<PAGE>
As filed with the Securities and Exchange Commission on January 12, 2001
Registration No. 333-51756
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CHARLES & COLVARD, LTD.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
North Carolina 3915 56-0308470
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code No.) Identification No.)
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3800 Gateway Boulevard, Suite 310
Morrisville, N.C. 27560
(919) 468-0399
(Address and telephone number of Registrant's principal executive offices)
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Mr. Robert S. Thomas
President and
Chief Executive Officer
Charles & Colvard, Ltd.
3800 Gateway Boulevard, Suite 310
Morrisville, N.C. 27560
(919) 468-0399
(Name, address and telephone number of agent for service)
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Copies To:
Cyrus M. Johnson, Esq.
Kenneth N. Shelton, Esq.
Womble Carlyle Sandridge & Rice, PLLC
3300 One First Union Center
301 South College Street
Charlotte, North Carolina 28202
(704) 331-4900
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or investment plans, please check the following box: [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the box and list the Securities Act
registration statement for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed
Maximum
Aggregate
Title of Each Class of Amount to be Offering Amount of
Securities To Be Registered Registered(2) Price(3) Registration(4)
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<S> <C> <C> <C>
Common Stock, no par value per
share(1)........................... 8,397,313 $12,092,131 $3,193.00
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(1) Each share of Registrant's common stock includes a share purchase right
for preferred stock under the Registrant's Shareholder Rights Agreement
dated as of February 22, 1999.
(2) Maximum number of shares of Common Stock of Charles & Colvard to be sold
to current holders of its Common Stock in this rights offering.
(3) Calculated in accordance with Rule 457(o) based on the estimated maximum
aggregate offering price of the Common Stock.
(4) Previously Paid.
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The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an
offer to sell, and it is not soliciting an offer to buy, these securities in
any state where the offer or sale is not permitted.
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<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 12, 2001
PROSPECTUS
CHARLES & COLVARD, LTD.
7,200,979 Shares of Common Stock
We are offering 7,200,979 shares of common stock to our shareholders who
owned shares of our common stock as of the close of business on January 12,
2001, the record date.
. You will receive, at no cost, a subscription right to purchase one share
of common stock for each share of our common stock you own on the record
date.
. The subscription price for your right is $ per share.
. We will not issue fractional shares of common stock, and we will not pay
cash in place of fractional shares.
. The rights are exercisable beginning on the date of this prospectus and
continuing until 5:00 p.m., Eastern Standard Time, on February , 2001,
the expiration date, unless extended.
. If you want to participate in this offering, you should submit your
subscription documents and payments to the subscription agent or to your
broker or bank and allow a sufficient number of days to ensure delivery
to the subscription agent and clearance of payment prior to February ,
2001.
. All subscriptions will be held in escrow by our subscription agent, First
Union National Bank, until the expiration date.
. Your rights are not transferable.
. The rights will not be listed for trading on any stock exchange.
. We reserve the right to cancel this offering at any time before the
expiration date.
There is no minimum number of shares that we must sell in order to complete
this offering. Shareholders who do not participate in this offering will
continue to own the same number of shares, but will own a smaller percentage of
the total shares outstanding to the extent that other shareholders participate
in this offering.
Our common stock is quoted for trading on The Nasdaq National Market under
the trading symbol "CTHR." The closing price of our common stock on January ,
2001 was $ per share.
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<CAPTION>
Proceeds
to Charles
Subscription &
Rights Price Colvard(1)
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<S> <C> <C>
Per Share............................................... $ $
Total...................................................
</TABLE>
--------
(1) Before deducting expenses payable by us, estimated to be $150,000.
See "Risk Factors" commencing on page 6 for a discussion of certain factors
that you should consider before purchasing our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is January , 2001.
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TABLE OF CONTENTS
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Page
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Questions and Answers About Charles & Colvard.............................. 1
Questions and Answers About the Rights Offering............................ 1
A Warning About Forward--Looking Statements................................ 5
Risk Factors............................................................... 6
Risks Related to our Business.............................................. 6
Risks Related to our Common Stock.......................................... 11
Risks Relating to Rights Offering.......................................... 13
Use of Proceeds............................................................ 14
The Rights Offering........................................................ 14
If You Have Questions...................................................... 20
Plan of Distribution....................................................... 21
Experts.................................................................... 21
Legal Matters.............................................................. 21
How To Find Additional Information......................................... 21
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You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorized anyone to provide you with
different information. This document may be used only where it is legal to sell
these securities. The information in this prospectus is only accurate on the
date of this prospectus.
On this prospectus, all references to "Charles & Colvard," "we," "us," and
"our" refer to Charles & Colvard, Ltd., unless indicated otherwise.
The stylized logo for "Charles & Colvard Created Moissanite" is a trademark
of Charles & Colvard. This prospectus may contain certain other trademarks and
service marks of other parties.
<PAGE>
SUMMARY
This section answers in summary form some questions you may have about
Charles & Colvard, Ltd. and this rights offering. The information in this
section is not complete and does not contain all of the information that you
should consider before exercising your subscription rights. You should read the
entire prospectus carefully, including the "Risk Factors" section and the
documents listed under "How To Find Additional Information."
QUESTIONS AND ANSWERS ABOUT CHARLES & COLVARD
WHAT IS CHARLES & COLVARD?
Charles & Colvard, Ltd. (formerly C3, Inc.), a North Carolina corporation,
manufactures, markets and distributes Charles & Colvard created moissanite
jewels ("moissanite" or "moissanite jewels") for sale in the worldwide jewelry
market. Moissanite, also known by its chemical name, silicon carbide (SiC), is
a rare, naturally occurring mineral found primarily in meteorites. As the sole
manufacturer of scientifically-made moissanite jewels, we create a unique brand
image which positions moissanite as a jewel in its own right, distinct from all
other jewels based on its fire, brilliance, luster, durability and rarity. See
"How To Find Additional Information" (page 20).
WHERE ARE WE LOCATED?
Our principal executive office is located at: 3800 Gateway Boulevard, Suite
310, Morrisville, North Carolina 27560.
Our telephone number is (919) 468-0399.
WHEN WERE WE FORMED?
We were formed in June 1995 as a North Carolina corporation.
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
WHAT IS A SUBSCRIPTION RIGHT?
We are distributing to you, at no charge, a subscription right to purchase
one share of common stock for every share of common stock that you owned on
January 12, 2001. Each subscription right entitles you to purchase one share of
common stock for $ , subject to the terms of this rights offering. When
you "exercise" a subscription right, that means that you choose to purchase the
common stock that the subscription right entitles you to purchase. You may
exercise any number of your subscription rights, or you may choose not to
exercise any subscription rights. You cannot give or sell your subscription
rights to anybody else; only you can exercise them.
WHAT IS A RIGHTS OFFERING?
A rights offering is an opportunity for you to purchase additional shares of
common stock at a fixed price to be determined before the rights offering
begins and in an amount proportional to your existing interest, which enables
you to maintain your current percentage ownership interest in us.
1
<PAGE>
WHAT IS THE BASIC SUBSCRIPTION PRIVILEGE?
The basic subscription privilege of each subscription right entitles you to
purchase one share of our common stock at a subscription price of $ .
WHAT IS THE OVER-SUBSCRIPTION PRIVILEGE?
We do not expect that all of our shareholders will exercise all of their
basic subscription rights. By extending over-subscription privileges to our
shareholders, we are providing for the subscription for those shares which are
not purchased through exercise of basic subscription privileges. The over-
subscription privilege entitles you, if you fully exercise your basic
subscription privilege, to subscribe for additional shares of common stock not
acquired by other holders of rights at the same subscription price of $ per
share.
WHAT ARE THE LIMITATIONS ON THE OVER-SUBSCRIPTION PRIVILEGE?
We will only issue 7,200,979 shares of common stock in the rights offering.
The number of shares available for over-subscription privileges will be
7,200,979 minus the number of shares purchased upon exercise of all basic
subscription privileges. The number of shares available under the over-
subscription privilege to any one shareholder or group of shareholders may be
reduced by the Company if any such shareholder or group of shareholders would
beneficially own 20% or more of the Company's common stock outstanding after
the offering.
If sufficient shares are available, we will seek to honor the over-
subscription requests in full. If over-subscription requests exceed the number
of shares available, we will allocate the available shares among shareholders
who over-subscribed in proportion to the number of shares purchased by those
over-subscribing shareholders through the basic subscription privilege.
