<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant /x/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/x/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Chromatics Color Sciences International, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Darby S. Macfarlane
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/x/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-22:(1)
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
/x/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
$125.00
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
Schedule Preliminary 14A
- - --------------------------------------------------------------------------------
(3) Filing party:
Chromatics Color Sciences International, Inc.
- - --------------------------------------------------------------------------------
(4) Date filed:
April 29, 1996
- - --------------------------------------------------------------------------------
- - --------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------------
The Annual Meeting of Shareholders of Chromatics Color Sciences
International, Inc. (the "Company"), a New York corporation, will be held at
the offices of the Company at 5 East 80th Street, New York, New York, on Monday,
May 20, 1996, at 10:00 A.M., for the following purposes:
1. To elect three directors of the Company to serve for a term
of one year and until their respective successors shall be elected and
shall qualify;
2. To consider and act upon a proposal to increase the number
of shares from 1,000,000 to 2,000,000 with respect to which options may
be granted under the Company's 1992 Stock Option Plan;
3. To consider and act upon an amendment to the Company's
Certificate of Incorporation to authorize (i) an increase in the number
of authorized shares of Common Stock from 25,000,000 to 50,000,000,
(ii) increase the number of authorized shares of preferred stock from
1,400,000 to 11,400,000 and (iii) the designation of such additional
10,000,000 shares of Preferred Stock as Class B Preferred Stock on the
terms described herein;
4. To ratify the appointment of Wiss & Company, LLP as
auditors of the Company for the year ending December 31, 1996; and
5. To consider and act upon such other matters as may properly
come before the meeting.
The approval and adoption of each matter to be presented to the
shareholders is independent of the approval and adoption of each other matter to
be presented to the shareholders.
Only shareholders of record at the close of business on April 1, 1996
are entitled to notice of and to vote at the meeting, including any adjournments
thereof.
By order of the Board of Directors
Darby S. Macfarlane
Chairperson of the Board
New York, New York
May 9, 1996
<PAGE>
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
-------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 20, 1996
-------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of CHROMATICS COLOR SCIENCES INTERNATIONAL,
INC. (the "Company"), a New York corporation, for use at the Annual Meeting of
Shareholders of the Company (the "Meeting") which will be held at the offices of
the Company at 5 East 80th Street, New York, New York 10021, on Monday, May 20,
1996, at 10:00 A.M., and at any adjournments thereof.
Shareholders who execute proxies retain the right to revoke them at any
time by notice in writing to the Secretary of the Company, by revocation in
person at the Meeting or by presenting a later dated proxy. Unless so revoked,
the shares represented by such proxies will be voted at the Meeting in
accordance with the directions given therein. Shareholders vote at the Meeting
by casting ballots (in person or by proxy) which are tabulated by a person who
is appointed by the Board of Directors before the Meeting to serve as inspector
of election at the Meeting and who has executed and verified an oath of office.
Abstentions and broker "non-votes" are included in the determination of the
number of shares present at the Meeting for quorum purposes but are not counted
in the tabulations of the votes cast on proposals presented to shareholders. A
broker "non-vote" occurs when a nominee holding shares for a beneficial owner
does not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner. An abstention will have the same effect
as a negative vote, but broker "non-votes" are not counted in the tabulations of
the votes cast on proposals presented to shareholders because shares held by a
broker are not considered to be entitled to vote on matters as to which brokers
lack discretionary power.
Darby Simpson Macfarlane, who is Chief Executive Officer, Assistant
Treasurer and a member of the Board of Directors of the Company, possesses in
the aggregate the power to vote approximately 2,262,139 shares of the
outstanding voting stock of the Company (representing approximately 46% of the
shares entitled to vote at the meeting). (See "Security Ownership of Certain
Beneficial Owners and Management".) Mrs. Macfarlane has advised the Company that
she intends to vote all of the shares which she is entitled to vote in favor of
each proposal presented at the Meeting.
The principal executive offices of the Company are located at 5 East
80th Street, New York, New York 10021. The approximate date
<PAGE>
on which this Proxy Statement and the enclosed form of proxy will first be sent
or given to shareholders is May 10, 1996.
Shareholders of record of the Company's common stock, par value $0.001
per share (the "Common Stock"), and the Company's preferred stock, par value
$0.01 per share, designated as Class A Convertible Preferred Stock (the "Class A
Preferred Stock"), at the close of business on April 1, 1996 shall be entitled
to one vote for each share then held. On such date, there were outstanding
4,877,346 shares of Common Stock and 1,380,000 shares of Class A Preferred
Stock.
Only shareholders of record at the close of business on April 1, 1996 are
entitled to notice of and to vote at the meeting, including any adjournments
thereof.
By order of the Board of Directors
Darby S. Macfarlane
Chairperson of the Board
New York, New York
May 9, 1996
IMPORTANT: The prompt return of proxies will save
the Company the expense of further requests for
proxies and will ensure that your shares are voted.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 6, 1996
with respect to the number of shares of Common Stock beneficially owned by (i)
persons known to the Company to be the beneficial owners of more than five
percent of the Common Stock, (ii) each director of the Company and (iii) all
directors and officers of the Company as a group.
