Document:

Nanophase Technologies Corporation 10-Q

 

 Exhibit
4.1 

 

SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE
AGREEMENT (“Agreement”) dated as of November 13, 2019 by and between BRADFORD T. WHITMORE, an individual
(“Whitmore” or “Purchaser”) and NANOPHASE TECHNOLOGIES CORPORATION, a Delaware corporation
(the “Company”).

W I T N E S S E T H:

WHEREAS, the
Company, and its subsidiary, SOLÉSENCE, LLC, a Delaware limited liability company (“SLLC”), have a need
for working capital;

WHEREAS, the
Company desires to sell and issue to the Purchaser, and the Purchaser now wishes to purchase from the Company, a 2% Second Secured
Convertible Notes due 2024, in the form attached hereto as Exhibit A (the “Convertible Note”) convertible
into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.01 per share (“Common
Stock”);

WHEREAS, the
Company, the Purchaser and SLLC desire to enter into a Commercial Security Agreement in the form attached hereto as Exhibit
B (the “Security Agreement”) to secure the obligations of the Company under the Convertible Note by a perfected
junior lien on all of the assets of the Company and SLLC; and

WHEREAS, pursuant
to Common Stock Purchase Agreement, dated as May 13, 2019 between the Company and Purchaser (as amended from time to time, the
“CSPA”), the Company agreed, under certain circumstances, to register for resale under the Securities Act of
1933, as amended (the “Securities Act”), certain of its Common Stock then being acquired by Purchaser and the
parties hereto desire to amend the CSPA to include the Conversion Shares in said registrations.

NOW, THEREFORE,
in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Article
I

Purchase and Sale of Convertible Note

Section 1.1 

Issuance of Convertible
Note. Upon the following terms and conditions, the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase
from the Company, the Convertible Note in the principal amount of $2,000,000.00.

Section 1.2 

Purchase Price.
The purchase price for the Convertible Notes to be paid by Purchaser (the “Purchase Price”) shall be its face
value.

    	 	 	 

    	 

    

 

Section 1.3 

Loan Documents.
On the Closing Date, (a) the Purchaser, the Company and SLLC shall execute the Security Agreement to secure the Company’s
obligations under the Convertible Note by a junior priority lien on the assets of the Company and SLLC, subordinate only to the
Permitted Liens (defined below), (b) the UCC-1 Financing Statements and the Patent and Trademark Financing Statements shall be
executed and filed as applicable. Collectively, the Purchase Agreement and the Convertible Note shall be referred to as the “Transaction
Documents”, and the Security Agreement, the UCC-1 Financing Statements and the Patent and Trademark Financing Statements,
all as amended (as applicable), shall be referred to as the “Loan Documents”.

Section 1.4 

The Closing and
Amendment.

(a)       

Timing. Subject
to the fulfillment or waiver of the conditions set forth in Article IV hereof, the purchase and sale of the Convertible Notes shall
take place at a closing (the “Closing”), to be held on or about November 20, 2019 (the “Closing Date”).

(b)       

Form of Payment
and Closing. On the Closing Date, the Company shall deliver to the Purchaser the Convertible Note purchased and paid for by
it hereunder, issued in the name of the Purchaser. Subject to the applicable conditions set forth in Section 4.2 below, on
the Closing Date, the Purchaser shall pay the Purchase Price by wire transfer of immediately available funds to an account designated
in writing by the Company. In addition, each party shall deliver all documents, instruments and writings required to be delivered
by such party pursuant to this Agreement at or prior to the Closing, as specified in Article IV below. Subject to the payments
of the Purchase Price in accordance with this Agreement, the Convertible Note will be fully paid for by the Purchaser as of the
Closing Date.

(c)       

Amendment. Prior
to December 31, 2019, the Company shall (i) obtain board and shareholder approval for an amendment to its Certificate of Incorporation
(the “Certificate Amendment”) pursuant to which the Company’s authorized shares of Common Stock are increased
by an amount sufficient to satisfy the conversion rights under the Convertible Note purchased hereunder, and (ii) duly execute
and file the Certificate Amendment with the Delaware Secretary of State and any other governmental offices as may be necessary
to carry out its intent. The Company’s failure of comply with (i) and (ii) above shall result in the Convertible Note being
immediately due and payable as set forth therein.

Article
II

Representations and Warranties

Section 2.1 

Representations
and Warranties of the Company. The Company hereby makes the following representations and warranties to Purchaser as of the
date hereof:

(a)       

Organization and
Qualification; Material Adverse Effect. The Company is a corporation, duly incorporated, validly existing and in good standing
under the laws of the State of Delaware, with the requisite corporate power and authority to own and use its properties and assets
and to carry on its business as currently conducted. The Company has no subsidiaries other than SLLC. The Company is duly qualified
to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of
any of the Transaction Documents or Loan Documents in any material respect, (y) have a material adverse effect on the results of
operations, assets, or financial condition of the Company or (z) adversely impair in any material respect the Company’s ability
to perform fully on a timely basis its obligations under the Transaction Documents and the Loan Documents (a “Material
Adverse Effect”).

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(b)       

Authorization; Enforcement.
The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by the
Transaction Documents, and otherwise to carry out its obligations thereunder. The execution and delivery of amendments to each
of the Loan Documents by the Company (and SLLC, if applicable) and the consummation by it of the transactions contemplated thereby,
have been duly authorized by all requisite corporate action on the part of the Company. Each of the Transaction Documents and Loan
Documents has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’
rights and remedies or by other equitable principles of general application.

(c)       

Capitalization.
The authorized, issued and outstanding capital stock of the Company is set forth in Schedule 2.1(c). No shares of Common
Stock are entitled to preemptive or similar rights, nor is any holder of the Common Stock entitled to preemptive or similar rights
arising out of any agreement or understanding with the Company by virtue of any of the Transaction Documents. Except as disclosed
in Schedule 2.1(c), there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, securities, rights or obligations convertible into or exchangeable for, or giving any person
any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable
into shares of Common Stock.

(d)       

Issuance of Shares.
Provided that the Company complies with Section 1.4(c) hereof, thereafter upon issuance in accordance with this Agreement and the
terms of the Convertible Note, the Conversion Shares into which the Convertible Note is convertible will be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes (other than transfer taxes where the Convertible Note has been transferred
and other than any taxes due because of actions by a Purchaser), liens and charges with respect to the issue thereof and the holders
of such Conversion Shares shall be entitled to all rights and preferences accorded to a holder of Common Stock.

(e)       

No Conflicts.
The execution, delivery and performance of the Transaction Documents and the Loan Documents by the Company and the consummation
by the Company of the transactions contemplated thereby, do not and will not (i) conflict with or violate any provision of its
Certificate of Incorporation or By-laws or (ii) conflict with, constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company is a party, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject
(including Federal and state securities laws and regulations), or by which any material property or asset of the Company is bound
or affected, except in the case of each of clauses (ii) and (iii), such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business
of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not have a Material Adverse Effect.