However, if your pro rata allocation exceeds the number of shares you
requested, you will receive only the number of shares that you requested, and
the remaining shares from your pro rata allocation will be divided among other
shareholders exercising their over-subscription privileges who have subscribed
for additional shares in proportion to the number of shares purchased by that
group of over-subscribing shareholders through the basic subscription
privilege. In certain circumstances, however, in order to comply with
applicable state or foreign securities laws, we may not be able to honor all
over-subscription privileges even if we have shares available.
WHY ARE WE ENGAGING IN A RIGHTS OFFERING?
We are offering the subscription rights to our current shareholders in order
to raise additional working capital. Our cash and cash equivalents have
decreased from approximately $13.2 million at December 31, 1999 to
approximately $4.1 million at September 30, 2000. Additional funds would
improve our liquidity. Our Board of Directors has chosen to give you the
opportunity to buy more shares and provide us with additional capital. This
option provides each shareholder the opportunity to avoid dilution of their
ownership interest. Of course, we cannot assure you that we will not need to
seek additional financing in the future.
HOW MUCH MONEY WILL CHARLES & COLVARD RECEIVE FROM THE RIGHTS OFFERING?
Our gross proceeds from the rights offering depends on the number of shares
that are purchased. If we sell all 7,200,979 shares which may be purchased upon
exercise of the rights offered by this prospectus, then we will receive
proceeds of $ , before deducting expenses payable by us, estimated to
be $150,000.
2
<PAGE>
ARE THERE ANY PURCHASE COMMITMENTS IN THE RIGHTS OFFERING?
As of the date of this prospectus, certain directors and officers and other
shareholders have committed to purchase up to an aggregate of shares of
common stock pursuant to the offering which would provide the Company with a
minimum subscription amount and gross proceeds of $ . To effect this
commitment, each of these purchasers have individually agreed to exercise his
basic subscription privilege in full and to subscribe for additional shares
pursuant to the over-subscription privilege.
HOW MANY SHARES MAY I PURCHASE?
You will receive one subscription right for each share of common stock that
you owned on January 12, 2001. We will not distribute fractional subscription
rights, but will round the number of subscription rights you receive down to
the nearest whole number. Each subscription right entitles you to purchase one
share of common stock for $ . If you exercise all of the subscription
rights that you receive, you may have the opportunity to purchase additional
shares of common stock. On the enclosed subscription certificate, you may
request to purchase as many additional shares as you wish for $ per share.
Subject to the terms of the offering, we intend to honor all of the over-
subscription requests, but if not, you may not be able to purchase as many
shares as you requested on your subscription certificate. Subject to state
securities laws and regulations, we have the discretion to issue less than the
total number of shares that may be available for over-subscription requests in
order to comply with state or foreign securities laws. In addition, the number
of shares available under the over-subscription privilege to any one
shareholder or group of shareholders may be reduced by the Company if any such
shareholder or group of shareholders would own 20% or more of the Company's
common stock outstanding after the offering.
HOW DID WE ARRIVE AT THE $ PER SHARE PRICE?
In determining the price at which a share of common stock may be purchased
in this rights offering, we considered several factors including the historic
and current market price of the common stock, our business prospects, our
recent history of losses, general conditions in the securities market, our need
for capital, alternatives available to us for raising capital, the amount of
proceeds desired, the pricing of similar transactions, the liquidity of our
common stock, the level of risk to our investors, and the need to offer shares
at a price that would be attractive to our investors relative to the current
trading price of our common stock. We did not seek or obtain any opinion of
financial advisors or investment bankers in establishing the subscription
price. The subscription price represents approximately a from the market
price of the common stock immediately prior to the date of this prospectus.
HOW DO I EXERCISE MY SUBSCRIPTION RIGHTS?
You must properly complete the attached subscription certificate and deliver
it to the Subscription Agent before 5 p.m., Eastern Standard Time, on February
, 2001. The address for the Subscription Agent is on page 19. Your
subscription certificate must be accompanied by proper payment for each share
that you wish to purchase. Please note that funds paid by uncertified personal
check may take at least ten business days to clear. Accordingly, if you wish to
pay by means of uncertified personal check, we urge you to make payment
sufficiently in advance of February , 2001 to ensure that payment is received
and clears before that date. If your shares are held in the name of your bank
or broker, you must contact your bank or broker if you wish to participate in
this offering.
HOW LONG WILL THE RIGHTS OFFERING LAST?
You will be able to exercise your subscription rights only during a limited
period. IF YOU DO NOT EXERCISE YOUR SUBSCRIPTION RIGHTS BEFORE 5 P.M., EASTERN
STANDARD TIME, ON FEBRUARY , 2001, YOUR SUBSCRIPTION RIGHTS WILL EXPIRE. We
may, in our discretion, decide to extend the rights offering. In addition, if
the commencement of the rights offering is delayed, the expiration date will
similarly be extended.
3
<PAGE>
AFTER I EXERCISE MY SUBSCRIPTION RIGHTS, CAN I CHANGE MY MIND?
No. Once you send in your subscription certificate and payment, you cannot
revoke the exercise of your subscription rights, even if you later learn
information about us that you consider to be unfavorable. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additional shares of common stock at a price of $ per share.
IS EXERCISING MY SUBSCRIPTION RIGHTS RISKY?
The exercise of your subscription rights involves certain risks. Exercising
your subscription rights means buying additional shares of our common stock,
and should be carefully considered as you would view other equity investments.
Among other things, you should carefully consider the risks described under the
heading "Risk Factors," beginning on page 6.
WHAT HAPPENS IF I CHOOSE NOT TO EXERCISE MY SUBSCRIPTION RIGHTS?
You will retain your current number of shares of common stock in Charles &
Colvard even if you do not exercise your subscription rights. However, if other
shareholders exercise their subscription rights and you do not, the percentage
of Charles & Colvard that you own will diminish, and your relative voting
rights and economic interests will be diluted.
CAN I SELL OR GIVE AWAY MY SUBSCRIPTION RIGHTS?
No.
MUST I EXERCISE ANY SUBSCRIPTION RIGHTS?
No.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF EXERCISING MY SUBSCRIPTION
RIGHTS?
The receipt and exercise of your subscription rights are intended to be
nontaxable. You should seek specific tax advice from your personal tax advisor.
WHEN WILL I RECEIVE MY NEW SHARES?
If you purchase shares of common stock through the rights offering, you will
receive certificates representing those shares as soon as practicable after
February , 2001. Subject to state or foreign securities laws and regulations,
we have the discretion to delay allocation and distribution of any shares you
may elect to purchase by exercise of your basic or over-subscription privilege
in order to comply with state securities laws.
CAN WE CANCEL THE RIGHTS OFFERING?
Yes. Our Board of Directors may cancel the rights offering at any time on or
before February , 2001, for any reason. If we cancel the rights offering, any
money received from shareholders will be refunded promptly, without interest.
HOW WILL WE USE THE PROCEEDS FROM THE RIGHTS OFFERING?
We will use the proceeds from the rights offering for additional working
capital to fund operations.
4
<PAGE>
HOW MANY SHARES WILL BE OUTSTANDING AFTER THE RIGHTS OFFERING?
The number of shares of common stock that will be outstanding after the
rights offering depends on the number of shares that are purchased. If we sell
all of the shares offered by this prospectus, then we will issue 7,200,979 new
shares of common stock during the rights offering. In that case, we will have
approximately 14,401,958 shares of common stock outstanding after the rights
offering.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements, including or
related to our future results, including certain projections and business
trends. Assumptions relating to forward-looking statements involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. When
used in this prospectus, the words "estimate," "project," "intend," "believe"
and "expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate, and
we may not realize the results contemplated by the forward-looking statement.
Management decisions are subjective in many respects and susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause us to alter our business strategy
or capital expenditure plans that may, in turn, affect our results of
operations. In light of the significant uncertainties inherent in the forward-
looking information included in this prospectus, you should not regard the
inclusion of such information as our representation that we will achieve any
strategy, objectives or other plans. The forward-looking statements contained
in this prospectus speak only as of the date of this prospectus as stated on
the front cover, and we have no obligation to update publicly or revise any of
these forward-looking statements.
These and other statements, which are not historical facts, are based
largely on management's current expectations and assumptions and are subject to
a number of risks and uncertainties that could cause actual results to differ
materially from those contemplated by such forward-looking statements. These
risks and uncertainties include, among others, the risks and uncertainties
described in "Risk Factors" (page 6).
5
<PAGE>
RISK FACTORS
You should consider carefully the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially harm our business and could result in a
complete loss of your investment.
RISKS RELATED TO OUR BUSINESS
We have sustained operating losses since inception, we have an accumulated
deficit and we may not achieve profitability.