Number of Shares Percent of
of Common Stock Common Stock
Name Beneficially Owned Outstanding
- - ---- ------------------ ------------
Darby Simpson Macfarlane(1) 2,302,139 36.7%
10 Old Jackson Avenue, #28
Hastings-on-Hudson, NY 10706
David Kenneth Macfarlane(2) 2,302,139 36.7%
10 Old Jackson Avenue, #28
Hastings-on-Hudson, NY 10706
Leslie Foglesong(3) 50,000 *
5 East 80th Street
New York, NY 10021
Mellon Bank Corporation(4) 475,000 9.7%
One Mellon Bank Center
Pittsburgh, PA 15258
Janssen-Meyers Associates, L.P.(5) 1,812,500 27.2%
17 State Street
New York, NY 10001
All directors and officers(6) 2,352,139 37.5%
as a group (4 persons)
- - ------------
* Less than one percent
(1) Includes all of the 1,380,000 issued and outstanding shares of the
Company's redeemable Convertible Preferred Stock owned by Mrs. Macfarlane.
(2) Includes the 1,380,000 issued and outstanding shares of the Company's
redeemable Convertible Preferred Stock owned by Mrs. Macfarlane, and the
882,139 issued and outstanding shares of the Company's Common Stock
beneficially owned by Mrs. Macfarlane.
(3) Includes 50,000 shares issuable upon the exercise of options which are
exercisable within the next 60 days.
(4) Includes indirect beneficial ownership of the holdings of two
subsidiaries, Mellon Bank N.A. and the Dreyfus Corporation.
(5) Includes 1,767,000 shares issuable upon the exercise of Warrants which are
exercisable within the next 60 days.
(6) Includes 50,000 shares issuable upon the exercise of options which are
exercisable within the next 60 days and 1,380,000 issued and outstanding
shares of the Company's redeemable Convertible Preferred Stock.
2
<PAGE>
ELECTION OF DIRECTORS
Three directors will be elected at the Meeting to serve for a term of
one year and until their respective successors shall have been elected and shall
qualify. The election of directors requires the affirmative vote of a majority
of the shares of Common Stock present in person or by proxy at the Meeting.
Proxies received in response to this solicitation will be voted FOR the persons
named below unless otherwise specified in the proxy. At this time, the Board of
Directors of the Company knows of no reason why any nominee might be unable to
serve; however, should such a situation arise, proxies may be voted for the
election of such other person(s) as director(s) as the holders of the proxies
may, in their discretion, determine. There is no arrangement or understanding
between any director and any other person pursuant to which such person was
elected as a director.
The following table sets forth information concerning each of the
directors and executive officers of the Company:
Name Age Position
---- --- --------
Darby Simpson Macfarlane 51 Director, Chairperson
of the Board, Chief
Executive Officer,
Assistant Treasurer
David Kenneth Macfarlane 49 Director, Vice President-
Research and Development
Leslie Foglesong 40 Director, Secretary and
Treasurer
Arthur Guiry 56 President
Mrs. Macfarlane co-founded the Company in March 1984. She
has been Chairperson of the Board, Chief Executive Officer,
Assistant Treasurer and a director of the Company since
formation and also served in the capacity of President until
April 9, 1995. Prior to such time, Mrs. Macfarlane was the
co-founder in 1974 of Personalized Colors, Inc. Commencing in
1978, Mrs. Macfarlane and Mr. Macfarlane led and directed the
Company's research and development and mass-manufacturing
efforts of the color science technology, instrumentation and
cosmetic and related products now offered by the Company.
Mr. Macfarlane co-founded the Company and is also one of the primary
inventors of the patented technologies used in the Colormate II System. In
addition, Mr. Macfarlane developed the manufacturing, technical and engineering
specifications necessary to have miniaturized and mass manufactured the
Colormate II System.
3
<PAGE>
Mr. Macfarlane has been Vice President-Research and Development, and a director
of the Company since formation. Prior to 1984, Mr. Macfarlane held a variety of
executive positions with finance, sales, marketing, research and development and
manufacturing companies in Europe, South Africa and the United States, including
International Technical Research and Development, Ltd., and Trumach, Inc.
Leslie Foglesong has been the Secretary, Treasurer and a director of
the Company since its formation.
From January 1, 1995 to March 1995, Mr. Arthur Guiry provided
consulting services to the Company in connection with the marketing of the
Company's medical applications for its technology. On April 10, 1995, Mr. Guiry
commenced his duties as President under a five year employment agreement which
provides Mr. Guiry an annual base salary of $200,000 plus an aggregate of
200,000 options to purchase shares of the Company's Common Stock under the
Company's 1992 Stock Option Plan. Mr. Guiry has held positions as an executive
in sales for divisions of Bristol-Myers, Smith & Nephew Ltd. and Solzer for the
past 18 years. He also holds a physics degree from Manhattan College.
Darby Simpson Macfarlane and David Kenneth Macfarlane are the founders
of the Company and, as such, may be deemed "promoters" of the Company as those
terms are defined in the rules and regulations promulgated under the Securities
Act of 1933, as amended. Darby Simpson Macfarlane and David Kenneth Macfarlane
are wife and husband, although they are currently separated. There is no family
relationship among any other directors or executive officers of the Company.
The Company has agreed with the placement agent of the Company's 1995
private placement offering of Common Stock (the "Offering") that the Company
will use its best efforts to elect the placement agent's designee to the
Company's Board of Directors for a period of five years following the completion
of the Offering. To date, the placement agent has not requested election of any
designee.
Directors are elected annually by the shareholders and hold office
until the next annual meeting and until their respective successors are elected
and qualified.
During the fiscal year ended December 31, 1995, the Company's Board of
Directors met on nine occasions. All of the directors participated in all such
meetings.
The Board of Directors has not established any standing audit,
nominating or compensation committees. The functions that otherwise would be
performed by such committees are performed by the full Board of Directors.
