As filed with the Securities and Exchange Commission on April 20, 2000
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
COLORMAX TECHNOLOGIES, INC.
(Exact name of Small Business Issuer as specified in charter)
Delaware (3841) 751329265
-------------- ------------------ -------------------
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or ----------------------------
Organization)
14251 Chambers Road
Tustin, CA 92780
(714) 730-7900
(Address and telephone number of principal executive office)
--------------------------------------------------------------
Julie L. Kim
14251 Chambers Road
Tustin, CA 92780
(714) 730-7900
(Name, address and telephone number of agent for service)
----------------------------
with copies to:
A.O. Headman, Jr., Esq.
Cohne, Rappaport & Segal
525 East 100 South Fifth Floor
Salt Lake City, Utah 84102
(801) 532-2666
----------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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, please 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 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(d) 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities Being Price Per Offering Registration
Being Registered Registered Unit Price Fee
- -------------------------------------------------------------------------------
Common Stock, $.001
Par Value (1) (2) 1,700,000 $6.00 $10,200,000 $2,692.80
- -------------------------------------------------------------------------------
Common Stock, $.001 (1)(3) 76,471 $12.75 $975,005.25 $ 257.40
- -------------------------------------------------------------------------------
Total 1,776,471 $11,175,005.25 $2,950.20
- -------------------------------------------------------------------------------
<PAGE>
(1) These shares are registered on behalf of selling shareholders and the
offering price and gross offering proceeds are estimated solely for the purpose
of calculating the registration fee in accordance with Rule 457 under the
Securities Act of 1933.
(2) Represents shares issuable upon conversion of the Company's Series B
Convertible Preferred Stock (based on a market price of $6.00 per share). The
Company has agreed to register 200% of the estimated initial conversion amount
of the shares to provide for the possibility of a reduction in the market price
for the shares prior to the conversion of the Series B Convertible Preferred
Stock. Any shares of common stock not issued in the conversion will be removed
from registration by post effective amendment to this Registration Statement.
Also includes additional shares as may be issuable as a result of the
anti-dilution provisions of the Series B Convertible Preferred Stock.
(3) Represents shares issuable upon the exercise of warrants issued by the
Company having an exercise price of $12.75 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution provisions
of said warrants.
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.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 20, 2000
PROSPECTUS
COLORMAX TECHNOLOGIES, INC.
1,776,471 Shares offered by Selling Shareholders
---------------
The Selling Stockholders of ColorMax Technologies, Inc. ("ColorMax
Technologies") listed on page 29, are offering up to 1,776,471 shares of our
common stock under this Prospectus. The number of shares that the Selling
Stockholders may sell include (i) shares of common stock that they will receive
if they convert their shares of ColorMax Technologies Series B Convertible
Preferred Stock ("Series B Preferred Stock") and (ii) shares of common stock
they will receive if they exercise common stock purchase warrants ("Warrants")
for the purchase of shares of common stock. We are registering the re-sale of
the shares of common stock which will be issue upon the conversion of the Series
B Preferred Stock and upon the exercise of the Warrants.
The Selling Stockholders may sell their shares in public or private
transactions, at prevailing market prices or at privately negotiated prices. We
will not receive any proceeds from the sale of the shares by the Selling
Stockholders. We are registering the re-sale of shares that are issuable upon
conversion of Series B Preferred Stock and shares issuable upon the exercise of
the Warrants. We will receive approximately $975,000 from the exercise of the
Warrants if all of the Warrants are exercised and the cashless exercise
provisions of the Warrants are not used.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"CXTE" On April 19, 2000, the last reported sales price of our common stock on
the OTC Bulletin Board was $7.50 per share
---------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 5 OF THIS
PROSPECTUS.
---------------
THESE SHARES HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES
COMMISSION NOR HAVE THESE ORGANIZATIONS DETERMINED WHETHER THIS PROSPECTUS IS
COMPLETE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
YOU SHOULD ONLY RELY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE
ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. OUR COMMON STOCK IS NOT BEING
OFFERED IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME
THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS
---------------
THE DATE OF THIS PROSPECTUS IS _________ ___, 2000
1
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE TO
ANY PERSON IN ANY STATE, TERRITORY, OR POSSESSION OF THE UNITED STATES IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED BY THE LAWS THEREOF, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
Page
SUMMARY......................................................................3
FORWARD LOOKING STATEMENTS...................................................4
RISK FACTORS.................................................................5
USE OF PROCEEDS..............................................................9
MARKET FOR COMMON STOCK AND DIVIDEND POLICY..................................9
MANAGEMENT'S DISCUSSION AND ANALYSIS........................................10
BUSINESS OF COLORMAX TECHNOLOGIES...........................................12
MANAGEMENT..................................................................20
MANAGEMENT COMPENSATION.....................................................22
PRINCIPAL STOCKHOLDERS......................................................23
DESCRIPTION OF SECURITIES...................................................24
PLAN OF DISTRIBUTION........................................................27
SELLING SHAREHOLDERS........................................................28
CERTAIN TRANSACTIONS........................................................29
LEGAL PROCEEDINGS...........................................................31
SHARES ELIGIBLE FOR FUTURE SALE.............................................31
EXPERTS.....................................................................32
LEGAL OPINION...............................................................32
WHERE YOU CAN GET MORE INFORMATION..........................................32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..........................33
CONSOLIDATED FINANCIAL STATEMENTS...........................................34
2
<PAGE>
PROSPECTUS SUMMARY
THIS IS ONLY A SUMMARY AND DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THE MORE DETAILED INFORMATION CONTAINED LATER
IN THIS PROSPECTUS AND ALL OTHER INFORMATION, INCLUDING THE FINANCIAL
INFORMATION AND STATEMENTS WITH NOTES, INCLUDED IN THIS PROSPECTUS AS DISCUSSED
IN THE "WHERE YOU CAN FIND MORE INFORMATION" SECTION OF THIS PROSPECTUS.
References in this Prospectus to "ColorMax Technologies", we," "us," and
"our" refer to ColorMax Technologies, Inc. and its subsidiaries.
Information About Us
We recently commenced operations in the business of developing, manufacturing
and marketing innovative optical technologies. We have obtained an exclusive
right to distribute, in certain countries, ColorMax Vision Enhancement Lenses
("ColorMax Lenses") which are for use by persons who are colorblind or color
deficient. We currenty have rights to distribute ColorMax Lenses in the United
States, Australia, Japan, the United Kingdom. and Canada. We are currently
marketing our ColorMax Lenses in the United States, Canada and Australia.
Our ColorMax Lenses are deemed to be medical products by the United States Food
and Drug Administration ("FDA") . We believe that our ColorMax Lenses are the
first and only optical aid approved by the FDA designed specifically to address
the needs of the genetically colorblind and other members of the color vision
deficient population. Our ColorMax Lenses are customized optical lenses
installed in the eye glass frame, the clip-on frame, or the sun glass frame of
the user's choice. Our ColorMax Lenses can be used for prescriptive or
non-prescriptive spectacles.
Although we are now only marketing our ColorMax Lenses, our business plan
provides that we will continue to attempt to develop new optical products and
technologies.
In March 2000, we acquired the patents, trademarks, rights and technologies of a
company known as X-Chrom Lenses. X-Chrom introduced the first commercially
available contact lenses for colorblindness in 1971. We intend to finalize
development of a soft contact lens with the ColorMax technology and to market
them under the X-Chrom trademark.
We have recently completed a private placement of our Series B Convertible
Preferred Stock and received gross offering proceeds of $4,000,000 (net amount
of approximately $3,600,000). These funds will allow us to increase our
manufacturing capability, to significantly increase our marketing efforts and to
fund our operations for an estimated 18 months.
Although we have only recently commenced operations in the optical technology
business, we were incorporated under the laws of the State of Delaware on June
14, 1971. There have been several name changes and authorized stock changes
resulting in our present name and the authorized shares shown in the balance
sheet. In June 1999, we acquired the assets and shares of RGB Technology Group
Inc. ("RGB Technology"). RGB Technology was organized in the State of Delaware
on April 28, 1999 for the purpose of marketing ColorMax Lenses and a computer
color vision test software program. Since we acquired RGB Technology, our
operations and business plan have been directed to commercializing and
developing our ColorMax technologies.
We maintain our executive offices at 14251 Chamber Road, Tustin California
92780, and our telephone number is (714) 730-7900.
3
<PAGE>
The Offering
Common stock outstanding 22,902,582 shares (1)
Common stock offered by the
Selling Stockholders 1,776,471 shares (2)
Use of Proceeds
We will not receive any proceeds from the sale of the shares of common stock
by the Selling Stockholders. We will only receive proceeds upon the
exercise of the Warrants if the Warrants are exercised and the cashless
exercise provisions of the Warrants are not used. Those proceeds, if any,
will be used for working capital requirements and other general corporate
purposes. See "Use of Proceeds."
Risk Factors
The securities offered hereby involve a high degree of risk. See "Risk
Factors."
OTC Bulletin Board CXTE
- ----------------
(1) Does not include shares of common stock issuable upon conversion of
outstanding shares of convertible preferred stock and upon exercise
of outstanding options and warrants to purchase shares of common
stock.
(2) Includes 76,471 shares issuable upon exercise of the Warrants and
1,700,000 conversion of our outstanding Series B Preferred Stock.
The 1,700,000 shares registered for issuance upon conversion of the
Series B Preferred Stock represent approximately 200% of the total
amount of shares which we currently anticipate will be issued in the
conversion. We have agreed to register this amount pursuant to our
agreement with holder of the Series B Preferred Stock. Any of these
shares not actually issued in the conversion will be deregistered
will not be issued.
FORWARD LOOKING STATEMENTS
Some of the statements contained in this Prospectus discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions. Important factors that may cause actual
results to differ from projections include, for example:
o acceptance of ColorMax Lenses and technology by eye care professionals and
patients;
o development of additional product lines by ColorMax Technologies;
o compliance with FDA rules and regulations and with the rules and
regulations of foreign countries relating to medical devices;
4
<PAGE>
o payment for patients ColorMax Lenses by insurance companies;
o new products and services offered by competitors; and
o price pressures.
RISK FACTORS
An investment in the shares of our common stock involves a high degree of risk.
Prospective investors should carefully consider the following risk factors, in
addition to the other information set forth in this Prospectus, before making an
investment in the shares offered hereby. This Prospectus contains
forward-looking statements. Those statements appear in a number of places herein
and include statements regarding the intent, belief or current expectations of
ColorMax, primarily with respect to the future operating performance of ColorMax
or related industry developments. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results and industry
developments may differ from those described in the forward-looking statements
as a result of various factors, many of which are beyond the control of
ColorMax. The information contained herein, including, without limitation, the
information set forth below and the information under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
identifies important factors that could cause such differences.
Recently Commenced Operations. Although the company now known as ColorMax
Technologies was incorporated in 1971, it was inactive and conducted no
operations for several years prior to June 1999. In June 1999, we acquired RGB
Technology and as a result, commenced operations in our current line of
business, the manufacturing and marketing of ColorMax Vision Enhancement Lenses
and related products. During 1999, operations were limited to continued research
and development, to obtaining FDA clearance to market ColorMax Lenses and to
attempting to raise additional capital. Additional capital in the net amount of
approximately $3,600,000 was raised in March 2000. We only commenced actively
marketing our products in the first quarter of 2000. Therefore, we have no
significant operating history which you could consider or review in connection
with your decision to purchase shares of our common stock.
Dependence on Existing Products. At the current time, we derive, and is
expected that for the foreseeable future we will continue to derive, all of our
revenues from a single product line, our ColorMax Lenses. Gross sales in the
first quarter of the this year were approximately $100,000. We are currently in
the final stages of development of a color enhancement soft contact lens. Upon
completion of the development of the soft contact lens, we intend to file a
Section 510(k) Notification with the FDA seeking clearance to commence marketing
the color enhancement soft contact lens. Our success will be subject to
acceptance of our current and future products by eye care professionals and by
color deficient patients. As competing products reach the market, the prices,
sales volumes and profit margins may decline. For this reason, we intend to
aggressively seek distribution arrangements with eye care professionals as
quickly as possible. While we believe our ColorMax products will allow us to
compete effectively in the future, no assurance can be given that we will
achieve significant revenues and profitability. See "Business of ColorMax
Technologies."
Dependence on Regulatory Approval and Compliance. Our ColorMax Lenses,
which are currently being sold, and our ColorMax soft contact lenses, which are
under development, are "medical devices". The development, manufacture,
marketing and sale of medical devices is subject to extensive federal, state and
local regulation in the U.S. and similar regulation in other countries. We, like
our competitors, must obtain approval from FDA before marketing most medical
devices, and must demonstrate continuing compliance with current Good
Manufacturing Practices ("GMP")
5
<PAGE>
regulations. The FDA has granted approval for the marketing of the ColorMax Lens
pursuant to the Section 510(k) Notification filed in connection with the
ColorMax Lens. We anticipate that a Section 510(k) Notification will be filed
this year in connection with our soft contact lenses which is currently in
development. There can be no assurance that the FDA will grant clearance to
market our soft contact lense. Under certain circumstances following product
approval and market introduction, FDA can request product recalls, seize
inventories and merchandise in commerce, move to enjoin further manufacture and
product distribution, suspend distribution or withdraw FDA approval of the
product, and debar a company from submitting new applications. FDA also can take
administrative action against a company to suspend substantive review of pending
applications and withhold approvals, if it concludes that the data and
applications from that company may not be reliable or that there are significant
unresolved GMP issues pertinent to the manufacture of medical devices at
facility of that company. We believe we are in compliance with all GMP
regulations.
Recent Losses; No Assurance of Profitable Operations or Increased
Revenues. We did not commence marketing ColorMax Lenses until December 1999. As
a result, we had essentially no revenues in 1999 and operated at a significant
loss. During the current year, we have started receiving revenues from the sale
of ColorMax Lenses, however, we are continuing to operate at a loss while were
are building up our lines of distribution. We expect that the net losses may
continue at least through the year ended December 31, 2000. We cannot be certain
that we will achieve sufficient revenues for profitability. If we do achieve
profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future. See "Financial
Statements."
Dependence Upon Eye Care Professionals. Because our ColorMax Lenses are
medical products, they can only be distributed to patients by eye care
professionals. Accordingly, we are dependent upon entering into sales agreements
with a sufficiently large number of eye care professionals offering ColorMax
Lenses to their patients which will result in sales of our ColorMax Lenses. In
order to attract such eye care professionals, we must demonstrated that not only
are the ColorMax Lenses effective for dealing with color deficiencies, but that
the eye care professional will increase his or her business by offering his or
her patients ColorMax products. There can be no assurance that a sufficient
number of eye care professionals will be commence offering ColorMax products
within a reasonable time to allow us to increase revenues so as to allow us to
operate at a profit.
No Patents for ColorMax Technology. As of the date of this Prospectus, no
patents for the ColorMax technology have been filed. Although we believe that a
patent for the ColorMax technology will be filed in the future, there can be no
assurance that any patent applications will in fact be filed in the future or if
filed, granted. There can be no assurance that the proprietary technology
related to the ColorMax Lens will be protected from competitors through trade
secret protection.
Reimbursement by Insurance Companies. Because of the price of our ColorMax
Lenses, the reimbursement of patients for purchases of ColorMax Lenses by health
insurance companies may be an important factor for us in increasing our sales
volume. We have been informed that some insurance currently reimburses patients
for their purchase of ColorMax Lenses. If reimbursement by insurance companies
is not widespread, our sales volumes may be limited.
Risk of Product Liability Claims; No Assurance of Adequate Insurance. The
testing, manufacture and sale of medical devices involve a risk of product
liability claims and the adverse publicity that may accompany such claims.
Although our ColorMax Lenses are not an invasive type of medical device, and
although we don't anticipate any substantial claims for product liability, there
is always a possibility that a product liability claim could be made against us.
Although we maintain
6
<PAGE>
what we believe to be an adequate amount of product liability insurance
coverage, there can be no assurance that the Company's existing product
liability insurance will cover all current and future claims or that the Company
will be able to maintain existing coverage or obtain, if it determines to do so,
insurance providing additional coverage at reasonable rates. No assurance can be
given that one or more of the claims arising under any future product liability
cases, whether or not covered by insurance, will not have a material adverse
effect on our business, results of operations or financial condition.
Controlling Shareholders. Four shareholders of ColorMax own, in the
aggregrate, 18,759,948 shares of our common stock out of the 22,902,582 shares
issued and outstanding. Although these shareholders are not affiliates of our
officers and directors, they do own, and will continue to own a significant
majority of our outstanding common stock even when the Series B Preferred Stock
is converted to common stock. Therefore, these four shareholders will, as a
group, have total control over the election of directors and all other matters
submitted to shareholders for action. We don't believe that these shareholders
have any agreement or understanding to act as a controlled group in the voting
or sale of their shares. See "Principal Shareholders."
Competition. We believe that we currently have limited competition in the
business of selling color enhancement lenses. However, due to significant
publicity of our ColorMax products, we anticipate that new competitors will
attempt to enter the market as soon as they obtain FDA clearance. It is likely
that some of our future competitors which have capital assets and distribution
lines which will equal or exceed ours. Although we believe our product is
effective and is the first in the market place, there can be no assurance that
we would successfully compete against new competitors in the future. See
"Business of the ColorMax Technologies."
Dependence upon Management. Our success is dependent upon the active
participation of our current officers and directors. The loss of services of
current management and other key employees could adversely affect the conduct of
our business and our future success. Currently we have no written employment
agreements or incentive compensation plans in place for our officers, directors
or employees. We do anticipate adopting employment agreements and incentive
compensation plans in the future. See "Management" and "Management
Compensation."
Management of Growth. In order to commence profitable operations, we must
significantly expand our customer base and sell a large number of ColorMax
Lenses. In order to do this, we will need to increase staff and capital
equipment. We, however, must manage our staff and capital properly to ensure
that the increased costs of staffing and capital expenditures do not increase at
a faster rate than sales.
Volatility of Stock Price. The trading price of our common stock has been,
and in the future is expected to be, volatile and we expect to experience
further market fluctuations as a result of a number of factors, including, but
not limited to, current and anticipated operating results as well as changes in
our business, operations or financial results, prospects of general market and
economic conditions and other factors. See "Market for Common Stock and Dividend
Policy."
Environmental Compliance. We are subject to a variety of environmental
regulations relating to the use, storage, discharge and disposal of chemicals
used during the manufacturing process. While we believe that we are in
compliance with all environmental regulations, if we fail to comply with present
and future regulations we could be subject to future liabilities or the
suspension of production. In addition, these regulations could restrict our
ability to expand our facilities or could require us to acquire costly equipment
or to incur other significant expenses to comply with governmental regulations.
We do not anticipate that our costs of compliance with environmental regulations
have not been material.
7
<PAGE>
No Dividends Anticipated to Be Paid. We have never paid any cash dividends
on our common stock and we do not anticipate paying cash dividends on our common
stock in the future. The future payment of dividends is directly dependent upon
our future earnings, capital requirements, financial requirements and other
factors to be determined by our Board of Directors. It is anticipated that
future earnings, if any, which may be generated from our operations will be used
to finance our growth, and that cash dividends will not be paid to our
stockholders.
Potential Adverse Market Impact of Shares Eligible for Future Sale. Our
stock price may be hurt by future sales of our shares or the perception that
such sales may occur. As of the date of this Prospectus, approximately
21,000,000 shares of common stock held by existing stockholders constitute
"restricted shares" as defined in Rule 144 under the Securities Act. These
shares may only be sold if they are registered under the Securities Act or sold
under Rule 144 or another exemption from registration under the Securities Act.
Sales under Rule 144 are subject to the satisfaction of certain holding periods,
volume limitations, manner of sale requirements, and the availability of current
public information about us. Substantially all of our restricted shares will be
available for sale within nine months in compliance with the requirements of
Rule 144 or pursuant to some other exemption from registration. We are unable to
estimate the amount, timing or nature of future sales of outstanding common
stock. Sales of substantial amounts of the common stock in the public market may
hurt the stock's market price.
Effect of Outstanding Convertible Preferred Stock. As of the date of this
Prospectus, we have outstanding Series B Preferred Stock convertible into common
stock. As long as these shares of Series B Preferred Stock remain outstanding,
the terms under which we could obtain additional capital may be adversely
affected. The shares of common stock which will be issued upon the conversion of
the Series B Preferred Stock are part of the shares of common stock registered
for resale pursuant to this Prospectus. We anticipate that all of the Series B
Preferred Stock will be converted into common stock within the next several
months.
Risks of Low Priced Stocks. The Securities & Exchange Commission has
adopted regulations which define a "penny stock" to include any equity security
that has a market price of less than $5 per share or an exercise price of less
than $5 per share, subject to certain exceptions. For any transaction involving
a penny stock, unless exempt, the rules require the delivery to and execution by
the retail customer of a disclosure statement relating to the penny stock, which
must include disclosure of the commissions payable to both the broker/dealer and
the registered representative and current quotations for the securities.
Finally, the broker/dealer must send monthly statements disclosing recent price
information for the penny shares held in the account and information on the
limited market in penny stocks. Those requirements could adversely affect the
market liquidity of such stock. The closing price of our common stock on April
19, 2000 was $7.50. There can be no assurance that the price will remain above
$5 per share.