We incurred substantial operating losses from our inception through
September 30, 2000, with an accumulated deficit of $21,636,507 as of September
30, 2000. Such losses resulted principally from:
. Slower than anticipated sales growth and market acceptance of moissanite
jewels;
. Greater than anticipated marketing and advertising expenses to achieve
sales growth;
. The costs of development of sales, marketing and distribution channels;
. Research and development costs for silicon carbide (SiC) crystals and
moissanite jewels;
. Difficulties obtaining SiC crystals from its sole supplier in desired
qualities, sizes and volume; and
. Growth in general and administrative expenses until recent periods.
We may incur significant operating losses in the future as we continue our
marketing, sales, distribution and other strategic efforts. There can be no
assurance that we will be able to successfully commercialize our products or
that profitability will be achieved or, if achieved, that such profitability
will be sustained.
If we cannot maintain adequate operating capital, our business will suffer.
We have substantially less liquidity today than we had on December 31, 1999.
At September 30, 2000, our cash and cash equivalents have decreased to
approximately $4.0 million. A continuation of operating losses may eliminate
our remaining cash balances during 2001. On a going forward basis, operations
may not provide sufficient internally generated cash flows to meet our
projected requirements. In order to achieve positive cash flows, the Company
has implemented plans designed to improve sales, effectively manage its
overhead costs, advertising expenditures and other expenses, as well as reduce
raw material purchases and existing inventories. However, the Company may not
achieve these goals and we cannot assure you that we will be able to continue
to finance our operations, even if we sell all of the shares that we are
offering in the rights offering.
Other sources for the needed capital have not yet been identified and may not
be available.
Although the Company has received commitments from certain directors,
officers and other shareholders to subscribe for an aggregate of
shares in this offering to generate gross proceeds of $ , we may not
be able to raise the maximum amount of capital we hope to raise by this rights
offering. Even if we sell all of the shares that we are offering, the net
proceeds from this rights offering, combined with internally generated cash,
may not be sufficient to enable us to market moissanite jewels and conduct
operations, in which event we will have to seek additional capital from other
sources. The Company has been unsuccessful in securing other means of financing
in recent periods and we may not be successful in obtaining financing in future
periods. To the extent, if any, that we are able to obtain equity capital from
other sources, the issuance of more shares of stock may dilute the economic
interest of then current shareholders and will dilute their voting interests.
To the extent, if any, that we are able to obtain debt financing, the terms of
such financing may be expensive and may subject us to covenants that materially
restrict us.
6
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We overbuilt our inventory position.
During 1999 and 2000, we overbuilt our inventory position in anticipation of
substantially greater sales growth than we have experienced to date. As of
September 30, 2000, the Company's inventories were approximately $21.4 million.
This has placed a serious drain on our cash resources and will continue to do
so unless we can effectively manage future growth of inventories by reducing
purchases of raw materials from our supplier and by increasing sales. If and to
the extent that we determine that the asset value of our inventory is less than
its book value, it will be necessary for us to charge the reduction in asset
value of such inventory against our earnings.
Our business operations could be adversely affected if we do not manage our
growth effectively.
We have experienced rapid growth in sales and such growth may continue in
the future if the commercialization of moissanite jewels is successful. During
2000, the Company shifted its distribution and advertising strategy to place
more emphasis on marketing through jewelry distributors and to control
advertising and overhead expenditures. Periods of rapid growth place a
significant strain on our personnel and other resources, particularly when the
Company needs to manage its liquidity and cash expenditures carefully. Our
strategy will require us to achieve rapid growth while curtailing expenditures
and motivating our employee base. We also will be required to manage multiple
relationships with various customers and other third parties. Our executive
officers have limited prior experience in managing rapidly growing businesses
under these circumstances. If we are unable to manage growth effectively, our
business, financial condition and results of operations would be materially
adversely affected.
We have a limited operating history which may impact our ability to achieve
market acceptance of our products and our ability to produce our products.
We incorporated in June 1995, and we were in the developmental stage through
June 30, 1998. We are in the process of commercializing moissanite jewels,
building consumer brand awareness and growing distribution channels for our
jewels. The timing or existence of any significantly increased revenues is
dependent on market acceptance of moissanite jewels, increasing distribution
and sales, and continued improvements in the yield of jewels in the qualities,
sizes and volumes desired from each SiC crystal. Our business is also subject
to risks inherent in rapid increases in sales and production levels. Likewise,
our products are subject to risks inherent in the development and marketing of
new products, including unforeseen design, manufacturing or other problems or
failure to develop market acceptance. Failure by us to expand distribution and
achieve market acceptance of our products or to develop the ability to produce
our products in higher quantities and qualities would have a material adverse
effect on our business, operating results and financial condition. Accordingly,
our prospects must be considered in light of the risks and difficulties
frequently encountered by companies in their early stage of development,
particularly technology-based companies, operating in the early stages of
manufacturing and distributing unproven products.
Our future financial performance depends upon consumer acceptance of our
products which is unproven at this time.
We believe that many retail jewelers and most consumers are not generally
aware of the existence and attributes of moissanite jewels. The market for
moissanite jewels among retail jewelers and consumers is in the early stages of
development as we shipped approximately 50,000 carats during the first nine
months of 2000. As is the case with any new product, market acceptance and
demand are subject to a significant amount of uncertainty. Our future financial
performance will depend upon greater consumer acceptance of the Company's
moissanite jewels as distinct from all other jewels based on their fire,
brilliance, luster, durability and rarity. In addition, consumer acceptance may
be impacted by retail jewelers' and jewelry manufacturers' acceptance of
moissanite jewels. We market loose jewels which jewelry distributors,
manufacturers and retailers set in jewelry which in turn is then further
distributed or sold to consumers. The quality, design and workmanship of
7
<PAGE>
the jewelry settings selected by retail jewelers, which is not within our
control, could impact the consumer's perception and acceptance of our jewels.
Thus, our future financial performance may be impacted by:
. The willingness and ability of our jewelry distributors and other jewelry
suppliers, manufacturers and designers to market and promote moissanite
jewels to the retail jewelry trade;
. The willingness of distributors, retailers and others in the channel of
distribution to purchase loose moissanite jewels and the willingness of
manufacturers, designers and retail jewelers to undertake setting of the
loose jewels;
. The ability of manufacturers, designers and retail jewelers to select
jewelry settings that encourage consumer acceptance of and demand for our
jewels;
. The ability of jewelry manufacturers and retail jewelers to set loose
moissanite jewels in jewelry with high quality workmanship; and
. The ability of retail jewelers to effectively market and sell moissanite
jewelry to consumers.
If our products do not receive greater market acceptance, our business,
operating results and financial condition would be materially adversely
affected.
We are substantially dependent on the distribution of our jewels in North
America through Stuller Settings, Inc. and Rio Grande.
In March 2000, we entered into distribution agreements with two of the
largest national wholesale distributors, Stuller Settings, Inc. and Rio Grande,
for distribution of moissanite jewels throughout the entire North American
market. There is no assurance, however, that our distribution arrangements with
Stuller and Rio Grande will sufficiently increase sales. Although we entered
into arrangements with certain jewelry manufacturers which contemplate the
distribution of moissanite jewelry to United States jewelry retailers, we
anticipate that the vast majority of moissanite jewels sold by us in North
America will be distributed through Stuller and Rio Grande. Therefore, we are
substantially dependent upon Stuller and Rio Grande for distribution of
moissanite jewels in North America.
Historically, the North American market has accounted for a substantial
portion of our moissanite jewel sales. In the event that our distribution
arrangements with Stuller and Rio Grande fail to maintain and increase the
current level of North American sales, our revenues would be materially
adversely affected.
We have limited channels by which our jewelry can be distributed.
We began shipping moissanite to jewelry retailers in June 1998, which grew
to 237 locations primarily concentrated in certain cities along the eastern
seaboard, Texas and California by the end of 1999. While repeat sales (three or
more purchases) have been made to over 850 jewelry retailers since March 2000,
we are emphasizing expanding the domestic distribution of moissanite jewels
through the distribution agreements with Stuller and Rio Grande and agreements
with jewelry manufacturers and jewelry designers. There can be no assurance
that we will be successful in expanding distribution through such agreements.
Neither can there be any assurance that we will be able to enter into
additional agreements with other distributors, manufacturers or designers on
terms acceptable to us or that such other distributors will be successful in
their efforts to market our jewels to retailers or consumers. The inability to
achieve our desired distribution of moissanite jewels or our inability to
successfully market moissanite jewels to jewelers or consumers would have a
material adverse effect on our business, operating results and financial
condition.
