REG - Nanoco Group PLC - Litigation Settlement Update

NanocoAnnouncement

03/02/2023 07:15

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RNS Number : 8577O  Nanoco Group PLC  03 February 2023

FOR IMMEDIATE
RELEASE
 
3 February 2023

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
THE MARKET ABUSE REGULATION (596/2014/EU) AS THE SAME HAS BEEN RETAINED IN UK
LAW AS AMENDED BY THE MARKET ABUSE (AMENDMENT) (EU EXIT) REGULATIONS (SI
2019/310) ("UK MAR").

Nanoco Group PLC

("Nanoco", the "Group", or the "Company")

 

Definitive Agreements Signed with Samsung for $150m Litigation Settlement

 

A transformative outcome for Nanoco

 

Nanoco Group plc (LSE: NANO), a world leader in the development and
manufacture of cadmium-free quantum dots and other specific nanomaterials
emanating from its technology platform, announces the final agreements
(collectively, the "Settlement") have been signed to settle the litigation
with Samsung on a no fault basis for the alleged infringement of the Group's
IP.

 

The Group has separately published a trading update this morning for its half
year ended 31 January 2023.

 

Litigation settlement overview

·    Litigation concluded with $150m cash settlement to be paid in two
equal tranches (by 5 March 2023 and by 3 February 2024)

·    Nanoco retain over $90m net proceeds after litigation costs

·    Settlement structured as a sale of non-core patents and a global,
perpetual, fully paid up licence agreement

·    Settlement ends all global litigation with Samsung; Nanoco's IP fully
validated by the legal process

·    Nanoco retains full freedom to operate in all markets, territories,
products and material types

Chris Richards, Chairman of Nanoco Group plc, said:

"This has been a long and hard battle for Nanoco. The outcome is remarkable,
given the relative scale of Nanoco and Samsung. The settlement value is almost
three times our own low case damages model; settling now avoids the risks
associated with further litigation and the adverse impact from the time value
of money in an appeals process that would have extended for years. Even more
importantly, it validates Nanoco's core IP, which we will continue to defend
vigorously.

 

"In deciding the allocation of the net proceeds, the Board will balance any
investment needs of Nanoco's growing organic business with a firm intention to
deliver a material return of capital to shareholders."

 

Brian Tenner, Chief Executive Officer of Nanoco Group plc, said:

"Today marks the start of a new chapter for Nanoco. We have successfully
validated our core IP against one of the world's biggest electronics
companies, who were advised by one of the most expensive law firms in the
world. Others operating in our space should take note.

 

"We therefore remain vigilant to other potential infringement activity, as
well as opportunities to pro-actively deliver new licence agreements. The
confirmation of the validity of our IP is already encouraging more commercial
interest in Nanoco as a supplier of leading edge nano-materials.

 

"We have also generated a transformational amount of value for our
stakeholders, whilst providing the funding for investment in the business. We
have done this while transforming Nanoco and positioning ourselves for
significant organic growth in the near term. Most importantly, we have a
foundation on which to focus on the organic business as we continue to build
on the significant positive momentum achieved in the last few years."

 

Settlement agreements

 

The Settlement is structured as two agreements:

·    IP Licence agreement: This global, perpetual, fully paid up licence
agreement encapsulates any past or future royalties that would have been paid
/ come due to be paid.

·    IP Sale agreement: This encapsulates the divestment of a number of
non-core patents from Nanoco to Samsung, with Nanoco receiving a fully paid
up, perpetual and global licence on the divested patents. Neither of the two
patents due to be presented at trial were included in the sale.

For clarity, Nanoco retains complete freedom to operate in all of its markets,
territories, products and material types.

Nanoco will receive gross proceeds of $150 million (£125 million 1  (#_ftn1)
), $65m for the IP Licence agreement and $85m for the IP Sale agreement,
payable in two equal tranches by 5 March 2023 and by 3 February 2024. Nanoco
expect to retain over 60% (over $90m) of this sum, after deducting legal and
litigation funding costs. Legal and litigation funding costs have first claim
on the proceeds. There will be a tax liability but this is anticipated to be
modest.

 

The Settlement ends all global litigation between the Parties (including
Germany and China), and Samsung will receive a fully paid up, perpetual,
global licence that runs until the expiration of Nanoco's current individual
patents.

 

Expected accounting impact of the settlement

 

The notes below set out a summary of the expected accounting treatment of the
two agreements in the Group's Financial Statements, subject to confirmation
during the statutory audit of the Group's FY23 Annual Report and Accounts.

 

The sale of IP will be accounted for as a profit on disposal of intangible
assets in accordance with the requirements of IAS 38 Intangible Assets. This
is expected to generate a net profit on disposal of approximately £70.0m
based on the proceeds noted above less the current net book value of the
patents at the point of sale. This profit on disposal will be recognised in
the FY23 Financial Statements.