Anti-takeover Provisions. Our Certificate of Incorporation authorizes the
issuance of "blank check" preferred stock with such designations, rights and
preferences as may be determined by our Board of Directors. Accordingly, the
Board of Directors can, without stockholder approval, issue shares of preferred
stock with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of our common
stock. Preferred stock could also be issued to discourage, delay or prevent a
change in our control, although we do not currently intend to issue any
additional series of our preferred stock. Additionally, certain provisions of
the Delaware General Corporation Law could delay, defer or impede the removal of
incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving us, even if such events could be beneficial to our
stockholders. Such provisions could also limit the price that certain investors
might be willing to pay in the future for our common stock. In addition,
Delaware has laws that may deter or frustrate takeovers of Delaware
corporations.
8
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock offered by the Selling Stockholders pursuant to this Prospectus. If the
holders of the Warrants exercise the Warrants, the holders will pay an exercise
price to ColorMax Technologies. If the cashless exercise provisions of the
Warrants are not used, we estimate that the total proceeds to ColorMax
Technologies from the exercise of the Warrants will be $975,000. We will use any
proceeds from the exercise of Warrants for working capital and general corporate
purposes. We estimate we will spend approximately $64,000 in registering the
shares under the Prospectus.
MARKET FOR COMMON STOCK AND DIVIDEND POLICY
The common stock of ColorMax Technologies is quoted on the Nasdaq OTC
Bulletin Board under the symbol "CXTE". During the past two years through
December 31, 1999, there has been no established trading market for the shares
of the Registrant's common stock over an exchange, however the stock has been
trading over-the-counter in small quantities. Currently there is only limited
trading activity in our common stock and the quotations set forth below reflect
such activity. There can be no assurance that quotations will not fluctuate
greatly in the future in the event trading activity increases or decreases. The
information contained in the following table was obtained from the NASD and from
various broker-dealers and shows the range of representative bid prices for our
common stock for the periods indicated. The prices represent quotations between
dealers and do not include retail mark, mark-down or commission and do not
necessarily represent actual transactions:
Bid Price
---------------------
High Low
---------------------
2000 (1)
----
First Quarter $13.375 $5.825
Second Quarter $ 8.750 $6.000
(Through April 17, 2000)
1999 (1)
----
High Low
---------------------
First Quarter $ .25 $ .13
Second Quarter $ .20 $ .16
Third Quarter $6.00 $ 5.50
Fourth Quarter $9.75 $ 9.00
1998(1)
---- High Low
---------------------
First Quarter $ .28 $ .156
Second Quarter $ .28 $ .156
Third Quarter $ .219 $ .125
Fourth Quarter $ .219 $ .125
(1) Calendar Quarters.
9
<PAGE>
Holders
As of April 12, 2000, there were 22,902,582 shares of common stock
outstanding and approximately 3782 stockholders of record of common stock. The
number of stockholders of record does not include an indeterminate number of
stockholders whose shares are held by brokers in "street name."
Dividends
We have not paid any cash dividends since its inception and does not
anticipate or contemplate paying dividends in the foreseeable future. It is the
present intention of management to utilize all available funds for the
development of our business.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Background and Basis of Presentation
Prior to June 8, 1999, we were a non-operating company named Renu U
International, Inc. On June 8, 1999, we acquired 100% of the outstanding common
stock of RGB Technology, a privately held Delaware corporation, from Kimrose
Holdings, LTD., a Hong Kong corporation. The acquisition was structured as a
stock-for stock exchange whereby ColorMax issued 6,000,000 shares of our common
stock (calculated after all applicable stock splits) to Kimrose Holdings, LTD,
in exchange for all of the issued and outstanding shares of RGB Technology.
The acquisition of RGB Technology has been accounted for as a capital
transaction in substance, rather than a business combination. The acquisition is
equivalent to the issuance of stock by RGB Technology for the net monetary
assets of ColorMax, accompanied by a recapitalization, and is accounted for as a
change in capital structure. Accordingly, the accounting for the acquisition is
identical to that resulting from a reverse acquisition, except that no goodwill
is recorded. Under reverse acquisition accounting, the post reverse-acquisition
comparative historical financial statements of the "legal acquirer" (ColorMax
Technologies), are those of the "legal acquiree" ( RGB Technology). RGB
Technology was formed in April 1999 and conducted no business prior to the time
we acquired it except for its acquisition of the exclusive distributorship
agreement from Kimrose Holding LTD., to market, sell and sell ColorMax brand
optical products in the United States, Australia and New Zealand with a right of
first refusal for all other territories worldwide.
Liquidity and Capital Resources
During 1999, we conducted limited operations and had a limited amount of
assets except for our marketing rights. At December 31, 1999, we had total
assets of $1,540,881 which consisted primarily of:
o marketing rights - $1,372,733;
o property and equipment - $113,612;
o and other items - $42,222.
As of December 31, 1999, our total cash position was $12,314. At
December 31, 1999, our debt consisted of $246,531 in current liabilities and
$179,300 in long term liabilities to related parties.
10
<PAGE>
In 1999 we also acquired certain marketing rights for the territories of
the United Kingdom, Japan and Canada. These rights were acquired by us issuing
the previous owners of such rights a total of 14,000,000 shares of our common
stock.
Subsequent to the end of the fiscal year, we sold 40,000 shares of our
Series B Preferred Stock for gross proceeds of $4,000,000 to fund the purchase
of additional equipment and to fund our operations pending the receipt of
revenues from the sale of our products. These shares of Series B Preferred Stock
are convertible into common stock and are described elsewhere in this
Prospectus. The shares of common stock offered for resale pursuant to this
Prospectus are shares which will be issued to the Selling Stockholders upon the
conversion of their Series B Preferred Stock into shares of common stock.
We believe that as a result of the sale of the Series B Preferred Stock
in March 2000, our cash, will be sufficient to meet our anticipated needs for
working capital and capital expenditures for at least the next 18 months.
Thereafter, we expect that the cash we generate from operations may not be
sufficient to satisfy our longer term cash needs. We anticipate we will need
significant amounts of cash to expand our marketing operations and to purchase
additional equipment to manufacture our products. We may need to sell additional
equity or debt securities to raise cash to meet these obligations. Such sales
likely would result in additional dilution to our stockholders. In addition, we
cannot assure you that financing will be available in amounts or on terms
acceptable to us, if at all.
We anticipate that we will spend approximately $450,000 on research and
development and $915,000 on capital expenditures during the next 12 months.
Results of Operations
At December 31, 1999 and during the year ended December 31, 1999, we had
not started active operations in the optical industry and therefore, we had
limited revenues. Our total revenues for the year ended December 31, 1999 were
$3,150 and our total expenses were $1,989,934 resulting in a loss of $1,986,784.
Our expenses consisted of administrative expenses in the amount of $1,960,970,
amortization of $23,267 and depreciation of $5,697. Because RGB Technology was
formed in April 1999, there is no comparative financial information for the
fiscal year ended December 31, 1998.
Year 2000
For the purposes of Year 2000 compliance, our administrative staff has
managed the task of verifying that all of our internal transaction processing
systems are date compliant. This process was initiated in order to ensure that
we would be able to continue operations without disruption after January 1,
2000. As of the date of this Prospectus, we have not experienced any significant
problems associated with Year 2000 date compliance. Because we have only
recently commenced operations, historical and estimated costs in preparation for
Year 2000 compliance to this point have not been material. Although future
anticipated costs are difficult to estimate with any certainty, we do not
anticipate any future material expenditures related to Year 2000 compliance. At
the current time, we anticipate that all systems and applications will remain
Year 2000 compliant. There can be no assurance, however, of complete compliance
based on the status to date. It is unlikely that any single system will have an
adverse effect on ColorMax Technologies as a whole. If a problem were to occur,
contingency plans will involve the procurement of standardized commercial
off-the-shelf replacement modules for internal applications and business
functions as well as replacing non- compliant third party software with software
that is Year 2000 compliant. At present there are no
11
<PAGE>
indications that contingency plans will be necessary or that there will be
revenue disruptions, however, there can be no assurances that future disruptions
will not occur.
BUSINESS OF COLORMAX TECHNOLOGIES
General
ColorMax Technologies has recently commenced operations as a
manufacturer and distributor of innovative optical technologies. Currently, the
product we are marketing is a line of color corrective lenses known as ColorMax
Color Vision Enhancement Lenses ("ColorMax Lenses"). ColorMax Lenses are for use
by persons who are "colorblind" or color deficient. Our Colormax Lenses are
manufactured by us and marketed through an exclusive distribution rights
agreement we have with the developer of the ColorMax technology. In November
1999, the Food and Drug Administration ("FDA") made a determination that
ColorMax Lenses could be marketed, pursuant to an FDA Section 510(k)
Notification of Intent to Market which had been filed in connection the ColorMax
Lenses.
Our ColorMax Lenses are believed to the first, and currently the only,
optical aid cleared for marketing by the FDA which are designed specifically to
address the needs of the genetically colorblind and other persons who are color
deficient. ColorMax Lenses have been categorized by the FDA as a "prescription
spectacle lens" and may be considered as such by most health care plans and
insurance companies.
Our ColorMax Lenses are marketed directly to eye care professionals as
part of our "ColorMax Program" which consists of our ColorMax Lenses and our
ColorMax Computer Color Vision Software. Our ColorMax Program, allows the eye
care professional to market his or her business as a ColorMax Center offering
patients diagnosis of colorblindness or color deficiency and prescribing
appropriate ColorMax Lenses to effectively address the specific requirements of
the patient. We believe that the ColorMax technology will allow eye care
professionals to increase their business by making ColorMax Lenses available to
their patients.
We currently market our products in the United States and Australia and
we have the distribution rights to market our products in Japan, Canada, New
Zealand and the United Kingdom.
In March 2000, we acquired the patents, technology and the name of
X-Chrom. The X- Chrom name and trademark was a well known name in the optical
technology business. X-Chrom introduced the first contact lens for
colorblindness in 1971. Currently, there is no marketing of the X-Chrom contact
lens. We intend to develop a new generation of soft contact lenses which combine
the ColorMax technology and the X-Chrom technology for color deficiency. Once
developed, we plan to market this contact lens under the X-Chrom name and
trademark. We will be required to obtain FDA clearance before this soft contact
lenses can be marketed.
We intend to continue to engage in research and development to with the
goal of developing other new procedures and products which may prove useful in
the diagnosis and treatment of color vision anomalies.
We have only recently commenced operations in the business of
manufacturing and marketing optical products and we will encounter the same
types of risks that all new businesses face as well as risks which are specific
to our business. Some of these risks are discussed in the Risk Factors section
of this Prospectus. For additional information about our commencement of
operations in the business of providing optical technologies, see "Certain
Transactions" on page 29 of this Prospectus.
12
<PAGE>
How the Normal Eye Sees Color v. Color Deficiency
The retina in the human eye is made up of cones and rods. There are
three types of cones, one of which sees red, one of which sees green and one of
which sees blue. Together the cones allow the brain to sort through hundreds of
thousands of wavelengths in the color spectrum. Sometimes, as the result of a
genetic defect or some other cause, the protein that gives one type of cone its
ability to detect a color is altered. For instances, if a person is missing the
"green" cone, colors that have green in them, such as violet, can be impossible
to tell apart from blue. Subtle shades of green in many colors may make much of
the world to appear to be grey.
By filtering out the color that the defective eye can see, ColorMax
Lenses make some of the colors brighter. ColorMax Lenses for the green deficient
may red stand out.With shades of green removed from other colors, the defective
eye can more often distinguish between colors that before looked the same.
Colorblind Science
Color blindness is genetic condition that affects approximately 1 in 12
men and 1 in 250 women or 8% of men and 0.5% of women, respectively. There are
an estimated 12 million colorblind Americans and over 250 million colorblind
people around the world. Color blindness is caused by genetic defect on the X
chromosome and is passed on by women who are carriers to their sons. Color
vision deficiencies are caused when there is a malfunction of the photo
receptive cones in the retina. Color vision deficiencies can also be acquired
with age or from illness, such as diabetes. "Color vision deficiency" is the
more accurate term for the condition that people many people call color
blindness.
The term color blindness is often misunderstood as only meaning the
inability to see or discriminate any colors at all. Having defective color
vision does not mean that one sees everything in black, white, and gray. It is
only in extremely rare cases that no colors can be discriminated. This condition
is called achromatopsia or monochromatism. In most cases, a color deficient
person is able to see certain colors normally and unable to distinguish certain
other colors and shades normally. The severity of color vision deficiency varies
from person to person.
Color is a critical element in visual communication. There is a growing
emphasis on color in modern day society to easily convey the rising complexity
of data and information. Virtually every occupation relies on color to some
degree. Many professions are highly color sensitive including the arts,
computers, graphics, electronics and transportation.
People who suffer from color blindness are significantly disadvantaged
throughout their lives educationally, vocationally and in simple everyday
activities. Of special importance is the high rate that color blind children are
undiagnosed and who face serious hardships in school with color-coded learning
materials such as blocks and maps. Furthermore, the long-term consequences of an
undiagnosed color vision deficiencies will often continue throughout adult-hood.
The two most common types of genetic color vision deficiencies are:
o Deuteranamolous (also known as green weak): defect in medium wavelength
frequency or green color confusion
o Protanamolous (also known as red weak): defect in the long wavelength
frequency or red color confusion.
13
<PAGE>
Tritanamolous or blue-yellow color confusion is the most common type of
acquired color vision deficiency.
Corrective Aids
Although the concept of corrective aids for color vision deficiencies
has been considered by scientists for many years, there has never been a
corrective aid that has adequately achieved an improvement in color vision
discrimination. The X-Chrom contact lens, a red-tinted hard contact lens worn
only in the dominant eye, for color vision deficiencies were available in the
1970's but are not currently marketed.
In November 1999, the FDA notified us that we could commence marketing
ColorMax Lenses pursuant to the Section 510(k) Notification which had previously
been filed in connection with the ColorMax Lens technology. As a result of this
FDA Determination, we can offer ColorMax Lenses as an optical aid for duetan and
protan color vision deficiencies. ColorMax Lenses change the spectral energy
composition light entering the eye to balance brightness, saturation and hue and
improve color vision discrimination.
Products
As of the date of this Prospectus, our only product line is our Colormax
Lenses which, with our ColorMax software, detect and aid color vision
deficiencies. Every colorblind person has a distinct color vision makeup and
which is characterized by a distinct type of color vision defect and severity.
ColorMax Lenses alter the wavelength of colors as they enter the eye. By
selecting the proper kind of filtering component added to each prescription,
greater color discrimination within the eye is achieved. The effects are
immediate and as light enters the retina, the colors are instantly recognizable.
ColorMax Lenses are regular prescription or non-prescription filters coated with
color filters. This technology is similar to the technology that is used to
apply anti-reflection coatings to spectacles and color coatings to sunglasses.
There are 10 different types of ColorMax Lenses offered to properly
accommodate the characteristics of each colorblind individual. There are two
classifications of ColorMax Lenses, the Duetan Series and the Protan Series.
Each classification is divided into five density classes, one though five. By
selecting the appropriate filter component, greater color vision discrimination
is achieved.
We currently sell the ColorMax Lens, on a wholesale basis, for
approximately $450 for adults and $350 for children.
We can use various types of lenses in our ColorMax process, including
CR-39 (a plastic lens), polycarbonate lenses and glass lenses. We offer ColorMax
Lenses as non-prescriptive or prescription lenses.
ColorMax Lenses are a medical device and are distributed only through
authorized eye care professionals. Licensed eye care professionals, such as
optometrists and opthamologists have the experience and education to properly
diagnose and treat vision related conditions. Authorized ColorMax Providers
undergo extensive training to learn to use the ColorMax system and understand
ColorMax products.
14
<PAGE>
ColorMax Color Vision Testing Program and Protocol
Our ColorMax Program which is offered to eye care professionals,
includes the ColorMax Color Test which is a computerized psuedo-ischromatic
plate test. This ColorMax Color Test assists optometrists and ophthalmologists
to select the appropriate ColorMax lens for the patient. Using our software, the
doctor can make an accurate lens selection in a few minutes. ColorMax Color Test
operates on the Windows platform.
The ColorMax Color Vision Testing Program and Protocol consists of
comprehensive color vision testing and an individual lens fitting process.
Optometrists and ophthalmologists administer three separate tests to patients to
determine the existence and nature of their color deficiencies. These tests are
as follows:
o the ColorMax Color Test,
o the Ishihara Psuedo-Isochomatic Plate Test (described below), and
o the Farnsworth D-15 Test (describe below).
Pseudo-Isochromatic Plate Tests. One of the first attempts to make color
vision diagnosis quick and simple was made by Ishihara (1917). He developed a
series of pigment based colored figures in which the observer views a series of
colored numbers against different colored backgrounds. The plates contained
figures and backgrounds whose pigment colors (hues) lie along the confusion axes
for protan or deutan observers. Other plates in Ishihara's test contained test
figures part of whose hue was chosen to lie along either protan or deutan
confusion axes, and part of which did not. During administration of the Ishihara
test, normal observers will see one series of numbers while color deficient
observers would either see no number at all or a different number than normals.
The lshihara test also includes a diagnostic plate containing two numbers: one
whose hue lies along the protan axis, the along the deutan axis. With this
arrangement normals see a two-digit number while color vision defectives see one
or the other digit depending on the type of color vision defect. A test for
tritanomaly was not included in the Ishihara test. One drawback of the Ishihara
test is that the plates must be replaced from time to time due to fading of the
color pigments. Another drawback is that tritan and tetartan defects cannot be
detected. In spite of these limitations however, the Ishihara test is still
useful for identifying a protan or deutan defect and approximating its severity.
Farnsworth Panel D-15 Test. The Farnsworth Panel D-15 test is a hue
discrimination test that was designed to differentiate observers with defective
color vision from those with mild or no deficiencies. The fifteen test chips
were designed to have equal luminance and saturation values and vary only as a
function of hue. The actual hues of the various D-15 chips were carefully chosen
so that protans will arrange them one way, deutans in another and tritans in yet
a third pattern. By analyzing and recording these patterns, a diagnosis as to
type or classification of color vision deficiency is then possible. Although the
D-15 test is quick and simple to administer, one drawback is that persons with
mild color vision deficiencies will often arrange the chips in a normal pattern
based on an apparent brightness gradient rather than color. Thus, although the
theoretical design of the D-15 test is valid, it does lack sensitivity. It is
not possible to precisely quantify the severity of a color vision deficiency
with the D-15 test; however, the number of errors does give an indication.
Selection of ColorMax Lens
After the diagnostic tests described above are completed and the data
analyzed, the doctor selects from one of the ten available ColorMax Lenses, the
appropriate ColorMax Lenses for the
15
<PAGE>
patient specific color deficiency. The lenses are then tested to measure the
patient's performance on the color vision tests and tasks and to evaluate the
patient's subjective response to the environment in a non-clinical setting. The
appropriate ColorMax Lenses are custom fit to the patient's prescription
spectacle, clip-on or as sun glass frames.
Market and Marketing
ColorMax Lenses are medical devices and may only be distributed through
authorized eye care professionals. Our sales force currently consists of 4
persons who market the ColorMax technologies to optometrists and opthamologists.
Currently, there are 36 optometrists and opthamologits marketing our ColorMax
products in the United States and 21 optometrists and opthamologists marking our
ColorMax products in other countries. The primary function of ColorMax's
domestic sales force is to expand the ColorMax provider base of eye care
professionals and to help existing ColorMax patient base within their practice.
Our marketing objective is to maximize patient awareness of an effective
corrective aid for colorblindness and to make it easy and convenient for color
vision deficient patients to locate an eye care professional who can provide
them with proper diagnosis for the appropriate ColorMax Color Vision Enhancement
Lens for their specific color vision deficiency
We believe that effective marketing and education, patient service and
its relationships with its providers effectively manage their ColorMax Program,
including national consumer marketing and extensive practice support such as
Internet referrals, marketing materials, public relations assistance and a
toll-free patient care line.
We commenced active marketing in December 1999. Currently, there are 57
eye care professionals designated as ColorMax Centers in the United States,
Canada and Australia. We have shipped complete test kits to 10 of these eye care
professionals and have made partial shipments to the remaining 47. These
shipments have generated approximately $95,000 in revenue. We have received
orders for 124 pairs of lenses of which 30 pairs have been shipped. The shipped
orders have generated revenues of $13,500.
Advertising and Promotion
ColorMax's products have received significant publicity and media
coverage. The media primarily relates to how ColorMax products help people
improve and change their lives in fundamental ways as well as to the technology
behind the lenses. ColorMax products have been featured in numerous national and
local newspapers, television news broadcasts and radio programs. This publicity
has helped introduce the ColorMax brand name in the general population and to
the colorblind market.
Our marketing strategy, includes providing demonstrations and lectures
to Optometrists and Opthamologists at optical trade shows where they attend to
maintain their certification through continuing education. Potential patients
learn about ColorMax products through direct mail, print advertisement, in-store
visual displays mailers and the Internet. We maintains a strong presence on the
Internet. The ColorMax website provides detailed technical information on the
science of colorblindness and useful tips on lifestyle. Additionally, patients
can find the nearest ColorMax provider on the site. Through the Internet site,
we have received thousands of registrations from colorblind people. We are
currently assembling a large databases of color deficient people.
16
<PAGE>
Manufacturing
ColorMax Lenses are made utilizing proprietary precision optical
coatings and other processes which adjust the wavelength entering the eye. The
manufacture of ColorMax Lenses is conducted in numerous stages and undergo a
series of quality control tests before shipment. In September of 1999, ColorMax
Technologies relocated its operations to a new manufacturing facility with three
built in clean room facilities. ColorMax performs the ColorMax manufacturing
methods in this facility using specially designed and engineered equipment.