We are subject to certain risks due to our international distribution channels
and vendors.
Charles & Colvard created moissanite jewels are currently being distributed
in substantially all of Western Europe and certain territories in Southeast
Asia. We currently have a total of approximately 30 distributors
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internationally. We intend to expand the number of international markets for
our products. In addition, we expect to continue to use certain companies based
outside the United States to facet our moissanite jewels. Due to our reliance
on development of foreign markets and use of foreign vendors, we are subject to
the risks of conducting business outside of the United States. These risks
include unexpected changes in, or impositions of, legislative or regulatory
requirements, delays resulting from difficulty in obtaining export licenses,
tariffs and other trade barriers and restrictions and the burdens of complying
with a variety of foreign laws and other factors beyond our control.
Additionally, while all foreign transactions are denominated in U.S. dollars,
foreign currency fluctuations could impact demand for our products or the
ability of our foreign suppliers to continue to perform. We are also subject to
general geopolitical risks in connection with our international operations,
such as political, social, religious and economic instability, potential
hostilities and changes in diplomatic and trade or business relationships.
Further, some of these distributors operate relatively small businesses and may
not have the financial stability to assure their continuing presence in their
markets. There can be no assurance that the foregoing factors will not
adversely affect our operations in the future or require us to modify our
anticipated business practices.
We currently depend upon a single source for the supply of SiC crystals
We currently depend on a single source, Cree Inc. (Cree), for the supply of
SiC crystals. Cree has certain proprietary rights relating to its process for
growing large single crystals of SiC and its process for growing colorless SiC
crystals. Under our Exclusive Supply Agreement with Cree, we are obligated to
buy from Cree, and Cree is obligated to sell to us, 50%, by dollar volume, of
our requirements for SiC material for the production of gemstones in each
calendar quarter. Although we are only required to purchase 50% of our SiC
requirements from Cree, we do not currently believe that any other SiC producer
could readily supply crystals in the qualities, sizes and volumes needed for
our products. Therefore, at the present time, we are wholly dependent on Cree
as our sole source for our principal raw material.
While Cree has improved its production processes and is currently producing
SiC crystals sufficient to meet the Company's requirements, the Company
experienced difficulties in the past in obtaining crystals from Cree in the
quality, sizes and volumes that it desired. The Company from time to time
enters into purchase agreements with Cree with respect to the specific timing,
pricing and other terms of future delivery of SiC crystals and our purchase
commitments. As a result of an accelerated improvement in quality in 1999 at
the same time that the Company experienced sales growth that was slower than it
anticipated, the Company's inventories significantly increased pursuant to its
prior purchase commitments. There can be no assurance that Cree will be able to
continue to produce and supply the Company with raw materials of sufficient
quality, sizes and volumes nor that the Company will negotiate purchase
commitments that enable it to manage its inventories and raw material costs
effectively.
We rely upon our ability to protect our intellectual property.
We have been issued U.S. product and method patents for moissanite jewels
under which we have broad, exclusive rights to manufacture, use and sell
moissanite jewels in the United States. We have applications pending in a
number of foreign jurisdictions for these same patents. We believe that these
patents create substantial technological barriers to our potential competitors.
We also have other patents and patent applications pending related to certain
methods of producing moissanite jewels and related technologies. There can be
no assurance that any other patents will be granted or that any issued patent
will have any commercial or competitive value.
At the present time, we are also dependent on Cree's technology for the
production of SiC crystals. Cree is exclusively licensed to use a patent
concerning a process for growing large single crystals of SiC, has certain
patents of its own relating to growth of large single crystals of SiC and has a
patent for a process for growing colorless SiC crystals.
There can be no assurance that any patents issued to or licensed by or to us
or Cree will provide any significant commercial protection to us or Cree, that
we or Cree will have sufficient resources to prosecute our
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respective patents or that any patents will be upheld by a court should we,
Cree or Cree's licensor seek to enforce our respective rights against an
infringer. The existence of valid patents does not prevent other companies from
independently developing competing technologies. Existing producers of SiC or
others may refine existing processes for growing SiC crystals or develop new
technologies for growing large single crystals of SiC or colorless SiC crystals
in a manner that does not infringe patents owned or licensed by or to us or
Cree. In addition, existing producers of SiC, existing producers of other
synthetic or natural gemstones or other parties may develop new technologies
for producing moissanite jewels in a manner that does not infringe patents
owned or licensed by or to us or Cree.
As a result of the foregoing factors, existing and potential competitors may
be able to develop products that are competitive with or superior to our
products, and such competition could have a material adverse effect on our
business, operating results and financial condition.
Our success depends upon our ability to identify, reach agreements with and
work successfully with third parties.
In addition to our current dependence on Cree and on third party
distribution channels, our prospects depend upon our ability to identify, reach
agreements with and work successfully with other third parties. In particular,
we rely on third parties to facet our jewels. Faceting moissanite jewels
requires different techniques than faceting diamond and other gemstones. There
can be no assurance that we can maintain our relationships with our faceting
vendors on terms satisfactory to us or that faceting vendors will continue to
be able to provide faceting services in the quality and quantities required by
us or that we will be able to find suitable replacements if we are unable to
maintain such relationships. Our failure to achieve any of the above would have
a material adverse effect on our business, operating results and financial
condition.
Governmental regulation and oversight might adversely impact our operations.
We are subject to governmental regulations in the manufacture and sale of
moissanite jewels. In particular, the Federal Trade Commission has the power to
restrict the offer and sale of products that could deceive or have the tendency
or effect of misleading or deceiving purchasers or prospective purchasers with
regard to the type, kind, quality, character, origin or other characteristics
of a diamond. We may be under close scrutiny both by governmental agencies and
by competitors in the gemstone industry, any of which may challenge our
promotion and marketing of our moissanite jewel products. If our production or
marketing of moissanite jewels is challenged by governmental agencies or
competitors, or if regulations are issued that restrict our ability to produce
and market our products, our business, operating results and financial
condition could be materially adversely affected.
Our reputation amongst jewelers and consumers could be damaged if low-quality
gemstones or synthetics are marketed as moissanite.
If market acceptance of our products continues to grow, it is possible that
low-quality gemstones or other synthetics could be marketed as moissanite. The
sale of low-quality products as moissanite could damage the perception of
moissanite as a unique jewel that compares favorably to other fine gemstones
like diamond, ruby and emerald. This could damage our reputation among retail
jewelers and consumers and result in a loss of consumer confidence in our
products. The introduction of low-quality imitation moissanite jewels and our
inability to limit the adverse effects thereof could have a material adverse
effect on our business, operating results and financial condition.
The success of our operations depends in part upon attracting and retaining key
personnel.
Our success depends in part upon retaining the services of certain executive
officers and other key employees. We have entered into employment agreements
with our Chief Executive Officer and President, Robert S. Thomas, Chief
Financial Officer, Mark W. Hahn, Director of Manufacturing, Earl R. Hines,
Director
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of Domestic Sales, Mark D. Scanlan and Director of International Sales, Joseph
Ambar. We do not maintain "key man" life insurance policies on any of our
executive officers or key employees. The loss of the services of our executive
officers or other key employees could have a material adverse effect on our
business, operating results and financial condition.
Due to our early stage of development, we are also dependent on our ability
to recruit, retain and motivate personnel with technical, manufacturing and
gemological skills. There are a limited number of personnel with these
qualifications and competition for such personnel is intense. The inability to
attract and retain additional qualified personnel would materially adversely
affect our business, operating results and financial condition.
RISKS RELATED TO OUR COMMON STOCK
Our Common Stock price has been and may continue to be volatile, which could
result in substantial losses for individual shareholders who exercise their
subscription rights.
The market price of our common stock ranged between a high sales price of
$18.00 per share and a low sales price of $.875 since the Company's initial
public offering in 1997 and may continue to be highly volatile and subject to
wide fluctuations in response to factors including the following, some of which
are beyond our control:
. Actual or anticipated variations in our quarterly operating results;
. Changes in financial estimates by security analysts;
. Underperformance against analysts' estimates; and
. Fluctuations in the stock market in general and technology and small
capitalization stocks in particular.
In light of our limited operating history, there is very little data upon
which to estimate operating revenues and expenses. Our revenues will be
affected by many unpredictable factors, including those discussed elsewhere in
this prospectus. We will likely experience substantial quarterly fluctuations
in our operating results. As a result, we believe that period-to-period
comparisons of our results of operations are not necessarily meaningful and
should not be relied upon as an indication of future performance. Moreover, it
is likely that in some future quarters our operating results will be below the
expectations of public market analysts and investors. In such event, the price
of our common stock would likely be materially adversely affected.
