints and an overly leveraged balance sheet have created the opportunity for all or a portion of the NanoSteel Assets to be sold.  The acquisition of all or a portion of these assets can enable the purchaser to realize significant short and long term value.

•  Extensive Global Patent Portfolio: NanoSteel’s patent portfolio was developed to assure global coverage.  Patents within all geographies important to automotive production and sales (North America, Europe, Japan, China) provide for excellent security against competitive threats.  Structured to go beyond simple chemistry claims, the patent portfolio includes exclusive rights to microstructure and strength mechanism making it significantly challenging for competition.

•  Market Accepted Royalty Model:  NanoSteel has secured end-user royalty bearing licenses from General Motors, Lear Corporation and Trinity Rail, validating the royalty bearing business model.  In addition to the current licensees, NanoSteel has engaged with the majority of the world’s major automotive OEMs who have begun the process of qualifying NanoSteel through forming and/or welding trials.  In all cases, the business approach of royalty bearing licenses has been acknowledged as a necessary condition of commercial use.

•  Freedom to Operate / Secondary Revenue Stream:  NanoSteel strategically avoided the granting of any production licenses.  The acquirer will have complete authority over sublicenses granted to production suppliers creating the desired level of competition and global availability at terms compelling to the owner.  The potential for royalty revenue therefore exists from the granting of licenses to both steel producers and additional end-users.

•  Ease of Production: NanoSteel alloys have been specifically designed to be producible utilizing existing steel production assets.  The alloys require no special constituents.  Producible within Electric Arc Furnaces (“EAFs”), the Company’s alloys can utilize scrap as raw material.  Unlike most competing AHSS products, NanoSteel alloys do not require special heat treatment processes, such as quench and tempering, to achieve their exceptional mechanical performance.

•  Ease of Use:  The Company’s alloys were designed to provide the high formability necessary to allow conventional component production utilizing forming techniques common to current automotive production.   NanoSteel sheet steel avoids the need for expensive, capacity constrained hot stamping which is required by most other AHSS alloys due to their limited formability.  Weldability has been optimized to simplify the joining process and benefit from the use of standard automotive welding systems.  Because of the processing similarity to conventional steels, the Company’s products further benefit the end-customer by requiring no retraining of production employees and no unique capital equipment which is necessary for other AHSS products.

•  Rapid Alloy Development Process:  NanoSteel has developed the process and facility to allow for rapid iron-based alloy development including alloy design, melt, cast, processing and testing within a small footprint utilizing 4kg prototype melt sizes.  Key testing capability allows for the rapid iterative process to optimize alloys for specific performance characteristics and customer product demonstrations.

 

Former Management Team at NanoSteel (for information purposes only):

David Paratore, CEO:  Having joined NanoSteel in 2005, Dave brought NanoSteel experience in general management, operations and business development from products ranging from superconductor wire to aircraft engines. Prior to NanoSteel, he was president and COO of American Superconductor (AMSC) and held positions of increasing responsibility with United Technologies – Pratt & Whitney Aircraft Engines. Dave’s successes there include achieving profitability for two businesses – high technology electric motors and power electronics – and the creation of a jet engine overhaul business. He received his BS in Mechanical Engineering from UMass Amherst and his MBA from Rensselaer Polytechnical Institute. Dave is an avid cyclist and soccer player.

Dr. Daniel Branagan, CTO & Founder:  Dr. Branagan has been a pioneering leader in developing new materials for over 25 years with a focus on the commercialization of paradigm changing and disruptive nanotechnology.  Dr. Branagan has won numerous awards for his achievements, most recently SAE’s Sydney H. Melbourne Award for “excellence in the advancement of automotive sheet steel”.  He has also been recognized by both Forbes and MIT as an ‘important innovator of our time’.  Dr. Branagan earned his Ph.D. in metallurgy from Iowa State University.

Rhonda Landers, CFO: Rhonda led NanoSteel’s financial vision and strategic implementation. She came to NanoSteel from Transas, a global marine communications technology company. Through similar high-tech CFO positions at companies such as Globe Wireless, Seawave LCC and Instrumentation Laboratory she demonstrated leadership in fund raising, due diligence, acquisitions and shareholder exits. Ms. Landers began her career at PriceWaterhouseCoopers and holds a BA from Babson College and an MBA from Instituto de Estudios Superiores de la Empresa in Spain.

Craig Parsons, President – Automotive:  Craig led NanoSteel’s entry into the automotive market, as an expert in automotive parts production, supply chain solutions, and new product development. Craig has been recognized for bringing leading lightweighting technologies such as laser welded blanks and tubes, roll-forming and hot-stamping to the automotive OEMs. Prior to joining NanoSteel, Craig was vice president of sales and business development for Gestamp North America. He received his BS from Eastern Michigan University, his Master’s in supply chain management from Michigan State University and his MBA from the University of Detroit. Outside the office, Craig can often be found cheering his kids on at their extracurricular activities.

