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UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION In re: NANOPHASE TECHNOLOGIES No. 98 C 3450 CORPORATION SECURITIES LITIGATION Judge David H. Coar THIS DOCUMENT RELATES TO: ALL ACTIONS EXCEPT 98 C 7447 Magistrate Judge Martin C. Ashman NOTICE OF CLASS ACTION, PROPOSED SETTLEMENT AND HEARING THEREON TO: ALL PERSONS AND ENTITIES WHO PURCHASED THE COMMON STOCK OF NANOPHASE TECHNOLOGIES CORPORATION AT ANY TIME FROM NOVEM- BER 26, 1997 THROUGH AND INCLUDING JANUARY 8, 1998 (THE CLASS ). PLEASE READ THIS NOTICE CAREFULLY. YOUR RIGHTS MAY BE AFFECTED BY LEGAL PROCEEDINGS IN THIS LITIGATION. IF YOU ARE A MEMBER OF THE CLASS DESCRIBED IN THIS NOTICE, YOU MAY BE ENTITLED TO RECEIVE PAYMENTS PUR- SUANT TO THE PROPOSED SETTLEMENT IN THIS ACTION. SUMMARY DISCLOSURE OF SETTLEMENT TERMS Class Recovery: The cash to be deposited by the Settling Defendants in the Class Settlement Fund, before any award of attorneys fees and expenses and before the costs of class notice and claims administration, is four million twenty five thousand dollars ($4,025,000). Plaintiffs Lead Counsel estimates, based on their investigation and consultation with an expert witness, that if all class members who purchased Nanophase common stock between November 26, 1997 and January 8, 1998 and held those shares through January 8, 1998 (hereinafter referred to as Holder Claimants ) were to file valid proofs of claim against the settlement fund, the average per share recovery for the Holder Claimants, before deductions for fees and expenses, would be approximately $0.99 per share. PLEASE NOTE THAT THIS IS ONLY AN ESTIMATE AND DEPENDS, AS INDICATED, ON WHETHER ALL HOLDER CLAIMANTS FILE VALID PROOFS OF CLAIM. Plaintiffs Lead Counsel further estimates that if all class members who purchased Nanophase common stock between November 26, 1997 and January 8, 1998 and who sold those shares prior to January 8, 1998 (hereinafter referred to as Trading Claimants ) were to file valid proofs of claim against the settlement fund, the average per share recovery for the Trading Claimants, before deductions for fees and expenses, would be approximately $0.26 per share. PLEASE NOTE THAT THIS IS ONLY AN ESTIMATE AND DEPENDS, AS INDICATED, ON WHETHER ALL TRADING CLAIMANTS FILE VALID PROOFS OF CLAIM. The Settling Parties do not agree on the average per share recovery if Plaintiffs prevailed on each of the claims alleged in the Complaint. The issues on which the parties disagree include: (1) whether Nanophase common stock was artificially inflated at all during the Class Period; (2) the amount(s), if any, by which Nanophase common stock was artificially inflated throughout the Class Period or during different time periods within the Class Period; (3) the extent, if any, by which the market price of Nanophase stock was affected by news reports such as the CNBC report concerning Nanophase s technology on December 26, 1997;

(4) the effect of various market forces, including rumors concerning Nanophase and/or the promise of Nanophase s emerging technology, influencing the trading price of Nanophase stock during the Class Period; (5) the extent, if any, by which external factors, such as general market conditions, influenced the trading price of Nanophase common stock during the Class Period; (6) the extent, if any, to which the various matters that Plaintiffs have alleged were false or misleading influenced the trading price of Nanophase common stock; and (7) whether the statements made by the Settling Defendants were false, material or otherwise actionable under law. Statement of Attorneys Fees and Cost Sought: Attorneys for the Lead Plaintiffs intend to apply to the Court for an award of attorney fees in the aggregate amount of $1,341,532, or 33 1/3% of the Gross Settlement Fund, and for reimbursement of expenses, including expert witness and consultant fees, costs of notice and settlement administration expenses, in the aggregate approximate amount of $300,000 from the Class Settlement Fund, which amounts together would represent approximately $0.39 on an average per share basis. Identification of Lawyers Representatives: Persons with questions may contact: Edwin J. Mills, Esq. STULL, STULL & BRODY 6 East 45th Street New York, NY 10017 (212) 687-7230 Chair of Plaintiffs Executive Committee -or- Lester L. Levy, Esq. Neil L. Selinger, Esq. Chet B. Waldman, Esq. David C. Harrison, Esq. WOLF POPPER LLP -or- LOWEY DANNENBERG 845 Third Avenue BEMPORAD & SELINGER, P.C. New York, NY 10022 The Gateway (212) 759-4600 One North Lexington Avenue