The fluctuations in prices and volumes of the stock market in general and
stocks of technology companies in particular have been extreme from time to
time. This volatility is often unrelated or disproportionate to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of our common stock, regardless of our actual operating
performance.
We do not expect to pay Common Stock dividends.
We have not paid cash dividends in the past and do not expect to pay cash
dividends on our common stock for the foreseeable future. In determining
whether to pay dividends, our Board of Directors will consider many factors,
including our earnings, capital requirements and financial condition.
The market price of our common shares could decline if we do not meet the
requirements for continued listing on NASDAQ.
Our shares of common stock are traded on the Nasdaq National Market, which
has adopted rules that establish criteria for initial and continued listing of
securities. To comply with the continued listing criteria of the Nasdaq
National Market, a company must comply with at least one of two sets of rules.
Under one set of rules, a company must maintain at least $4,000,000 of net
tangible assets, have at least 750,000 publicly held
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shares with a market value of over $5,000,000 and not have a minimum bid price
under $1.00 per share. Under another set of rules, a company must maintain a
market capitalization of at least $50,000,000, or total assets and total
revenue of at least $50,000,000 each for the most recently completed fiscal
year or two of the three most recently completed fiscal years. A market price
of our common stock which remains below $1.00 per share or future losses from
operations could cause us to fail to meet the Nasdaq listing criteria and
result in delisting from the Nasdaq National Market in the future. If our
common stock is delisted from the Nasdaq National Market, trading in our common
stock could be conducted on the Nasdaq SmallCap Market or on an electronic
bulletin board established for securities that do not meet the Nasdaq listing
requirements. If our common stock were delisted from the Nasdaq National Market
and were not listed on the Nasdaq SmallCap Market, it would be subject to the
so-called penny stock rules that impose restrictive sales practice requirements
on broker-dealers who sell those securities. Consequently, delisting, if it
occurred, could affect the ability of shareholders to sell their common stock
in the secondary market. The restrictions applicable to shares that are de-
listed, as well as the lack of liquidity for shares that are traded on an
electronic bulletin board, may adversely affect the market price of such
shares.
Some anti-takeover provisions of our charter documents, agreements and plans
may delay or prevent a takeover of our Company.
A number of provisions of our articles of incorporation and bylaws deal with
matters of corporate governance and the rights of shareholders. Certain of
these provisions may be deemed to have an anti-takeover effect and may delay or
prevent takeover attempts not first approved by the Board of Directors
(including takeovers that certain shareholders may deem to be in their best
interests). These provisions also could delay or frustrate the removal of
incumbent directors or the assumption of control by shareholders. We believe
that these provisions are appropriate to protect our interests and all of our
shareholders.
Under the terms of the Exclusive Supply Agreement, we are prohibited from
entering into an exclusive marketing or distribution agreement with DeBeers or
its affiliates or the Central Selling Organization (the international cartel of
diamond producers) or any party whose primary business is the development,
manufacture, marketing or sale of diamond gemstones or any non-gemstone and
non-jewelry industry competitor of Cree (collectively, the "Prohibited
Parties"). The agreement also prohibits us from entering into certain merger,
acquisition, sale of assets, or similar transactions with a Prohibited Party.
These provisions of the Exclusive Supply Agreement could limit the price that
third parties might be willing to pay in the future for some or all of the
shares of our common stock. In addition, this agreement could prevent us from
entering into certain potentially profitable transactions with Prohibited
Parties.
On February 21, 1999, we adopted a Shareholder Rights Plan under which all
shareholders of record as of March 8, 1999, received rights to purchase shares
of a new series of Preferred Stock. Each share of common stock issued after
March 8, 1999 has received the same rights and, unless these rights become
exercisable, each share of common stock issued pursuant to this prospectus will
receive the same rights.
The Rights Plan is designed to enable all of our shareholders to realize the
full value of their investment and to provide for fair and equal treatment for
all shareholders in the event that an unsolicited attempt is made to acquire
us. The adoption of the Rights Plan is intended as a means to guard against
abusive takeover tactics and is not in response to any particular proposal.
The rights, which expire in 2009, will be exercisable only if a person or
group acquires 20% or more of our common stock or announces a tender offer for
20% or more of the common stock. If a person or group acquires 20% or more of
our common stock, all shareholders except the purchaser will be entitled to
acquire our common stock at a 50% discount. The effect will be to discourage
acquisitions of more than 20% of our common stock without negotiations with the
Board.
The rights will trade with our common stock, unless and until they are
separated upon the occurrence of certain future events. Our Board of Directors
may redeem the rights prior to the expiration of a specified period following
the acquisition of more than 20% of our common stock.
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RISKS RELATING TO RIGHTS OFFERING
If you do not exercise all of your subscription rights, you may suffer
significant dilution of your percentage ownership of our common stock.
This rights offering is designed to allow all current shareholders to
purchase additional shares of common stock at a discount from the market price
of the stock on the date the rights are offered. The purpose of this structure
is to enable us to raise capital while allowing current shareholders to
maintain their relative proportionate voting and economic interest. To the
extent that current shareholders do not exercise their subscription rights and
shares are purchased by other shareholders in the rights offering, the
proportionate voting interest of the non-exercising shareholders will be
reduced, and the percentage that their original shares represent of our
expanded equity after exercise of the subscription rights will be
disproportionately diluted.
The price of our common stock may decline before or after the subscription
rights expire.
We cannot assure you that the public trading market price of our common
stock will not decline below the subscription price after you exercise your
subscription rights. If that occurs, you will have committed to buy shares of
common stock at a price above the prevailing market price and you will have an
immediate unrealized loss. Moreover, we cannot assure you that following the
exercise of subscription rights you will be able to sell your shares of common
stock at a price equal to or greater than the subscription price. Until
certificates are delivered upon expiration of the rights offering, you may not
be able to sell the shares of our common stock that you purchase in the rights
offering. Certificates representing shares of our common stock purchased will
be delivered as soon as practicable after expiration of the rights offering. We
will not pay you interest on funds delivered to the Subscription Agent pursuant
to the exercise of rights.
Once you exercise your subscription rights, you may not revoke the exercise.
Once you exercise your subscription rights, you may not revoke the exercise,
even if less than all of the shares that we are offering are actually
purchased. If we elect to withdraw or terminate the rights offering, neither we
nor the Subscription Agent will have any obligation with respect to the
subscription rights except to return, without interest, any subscription
payments.
The subscription price is not an indication of the value of our company.
The subscription price was set by us after considering a variety of factors,
including the desire to encourage full shareholder participation in this rights
offering by setting an exercise price below the current market price of the
common stock. The subscription price does not necessarily bear any relationship
to the book value of our assets, past operations, cash flows, losses, financial
condition or any other established criteria for value. You should not consider
the subscription price as an indication of our present or future value. We have
established the subscription price at approximately a from the current
market price of the common stock to encourage all shareholders to exercise
their subscription rights and thereby raise capital without diluting the
interests of current shareholders. We have neither sought nor obtained a
valuation opinion from an outside financial consultant or investment banker.
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USE OF PROCEEDS
If all shares being offered pursuant to this rights offering are sold, we
estimate that the proceeds to Charles & Colvard will be approximately $
before the fees and expenses related to this offering. The net proceeds will be
used for working capital purposes.
RECENT DEVELOPMENTS
While the results for the fourth quarter of 2000 have yet to be finalized,
we shipped approximately 18,600 carats of moissanite during the quarter,
approximately 26% more than in the same period of 1999. Domestic carat
shipments increased 65% while international shipments decreased due, in part,
to the strong dollar. We expect dollar sales for the quarter to be
approximately the same as for the fourth quarter of 1999, reflecting volume
discounts offered to domestic distributors. We have continued to incur
operating losses in the fourth quarter of 2000 and expect to report an
increased loss for the quarter, as compared to fourth quarter 1999, primarily
as a result of prepaid advertising expenditures paid in the third quarter of
2000 and accrued in the fourth quarter of 2000. Our cash and cash equivalents
as of December 31, 2000 were approximately $3.7 million.
We also have entered into a letter agreement with Cree with respect to
purchases in 2001. Under the terms of the agreement, we will be obligated to
purchase SiC crystals for 2001 only upon issuance and Cree's acceptance of
purchase orders. We currently have no purchase commitments.
THE RIGHTS OFFERING
BEFORE EXERCISING YOUR SUBSCRIPTION RIGHTS, YOU SHOULD READ CAREFULLY THE
INFORMATION SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 6.