THE BIOGRAPHICAL INFORMATION CONCERNING THE FORMER MANAGEMENT OF NANOSTEEL IS INCLUDED FOR INFORMATION PURPOSES ONLY.  ALTHOUGH THIS SALE IS BEING CONDUCTED WITH NANOSTEEL’S COOPERATION, THIS SALE IS STRICTLY AN ASSET SALE OFFERED BY HORIZON PURSUANT TO ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE.  HORIZON HAS NO ARRANGEMENT PURSUANT TO WHICH THE BUYER OF THE NANOSTEEL ASSETS COULD BE ASSURED OF THE FUTURE SERVICES OF ANY FORMER NANOSTEEL OFFICERS OR EMPLOYEES.

INTERESTED PARTIES SHOULD SATISFY THEMSELVES THROUGH INDEPENDENT INVESTIGATIONS AS THEY OR THEIR LEGAL AND FINANCIAL ADVISORS SEE FIT.

Any sale of the NanoSteel Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of Horizon or Gerbsman Partners. Without limiting the generality of the foregoing, each of Horizon, Gerbsman Partners and each of their respective staff, agents, and attorneys,  hereby expressly disclaim any and all implied warranties concerning the condition of the NanoSteel Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

 

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (in the form attached hereto as Exhibit A) to have access to key members of NanoSteel’s former management, intellectual capital and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, upon obtaining Due Diligence Access, shall be deemed to acknowledge and represent that (i) it is bound by the bidding procedures described herein; (ii) it has an opportunity to inspect and examine the NanoSteel Assets and to review all pertinent documents and information with respect thereto; (iii) it is not relying upon any written or oral statements, representations, or warranties of Horizon or Gerbsman Partners, or any of their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of such interested party, and neither Horizon nor Gerbsman Partners (nor any of their respective, staff, agents, or attorneys) make any representations as to the accuracy or completeness of the same.  

Following an initial round of due diligence, interested parties will be invited to participate with a bid for the acquisition of the NanoSteel Assets. Each sealed bid must be submitted via email to steve@gerbsmanpartners.com(with a copy to Horizon Technology Finance Corporation, Diane Earle, Chief Credit Officer, diane@horizontechfinance.com), so as to be actually received by Gerbsman Partners and Horizon no later than Tuesday, December 15, 2020 at 3:00 pm. Eastern Standard Time (the “Bid Deadline”).

Bids should identify with specificity the assets being tendered for so that such assets are reasonably identifiable. Please be advised that the NanoSteel fixed asset list set forth on Exhibit B attached hereto may not be complete. 

Horizon reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from the sale. 

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $200,000 (payable to Horizon Technology Finance Corporation). Unsuccessful bidders will have their deposit returned to them within 72 hours of Horizon’s acceptance of the successful bid.

Horizon will require the successful bidder to close within 7 days of Horizon’s acceptance of the successful bid.  Any and all of the NanoSteel Assets will be sold on an “as is, where is” basis, with no representations or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the NanoSteel Assets shall be the sole responsibility of the successful bidder, which shall pay the aggregate amout of all such taxes to Horizon concurrently with closing of each sale of the NanoSteel Assets.

For additional information, please see below and/or contact:

 

Steven R. Gerbsman                                                          

Gerbsman Partners

steve@gerbsmanpartners.com                         

 

Kenneth Hardesty

Gerbsman Partners

ken@gerbsmanpartners.com

As we begin Veterans Day/Week 2020, we say “Thank You” to the men and woman of our armed services and suggest that it is time for all to “step up” and find ways to support our Veterans.  To often we say “thank you for your service” and then do nothing more.  Please think about supporting various Veterans groups with donations, food, clothing and moral support.  They have “Earned” it and we “Owe” it to them.

In the late summer of 1967, I was on my way back to Basic Training at Fort Dix, N.J. I was in New York City and an older couple came up to me and said “Thank You” for serving and then gave me $ 20 to enjoy a dinner on them. The gentleman said he served in the Korean War and understands and appreciates what men and woman in uniform go through. I said thank you, enjoyed a great dinner and to this day, remember their kind gesture.

On this Veterans Day/Week, our family will support the Special Forces Wounded Warriors program and will provide moral support and friendship to Veterans. On 11/11/20, I will also continue to remember that couple and honor them by buying dinner for soldiers in uniform. I will ask them to do the same thing, 5, 10, 20 and 40 years later.

May God Bless our troops and provide our leaders with the courage and strength to do what is Right and what is Just.

Please always remember – FREEDOM IS NOT FREE

What are YOU doing to HELP?

With “HONOR AND RESPECT” – Steve Gerbsman