4
<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS A
VOTE IN FAVOR OF THE RE-ELECTION OF THE THREE NOMINEES
TO THE COMPANY'S BOARD OF DIRECTORS
Executive Officers
Executive officers are elected by the Board of Directors, serve at the
direction of the Board and hold office until their respective successors are
elected and qualified.
Executive Compensation
Summary Compensation Table
The following table summarizes all compensation awarded to, earned by,
or paid to the Company's Chief Executive Officer, President and Vice President
of Research and Development for services rendered in all capacities to the
Company for the fiscal year ended December 31, 1995. No other executive officer
of the Company received total salary and bonus in excess of $100,000 during such
period. During 1995, no options were granted to the chief executive officer,
while 200,000 options were granted to the president. See "Employment
Agreements."
<TABLE>
<CAPTION>
Long-Term All Other
Annual Compensation Compensation Compensation
------------------- ------------ ------------
Awards
Name and ------
Principal Salary Options
Position Year ($) (#)
- - -------- ---- -------- -------
<S> <C> <C> <C> <C>
Darby S. Macfarlane, 1993 129,808(1) 0 $ 4,423(2)
Chief Executive Officer 1994 125,000 0 85,000(3)
1995 125,037 0 26,689(4)
Arthur Guiry, President 1995 168,101(5) 200,000
David Kenneth Macfarlane, 1993 103,846 0
Vice President, 1994 100,000 0
Research and Development 1995 114,037(6) 0
</TABLE>
- - ------------------------
(1) Includes $4,808 paid in 1993 with respect to services rendered in 1992.
(2) Represents dollar value of insurance premiums paid by the Company during
1993 with respect to term life insurance and disability insurance.
(3) Represents payment pursuant to Mrs. Macfarlane's employment agreement,
under which she is entitled to receive 33% of the first $1,000,000 of the
Company's net recovery in excess of $2,000,000 from the Avon lawsuit.
(4) Represents interest payments pursuant to the $262,400 balance owed to Mrs.
Macfarlane pursuant to the Avon Settlement.
(5) Includes $23,000 of fees paid to Mr. Guiry in 1995 as a consultant prior to
his employment as President.
(6) Includes $14,000 of fees paid to Mr. Macfarlane in 1995 in connection with
research and development activities.
5
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year End Option Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options
Fiscal at Fiscal
Year-End Year-End(2)
Shares ------------- -------------
Acquired
on Value Exercisable/ Exercisable/
Exercise Realized(1) Unexercisable Unexercisable
(#) ($) (#) $
- - ---- --------- -------- -------- -------------
<S> <C> <C> <C> <C>
Darby Simpson Macfarlane 52,312 $305,764 40,000/0 60,000/0
Arthur Guiry(3) N/A N/A 0/200,000 0/125,000
David Kenneth Macfarlane N/A N/A 40,000/0 60,000/0
</TABLE>
- - ---------------------------
(1) Based on the fair market value of securities underlying the options minus
the exercise price of the options on March 28, 1996. On March 28, 1996, the
closing bid price of the Common Stock on NASDAQ was $7.375.
(2) Based on the fair market value of securities underlying the options minus
the exercise price of the options at the fiscal year end. At December 29,
1995 (the last business day of the fiscal year), the closing bid price of
the Common Stock on NASDAQ was $4.00. On March 31, 1995, Mrs. Macfarlane
exercised an option to purchase 52,312 shares of Common Stock at an
exercise price of $1.53 per share. On January 26, 1996, Mrs. Macfarlane
exercised an option to purchase 40,000 shares of Common Stock at an
exercise price of $2.50. On April 23, 1996, Mr. Macfarlane exercised an
option to purchase 40,000 shares of Common Stock at an exercise price of
$2.50 per share.
(3) Of these 200,000 options, 66,666 were exercisable on March 20, 1996.
Compensation of Directors
The current directors do not receive any compensation or reimbursement
of expenses for their attendance at Board of Directors' meetings.
Employment Agreements
The Company has entered into separate employment agreements with each
of Darby Simpson Macfarlane and David Kenneth Macfarlane, providing for Mrs.
Macfarlane's employment as Chief Executive Officer and for Mr. Macfarlane's
employment as Vice President, Research and Development. The agreements with Mrs.
and Mr. Macfarlane provide for current annual base salaries in 1996 of $125,000
and $125,000, respectively, subject to annual increases at the discretion of the
board of directors. In addition, Mrs. Macfarlane's agreement provides for a
bonus payment of 33% of the first million of the Company's net recovery in
excess of $2,000,000 from the Avon Litigation. Mrs. Macfarlane is to receive
$361,200,
6
<PAGE>
of which $98,800 has been paid. The remaining $262,400 is currently payable and
accrues interest at the rate of 10% per annum. Under the agreements, the Company
is obligated to provide Mr. Macfarlane with $300,000 and Mrs. Macfarlane with a
$500,000 term life insurance policy and disability insurance. The Company
maintains key man life insurance on each of Mrs. and Mr. Macfarlane in the
amount of $1,000,000.
The agreements provide for the payment of termination benefits by the
Company if employment thereunder is terminated (i) by the Company for any reason
other than death, disability or "cause" as set forth therein or (ii) by reason
of death or disability. If Mr. or Mrs. Macfarlane's employment is terminated by
the Company for any reason other than death, disability or "cause," the Company
is required by each agreement to pay to the terminated employee an amount equal
to the greater of (a) the aggregate base salary payable for the remainder of the
employment period of the agreement and (b) the aggregate base salary payable
thereunder for two years, plus, in each case, an amount not less than any bonus
granted by the Board of Directors of the Company to the employee in the year
immediately preceding the year in which termination occurred. If the employee's
employment is terminated by reason of death or disability, the Company is
required to pay to Mrs. Macfarlane and Mr. Macfarlane, as applicable, an amount
equal to two years aggregate base salary in the case of Mrs. Macfarlane, and one
year's base salary in the case of Mr. Macfarlane, plus in each case an amount
not less than the pro rata portion of any bonus granted to the employee in the
year immediately preceding the year in such termination occurs.