White Plains, NY 10601 (914) 997-0500 Members of Plaintiffs Executive Committee Reasons For Settlement: As explained in greater detail hereinafter (see Reasons for Settlement ), Plaintiffs have agreed to this $4,025,000 settlement because it represents a substantial recovery in light of the risks of litigation on the merits, the risks of establishing substantial damages resulting from public statements made by defendants which may or would be found to be materially false and misleading, the expense of further proceedings, including trial and appeal, and the resulting delay in compensation to class members if the case had to be tried to obtain a recovery for the Class. The Settling Defendants have agreed to this settlement due to the uncertainty of litigation in general, uncertainties concerning whether the jury or the Court would find liability on the part of any of the defendants, the expense of proceeding to trial and possible appeals, and the distraction to Nanophase and Nanophase s management of continuing litigation, including management time that would necessarily be expended in responding to discovery requests and depositions and in formulating defense strategy. Lead Counsel for Plaintiffs believe that the proposed Settlement is fair, reasonable and adequate to the members of the Class. Lead Counsel for Plaintiffs have reached this conclusion after investigating and considering, among other things, the strengths and weaknesses of Plaintiffs claims against Defendants, includ- 2

ing the Defendants contentions, among others, that Plaintiffs will be unable to prove sufficient facts to support the claims asserted; that Defendants did not make any materially false and misleading statements, or that any materially false and misleading statements made during the Class Period were not made with any intent to defraud and did not cause the losses allegedly suffered by Plaintiffs and the other members of the Class. Defendants, moreover, have asserted defenses to Plaintiffs claims on the merits and Plaintiffs right to recover damages. In addition, the Plaintiffs considered the uncertainties inherent in this complex litigation, the limited financial resources of Nanophase, and the substantial benefits provided by the Settlement to the members of the Class. Without admitting any wrongdoing or liability on their part whatsoever, the Settling Defendants are nevertheless willing to agree to make the payments provided for by the Stipulation provided that all claims of the Class are settled and compromised, in order to avoid the continuing burden, expense, inconvenience and distraction to Defendants of this litigation. Settlement Hearing: You are hereby notified that a hearing (the Final Settlement Hearing ) shall be held before the Honorable David H. Coar, United States District Judge, on March 27, 2001, at 9:30 a.m. in Courtroom 1419 of the United States District Court for the Northern District of Illinois, 219 South Dearborn Street, Chicago, Illinois 60604 to determine whether an order should be entered (i) finally approving the proposed settlement of the claims asserted by Plaintiffs in this Action against Defendants Nanophase Technologies Corporation, ( Nanophase ), Leonard A. Batterson, Robert W. Cross, Dennis J. Nowak, Steven Lazarus, Robert W. Shaw, Jr., Richard W. Siegel, Donaldson, Lufkin & Jenrette Securities Corp., Furman Selz LLC (now known as ING Barings LLC) and CIBC Oppenheimer Corp. (now known as CIBC World Markets Corp.) (collectively, the Defendants ) on the terms set forth in the Stipulation of Settlement (the Stipulation ) dated November 14, 2000 (the Settlement ); (ii) dismissing the Action with prejudice; and (iii) awarding counsel fees and reimbursement of expenses to counsel for Plaintiffs and the Class. 1. THE CLASS INVOLVED IN THE PROPOSED SETTLEMENT The proposed Settlement affects the rights of members of the Class as defined by the Stipulation and as provisionally certified by the Court on December 6, 2000 ( The Preliminary Approval Order ). The Class consists of : All persons and entities who purchased the common stock of Nanophase during the period from November 26, 1997 through and including January 8, 1998. Excluded from the Class are Defendants, officers and directors of Nanophase, members of the immediate families of such officers and directors, and the sub-divisions and/or affiliates of Nanophase. The class does not include Harbour Court LPI or any members of the class of former preferred shareholders of Nanophase as asserted in Harbour Court LPI v. Nanophase Technologies Corporation, et al., 98 