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(f)       

Consents and Approvals.
The Company is not required to obtain any consent, waiver, authorization or order of, or make any filing or registration with,
any court or other federal, state, local or other governmental authority or other person in connection with the execution, delivery
and performance by the Company of the Transaction Documents and the Loan Documents other than: (i) the filing of the UCC-1 Financing
Statements and Patent and Trademark Financing Statements if any are required by the Purchaser; and (ii) in all other cases, where
the failure to obtain such consent, waiver, authorization or order, or to give or make such notice or filing, would not materially
impair or delay the ability of the Company to effect the transactions contemplated by this Agreement free and clear of all liens
and encumbrances of any nature whatsoever or would not otherwise have a Material Adverse Effect (the approvals referred to in clause
(i) are hereinafter referred to as the “Required Approvals”). The Company has no reason to believe that it will
be unable to obtain the Required Approvals.

(g)       

Private Offering.
Assuming (without any independent investigation or verification by or on behalf of the Company) the accuracy of the representations
and warranties of the Purchaser set forth herein, the offer and sale of the Convertible Note is exempt from registration under
Section 5 of the Securities Act of 1933, as amended (the “Securities Act”). Neither the Company nor any person
acting on its behalf has taken or will take any action which might subject the offering, issuance or sale of the Convertible Note
to the registration requirements of Section 5 of the Securities Act.

(h)       

SEC Documents.
The Company has filed all reports or other filings required to be filed by it under Securities Act and the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) thereof, for the
three years preceding the date hereof (the foregoing materials being collectively referred to herein as the “SEC Documents”),
on a timely basis, or a notification of late filing was timely filed with respect thereto and such filing was subsequently made
during the resulting extended filing period undertaken in such notice. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act and the Exchange Act, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, and none of the SEC Documents, when filed, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply in all material respects with applicable accounting requirements and the published rules and regulations
of the Securities and Exchange Commission with respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during the periods involved, except as may be otherwise
indicated in such financial statements or the notes thereto, and fairly present in all material respects the financial position
of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject,
in the case of unaudited statements, to normal year-end audit adjustments. Since the date of the financial statements included
in the Company’s last filed Annual Report on Form 10-K, there has been no event, occurrence or development that has had a
Material Adverse Effect which is not specifically disclosed in any of the SEC Documents, other than any such event, occurrence
or development which has been disclosed to Purchaser.

    	 	4	 

    	 

    

 

(i)       

Brokers. The
Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder’s fees or
similar payments by the Company or the Purchaser relating to the Transaction Documents or the transactions contemplated thereby.

(j)       

Compliance with
Obligations to the Purchaser. The Company is in compliance with all of its obligations to the Purchaser, including without
limitation, pursuant to prior agreements.

Section 2.2 

Representations
and Warranties of the Purchaser. Purchaser hereby makes the following representations and warranties to the Company as of the
date hereof and the Closing Date:

(a)       

Authority. The
Purchaser is an individual with the requisite legal power and authority to enter into and to consummate the transactions contemplated
hereby, by the Security Agreement and by the Convertible Note and otherwise to carry out its obligations hereunder and thereunder.
The purchase by the Purchaser of its Convertible Note under this Agreement has been duly authorized by all necessary action on
the part of the Purchaser. This Agreement has been duly executed and delivered by the Purchaser and constitutes its valid and legally
binding obligation, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights generally
and to general principles of equity.

(b)       

Investment Intent.
Purchaser is acquiring its Convertible Note for its own account and without a present intention to distribute or resell it in violation
of applicable securities laws. Purchaser will offer, sell, transfer, assign, pledge or hypothecate any portion of the Convertible
Notes in the absence of a registration under, or pursuant to an applicable exemption from, federal and applicable state securities
laws.

(c)       

Experience.
Purchaser has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in its Convertible Note and has so evaluated the merits and risks of such investment.

(d)       

Ability of Purchaser
to Bear Risk of Investment; Accredited Investor. Purchaser is able to bear the economic risk of an investment in its Convertible
Note at the present time, is able to afford a complete loss of such investment. Purchaser is an “accredited investor”
as such term is defined in Rule 501 under the Securities Act.

(e)       

Access to Information.
Purchaser acknowledges that it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and conditions of the Convertible Note and the merits
and risks of investing in the Convertible Note; (ii) access to information about the Company and the Company’s financial
condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment;
and (iii) the opportunity to obtain such additional information which the Company possesses or can acquire without unreasonable
effort or expense that is necessary to make an informed investment decision with respect to the investment.

    	 	5	 

    	 

    

 

(f)       

Accredited Investor
Status; Sophisticated Purchaser. Purchaser is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D under the 1933 Act and is able to bear the risk of its investment in the Convertible Notes and Conversion Shares.
Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks
of the purchase of the Convertible Note and Conversion Shares.

(g)       

Information.
Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of
the Company which have been requested and materials relating to the offer and sale of the Convertible Note and Conversion Shares
which have been requested by the Purchaser. Purchaser and its advisors, if any, have been afforded the opportunity to ask questions
of the Company. Neither such inquiries nor any other due diligence investigations conducted by the Purchaser or its advisors, if
any, or its representatives shall modify, amend or affect the Purchaser’s right to rely on the Company’s representations
and warranties contained in Section 2.1 above. The Purchaser understands that its purchase of the Convertible Note and Conversion
Shares involves a high degree of risk. Purchaser has sought such accounting, legal and tax advice as it has considered necessary
to make an informed investment decision with respect to its acquisition of the Convertible Note and Conversion Shares.

(h)       

No Public Trading.
Purchaser understands that there is currently no public trading market for the Convertible Note, that none is expected to develop,
and that the Convertible Note must be held indefinitely unless and until such Convertible Note is converted into shares that are
registered for public resale under the 1933 Act or other applicable laws (or an exemption from registration is available).

(i)       

Brokers. Purchaser
has taken no action which would give rise to any claim by any person for brokerage commissions, finder’s fees or similar
payments by the Company or the Purchaser relating to this Agreement or the transactions contemplated hereby.

(j)       

Reliance by the
Company. Purchaser understands that the Convertible Note is being offered and sold in reliance on a transactional exemption
from the registration requirements of federal and state securities laws and that the Company is relying upon the truth and accuracy
of the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to
determine the applicability of such exemptions and the suitability of the Purchaser to acquire the Convertible Note and the Conversion
Shares issuable upon conversion or exercise thereof.

    	 	6	 

    	 

    

 

Article
III

Covenants

Section 3.1 

Affirmative Covenants.
The Company covenants that from the date hereof and for so long as any portion of the principal amount of the Convertible Note
or other obligation under the Transaction Documents and Loan Documents shall remain outstanding, it will observe or perform each
of the following unless such observance or performance is expressly waived by the Purchaser in writing:

(a)       

Corporate Existence.
It will maintain its corporate existence in good standing and remain qualified to do business as a foreign corporation in each
jurisdiction in which the nature of its activities or the character of the properties it owns or leases makes such qualification
necessary.

(b)       

Continuation of
Business. Except as set forth on Schedule 3.1(b), it will continue to conduct its business, in all material aspects, as conducted
on the day hereof in compliance in all material respects with all applicable rules and regulations of applicable governmental authorities.