The Company has entered into a five year employment agreement,
commencing on April 10, 1995, with Arthur Guiry providing for Mr. Guiry to serve
as President of the Company. The agreement provides for an annual base salary of
$200,000, subject to annual increases at the discretion of the Board of
Directors, plus options to purchase an aggregate of 200,000 shares of Common
Stock at an exercise price of $3.375 per share under the Company's 1992 Stock
Option Plan. Mr. Guiry shall be entitled to an annual bonus subject to the
discretion of the Board of Directors. The Company, at its option, can maintain
key-man insurance on Mr. Guiry in the amount of $1,000,000.
The agreement provides for the payment of termination benefits by the
Company if employment thereunder is terminated by the Company for any reason
other than death, disability, "cause" as set forth therein, or voluntary
resignation. If Mr. Guiry's employment is terminated by the Company for any
reason other than death, disability, "cause," or voluntary resignation, the
Company is required to pay to Mr. Guiry an amount equal to the aggregate base
salary for the remainder of the employment period plus an amount equal to the
bonus granted for the year immediately preceding the year in which such
termination occurs. If Mr. Guiry's employment is terminated by reason of death,
disability, cause or voluntary
7
<PAGE>
resignation, he will not receive any other compensation besides accrued salary
through the date of such termination and an amount equal to the pro rata portion
of any bonus granted for the year immediately proceeding the year in which such
termination occurs.
The Company has entered into separate five year employment agreements
commencing on August 21, 1995, with Arthur Rocco and Mark Harwood, providing for
each to serve as an engineer of the Company (the "Agreements"). Mr. Rocco's
agreement provides for an annual base salary of $75,000 per annum, subject to
annual increases at the discretion of the Board of Directors, plus options to
purchase an aggregate of 50,000 shares of Common Stock at an exercise price of
$2.6875 per share under the Company's 1992 Stock Option Plan. Mr. Harwood's
agreement provides for an annual base salary of $55,000 per annum, subject to
annual increases at the discretion of the Board of Directors, plus options to
purchase an aggregate of 20,000 shares of Common Stock at an exercise price of
$2.6875 per share under the Company's 1992 Stock Option Plan.
The Agreements provide for the payment of termination benefits by the
Company if employment thereunder is terminated by the Company for any reason
other than death, disability, "cause" as set forth therein, or voluntary
resignation. If employment is terminated by the Company for any reason other
than death, disability, "cause," or voluntary resignation, the Company is
required to pay an amount equal to the aggregate base salary for the remainder
of the employment period. If employment is terminated by reason of death,
disability, "cause," or voluntary resignation, no compensation will be received
other than accrued salary through the date of such termination.
All of the agreements described above prohibit disclosure of
proprietary and confidential information regarding the Company and its business
to anyone outside the Company both during and subsequent to employment and
provide certain non-competition and non-solicitation restrictions on the
employee for the duration of employment with the Company, and for one year
thereafter.
Filing Requirements
The Company became subject to the reporting requirements of Section 13
of the Exchange Act on February 5, 1993 and, accordingly, the Company's
officers, directors and greater than 10 percent beneficial owners were subject
to the reporting requirements of Section 16(a) of the Exchange Act during the
year ended December 31, 1993. The Company believes that except as described
below, during the fiscal year ended December 31, 1995, all filing requirements
under Section 16(a) applicable to its officers, directors and greater than ten
percent beneficial owners were complied with on a timely basis.
Janssen/Meyers Associates, L.P., a direct beneficial owner of more than
10 percent of the Company's Common Stock, Meyers Janssen
8
Securities Corporation, Bruce Meyers and Peter Janssen, each as indirect
beneficial owners of more than 10 percent of the Company's Common Stock by
virtue of ownership of Janssen/Meyers Associates, L.P. and Meyers Janssen
Securities Corporation, as applicable, failed to file on a timely basis seven
Form 4s with respect to twenty-four transactions one of which was filed on
August 31, 1995, four of which were filed in December 1995, and two of which
were filed in April 1996.
Leslie Foglesong, an executive officer and director of the Company,
failed to file on a timely basis one Form 4 pertaining to an option grant
effected in September 1995. This form was subsequently filed in December, 1995.
INCREASE IN THE NUMBER OF SHARES SUBJECT TO
THE COMPANY'S 1992 STOCK OPTION PLAN
On February 10, 1992, the Board of Directors of the Company adopted a
Stock Option Plan (the "Plan"), which was approved by the shareholders of the
Company on February 10, 1992. The Plan currently authorizes the Company to grant
options to purchase an aggregate of 1,000,000 shares of Common Stock. The Plan
has only 302,500 shares remaining available for grant which, the Board of
Directors believes, is inadequate for retaining existing employees and
attracting new employees and consultants to the Company. The Board of Directors
believes that the grant of stock options are an integral part of compensation
packages to be offered to the Company's employees and consultants, and will
become more important as the Company seeks additional consulting support to
implement its long range business plan for commercialization of its technologies
for medical applications in detecting certain diseases. Management believes that
options align the interests of the recipients with those of the Company's
stockholders and is an effective method to attract and retain employees and
consultants.