THE SUBSCRIPTION RIGHTS
We are distributing non-transferable subscription rights to shareholders who
owned shares of our common stock on January 12, 2001, at no cost to the
shareholders. We will give you one subscription right for each share of common
stock that you owned on January 12, 2001. Each subscription right will entitle
you to purchase one share of common stock for $ . If you wish to exercise
your subscription rights, you must do so before 5 P.M., Eastern Standard Time,
on February , 2001. After that date, the subscription rights will expire and
will no longer be exercisable unless the offering is extended.
BASIC SUBSCRIPTION PRIVILEGE
Each subscription right will entitle you to receive, upon payment of $ ,
one share of common stock. You will receive certificates representing the
shares that you purchase pursuant to your basic subscription privilege as soon
as practicable after February , 2001, whether you exercise your subscription
rights immediately prior to that date or earlier.
OVER-SUBSCRIPTION PRIVILEGE
Subject to the allocation described below, each subscription right also
grants you an over-subscription privilege to purchase additional shares of
common stock that are not purchased by other shareholders. You are entitled to
exercise your over-subscription privilege only if you exercise your basic
subscription privilege in full. If you wish to exercise your over-subscription
privilege, you should indicate the number of additional shares that you would
like to purchase in the space provided on your subscription certificate. When
you send in your subscription certificate, you must also send the full purchase
price for the number of additional shares that
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you have requested to purchase (in addition to the payment due for shares
purchased through your basic subscription privilege). If the number of shares
remaining after the exercise of all basic subscription privileges is not
sufficient to satisfy all over-subscription privileges, we will allocate the
available shares among shareholders who over-subscribed in proportion to the
number of shares purchased by those over-subscribing shareholders through the
basic subscription privilege. However, if your pro rata allocation exceeds the
number of shares you requested, you will receive only the number of shares that
you requested, and the remaining shares from your pro rata allocation will be
divided among other shareholders exercising their over-subscription privileges
who have subscribed for additional shares in proportion to the number of shares
purchased by that group of over-subscribing shareholders through the basic
subscription privilege. In certain circumstances, however, in order to comply
with applicable state or foreign securities laws, we may not be able to honor
all over-subscription privileges even if we have shares available. The number
of shares available under the over-subscription privilege to any one
shareholder or group of shareholders may be reduced by the Company if any such
shareholder or group of shareholders would beneficially own 20% or more of the
Company's common stock outstanding after the offering.
PURCHASE COMMITMENTS
As of the date of this prospectus, certain directors, officers and other
shareholders have committed to purchase up to an aggregate of shares of
common stock pursuant to the offering which would provide the Company with a
minimum subscription amount and gross proceeds of $ . To effect this
commitment, each of these purchasers have individually agreed to exercise his
basic subscription privilege in full and to subscribe for additional shares
pursuant to the over-subscription privilege as follows:
<TABLE>
<CAPTION>
Basic Subscription Over-Subscription
Name and Position Commitment Commitment Total Commitment
----------------- ------------------ ----------------- ----------------
<S> <C> <C> <C>
</TABLE>
NO RECOMMENDATION
We are not making any recommendations as to whether or not you should
exercise your subscription rights. You should make your decision based on your
own assessment of your best interests.
EXPIRATION DATE
The rights will expire at 5:00 p.m., Eastern Standard Time, on February ,
2001, unless we decide to extend the rights offering. If you do not exercise
your subscription rights prior to that time, your subscription rights will be
null and void. We will not be required to issue shares of common stock to you
if the Subscription Agent receives your subscription certificate or your
payment after that time, regardless of when you sent the subscription
certificate and payment, unless you send the documents in compliance with the
guaranteed delivery procedures described below.
WITHDRAWAL RIGHT
Our Board of Directors may withdraw the rights offering in its sole
discretion at any time prior to or on February , 2001, for any reason
(including, without limitation, a change in the market price of the common
stock). If we withdraw the rights offering, any funds you paid will be promptly
refunded, without interest or penalty.
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DETERMINATION OF SUBSCRIPTION PRICE
Our Board of Directors chose the $ per share subscription price after
considering a variety of factors, including the following:
-- the historic and current market price of the common stock;
-- our business prospects;
-- our history of losses;
-- general conditions in the securities market;
-- our need for capital;
-- alternatives available to us for raising capital;
-- the amount of proceeds desired;
-- pricing of similar transactions;
-- the liquidity of our common stock;
-- the level of risk to our investors; and
-- the need to offer shares at a price that would be attractive to our
investors relative to the current trading price of our common stock.
The $ per share subscription price should not be considered an
indication of the actual value of Charles & Colvard or of our common stock. We
cannot assure you that the market price of the common stock will not decline
during or after the rights offering. We also cannot assure you that you will be
able to sell shares of common stock purchased during the rights offering at a
price equal to or greater than $ per share.
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS
Both the basic subscription rights and over-subscription rights are non-
transferable and non-assignable. Only you may exercise these rights.
EXERCISE OF SUBSCRIPTION RIGHTS
You may exercise your subscription rights by delivering to the Subscription
Agent on or prior to February , 2001:
-- A properly completed and duly executed subscription certificate;
-- Any required signature guarantees; and
-- Payment in full of $ per share for the shares of common stock
subscribed for by exercising your basic subscription rights and, if
desired, your over-subscription rights.
You should deliver your subscription certificate and payment to the
Subscription Agent at the address shown under the heading "Subscription Agent."
Registered mail or overnight delivery is recommended. We will not pay you
interest on funds delivered to the Subscription Agent pursuant to the exercise
of rights. If you choose to wire transfer funds for payment, you are urged to
send your subscription certificate by overnight delivery no later than the date
of your wire transfer to assure proper matching with your payment and, in any
event, in time for delivery on or prior to February , 2001. In addition, you
are requested to provide the name, ABA routing number of the originating bank
and the date of your wire transfer on your subscription certificate.
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METHOD OF PAYMENT
Payment for the shares must be made by check or bank draft (cashier's check)
drawn upon a United States bank or a postal, telegraphic or express money order
payable to the order of First Union National Bank, as Subscription Agent.
Payment for basic subscription rights and over-subscription rights may also be
effected through wire transfer as follows:
Bank Name:First Union National Bank
ABA Routing #: 0530-00219
For Credit DDA: 5000000025527
For further credit: Reorganization Department
Corporate Trust Operations, 1153
Re: (name of registered holder)
Payment will be deemed to have been received by the Subscription Agent only
upon:
(A) clearance of any uncertified check;
(B) receipt by the Subscription Agent of any certified check or bank
draft drawn upon a U.S. bank or of any postal, telegraphic or express money
order;
(C) receipt by the Subscription Agent of any funds transferred by wire
transfer; or
(D) receipt of funds by the Subscription Agent through an alternative
payment method approved by Charles & Colvard.
Please note that funds paid by uncertified personal check may take at least
ten business days to clear. Accordingly, if you wish to pay by means of an
uncertified personal check, we urge you to make payment sufficiently in advance
of February , 2001, to ensure that the payment is received and clears before
that date. We also urge you to consider payment by means of a certified or
cashier's check, money order or wire transfer.
GUARANTEED DELIVERY PROCEDURES
If you want to exercise your subscription rights, but time will not permit
your subscription certificate to reach the Subscription Agent on or prior to
February , 2001, you may exercise your subscription rights if you satisfy the
following guaranteed delivery procedures:
(1) You send, and the Subscription Agent receives, payment in full for
each share of common stock being subscribed for through the basic
subscription privilege and the over-subscription privilege, on or prior to
February , 2001;
(2) You send, and the Subscription Agent receives, on or prior to
February , 2001, a notice of guaranteed delivery, substantially in the
form provided with the attached instructions, from a member firm of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States. The notice
of guaranteed delivery must state your name, the number of subscription
rights that you hold, the number of shares of common stock that you wish to
purchase pursuant to the basic subscription privilege and the number of
shares, if any, you wish to purchase pursuant to the over-subscription
privilege. The notice of guaranteed delivery must guarantee the delivery of
your subscription certificate to the Subscription Agent within three Nasdaq
National Market trading days following the date of the notice of guaranteed
delivery; and
(3) You send, and the Subscription Agent receives, your properly
completed and duly executed subscription certificate, including any
required signature guarantees, within three Nasdaq National Market trading
days following the date of your notice of guaranteed delivery. The notice
of guaranteed delivery may be delivered to the Subscription Agent in the
same manner as your subscription certificate at the
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addresses set forth under the heading "Subscription Agent," or may be
transmitted to the Subscription Agent by facsimile transmission, to
facsimile number (704) 590-7628. You can obtain additional copies of the
form of notice of guaranteed delivery by requesting them from the
Subscription Agent at the address set forth under the heading "Subscription
Agent."