Section 3.2 

Dividends; Stock
Repurchases. So long as any principal amount of the Convertible Note remains outstanding, the Company will not declare any
dividends on any shares of any class of its capital stock (other than dividends consisting solely of Common Stock or rights to
purchase Common Stock of the Company), or apply any of its property or assets to the purchase, redemption or other retirement of,
or set apart any sum for the payment of any dividends on, or for the purchase, redemption or other retirement of, or make any other
distribution by reduction of capital or otherwise in respect of, any shares of any class of its capital stock.

Section 3.3 

Incurrence of
Debt; Liens; Transfer of Assets to Subsidiaries. For so long as any principal amount of the Convertible Note remains outstanding,
neither the Company nor any subsidiary of the Company shall:

(a)       

Directly or indirectly
create, incur, assume or permit to exist any lien, pledge, charge or encumbrance on or with respect to any of its property or assets
(including any document or instrument in respect of goods or accounts receivable) whether now owned or held or hereafter acquired,
or any income or profits therefrom, senior or of equal priority to the liens in favor of Purchaser, except for Permitted Liens.

(b)       

Directly or indirectly
transfer any of its assets to any subsidiary of the Company.

As used herein, “Permitted
Liens” means (i) liens granted under the Security Agreement or to any affiliate of Purchaser; (ii) pledges or deposits
made to secure payment of worker’s compensation insurance, unemployment insurance, pensions or social security programs or
to secure the performance of letters of credits, bids, tenders, public or statutory obligations, surety, performance bonds and
other similar obligations; and (iii) the liens and encumbrances disclosed on Schedule A of the Security Agreement.

    	 	7	 

    	 

    

 

Article
IV

Conditions to Closing

Section 4.1 

Conditions Precedent
to the Obligation of the Company to Sell. The obligation hereunder of the Company to issue and/or sell the Convertible Note
at the Closing is subject to the satisfaction of each of the applicable conditions set forth below. These conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole discretion.

(a)       

Accuracy of the
Purchaser’s Representations and Warranties. The representations and warranties of the Purchaser will be true and correct
in all material respects as of the date when made and as of the Closing Date, as though made at that time.

(b)       

Performance by the
Purchaser. The Purchaser shall have performed all agreements and satisfied all conditions required to be performed or satisfied
by the Purchaser at or prior to the Closing Date including payment of the Purchase Price to the Company as provided herein.

(c)       

No Injunction.
No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated
by the Transaction Documents.

Section 4.2 

Conditions Precedent
to the Obligation of the Purchaser to Purchase. The obligation hereunder of Purchaser to acquire and pay for the Convertible
Note at the Closing is subject to the satisfaction of each of the applicable conditions set forth below. These conditions are for
such Purchaser’s benefit and may be waived by the Purchaser at any time in its sole discretion.

(a)       

Accuracy of the
Company’s Representations and Warranties. The representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations
and warranties as of an earlier date, which shall be true and correct in all material respects as of such date).

(b)       

Performance by the
Company. The Company shall have performed all agreements and satisfied all conditions required to be performed or satisfied
by the Company at or prior to the Closing, including, without limitation, delivery of the Convertible Note to the Purchaser on
the Closing Date, as applicable.

(c)       

No Material Adverse
Change, Injunction or Litigation. There shall have been no Material Adverse Change in the financial or business condition of
the Company or its Subsidiaries, other than any event, occurrence or development which has been disclosed to Purchaser. No statute,
rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated
by the Transaction Documents.

(d)       

Security Agreement.
At the Closing Date, the Company and the SLLC and the Purchaser shall have executed and delivered the Security Agreement.

(e)       

Financing Statements.
The Company and the applicable Subsidiaries shall have executed and delivered Patent and Trademark Financing Statements pertaining
to the Security Agreement, as Purchaser may require.

    	 	8	 

    	 

    

 

(f)       

Officer’s
Certificates. On the Closing Date, the Company shall have delivered to the Purchaser a certificate in form and substance satisfactory
to the Purchaser and the Purchaser’s counsel, executed by a senior officer of the Company, certifying as to satisfaction
of the Closing Date conditions, the incumbency of signing officers, and the true, correct and complete nature of the Certificate
of Incorporation, By-Laws, good standing and authorizing resolutions of the Company.

Article
V

Legend and Stock; Amendment to CSPA Regarding Registration Rights

Section 5.1 

Stock Legends.
Each Purchaser agrees to the imprinting, so long as is required by this Section 5.1, of the following legend on its Convertible
Notes and Conversion Shares:

THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

The Conversion Shares
shall not contain the legend set forth above if the issuance thereof occurs at any time while a registration statement (“Registration
Statement”) filed pursuant to the CSPA is effective under the Securities Act or in the event that the Conversion Shares
may be sold pursuant to Rule 144(k) under the Securities Act. The Company agrees that it will provide Purchaser, upon request,
with a certificate or certificates representing Conversion Shares free from such legend at such time as such legend is no longer
required hereunder. Purchaser agrees that, in connection with any transfer of Conversion Shares by it pursuant to an effective
registration statement under the Securities Act, it will comply with the prospectus delivery requirements of the Securities Act
provided copies of a current prospectus relating to such effective registration statement are or have been supplied to Purchaser.

Section 5.2

Amendment of CSPA.
The CSPA is hereby amended by amending and restating, in its entirety, the last sentence of Section 5.1(a) to read as follows:

For purposes of this
Agreement, the term “Registrable Securities” means (i) the Shares, (iii) any Common Stock of the Company issued
to the holder upon the conversion of the Company’s 2% Second Secured Convertible Note Due May 15, 2024 (“Conversion
Shares”), and (iii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement
of, any Shares or Conversion Shares.”

 

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Article
VI

Governing Law; Miscellaneous

Section 6.1 

Fees and Expenses.
The Company shall pay, concurrently with the execution and delivery of this Agreement, the reasonable fees and expenses of legal
counsel for the Purchaser incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents
and Loan Documents incurred to date and, thereafter, upon request of Purchaser, the Company, shall pay any additional fees and
expenses incurred by the Purchaser and incident to the filing, negotiation, preparation, performance or amendment of the Transaction
Documents and Loan Documents.

Section 6.2 

Entire Agreement.
This Agreement, together with the Convertible Note, the Security Agreement, the applicable provisions of the CSPA, and the other
Transaction Documents and Loan Documents, contains the entire understanding of the parties with respect to the subject matter hereof
and supersedes all prior agreements and understandings, oral or written, with respect to such matters.

Section 6.3 

Notices. Any
notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been
delivered (i) upon receipt, when delivered personally; (ii) when sent by facsimile, upon receipt if received on a business day
prior to 5:00 p.m. (Central Time), or the first business day following such receipt if received on a business day after 5:00 p.m.
(Central Time); or (iii) upon receipt, when deposited with a nationally recognized overnight express courier service, fully prepaid,
in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall
be:

If to Purchaser,
at

 

1603 Orrington
Avenue, Suite 900

Evanston, IL
60201

Attn: Bradford
T. Whitmore

Tel: 847-733-1230
Fax: 847-733-0339

If to Company, at:

1319 Marquette
Drive

Romeoville, IL
60446

Attn: Jess Jankowski

Tel: 630-771-6702
Fax: 630-771-0825

or such other address
or facsimile number as may be designated in writing hereafter, in the same manner, by such person.