On April 26, 1996, the Board of Directors unanimously adopted, and
recommends that the stockholders approve, an increase of 1,000,000 in the number
of shares with respect to which options may be granted pursuant to the Plan,
thus increasing the shares of Common Stock subject to the Plan from 1,000,000 to
2,000,000 shares.
The affirmative vote of holders of a majority of the issued and
outstanding Common Stock and Preferred Stock voting as a single class is
necessary for approval of the increase in the number of shares subject to the
Plan.
Proxies received in response to this solicitation will be voted FOR the
proposal to effect the increase in the number of shares subject to the Plan set
forth below unless otherwise specified in the proxy. THE BOARD OF DIRECTORS OF
THE COMPANY
9
<PAGE>
UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE PROPOSAL TO EFFECT THE
PROPOSED INCREASE IN THE NUMBER OF SHARES SUBJECT TO THE PLAN.
If the increase in the number of shares subject to the Plan is not
approved, the Plan will continue to remain in effect in its present form.
Nature and Purpose of the Plan
The purpose of the Plan is to induce certain individuals to remain in
the employ or service of the Company and to attract new employees. Options
granted under the Plan are intended to qualify as incentive stock options
("ISOs") within the meaning of Section 422A(b) of the Internal Revenue Code of
1986 (the "Code"), as amended, or as non-incentive stock options ("NISOs").
Duration and Modification
The Plan will terminate not later than February 10, 2002. The Board of
Directors may at any time terminate the Plan or make such modifications to the
Plan as it may deem advisable. However, the Board may not, without approval by
the shareholders of the Company, increase the number of shares of Common Stock
as to which options may be granted under the Plan, change the manner of
determining option prices, change the class of persons eligible to participate
in the Plan or extend the period during which an option may be granted or
exercised.
Securities Subject to the Plan
1,000,000 shares of Common Stock are available for issuance upon
exercise of options granted under the Plan. If the proposed increase in the
number of shares subject to the Plan is adopted, such amount will be increased
to 2,000,000 shares.
The closing bid price of the Common Stock on the NASDAQ over-
the-counter market on May 6, 1996 was $10.75 per share.
Eligibility and Extent of Participation
The Plan provides for discretionary grants of options to employees and
consultants of the Company (including any director or officer who is also an
employee) who have agreed to remain in the employ of the Company for a period of
at least one year from the date of grant of the option. As of May 6, 1996, 49
persons were eligible to receive options and options had been granted to 18 such
persons pursuant to the Plan.
Exercise of Options
Unless otherwise determined by the Board of Directors at the time of
grant thereof, an option will be exercisable one-third after the first
anniversary of the date of grant, two-thirds after
10
<PAGE>
the second anniversary of the date of grant and in full after the third
anniversary of the date of grant.
An option may be exercised by a written notice with respect to a
specified number of shares and payment of the exercise price for the number of
shares so specified. The exercise price of an option may be paid in cash or in
shares of Common Stock.
ISOs can be exercised to purchase shares of Common Stock at not less
than the fair market value thereof on the date of grant, or 110% of such fair
market value with respect to an employee who, at such time, owns stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company. The initial per share exercise price for a NISO may not be
less than 85% of the fair market value thereof on the date of grant.
No option granted pursuant to the Plan may be exercised more than 10
years after the date of grant, except that ISOs granted to employees who own
more than 10% of the total combined voting power of all classes of stock of the
Company at the time the ISO is granted may not be exercised after five years
after the date of grant. No employee may be granted ISOs which are exercisable
for the first time in any one calendar year with respect to Common Stock having
an aggregate fair market value in excess of $100,000 on the date of grant. No
option granted under the Plan is transferable by the optionee other than by
death.
Generally, an option may be exercised only while the recipient is in
the active employ or service of the Company, or within 90 days after termination
of employment by reason of retirement or disability, or within one year after
termination of employment by reason of death.
In the event of the death of an optionee, each option granted to the
optionee shall become immediately exercisable in full, provided such option is
exercised before the earlier of the expiration of one year from the date of such
optionee's death or the date specified in such option.
In the event that an optionee leaves the employ or ceases to serve as a
director of the Company or its subsidiaries, whether by reason of retirement at
age 65 or as a result of disability or upon termination without cause, each
option granted to the optionee shall become immediately exercisable in full,
provided such option is exercised before the earlier of 90 days from the date of
such retirement or disability or the date specified in such option.
In the event that an optionee leaves the employ or ceases to serve as a
director of the Company or its subsidiaries, whether voluntarily or upon
termination without cause, for any reason other than death, retirement or
disability, each option granted to him shall terminate immediately.
11
<PAGE>
If the fair market value of the Common Stock declines below the option
price of any option (other than options granted to non-employee directors), the
Committee (with the prior approval of the Board of Directors) may adjust,
reduce, or cancel and regrant such option or take any similar action it deems to
be for the benefit of the optionee in light of such declining value.
The number of shares available for grant under the Plan and covered by
each option granted thereunder will be adjusted in the event of a stock
dividend, reorganization, recapitalization, stock split-up, combination of
shares, sale of assets, merger or consolidation in which the Company is the
surviving corporation or, as may be determined by the Board of Directors, in the
event of any other change affecting the number or kind of the Company's
outstanding Common Stock. In the event of the dissolution or liquidation of the
Company, the Board may, in its discretion, accelerate the exercisability of all
outstanding options and terminate the same within a reasonable time thereafter.