 

The income from the IP Licence agreement will be accounted for in accordance
with the requirements of IFRS15 Revenue from Contracts with Customers. It is
expected that the revenue from the IP contract will be recognised over the
average estimated remaining life of the existing entire IP portfolio after the
sale of IP noted above, even though the cash will be received in the two
tranches noted earlier (a revenue recognition period of approximately nine
years). The patents that would have been presented if the trial had gone ahead
had remaining lives of two and a half years and five years respectively.

 

The cash and receivable due for the IP licence will give rise to a significant
deferred income balance of approximately £54.0m in the Group's Financial
Statements that will be recognised as revenue in line with the nine year
period noted above. Revenue from the IP licence in H2 of FY23 is expected to
be approximately £3.0m and then £6.0m each year thereafter until the
deferred income has been recognised in full.

 

The costs of the litigation (approximately £47.0m) will be expensed in full
in FY23 as a standalone cost reflecting the fact that the litigation itself
has now ceased. There will also be a one off interest charge of approximately
£4.7m linked to the Group's loan notes that were executed in July 2021, based
on a successful conclusion to the Samsung litigation.

 

The Group's accumulated tax losses will be available to offset any tax impacts
from the above subject to final tax computations, normal UK rules restricting
the utilisation of losses in any one year, and any overseas withholding tax.
Depending on forecasts of the possible utilisation of tax losses in future
financial years, a deferred tax asset may be recognised in the Group's
Financial Statements. It is expected that net cash tax payable in respect of
FY23 will be modest. The final tax position will also depend on any losses in
the organic business in the year (excluding the Samsung agreements) as well as
any beneficial impact of both the UK's R&D tax credit and Patent Box
regimes.

 

The Group expects to have net negative distributable reserves in a number of
subsidiary companies and in the parent company itself after the impact of the
transactions noted above. The Group will therefore review options for its
future capital structure prior to the receipt of the second tranche of
proceeds around February 2024 in order to facilitate a possible return of
funds to shareholders.

 

For further information, please contact:

Nanoco Group PLC:

Brian Tenner,
CEO
 
 
+44 (0)1928 761 404

Liam Gray, CFO & Company Secretary

 

Peel Hunt (Joint Corporate Broker):

Paul
Gillam
+44 (0) 20 7418 8900

James Smith

 

Turner Pope Investments (Joint Corporate Broker):

Andrew
Thacker
 
                                +44 (0) 20 3657
0050

James Pope

 

MHP:
                                +44 (0) 203 128
8570

Reg Hoare

Pete Lambie

nanoco@mhpgroup.com

 

- Ends -

 

The person responsible for arranging for the release of this announcement on
behalf of Nanoco is Liam Gray, Chief Financial Officer.

MAR

The information contained within this announcement is considered by the
Company to contain inside information for the purposes of UK MAR. Upon the
publication of this announcement via a Regulatory Information Service, this
inside information will be considered to be in the public domain.

FORWARD LOOKING STATEMENTS

This announcement (including information incorporated by reference in this
announcement) and other information published by Nanoco may contain statements
about Nanoco that are or may be deemed to be forward looking statements.
Such statements are prospective in nature.  All statements other than
historical statements of facts may be forward looking statements.  Without
limitation, statements containing the words "targets", "plans", "believes",
"expects", "aims", "intends", "will", "may", "anticipates", "estimates",
"projects" or "considers" or other similar words may be forward looking
statements.

Forward looking statements inherently contain risks and uncertainties as they
relate to events or circumstances in the future.  Important factors such as
business or economic cycles, the terms and conditions of Nanoco's financing
arrangements, tax rates, or increased competition may cause Nanoco's actual
financial results, performance or achievements to differ materially from any
forward looking statements.  Due to such uncertainties and risks, readers are
cautioned not to place undue reliance on such forward looking statements,
which speak only as of the date hereof.  Nanoco disclaims any obligation to
update any forward looking or other statements contained herein, except as
required by applicable law.

Notes for editors:

About Nanoco Group plc

Nanoco (LSE: NANO) harnesses the power of nano-materials. Nano-materials are
materials with dimensions typically in the range 1 - 100 nm. Nano-materials
have a range of useful properties, including optical and electronic. Quantum
dots are a subclass of nano-material that have size-dependent optical and
electronic properties. The Group produces quantum dots and other
nano-materials. Within the sphere of quantum dots, the Group exploits
different characteristics of the quantum dots to target different performance
criteria that are attractive to specific markets or end-user applications such
as the Display, Sensor and Electronics markets. An interesting property of
quantum dots is their absorption spectrum. Nanoco's HEATWAVE™ quantum dots
can be tuned to absorb light at different wavelengths across the near-infrared
spectrum, rendering them useful for applications including image sensors.
Another interesting property of quantum dots is photoluminescence: the
emission of longer wavelength light upon excitation by light of a shorter
wavelength. The colour of light emitted depends on the particle size. Nanoco's
CFQD® quantum dots are free of cadmium and other toxic heavy metals, and can
be tuned to emit light at different wavelengths across the visible and
infrared spectrum, rendering them useful for a wide range of applications
including displays, lighting and biological imaging.