    	 	10	 

    	 

    

 

Article
VII

Section 7.1 

Amendments; Waivers.
No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by
the Company and by Purchaser; or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought.
No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any
party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter.

Section 7.2

Headings.
The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

Section 7.3

Successors and
Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.
Neither the Company nor the Purchaser may assign this Agreement or any rights or obligations hereunder (other than an assignment
from Purchaser to an affiliate of such Purchaser) without the prior written consent of the other. Any transfer made in violation
of this provision shall be null and void. The assignment by a party of this Agreement or any rights hereunder shall not affect
the obligations of such party under this Agreement.

Section 7.4

No Third-Party
Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

Section 7.5

Governing Law.
This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Illinois without
regard to the principles of conflicts of law thereof.

Section 7.6

Survival.
The agreements, representations and warranties and covenants contained in this Agreement shall survive the delivery of the Convertible
Notes pursuant to this Agreement.

Section 7.7

Counterpart and
Facsimile Signatures. This Agreement may be executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered
to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and binding obligation of the executing party with the
same force and effect as if such facsimile signature page were an original thereof.

Section 7.8

Publicity.
The Company and the Purchaser shall consult with each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and neither the Company nor Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the other, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing
party shall provide the other party with prior notice of such public statement.

    	 	11	 

    	 

    

 

Section 7.9

Severability.
In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and
the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Agreement.

Section 7.10

Payment of Expenses.
The Company agrees to pay all costs and expenses, including reasonable attorneys’ fees and expenses, which may be incurred
by Purchaser in successfully enforcing any Transaction Document or Loan Document.

Section 7.11

Indemnification.
The Company hereby agrees to indemnify, defend and hold harmless Purchaser and its respective partners, shareholders, officers,
affiliates, employees or agents (“Indemnified Parties”), from and against any and all losses, claims, damages,
liabilities and costs, including reasonable legal fees (collectively “Losses”) (i) incurred as a result of the
breach by the Company or any subsidiary of any representation, covenant or other provision in any Transaction Document or Loan
Document; (ii) incurred as a result of entering into this Agreement; (iii) incurred in enforcing this Section 7.11 or (iv) incurred
involving a third-party claim and arising out of the acquisition, holding and/or enforcement by Purchaser of any of the Transaction
Documents or Loan Documents.

* * * * *

[Signature Page Follows]

    	 	12	 

    	 

    

 

IN WITNESS WHEREOF, the
parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as
of the date first indicated above.

	 	NANOPHASE TECHNOLOGIES CORPORATION
	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:
	 	 

 

	 	 
	BRADFORD T. WHITMORE

    	 	13	 

    	 

    

 

SCHEDULE 2.1(c)

Capitalization

The authorized number
of shares of common stock, par value $0.01 per share, of the Company is 42,000,000 shares, of which 38,136,792 shares are outstanding
and _______________ shares have been reserved for issuance pursuant to unexercised outstanding options.

After the adoption
and filing of the Certificate Amendment, the authorized number of shares of common stock, par value $0.01 per share, of the Company
will be 55,000,000 shares.

The authorized number
of shares of preferred stock of the Company is 24,088, none of which are outstanding.

 

    	 	14	 

    	 

    

 

SCHEDULE 3.1(b)

Changes in Business

[Company to provide]

 

    	 	15	 

    	 

    

 

EXHIBIT A

FORM OF CONVERTIBLE
NOTE

[See attached.]

 

    	 	 	 

    	 

    

 

EXHIBIT B

FORM OF SECURITY
AGREEMENT

[See attached.]Nanophase Technologies Corporation 10-Q

 

 Exhibit
4.2

 

COMMERCIAL SECURITY AGREEMENT

THIS COMMERCIAL
SECURITY AGREEMENT (“Agreement”) is dated as of November 20, 2019, and is made by NANOPHASE TECHNOLOGIES CORPORATION,
a Delaware corporation (“NTC”) and SOLÉSENCE, LLC, a Delaware limited liability company (“SLLC”),
jointly and severally, in favor of BRADFORD T. WHITMORE (“Lender”). NTC and SLLC are referred to herein, individually
and collectively, as “Grantor”.

SECTION 1: GRANT OF SECURITY INTEREST
AND OBLIGATIONS OF GRANTOR

1.1       

Grant of Security
Interest. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness
and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other
rights which Lender may have by law.

1.2       

Obligations of Grantor.
Grantor warrants and covenants to Lender as follows:

(a)       

Perfection
of Security Interest. Grantor agrees to execute such financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender’s security interest in the Collateral. Upon request of Lender, Grantor will deliver
to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender’s interest
upon any and all Accounts if not delivered to Lender for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in
this Agreement. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction
of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses
for the perfection and the continuation of the perfection of Lender’s security interest in the Collateral. Grantor promptly
will notify Lender of any change in Grantor’s location or name, including any change to the assumed business names of Grantor.
This is a continuing Commercial Security Agreement and will continue in effect even though all or any part of the Indebtedness
is paid in full and even though for a period of time Grantor may not be indebted to Lender. Lender shall release its interest in
the Collateral upon the full and final payment and satisfaction of the Indebtedness. If payment is made by Grantor, whether voluntarily
or otherwise, or by any third party, on the Indebtedness and thereafter Lender is forced to remit the amount of that payment to
Grantor’s trustee in bankruptcy or to any similar person under any federal, state or foreign bankruptcy law or law for the
relief of debtors, the Indebtedness shall be considered unpaid for the purpose of enforcement of this Agreement.

(b)       

No Violation.
The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party,
and its articles of incorporation and bylaws or other organizational documents do not prohibit any term or condition of this Agreement.
The execution and delivery hereof is in the interest of the Grantor.

    	 	1	 

    	 

    

(c)       

Enforceability
of Collateral. With respect to the Accounts, each Account is enforceable in accordance with its terms, is genuine, and complies
with applicable laws concerning form, content and manner of preparation and execution, and all persons appearing to be obligated
on the Accounts have authority and capacity to contract and are in fact obligated as they appear to be on the Account. At the time
any Account becomes subject to a security interest in favor of Lender, the Account shall be a good and valid Account representing
an undisputed, bona fide indebtedness incurred by the Account Debtor; there shall be no setoffs or counterclaims against any such
Account; and no agreement under which any deductions or discounts may be claimed shall have been made with the Account Debtor except
those disclosed to Lender in writing.

(d)       

Removal
of Collateral; Transactions Involving Collateral. To the extent the Collateral consists of intangible property such as Accounts,
the records and other documents pertaining to the Collateral shall be kept at 1319 Marquette Drive, Romeoville, IL 60446, provided
that shipping and batch documents may be at the other two locations set forth on Exhibit A, or at such other locations as are acceptable
to Lender. Except for inventory in transit, Grantor shall keep the tangible Collateral at the locations set forth on Exhibit
A. Except for (i) Accounts collected and inventory sold in the ordinary course of Grantor’s business, (ii) dispositions
of obsolete, defective or otherwise non-saleable or unusable inventory, (iii) sale of obsolete or unused equipment for fair market
value, and (iv) transactions permitted under the terms of the Note, if any, Grantor shall not sell, offer to sell, or otherwise
transfer or dispose of the Collateral. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement or Permitted
Liens, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests
granted under this Agreement.