ColorMax's in-house manufacturing process enables production to be conducted in
accordance with required quality control standards. We are subject to the FDA's
Good Manufacturing Practice requirements.
The raw materials used in ColorMax Lenses include various chemicals and
gases. Our materials are available from a wide selection of suppliers. For
prescriptivelenses, the patient's eye care professional will send the patient's
prescription lenses to us for our ColorMax process.
Research and Development.
ColorMax soft contact lenses are currently in development. ColorMax
contact lenses are based on the same technology and work similarly to ColorMax
Color Vision Enhancement Lenses. Once development is completed, we will seek FDA
authorization to market the soft contact lenses. In the event FDA approval is
obtained, we intend to distribute ColorMax soft contact lenses through its
authorized ColorMax Providers.
Distribution Agreements
Kimrose Holdings Agreement. On May 1, 1999, RGB Technology, which is now
our wholly-owned subsidiary, was granted the exclusive right to distribute
ColorMax Lenses in the Unites States, Australia and New Zealand. The
distribution agreement requires RGB Technology to do, among other things, the
following:
o spend 5% of sales for advertising and promotion;
o submit an advertising budget to Kimrose not less than 30 days prior to the
commencement of any contract year;
o use an advertising company which has been approved by Kimrose;
o submit advertising and promotional materials to Kimrose for approval prior
to use;
o deliver an advertising expense report to Kimrose by the end of each year;
o purchase 5,000 sets of ColorMax Lenses the first year and 10,000 sets the
second year, and to increase the number of sets purchased for each
following the second year by 10% to a maximum purchase requirement of
50,000 sets per year.
o pay Kimrose a royalty of 3% of the net wholesale amount of ColorMax Lenses
sold.
The agreement is for a ten year term with two automatic ten year extensions
if the agreement is not in breach.
RGB and Kimrose have, through an oral agreement, modified the agreement so
that the manufacturing of the ColorMax Lenses is done by ColorMax Technologies.
17
<PAGE>
Harvest Capital Agreement. On July 1, 1999, Kimrose Holdings entered
into an agreement with Harvest Capital Management, Inc. which granted Harvest
Capital Management, the exclusive rights to distribute ColorMax Lenses in the
United Kingdom. The terms and conditions of this agreement are similar to the
terms and conditions of the agreement between Kimrose Holdings and RGB
Technology described above. On August 15, 1999, Harvest Capital Management and
Kimrose agreed to the assignment of the agreement to Colormax Technologies and
the agreement was then assigned to us. On October 20, 1999 we issued Harvest
Capital Management 4,000,000 shares of our common stock for the assignment of
the agreement.
Gem Group Agreement. On July 15, 1999, Kimrose Holdings entered into an
agreement with Gem Group, Inc. which granted Gem Group, the exclusive rights to
distribute ColorMax Lenses in Japan. The terms and conditions of this agreement
are similar to the terms and conditions of the agreement between Kimrose
Holdings and RGB Technology described above. On September 6, 1999, Gem Group and
Kimrose agreed to the assignment of the agreement to ColorMax Technologies and
the agreement was then assigned to us. On November 8, 1999 we issued Gem Group
6,000,000 shares of our common stock for the assignment of the agreement.
Nano Material Science Agreement. On July 6, 1999, Kimrose Holdings
entered into an agreement with Nano Material Science, Inc. which granted Nano
Material Science, the exclusive rights to distribute ColorMax Lenses in Canada.
The terms and conditions of this agreement are similar to the terms and
conditions of the agreement between Kimrose Holdings and RGB Technology
described above. On August 27, 1999, Nano Material Science and Kimrose agreed to
the assignment of the agreement to ColorMax Technologies and the agreement was
then assigned to us. On November 8, 1999 we issued Nano Material Science
4,000,000 shares of our common stock for the assignment of the agreement.
X-Chrom Agreement. On March 14, 2000, we entered into an agreement with
Harry Zeller and Joseph Zallen whereby we acquired the patents, trademarks and
technologies related to the X- Crom contact Lens. The X- Chrom contact lens was
marketed as a color blindness aid but currently is not being marketed. We are
currently attempting to develop a soft contact lenses using the ColorMax
technology for marketing under the X-Chrom name. The agreement provides for a
royalty of 7 1/2 percent on net sales of the contact lens with a minimum royalty
of $10,000 per quarter.
Patents and Trademarks
We own no patents relating to the ColorMax technology and, to our
knowledge, no patents have been issued for the ColorMax technology. We believe
that patents applications will be filed this year. We have acquired a patent for
the X-Chrom Contact Lenses which was patented in the United States and Canada.
We have entered into an agreement with Color Vision Technologies which
allows us to use the trademark "ColorMax". We have acquired the trademark
"X-Chrom" which mark was registered in the United States and in Canada.
Government Regulation
Our ColorMax Lenses are classified as medical devices, subject to the
provisions of the Food, Drug and Cosmetic Act (the FDC Act) and implementing
regulations. The 1976 Medical Device Amendments and the Safe Medical Device
Amendments of 1990 provides comprehensive regulation of all stages of
development, manufacture, distribution and promotion of medical devices. The two
primary regulatory routes by which to bring a product to market are: the
Premarket Approval Application (PMA) and the Premarket Notification (510(k)
Notification). The PMA
18
<PAGE>
requires a comprehensive review of specified pre-clinical and clinical data,
which results in a finding that a device is safe and effective for its
designated indicated use. The 510(k) Notification permits marketing upon a
demonstration to the FDA's satisfaction that a device is Substantially
Equivalent" to a device already in commercial distribution. In general, the
clearance process can require extended periods of testing. Review of submissions
can take prolonged, indefinite periods of time and involve significant resource
expenditures. There is no certainty that the FDA will clear any given device for
marketing.
A 510(k) Notification was filed in connection with ColorMax Lenses and
in November 1999, the FDA granted clearance to market ColorMax Lenses under the
510(k) Notification.
All medical devices must be manufactured in accordance with Good
Manufacturing Practices specified in implementing regulations under the FDC Act.
These practices control every phase of production from the incoming receipt of
raw materials, components and subassemblies to the labeling, tracing of
consignees after distribution and follow-up and reporting of complaint
information. The FDA has the authority to conduct unannounced inspections of all
facilities where devices are manufactured or assembled, and if the investigator
observes conditions which might be violations, those conditions must be
corrected or satisfactorily explained, or the Company could face regulatory
action that might include physical removal of the product from the marketplace.
The FDA also regulates and supervises labeling for devices.
Recently, the FDA has pursued a more rigorous enforcement program to
ensure that regulated firms comply with the provisions of the FDC Act. A firm
not in compliance may face a variety of regulatory actions, ranging from warning
letters, product detention, device alerts and mandatory recalls or field
corrections to seizures, injunction actions, civil penalties and criminal
prosecutions of the company and/or responsible individual employees, officers or
directors. The commencement of any action against it of the type described above
could seriously impact of a company's ability to conduct business.
We are offering ColorMax Lenses in Australia and Canada and we plans to
distribute ColorMax Lenses and other medical devises in other foreign countries
in the future. Our medical device products will be subject to a wide variety of
laws and regulations in these markets, ranging from simple product registration
in certain countries to complex clearance and production controls in others. The
extent and complexity of regulation of medical devices is increasing worldwide.
We anticipate that this trend will continue, and that the cost and time required
to obtain approval to market in any given country will greatly increase, with no
assurance that such approval will be obtained.
Competition
It is our understanding that the FDA has not given approval to any other
optical aids for red-green color vision deficiencies. However, there can be no
assurance that FDA approval for competitive products will be given in the
future. We are aware of Coloryte, a company operating in Hungary, and Chromagen,
a company operating in the United Kingdom, who have commenced marketing color
visions aids.
We anticipate that other competitors may enter in the market in the
future. To remain competitive, we must continue to provide technologically
advanced optical related products services, maintain quality levels, provide
products on a reliable basis, and compete favorably on the basis of price. If no
additional competitors do enter the market, they may have capital or advantages
over us and there can be no assurance we could effectively compete in such
event.
19
<PAGE>
Employees
We employ approximately 23 full-time employees of which 7 are involved
in manufacturing, 11 in sales, design and project management and 5 in
administration. We will hire part-time and additional full-time employees on an
"as-needed" basis. None of our employees are represented by a labor union. We
believe that our relationship with our employees is good.
Facilities
Our headquarters and manufacturing facilities are located in Tustin,
California. Our lease expires August 31, 2004. Our rent is currently $8,419 per
month.
MANAGEMENT
The following table sets forth the name, address, age and position of
each officer and director of the Company:
Name Age Position
Robert S. Iger 59 Chief Executive Officer/Director
Donald H. Hansen, O.D. 73 President/Director
John D. Janzti, O.D. 52 Vice President/Director
Julie L. Kim 25 Secretary/Treasurer/Director
Kenneth M. Larkin, O.D. F.A.A.O 52 Director
Joseph L. Bruneni, O.D., F.N.A.O 65 Director
Richard Hahn 64 Director
Background information concerning the Company's officers and directors is
as follows:
ROBERT S. IGER. Mr. Iger was appointed a director of ColorMax Technolgoies
in January 2000 and was appointed, Chief Executive Officer in March 2000. Mr.
Iger holds a J.D. Degree from Western States University and a Masters Degree in
Economics and Econometrics from the State University of New York at Buffalo.
During the last five years, he has been engaged in private law practice. Mr.
Iger is on the Board of Directors of Recom Managed Systems, a publicly held
computer services company. Mr. Iger serves on the board of advisors for the
Orange County Museum of Art and the Orange County High School of the Arts. Mr.
Iger teaches Cross Functional Management Requirements for Technical
Entrepreneurs at the Business, Management and Corporate Education Department of
UCI's University Extension, and is also an adjunct professor at the University
of Phoenix where he teaches Economics and Business Law.
DR. DONALD H. HANSEN, O.D. Dr. Hansen has been President and Director of
ColorMax since 1999. He is a graduate of Coe College in Cedar Rapids, Iowa, and
the Illinois College in Cedar Rapids, Iowa, and the Illinois College of
Optometry. He has owned and operated the Main Vision Clinic & Contact lens
Center of Davenport, Iowa, since 1968. Since 1993, Dr. Hansen has been the
President/CEO of The American College of Ophthermology, Inc., and Supervision
Research Development Company, Inc., both of which are devoted to research into
eye temperature measurement and diagnosis of health problems based on ocular
thermal mapping. Dr. Hansen has conducted extensive research on the relationship
between low ocular blood flow and increased risk of stroke and heart attack. He
is a member of numerous professional organizations, including American
Optometric Association and the Iowa Optometric Association.
20
<PAGE>
Dr. Hansen is the founder of the National Councilof Ophthalmic Inventors
and the National Care Association.
DR. JOHN D. JANTZI, O.D. Dr. Janzti has been Vice President and a Director
of ColorMax since 1999. He received his Doctor of Optometry degree from the
University of Waterloo in 1975, and was granted a Master of Science degree in
physiological optics in 1981. Dr. Jantzi has practiced optometry in the
Vancouver area since that time. He co-produced the award winning television
program "Life is Worth Seeing," which is televised annually by the Knowledge
Network in British Columbia. Dr. Jantzi is a frequent lecturer and has
participated in over 30 clinical research projects with the U.S. Food and Drug
Administration and numerous major ophthalmic corporations. He was the
editor-in-chief of the Canadian Vision science journal Practical Optometry from
1990 to 1998. Dr. Jantzi is a member of the Canadian Association of
Optometrists, the Ontario Association of Optometrists, and the British Columbia
Association of Optometrists.
JULIE L. KIM. Ms. Kim has been the Secretary, Treasurer and a Director of
ColorMax since 1999. She graduated from Cornell University in 1997 with a degree
in Business Administration. From 1995 to 1996, she was the Vice President for
Development of Light Drive Technologies, Inc. From 1997 to 1998, she served as a
Consultant for Ernst & Young LLP and E&Y Kenneth Leventhal Real Estate Group in
New York City and Miami. Ms. Kim is the creator of Lodging Magazine's Lodging
Stock Index, which tracks the performance of lodging stocks versus the Standard
& Poor's 500. Ms. Kim is a member of the Cornell Society of Hotelmen.
DR. MICHAEL LARKIN, O.D., F.A.A.O. Dr. Larkin was appointed as a director
of ColorMax in March 2000. He as been a practicing optometrist since 1973. He
obtained his O.D. Degree from the Southern California College of Optometry and
is Assistant Professor in the Department of Ocular Disease there. A Fellow of
the American Academy of Optometry and past member of the Harvard University
Technical Consulting Group, Dr. Larkin served on the ad hoc health committee on
health care reform under the Clinton administration. In 1979, he had the honor
of being named "O.D. of the Year" by the California Optometric Association and
"Teacher of the Year" by the Southern California College of Optometry, as well
as being named "O.D. of the Year" by the Orange County Optometric Society for
1985 and 1986.
JOSEPH L. BRUNENI, F.N.A.O. Mr. Bruneni has been a director of the Company
since March 2000. Mr. Brueni has more than 40 years experience in the ophthalmic
eyewear industry. He served for 12 years as Special Consultant to the Optical
Laboratories Association and the California Optical Association, as well as
Executive Director and Industry spokesperson for the Polycarbonate Council, an
industry coalition of manufacturers and laboratories dedicated to informing eye
care professionals and consumers on advancements in the field of polycarbonate
Lens. He is a recipient of the Goodfellow Award in 1994 and a Fellowship in the
National Academy of Optometry in 1998.
RICHARD A. HAHN. Mr. Hahn has been a director of ColorMax since March 2000,
He is the founder and General Partner of Enterprise Connections LLC, a
management consulting firm that assists early stage companies in business
planning. He is Executive Vice President of International Meta Systems, Inc. He
served as President and CEO of Fingraph Corporation, an early innovator of
financial graphic PC software, and was a founder and General Partner of Power
Marketing Group, a marketing and management consulting firm to the computer
industry.
21
<PAGE>
MANAGEMENT COMPENSATION
The following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the last three years to the Company's Chief
Executive Officer and to the Company's most highly compensated executive
officers other than the CEO, whose annual salary and bonus exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
------------------------
Annual Compensation Awards Payouts
-------------------------- --------------- ---------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restrict All
Year Annual Stock Option/ LTIP Other
Name and Principal Ended ($) ($) Compen Awards SAR's Payouts Compen-
Position 12/31 Salary(1) Bonus sation($) ($) (#) ($) sation($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald H. 1999 -0- -0- $-0- $16,667 -0- $-0- $-0-
Hansen (1)
President
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) During the fiscal year ended December 31, 1999, ColorMax Technologies
did not pay or accrue any cash salary or other cash compensation to its
President but it did issue 33,334 shares of our common stock to Dr. Hansen for
services rendered. We also issued 30,000 shares of our common stock each to
officers John D. Jantzi and Julie L. Kim for services rendered. These shares
were valued by ColorMax at $1.00 per share. We also accrued but did not pay,
compensation in the amount of $42,000 to Julie Kim for services rendered during
the fiscal year ended December 31, 1999. Subsequent to end of the fiscal year,
ColorMax appointed Robert S. Iger as Chief Executive Officer. Mr. Donald H.
Hansen continues to serve as president of ColorMax.
Options Grants in Last Fiscal Year
There were no grants of stock options made during 1999 to our executive
officers
Stock Options Held at End of Fiscal 1998
No Stock Options, stock appreciation rights or other compensation were
granted to our president or other officers during 1999.
Compensation of Directors
ColorMax Technologies does not currently compensate its directors for
director services to ColorMax Technologies. We anticipate that more formal
compensation arrangements with our directors will be finalized during the second
or third quarter of this year.
Employment Agreements
We have no written employment agreements with our management. Currently,
the only officers receiving cash compensation for services rendered are Robert
S. Iger, our Chief Executive Officer, who is being paid a salary of $10,000 per
month, and Julie L. Kim, our Secretary/Treasurer
22
<PAGE>
who is being paid a salary of $8,000 per month. We anticipate that more formal
compensation arrangements with our management will be finalized during the
second quarter of this year.
Stock Option Plans and Other Incentive Compensation Plans
As of the date of this Prospectus, we have not adopted any employee or
director stock option plan or any other incentive compensation plan for
directors and employees of ColorMax. We anticipate that our Board of Directors
will, in the near future, adopt incentive compensation plans to provide reward
and incentives to employees, directors and agents of ColorMax.
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of ColorMax Technologies' common stock as of April 17, 2000, by each
director and executive officer, all directors and officers as a group, and each
person known to ColorMax Technologies to beneficially own 5% or more of its
outstanding common stock.
Name and Address Percentage
of Beneficial Owner Shares Owned(1) Owned
--------------------------------------------------------------------------
Robert S . Iger -0- -0-
14251 Chamber Road,
Tustin California 92780
Donald H. Hansen 61,814 (2)
14251 Chamber Road
Tustin California 92780
John D. Janzti 50,000 (2)
14251 Chamber Road
Tustin California 92780
Julie L. Kim 50,000 (2)
14251 Chamber Road
Tustin California 92780
Kenneth M. Larkin -0- -0-
14251 Chamber Road
Tustin California 92780
Joseph L. Bruneni -0- -0-
14251 Chamber Road
Tustin California 92780
Richard A. Hahn -0- -0-
14251 Chamber Road
Tustin California 92780
Kimrose Holdings Limited 4,913,844 21%
Rms. 903-905 Kowloon Center
29-43 Asley Road
Kowloon, Hong Kong
23
<PAGE>
Harvest Capital Management 3,846,104 17%
60 Market Square, Suite 364
Belize City, Belize
Gem Group, Inc 6,000,000 26%
50 West 34th Street, Suite 1705
New York, NY 10001
Nano Material Science, Inc. 4,000,000 17%
2446 Cawthra Road
Mississauga, Ontario
Canada
All officers and Directors as a group 161,814 1%
(7 persons)
(1) Based upon 22,902,582 shares of common stock issued and outstanding as
of April 12, 2000, calculated in accordance with Rule 13d-3 promulgated under
the Exchange Act. It also includes shares owned by (i) a spouse, minor children
or by relatives sharing the same home, (ii) entities owned or controlled by the
named person and (iii) other persons if the named person has the right to
acquire such shares within 60 days by the exercise of any right or option.
Unless otherwise noted, shares are owned of record and beneficially by the named
person.
(2) Less than one percent.
DESCRIPTION OF SECURITIES
General
The following description of ColorMax Technologies' common stock and
preferred stock is a summary only. This summary is qualified in its entirety by
reference to the applicable instruments and governing law, including without
limitation, ColorMax Technologies' Certificate of Incorporation, as amended and
Bylaws and the General Corporation law of the State of Delaware. The authorized
capital stock of ColorMax Technologies consists of (i) 100,000,000 shares of
common stock, $.001 par value; (ii) 1,000,000 shares of Class A Convertible
Preferred Stock, $.10 par value; (iii) 50,000,000 shares of Class B Convertible
Preferred Stock, $.001 par value and 50,000,000 shares of Class C Convertible
Preferred Stock, $.001 par value. ColorMax's Board of Directors established, as
part of Class B Convertible Preferred Stock, a Series B Convertible Preferred
Stock consisting of 40,000 shares.
As of April 18, 2000, the following shares of ColorMax capital common
stock were issued and outstanding:
Class of Stock Shares Outstanding
- -------------------------------------------------------------------------------
Common Stock 22,902,582
Class A Convertible Preferred Stock None
Class B Convertible Preferred Stock 40,000 (all of which is designated as
Series B Convertible Preferred Stock)
Class C Convertible Preferred Stock None
24
<PAGE>
Common Stock
Holders of common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders, including the election of
directors, and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the dividend preferences attributable to the
preferred stock. Upon the liquidation, dissolution or winding up of ColorMax
Technologies, holders of common stock are entitled to receive ratably the net
assets of ColorMax Technologies available for distribution to such holders after
preferred distributions to holders of preferred stock. Holders of common stock
have no preemptive or redemption rights.
Class A, Class B and Class C Convertible Preferred Stock
We are authorized to issue up to 101,000,000 shares of convertible
preferred stock allocated among Class A, Class B and Class C as described above.
Each Class of Preferred stock may be issued in such Series and with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of our common stock. In the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control. No Shares
of Class A or Class C Convertible Preferred Stock are issued.
The Board of Directors has authorized and designated a Series B
Convertible Preferred Stock from the authorized Class B Convertible Preferred
Stock, the designations, rights and preferences of which are described below.
Series B Convertible Preferred Stock
The Board of Directors has designated a Series B Convertible Preferred
Stock from our Class B Convertible Preferred Stock. Series B Preferred Stock
consists of 40,000 shares, all of which are issued and outstanding. The Series B
Preferred Stock was sold at the price of $100 per share (the "Original Issue
Price"). The general terms of the Series B Preferred Stock are as follows:
Dividends. The holders of the shares of the Series B Preferred Stock
are entitled to receive cumulative, cash dividends at a rate of 7% per
year, which dividends are payable in semi-annually. At the sole discretion
of the holders of the Series B Preferred Stock, dividends may be paid in
cash or in ColorMax Technologies common stock at the Conversion Price.
Liquidation Preference. In the event of any liquidation, dissolution
or winding up of ColorMax, holders of the Series B Preferred Stock shall
be entitled, in preference to the holders of the common stock, to be paid
first out of assets and funds of ColorMax Technologies available for
distribution to holders of ColorMax's capital stock in the amount of
$100.00 per share, plus declared but unpaid dividends.