Federal Income Tax Consequences of Issuance and Exercise of Options
The following discussion of the Federal income tax consequences of the
granting and exercise of options under the Plan, and the sale of Common Stock
acquired as a result thereof, is based on an analysis of the Code, as currently
in effect, existing laws, judicial decisions and administrative rulings and
regulations, all of which are subject to change. In addition to being subject to
the Federal income tax consequences described below, an optionee may also be
subject to state and/or local income tax consequences in the jurisdiction in
which he or she works and/or resides.
Non-Incentive Stock Options:
No income will be recognized by an optionee at the time a NISO is
granted.
Ordinary income will be recognized by an optionee at the time a NISO is
exercised, and the amount of such income will be equal to the excess of the fair
market value on the exercise date of the shares issued to the optionee over the
exercise price. This ordinary income will also constitute wages subject to the
withholding of income and payroll taxes and Medicare tax and the Company will be
required to make whatever arrangements are necessary to ensure that the amount
of the tax required to be withheld is available for payment in money.
Capital gain or loss on a subsequent sale or other disposition of the
shares of Common Stock acquired upon exercise of a NISO will be measured by the
difference between the amount realized on the disposition and the tax basis of
such shares. The tax basis of the shares acquired upon the exercise of the
option will be equal to
12
<PAGE>
the sum of the exercise price of an option and the amount included in income
with respect to the option.
If an optionee makes payment of the exercise price by delivering
shares of Common Stock, he generally will not recognize any gain with respect to
such shares as a result of such delivery, but the amount of gain, if any, which
is not so recognized will be excluded from his basis in the new shares received.
The Company will be entitled to a deduction for Federal income tax
purposes at such time and in the same amount as the amount included in ordinary
income by the optionee upon exercise of his or her NISO, subject to the usual
rules as to reasonableness of compensation and provided that the Company timely
complies with the applicable information reporting requirements.
Incentive Stock Options:
In general, neither the grant nor the exercise of an ISO will result in
taxable income to an optionee or a deduction to the Company.
The sale of the shares of Common Stock received pursuant to the
exercise of an ISO which satisfies the holding period rules will result in
capital gain to an optionee and will not result in a tax deduction to the
Company. To receive incentive stock option treatment as to the shares acquired
upon exercise of an ISO, an optionee must neither dispose of such shares within
two years after the option is granted nor within one year after the exercise of
the option. In addition, an optionee generally must be an employee of the
Company (or a subsidiary of the Company) at all times between the date of grant
and the date three months before exercise of the option.
If the holding period rules are not satisfied, the portion of any gain
recognized on the disposition of the shares acquired upon the exercise of an ISO
that is equal to the lesser of (a) the fair market value of the Common Stock on
the date of exercise minus the exercise price or (b) the amount realized on the
disposition minus the exercise price, will be treated as ordinary income, with
any remaining gain being treated as capital gain. The Company will be entitled
to a deduction equal to the amount of such ordinary income.
If an optionee makes payment of the exercise price by delivering shares
of Common Stock, he or she generally will not recognize any gain with respect to
such shares as a result of such delivery, but the amount of gain, if any, which
is not so recognized will be excluded from his or her basis in the new shares
received. However, the use by an optionee of shares previously acquired pursuant
to the exercise of an ISO to exercise an ISO will be treated as a taxable
disposition if the transferred shares were not held by the optionee for the
requisite holding period.
13
<PAGE>
For purposes of the alternative minimum tax, an ISO is treated as if it
were a NISO. This means, among other things, that the spread on the exercise of
an ISO will be considered as part of the optionee's income for the purposes of
the alternative minimum tax.
PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION TO AUTHORIZE AN INCREASE IN THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 25,000,000 TO 50,000,000,
AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF PREFERRED
STOCK FROM 1,400,000 TO 11,400,000, AND THE DESIGNATION OF SUCH
ADDITIONAL 10,000,000 SHARES OF PREFERRED STOCK AS CLASS B
PREFERRED STOCK
The Company's Certificate of Incorporation presently authorizes the
issuance of 25,000,000 shares of Common Stock. As of April 1, 1996, 4,877,346
shares were issued and outstanding, 3,124,575 shares of Common Stock are
reserved for issuance upon the exercise of warrants, 1,250,000 are reserved for
issuance upon conversion of the Company's 3% Convertible Debentures, 1,380,000
are reserved for issuance upon conversion of the Company's outstanding Class A
Preferred Stock, an aggregate of 1,000,000 additional shares of Common Stock are
reserved for issuance under the 1992 Stock Option Plan and pursuant to other
options issued by the Company and an aggregate of 230,000 shares of Common Stock
are reserved for issuance upon exercise of the option and warrants granted to
the underwriter of the Company's initial public offering. Accordingly, there are
13,138,079 authorized shares that are unissued and not reserved for issuance.
The Board of Directors of the Company has determined that it is in the
best interest of the Company and its shareholders to adopt and approve an
amendment (the "Certificate Amendment") to the Company's Certificate of
Incorporation to authorize an increase in the number of authorized shares of
Common Stock from 25,000,000 to 50,000,000, an increase in the number of
authorized shares of preferred stock from 1,400,000 to 11,400,000, and the
designation of such additional 10,000,000 shares of Preferred Stock as Class B
Preferred Stock. Other than in respect of the possible issuance of shares of
Common Stock pursuant to the increase in the number of options covered by the
1992 Stock Option Plan, the Company does not have any present plans to issue any
additional shares of Common Stock.
The authorization of the Class B Preferred Stock would provide the
Board of Directors with the authority to issue Class B Preferred Stock in one or
more series and to fix the voting powers, dividend rates, conversion rights,
redemption prices, other special rights and qualifications, and the limitations
or restrictions of each series, all without further vote or action by the
stockholders. The Company has no present plans to issue any shares of the Class
B Preferred Stock without a shareholder vote.