(e)       

Title.
Grantor represents and warrants to Lender that it holds good and marketable title to the Collateral, free and clear of all liens
and encumbrances except for the lien of this Agreement or Permitted Liens. No financing statement or other evidence of a lien or
transfer covering any of the Collateral is on file in any public office in any jurisdiction other than those which reflect the
security interest created by this Agreement or to which Lender has specifically consented or are disclosed in the schedule to the
Loan Agreement. Grantor shall defend Lender’s rights in the Collateral against the claims and demands of all other persons.

(f)       

Prepayments.
Grantor represents and warrants to Lender that none of the Collateral has been prepaid by any Account Debtor other than as Grantor
has disclosed to Lender in writing.

(g)       

Collateral
Schedules and Locations. As often as Lender shall reasonably require Grantor shall deliver to Lender schedules of such Collateral,
including such information as Lender may require, including without limitation names and addresses of Account Debtors and agings
of Accounts. Such information shall be submitted for Grantor and each of its subsidiaries, if any.

    	 	2	 

    	 

    

(h)       

Possession
and Collection of Accounts. All Accounts pledged as Collateral hereunder shall, unless otherwise directed by Lender, remain
in Grantor’s possession or that of its agent and held in accordance with the terms of this Agreement.

(i)       

Maintenance
and Inspection of Collateral. Grantor shall maintain or cause to be maintained all equipment and inventory which is used or
held for use in the Grantors’ business from time to time in usable or merchantable condition and repair, respectively. Grantor
will not commit waste or destruction of the Collateral or any part of the Collateral. Lender and its designated representatives
and agents shall have the right at all reasonable times to examine, inspect, and audit the Collateral wherever located and the
books, records and physical plant of any property which is otherwise used in connection with the Collateral; provided, that such
inspections shall be limited to once annually unless an Event of Default has occurred and is continuing. Grantor shall immediately
notify Lender of all cases involving the return, rejection, repossession, loss or damage of or to any material Collateral; of any
request for credit or adjustment or of any other dispute arising with respect to the Collateral outside the ordinary course of
business; and generally of all happenings and events affecting the Collateral or the value or the amount of the Collateral which
would be reasonably expected to have a Material Adverse Effect. This notification will not be required regarding product returns
processed through the normal course of business.

(j)       

Taxes,
Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation,
upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents,
in each case, except for any such taxes, assessments or liens which are being contested in good faith by appropriate proceedings.

(k)       

Compliance
With Governmental Requirements. Grantor shall comply in all material respects with all laws, ordinances and regulations of
all governmental authorities applicable to the production, disposition, or use of the Collateral. Grantor may contest in good faith
any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as
Lender’s interest in the Collateral, in Lender’s discretion, is not jeopardized. Lender may require Grantor to post
adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender’s interest.

(l)       

Insurance.
Grantor shall:

(i)       

Maintain, or
cause to be maintained, fire and other risk insurance, public liability insurance, and such other insurance which is reasonable,
in the business judgment of Grantor, as to scope and amount of coverage for risks customarily insured against in Grantor’s
industry. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates regarding such
insurance customary form, including stipulations that coverages will not be cancelled or diminished without at least thirty (30)
days prior written notice to Lender. In connection with all policies covering the Collateral, Grantor will provide Lender with
such loss payable or other endorsements as Lender may reasonably require.

    	 	3	 

    	 

    

(ii)       

Furnish to Lender,
upon its request, reports on each existing insurance policy showing such information as Lender may reasonably request, including
without limitation, the following: (A) the name of the insurer; (B) the risks insured; (C) the amount of the policy; (D) the properties
insured; (E) the then current property values on the basis of which insurance has been obtained, and the manner of determining
those values; and (F) the expiration date of the policy.

(iii)       

Grantor shall
promptly notify Lender of any material loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so
within fifteen (15) days of the casualty. This notification will not be required regarding product returns processed through the
normal course of business.

(m)       

Grantor’s
Right to Possession and to Collect Accounts.

(i)       

Until an Event
of Default has occurred and except as otherwise provided herein, Grantor may have possession of the tangible personal property
and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related
Documents.

(ii)       

Subject to the
rights of any senior lien holder, Lender is authorized to notify Account Debtors to make payments directly to Lender for application
to the Indebtedness and Grantor authorizes and directs the Account Debtors to make payments on the Account to Lender. If Lender
at any time has possession or control of any Collateral, whether before or after an Event of Default, Lender shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as
Grantor shall request or as Lender, in Lender’s reasonable discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall
not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve
or maintain any security interest given to secure the Collateral. Lender shall have the right to direct who shall collect and service
the Accounts.

(n)       

Transactions
with Others. Lender may (i) extend time for payment or other performance, (ii) grant a renewal or change in terms or conditions,
or (iii) compromise, compound or release any obligation, with any one or more of the Grantors, endorsers or Guarantors of the Indebtedness
as Lender deems advisable, without obtaining the prior written consent of Grantor, and no such act or failure to act shall affect
Lender’s rights against Grantor or the Collateral.

    	 	4	 

    	 

    

 

(o)       

Expenditures
by Lender. If Grantor fails to comply with any provision of this Agreement, or if any action or proceeding is commenced that
would materially affect Lender’s interests in the Collateral, Lender on Grantor’s behalf may, but shall not be required
to, take any action that Lender deems appropriate. Any amount that Lender expends in so doing will bear interest at the Default
Rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses, at
Lender’s option, will: (i) be payable on demand; (ii) be added to the balance of the Note and be apportioned among and be
payable with any installment payments to become due during the remaining term of the Note; or (iii) be treated as a balloon payment
which will be due and payable at the Note’s maturity. This Agreement also will secure payment of these amounts. The rights
provided for in this section shall be in addition to any other rights or any remedies to which Lender may be entitled on account
of an Event of Default. Any such action by Lender shall not be construed as curing an Event of default so as to bar Lender from
any remedy that it otherwise would have had.

SECTION 2: EVENTS OF DEFAULT; REMEDIES

2.1       

Events of Default.
A material default in the performance of any obligation hereunder which, if susceptible to cure, is not cured within thirty (30)
days or any Event of Default under the Note shall constitute an Event of Default hereunder.

2.2       

Rights and Remedies.
Upon the occurrence of any Event of Default and at any time thereafter, Lender, at its option, may exercise any one or more of
the following rights and remedies, in addition to any other rights or remedies provided by law:

(a)       

Accelerate
Indebtedness. Lender shall have the right at its option without notice to Grantor to declare the entire Indebtedness immediately
due and payable, including any prepayment fee that Grantor would be required to pay.

(b)       

UCC Remedies.
With respect to all or any part of the Collateral, Lender shall have all the rights and remedies of a secured party under the Uniform
Commercial Code.

