<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)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
/x/ No fee required
/ / $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 0-11:
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
/ / 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:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
1
<PAGE>
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
--------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 21, 1998
--------------------------------
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, December 21, 1998, at 10:00 A.M., for the following purposes:
1. To elect five 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 ratify the appointment of BDO Seidman LLP as auditors
of the Company for the year ending December 31, 1998; and
3. 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
November 6, 1998 are entitled to notice of and to vote at the meeting,
including any adjournments or postponements thereof.
By order of the Board of Directors
/s/ Darby S. Macfarlane
Darby S. Macfarlane
Chairperson of the Board of Directors
New York, New York
November 18, 1998
-------------------------------------------------------------
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.
-------------------------------------------------------------
2
<PAGE>
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
--------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 21, 1998
--------------------------------
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, December 21, 1998, at 10:00 A.M., and at any adjournments or
postponements 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. Under New York law and the Company's By-laws, the
presence in person or by proxy of a majority of the outstanding shares 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"), in the
aggregate, is necessary to constitute a quorum at the Meeting. 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.
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 3,016,220 shares
of the outstanding voting stock of the Company (representing approximately
17.9% 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 on which
this Proxy Statement and the enclosed form of proxy will first be sent or
given to shareholders is November 22, 1998.
3
<PAGE>
Shareholders of record of the Common Stock and the Class A
Preferred Stock at the close of business on November 6, 1998 shall be entitled
to one vote for each share then held. On such date, there were outstanding
15,423,442 shares of Common Stock and 1,380,000 shares of Class A Preferred
Stock.
Only shareholders of record at the close of business on
November 6, 1998 are entitled to notice of and to vote at the meeting,
including any adjournments or postponements thereof.
By order of the Board of Directors
/s/ Darby S. Macfarlane
Darby S. Macfarlane
Chairperson of the Board of Directors
New York, New York
November 18, 1998
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of November 9, 1998,
the beneficial ownership of the Common Stock: (i) by each stockholder known by
the Company to beneficially own more than 5% of the Common Stock; (ii) by each
director of the Company; (iii) by the Company's Chief Executive Officer; and
(iv) by all executive officers and directors of the Company as a group.
Amounts presented give effect to the February 1998 three-for-two forward Stock
Split (including shares issuable upon the exercise of stock options and/or
warrants). Except as otherwise indicated below, each named beneficial owner
has sole voting and investment power with respect to the shares of Common
Stock listed.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Darby Simpson Macfarlane (1) 3,016,220 17.9%
10 Old Jackson Avenue, #28
Hastings-on-Hudson, NY 10706
David Kenneth Macfarlane (2) 3,016,220 17.9%
10 Old Jackson Avenue, #28
Hastings-on-Hudson, NY 10706
Leslie Foglesong (3) 165,000 1.1%
116 Lafayette Avenue
Brooklyn, NY 11217
Janssen-Meyers Associates, L.P. (4) 1,256,758 8.1%
17 State Street
New York, NY 10001
Edward Mahoney 0 *
2044 Palisades Drive
Pacific Palisades, CA 90272
Edmund Vimond 5,000 *
6967 Country Lakes Circles
Sarasota, FL 34243
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
All directors and executive officers 3,186,220 19%
as a group (5 persons) (5)
</TABLE>
- ----------------------------
* Less than one percent
(1) Includes all of the 1,380,000 issued and outstanding shares of the
Class A Preferred Stock owned by Mrs. Macfarlane, 450,000 shares
issuable upon the exercise of options granted to Mrs. Macfarlane and
300,000 shares issuable upon the exercise of options granted to Mr.
Macfarlane, which options are currently exercisable. Mrs. Macfarlane
disclaims beneficial ownership of the shares and/or options owned by
Mr. Macfarlane.
(2) Includes the 1,380,000 issued and outstanding shares of the Class A
Preferred Stock owned by Mrs. Macfarlane, 886,220 issued and
outstanding shares of the Common Stock beneficially owned by Mrs.
Macfarlane, 450,000 shares issuable upon the exercise of options
granted to Mrs. Macfarlane and 300,000 shares issuable upon the
exercise of options granted to Mr. Macfarlane which options are
currently exercisable.
(3) Includes 150,000 shares issuable upon the exercise of options which are
currently exercisable.