C 7447 (N.D. Ill.), with respect to any claims asserted in Harbour Court LPI v. Nanophase Technologies Corporation, et al., 98 C 7447 (N.D. Ill.). The conversion of Nanophase preferred stock into Nanophase common stock upon the IPO shall not be deemed to be a purchase of Nanophase common stock for purposes of the Class definition. Accordingly, the Class does not include persons whose only claim is that they owned Nanophase preferred stock prior to Nanophase s IPO and whose preferred stock was converted into common stock upon the IPO. In addition, excluded from the Class is any person or entity who or which requests exclusion from the Class in writing in accordance with the procedures established by the Court as set forth below. Neither the Preliminary Approval Order provisionally certifying the Class nor the sending of this Notice should be construed as any indication of the Court s view as to the merits of any claims, defenses or positions asserted by any party to the Action. 3

2. NATURE OF THE ACTION, PROCEDURAL HISTORY AND BACKGROUND AND TERMS OF THE PROPOSED SETTLEMENT This is a conditionally certified securities class action case alleging violations of the Securities Act of 1933 arising out of the public offering of common stock by defendant Nanophase Technologies Corporation on November 26, 1997. In that offering Nanophase offered and sold to the Underwriters, pursuant to a firm commitment underwriting, 4,000,000 shares of its common stock at a net sale price of $7.44 per share and these shares were then offered to the public by the Underwriters at a public offering price of $8.00 per share. The Corrected Consolidated Class Action Complaint in this action alleges that the Registration Statement and Prospectus utilized to offer and sell the Nanophase stock was materially false and misleading in several respects, including the characterization of certain revenues derived from Nanophase s largest customer, Moyco Technologies, Inc., as sales when such revenues were allegedly a one-time development fee; in representing that sales to Moyco accounted for approximately 70% of Nanophase s revenue for the nine month period preceding the IPO; and in stating that Nanophase s contract with Moyco was expected to provide substantial revenue to Nanophase after the public offering when sales to Moyco were allegedly virtually nonexistent at the time of the public offering and there was allegedly no reasonable basis to assume that sales to Moyco would increase after the offering. The Complaint further alleges that the Registration Statement and Prospectus were materially false and misleading in other respects, both regarding Moyco and in relation to Nanophase s relationships with other customers. On September 27, 1999, this Court denied in part, and granted in part, the motions of all defendants to dismiss the Complaint. The Court sustained all of the claims asserted under Section 11 of the Securities Act but dismissed the Section 12(a)(2) claims to the extent they were asserted by purchasers of Nanophase common stock in the aftermarket. Shortly after deciding the motions to dismiss, this Court lifted the stay on discovery which had existed during the pendency of the motion to dismiss. Lead Plaintiffs, by counsel, then undertook extensive document discovery and analysis from all defendants, as well as from third party witness Moyco and from the auditing firm which had certified the financial statements in the Registration Statement, Ernst & Young LLP. After examining the documents of defendants and the non-party witnesses Lead Counsel herein commenced settlement discussions with defense counsel with a view toward obtaining a cash settlement for the proposed class as pleaded in the Complaint, that is, all persons who purchased Nanophase common stock either on the public offering of November 26, 1997 or thereafter through January 8, 1998. Lead Counsel who handled these negotiations were fully advised concerning the strengths and weaknesses of the case as demonstrated by the party and non-party document productions, as well as fully prepared on the issue of damages. Early in the settlement process Lead Counsel retained an expert consultant to evaluate recoverable damages on the claims under the Securities Act of 1933, and specifically with a view to countering any argument by defense counsel that the decline in the market price of Nanophase common stock from November 26, 1997 to January 8, 1998 was caused by market forces or other factors unrelated to the alleged deception. Defendants contend that any portion of the market decline not attributable to the alleged deception would not be recoverable by the plaintiff class due to the damage reduction defense available to defendants under Section 11(e) of the Securities Act. After several face to face meetings among counsel in Chicago and New York and literally dozens of telephone discussions the parties were able to reach a settlement of this action. The settlement herein calls for the creation of a cash settlement fund in the amount of $4,025,000. The complete terms of the settlement are set out in the Stipulation of Settlement dated November 14, 2000. 4