14
<PAGE>
It is not possible to state the actual effect of the authorization of
the Class B Preferred Stock upon the rights of holders of the Common Stock,
until the Board of Directors determines the specific rights of the holders of
the series of Class B Preferred Stock. However, the issuance of any such Class B
Preferred Stock could have an adverse effect on the rights of holders of Common
Stock. Such effects might include (i) restrictions on dividends on the Common
Stock if dividends of the Class B Preferred Stock have not been paid; (ii)
dilution of the voting power of the Common Stock to the extent that the Class B
Preferred Stock has voting rights; (iii) dilution of the equity interest of the
Common Stock to the extent that the Class B Preferred Stock is converted into
Common Stock or other securities of the Company; or (iv) the Common Stock not
being entitled to share in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted the holders of the Class B
Preferred Stock.
Issuance of the Class B Preferred Stock, while providing desired
flexibility in connection with possible acquisitions and other corporate
purposes, may have the effect of, and could be useful for the purpose of,
discouraging certain types of transactions involving an actual or potential
change in control of the Company, including transactions in which the holders of
Common Stock might otherwise receive a premium for their shares of Common Stock
over the then current market prices, and may limit the ability of the holders of
Common Stock to approve transactions that they may deem to be desirable.
The text of the Certificate Amendment is set forth as Exhibit A hereto.
The affirmative vote of holders of a majority of the issued and
outstanding Common Stock and Preferred Stock voting as a single class is
necessary for adoption of the Certificate Amendment.
Proxies received in response to this solicitation will be
voted FOR the proposal to adopt and approve the Certificate
Amendment. THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY
RECOMMENDS A VOTE IN FAVOR OF THE PROPOSAL TO ADOPT AND APPROVE
THE CERTIFICATE AMENDMENT.
SELECTION OF AUDITORS
The Board of Directors has selected Wiss & Company, LLP, independent
auditors, to serve as auditors of the Company for the fiscal year ending
December 31, 1996. Although shareholder ratification of the Board of the
Directors' action in this respect is not required, the Board considers it
desirable for shareholders to pass upon the selection of auditors and, if the
shareholders
15
<PAGE>
disapprove of the selection, intends to consider the selection of
other auditors for the current fiscal year.
Representatives of Wiss & Company, LLP are expected to be present at
the Meeting, will have an opportunity to make a statement if they so desire and
will be available to respond to appropriate questions from shareholders.
Proxies received in response to this solicitation will be voted FOR the
ratification of the appointment of the auditors unless otherwise specified in
the proxy. THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE
IN FAVOR OF RATIFICATION OF THE APPOINTMENT OF WISS & COMPANY, LLP.
MISCELLANEOUS
Any proposal of an eligible stockholder intended to be presented at the
next Annual Meeting of Shareholders must be received by the Company for
inclusion in its proxy material and form of proxy relating to that Annual
Meeting by January 10, 1997.
The Board of Directors of the Company does not intend to present, and
does not have any reason to believe that others intend to present, any matter or
business at the Meeting other than that set forth in the accompanying Notice of
Annual Meeting of Shareholders. However, if other matters properly come before
the Meeting, it is the intention of the persons named in the enclosed form of
proxy to vote any proxies in accordance with their judgment.
The Company will bear the cost of preparing, assembling and mailing the
enclosed form of proxy, this Proxy Statement and other material which may be
sent to shareholders in connection with the solicitation. Solicitation may be
made by mail, telephone and personal interview. The Company may reimburse
persons holding shares in their names or in the names of nominees for their
reasonable expenses in sending proxies and proxy material to their principals.
The Company's Annual Report on Form 10-KSB will be distributed to
shareholders with this mailing.
By order of the Board of Directors,
Darby Simpson Macfarlane
Chairperson of the Board
New York, New York
May 9, 1996
16
<PAGE>
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
May 20, 1996
This Proxy is solicited by the Board of Directors.
The undersigned shareholder of Chromatics Color Sciences International,
Inc. (the "Company") hereby appoints Darby Simpson Macfarlane and Leslie
Foglesong, or either of them, attorneys and proxies, with full power of
substitution, to represent the undersigned and vote all shares of the Common
Stock of the Company which the undersigned is entitled to vote, with all powers
the undersigned would possess if personally present, at the Annual Meeting of
Shareholders of the Company to be held at the offices of the Company at 5 East
80th Street, New York, New York at 10:00 A.M., on May 20, 1996, and at any
adjournments thereof, with respect to the proposals hereinafter set forth and
upon such other matters as may properly come before the Meeting and any
adjournments thereof.
Unless otherwise specified, this proxy will be voted "FOR" the election
of all nominees as directors of the Company, "FOR" the proposal to increase the
number of shares from 1,000,000 to 2,000,000 with respect to which options may
be granted under the Company's 1992 Stock Option Plan, "FOR" the Certificate
Amendment, "FOR" the ratification of Wiss & Company, LLP as auditors of the
Company and in the discretion of the proxies with respect to all other matters
which may properly come before the Meeting and any adjournments thereof. The
undersigned acknowledges receipt of the accompanying Notice of Annual Meeting
and Proxy Statement.
Please mark boxes /x/ / / in blue or black ink.
1. Election of Directors
/ / FOR all nominees listed / / WITHHOLD AUTHORITY to
below (except as marked vote for all nominees
to the contrary below) listed below
Nominees: Darby Simpson Macfarlane, David Kenneth
Macfarlane and Leslie Foglesong
Instruction: To withhold authority to vote for any
individual nominee, write that nominee's name in the space
provided below.