Conversion Rights. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the
earlier of
(a) one hundred twenty (120) days after the issuance of such shares, or
25
<PAGE>
(b) the Effective Date of the Registration Statement,
Fifty percent of the Series B Preferred Stock held by the holder is
convertible during any thirty (30) day period once it is first
exercisable.
The Series B Preferred Stock is convertible into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
Original Issue Price ($100) by the Conversion Price applicable to such
share in effect on the Conversion Date.
The Conversion Price is 82.5% of the lowest three (3) day (not necessarily
consecutive) average closing bid price of the Company's Common Stock for
the twenty consecutive (20) trading days prior to the Conversion Date. In
no event shall the Series B Conversion Price exceed 120% of the closing
bid price of the Company's common stock on the day prior to the closing
date.
Voting Rights. At any meeting of ColorMax's stockholders or in any
action of stockholders taken by way of written consent in lieu of a
meeting, the holders of the Series B Stock shall be entitled to the number
of votes equal to the number of shares into which the Series B Stock could
be converted at the time of such voting or written consent.
Restrictions. The terms of the Series B Preferred Stock restrict us
from taking certain actions while at least 67 percent of the Series B
Preferred Stock is outstanding. Such restrictions include, but are not
limited to: the payment of dividends on common stock, the redemption of
common stock or preferred stock (except pursuant to the terms of the
Series B Preferred Stock), the sale of substantially all of our assets or
our merger with any other company and certain changes in our capital
structure.
Warrants
As of April 20, 2000, there were outstanding warrants to purchase76,471
shares of ColorMax Technologies common stock at an exercise price of $12.75 per
share, subject to adjustment in the case of stock splits, stock dividends, below
market issuances or a merger or consolidation. The warrants are exercisable
until March 6, 2004. The shares issuable upon the exercise of these Warrants are
part of the shares registered for resale pursuant to the registration statement
of which this Prospectus is a part.
Anti-takeover Provisions
Our Board of Directors has the authority to issue up to 101,000,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. The rights of holders of common stock will be subject to, and may
be adversely affected by, the rights of holders of any preferred stock that may
be issued in the future. Although we have no present intention to issue any
additional shares of preferred stock, any issuance of preferred stock, while
potentially providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting
stock. Additionally, we are subject to the anti-takeover provisions of Section
203 of the DGCL, which prohibits us from engaging in a "business combination"
win an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. Section 203 could have
the effect of delaying or preventing a change of control.
26
<PAGE>
Transfer Agent
Atlas Stock Transfer, 5899 South State Street, Murray, UT 84107,
telephone (801) 266- 7151,has been appointed as the transfer agent for our
common stock.
PLAN OF DISTRIBUTION
The shares being offered hereby by the Selling Stockholders may be
acquired from time to time, upon conversion of our Series B Preferred Stock or
exercise of warrants or options. The actual number of shares of our common stock
issued or issuable upon conversion of the Series B Preferred Stock is subject to
adjustment depending on factors which cannot be predicted by us at this time,
including the future market price of our common stock.
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange market or trading facility on which our
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 promulgated
under the Securities Act, if available, rather than under this Prospectus. The
Selling Stockholders may also engage in short sales against the box, puts and
calls and other transactions in our securities or derivatives of our securities
and may sell or deliver shares in connection with these trades.
The Selling Stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares. Broker-dealers engaged by the selling stockholder may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive
27
<PAGE>
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We have agreed to pay all fees and expenses incident to the registration
of the shares, including certain fees and disbursements of counsel to the
Selling Stockholders. We have agreed to indemnify the Selling Stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act. The Selling Stockholders have also agreed to indemnify
us, our directors, officers, agents and representatives against certain
liabilities, including certain liabilities under the Securities Act. The Selling
Stockholders and other persons participating in the distribution of the shares
offered hereby are subject to the applicable requirements of Regulation M
promulgated under the Securities Exchange Act of 1934 in connection with the
sales of the shares
SELLING SHAREHOLDERS
The following table sets forth the names of the Selling Stockholders, the
number of shares of common stock beneficially owned by the Selling Stockholders
and the number of shares of common stock which may be offered for sale pursuant
to this Prospectus by such selling stockholder. The offered shares of common
stock may be offered from time to time by each of the Selling Stockholders named
below. See "Plan of Distribution." However, the Selling Stockholders are under
no obligation to sell all or any portion of the shares of common stock offered,
nor are the Selling Stockholders obligated to sell such shares of common stock
immediately under this Prospectus.
Particular Selling Stockholders may not have a preset intention of selling
their shares and may offer less than the number of shares indicated. Because the
Selling Stockholders may sell all or part of the shares of common stock offered
hereby, no estimate can be given as to the number of shares of common stock that
will be held by the Selling Stockholders upon termination of any offering made
hereby. The number of shares of common stock issuable upon conversion of the
Series B convertible preferred stock and upon exercise of warrants are subject
to adjustment by reason of stock splits, stock dividends and other similar
transactions, additional issuances of securities or variation in the price of
ColorMax Technologies' common stock.
Number of Common
Shares Beneficially Common Shares
Name of Selling Stockholder Owned Prior to Offering Offered Hereby (1)
- --------------------------- ----------------------- --------------
Brook Road LLC 1,756,471 (2) 1,756,471
Commercial Center
P.O. Box 31106 SMB
Grand Cayman, Cayman
28
<PAGE>
Ladenburg Thalmana & Co., Inc. 20,000 (3) 20,000
590 Madison Avenue
New York, NY 10022
(1) The Selling Stockholders may, but are not required to, sell shares in
connection with this offering.
(2) Consists of (i) up to an estimated 1,700,000 shares issuable upon the
conversion of Series B Preferred Stock and (ii) 56,471 shares issuable upon the
exercise of Warrants. The Warrants are exercisable at $12.75 per share until
March 6, 2004. Brook Road LLC will receive the shares offered by this Prospectus
upon conversion of our Series B Preferred Stock (Preferred Stock") or exercise
of the Warrants.
On March 6, 2000, we entered into an agreement with Brook Road pursuant to
which it invested $4 million in our company. Pursuant to such agreement, we
issued Brook Road 40,000 Shares of Series B Preferred Stock and the Warrants.
The estimated number of shares issuable upon conversion of the Series B
Preferred Stock is based on an estimated conversion price of $4.95 per share of
common stock. The actual number of shares of common stock issuable upon
conversion of the Series B Preferred Stock currently is indeterminable, is
subject to adjustment and could be materially less or more than such estimated
number depending on factors which cannot be predicted by us at this time,
including, among other factors, the future market price of the common stock. The
1,700,000 shares registered for issuance upon conversion of the Series B
Preferred Stock represents approximately 200% of the total amount of shares
which we currently anticipate will be issued by ColorMax Technologies to Brook
Road in the conversion. We have agreed to register this amount pursuant to our
agreement with Brook Road. Any of these shares not actually issued in the
conversion will be deregistered by ColorMax and will not be issued to Brook
Road.
Because of the possibility that the number of shares of common stock
outstanding increases due to a stock split, dividend or antidilution
adjustments, the number of shares of common stock issuable upon such conversion
or exercise and subject to this Prospectus is indeterminate and this Prospectus
relates to the resale of such entire indeterminate number of shares of common
stock. Other than the ownership of our securities, Brook Road has had no
material relationship with us within the past three years.
Any shares registered hereunder not issued in connection with the
conversion of the Series B Preferred Stock will be unregistered by a
post-effective amendment to the Registration Statement of which this Prospectus
is a part.
(3) Consists of shares issuable upon the exercise of Warrants. Such
Warrants are exercisable at $12.75 per share until March 6, 2004.
CERTAIN TRANSACTIONS
Acquisition of RGB Technology
On June 8. 1999, ColorMax Technologies (then called Renu U International)
acquired 100% of the common stock of RGB Technology Group, Inc. which was
organized in the state of Delaware on April 28, 1999. RGB Technology was, prior
to our acquisition, a wholly-owned subsidiary of Kimrose Holdings, Inc., a Hong
Kong corporation. Kimrose spent several years developing the basic ColorMax
technology and on May 1, 1999, Kimrose entered into an Exclusive Distribution
Agreement with RGB Technology, Kimrose's wholly-owned subsidiary (See Business
of ColorMax
29
<PAGE>
- - Exclusive Distributorship Agreement). RGB Technology's primary asset at
the time it was acquired by ColorMax was its rights under the Exclusive
Distributorship Agreement.
The basic structure and terms of the transaction between ColorMax and
Kimrose were as follows:
o Immediately prior to the acquisition, there were approximately 9,961,241
shares of ColorMax (then called Renu U International) issued and
outstanding.
o ColorMax issued 90,000,000 shares of its $.001 par value common stock to
Kimrose in exchange for all of the issued and outstanding shares of RGB
Technology.
o Following the acquisition of RGB Technology, ColorMax effected a 1 for 30
reverse split reducing its issued and outstanding shares from approximately
99,961,241 to approximately 3,332,041. (On January 6, 2000, a 2 for 1
forward split stock was effected and these shares were increased to
approximately 6,554,082).
o The previous management of ColorMax resigned and Donald H. Hansen, John D.
Janzti and Julie L. Kim were appointed as officers and directors of the
ColorMax.
Name Change
On September 9, 1999, an Amendment to our Certificate of Incorporation was
filed in the State of Delaware changing our name from Renu U International, Inc.
to ColorMax Technologies, Inc.
Acquisition of Additional Marketing Rights
On September 6, 1999, ColorMax Technologies acquired the marketing rights
for the ColorMax products and technology for Japan from Gem Group, Inc. in
exchange for 6,000,000 shares of our common stock.
On August 15, 1999, ColorMax Technologies acquired the marketing rights
for the ColorMax products and technology for the United Kingdom from Harvest
Capital Group Management, Inc. in exchange for 4,000,000 shares of our common
stock.
On August 27, 1999, ColorMax Technologies acquired the marketing rights
for the ColorMax products and technology for Canada from Nano Material Services
, Inc. in exchange for 4,000,000 shares of our common stock.
Shares Issued for Services
On September 3, 1999, ColorMax Technologies issued 300,000 of our common
stock to Michael Swader and Hee K. Moon for marketing services related to
ColorMax Technologies' product line. (On January 6, 2000, a 2 for 1 forward
split stock was effected and these shares were increase to approximately
500,000). These shares were registered on a registration statement on Form S-8
filed with the Securities and Exchange Commission on September 2,1999.
On November 18, 1999, ColorMax Technologies issued 250,000 of our common
stock to E.S. Whang for technical services related to ColorMax Technologies'
product line. (On January 6, 2000, a 2 for 1 forward split stock was effected
and these shares were increase to approximately
30
<PAGE>
500,000). These shares were registered on a registration statement on Form S-8
filed with the Securities and Exchange Commission on November 18, 1999.
January 6, 2000 Reverse Stock Split
On January 6, 2000, we filed an Amendment to our Certificate of
Incorporation with the Office of the Delaware Secretary of State which effected
a 2 for 1 forward stock split. As a result of this stock split, the 11,372,957
shares of our common stock were increased to 22,751,914.
Loans From Related Parties
At December 31, 1999, ColorMax had been owed $179,300 for loans made by
the following:
Lender Principal amount Due Date
-------------------------------------------------------------------------
Color Vision Technologies, Inc $96,000 1/15/2001
Julie L. Kim $83,300 1/15/2001
All of such loans bear interest at the rate of eight percent per annum.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, we have 22,902,582 shares of common
stock issued and outstanding. Approximately 1,873,480 of these shares of common
stock are either eligible for sale pursuant to Rule 144 or have been registered
under the Securities Act for resale by the holders. We are unable to estimate
the amount, timing or nature of future sales of outstanding common stock. Sales
of substantial amounts of the common stock in the public market may hurt the
stock's market price.
In general, under Rule 144, if a period of at least one year has elapsed
since the later of the date the "restricted securities" were acquired from us or
the date they were acquired from an Affiliate (as that term is defined in Rule
144), then the holder of such restricted securities is entitled to sell a number
of shares of common stock equal to 1% of the issued and outstanding shares of
common stock (approximately 24,000,000 shares immediately after this offering)
or the average weekly reported volume of trading of the common stock on The
Nasdaq SmallCap Market during the four calendar weeks preceding such sale. The
holder may only sell such shares through unsolicited brokers' transactions or
directly to market makers. Sales under Rule 144 are also subject to certain
requirements pertaining to the manner of such sales, notices of such sales and
the availability of current public information about us. Affiliates may sell
shares not constituting restricted shares in accordance with the foregoing
volume limitations and other requirements but without regard to the one-year
holding period.
Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from us or the date they
were acquired from an Affiliate, as applicable, a holder of such restricted
shares who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to sell
the shares immediately without regard to the volume limitations and other
conditions described below. We
31
<PAGE>
cannot make any predictions as to the effect, if any, that sales of shares or
the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of significant amounts of the common
stock in the public market, or the perception that such sales may occur, could
adversely affect prevailing market prices.
EXPERTS
Our consolidated financial statements as of December 31, 1999, and for the
year ended December 31, 1999, are included in this Prospectus and have been
audited by Anderson, Anderson & Strong, our auditors, as indicated in their
report that accompanies the financial statements, and are incorporated in this
Prospectus in reliance on the firm of Anderson, Anderson & Strong as experts in
accounting and auditing.
LEGAL OPINION
Cohne, Rappaport & Segal, attorneys at law, 525 east 100 South, Fifth
Floor, Salt Lake City, UT, 84102, is giving an opinion regarding the validity of
the offered shares.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any report or document we file
at the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the SEC's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the
SEC at 1-800-SEC-0880 for more information about the public reference rooms. Our
SEC filings are also available from the SEC's web site located at
http://www.sec.gov.
We have filed with the SEC a Registration Statement on Form SB-2 under
the Securities Act with respect to the common stock covered by this Prospectus.
This Prospectus, which is a part of the Registration Statement, does not contain
all the information set forth in, or annexed as exhibits to, the Registration
Statement, as permitted by the SEC's rules and regulations. For further
information with respect to us and the common stock offered under this
Prospectus, please refer to the Registration Statement, including the exhibits.
Copies of the Registration Statement, including exhibits, may be obtained from
the SEC's public reference facilities listed above upon payment of the fees
prescribed by the SEC, or may be examined without charge at these facilities.
Statements concerning any document filed as an exhibit are not necessarily
complete and, in each instance, we refer you to the copy of the document filed
as an exhibit to the Registration Statement.
We are subject to the reporting requirements of the Exchange Act and, in
accordance therewith, file reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information can be inspected
and copied at the public reference facilities of the SEC set forth above, and
copies of such materials can be obtained from the SEC's Public Reference Section
at prescribed rates. We furnish our stockholders with annual reports containing
audited financial statements and such other periodic reports as we deem
appropriate or as may be required by law.
32
<PAGE>
[LETTERHEAD OF ANDERSEN, ANDERSEN & STRONG, L.C.]
Board of Directors
ColorMax Technologies, Inc.
Tustin, Ca
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated balance sheet of Colormax
Technologies, Inc., and Subsidiary, at December 31, 1999 and the related
statements of operations, stockholders' equity, and cash flows for the period
April 28, 1999 (date of inception) to December 31, 1999 These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall balance sheet presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ColorMax Technologies, Inc.,
and Subsidiary at December 31, 1999 and the results of operations, and cash
flows for the period April 28, 1999 (date of inception) to December 31, 1999 ,
in conformity with generally accepted accounting principles.
ANDERSEN, ANDERSEN & STRONG, L.C.
Salt Lake City, Utah
March 22, 2000
33
<PAGE>
COLORMAX TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31, 1999
------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 12,314
Accounts receivable 2,000
Inventory 6,601
Prepaid expenses 20,102
---------------
Total Current Assets 41,017
---------------
PROPERTY AND EQUIPMENT - net of accumulated depreciation 113,612
---------------
OTHER ASSETS
Marketing rights - net of amortization - Notes 2 and 5 1,372,733
Deposits 13,519
---------------
$1,540,881
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - related parties $ 118,562
Accounts payable 127,969
---------------
Total Current Liabilities 246,531
---------------
LONG TERM DEBT AND OTHER CONTINGENCIES
Notes payable - related parties - Note 6 179,300
---------------
STOCKHOLDERS' EQUITY
Convertible preferred stock
101,000,000 shares authorized, series A and B at $.10
par value, series C at $ .001 par value - none
outstanding
Common stock
100,000,000 shares authorized, at $0.001 par value;
22,751,914 shares issued and outstanding 22,752
Capital in excess of par value - Note 3,079,082
Accumulated deficit during development stage - Note 4 (1,986,784)
---------------
Total Stockholders' Equity 1,115,050
---------------
$ 1,540,881
===============
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
COLORMAX TECHNOLOGIES INC. AND SUBSIDIARY
(Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS For the Period
April 28, 1999 (date of inception) to December 31, 1999
(Note 4)
- -------------------------------------------------------------------------------
REVENUES # 3,150
---------------
EXPENSES
Administrative and developmental 1,960,970
Amortization 23,267
Depreciation 5,697
---------------
1,989,934
---------------
Net Loss $ (1,986,784)
===============
GAIN (LOSS) PER COMMON SHARE
Basic $ (.21)
---------------
AVERAGE OUTSTANDING SHARES
Basic 9,694,600
---------------
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
COLORMAX TECHNOLOGIES, INC. AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period April 29, 1999 to December 31, 1999
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance April 1, 1999
(date of inception - note 4) 672,580 $ 673 $ (672) $ -
Issuance of common stock for all stock
of RGB Technology - no recorded
value - June 9, 1999 - Note 4 6,000,000 6,000 (6,000) -
Issuance of common stock for expenses
and services at $.21-July to Oct 1999 1,373,334 1,373 291,960 -
Issuance of common stock for cash at
$.50 - July and August 1999 200,000 200 99,800 -
Issuance of common stock for United
Kingdom marketing rights -
at $.10 - November 8, 1999 4,000,000 4,000 396,000 -
Issuance of common stock for Japan
and Canada marketing rights
at $.10 - November 8, 1999 10,000,000 10,000 990,000 -
Issuance of common stock for services -
at $2.50 - November 18, 1999 500,000 500 1,249,500 -
Issuance of common stock for services
at $2.25 - December 30, 1999 6,000 6 13,494 -
Contribution to capital - equipment - - 45,000 -
Net operating loss for the period April 9,
1999 to December 31, 1999 - - - (1,986,784)
---------------------------------------------------------------
Balance December 31, 1999 22,751,914 $ 22,752 $3,079,082 $(1,986,784)
===============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
36
<PAGE>
COLORMAX TECHNOLOGIES, INC. AND SUBSIDIARY
( Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period April 28, 1999 (date of inception ) to December 31, 1999
(Note 4)
- ------------------------------------------------------------------------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net profit (loss) $ (1,986,784)
Adjustments to reconcile net loss to
net cash provided by operating activities
Amortization of marketing rights 23,267
Depreciation 5,697
Issuance of common stock for expenses 1,556,833
Changes in inventory (6,601)
Change in accounts receivable (2,000)
Change in prepaid expenses and deposits (33,621)
Change in accounts payable 429,831
---------------
Net Cash Used by Operations (13,378)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (74,308)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 100,000
---------------
Net Increase (Decrease) in Cash 12,314
Cash at Beginning of Period -
---------------
Cash at End of Period $12,314
==============
NONCASH OPERATING AND INVESTING ACTIVITIES
Issuance of 1,373,334 common shares for expenses - 1999 $293,333
---------------
Issuance of 14,000,000 common shares for marketing rights - 1999 1,400,000
---------------
Contribution to capital - equipment - 1999 45,000
---------------
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
COLORMAX TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. ORGANIZATION
The Company was incorporated under the laws of the State of Delaware on June 14,
1971 with name "World Com, Inc.". There have been several name changes and
authorized stock changes resulting in the present name and the authorized shares
shown in the balance sheet.
The authorized convertible preferred shares consist of 1,000,000 Class A at $.10
par value, 50,000,000 Class B at $.001 par value, and 50,000,000 class C at
$.001 par value.
The Company has been involved in various activities over the years and during
the year 1983 discontinued all operations until 1996 when the Company started
developmental work on a device to be used in the physical care field however
during June 1999 the Company transferred the business as part of an acquisition
and reorganization and is now engaged in the business as outlined in note 4.
On July 12, 1999 the Company completed a reverse stock split of 30 shares of
outstanding stock for one share and on January 7, 2000 a forward stock split of
two shares for each outstanding share. This report has been prepared showing
after stock split shares from inception.
The company is in the development stage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Methods
The Company recognizes income and expenses based on the accrual method of
accounting.
Dividend Policy
The Company has not yet adopted a policy regarding payment of dividends.
Income Taxes
On December 31, 1999, the Company had a net operating loss carry forward of
$1,986,477. The tax benefit from the loss carry forward has been fully offset by
a valuation reserve because the use of the future tax benefit is doubtful since
the Company has not started operations and is unable to project a reliable
future net profit. The loss carryforward will expire in 2021.
38
<PAGE>
COLORMAX TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary after the elimination of intercompany transactions.
Note 4
Marketing Rights
Marketing rights are amortized, on the straight line method, over ten years.
Property and Equipment
Office and manufacturing equipment is being depreciated on the straight line
method over three, five, and seven years and summarized as follows;
Cost $119,309
Accumulated depreciation 5,697
----------
Net 113,612
----------
Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share amounts are computed based on the weighted
average number of shares actually outstanding, after the stock splits. Diluted
net income (loss) per share amounts are computed using the weighted average
number of common shares and common equivalent shares outstanding as if shares
had been issued on the exercise of the preferred share rights unless the
exercise becomes antidilutive and then only the basic per share amounts are
shown in the report.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130.