3. REASONS FOR ENTERING INTO THE SETTLEMENT Plaintiffs, through their Counsel, have conducted a thorough investigation of the claims asserted in the Complaint, the underlying events and transactions described therein, the likely recoverable damages (including defendants damage-reduction defense under Section 11(e) of the Securities Act), and the possibility and likely amount of interest which might be awarded to the Class if Plaintiffs prevailed on the merits of their claims. In light of the foregoing risks of litigating the Action to conclusion, and the expense and length of continued proceedings necessary to prosecute through trial and appeal, Plaintiffs Lead Counsel engaged in intensive arms -length negotiation with Counsel for the Settling Defendants with a view to achieving the substantial benefits for the Class which are provided by the Settlement. Plaintiffs and their Counsel believe the Settlement to be fair, reasonable and adequate and in the best interest of Plaintiffs and the Class. Defendants have denied, and continue to deny, each and every allegation of liability and wrongdoing on their part, and assert that they have strong factual and legal defenses to all claims alleged in the Complaint and that such claims are entirely without merit. Without admitting any wrongdoing or liability on their part whatsoever, the Settling Defendants nevertheless agreed to cause the payment provided for by the Stipulation of Settlement to be made provided that all claims of the Class are settled and compromised, in order to minimize, if not entirely to avoid, the continuing burden, expense, inconvenience and distraction to Defendants of this litigation. Having duly considered all of the foregoing and after having engaged in extensive arm s-length negotiations, Plaintiffs have entered into the proposed Settlement with the Settling Defendants, subject to Court approval, as fully set forth in the Stipulation of Settlement. 4. CLASS RECOVERY The proposed Settlement is $4,025,000. Based on consultations with damages experts, Plaintiffs Lead Counsel believes that if all Holder Claimants file valid claims, their average per share recovery will be approximately $0.99 per share prior to fees and expenses; that the average per share recovery of Trading Claimants, based on the same assumptions, would be approximately $0.26 per share. PLEASE BE ADVISED THAT THIS IS ONLY AN ESTIMATE. A Class member s actual per share recovery may be more or less. 5. POTENTIAL OUTCOME OF THE ACTION Plaintiffs and Defendants disagree as to the average amount of damages per share that would be recoverable if Plaintiffs prevail at trial on each and every claim alleged. 6. CLAIMS ADMINISTRATION AND RECOGNIZED LOSS FORMULA Class members must submit a timely and valid Proof of Claim and Release Form to share in the settlement fund. The Proof of Claim and Release Form is part of this Notice. Please follow the instructions in the Proof of Claim and Release Form carefully and note the requirement for documentation of your transactions in Nanophase common stock. The Claims Administrator shall determine each Authorized Claimant s pro rata share of the Net Settlement Fund (the Gross Settlement Amount including interest net of taxes and less all approved costs, fees and expenses) based upon each Authorized Claimant s Recognized Loss utilizing the formulae and procedures set forth in this paragraph. Each Authorized Claimant will receive a pro rata share of the Net Settlement Fund determined by the ratio that such Authorized Claimant s Recognized Loss bears to the 5