(c)       

Assemble
Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and other documents relating
to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated
by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral.
If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take
such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.

(d)       

Sell the
Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof
in its own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens
to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor reasonable notice
of the time after which any private sale or any other intended disposition of the Collateral is to be made. The requirements of
reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses
relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing
for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Default Rate set forth in the Note from date of expenditure until repaid.

    	 	5	 

    	 

    

(e)       

Foreclosure.
Maintain a judicial suit for foreclosure and sale of the Collateral.

(f)       

Appoint
Receiver. To the extent permitted by applicable law, Lender shall have the following rights and remedies regarding the appointment
of a receiver: (i) Lender may have a receiver appointed as a matter of right; (ii) the receiver may be an employee of Lender and
may serve without bond; and (iii) all fees of the receiver and his attorney shall become part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Default Rate set forth in the Note from date of expenditure until
repaid.

(g)       

Transfer
Title. Effect transfer of title upon sale of all or part of the Collateral. For this purpose, Grantor irrevocably appoints
Lender as its attorney in fact to execute endorsements, assignments and instruments in the name of Grantor and each of them (if
more than one) as shall be necessary or reasonable.

(h)       

Collect
Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and
revenues from the Collateral. Lender may at any time in its discretion transfer any Collateral into its own name or that of its
nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply
it to payment of the Indebtedness in such order of preference as Lender may determine. Lender may demand, collect, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not the Indebtedness
or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money
orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral and collect the
proceeds therefrom. To facilitate collection, Lender may notify Account Debtors and obligors on any Collateral to make payments
directly to Lender. Lender has been granted a power of attorney in Section 3.2(p) hereof.

(i)       

Obtain Deficiency.
If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement.
Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel
paper.

(j)       

Other Rights
and Remedies. Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity,
or otherwise.

    	 	6	 

    	 

    

 

2.3       

Cumulative Remedies.
All of Lender’s rights and remedies, whether evidenced by this Agreement or the Related Documents or by any other writing,
shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this
Agreement, after Grantor’s failure to perform, shall not affect Lender’s right to declare an Event of Default and to
exercise its remedies.

2.4       

Attorneys’
Fees; Expenses. If Lender institutes any suit or action to enforce any of the terms of this Agreement, Lender shall be entitled
to recover its reasonable attorneys’ fees at trial and on any appeal. Whether or not any court action is involved, all reasonable
expenses incurred by Lender that in Lender’s opinion are necessary at any time for the protection of its interest or the
enforcement of its rights shall become a part of the Indebtedness payable on demand and shall bear interest from the date of expenditure
until repaid at the Default Rate set forth in the Note. Expenses covered by this Section include, without limitation however subject
to any limits under applicable law, Lender’s reasonable attorneys’ fees and Lender’s legal expenses whether or
not there is a lawsuit, including attorneys’ fees for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals and any anticipated post-judgment collection services, the cost of searching records, obtaining
title reports (including foreclosure reports), surveyors’ reports, and appraisal fees, and title insurance, to the extent
permitted by applicable law. Grantor also will pay any court costs, in addition to all other sums provided by law.

SECTION 3: DEFINITIONS AND MISCELLANEOUS
PROVISIONS

3.1       

Definitions.
The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Illinois Uniform Commercial Code (810 ILCS 1/1 et seq. as amended
from time to time (“Uniform Commercial Code” or “UCC”)). All references to dollar amounts shall mean amounts
in lawful money of the United States of America.

Account Debtor. The words
“Account Debtor” means the Person who is obligated on or under an Account or, if appropriate, chattel paper or general
intangible, as applicable.

Accounts. The word “Accounts”
means “accounts” as such term is defined in the UCC, including without limitation, all rights to payment for goods
sold or leased or services rendered, whether or not earned by performance and all rights in respect of the Account Debtor, including,
without limitation, all such rights in which Grantor has any right, title or interest by reason of the purchase thereof by Grantor,
and including, without limitation, all such rights constituting or evidenced by any Account, chattel paper, general intangible,
instrument, contract, invoice, purchase order, draft, acceptance, intercompany account, note, security agreement, or other evidence
of indebtedness or security, together with (i) any collateral assigned, hypothecated or held to secure any of the foregoing and
the rights under any security agreement granting a security interest in such collateral, (ii) all goods, the sale of which gave
rise to any of the foregoing, and (iii) all powers of attorney for the execution of any evidence of indebtedness or security or
other writing in connection therewith.

    	 	7	 

    	 

    

 

Agreement. The word “Agreement”
means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Commercial Security Agreement from time to time.

Borrower. The word “Borrower”
means NTC and its successors and assigns.

Collateral. The word “Collateral”
means all of the following properties, assets and rights of the Grantor, wherever located, whether now owned or hereafter acquired
or arising, and all proceeds and products thereof:

All personal and fixture property
of every kind and nature including, without limitation, all furniture, fixtures, equipment, raw
materials, inventory, other goods, Accounts, contract rights, rights to the payment of money, insurance refund claims and all other
insurance claims and proceeds, tort claims, chattel paper, electronic chattel paper, documents, instruments, securities and other
investment property, deposit accounts, rights to proceeds of letters of credit, letter-of-credit rights, supporting obligations
of every nature, and general intangibles including, without limitation, all tax refund claims, license fees, patents, patent applications,
trademarks, trademark applications, trade names, copyrights, copyright applications, rights to sue and recover for past infringement
of patents, trademarks and copyrights, computer programs, computer software, engineering drawings, service marks, customer lists,
goodwill, and all licenses, permits, agreements of any kind or nature pursuant to which (i) the Grantor operates or has authority
to operate, (ii) the Grantor possesses, uses or has authority to possess or use property (whether tangible or intangible) of others,
or (iii) others possess, use or have authority to possess or use property (whether tangible or intangible) of the Grantor, and
all recorded data of any kind or nature, regardless of the medium of recording, including, without limitation, all software, writings,
plans, specifications and schematics.

Grantor acknowledges and agrees
that, with respect to any term used in this definition that is defined in either (a) Article 9 of the Uniform Commercial Code as
in force in Illinois at the time that this Agreement was signed, (b) Article 9 as in force at any relevant time in the jurisdictions
in which a financing statement is filed, or (c) in this Agreement the meaning to be ascribed thereto with respect to any particular
item of property shall be that under the more encompassing of the three definitions.

In addition, the word “Collateral”
includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:

(a)       

All accessions,
increases, and additions to and all replacements of and substitutions for any property described above.

(b)       

All accounts,
contract rights, general intangibles, instruments, monies, payments, and all other rights relating and incident thereto, or arising
out of a sale, lease, or other disposition of any of the property described in this definition.

    	 	8	 

    	 

    

 

(c)       

All proceeds
(including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this
definition.

(d)       

All records and
data relating to any of the property described in this definition, whether in the form of a writing, photograph, microfilm, microfiche,
or electronic media, together with all of Grantor’s right, title, and interest in and to all computer software required to
utilize, create, maintain, and process any such records or data on electronic media.

Event of Default. The words
“Event of Default” have the meaning set forth in Section 2.1 above.