SIGNATURE GUARANTEE
Signatures on the subscription certificate do not need to be guaranteed if
either the subscription certificate provides that the shares of common stock to
be purchased are to be delivered directly to the record owner of such
subscription rights, or the subscription certificate is submitted for the
account of a member firm of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States.
If a signature guarantee is required, signatures on the subscription
certificate must be guaranteed by an Eligible Guarantor Institution, as defined
in Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, subject to
the standards and procedures adopted by the Subscription Agent. Eligible
Guarantor Institutions include banks, brokers, dealers, credit unions, national
securities exchanges and savings associations.
SHARES HELD FOR OTHERS
If you are a broker, a trustee or a depository for securities, or you
otherwise hold shares of common stock for the account of a beneficial owner of
common stock, you should notify the beneficial owner of such shares as soon as
possible to obtain instructions with respect to their subscription rights. If
you are a beneficial owner of common stock held by a holder of record, such as
a broker, trustee or a depository for securities, you should contact the holder
and ask him or her to effect transactions in accordance with your instructions.
AMBIGUITIES IN EXERCISE OF SUBSCRIPTION RIGHTS
If you do not specify the number of subscription rights being exercised on
your subscription certificate, or if your payment is not sufficient to pay the
total purchase price for all of the shares that you indicated you wished to
purchase, you will be deemed to have exercised the maximum number of
subscription rights that could be exercised for the amount of the payment that
the Subscription Agent receives from you. If your payment exceeds the total
purchase price for all of the subscription rights shown on your subscription
certificate, your payment will be applied, until depleted, to subscribe for
shares of common stock in the following order:
(1) to subscribe for the number of shares, if any, that you indicated on
the subscription certificate that you wished to purchase through your basic
subscription privilege;
(2) to subscribe for shares of common stock until your basic
subscription privilege has been fully exercised;
(3) to subscribe for additional shares of common stock pursuant to the
over-subscription privilege (subject to any applicable proration).
Any excess payment remaining after the foregoing allocation will be returned
to you as soon as practicable by mail, without interest or deduction.
REGULATORY LIMITATION
We will not be required to issue you shares of common stock pursuant to the
rights offering if, in our opinion, you would be required to obtain prior
clearance or approval from any state or federal regulatory authorities to own
or control such shares if, at the time the subscription rights expire, you have
not obtained such clearance or approval.
18
<PAGE>
STATE AND FOREIGN SECURITIES LAWS
The rights offering is not being made in any state or other jurisdiction in
which it is unlawful to do so, nor are we selling or accepting any offers to
purchase any shares of common stock to you if you are a resident of any such
state or other jurisdiction. We may delay the commencement of the rights
offering in certain states or other jurisdictions in order to comply with the
securities law requirements of such states or other jurisdictions. It is not
anticipated that there will be any changes in the terms of the rights offering.
In our sole discretion, we may decline to make modifications to the terms of
the rights offering requested by certain states or other jurisdictions, in
which case shareholders who live in those states or jurisdictions will not be
eligible to participate in the rights offering.
OUR DECISION REGARDING CERTAIN MATTERS BINDING ON YOU
All questions concerning the timeliness, validity, form and eligibility of
any exercise of subscription rights will be determined by us, and our
determinations will be final and binding. In our sole discretion, we may waive
any defect or irregularity, or permit a defect or irregularity to be corrected
within such time as we may determine, or reject the purported exercise of any
subscription right by reason of any defect or irregularity in such exercise.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as we determine in
our sole discretion. Neither Charles & Colvard nor the Subscription Agent will
be under any duty to notify you of any defect or irregularity in connection
with the submission of a subscription certificate or incur any liability for
failure to give such notification.
NO REVOCATION
After you have exercised your basic subscription privilege or over-
subscription privilege, YOU MAY NOT REVOKE THAT EXERCISE. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additional shares of common stock.
SHARES OF COMMON STOCK OUTSTANDING AFTER THE RIGHTS OFFERING
Assuming we issue all of the shares of common stock offered in the rights
offering, approximately 14,401,958 shares of common stock will be issued and
outstanding. This would represent a 100% increase in the number of outstanding
shares of common stock. IF YOU DO NOT EXERCISE YOUR BASIC SUBSCRIPTION RIGHTS,
THE PERCENTAGE OF COMMON STOCK THAT YOU HOLD WILL DECREASE IF SHARES ARE
PURCHASED IN THE RIGHTS OFFERING.
FEES AND EXPENSES
We will pay all fees charged by the Subscription Agent. You are responsible
for paying any other commissions, fees, taxes or other expenses incurred in
connection with the exercise of the subscription rights. Neither Charles &
Colvard nor the Subscription Agent will pay such expenses.
SUBSCRIPTION AGENT
We have appointed our transfer agent, First Union National Bank, as
Subscription Agent for the rights offering. The Subscription Agent's address
for packages sent by mail or overnight delivery is:
First Union National Bank
Corporate Trust Operations
Attention: Corporate Actions
1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28262-1153
The Subscription Agent's telephone number is (704) 590-7414 and its
facsimile number is (704) 590-7628. You should deliver your subscription
certificate, payment of the subscription price and notice of guaranteed
19
<PAGE>
delivery (if any) to the Subscription Agent. We will pay a fee of $6,500 plus
certain expenses of the Subscription Agent. We have also agreed to indemnify
the Subscription Agent from certain liabilities which it may incur in
connection with the rights offering.
IMPORTANT
PLEASE CAREFULLY READ THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION
CERTIFICATE AND FOLLOW THOSE INSTRUCTIONS IN DETAIL. DO NOT SEND SUBSCRIPTION
CERTIFICATES DIRECTLY TO US. YOU ARE RESPONSIBLE FOR CHOOSING THE PAYMENT AND
DELIVERY METHOD FOR YOUR SUBSCRIPTION CERTIFICATE, AND YOU BEAR THE RISKS
ASSOCIATED WITH SUCH DELIVERY. IF YOU CHOOSE TO DELIVER YOUR SUBSCRIPTION
CERTIFICATE AND PAYMENT BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. WE ALSO RECOMMEND THAT YOU
ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT
AND CLEARANCE OF PAYMENT PRIOR TO FEBRUARY , 2001. BECAUSE UNCERTIFIED
PERSONAL CHECKS MAY TAKE AT LEAST TEN BUSINESS DAYS TO CLEAR, WE STRONGLY URGE
YOU TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK,
MONEY ORDER OR WIRE TRANSFER.
IF YOU HAVE QUESTIONS
If you have questions or need assistance concerning the procedure for
exercising subscription rights or if you would like additional copies of this
prospectus, the instructions, or the Notice of Guaranteed Delivery, you should
contact Mark W. Hahn, of Charles & Colvard, at:
3800 Gateway Boulevard, Suite 311
Morrisville, North Carolina 27560
Telephone (919) 468-0399
20
<PAGE>
PLAN OF DISTRIBUTION
On or about January , 2001, we will distribute the subscription rights,
subscription certificates and copies of this prospectus to individuals who
owned shares of common stock on January 12, 2001. If you wish to exercise your
subscription rights and purchase shares of common stock, you should complete
the subscription certificate and return it with payment for the shares, to the
Subscription Agent, First Union National Bank, at the address on page 19. If
you have any questions, you should contact our Chief Financial Officer, Mark W.
Hahn, at the telephone number and address on page 19.
We estimate that our total expenses in connection with the rights offering
will be $150,000.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1999 have been audited by Deloitte
& Touche LLP, independent auditors as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
LEGAL MATTERS
Womble Carlyle Sandridge & Rice, PLLC, Charlotte, North Carolina, will pass
on the validity of the issuance of the shares of our common stock offered by
this prospectus for us. A member of Womble Carlyle Sandridge & Rice, PLLC owns
25,100 shares of our common stock.
HOW TO FIND ADDITIONAL INFORMATION
Charles & Colvard files annual, quarterly and special reports, proxy
statement and other information with the SEC. You may read and copy this
information at the SEC's public reference rooms, which are located at:
450 Fifth Street, N.W.
Washington, D.C. 20549
7 World Trade Center, Suite 1300
New York, NY 10048
500 West Madison Street, Suite 1400
Chicago, IL 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. This information is also available online through the SEC's
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"), located on
the SEC's web site (http://www.sec.gov).