Recognized Losses of all such Authorized Claimants. The Recognized Loss formula and computation is not intended to be an estimate of what an Authorized Claimant member might have been able to recover at trial, and it is not an estimate of the amount that will be paid pursuant to the Settlement. An Authorized Claimant s Recognized Loss, for which it shall receive a pro rata recovery, shall be computed as follows: a. Holder Claimants: With respect to each class member who purchased Nanophase common stock during the Class Period and who held those shares through the end of the Class Period, the Recognized Loss shall mean $1.78 per share. b. Trading Claimants: With respect to each class member who purchased Nanophase common stock during the Class Period and sold those shares before the end of the Class Period (that is, prior to January 8, 1998), the Recognized Loss shall mean the difference, if a loss, between the purchase price and the sale price. In determining the Recognized Loss of Trading Claimants, the following rules shall apply: a. FIFO: In processing claims, the first-in, first-out basis ( FIFO ) will be applied to both purchases and sales. b. Gains and Losses: All profits will be subtracted from all losses to determine the net Recognized Loss of each Class Member. c. Short Sales: The date of covering a short sale is deemed to be the date of purchase of Nanophase stock. The date of a short sale is deemed to be the date of sale of Nanophase stock. d. Options: Where stock was purchased/sold by reason of having exercised an option, the option premium should be incorporated into the price accordingly. e. De Minimis: No payment will be made on any claims where the payable loss is $5.00 or less, but the Authorized Claimant will otherwise be bound by the final judgment entered by the Court. The Proof of Claim and Release Form must be submitted by mail, post marked on or before July 25, 2001, addressed as follows: Claims Administrator In re Nanophase Securities Litigation c/o David Berdon & Co. LLP P.O. Box 4171 Grand Central Station New York, NY 10163 Standards For Determining Adequacy of Proofs of Claim: The Claims Administrator will carefully examine each Proof of Claim to determine whether the instructions and documentation requirements listed in the Proof of Claim form have been satisfied. Proofs of Claim which have followed the instructions and have satisfied the documentation requirements will be deemed accepted. Class members whose claims have been accepted and who have a recognized loss will receive payment directly from the Claims Administrator. Class members may utilize the Claims Administrator s toll free telephone number or Website to find out if their claim has been accepted. Class Members who submit Proofs of Claim which are not accepted for any reason (including, but not limited to, the absence of a signature or tax identification number, lack of documentation or no purchase of Nanophase common stock during the Class Period) will be notified in writing of the nature of the deficiency 6

and the need to correct the deficiency. Failure to correct the deficiency will result in the transmission to the Class Member of a rejection letter. Class Members who receive rejection letters will be advised that this is their final opportunity to correct the deficiency and that they must do so within twenty (20) days of the date of the rejection letter. The rejection letter will also advise Class Members of their right to contest the rejection by filing, at their own expense, an application with the Court. 7. REQUESTING EXCLUSION FROM THE CLASS IF YOU ARE A MEMBER OF THE CLASS, YOU MAY BE ELIGIBLE TO SHARE IN THE BENEFITS OF THIS SETTLEMENT AND WILL BE BOUND BY ITS TERMS UNLESS YOU EXCLUDE YOURSELF FROM THE CLASS. Each member of the Class shall be bound by all determinations and judgments of the Court in connection with the Settlement, whether favorable or unfavorable, unless such Class member shall mail, by first class mail, postage prepaid, a written request for exclusion from the Class, postmarked no later than March 1, 2001, addressed to: Claims Administrator, In re Nanophase Securities Litigation, c/o David Berdon & Co. LLP, P.O. Box 4171, Grand Central Station, New York NY 10163. Such request for exclusion shall be in a form that sufficiently identifies (i) the name and address of the person(s) or entity seeking exclusion, and (ii) a description of all transaction(s) involving Nanophase common stock during the Class Period, including all of the purchase and/or sale information requested in the Proof of Claim and Release Form. A request for exclusion shall not be effective unless submitted within the time and in the form provided for in the annexed Proof of Claim and Release Form. If a person or entity who is a member of the Class duly requests to be excluded from the Class, such person or entity will not be bound by any orders or judgments entered in respect of the Settlement and shall not be entitled to receive any benefits provided by the Settlement in the event it is finally approved by the Court. By Order of the Court, if a judgment approving the proposed Settlement provided for in the Stipulation is finally entered, all members of the Class who have not requested exclusion from the Class shall conclusively be deemed to have released and shall thereafter be barred from asserting any of the Settled Claims against the Defendants and the other Released Parties. 