Grantor. The word “Grantor”
has the meaning set forth in the initial paragraph of this Agreement.

Indebtedness. The word “Indebtedness”
means all principal and interest payable under the Note and any amounts expended or advanced by Lender to discharge obligations
of Grantor or expenses incurred by Lender to enforce obligations of Grantor under this Agreement or under the Loan Agreement or
any document related thereto (including reimbursement obligations for Lender’s expenses), together with interest on such
amounts as provided in this Agreement. In addition to the Note, the word “Indebtedness” includes all obligations, debts
and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, whether now existing or hereafter arising,
whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, absolute or contingent,
liquidated or unliquidated and whether Grantor may be liable individually or jointly with others, whether obligated as guarantor
or otherwise, and whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations,
and whether such Indebtedness may be or hereafter may become otherwise unenforceable.

Lender. The word “Lender”
has the meaning set forth in the initial paragraph of this Agreement.

Note. The word “Note”
mean 2% Second Secured Convertible Note due May 15, 2024 from Borrower to Lender dated of even date herewith in the principal amount
of $2,000,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions
for such promissory note.

Permitted Liens. The words
“Permitted Liens” means those liens and encumbrances set forth on the attached Schedule A.

Person. The word “Person”
means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, government (or any agency or political subdivision thereof) or other entity of any kind.

    	 	9	 

    	 

    

 

Related Documents. The words
“Related Documents” mean and include without limitation all promissory notes, credit agreements, loan agreements, guaranties,
security agreements, mortgages, deeds of trust, collateral assignments, financing statements and all other instruments, agreements
and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

3.2       

Miscellaneous Provisions.
The following miscellaneous provisions are a part of this Agreement:

(a)       

Entire Agreement;
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the
parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless
given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

(b)       

Applicable
Law. This Agreement and all acts, agreements, certificates, assignments, transfers and transactions hereunder, and all rights of
the parties hereto, shall be governed as to validity, enforcement, interpretation, construction, effect and in all other respects
by the internal laws and decisions of the State of Illinois, including, but not limited to, laws regulating interest, loan charges,
commitment fees and brokerage commissions (without regard to conflicts of law principles). It is acknowledged and agreed by Grantor
and Lender that the loan transaction evidenced hereby, bears a reasonable relationship to the State of Illinois. 

(c)       

Consent
to Jurisdiction. To induce Lender to accept this Agreement, Grantor irrevocably agrees that, subject to Lender’s sole and
absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT WILL BE LITIGATED IN COURTS
HAVING SITUS IN COOK OR WILL COUNTY, ILLINOIS. GRANTOR HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY COURT LOCATED WITHIN
COOK OR WILL COUNTY, ILLINOIS.

(d)       

Caption
Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.

(e)       

Merger.
There shall be no merger of the interest or estate created by this Agreement with any other interest or estate in the Collateral
at any time held by or for the benefit of Lender in any capacity, without the written consent of Lender.

(f)       

Multiple
Parties; Corporate Authority. All obligations of Grantor under this Agreement shall be joint and several, and all references
to Grantor shall mean each and every Grantor. This means that each of the persons signing below is responsible for all obligations
in this Agreement. To the extent that Grantor is a corporation, partnership or limited liability company, it hereby represents
and warrants to Lender that the execution of this Agreement has been authorized by all necessary corporate, partnership or limited
liability company action, as the case may be.

    	 	10	 

    	 

    

 

(g)       

Severability.
If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance,
such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects
shall remain valid and enforceable.

(h)       

Successors
and Assigns. Subject to the limitations stated in this Agreement on transfer of Grantor’s interest in the Collateral,
or a change in ownership of Grantor, this Agreement shall be binding upon and inure to the benefit of the parties, their successors
and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may
deal with Grantor’s successors with reference to this Agreement and the Indebtedness by way of forbearance, extension or
any other modification without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness.

(i)       

Survival.
All warranties, representations, and covenants made by Grantor in this Agreement or in any certificate or other instrument delivered
by Grantor to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of
the loan secured hereby and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender’s
behalf.

(j)       

Time Is
of the Essence. Time is of the essence in the performance of this Agreement.

(k)       

Agency.
Nothing in this Agreement shall be construed to constitute the creation of a partnership or joint venture between Lender and Grantor
or any contractor. Lender is not an agent or representative of Grantor. This Agreement does not create a contractual relationship
with and shall not be construed to benefit or bind Lender in any way with or create any contractual duties by Lender to any contractor,
subcontractor, materialman, laborer, or any other person.

(l)       

Notices.
Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the parties by another, or whenever any of the parties desires
to give or serve upon another any communication with respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be delivered in person (by personal delivery, delivery service
or reputable overnight courier service), or telecopied and confirmed immediately in writing by a copy mailed by United States mail,
postage prepaid, addressed as hereafter set forth, or mailed by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:

    	 	11	 

    	 

    

 

If to Lender, at

1603 Orrington
Avenue, Suite 900

Evanston, IL
60201

Attn: Bradford
T. Whitmore

Tel: 847-733-1230
Fax: 847-733-0339

If to Grantor, at:

1319 Marquette Drive

Romeoville, IL 60446

Attn: Jess Jankowski

Tel: 630-771-6702
Fax: 630-771-0825

 

or at such other address as may
be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder
shall be deemed to have been duly given or served on the date on which (i) personally delivered (whether in person, by delivery
service, or by reputable overnight courier service), (ii) the date of the telecopy transmission (provided the confirmation mailing
was sent as provided herein), or (iii) on the date of receipt if sent by the United States mail. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designed above to receive
copies, if any, shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration
or other communication.

(m)       

Lender’s
Discretion. Whenever this instrument requires either Lender’s consent, election, approval or similar action or otherwise
vests in Lender the authority to make decisions and/or determinations, such actions shall be made or withheld in Lender’s
sole and absolute discretion, unless specifically provided otherwise and the granting of any consent, election, approval or similar
action by Lender in any instance shall not constitute continuing consent, election, approval or similar action in subsequent instances
where such is required.

(n)       

Waiver of
Right of Redemption. NOTWITHSTANDING ANY OF THE PROVISIONS TO THE CONTRARY CONTAINED IN THIS AGREEMENT, GRANTOR HEREBY WAIVES,
TO THE EXTENT PERMITTED UNDER 735 ILCS 5/15-1601(b) OR ANY SIMILAR LAW EXISTING AFTER THE DATE OF THIS AGREEMENT, ANY AND ALL
RIGHTS OF REDEMPTION ON BEHALF OF GRANTOR AND ON BEHALF OF ANY OTHER PERSONS PERMITTED TO REDEEM THE COLLATERAL.

    	 	12	 

    	 

    

 

(o)       

Waivers
and Consents. Lender shall not be deemed to have waived any rights under this Agreement (or under the Related Documents) unless
such waiver is in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by any party of a provision of this Agreement shall not constitute a waiver
of or prejudice the party’s right otherwise to demand strict compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of
Lender’s rights or any of Grantor’s obligations as to any future transactions.