Also, we will provide you (free of charge) with any of our documents filed
with the SEC. To get your free copies, please call or write to Charles &
Colvard at:
3800 Gateway Boulevard, Suite 310
Morrisville, N.C. 27560
Attention: Chief Financial Officer
Telephone: (919) 468-0399
We have filed a registration statement with the SEC on Form S-3 with respect
to the rights offering. This prospectus is a part of the registration
statement, but the prospectus does not repeat important information that
21
<PAGE>
7,200,979 Shares
CHARLES & COLVARD, LTD.
Common Stock
----------------
PROSPECTUS
----------------
January , 2001
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, to any person in any jurisdiction
where offers and sales are not permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of our common stock or possession or distribution of
this prospectus in that jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the fees and expenses incurred by Charles &
Colvard, Ltd. in connection with the issuance and distribution of the
securities being registered.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 3,193
Nasdaq National Market additional listing fee...................... $ 17,500
Accountants' fees and expenses*.................................... $ 37,500
Blue Sky Fees and Expenses*........................................ $ 5,000
Legal fees and expenses*........................................... $ 50,000
Subscription Agent's fees and expenses*............................ $ 7,500
Printing and engraving expenses*................................... $ 25,000
Miscellaneous*..................................................... $ 4,307
--------
Total Expenses................................................... $150,000
========
*Estimated
</TABLE>
Item 15. Indemnification of Directors and Officers
Sections 55-8-50 through 55-8-58 of the North Carolina Business Corporation
Act contains specific provisions relating to indemnification of directors and
officers of North Carolina corporations. In general, such sections provide that
(i) a corporation must indemnify a director or officer who is wholly successful
in his defense of a proceeding to which he is a party because of his status as
such, unless limited by the articles of incorporation, and (ii) a corporation
may indemnify a director or officer if he is not wholly successful in such
defense and it is determined as provided by statute that the director or
officer meets a certain standard of conduct, but the corporation may not
indemnify a director or officer if he is liable to the corporation or is
adjudged liable on the basis that personal benefit was improperly received by
him. A director or officer of a corporation who is a party to a proceeding may
also apply to the courts for indemnification, and the court may order
indemnification under certain circumstances set forth in the statute. A
corporation may, in its articles of incorporation or bylaws or by contract or
resolution, provide indemnification in addition to that provided by statute,
subject to certain conditions.
The Registrant's bylaws provide for the indemnification of any director or
officer of the Registrant against liabilities and litigation expenses arising
out of his status as such, excluding (i) any liabilities or litigation expenses
relating to activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interest of the Registrant and
(ii) that portion of any liabilities or litigation expenses with respect to
which such person is entitled to receive payment under any insurance policy.
The Registrant's articles of incorporation provide for the elimination of
the personal liability of each director of the Registrant to the fullest extent
permitted by law.
In connection with this offering, the Registrant intends to obtain
directors' and officers' liability insurance, under which any controlling
person, director or officer of the Registrant will be insured or indemnified
against certain liabilities which he may incur in his capacity as such.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits. The following is a list of exhibits filed as part of the
Registration Statement.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
4.1 Amended and Restated Articles of Incorporation of Charles & Colvard,
Ltd. which is hereby incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 of C3, Inc. (File No. 333-36809).
4.2 Articles of Amendment of Charles & Colvard, Ltd., as filed with the
Secretary of State on February 23, 1999, which is hereby
incorporated by reference to Exhibit 3.2 to the Form 10-K for the
Fiscal Year Ended December 31, 1998 of C3, Inc. (File No. 0-23329).
4.3 Articles of Amendment of Charles & Colvard, Ltd., as filed with the
Secretary of State on May 17, 2000, which is hereby incorporated by
reference to Exhibit 3.4 to the Form 10-Q for the Fiscal Quarter
Ended June 30, 2000 (File No. 0-23329).
4.4 Amended and Restated Bylaws of Charles & Colvard, Ltd. which is
hereby incorporated by reference to Exhibit 3.2 to the Registration
Statement on Form S-1 of C3, Inc. (File No. 333-36809).
4.5 Shareholders Rights Agreement, dated as of February 22, 1999, which
is hereby incorporated by reference to Exhibit 3.2 of the Company's
Annual Report on Form 10-K for the Fiscal Year Ended December 31,
1998 (File No. 0-23329).
5.1 Opinion of Womble Carlyle Sandridge and Rice PLLC
23.1 Consent of Deloitte & Touche LLP
*24 Power of Attorney (included in the Signature Page contained in Part
II of the Registration Statement).
99.1 Form of Subscription Certificate
99.2 Instructions on Use of Charles & Colvard, Ltd. Subscription
Certificate
99.3 Form of Letter to Shareholders
99.4 Form of Letter to Brokers
99.5 Notice of Guaranteed Delivery
99.6 Form of Agreement of Commitment to Exercise Rights
</TABLE>
--------
* previously filed.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of
II-2
<PAGE>
prospectus filed with the Commission pursuant to rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendments is contained in periodic
reports filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining liability under the Securities
Act, the registrant will treat each post-effective amendment as a new
registration statement of the securities offered, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering.
(3) That, the registrant will file a post-effective amendment to remove
from registration any of the securities that remain unsold at the end of
the offering.
The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that: (i) For the purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus tiled as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of the registration statement as of the time it was
declared effective. (ii) For the purposes of determining any liability under
the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-3 and has duly caused this Form S-3
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Morrisville, State of North Carolina on the
12th day of January, 2001.
Charles & Colvard, Ltd.
/s/ Robert S. Thomas
By: _________________________________
Robert S. Thomas
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Form S-3
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert S. Thomas Director, President and January 12, 2001
______________________________________ Chief Executive Officer
Robert S. Thomas (Principal Executive
Officer)
/s/ Mark W. Hahn Chief Financial Officer, January 12, 2001
______________________________________ Secretary and Treasurer
Mark W. Hahn (Principal Financial and
Accounting Officer)
/s/ Richard G. Hartigan* Director January 12, 2001
______________________________________
Richard G. Hartigan
/s/ Kurt Nassau* Director January 12, 2001
______________________________________
Kurt Nassau
/s/ Frederick A. Russ* Chairman of the Board of January 12, 2001
______________________________________ Directors
Frederick A. Russ
/s/ Barbara Kotlikoff* Director January 12, 2001
______________________________________
Barbara Kotlikoff
/s/ Cecil D. Raynor* Director January 12, 2001
______________________________________
Cecil D. Raynor
/s/ Ollin B. Sykes* Director January 12, 2001
______________________________________
Ollin B. Sykes
/s/ Walter O'Brien* Director January 12, 2001
______________________________________
Walter O'Brien
</TABLE>
/s/ Robert S. Thomas
*By: ___________________________
Robert S. Thomas
Attorney-in-Fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
4.1 Amended and Restated Articles of Incorporation of Charles & Colvard,
Ltd. which is hereby incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 of C3, Inc. (File No. 333-36809).
4.2 Articles of Amendment of Charles & Colvard, Ltd., as filed with the
Secretary of State on February 23, 1999, which is hereby incorporated
by reference to Exhibit 3.2 to the Form 10-K for the Fiscal Year Ended
December 31, 1998 of C3, Inc. (File No. 0-23329).
4.3 Articles of Amendment of Charles & Colvard, Ltd., as filed with the
Secretary of State on May 17, 2000, which is hereby incorporated by
reference to Exhibit 3.4 to the Form 10-Q for the Fiscal Quarter Ended
June 30, 2000 (File No. 0-23329).
4.4 Amended and Restated Bylaws of Charles & Colvard, Ltd. which is hereby
incorporated by reference to Exhibit 3.2 to the Registration Statement
on Form S-1 of C3, Inc. (File No. 333-36809).
4.5 Shareholders Rights Agreement, dated as of February 22, 1999, which is
hereby incorporated by reference to Exhibit 3.2 of the Company's
Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998
(File No. 0-23329).
5.1 Opinion of Womble Carlyle Sandridge and Rice PLLC.
23.1 Consent of Deloitte & Touche LLP.
*24 Power of Attorney (included in the Signature Page contained in Part II
of the Registration Statement).
99.1 Form of Subscription Certificate.
99.2 Instructions on Use of Charles & Colvard, Ltd. Subscription
Certificate.
99.3 Form of Letter to Shareholders.
99.4 Form of Letter to Brokers.
99.5 Notice of Guaranteed Delivery.
99.6 Form of Agreement of Commitment to Exercise Rights
</TABLE>
--------
* previously filed.