8. STATEMENT OF ATTORNEYS FEES AND COSTS SOUGHT If the proposed Settlement is finally approved, Plaintiffs Counsel intend to apply to the Court for an award of Attorneys fees from the Settlement Fund not to exceed 33% (thirty three percent) of the Settlement ($0.34 on an average per share basis), plus an additional amount not to exceed $300,000 as reimbursement for the expenses and costs actually incurred in prosecuting the action, plus the cost of class notice and claims administration ($0.08 on an average per share basis). If the fee request of plaintiffs counsel is granted by the Court, and if $300,000 in the aggregate is ultimately deducted from the settlement fund for reimbursement of litigation expenses (including expert witness and consultant fees, notice costs and claims administration expenses), Plaintiffs Lead Counsel estimates that the net recovery for Holder Claimants will be approximately $0.71 per share. If the fee request of plaintiffs counsel is granted by the Court, and if the aggregate sum of $300,000 in the aggregate is ultimately deducted from the settlement fund for reimbursement of litigation expenses (including expert witness and consultant fees, notice costs and claims administration expenses), Plaintiffs Lead Counsel estimates that the net recovery for Trading Claimants will be approximately $0.19 per share. 7

9. THE FINAL SETTLEMENT HEARING The Final Settlement Hearing shall be held before the Honorable David H. Coar, on March 27, 2001 at 9:30 A.M. in Courtroom 1419 of the United States District Court for the Northern District of Illinois, 219 South Dearborn Street, Chicago, Illinois 60604. The Final Settlement Hearing may be adjourned or continued from time to time by the Court without further notice to the Class other than an announcement at such Final Settlement Hearing or at any adjournment or continuance thereof. Any member of the Class who does not timely and validly request exclusion from the Class and who objects to the Settlement, Plaintiffs proposed Plan of Allocation of the Net Settlement Fund, the Final Judgment of Dismissal With Prejudice contemplated by the Stipulation of Settlement, and/or the application for Plaintiffs attorneys fees and reimbursement of expenses, or who otherwise wishes to be heard with respect to any of the foregoing, may appear in person or by attorney at the Final Settlement Hearing, at their own expense, and present any evidence or argument that may be proper and relevant. However, no person shall be heard, and no papers, briefs, pleadings or other documents submitted by any such person shall be considered by the Court unless, no later than 14 days prior to the Final Settlement Hearing, (a) a notice of the person s intention to appear, (b) a statement of such person s objections to any matter before the Court, and (c) the grounds for such objections or the reason for such person s request to appear and to be heard, as well as all other documents and writings which such person desires the Court to consider, shall be filed by such person with the Clerk of the Court, and, on or before such filing, shall be delivered by hand or mailed, by overnight mail or certified mail, return-receipt requested, postage prepaid, upon the following counsel of record: Edwin J. Mills, Esq. David L. Weinstein, Esq. STULL, STULL & BRODY Michael Dockterman, Esq. 6 East 45th Street -and- WILDMAN HARROLD New York, NY 10017 ALLEN & DIXON (212) 687-7230 22 West Wacker, Suite 3300 Chicago, IL 60606 (312) 201-2685 On Behalf of Plaintiffs On Behalf of Defendants Any person or entity who fails to object in the manner prescribed in the paragraph immediately above shall be deemed to have waived any objections that person may have and shall be barred from raising such objections in this or any other action or proceeding relating to the Settled Claims. Objections directed solely to Plaintiffs proposed Plan of Allocation will not affect the finality of the Settlement, if approved by the Court. All members of the Class who do not request exclusion therefrom, in the manner provided herein, will be represented by Plaintiffs counsel in connection with the Settlement, but may, if they so desire, also enter an appearance through counsel of their own choice and at their own expense. 10. PROOF OF CLAIM AND RELEASE FORM To participate in the Settlement Fund you must timely complete, execute and file a timely and valid Proof of Claim and Release Form ( Proof of Claim ). A Proof of Claim form is enclosed with this Notice. You may receive more than one copy of this Notice and the Proof of Claim, but you should submit only one Proof of Claim. 8