The adoption of this standard had no impact on the total stockholder's equity on
June 30, 1999.
Accounting for Stock-Based Compensation
The Company has adopted Statement of Financial Accounting Standards No. 123
but has elected to continue to measure compensation cost under APB 25. The
adoption of FASB No. 123 has no impact on the Company's financial statements.
39
<PAGE>
COLORMAX TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
The Company does not expect that the adoption of other recent accounting
pronouncements will have a material impact on its financial statements.
Financial Instruments
The carrying amounts of financial instruments, including all assets and
liabilities shown in the balance sheet, are considered by management to be their
estimated fair values.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of the assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing these financial statements.
3. TRANSFER OF COMPANY ASSETS IN EXCHANGE FOR ALL LIABILITIES
During June 1999 the Company transferred all its assets and the business in the
physical care field in exchange for the assumption of all its liabilities, as
part of an acquisition and reorganization outlined in note 4, between the
Company and RGB Technology Group, Inc. and Kimrose Holdings. At the report date
$ 175,000 of assumed liabilities had been paid. The remaining balance of
$204,260 will remain as a contingent liability to the Company until they are
satisfied. Management believes the liabilities will be fully satisfied by the
predecessor.
4. ACQUISITION OF ALL OUTSTANDING STOCK OF RGB TECHNOLOGY GROUP
INC.
On June 8, 1999 the Company acquired all of the outstanding stock of RGB
Technology Group Inc. through a stock for stock exchange in which the
stockholder (Kimrose Holdings) of RGB Technology Group Inc. received 6,000,000,
after stock split, common shares of the Company in exchange for all of the stock
of RGB Technology Group Inc. RGB Technology Group Inc. was organized in the
state of Delaware on April 28, 1999 for the purpose of marketing ColorMax (R)
lenses and a computer color vision test software. After the completion of the
transaction the outstanding stock of the Company was 6,664,082 common shares of
which 6,000,000 was owned by Kimrose Holdings.
40
<PAGE>
COLORMAX TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
- ------------------------------------------------------------------------------
4. ACQUISITION OF ALL OUTSTANDING STOCK OF RGB TECHNOLOGY GROUP
INC. (Continued)
The only asset held by RGB Technology Inc. on June 8, 1999 consisted of the
exclusive marketing rights for the above technology, for use in the United
States, Australia, and New Zealand, which was recorded on the books of RGB with
no value.
For reporting purposes, the acquisition is treated as an acquisition of the
Company by RGB Technology Group Inc., the acquirer, (a reverse acquisition) and
a recapitalization of RGB Technology Group Inc. The historical financial
statements prior to June 8, 1999 are those of RGB Technology Group Inc. No good
will was recognized from the consolidation. All material intercompany accounts
and transactions have been eliminated.
5. MARKETING RIGHTS
The Company acquired marketing rights, from related parties, for use in the
countries of the United Kingdom, Canada, and Japan by the issuance of common
stock as outlined in the Statement of Changes in Stockholders Equity. The
marketing rights will continue for ten years with rights of renewal.
6. NOTES PAYABLE - RELATED PARTIES
The Company has received loans from related parties amounting to $179,300 with
various due dates after one year with interest at 8%.
7. RELATED PARTY TRANSACTIONS
Related parties own 26.3 % of the outstanding common stock.
See notes 3 and 4 for the transfer of assets and the assumption of liabilities
to related parties as part of an acquisition and reorganization of the Company.
Other related party transactions are identified in the balance sheet and in
notes 5 and 6.
8. GOING CONCERN
The Company has acquired marketing rights, described above, and in the opinion
of management, will provide a profit to the Company after operations begin. The
Company will need additional working capital to be successful in this effort.
The management of the Company has developed a strategy, which it believes will
accomplish this objective through additional loans from related parties, equity
funding and long term financing, which will enable the Company to operate for
the coming year. See the subsequent events for a private placement of preferred
stock.
41
<PAGE>
COLORMAX TECHNOLOGIES, INC. AND SUBSIDIARY
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
- ------------------------------------------------------------------------------
9. CONTINUING AND CONTINGENT LIABILITIES
The Company remains contingently liable on certain accounts payable as outlined
in note 3. The Company is obligated under an office and manufacturing facility
lease agreement starting September 1, 1999 and continuing for five years as
follows;
Year Amount
------------------------------------
1 $101,030
2 105,250
3 109,450
4 113,660
5 117,880
10. SUBSEQUENT EVENTS
Preferred Capital Stock
On March 6, 2000 the Company completed a private placement and sale of 40,000
shares of 7% convertible preferred capital stock for cash of $3,680,000 net of
offering costs of $320,000 and included 76,471 warrants convertible to common
stock. 20,000 of the warrants issued was additional offering costs
The terms of the preferred stock includes semi-annual dividend payments in cash
and conversion rights of one share of preferred for one share of common, not to
exceed 50% of holding by each shareholder during any 30 day period upon an
effective registration date with the SEC, with a conversion rate of the lower of
$12.75, or 85% of the low three-day average closing bid price of the Company's
common stock for the 20 consecutive trading days prior to the trading day on
which conversion notice is sent, however, the Company cannot issue more than 20%
of common shares outstanding without shareholder approval. If shareholder
approval cannot be obtained then the Company will be obligated to purchase the
preferred shares at 120% of the original purchase price plus accrued dividends.
The terms of the warrants provides for conversion to common capital stock of one
warrant for one share of common stock at the rate of $12.75 per share with an
expiration date of four years from the date of issuance.
Patents
During March 2000 the Company purchased two patents and trademarks relating to
soft contact lenses including the trademarks of the X-Chrom Company in the
United State , US Patent Number 4998817 and in Canada, Canadian Patent Number
1318529 for $125,000.
42
<PAGE>
COLORMAX TECHNOLOGIES INC. AND SUBSIDIARY
(Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 1999, and 1998 and the
Period January 1, 1983 (date of inception of development stage) to September 30,
1999
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Sept 30, Sept 30, Sept 30, Sept 30, January 1, 1983 to
1999 1998 1999 1998 Sept 30, 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 3,150 $ 33,850 $ 3,150 $ 93,447 $ 147,354
COST OF SALES - 8,425 - 22,036 51,117
-------------------------------------------------------------------------------
Gross Profit 3,150 25,425 3,150 71,411 96,237
EXPENSES 861,916 28,244 861,916 137,033 1,514,751
-------------------------------------------------------------------------------
Net Loss (858,766) (2,819) (858,766) (65,622) (1,418,514)
OTHER INCOME
Gain from transfer of
assets - note 4 - - 347,496 - 347,496
-------------------------------------------------------------------------------
NET GAIN ( LOSS ) $ (858,766) $ (2,819) $(544,238) $(65,622) $(1,071,018)
===============================================================================
GAIN (LOSS) PER
COMMON SHARE
Basic $ ( 0.23) $ (0.01) $ ( 0.15) $ (0.20)
----------------------------------------------------------
AVERAGE
OUTSTANDING
SHARES
Basic 3,736,290 336,290 3,736,290 336,290
----------------------------------------------------------
</TABLE>
43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
ColorMax Technologies' charter provides that to the fullest extent
permitted by law, no director or officer of ColorMax Technologies shall be
personally liable to ColorMax Technologies or its stockholders for damages for
breach of any duty owed to ColorMax Technologies or its stockholders and that
ColorMaxTechnologies may, in its by-laws or in any resolution of its
stockholders or directors, undertake to indemnify the officers and directors of
ColorMax Technologies against any contingency or peril as may be determined to
be in the best interests of ColorMax Technologies, and in conjunction therewith,
to procure, at ColorMax Technologies' expense, policies of insurance. Delaware
law, under which ColorMax Technologies is incorporated, allows a corporation to
indemnify its directors and officers if such director or officer acted in good
faith and in a manner such director or officer reasonably believed to be in , or
not opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. ColorMax Technologies maintains a director and officer liability
insurance policy covering each of ColorMax Technologies' directors and executive
officers.
Item 25. Other Expenses of Issuance and Distribution
We estimate that our expenses in connection with this registration
statement will be as follows:
Securities and Exchange Commission registration fee $ 3,500
Legal fees and expenses 55,000
Accounting fees and expenses 2,000
Printing 1,000
Miscellaneous 2,500
------------
Total $64,000
------------
Item 26. Recent Sales of Unregistered Securities
During the last three years, ColorMax Technologies sold the securities
listed below in unregistered transactions. Each of the sale was sold in reliance
on the exemption provided for in Section 4(2) of the Securities Act of 1933, as
amended. No underwritng fee or other compensation was paid in connection with
the issuance of shares except as described in footnote 1. All of the shares
listed as issued are calculated on a post split basis.
Name Date Shares Issued Consideration Paid
- -------------------------------------------------------------------------------
Brook Road LLC 3/6/00 40,000 Preferred $4,000,000 (1)
Jean Francois Hibbert 2/4/00 66,668 - (2)
Donald H. Hansen, O.D. 1/25/00 24,000 $72,000 (services)(3)
John D. Janzti, O.D. 1/25/00 20,000 $60,000 (services)(3)
Julie L. Kim 1/25/00 20,000 $60,000 (services)(3)
James E. Bailey, Ph.D. 1/25/00 20,000 $60,000 (services)(3)
Robert Pasquaye 12/30/99 6,000 $13,500 (services)(3)
44
<PAGE>
E.S. Whang 11/18/99 500,000 $1,250,000 (services)(4)
Gem Group, Inc. 11/8/99 6,000,000 $600,000 (marketing
rights)(5)
Nano Material Science, Inc. 11/8/99 4,000,000 $ 400,000 (marketing
rights)(6)
Harvest Capital Management 10/20/99 4,000,000 $ 400,000 (marketing
rights)(7)
Sumatra Holdings 9/28/99 130,000 $65,000 (services)(8)
Mark Meriwether 9/16/99 300,000 $150,000 (services)(9)
Michael Swader,
Hee K. Moon 9/3/99 600,000 $126,000 (services)(10)
Brookstreet Securities 8/31/99 100,000 $50,000 (equity)(11)
Donald H. Hansen, O.D. 8/6/99 33,334 $ 16,667 (services)(3)
John D. Janzti, O.D. 8/6/99 30,000 $ 15,000 (services)(3)
Julie L. Kim 8/6/99 30,000 $ 15,000 (services)(3)
James E. Bailey, Ph.d. 7/27/99 20,000 $ 10,000 (services)(3)
Dar Yung Sung, Ph.d. 7/27/99 20,000 $ 10,000 (services)(3)
Jack D. Moreland, Ph.d. 7/27/99 20,000 $ 10,000 (services)(3)
Rodney L. Tahran 7/27/99 20,000 $ 10,000 (services)(3)
Mark Meriwether 7/20/99 170,000 $65,000 (services)(9)
Brookstreet Securities 7/16/00 100,000 $50,000 (equity)(11)
Kimrose Holdings, Ltd. 7/2/99 6,000,000 $6,000 (stock exchange)
(12)
(1) These shares of Series B Convertible Preferred Stock are the shares
described in the Prospectus which is a part of this registration
statement. These shares are convertible into shares of common stock as
described in the Prospectus. ColorMax paid a cash commission of $319,970
to Ladenburg Thalmann & Co., Inc. in connection with the sale of the
Series B Convertible Preferred Stock. ColorMax Technologies also issued
Brook Road LLC warrants to purchase 56,471 shares of common stock at
$12.75 per share in connection with the purchase of the Series B
Convertible Preferred Stock. ColorMax Technologies also issued Ladenburg
Thalmann & Co. warrants to purchase 20,000 shares of common stock at
$12.75 per share as additional compensation in connection with the sale of
the Series B Convertible Preferred Stock. The shares underlying both of
such warrants are part of the shares registered by this registration
statement for resale.
(2) These shares were issued to replace lost certificates.
(3) These shares were issued as compensation to directors, officers or
employees for services rendered to the Company.
(4) ColorMax Technologies issued shares in connection with technical services
provided for the production and manufacture of ColorMax products. These
shares were registered on a registration statement on form S-8 filed with
the Securities Exchange Commission on November 18, 1999.
(5) These shares were issued by ColorMax Technologies to acquire the marketing
rights for Japan.
(6) These shares were issued by ColorMax Technologies to acquire the marketing
rights for Canada.
(7) These shares were issued by ColorMax Technologies to acquire the marketing
rights for the United Kingdom.
(8) ColorMax Technologies issued shares in connection with marketing services
for ColorMax products.
(9) ColorMax Technologies issued shares in connection with marketing services
for ColorMax products.
45
<PAGE>
(10) ColorMax Technologies issued shares in connection with marketing services
provided for ColorMax products. These shares were registered on a
registration statement on form S-8 filed with the Securities Exchange
Commission on September 2, 1999.
(11) These shares were issued for equity investment to the Company.
(12) ColorMax Technologies acquired all of the issued and outstanding shares of
RGB Technology Group, Inc. from Kimrose Holdings in a stock for stock
exchange. This transaction is further described in the Prospectus which
is part of this registration statement.
Item 27. Exhibits.
The following exhibits are filed as part of this registration statement.
Exhibit numbers correspond to the exhibit requirements of Regulation S-B.
Exhibit
Number Description
-------- -------------
3.1 Certificate of Incorporation of ColorMax Technologies, Inc. (1)
3.2 Amendment to Certificate of Incorporation - Name Change
3.3 Amendment to Certificate of Incorporation - Forward Split
3.4 By-laws of ColorMax Technologies, Inc. (1)
4.1 Specimen common stock certificate. (1)
4.2 Warrant Agreement - Brook Road LLC
4.3. Warrant Agreement - Ladenburg & Thalmann & Co., Inc.
5.1 Opinion Regarding Legality and Consent - Cohne, Rappaport & Segal
10.1 Acquisition Agreement for Shares of RGB Technologies (2)
10.2 Marketing Rights Agreement - United Kingdom
10.3 Marketing Rights Agreement - Japan
10.4 Marketing rights Agreement - Canada
10.4 Securities Purchase Agreement
21.1 List of Subsidiaries
23.1 Consent of Anderson, Anderson & Strong
24.1 Power of Attorney (Included on Signature Page)
- -----------
(1) Incorporated by reference to Form 10 filed May 1971
(2) Incorporated by reference to Form 8-K filed June 8, 1999
Item 28. Undertakings.
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10 (a) (3) of the
Securities Act; (ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the Registration Statement, and
(iii) include any additional or changed material information with
respect to the plan of distribution.
2. That for the purpose of determining any liability under the Securities
Act, each post-effective amendment shall be deemed to be a new registration
statement relating to the securities
46
<PAGE>
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. That for the purpose of determining any liability under the Securities
Act, to treat the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant under Rule 424(b)(1) or (4), or
497(h) under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective.
Insofar as indemnification for liabilities under 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 a successful defense of any action, suit or proceeding) is asserted by a
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 issuer.
47
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Tustin,
State of California on April 20, 2000.
COLORMAX TECHNOLOGIES, INC.
By /s/ Robert S. Iger
Robert S. Iger
Chief Executive Officer
Principal Executive Officer
By /s/ Julie L. Kim
Julie L. Kim
Secretary/Treasurer
Principal Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert S. Iger and Julie L. Kim, and either of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Date Title Signature
April 20, 2000 CEO and /s/ Robert S. Iger
Director -------------------------------------
Robert S. Iger
April 20, 2000 President and /s/ Donald H. Hansen
Director -------------------------------------
Donald H. Hansen
April 20, 2000 Vice President and /s/ John D. Janzti
Director -------------------------------------
John D. Janzti
April 20, 2000 Sectreary/Treasurer /s/ Julie L. Kim
Director -------------------------------------
Julie L. Kim
April 20, 2000 Director /s/ Kenneth M. Larkin
-------------------------------------
Kenneth M. Larkin
48
<PAGE>
April 20, 2000 Director /s/ Joseph L. Brueni
--------------------------------
Joseph L. Brueni
April 20, 2000 Director /s/ Richard A. Hahn
-------------------------------
Richard A. Hahn
49
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
-------- --------------
3.2 Amendment to Certificate of Incorporation - Name Change
3.3 Amendment to Certificate of Incorporation - Forward Split
4.2 Warrant Agreement - Brook Road LLC
4.3. Warrant Agreement - Ladenburg & Thalmann & Co., Inc.
5.1 Opinion Regarding Legality and Consent - Cohne, Rappaport & Segal
10.2 Marketing Rights Agreement - United Kingdom
10.3 Marketing Rights agreement - Japan
10.4 Marketing rights Agreement - Canada
10.5 Securities Purchase Agreement
21.1 List of Subsidiaries
23.1 Consent of Anderson, Anderson & Strong
50
State of Delaware
Secretary of State
Division of Corporations
Filed 09:00 A.M. 09/07/1999
991371614 - 0772887
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
RENU-U INTERNATIONAL, INC.
Renu-U International, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Renu-U International, Inc.;
SECOND: The following amendment was adopted by the Board of Directors
and the majority stockholder of the corporation on July 16,
1999, in the manner prescribed by Sections 141, 228 and 242 of
the General Corporation Law of the State of Delaware.
RESOLVED, that the corporation change its name to "ColorMax
Technologies, Inc."; and
FURTHER, RESOLVED, that such amendments take effect at the
close of business on September 7, 1999.
THIRD: This amendment does not provide for any exchange, reclassifi-
cation or cancellation of issued shares.
IN WITNESS WHEREOF, Renu-U International, Inc. has caused this Certificate
to be signed by Donald H. Hansen, O.D., its President, and attested by Julie
Kim, its Secretary, this 1st day of September, 1999.
RENU-U INTERNATIONAL, INC.
By: /s/ Donald H. Hansen, O.D.
---------------------------------------
Donald H. Hansen, O.D., President
ATTEST:
By: /s/ Julie Kim
Julie Kim, Secretary
51
State of Delaware
Secretary of State
Division of Corporations
Filed 09:00 A.M. 01/06/2000
001009476 - 0772887
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COLORMAX TECHNOLOGIES, INC.
ColorMax Technologies, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is ColorMax Technologies, Inc.
SECOND: The following amendment was adopted by the Board of Directors
and persons owning in excess of a majority of the outstanding
voting securities of the Corporation, in the manner prescribed
by Sections 141, 228 and 242 of the General Corporation Law of
the State of Delaware.
RESOLVED, that the 11, 372, 957 outstanding shares of
common stock of the Corporation be forward split on a
basis of two for one, while retaining the current
authorized capital and par value, with appropriate
adjustments to the capital accounts of the Corporation.
THIRD: As a result of this amendment, each outstanding pre-amendment
share shall be exchanged for two post-amendment shares.
FOURTH: This amendment does effect a change in the stated capital of
the Corporation.
IN WITNESS WHEREOF, ColorMax Technologies, Inc. has caused this Certificate
to be signed by Donald H. Hansen, O.D., President, and Julie Kim, Secretary,
this 15th day of December, 1999.
COLORMAX TECHNOLOGIES, INC.
By: /s/ Donald H. Hansen, O.D., Pres.
Donald H. Hansen, O.D., President
By: /s/ Julie Kim
Julie Kim, Secretary
52
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
COLORMAX TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance. In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by COLORMAX TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), Brook Road, LLC, or registered assigns
(the "Holder") is hereby granted the right to purchase at any time commencing
March 5, 2000 until 5:00 P.M., New York City time, on March 6, 2004 (the
"Expiration Date"), 56,471 fully paid and nonassessable shares of the Company's
Common Stock, par value $.001 per share (the "Common Stock") at an initial
exercise price of $12.75 per share (the "Exercise Price"), subject to further
adjustment as set forth in Section 6 hereof.
2. Exercise of Warrants. (This Warrant is exercisable in whole or in
part at the Exercise Price per share of Common Stock payable hereunder, payable
in cash or by certified or official bank check, or by "cashless exercise", by
means of tendering this Warrant Certificate to the Company to receive a number
of shares of Common Stock equal in Market Value to the difference between the
Market Value of the shares of Common Stock issuable upon exercise of this
Warrant and the total cash exercise price thereof divided by the Market Volume.
Upon surrender of this Warrant Certificate with the annexed Notice of Exercise
Form duly executed, together with payment of the Exercise Price for the shares
of Common Stock purchased, the Holder shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased. For the purposes of
this Section 2, "Market Value" shall be an amount equal to the average closing
bid price of a share of Common Stock for the ten (10) days preceding the
Company's receipt of the Notice of Exercise Form duly executed multiplied by the
number of shares of Common Stock to be issued upon surrender of this Warrant
Certificate.
(b) For purposes of Rule 144 promulgated under the Securities
Act, it is intended, understood and acknowledged that the Warrant Shares issued
in a cashless exercise transaction shall be deemed to have been acquired by the
Holder and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the issue date.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are
53
<PAGE>
limited to those expressed in this Warrant and are not enforceable against the
Company except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise
Price is required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is entitled to purchase pursuant
to this Warrant, multiplied by (ii) the adjusted purchase price per share, to
equal (iii) the dollar amount of the total number of shares of Common Stock
Holder is entitled to purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse
stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
7. Transfer to Comply with the Securities Act; Registration Rights.
(a) This Warrant has not been registered under the Securities Act of
1933, as amended, (the "Act") and has been issued to the Holder for investment
and not with a view to the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares or any other security
issued or issuable upon exercise of this Warrant may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
under the Act relating to such security or an opinion of counsel satisfactory to
the Company that registration is not required under the Act. Each certificate
for the Warrant, the Warrant Shares and any other security issued or issuable
upon exercise of this Warrant shall contain a legend on the face thereof, in
form and substance satisfactory to counsel for the Company, setting forth the
restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which shall
include the Warrant Shares, on Form S-3 or another available form (the
"Registration Statement"), pursuant to the Registration Rights Agreement between
the Company and Holder dated March 5, 2000.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if the to Company, to:
Colormax Technologies, Inc.