(p)       

Power of
Attorney. Grantor hereby appoints Lender, after the occurrence and during the contention of an Event of Default, as its true
and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (i) to demand, collect, receive,
receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the
Collateral; (ii) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment
for the Collateral; (iii) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead
of Grantor, to execute and deliver its release and settlement for the claim; and (iv) to file any claim or claims or to take any
action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the
discretion of Lender may seem to be necessary or advisable. This power is given as security for the Indebtedness, and the authority
hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender or the Indebtedness
is paid in full.

(q)       

Waiver of
Jury Trial. GRANTOR AND LENDER EACH WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS
(i) UNDER THIS AGREEMENT OR ANY RELATED DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT WHICH MAY IN THE FUTURE
BE DELIVERED IN CONNECTION HEREWITH OR ANY RELATED DOCUMENT OR (ii) ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION
HEREWITH, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING WILL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. GRANTOR AGREES THAT
IT WILL NOT ASSERT ANY CLAIM AGAINST LENDER OR ANY OTHER PERSON INDEMNIFIED UNDER THIS AGREEMENT ON ANY THEORY OF LIABILITY FOR
SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES.

(r)       

Consent
to Service of Documents. GRANTOR HEREBY AGREES AND CONSENTS THAT, IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR
UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN ANY ILLINOIS OR FEDERAL COURT INVOLVING LENDER
IN ANY WAY (WHETHER FOR THIS TRANSACTION OR OTHERWISE) MAY BE MADE BY EITHER (A) CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
DIRECTED TO GRANTOR AT THE ADDRESS INDICATED HEREIN, AND SERVICE SO MADE SHALL BE COMPLETE FIVE DAYS AFTER THE SAME SHALL HAVE
BEEN SO MAILED OR (B) THROUGH GRANTOR’S ATTORNEY, DAVID L. WEINSTEIN, AT SUCH ADDRESS AS MAY BE ON RECORD WITH THE SUPREME
COURT OF ILLINOIS.

    	 	13	 

    	 

    

 

3.3 

Grantor’s
Authorizations and Waivers. Each Grantor, for itself only, hereby makes the following authorizations and waivers:

(a)       

Lender’s
Dealings with the Indebtedness. Grantor authorizes Lender without notice or demand and without lessening such Grantor’s
liability under this instrument, from time to time: (i) to take and hold collateral for the payment of the Indebtedness, and exchange,
enforce, waive, fail or decide not to perfect, and release any such security, with or without the substitution of new collateral;
(ii) to release, substitute, agree not to sue, or deal with any one or more of Borrower’s sureties, endorsers, co-borrowers
or other Guarantors on any terms or in any manner Lender may choose; (iii) to determine how, when and what application of payments
and credits shall be made on the Indebtedness; and (iv) to apply such collateral and direct the order or manner of sale thereof,
including without limitation, any nonjudicial sale permitted by the terms of the controlling security instrument, as Lender may
determine.

(b)       

Lender’s
Dealings with Borrower. Except as prohibited by applicable law, Grantor waives any right to require Lender: (i) to continue
lending money or to extend other credit to any Borrower or perform any other commitments or obligations hereunder; (ii) to make
any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the Indebtedness or of any nonpayment
related to any collateral, or notice of any action or nonaction on the part of any Borrower, Lender, any surety, endorser, or other
Guarantor in connection with the Indebtedness or in connection with the creation of new or additional loans or obligations; (iii)
to resort for payment or to proceed directly or at once against any person, including any Borrower or any Guarantor; (iv) to proceed
directly against or exhaust any collateral held by Lender from any Borrower, any Guarantor, or any other person; (v) to give notice
of the terms, time, and place of any public sale of (or the time after which a private sale may take place with respect to) personal
property security held by Lender from any Borrower or to comply with any other applicable provisions of the Uniform Commercial
Code with respect thereto; or (vi) to pursue any other remedy within Lender’s power.

(c)       

Waiver of
Subrogation. If now or hereafter: (i) any Borrower or Guarantor or Grantor shall be or become insolvent, and (ii) the Indebtedness
shall not at all times until paid be fully secured by collateral pledged by such other Borrower, Grantors or Guarantors or any
other Borrower, Grantor or Guarantor, Grantor hereby forever waives and relinquishes in favor of Lender any claim or right to payment
Grantor may now have or hereafter have or acquire against any Borrower hereunder, by subrogation, reimbursement or otherwise, so
that at no time shall Grantor be or become a “creditor” of such Borrower within the meaning of 11 U.S.C. Section 547(b),
or any successor provision of the Federal bankruptcy laws.

    	 	14	 

    	 

    

 

(d)       

Waiver of
Anti-Deficiency and One Action Rule. Grantor waives any and all rights or defenses arising by reason of: (i) any “one
action” or “anti-deficiency” law or any other law which may prevent Lender from bringing any action, including
a claim for deficiency, against Grantor, before or after Lender’s commencement or completion of any foreclosure action, either
judicially or by exercise of a power of sale; (ii) any election of remedies by Lender which destroys or otherwise adversely affects
Grantor’s subrogation rights or Borrower’s rights to proceed against any other Borrower for reimbursement, including
without limitation, any loss of rights Grantor may suffer by reason of any law limiting, qualifying, or discharging the Indebtedness,
if any; (iii) any disability or other defense of any Borrower, of any Guarantor, or of any other person, or by reason of the cessation
of any Borrower’s liability from any cause whatsoever, other than payment in full in legal tender, of the Indebtedness; (iv)
any right to claim discharge of the Indebtedness on the basis of unjustified impairment of any Collateral for the Indebtedness;
(v) any statute of limitations; or (vi) any defenses given to guarantors, sureties, and/or co-makers at law or in equity other
than actual payment and performance of the Indebtedness. If payment is made by a Borrower, whether voluntarily or otherwise, or
by any third party, on the Indebtedness and thereafter Lender is forced to remit the amount of that payment to a trustee in bankruptcy
or to any similar person under any federal or state bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Agreement and the Related Documents against Grantor.

(e)       

No Setoff
or Counterclaims. Grantor further waives and agrees not to assert or claim at any time any deductions to the Indebtedness for
any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted
by any or all Borrowers, but Grantor is not precluded from pursuing such claims separately.

    	 	15	 

    	 

    

 

GRANTOR ACKNOWLEDGES HAVING READ ALL
THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. 

GRANTOR:

NANOPHASE TECHNOLOGIES CORPORATION

	By:	 	 	 
	Name:	Jess Jankowski	 
	Its:	President & Chief Executive
Officer	 

SOLÉSENCE, LLC 

	By:	 	 	 
	Name:	Jess Jankowski	 
	Its:	President & Chief Executive
Officer	 

LENDER: 

	 	 	 
	BRADFORD T. WHITMORE	 

    	 	16	 

    	 

    

 

	Exhibit A	– 	Collateral Locations

1319 Marquette Drive, Romeoville, IL
60446

453 Commerce Street, Burr Ridge, IL 60523

1305 Marquette Drive, Romeoville, IL
60441

    	 	17	 

    	 

    

 

Schedule A – Permitted Liens

Liens in favor of Libertyville Bank &
Trust Company

Liens in favor of Beachcorp, LLC

 

    	 	18

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