The Proof of Claim must be completed in accordance with the Instructions on the Proof of Claim, and must enclose all documentation required by the Instructions. The Proof of Claim must be filed with the Court-appointed Claims Administrator at the following address on or before July 25, 2001. Claims Administrator In re Nanophase Securities Litigation c/o David Berdon & Co. LLP P.O. Box 4171 Grand Central Station New York, NY 10163 Telephone: (800) 766-3330 Fax: (516) 931-0810 Website: www.dberdon.com/claims A Proof of Claim will be deemed filed when mailed, via first-class mail postage prepaid. Members of the Class who do not exclude themselves from the Class and who fail to submit a timely and valid Proof of Claim will nevertheless be bound by the Settlement if finally approved, and all orders and judgments entered by the Court in connection therewith. Each person or entity submitting a Proof of Claim thereby submits to the jurisdiction of the Court for purposes of the Action, the Settlement and any proceedings relating to such Proof of Claim, and agrees that such a filed Proof of Claim will be subject to review and further inquiry as to such person s or entity s status as a member of the Class and the allowable amount of the claim. 11. SPECIAL NOTICE TO BROKERS AND OTHER NOMINEES If you were a nominee for any beneficial owner of Nanophase common stock during the Class Period, then, within ten (10) days after you receive this Notice, you must either (1) provide the Claims Administrator with the name and last known address of each such person or entity, preferably on computer-generated mailing labels or, if there are more than 2,000, on a 3-1/2 diskette, CD-ROM or ZIP media, and the Claims Administrator shall cause the Notice to be mailed promptly to said beneficial owners; or, in the alternative. (2) send a copy of the Notice to all beneficial owners by first-class mail and provide the Claims Administrator with written confirmation of having done so. Additional copies of the Notice may be requested in writing from the Claims Administrator. All correspondence should be addressed as follows: Claims Administrator In re Nanophase Securities Litigation c/o David Berdon & Co. LLP P.O. Box 4171 Grand Central Station New York, NY 10163 Telephone: (800) 766-3330 Fax: (516) 931-0810 Website: www.dberdon.com/claims 9

You are entitled to reimbursementof any reasonable expenses you actually incurred in connection with the foregoing upon submission of a timely request for reimbursement and the appropriate supporting documentation to the Claims Administrator. 12. ADDITIONAL INFORMATION This Notice merely provides a brief summary of the litigation and the proposed Settlement. For a more detailed statement of the matters involved in the litigation, you may refer to the pleadings, the Stipulation, and the orders entered by the Court and to certain other papers filed in the litigation. These papers may be inspected at the Office of the Clerk of the United States District Court for the Northern District of Illinois, 219 South Dearborn Street, Chicago, Illinois 60604. In addition, if you have any questions regarding the information contained in this Notice, you may contact Plaintiffs Lead Counsel by writing to any of the following: Edwin J. Mills, Esq. STULL, STULL & BRODY 6 East 45th Street New York, NY 10017 (212) 687-7230 or (800) 337-4983 Fax: (212) 490-2022 E-mail: ssbny@aol.com Chair of Plaintiffs Executive Committee Lester L. Levy, Esq. Neil L. Selinger, Esq. Chet B. Waldman, Esq. David C. Harrison, Esq. WOLF POPPER LLP LOWEY DANNENBERG 845 Third Avenue BEMPORAD & SELINGER, P.C. New York, NY 10022 The Gateway (212) 759-4600 One North Lexington Avenue White Plains, NY 10601 (914) 997-0500 Members of Plaintiffs Executive Committee DO NOT CONTACT THE COURT OR CLERK OF THE COURT. IF YOU HAVE ANY QUESTIONS YOU SHOULD DIRECT THEM TO PLAINTIFFS COUNSEL IDENTI- FIED ON PAGE 10, OR TO THE CLAIMS ADMINISTRATOR IDENTIFIED ON PAGE 9. Dated: December 28, 2000 Clerk of the Court United States District Court Northern District of Illinois, Eastern Division 10

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