Nanoco was founded in 2001 and is headquartered in Runcorn, UK, with a US
subsidiary, Nanoco Inc., in Concord, MA. Nanoco continues to build out a
world-class, patent-protected IP portfolio generated both by its own
innovation engine, as well as through acquisition.

Nanoco is listed on the Main Market of the London Stock Exchange and trades
under the ticker symbol NANO. For further information please visit:
www.nanocotechnologies.com.

 

visit: www.nanocotechnologies.com (http://www.nanocotechnologies.com) .

 

Litigation Funder - GLS Capital LLC

The litigation against Samsung was funded by GLS Capital LLC of Chicago and
the GLS team was led Adam Gill.

GLS Capital is a commercial litigation finance firm with more than $500
million under management. Founded by litigation finance industry veterans, GLS
focuses on investments in complex commercial litigation and arbitration,
patent infringement litigation, and life sciences litigation. GLS prides
itself on decision-making speed and the pace of its investment process. Armed
with a broad investment mandate and fully discretionary capital, all
investment decisions are made internally by the GLS investment committee,
which provides certainty and transparency for counterparties throughout the
investment lifecycle. More information about GLS Capital can be found at
www.glscap.com (http://www.glscap.com) .

 

Strategic Adviser

Epicentre Law, PC

Ron Epstein has been an adviser to Nanoco on strategic IP issues for a number
of years. He supported Nanoco throughout the litigation against Samsung as the
Strategic Adviser to the Board and as a member of the Litigation
Sub-Committee.

With more than 30 years of experience in developing, optimizing, and
transacting Intellectual Property (IP) asset portfolios, Ron is recognized as
a global leader in helping patent owners maximize the value of their IP. As a
market-maker, Ron has been instrumental in defining the category of patent
brokers in the emerging patent marketplace, delivering over $1 billion of
value from the sale or licensing of patents in over 150 transactions. As a
thought leader, Ron has contributed to the public discourse, consulted with
companies and law firms on complex IP transactions, and has helped to develop
many who are now leaders in their own right in the IP monetization industry.
More information about Epicentre Law can be found at
http://www.epicenterip.com/.

 

Litigation Advisers

Caldwell Cassady Curry - Trial Counsel ('CCC')

The trial team at CCC was led by Bradley Caldwell, a trial lawyer who focuses
on patent infringement and complex commercial litigation.

Caldwell Cassady & Curry is a U.S.-based law firm specializing in
high-stakes patent infringement lawsuits and complex business disputes.
Caldwell Cassady & Curry's track record includes cases involving a diverse
array of leading technologies. The firm has won billions of dollars in
verdicts and settlements against some of the largest companies in the world.
More information about CCC can be found at https://caldwellcc.com/.

 

Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo ("Mintz") - Lead Legal Advisers

Michael Newman at Mintz led the litigation team in prosecuting the US suit as
well as co-ordinating actions in overseas jurisdictions. Mr Newman was also
personally instrumental in all five of Nanoco's patents and all 47 claims
being validated by the Patent Trial and Appeal Board.

Mintz Levin has a proven track-record of successfully representing patent
owners of all sizes and across all industries in disputes before the Patent
Trial and Appeal Board, the International Trade Commission, and the federal
district courts. Mintz also advises clients on a wide range of other strategic
patent matters, including licensing, portfolio management and valuation, and
patent prosecution. More information about Mintz can be found at
https://www.mintz.com/.

 

Ward, Smith & Hill PLLC - Local Counsel

Our local counsel team in Texas was led by Johnny Ward.

Ward, Smith & Hill is a trial law firm with a long history of representing
clients throughout the Lone Star State. Our office in Longview supports the
firm's emphasis on cases tried in every division of the U.S. District Court
for the Eastern District of Texas and in state courts throughout the East
Texas region. Ward, Smith & Hill is well-known among law firms throughout
the U.S. based on our work together in high-stakes trials involving
intellectual property claims, oil and gas disputes, business litigation
matters, breach of contract, and serious personal injuries. Our attorneys have
tried more than 350 cases with impressive results. Our team is made up of
seasoned, ethical attorneys who provide clients with proven courtroom track
records, including AV-rated lawyers, two former federal judges, and two
attorneys Certified by the Texas Board of Legal Specialization. More
information about Ward, Smith & Hill can be found at https://wsfirm.com/.

 

MHP - Litigation and Financial PR advisers

Reg Hoare

Pete Lambie

Christian Harte

 1  (#_ftnref1) Using FX rate of $1.20 / £1.00 throughout this document, the
estimated average FX rate during H1 FY23 - actual rates in financial
statements will vary depending on which financial statement any figures appear
in and movements in FX rates.

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