(4) Based on a representation letter from Janssen-Meyers Associates, L.P.
dated November 9, 1998, and includes 678,575 shares of Common Stock
held by Peter Janssen (an affiliate of Janssen-Meyers Associates,
L.P.), 153,250 shares of Common Stock and 314,347 warrants held by
Janssen-Meyers Associates, L.P. which, in each case, are currently
exercisable, 108,647 warrants held by limited partners of
Janssen-Meyers Associates, L.P. and 1,940 warrants held by Meyers
Janssen Securities Corp., which, in each case, are currently
exercisable.
(5) Includes 900,000 shares issuable upon the exercise of options which
are currently exercisable and 1,380,000 issued and outstanding shares
of the Class A Preferred Stock.
ELECTION OF DIRECTORS
Five 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. 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:
6
<PAGE>
Name Age Position
---- --- --------
Darby Simpson Macfarlane 54 Director, Chairperson of the Board,
Chief Executive Officer,
Assistant Treasurer
David Kenneth Macfarlane 51 Director, Vice President-
Research and Development
Leslie Foglesong 43 Director, Secretary and Treasurer
Edmund Vimond 63 Director
Edward Mahoney 47 Director
Arthur Guiry 58 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(TM)
System. In addition, Mr. Macfarlane developed the manufacturing, technical and
engineering specifications necessary to have miniaturized and mass
manufactured the Colormate(TM) System. 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.
Mr. Edmund Vimond has previously provided consulting
services to the Company. On December 1, 1997, Mr. Vimond was appointed to the
Company's Board of Directors and currently acts as Chairman of the Company's
Compensation Committee. From 1991 to 1997, Mr. Vimond was the President and
Chief Executive Officer of Ocurest Laboratories, Inc. Mr. Vimond was
responsible for managing all functions of the business, including marketing,
sales, contract manufacturing, personnel and finance and systems. Prior to
1991, Mr. Vimond held positions in various executive capacities with RJR
Nabisco Inc., American Cyanamid Co., Johnson & Johnson and Warner-Lambert
Companies Inc. Mr. Vimond received B.S.B.A. and M.B.A. degrees from
Northwestern University.
7
<PAGE>
Edward Mahoney, a certified public accountant, was appointed
to the Board of Directors on January 26, 1998, and currently acts as Chairman
of the Company's Audit Committee. Since January 1998, Mr. Mahoney has owned
and operated a certified public accounting firm and was a tax partner with the
accounting firm of BDO Seidman LLP from 1994 to 1997 and Price Waterhouse from
1973 to 1994. Mr. Mahoney received a Bachelor of Science in Accounting degree
from Brooklyn College of the City University of New York.
Mr. Arthur Guiry provided consulting services to the Company
from January 1, 1995 to March 1995, 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 of the Company. 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. 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, 1997, the
Company's Board of Directors met on eleven occasions and had four unanimous
written consents. All of the directors participated in all such meetings and
consents.
The Board of Directors has established an audit committee
and compensation committee. The Company established the audit committee in
January 1998 consisting of Leslie Foglesong, Edward Mahoney and Edmund Vimond.
The members of the compensation committee are Edward Mahoney
and Edmund Vimond. See "Compensation Committee Interlocks and Insider
Participation."
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF THE RE-ELECTION OF THE FIVE NOMINEES
TO THE COMPANY'S BOARD OF DIRECTORS
8
<PAGE>
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 plan and non-plan
compensation awarded to, earned by, or paid to, the Company's Chief Executive
Officer and its three other executive officers who were serving as such during
and at the end of fiscal 1997 for services rendered in all capacities to the
Company for the last three fiscal years. See "Employment Agreements."