1251 Chambers Road
Tustin, California
Telephone No.: (801) 262-5052
Telecopier No.:
with a copy to:
54
<PAGE>
Leonard Burningham, Esq.
Telephone No.: (801) 363-7411
Telecopier No.: (801) 355-7126
(ii) if to the Holder, to:
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Krieger & Prager LLP
Suite 1440
39 Broadway
New York, New York 10006
Tel No.: (212) 363-2900
Fax No.: (212) 363-2999
Any party may designate another address or person for receipt of notices
hereunder by notice given to the other parties in accordance with this Section.
9. If the Company fails to deliver to the Holder certificate or
certificates representing the Warrant Shares pursuant to Section 3(f) by the
third (3rd) Trading Day after the Date of Exercise, the company shall pay to
such Holder, in cash, as liquidated damages and not as a penalty, $1,000 for
each day after such third 3rd) Trading Day until such certificates are
delivered. Nothing herein shall limit the Holder's right to pursue actual
damages for the Company's failure to deliver certificates representing shares of
Common Stock upon exercise within the period specified herein and the Holder
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
The exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
10. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant of even date herewith contain the full understanding of the
parties hereto with respect to the subject matter hereof and thereof and there
are no representations, warranties, agreements or understandings other than
expressly contained herein and therein.
11. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of such State applicable to
contracts to be made and performed entirely within such State.
12. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
13. Descriptive Headings. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
55
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
5th day of March, 2000.
COLORMAX TECHNOLOGIES, INC.
By: /s/ Donald Hansen
Donald Hansen, President
56
<PAGE>
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of ______________, to purchase
__________shares of the Common Stock, par value $_______ per share, of
___________________ and tenders herewith payment in accordance with Section 1 of
said Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
By:__________________________________
|_| CASH: $ _______________________
57
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
COLORMAX TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance. In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by COLORMAX TECHNOLOGIES, INC., a
Delaware corporation (the "Company"),Ladenburg Thalmann & Co., Inc., or
registered assigns (the "Holder") is hereby granted the right to purchase at any
time commencing march 6, 2000 until 5:00 P.M., New York City time, on March 6,
2004 (the "Expiration Date"), Twenty Thousand (20,0000) fully paid and
nonassessable shares of the Company's Common Stock, par value $.001 per share
(the "Common Stock") at an initial exercise price of $12.75 per share (the
"Exercise Price"), subject to further adjustment as set forth in Section 6
hereof.
2. Exercise of Warrants. (a)This Warrant is exercisable in whole or
in part at the Exercise Price per share of Common Stock payable hereunder,
payable in cash or by certified or official bank check, or by "cashless
exercise", by means of tendering this Warrant Certificate to the Company to
receive a number of shares of Common Stock equal in Market Value to the
difference between the Market Value of the shares of Common Stock issuable upon
exercise of this Warrant and the total cash exercise price thereof divided by
the Market Volume. Upon surrender of this Warrant Certificate with the annexed
Notice of Exercise Form duly executed, together with payment of the Exercise
Price for the shares of Common Stock purchased, the Holder shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased. For the purposes of this Section 2, "Market Value" shall be an amount
equal to the average closing bid price of a share of Common Stock for the ten
(10) days preceding the Company's receipt of the Notice of Exercise Form duly
executed multiplied by the number of shares of Common Stock to be issued upon
surrender of this Warrant Certificate.
(b) For purposes of Rule 144 promulgated under the Securities
Act, it is intended, understood and acknowledged that the Warrant Shares issued
in a cashless exercise transaction shall be deemed to have been acquired by the
Holder and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the issue date.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
58
<PAGE>
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise
Price is required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is entitled to purchase pursuant
to this Warrant, multiplied by (ii) the adjusted purchase price per share, to
equal (iii) the dollar amount of the total number of shares of Common Stock
Holder is entitled to purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse
stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
7. Transfer to Comply with the Securities Act; Registration Rights.
(a) This Warrant has not been registered under the Securities Act of
1933, as amended, (the "Act") and has been issued to the Holder for investment
and not with a view to the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares or any other security
issued or issuable upon exercise of this Warrant may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
under the Act relating to such security or an opinion of counsel satisfactory to
the Company that registration is not required under the Act. Each certificate
for the Warrant, the Warrant Shares and any other security issued or issuable
upon exercise of this Warrant shall contain a legend on the face thereof, in
form and substance satisfactory to counsel for the Company, setting forth the
restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which shall
include the Warrant Shares, on Form S-3 or another available form (the
"Registration Statement"), pursuant to the Registration Rights Agreement between
the Company and Holder dated March 5, 2000.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if the to Company, to:
Colormax Technologies, Inc.
1251 Chambers Road
Tustin, California
Telephone No.: (801) 262-5052
Telecopier No.:
with a copy to:
Leonard Burningham, Esq.
Telephone No.: (801) 363-7411
59
<PAGE>
Telecopier No.: (801) 355-712
(ii) if to the Holder, to:
Tel No.:
Fax No.:
with a copy to:
Krieger & Prager LLP
Suite 1440
39 Broadway
New York, New York 10006
Tel No.: (212) 363-2900
Fax No.: (212) 363-2999
Any party may designate another address or person for receipt of notices
hereunder by notice given to the other parties in accordance with this Section.
9. If the Company fails to deliver to the Holder certificate or
certificates representing the Warrant Shares pursuant to Section 3(f) by the
third (3rd) Trading Day after the Date of Exercise, the company shall pay to
such Holder, in cash, as liquidated damages and not as a penalty, $1,000 for
each day after such third 3rd) Trading Day until such certificates are
delivered. Nothing herein shall limit the Holder's right to pursue actual
damages for the Company's failure to deliver certificates representing shares of
Common Stock upon exercise within the period specified herein and the Holder
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
The exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
10. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant of even date herewith contain the full understanding of the
parties hereto with respect to the subject matter hereof and thereof and there
are no representations, warranties, agreements or understandings other than
expressly contained herein and therein.
11. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of such State applicable to
contracts to be made and performed entirely within such State.
12. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
13. Descriptive Headings. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
60
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
5th day of March, 2000.
COLORMAX TECHNOLOGIES, INC.
By:/s/ Donald Hansen
Donald Hansen, President
61
<PAGE>
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of ______________, to purchase
__________shares of the Common Stock, par value $_______ per share, of
___________________ and tenders herewith payment in accordance with Section 1 of
said Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
By:__________________________________
|_| CASH: $ _______________________
62
[LETTERHEAD OF COHNE, RAPPAPORT & SEGAL]
April 20, 2000
Board of Directors
ColorMax Technologies, Inc.
14251 Chambers Road
Tustin, CA 92780
Re: ColorMax Technologies, Inc.
Registration Statement on Form SB-2
Gentlemen:
We have acted as special counsel to ColorMax Technologies, Inc. (the
"Company") in connection with the proposed registration of shares (the "Shares")
of the Company's common stock, par value $.001 per share (the "Common Stock"),
on a registration statement on Form SB-2 filed by the Company with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Securities Act"). This registration statement, as it may be
amended or supplemented from time to time, including all exhibits thereto, is
referred to hereinafter as the "Registration Statement."
The Shares consist of up to (i) 1,700,000 shares of Common Stock issuable
upon conversion of the Company's Series B Convertible Preferred Stock (the
"Conversion Shares") and (ii) 76,471 shares of Common Stock issuable upon
exercise of warrants (the "Warrant Shares").
In this regard, we have examined: (i) the Company's Articles of
Incorporation and Bylaws, each as amended and as presently in effect; (ii) the
Registration Statement; and (iii) such officers' certificates, resolutions,
minutes, corporate records and other documents as we have deemed necessary or
appropriate for purposes of rendering the opinions expressed herein.
In rendering such opinions, we have assumed the authenticity of all
documents and records examined, the conformity with the original documents of
all documents submitted to us as copies and the genuineness of all signatures.
The opinions expressed herein are based solely upon our review of the
documents and other materials expressly referred to above. We have not reviewed
any other documents in rendering such opinions. Such opinions are therefore
qualified by the scope of that document examination.
The opinions expressed herein are based solely upon our review of the
documents and other materials expressly referred to above. We have not reviewed
any other documents in rendering such opinions. Such opinions are therefore
qualified by the scope of that document examination.
Based upon and subject to the foregoing, and on such other examinations
of law and fact as we have deemed necessary or appropriate in connection
herewith, we are of the opinion that, when issued upon conversion of the Series
B Convertible Preferred Stock and upon the exercise of the Warrants, the
Conversion Shares and theWarrant Shares, all in accordance with the terms
thereof, will be, duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock.
This opinion is limited to the law of the State of Delaware and the federal
securities laws of the United States. Except as expressly otherwise noted
herein, this opinion is given as of the date hereof.
63
<PAGE>
Board of Directors
ColorMax Technologies, Inc.
April 20,2000
Page 2
- -----------------------------
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. By giving such consent, we do not hereby admit that we
fall within the category of persons whose consent is required pursuant to
Section 7 of the Securities Act.
Very truly yours,
/s/ Cohne, Rappaport & Segal.
64
COLORMAX EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
This Agreement is entered into this 1st day of July 1999 by and between Kimrose
Holdings Limited (hereinafter referred to as "KHL"), Kowloon, Hong Kong and
Harvest Capital Management, Inc. (hereinafter referred to as "HCM"), Kowloon,
Hong Kong.
WHEREAS, KHL is engaged in research, development and manufacturing of
ColorMax Color Vision Enhancement Lenses, using its own proprietary
technologies. KHL wishes to have its products offered for sale and
distribution to various regions of the world.
WHEREAS, HCM is in engaged in the business of distribution and representation
of optical and related products.
WHEREAS, KHL and HCM desire to work together to promote and sell the ColorMax
products.
NOW, THEREFORE, for good consideration the parties hereto agree as follows:
1. Products
The products for which HCM shall act as exclusive sales distributor are as
follows: ColorMax Lenses, ColorMax Vision Enhancement Lenses, ColorMax
Color Test Software, New Color Vision Test and other products as may be
added.
2. Territory
The Territory is defined as the United Kingdom.
3. Appointment of ColorMax Distributor
KHL hereby appoints HCM as its Exclusive Sales Distributor to solicit
orders for the products in the territory. HCM hereby accepts the
appointments and agrees to solicit orders and promote the products,
subject to the terms and conditions of this Agreement.
4. Purchase Orders and Customer Information
HCM shall issue Purchase Orders with Customer Information to KHL for the
production of Products.
5. Quality of Products
KHL will not be responsible for the quality and performance of ColorMax
products, except for standard warranties and specifications.
6. Marketing
HCM shall distribute ColorMax products through licensed optical doctors in
the Territory. HCM will not market ColorMax products outside of the
Territory by means of direct mail or other media, without KHL's express
written authorization.
7. Advertising
HCM agrees to use reasonable commercial efforts to advertise, promote,
sell or to arrange for advertising and sales of ColorMax products and HCM
shall:
a. Establish and maintain an organization to operate the business
contemplated by this Agreement with adequate finances and staff
capable of marketing, sales and promotion of ColorMax products
throughout the Territory.
b. HCM shall spend at least five (5%) of Product revenues for
advertising and promotion of ColorMax products in each year. No less
than thirty (30) days prior to commencement of any contract year,
HCM shall submit to KHL a report on the advertising budget for
ColorMax
65
<PAGE>
Products for such contract year. This advertising and promotion
campaign will be done through the advertising company mutually
selected and agreed by HCM and KHL.
c. HCM shall submit to KHL, or as KHL may direct, for KHL's approval,
samples of all press releases, printed and advertising materials
intended to be used in connection with Products, before the same may
be used. No materials shall be used by HCM on Products unless and
until the same has been approved by KHL.
d. KHL shall receive a detailed expense report of advertising by the
end of each year and KHL reserves the right to inspect books and
records of all sales of HCM.
8. Exclusive Distributorship
a. HCM shall have the right to distribute ColorMax products on an
exclusive basis in the Territory.
b. HCM shall pay three percent (3%) Royalty on the net wholesale amount
to KHL or KHL's designee during the terms of this Agreement and any
extension thereof.
9. Duties of HCM
HCM shall:
a. Use its best efforts to sell and promote the sales of products
in the Territory and to abide by KHL's company's policies.
b. Make demonstrations to promote sales.
c. Contact and solicit prospective purchasers of the products in the
Territory. d. Assign dedicated staff for the purpose of operating
ColorMax business in the Territory.
A list of these staff and doctors shall be forwarded to KHL.
10. Duties of KHL
KHL shall:
a. Deliver orders placed by HCM.
b. Support technical training.
c. Provide product information.
d. Furnish advertising and promotional information.
11. Relationship of Parties
HCM's relationship to KHL in the performance of this Agreement is that of
an independent contractor. HCM, its agents, or employees, shall under no
circumstances represent themselves as agents or representatives of KHL or
its subsidiaries; furthermore, they shall not make any commitment or
contract for or on behalf of KHL, or in its name or otherwise bind KHL in
any way.
12. No License and No Partnership
Nothing in this Agreement is intended to grant any rights to HCM under any
patent or intellectual properties or proprietary technologies. Nothing
herein contained shall be construed so as to constitute the parties hereto
as partners or as joint ventures, or either as agent of KHL, and HCM does
not have the power to obligate or bind KHL in any manner whatsoever.
13. Non-Disclosure and Non-Compete
HCM agrees not to use any confidential data disclosed by KHL except for
its own use or for any purposes approved by KHL in writing. All employees
and staff who shall engage in ColorMax businesses shall observe such
restrictions. During the term of this Agreement, HCM shall not sell,
leases, promote or distribute any products, which uses similar
technologies, and compete with ColorMax Products in the Territory.
66
<PAGE>
14. Governing Law
This Agreement shall be governed by and shall be construed in accordance
with Hong Kong law and the courts of Hong Kong, but may be enforced in any
court having jurisdiction over the offending party's places of business,
and shall be binding upon the parties hereto worldwide.
15. Assignment
This Agreement may not be transferred, assigned, pledged, mortgaged or
otherwise disposed of by HCM in whole or in part without written
authorization from KHL.
16. Force Majeure
In the event that KHL's performance of its obligations under this agreement
is made impossible by fire, flood, earthquake, other act of nature,
riot, insurrection, war, strike or other civil disturbance, collectively
referred to as force majeure, KHL shall be excused from the performance of
its obligations hereunder for the duration of such force majeure, together
with the period necessitated by such fore majeure to overcome such force
majeure.
17. Indemnity
KHL will assume no liability to HCM or to third parties with respect to
the performance characteristics of ColorMax Products. HCM shall indemnify
KHL against losses incurred to claims of third parties against KHL
involving the sale of ColorMax Products. HCM shall maintain at its own
expense in full force and effect at all times which ColorMax Products are
being sold and used, with a recognized and responsible insurance carrier
licensed to do business in the Territory, reasonably acceptable to KHL,
product liability insurance.
18. Term and Termination
a. This agreement shall have a duration of ten (10) years with an
effective date of first commencement of 1st day of June, 1999.
However, the initial contract year shall be the 18 month period from
the date that this agreement is signed. This agreement shall be
automatically extended for another two (2) terms, if HCM performs
this agreement signed.
b. If HCM makes any assignments of assets or business for the benefit
of creditors, or a trustee or receiver is appointed to conduct its
business or affairs, or it is adjudged in any legal proceeding to be
either a voluntary or involuntary bankrupt, then the rights granted
herein shall forthwith cease and terminate without prior notice or
legal action by KHL.
19. Severability
If, for any reason, any part of this Agreement is deemed to be unlawful,
or is otherwise invalidated by the Parties, or by any court of competent
jurisdiction, the remaining parts of this Agreement shall remain in full
force and effect.
20. Entire Contract
This Agreement contains the entire understanding of the parties and
supersedes all previous verbal and written agreements, representation or
warranties.
21. Signature
Facsimile signatures on counterparts of this Agreement are hereby
authorized and shall be acknowledged as if such facsimile signatures were
an original execution, and this Agreement shall be deemed as executed when
an executed facsimile hereof is transmitted by party to the other party.
KIMROSE HOLDINGS LIMITED HARVEST CAPITAL MANAGEMENT, INC.
By: /s/ Edward Leung By: /s/ Michael Shaw
Edward Leung Michael Shaw
Director Vice-President
67
<PAGE>
ASSIGNMENT
Harvest Capital Management Group, Inc. hereby assigns whole right and
responsibility for the ColorMax Exclusive Distributorship Agreement dated July
1, 1999 to Renu-U International, Inc. Kimrose Holdings Limited hereby accepts
and authorizes the assignment.
KIMROSE HOLDINGS LIMITED HARVEST CAPITAL MANAGEMENT, INC.
By: /s/ Edward Leung By: /s/ Michael Shaw
Edward Leung Michael Shaw
Director Vice-President
Date: 8/15/9 Date: 8/25/99
68
COLORMAX EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
This Agreement is entered into this 15th day of July, 1999, by and between
Kimrose Holdings Limited (hereinafter referred to as "KHL"), Kowloon, Hong Kong
and Gem Group, Inc. (hereinafter referred to as "GG"), Kowloon, Hong Kong.
WHEREAS, KHL, is engaged in research, development and manufacturing of
ColorMax Color Vision Enhancement Lenses, using its own proprietary
technologies. KHL wishes to have its products offered for sale and distribution
to various regions of the world.
WHEREAS, GG is engaged in the business of distribution and representation
of optical and related products.
WHEREAS, KHL and GG desire to work together to promote and sell the
ColorMax products.
NOW THEREFORE, for good consideration the parties hereto agree as follows:
1. Products.
The products for which GG shall act as exclusive sales distributor
are as follows: ColorMax Lenses, ColorMax Vision Enhancement Lenses,
ColorMax Color Test Software, New Color Vision Test and other
products as may be added.
2. Territory.
The Territory is defined as Japan.
3. Appointment of ColorMax Distributor
KHL hereby appoints GG as its Exclusive Sales Distributor to solicit
orders for the products in the territory. GG hereby accepts the
appointments and agrees to solicit orders and promote the products,
subject to the terms and conditions of this Agreement.
4. Purchase Orders and Customer Information
GG shall issue Purchase Orders with Customer Information to KHL for
the production of Products.
5. Quality of Products.
KHL will not be responsible for the quality and performance of
ColorMax products, except for standard warranties and
specifications.
6. Marketing.
GG shall distribute ColorMax products through licensed optical
doctors in the Territory. GG will not market ColorMax products
outside of the Territory by means of direct mail or other media,
without KHL's express written authorization.
7. Advertising.
GG agrees to use reasonable commercial efforts to advertise,
promote, sell or to arrange for advertising and sales of ColorMax
products and GG shall:
69
<PAGE>
a.. Establish and maintain an organization to operate the business
contemplated by this Agreement with adequate finances and
staff capable of marketing sales and promotion of ColorMax
products throughout the Territory.
b. GG shall spend at lease five (5%) of Product revenues for
advertising and promotion of ColorMax products in each year.
No less than thirty (30) days prior to commencement of any
contract year, GG shall submit to KHL a report on the
advertising budget for ColorMax Products for such contract
year. This advertising and promotion campaign will be done
through the advertising company mutually selected and agreed
by GG and KHL.
c. GG shall submit to KHL, or as KHL may direct, for KHL's
approval, samples of all press releases, printed and
advertising materials intended to be used in connection with
Products, before the same may be used. No materials shall be
used by GG on Products unless and until the same has been
approved by KHL.
d. KHL shall receive a detailed expense report of advertising by
the end of each year and KHL reserves the right to inspect
books and records of all sales of GG.
8. Exclusive Distributorship
a. GG shall have the right to distribute ColorMax products on an
exclusive basis in the Territory.
b. GG shall pay three percent (3%) Royalty on the net wholesale
amount to KHL or KHL's designee during the terms of this
Agreement and any extension thereof.
9. Duties of GG
GG shall:
a. Use its best efforts to sell and promote the sales of products
in the Territory and to abide by KHL's company's policies.
b. Make demonstrations to promote sales.
c. Contact and solicit prospective purchasers of the products in the
Territory.
d. Assign dedicated staff for the purpose of operating ColorMax
business in the Territory. A list of these staff and doctors
shall be forwarded to KHL.
10. Duties of KHL
KHL shall:
a. Deliver orders placed by GG.
b. Support technical training.
c. Provide product information.
d. Furnish advertising and promotional information.
11. Relationship of Parties
GG's relationship to KHL in the performance of this Agreement is
that of an independent contractor. GG, its agents, or employees,
shall under no circumstances represent themselves as agents or
representatives of KHL or its subsidiaries; furthermore, they shall
70
<PAGE>
not make any commitment or contract for or on behalf of KHL, or in
its name or otherwise bind KHL in any way.
12. No License and No Partnership
Nothing in this Agreement is intended to grant any rights to GG
under any patent or intellectual properties or proprietary
technologies. Nothing herein contained shall be construed so as to
constitute the parties hereto as partners or as joint ventures, or
either as agent of KHL, and GG does not have the power to obligate
or bind KHL in any manner whatsoever.