_______________________________________________________________________
<PAGE>
2. Increase in the number of shares subject to the Company's
Stock Option Plan from 1,000,000 to 2,000,000.
/ / FOR / / AGAINST / / ABSTAIN
3. Amendment to the Company's Certificate of Incorporation to authorize
(i) an increase in the number of authorized shares of Common Stock from
25,000,000 to 50,000,000; (ii) an increase in the number of authorized
shares of Preferred Stock from 1,400,000 to 11,400,000; and (iii) the
designation of such additional 10,000,000 shares of Preferred Stock as
Class B Preferred Stock.
/ / FOR / / AGAINST / / ABSTAIN
4. Ratification of the selection of Wiss & Company, LLP as
auditors of the Company for the year ending December 31,
1996.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, on any other matters that may properly
come before the Meeting and any adjournments thereof.
Dated: ______________, 1996
________________________________
Signature of Shareholder(s)
________________________________
Name of Shareholder(s)
NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, custodian, guardian or corporate
officer, please give your full title as such. If a corporation, please sign full
corporate name by authorized officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD PROMPTLY
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
------------------------
Under Section 805 of the
Business Corporation Law
------------------------
We, the undersigned, Darby S. Macfarlane, Chief Executive Officer, and
Leslie Foglesong, Secretary, of Chromatics Color Sciences International, Inc.
(the "Corporation"), a corporation organized and existing under the Business
Corporation Law of the State of New York, do hereby certify as follows:
1. The name of the Corporation is CHROMATICS COLOR
SCIENCES INTERNATIONAL, INC.
2. The Certificate of Incorporation of the Corporation
was filed by the Department of State on March 30, 1984. The
Corporation was formed under the name Chromatics International,
Inc.
3. The Certificate of Incorporation of the Corporation, as heretofore
amended, is hereby further amended to: (i) increase the number of authorized
shares of Common Stock of the Company from 25,000,000 shares, par value $.001,
to 50,000,000 shares, par
<PAGE>
value $.001, and (ii) increase the number of authorized shares of preferred
stock from 1,400,000 shares of class A Preferred Stock, par value $.01 per
share, to a total of 11,400,000 shares of preferred stock, 1,400,000 of which
shall continue to be the existing Class A Preferred Stock, par value $.01 per
share, and the balance of which shall be designated 10,000,000 shares of Class B
Preferred Stock, no par value.
4. To accomplish the foregoing,
(i) Article FOURTH paragraph A of the Certificate of
Incorporation of the Corporation, relating to the authorized shares of the
Corporation, is hereby amended to read in its entirety as follows:
"FOURTH: A. Authorization. The
Corporation shall have the authority to
issue 50,000,000 shares of common stock (the
"Common Stock"), par value $0.001 per share,
and 11,400,000 shares of preferred stock
(the "Preferred Stock"), 1,400,000 shares shall
be designated as Class A Preferred Stock,
having a par value of $0.01 per share and
10,000,000 shares of preferred stock shall
be designated as Class B Preferred Stock,
having no par value.
The relative rights, preferences and limitations of
the shares of Common Stock, Class A Preferred Stock and Class
B Preferred Stock, shall be as hereinafter provided in
Article FOURTH."
and (ii) that Article FOURTH paragraph D is now designated Article FOURTH
paragraph E, and that a new Article FOURTH paragraph D be added to the
Certificate of Incorporation to read in its entirety as follows:
2
<PAGE>
"D. Class B Preferred Stock.
The Board of Directors of the Corporation is
authorized, subject to the limitations prescribed by law, to
provide for the issuance of the Class B Preferred Stock in
series, to establish the number of shares to be included in
each series and to fix the designation and the relative
rights, preferences and limitations of the Class B Preferred
Stock of each series. The authority of the Board of Directors
with respect to each series shall include, but shall not be
limited to, determination of the following:
(i) The number of shares of Class B Preferred Stock
constituting that series and the distinctive
designation of that series.
(ii) The dividend rate on the Class B Preferred Stock
of that series and whether dividends shall be
cumulative and, if so, from which date or dates.
(iii) Whether the Class B Preferred Stock of that
series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms
of such voting rights.
(iv) Whether the Class B Preferred Stock of that
series shall have conversion privileges and, if so,
the terms and conditions of such conversion,
including, without limiting the generality thereof,
provisions for adjustment of the conversion rate in
such events as the Board of Directors shall
determine.
(v) Whether the Class B Preferred Stock of that
series shall be redeemable and, if so, the terms and
conditions of such redemption, including, without
limiting the generality thereof, the date or dates
upon or after which such Class B Preferred Stock
shall be
3
<PAGE>
redeemable and the amount per share payable
in the event of redemption, which amount may vary
under different conditions and at different
redemption dates.
(vi) The rights of the Class B Preferred Stock of
that series in the event of the voluntary or
involuntary liquidation, dissolution or winding up of
the Corporation.
5. The foregoing amendments to the Certificate of Incorporation of the
Corporation have been duly authorized by unanimous consent of the Board of
Directors of the Corporation, followed by the vote of the holders of at least a
majority of all of the outstanding shares of the Corporation entitled to vote on
said amendments to the Certificate of Incorporation.
IN WITNESS WHEREOF, the undersigned have signed this Certificate and
affirm under the penalties of perjury that the statements made herein are true
this 20th day of May, 1996.
________________________________
Darby Simpson Macfarlane,
Chief Executive Officer
________________________________
Leslie Foglesong,
Secretary
4