13. Non-Disclosure and Non-Compete
GG agrees not to use any confidential data disclosed by KHL, except
for its own use or for any purposes approved by KHL in writing. All
employees and staff who shall engage in ColorMax businesses shall
observe such restrictions. During the term of this Agreement, GG
shall not sell, lease, promote or distribute any products, which
uses similar technologies, and compete with ColorMax Products in the
Territory.
14. Governing Law
This Agreement shall be governed by and shall be construed in
accordance with Hong Kong law and the courts of Hong Kong, but may
be enforced in any court having jurisdiction over the offending
party's places of business, and shall be binding upon the parties
here worldwide.
15. Assignment
This Agreement may not be transferred, assigned, pledged, mortgaged
or otherwise disposed of by GG in whole or in part without written
authorization from KHL.
16. Force Majeure
In the event that KHL's performance of its obligations under this
agreement is made impossible by fire, flood, earthquake, other act
of nature, riot, insurrection, war, strike or other civil
disturbance, collectively referred to as force majeure, KHL shall be
excused from the performance of its obligations hereunder for the
duration of such force majeure, together with the period
necessitated by such fore majeure to overcome such force majeure.
17. Indemnity
KHL will assume no liability to GG or to third parties with respect
to the performance characteristics of ColorMax Products. GG shall
indemnify KHL against losses incurred to claims of third parties
against KHL involving the sale of ColorMax Products. GG shall
maintain at its own expense in full force and effect at all times
which ColorMax Products are being sold and used, with a recognized
and responsible insurance carrier licensed to do business in the
Territory, reasonably acceptable to KHL, product liability
insurance.
18. Term and Termination
a. This agreement shall have a duration of ten (10) years with an
effective date of first commencement of 1st day of June, 1999.
However, the initial contract year shall be the 18 month
period from the date that this agreement is signed. This
agreement shall be automatically extended for another two (2)
terms, if GG performs this agreement signed.
71
<PAGE>
b. If GG makes any assignment of assets or business for the
benefit of creditors, or a trustee or receiver is appointed to
conduct its business or affairs, or it is adjudged in any
legal proceeding to be either a voluntary or involuntary
bankrupt, then the rights granted herein shall forthwith cease
and terminate without prior notice or legal action by KHL.
19. Severability
If, for any rason, any part of this Agreement is deemed to be
unlawful, or is otherwise invalidated by the Parties, or by any
court of competent jurisdiction, the remaining parts of this
Agreement shall remain in full force and effect.
20. Entire Contract
This Agreement contains the entire understanding of the parties and
supercedes all previous verbal and written agreements,
representation or warranties.
21. Signature
Facsimile signatures on counterparts of this Agreement are hereby
authorized and shall be acknowledged as if such facsimile signatures
were an original execution, and this Agreement shall be deemed as
executed when an executed facsimile hereof is transmitted by party
to the other party.
KIMROISE HOLDINGS LIMITED GEM GROUP, INC.
By: /s/ Edward Leung By: /s/ Leo Yamonoto
Edward Leung Leo Yamonoto
Director Director
72
<PAGE>
ASSIGNMENT
Gem Group, Inc. hereby assigns whole right and responsibility for the
ColorMax Exclusive Distributorship Agreement dated July 15, 1999 to Renu-U
International, Inc., Anaheim, CA, USA. Kimrose Holdings Limited hereby accepts
and authorizes the assignment effective as of September 6th, 1999.
KIMROISE HOLDINGS LIMITED GEM GROUP, INC.
By: /s/ Edward Leung By: /s/ Leo Yamonoto
Edward Leung Leo Yamonoto
Director Director
73
COLORMAX EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
This Agreement is entered into this 6th day of July 1999 by and between Kimrose
Holdings Limited (hereinafter referred to as "KHL"), Kowloon, Hong Kong and Nano
Material Science, Inc. (hereinafter referred to as "NMS"), Kowloon, Hong Kong.
WHEREAS, KHL is engaged in research, development and manufacturing of
ColorMax Color Vision Enhancement Lenses, using its own proprietary
technologies. KHL wishes to have its products offered for sale and
distribution to various regions of the world.
WHEREAS, NMS is in engaged in the business of distribution and representation
of optical and related products.
WHEREAS, KHL and NMS desire to work together to promote and sell the ColorMax
products.
NOW, THEREFORE, for good consideration the parties hereto agree as follows:
1. Products
The products for which NMS shall act as exclusive sales distributor are as
follows: ColorMax Lenses, ColorMax Vision Enhancement Lenses, ColorMax
Color Test Software, New Color Vision Test and other products as may be
added.
2. Territory
The Territory is defined as Canada.
3. Appointment of ColorMax Distributor
KHL hereby appoints NMS as its Exclusive Sales Distributor to solicit
orders for the products in the territory. NMS hereby accepts the
appointments and agrees to solicit orders and promote the products,
subject to the terms and conditions of this Agreement.
4. Purchase Orders and Customer Information
NMS shall issue Purchase Orders with Customer Information to KHL for the
production of Products.
5. Quality of Products
KHL will not be responsible for the quality and performance of ColorMax
products, except for standard warranties and specifications.
6. Marketing
NMS shall distribute ColorMax products through licensed optical doctors in
the Territory. NMS will not market ColorMax products outside of the
Territory by means of direct mail or other media, without KHL's express
written authorization.
7. Advertising
NMS agrees to use reasonable commercial efforts to advertise, promote,
sell or to arrange for advertising and sales of ColorMax products and NMS
shall:
a. Establish and maintain an organization to operate the business
contemplated by this Agreement with adequate finances and staff
capable of marketing, sales and promotion of ColorMax products
throughout the Territory.
b. NMS shall spend at least five (5%) of Product revenues for
advertising and promotion of ColorMax products in each year. No less
than thirty (30) days prior to commencement of any contract year,
NMS shall submit to KHL a report on the advertising budget for
ColorMax
74
<PAGE>
Products for such contract year. This advertising and promotion
campaign will be done through the advertising company mutually
selected and agreed by NMS and KHL.
c. NMS shall submit to KHL, or as KHL may direct, for KHL's approval,
samples of all press releases, printed and advertising materials
intended to be used in connection with Products, before the same may
be used. No materials shall be used by NMS on Products unless and
until the same has been approved by KHL.
d. KHL shall receive a detailed expense report of advertising by the
end of each year and KHL reserves the right to inspect books and
records of all sales of NMS.
8. Exclusive Distributorship
a. NMS shall have the right to distribute ColorMax products on an
exclusive basis in the Territory.
b. NMS shall pay three percent (3%) Royalty on the net wholesale amount
to KHL or KHL's designee during the terms of this Agreement and any
extension thereof.
9. Duties of NMS
NMS shall:
a. Use its best efforts to sell and promote the sales of products
in the Territory and to abide by KHL's company's policies.
b. Make demonstrations to promote sales.
c. Contact and solicit prospective purchasers of the products in the
Territory. d. Assign dedicated staff for the purpose of operating
ColorMax business in the Territory.
A list of these staff and doctors shall be forwarded to KHL.
10. Duties of KHL
KHL shall:
a. Deliver orders placed by NMS.
b. Support technical training.
c. Provide product information.
d. Furnish advertising and promotional information.
11. Relationship of Parties
NMS's relationship to KHL in the performance of this Agreement is that of
an independent contractor. NMS, its agents, or employees, shall under no
circumstances represent themselves as agents or representatives of KHL or
its subsidiaries; furthermore, they shall not make any commitment or
contract for or on behalf of KHL, or in its name or otherwise bind KHL in
any way.
12. No License and No Partnership
Nothing in this Agreement is intended to grant any rights to NMS under any
patent or intellectual properties or proprietary technologies. Nothing
herein contained shall be construed so as to constitute the parties hereto
as partners or as joint ventures, or either as agent of KHL, and NMS does
not have the power to obligate or bind KHL in any manner whatsoever.
13. Non-Disclosure and Non-Compete
NMS agrees not to use any confidential data disclosed by KHL except for
its own use or for any purposes approved by KHL in writing. All employees
and staff who shall engage in ColorMax businesses shall observe such
restrictions. During the term of this Agreement, NMS shall not sell,
leases, promote or distribute any products, which uses similar
technologies, and compete with ColorMax Products in the Territory.
75
<PAGE>
14. Governing Law
This Agreement shall be governed by and shall be construed in accordance
with Hong Kong law and the courts of Hong Kong, but may be enforced in any
court having jurisdiction over the offending party's places of business,
and shall be binding upon the parties hereto worldwide.
15. Assignment
This Agreement may not be transferred, assigned, pledged, mortgaged or
otherwise disposed of by NMS in whole or in part without written
authorization from KHL.
16. Force Majeure
In the event that KHL's performance of its obligations under this agreement
is made impossible by fire, flood, earthquake, other act of nature, riot,
insurrection, war, strike or other civil disturbance, collectively
referred to as force majeure, KHL shall be excused from the performance of
its obligations hereunder for the duration of such force majeure, together
with the period necessitated by such fore majeure to overcome such force
majeure.
17. Indemnity
KHL will assume no liability to NMS or to third parties with respect to
the performance characteristics of ColorMax Products. NMS shall indemnify
KHL against losses incurred to claims of third parties against KHL
involving the sale of ColorMax Products. NMS shall maintain at its own
expense in full force and effect at all times which ColorMax Products are
being sold and used, with a recognized and responsible insurance carrier
licensed to do business in the Territory, reasonably acceptable to KHL,
product liability insurance.
18. Term and Termination
a. This agreement shall have a duration of ten (10) years with an
effective date of first commencement of 1st day of June, 1999.
However, the initial contract year shall be the 18 month period from
the date that this agreement is signed. This agreement shall be
automatically extended for another two (2) terms, if NMS performs
this agreement signed.
b. If NMS makes any assignments of assets or business for the benefit
of creditors, or a trustee or receiver is appointed to conduct its
business or affairs, or it is adjudged in any legal proceeding to be
either a voluntary or involuntary bankrupt, then the rights granted
herein shall forthwith cease and terminate without prior notice or
legal action by KHL.
19. Severability
If, for any reason, any part of this Agreement is deemed to be unlawful,
or is otherwise invalidated by the Parties, or by any court of competent
jurisdiction, the remaining parts of this Agreement shall remain in full
force and effect.
20. Entire Contract
This Agreement contains the entire understanding of the parties and
supersedes all previous verbal and written agreements, representation or
warranties.
21. Signature
Facsimile signatures on counterparts of this Agreement are hereby
authorized and shall be acknowledged as if such facsimile signatures were
an original execution, and this Agreement shall be deemed as executed when
an executed facsimile hereof is transmitted by party to the other party.
KIMROSE HOLDINGS LIMITED NANO MATERIAL SCIENCE, INC.
By: /s/ Edward Leung By: /s/ John Pinnel
Edward Leung John Pinnel
Director Operations Director
76
<PAGE>
ASSIGNMENT
Nano Material Science Group, Inc. hereby assigns the whole right and
responsibility for the ColorMax Exclusive Distributorship Agreement dated July
6th, 1999 to Renu-U International, Inc., Anaheim, CA, USA. Kimrose Holdings
Limited hereby accepts and authorizes the assignment effective as of August
27th, 1999.
KIMROSE HOLDINGS LIMITED NANO MATERIAL SCIENCE, INC.
By: /s/ Edward Leung By: /s/ John Pinnel
Edward Leung John Pinnel
Director Operations Director
77
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, is entered into by and between COLORMAX TECHNOLOGIES, INC., a
Delawaare corporation, with headquarters located at 14251 Chambers Road, Tustin,
California 92780 (the "Company"), and each entity named on a signature page
hereto (each, a "Buyer") (each agreement with a Buyer being deemed a separate
and independent agreement between the Company and such Buyer, except that each
Buyer acknowledges and consents to the rights granted to each other Buyer under
such agreement and the Transaction Agreements, as defined below, referred to
therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, Series B 7% Convertible Preferred Stock of the
Company (the "Convertible Preferred Stock") which will be convertible into
shares of Common Stock, $.001 par value per share, of the Company (the "Common
Stock"), upon the terms and subject to the conditions of such Convertible
Preferred Stock , together with the Warrants (as defined below) exercisable for
the purchase of shares of Common Stock, and subject to acceptance of this
Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase.
(i) The undersigned hereby agrees to purchase from the Company Convertible
Preferred Stock in the principal amount set forth on the signature page of this
Agreement (the "Preferred Stock") out of a total offering of not more than
$4,000,000 of such Convertible Preferred Stock, and having the terms and
conditions and being in the form attached hereto as Annex I(a).
(ii) Subject to the terms and conditions of this Agreement and the other
Transaction Agreements, the Buyer will purchase (x) the Preferred Stock on the
Closing Date (as defined below).
(iii) The purchase price to be paid by the Purchaser shall be equal to the
face amount of the Preferred Stock being purchased on the relevant Closing Date
(as defined below) and shall be payable in United States Dollars.
b. Certain DefinitionAs used herein, each of the following terms has
the meaning set forth below, unless the context otherwise requires:
(i) "Preferred Stock" means all or any portion of the Preferred Stock.
(ii) "Securities" means the Preferred Stock, the
Warrants and the Common Stock issuable upon conversion of the Preferred Stock or
the exercise of the Warrants.
(iii) "Purchase Price" means the purchase price for the Preferred Stock.
78
<PAGE>
(iv) "Closing Date" means the date of the closing of the purchase and sale
of the Preferred Stock, as provided herein.
(v) "Closing Date" means the Closing Date.
(vi) "Effective Date" means the effective date of the Registration
Statement covering the Registrable Securities (as those terms are defined in the
Registration Rights Agreement defined below) for the Preferred Stock and
Warrants issued on the Closing Date.
(vii) "Market Price of the Common Stock" means (x) the closing bid price of
the Common Stock for the trading day ending on the trading day immediately
before the relevant date indicated in the relevant provision hereof (unless a
different relevant period is specified in the relevant provision), as reported
by Bloomberg, LP or, if not so reported, as reported on the over-the-counter
market or (y) if the Common Stock is listed on a stock exchange, the closing
price on such exchange on the trading day immediately before the relevant date
indicated in the relevant provision hereof (unless a different relevant period
is specified in the relevant provision), as reported in The Wall Street Journal.
(xi) "Converted Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Stock.
(xii) "Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
(xiii) "Shares" means the shares of Common Stock representing any or all of
the Converted Shares and the Warrant Shares.
(xiv) "Certificates" means the relevant Preferred Stock and the relevant
Warrants, each duly executed on behalf of the Company and issued in the name of
the Buyer.
(xv) "Person" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.
(xvi) "Affiliate" means, with respect to a specific Person referred to in
the relevant provision, another Person who or which controls or is controlled by
or is under common control with such specified Person.
(xvii)"Transaction Documents means the Securities Purchase Agreement, the
Registration Rights Agreement, the Warrant, and the Certificate of Designations.
c. Form of Payment; Delivery of Certificates.
(i) The Buyer shall pay the Purchase Price for the relevant Preferred Stock
by delivering immediately available good funds in United States Dollars to the
escrow agent (the "Escrow Agent" identified in the Joint Escrow Instructions
attached hereto as Annex II (the "Joint Escrow Instructions") on the date prior
to the relevant Closing Date.
(ii) No later than the relevant Closing Date, but in any event
promptly following payment by the Buyer to the Escrow Agent of the relevant
Purchase Price, the Company shall deliver the relevant Certificates to the
Escrow Agent.
(iii) By signing this Agreement, each of the Buyer and the Company,
subject to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
79
<PAGE>
d. Method of Payment. Payment into escrow of the Purchase Price shall be
made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: [To be provided by Krieger & Prager]
Re: Colormax Technologies, Inc.
Not later than 5:00 p.m., New York time, on the date which is seven (7) New York
Stock Exchange trading days after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit with the Escrow Agent the Purchase Price for
the Preferred Stock in currently available funds. Time is of the essence with
respect to such payment, and failure by the Buyer to make such payment, shall
allow the Company to cancel this Agreement.
e. Escrow Property. The Purchase Price and the Certificates delivered to
the Escrow Agent as contemplated by Sections 1(c) and (d) hereof are referred to
as the "Escrow Property".
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock pursuant
to the Registration Statement, the Buyer is purchasing the Preferred Stock and
the Warrants and will be acquiring the Shares for its own account for investment
only and not with a view towards the public sale or distribution thereof and not
with a view to or for sale in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
c. All subsequent offers and sales of the Preferred Stock and the
Shares by the Buyer shall be made pursuant to registration of the Shares under
the 1933 Act or pursuant to an exemption from registration.
d. The Buyer understands that the Preferred Stock is being offered
and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Preferred Stock.
e. The Buyer and its advisors, if any, have been furnished with or
have been given access to all materials relating to the business, finances and
operations of the Company and materials
80
<PAGE>
relating to the offer and sale of the Preferred Stock and the offer of the
Shares which have been requested by the Buyer, including Annex V hereto. The
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the Buyer
has also had the opportunity to obtain and to review the Company's Form 10-SB
Registration Statement (the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. The Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the Cayman Islands and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Buyer is duly qualified as a foreign corporation to do business
and is in good standing in each jurisdiction where the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or condition (financial or otherwise)
or results of operations of the Company and its subsidiaries taken as a whole.
j. Buyer is a "sophisticated investor" (as described in Rule
506(b)(2)(ii) of Regulation D) and an "accredited investor" (as defined in Rule
501(a) of Regulation D), and Purchaser has such knowledge and experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Company's securities.
k. The Buyer expressly agrees that that until all of the Preferred
Stock shall have been converted, the Buyer shall not engage in short sales of
the Common Stock of the Company. The Buyer acknowledges that purchases, sales
and other transactions may be subject to various federal and state securities
laws and agrees to comply with all such applicable securities laws.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and
warrants to the Buyer that, except as provided in Annex V hereto:
a. Concerning the Preferred Stock and the Shares. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Preferred Stock, the Warrants or the Shares.
b. Reporting Company Status. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or condition (financial or otherwise) or results of operation of the Company and
its subsidiaries taken as a whole. The Company has filed a Form 10-SB to
register its Common Stock pursuant to Section 12 of the 1934 Act, and the Common
Stock is listed and traded on The NASDAQ/Bulletin Board Market. The Company has
received no notice, either oral or written, with
81
<PAGE>
respect to the continued eligibility of the Common Stock for such listing, and
the Company has maintained all requirements for the continuation of such
listing.
c. Authorized Shares. The authorized capital stock of the Company
consists of (i)100,000,000 shares of Common Stock, $.001 par value per share, of
which approximately 22, 902,582 had been issued as of March 1, 2000,
(ii)1,000,000 shares of Class A Convertible Preferred Shares , $.10 par value
per share, (iv) 50,000,000 shares of Class B Convertible Preferred Shares, $.001
par value, and (iv) 50,000,000 Class C Convertible Preferred Shares, $.001 par
value per share, with rights, preferences and limitations to be determined by
the Board of Directors of the Company. All issued and outstanding shares of
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable. The Company has sufficient authorized and unissued shares of
Common Stock as may be necessary to effect the issuance of the Shares. The
Shares have been duly authorized and, when issued upon conversion of, or as
interest on, the Preferred Stock or upon exercise of the Warrants, each in
accordance with its respective terms, will be duly and validly issued, fully
paid and non- assessable and will not subject the holder thereof to personal
liability by reason of being such holder.
d. Securities Purchase Agreement; Registration Rights Agreement and Stock.
This Agreement and the Registration Rights Agreement, the form of which is
attached hereto as Annex IV (the "Registration Rights Agreement"), and the
transactions contemplated thereby, have been duly and validly authorized by the
Company, this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the Preferred Stock, the Warrants and the Registration
Rights Agreement, when executed and delivered by the Company, will be, valid and
binding agreements of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally.
e. Non-contravention. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company, the issuance of the Securities,
and the consummation by the Company of the other transactions contemplated by
this Agreement, the Registration Rights Agreement, and the Preferred Stock do
not and will not conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under (i) the articles of
incorporation or by-laws of the Company, each as currently in effect, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, including any listing agreement for the Common Stock except as herein
set forth, (iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its properties
or assets, or (iv) the Company's listing agreement for its Common Stock, except
such conflict, breach or default which would not have a material adverse effect
on the business, operations or condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole, or on the
transactions contemplated herein.
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. None of the Company's SEC Documents contained, at the time
they were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein in light of the circumstances under which they were made, not
misleading. The Company has since January 1, 1999 timely filed all requisite
forms, reports and exhibits thereto with the SEC.
82
<PAGE>
h. Absence of Certain Changes. Since December 31, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except as disclosed in the Company's SEC Documents.
Since December 31, 1998, except as provided in the Company's SEC Documents, the
Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment.
i. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company's SEC Documents) that has not been disclosed in writing to the Buyer
that (i) would reasonably be expected to have a material adverse effect on the
business or condition of the Company (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole , (ii) would
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement or any of the
agreements contemplated hereby (collectively, including this Agreement, the
"Transaction Agreements"), or (iii) would reasonably be expected to materially
and adversely affect the value of the rights granted to the Buyer in the
Transaction Agreements.
j. Absence of Litigation. Except as set forth in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business or financial condition, or results of operation of the
Company and its subsidiaries taken as a whole or the transactions contemplated
by any of the Transaction Agreements or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, any of the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a material adverse effect on the business,
operations or the condition (financial or otherwise) or results of operations of
the Company and its subsidiaries, taken as a whole.
l. Prior Issues. During the twelve (12) months preceding the date hereof,
the Company has not issued any convertible securities or, except as provided in
the Company's SEC Documents, any shares of the Common Stock or Preferred Stock.
m. No Undisclosed Liabilities or Events. The Company has no
liabilities or obligations other than those disclosed in the Company's SEC
Documents or those incurred in the ordinary course of the Company's business
since December 31, 1998, and which individually or in the aggregate, do not or
would not have a material adverse effect on the properties, business, condition
(financial or otherwise), or results of operations of the Company and its
subsidiaries, taken as a whole. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, condition
83
<PAGE>
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
Except for mergers or acquisitions requiring the issuance of common stock and/or
preferred stock, there are no proposals currently under consideration or
currently anticipated to be under consideration by the Board of Directors or the
executive officers of the Company which proposal would (x) change the
certificate of incorporation or other charter document or by-laws of the
Company, each as currently in effect, with or without shareholder approval,
which change would reduce or otherwise adversely affect the rights and powers of
the shareholders of the Common Stock or (y) materially or substantially change
the business, assets or capital of the Company, including its interests in
subsidiaries.
n. No Default. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property is
bound.
o. No Integrated Offering. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since November 1, 1999, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under Rule
506 of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion of the
Preferred Stock and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to the
conversion of the Preferred Stock. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The board
of directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Shares upon
conversion of the Preferred Stock and upon exercise of the Warrants is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the
Preferred Stock have not been and are not being registered under the provisions
of the 1933 Act and, except as provided in the Registration Rights Agreement,
the Shares have not been and are not being registered under the 1933 Act, and
may not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the
Preferred Stock and the Warrants, and, until such time as the Common Stock has
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement,
certificates and other instruments representing any of the Securities shall bear
a restrictive
84
<PAGE>
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR
OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to enter into
the Registration Rights Agreement on or before the Closing Date.
d. Filings. The Company undertakes and agrees to make all necessary filings
in connection with the sale of the Securities to the Buyer under any United
States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Buyer promptly after such filing.
e. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination. The Company will take all reasonable action under its control to
obtain and to continue the listing and trading of its Common Stock (including,
without limitation, all Registrable Securities) on The NASDAQ/Bulletin Board
Market and will comply in all material respects with the Company's reporting,
filing and other obligations under the by-laws or rules of the National
Association of Securities Dealers, Inc. ("NASD") or The NASDAQ/Bulletin Board
Market.
f. Use of Proceeds. The Buyer acknowledges that the Company intends to make
acquisitions or effect mergers subsequent to the execution of this Agreement.
Accordingly, the Company will use the proceeds from the sale of the Preferred
Stock (excluding amounts paid by the Company for legal fees, finder's fees and
escrow fees in connection with the sale of the Preferred Stock) for cash
deposits associated with such acquisitions or mergers and for internal working
capital purposes. Except for the express purposes detailed in this section 4f,
unless specifically consented to in advance in each instance by the Buyer, the
Company shall not, directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership enterprise or other person or
for the repayment of any outstanding loan by the Company to any other party.
g. Certain Agreements. (i) The Company covenants and agrees that it will
not, without the prior written consent of the Buyer, enter into any subsequent
or further offer or sale of Common Stock or securities convertible into Common
Stock (collectively, "New Common Stock") with any third party pursuant to a
transaction which in any manner permits the sale of the New Common Stock on any
date which is earlier than one hundred eighty (180) days from the last day of
the calendar month in which the Effective Date occurs.
(ii) The provisions of subparagraph (g)(i) will not apply to (w)
Common Stock issued pursuant to an exemption from registration under the
Securities Act of 1933 other than pursuant to Regulation S; (x) an underwritten
public offering of shares of Common Stock or Preferred Stock; (y) an offering of
convertible Preferred Stock at market or above; or (z) the issuance of
securities (other than for cash) in connection with an acquisition, merger,
consolidation, sale of assets, disposition or the exchange of the capital stock
for assets, stock or other joint venture interests.
(iii) By the Closing Date, the Company shall obtain the agreement (each, a
"Principal's Agreement") of each of its Principals (as defined below) that,
without the prior written consent of the
85
<PAGE>
Buyer in each instance, such Principal will not sell or otherwise transfer
or offer to sell or otherwise transfer any shares of Common Stock directly or
indirectly held by such Principal prior to one hundred twenty (120) days after
the Effective Date. Each such Principal's Agreement shall (w) specify that it is
entered into as an inducement to the Buyer's execution, delivery and performance
of this Agreement, (x) name the Buyer as a third party beneficiary thereof, (y)
acknowledge that the Company's transfer agent will be provided with instructions
that transfers by a Principal require the consent of the Company and the Buyer,
and (z) contemplate that, in addition to any other damages or remedies that may
be appropriate, the Principal's Agreement shall be enforceable by injunction
sought by the Company and the Buyer or any one or more of them. A "Corporate
Principal" is a person who meets any one or more of the following criteria: (A)
a person who is a director or principal officer of the Company (each, a "Company
Principal") and who, directly or indirectly, holds in excess of five (5%)
percent of any shares of Common Stock of the Company (each, a "Company
Principal"); (B) a spouse of a Company Principal (a "Principal's Spouse") who,
directly or indirectly, holds any shares of Common Stock of the Company, (C) a
parent or child of a Company Principal who resides in the household of a Company
Principal or of a Principal's Spouse (each, a "Principal's Relative") and who,
directly or indirectly, holds any shares of Common Stock, or (D) any other
person or entity, including, without limitation, for profit or non-profit
corporations, partnerships and trusts, whose voting rights regarding Common
Stock of the Company is subject to the direction, control or other influence of
any Company Principal, Principal's Spouse, or Principal's Relative.
(iv) In the event the Company breaches the provisions of this
Section 4(g), the Conversion Rate (as defined in the Certificate of
Designations) shall be amended to be equal to (x) 90% of (y) the amount
determined in accordance with the provisions of the Preferred Stock without
regard to this provision, and the Purchaser may require the Company to
immediately redeem all outstanding Preferred Stock in accordance with Section
4(j)(y) hereof.
h. Available Shares. The Company shall have at all times authorized
and reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield two hundred percent (200%) of the number of shares of Common
Stock issuable (i) at conversion as may be required to satisfy the conversion
rights of the Buyer pursuant to the terms and conditions of the Preferred Stock
which have been issued and not yet converted, and (ii) upon exercise as may be
required to satisfy the exercise rights of the Buyer pursuant to the terms and
conditions of the Warrants which have been issued and not yet converted.
i. Warrants. The Company agrees to issue to the Buyer on each Closing Date
transferable, divisible warrants with cashless exercise rights (the "Warrants")
for the purchase of one (1) share of Common Stock for every 6.66 shares into
which the Preferred Stock purchased by the Buyer are convertible into on the
Closing Date. Fractional shares shall be rounded up to the next highest share.
The Warrants shall bear an exercise price equal to one hundred twenty percent
(120%) of the Market Price of the Common Stock on the relevant Closing Date. The
Warrants will expire on the last day of the month in which the fourth
anniversary of the relevant Closing Date occurs. The Warrants shall be in the
form annexed hereto as Annex VI, together with registration rights as provided
in the Registration Rights Agreement and piggy-back registration after the
expiration of the effectiveness of the Registration Statement contemplated by
the Registration Rights Agreement.
j. Limitation on Issuance of Shares. The Company may be limited in the
number of shares of Common Stock it may issue by virtue of (i) the number of
authorized shares or (ii) the applicable rules and regulations of the principal
securities market on which the Common Stock is listed or traded, including, but
not necessarily limited to, NASDAQ Rule 4310(c)(25)(H)(i)(d)(2) (collectively,
the "Cap Regulations"). Without limiting the other provisions thereof, the
Certificate of Designations shall provide that (i) the Company will take all
steps reasonably necessary to be in a position to issue shares of Common Stock
on conversion of the Preferred Stock without violating the Cap Regulations and
(ii) if, despite taking such steps, the Company still can not issue such shares
of Common Stock without violating the Cap Regulations, the holder of a Preferred
Stock which can not be converted as result of the Cap
86
<PAGE>
Regulations (each such Preferred Stock, an "Unconverted Preferred Stock")
shall have the option, exercisable in such holder's sole and absolute
discretion, to elect either of the following remedies:
(x) if permitted by the Cap Regulations, require the
Company to issue shares of Common Stock in accordance with such holder's
notice of conversion at a conversion purchase price equal to the average
of the closing bid price per share of Common Stock for any five (5)
consecutive trading days (subject to certain equitable adjustments for
certain events occurring during such period) during the sixty (60) trading
days immediately preceding the date of notice of conversion; or
(y) require the Company to redeem each Unconverted
Preferred Stock for an amount (the "Redemption Amount") equal to 120% of
the Liquidation Preference and Accrued Dividends.
A holder of an Unconverted Preferred Stock may elect one of the above remedies
with respect to a portion of such Unconverted Preferred Stock and the other
remedy with respect to other portions of the Unconverted Preferred Stock. The
Certificate of Designations shall contain provisions substantially consistent
with the above terms, with such additional provisions as may be consented to by
the Buyer. The provisions of this paragraph are not intended to limit the scope
of the provisions otherwise included in the Certificate of Designations.
k. Reimbursement. If (i) any Buyer, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any stockholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Agreements, or if such Buyer is impleaded in any
such action, proceeding or investigation by any Person, or (ii) any Buyer, other
than by reason of its gross negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is illegal under the federal
securities laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Agreements, or if such Buyer is impleaded in any
such action, proceeding or investigation by any Person, then in any such case,
the Company will reimburse such Buyer for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which such Buyer is a named party, the Company
will pay such Buyer the charges, as reasonably determined by such Buyer, for the
time of any officers or employees of such Buyer devoted to appearing and
preparing to appear as witnesses, assisting in preparation for hearings, trials
or pretrial matters, or otherwise with respect to inquiries, hearing, trials,
and other proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Buyers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Buyers and any such Affiliate, and shall be binding upon and inure to
the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Buyers and any such Affiliate and any such Person. The Company
also agrees that neither any Buyer nor any such Affiliate, partners, directors,
agents, employees or controlling persons shall have any liability to the Company
or any person asserting claims on behalf of or in right of the Company in
connection with or as a result of the consummation of the Transaction Agreements
except to the extent that any losses, claims, damages, liabilities or expenses
incurred by the Company result from the gross negligence or willful misconduct
of such Buyer.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the Purchase
Price for the Preferred Stock in accordance with Section 1(c) hereof, the
Company will irrevocably instruct its transfer agent to
87
<PAGE>
issue Common Stock from time to time upon conversion of the Preferred Stock in
such amounts as specified from time to time by the Company to the transfer
agent, bearing the restrictive legend specified in Section 4(b) of this
Agreement prior to registration of the Shares under the 1933 Act, registered in
the name of the Buyer or its nominee and in such denominations to be specified
by the Buyer in connection with each conversion of the Preferred Stock. The
Company warrants that no instruction other than such instructions referred to in
this Section 5 and stop transfer instructions to give effect to Section 4(a)
hereof prior to registration and sale of the Shares under the 1933 Act will be
given by the Company to the transfer agent and that the Shares shall otherwise
be freely transferable on the books and records of the Company as and to the
extent provided in this Agreement, the Registration Rights Agreement, and
applicable law. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of the Securities. If the Buyer provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of a resale by
the Buyer of any of the Securities in accordance with clause (1)(B) of Section
4(a) of this Agreement is not required under the 1933 Act, the Company shall
(except as provided in clause (2) of Section 4(a) of this Agreement) permit the
transfer of the Securities and, in the case of the Converted Shares or the
Warrant Shares, as the case may be, promptly instruct the Company's transfer
agent to issue one or more certificates for Common Stock without legend in such
name and in such denominations as specified by the Buyer.
b. (i) The Company will permit the Buyer to exercise its right to
convert the Preferred Stock by telecopying or delivering an executed and
completed Notice of Conversion to the Company and delivering, within five (5)
business days thereafter, the original Preferred Stock being converted to the
Company by express courier, with a copy to the transfer agent.
(ii) The term "Conversion Date" means, with respect to any conversion
elected by the holder of the Preferred Stock, the date specified in the Notice
of Conversion, provided the copy of the Notice of Conversion is telecopied to or
otherwise delivered to the Company in accordance with the provisions hereof so
that it is received by the Company on or before such specified date.
(iii) The Company will transmit the certificates representing the Converted
Shares issuable upon conversion of any Preferred Stock (together, unless
otherwise instructed by the Buyer, with Preferred Stock not being so converted)
to the Buyer at the address specified in the Notice of Conversion (which may be
the Buyer's address for notices as contemplated by Section 11 hereof or a
different address) via express courier , by electronic transfer or otherwise,
within three (3) business days if the address for delivery is in the United
States and within five (5) business days if the address for delivery is outside
the United States (such fifth business day or seventh business day, as the case
may be, the "Delivery Date") after (A) the business day on which the Company has
received both of the Notice of Conversion (by facsimile or other delivery) and
the original Preferred Stock being converted (and if the same are not delivered
to the Company on the same date, the date of delivery of the second of such
items) or (B) the date an interest payment on the Preferred Stock, which the
Company has elected to pay by the issuance of Common Stock, as contemplated by
the Preferred Stock, was due.
c. The Company understands that a delay in the issuance of the
Unlegended Shares beyond the Delivery Date could result in economic loss to the
Purchaser. As compensation to the Purchaser for such loss, the Company agrees to
pay late payments to the Purchaser for late issuance of Unlegended Shares in
accordance with the following schedule (where "No. of Days Late" is defined as
the number of days beyond five (5) business days from Delivery Date):
Late Payment For Each
No. of Days Late $10,000 of Common Stock
---------------------- -----------------------
1 $100
2 $200
3 $300
88
<PAGE>
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section 9.4 in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue actual damages for the Company's failure to issue
and deliver the Unlegended Shares to the Purchaser.
d. If, by the relevant Delivery Date, the Company fails for any
reason to deliver the Unlegended Shares and after such Delivery Date, the holder
of the Shares (a "Holder") purchases, in an open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Holder (the "Sold
Shares"), which delivery such Holder anticipated to make using the Shares to be
issued upon such conversion (a "Buy-In"), the Company shall pay to the Holder,
in addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu thereof, the Buy-In Adjustment Amount
(as defined below). The "Buy-In Adjustment Amount" is the amount equal to the
excess, if any, of (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by the Holder from the sale of the Sold
Shares. The Company shall pay the Buy-In Adjustment Amount to the Holder in
immediately available funds immediately upon demand by the Holder. By way of
illustration and not in limitation of the foregoing, if the Holder purchases
shares of Common Stock having a total purchase price (including brokerage
commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock
it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company
will be required to pay to the Holder will be $1,000.
e. In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Buyer and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
f. The Company will authorize its transfer agent to give information
relating to the Company directly to the Buyer or the Buyer's representatives
upon the request of the Buyer or any such representative. The Company will
provide the Buyer with a copy of the authorization so given to the transfer
agent.
g. The Company will authorize its transfer agent to give information
relating to the Company directly to the Buyer or the Buyer's representatives
upon the request of the Buyer or any such representative. The Company will
provide the Buyer with a copy of the authorization so given to the transfer
agent.
h. If, at any time (i) the Company challenges, disputes or denies
the right of a holder of Preferred Stock to effect a conversion of the Preferred
Stock into Common Stock or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with the terms of this Agreement or the Certificate of
Designations or any exercise of any Warrant in accordance with its terms
("Warrant Exercise"), or (ii) any third party who is not and has never been an
Affiliate of such holder commences any
89
<PAGE>
lawsuit or proceeding or otherwise asserts any claim before any court or public
or governmental authority, which lawsuit, proceeding or claim seeks to
challenge, deny, enjoin, limit, modify, delay or dispute the right of such
holder to effect the conversion of the Preferred Stock into Common Stock, and
the Company refuses to honor any such Conversion Notice or Warrant Exercise,
then such holder shall have the right, by written notice to the Company, to
require the Company to promptly redeem the Preferred Stock for cash at a
redemption price (the "Mandatory Purchase Amount") equal to (x) one hundred
twenty-two percent (122%) of the liquidation preference of the unconverted
Preferred Stock held by such holder plus (y) all accrued but unpaid dividends on
the Preferred Stock through the date of payment of the Mandatory Purchase
Amount. Under any of the circumstances set forth above, the Company shall be
responsible for the payment of all costs and expenses of such holder, including,
but not necessarily limited to, reasonable legal fees and expenses, as and when
incurred in connection with such holder's disputing any such action or pursuing
such holder's rights hereunder (in addition to any other rights such holder may
have hereunder or otherwise). The Mandatory Purchase Amount will be payable to
such holder in cash within five (5) business days from the date such holder
gives the Company written notice that it is exercising its rights under this
paragraph.
i. The holder of any Preferred Stock shall be entitled to exercise
its conversion privilege with respect to the Preferred Stock notwithstanding the
commencement of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code").
In the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. ss.362 in respect of such holder's conversion privilege. The
Company hereby waives, to the fullest extent permitted, any rights to relief it
may have under 11 U.S.C. ss.362 in respect of the conversion of the Preferred
Stock. The Company agrees, without cost or expense to such holder, to take or to
consent to any and all action necessary to effectuate relief under 11 U.S.C.
ss.362.
6. CLOSING DATES.
a. The Closing Date shall occur on the date which is the first NYSE
trading day after each of the conditions contemplated by Sections 7 and 8 hereof
shall have either been satisfied or been waived by the party in whose favor such
conditions run.
b. The closing of the purchase and issuance of Preferred Stock shall
occur on the relevant Closing Date at the offices of the Escrow Agent and shall
take place no later than 3:00 P.M., New York time, on such day or such other
time as is mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Funds to the Company and
to others and to release the other Escrow Property on the relevant Closing Date
upon satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
relevant Preferred Stock to the Buyer pursuant to this Agreement on the relevant
Closing Date is conditioned upon:
a. The execution and delivery of this Agreement by the Buyer;
b. Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the relevant
Preferred Stock in accordance with this Agreement;
c. The accuracy on such Closing Date of the representations and
warranties of the Buyer contained in this Agreement, each as if made on such
date, and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date; and
90
<PAGE>
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Stock on the relevant Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the Registration Rights
Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the relevant Certificates
in accordance with this Agreement;
c. The accuracy in all material respects on such Closing Date of the
representations and warranties of the Company contained in this Agreement. each
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;
d. On such Closing Date, the Registration Rights Agreement shall be in full
force and effect and the Company shall not be in default thereunder;
e. On such Closing Date, the Buyer shall have received an opinion of
counsel for the Company, dated such Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, substantially to the effect set forth in
Annex III attached hereto;
f. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained;
g. From and after the date hereof to and including such Closing Date, the
trading of the Common Stock shall not have been suspended by the SEC or the NASD
and trading in securities generally on the New York Stock Exchange or The
NASDAQ/Bulletin Board Market shall not have been suspended or limited, nor shall
minimum prices been established for securities traded on The NASDAQ/Bulletin
Board Market, nor shall there be any outbreak or escalation of hostilities
involving the United States or any material adverse change in any financial
market that in either case in the reasonable judgment of the Buyer makes it
impracticable or inadvisable to purchase the Preferred Stock; and
9. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Delaware for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of Wilmington or
the state courts of the State of Delaware sitting in the City of Wilmington in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Buyer for any reasonable legal fees and disbursements incurred by
the Buyer in enforcement of or protection of any of its rights under any of the
Transaction Agreements.
b. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
91
<PAGE>
c. This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
g. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
h. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
i. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
10. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(a) the date delivered, if delivered by personal
delivery as against written receipt therefor or by confirmed
facsimile transmission,
(b) the seventh business day after deposit, postage
prepaid, in the United States Postal Service by registered or
certified mail, or
(c) the third business day after mailing by
international express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the
other parties hereto):
COMPANY: Colormax Technologies, Inc.
1251 Chambers Road
Tustin, California
Telephone No.: (801) 262-5052
Telecopier No.:
with a copy to: Leonard Burningham, Esq.
Attn:
Telephone No.: (801) 363-7411
Telecopier No.: (801) 355-7126
BUYER: At the address set forth on the signature page of this Agreement.
92
<PAGE>
with a copy to: Krieger & Prager, Esqs.
Suite 1440
39 Broadway
New York, New York 10006
Attn: Samuel Krieger, Esq.
Telephone No.: (212) 363-2900
Telecopier No. (212) 363-2999
ESCROW AGENT: Krieger & Prager, Esqs.
Suite 1440
39 Broadway
New York, New York 10006
Attn: Samuel Krieger, Esq.
Telephone No.: (212) 363-2900
Telecopier No. (212) 363-2999
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Buyer's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Certificates and the Warrants
and the payment of the Purchase Price, and shall inure to the benefit of the
Buyer and the Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
93
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer by
one of its officers thereunto duly authorized as of the date set forth below.
AMOUNT AND PURCHASE PRICE OF PREFERRED STOCK: $4,000,000.00
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this 5th day of March, 2000.
Address Printed Name of Subscriber
By:
Telecopier No.
-----------------------------------
Printed Name and Title
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
COLORMAX TECHNOLOGIES, INC.
By: /s/ Donald Hansen
Title: President
Date: March 5, 2000
94
EXHIBIT 21.1
The only subsidiary of the Registrant is : RGB Technology, Inc., a Delaware
corporation
95
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of ColorMax
Technologies, Inc. on Form SB-2 of our report dated March 22, 2000, appearing in
the Prospectus, which is part of this Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
ANDERSON, ANDERSON & STRONG
By: /s/ Anderson, Anderson & Stong
Salt Lake City, Utah
April 19, 2000.
96