<TABLE>
<CAPTION>
Name and
Principal Long-Term All Other
Position Annual Compensation Compensation Compensation
- -------- ------------------- ------------ ------------
Awards
------
Year Salary Bonus Options(1)
---- ($) ($) (#)
--- --- ---
<S> <C> <C> <C> <C> <C>
Darby Simpson Macfarlane, 1995 125,037 0 0 26,689(2)
Chief Executive Officer 1996 125,000 20,000 450,000 5,617(3)
1997 175,000 0 0 0
Arthur Guiry, President 1995 168,101(4) 0 300,000 0
1996 200,000 0 0 0
1997 200,000 0 0 0
David Kenneth Macfarlane, 1995 114,034(5) 0 0 0
Vice President, 1996 125,000 4,500 300,000 5,950(3)
Research and Development 1997 125,000 0 0 0
Leslie Foglesong, 1995 75,000 0 75,000 0
Secretary and Treasurer 1996 75,000 103,650(6) 150,000 0
1997 100,000 0 0 0
</TABLE>
- ----------------------
(1) In February 1998, the Company effected a three-for-two forward Stock
Split. The number of shares issuable upon the exercise of stock options
granted under the 1992 Stock Option Plan give effect to the Stock Split.
(2) Represents interest payments pursuant to the $262,400 balance owed to Mrs.
Macfarlane pursuant to the Avon Settlement.
9
<PAGE>
(3) Includes premiums paid by the Company on the term life insurance policies
and disability insurance policies of Mrs. and Mr. Macfarlane.
(4) Includes $23,000 of fees paid to Mr. Guiry in 1995 as a consultant prior to
his employment as President.
(5) Includes $14,000 of fees paid to Mr. Macfarlane in 1995 as a consultant.
(6) Includes 1995 bonus not paid until 1996.
Options Grants in Last Fiscal Year
No stock options were granted under the 1992 Stock Option
Plan to any of the executive officers during the fiscal year ended December
31, 1997.
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year End Option Value Table
The following table sets forth information with respect to
stock options exercised during the fiscal year ended December 31, 1997 and the
value at December 31, 1997 of unexercised stock options held by the Chief
Executive Officer and the other executive officers of the Company. The number
of shares presented give effect to the Stock Split:
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options
Fiscal at Fiscal
Year-End Year-End(2)
-------- -----------
Shares
Name Acquired on Value Exercisable/ Exercisable/
- ------------------------- Exercise Realized(1) Unexercisable Unexercisable
(#) ($) (#) $
--- --- --- -
<S> <C> <C> <C> <C>
Darby Simpson Macfarlane 0 --- 450,000/0 3,187,500
Arthur Guiry 195,000 1,240,500 105,000/0 813,750
David Kenneth Macfarlane 0 --- 300,000/0 2,125,000
Leslie Foglesong 75,000 639,375 150,000/0 1,250,000
</TABLE>
- ---------------------------
(1) The value realized on the exercise of options was calculated by
multiplying the number of underlying shares by the difference between the
closing price of the Common Stock on the date of exercise (as quoted on
the NASDAQ SmallCap Market published in The Wall Street Journal) and the
option exercise price.
(2) The value of unexercised in-the-money options was calculated by
multiplying the number of underlying shares held by the difference
between the closing price of the Common Stock on December 31, 1997
($15.00 per share, as originally quoted on the NASDAQ SmallCap Market
published in The Wall Street Journal) and the option exercise price, but
after giving effect to the Stock Split.
10
<PAGE>
Compensation of Directors
Directors who are officers of the Company do not receive
additional compensation or reimbursement of expenses for serving on the Board
or for their attendance at Board of Directors' meetings. Edmund Vimond
receives a monthly director's fee of $6,000 and Edward Mahoney receives a
monthly director's fee of $4,000. In addition, Mr. Vimond and Mr. Mahoney
received options to purchase 22,500 (on December 1, 1997) and 37,500 (on January
26, 1998) shares of the Company's Common Stock under the 1992 Stock Option Plan,
respectively, and giving effect to the Stock Split. The stock options granted to
Mr. Vimond and Mr. Mahoney vest in equal installments on the first, second and
third anniversaries of the date of grant and are exercisable at $9.71 and $9.25
per share, respectively. In addition, Mr. Vimond received 15,000 stock options,
one-third of which options were fully exercisable on July 15, 1998, expire on
July 15, 2002 and are exercisable at $5.42 per share.
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 1997 of $175,000 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. Accordingly, Mrs. Macfarlane is to receive $361,200, of which
$98,800 has been paid. The remaining $262,400 is currently payable and accrues
interest at the rate of 10% per annum. However, repayment of this amount is
subject to Mrs. Macfarlane's agreement to defer repayment until January 1999
in connection with the amendment to the Company's Certificate of Incorporation
which amendment modified certain terms of the Class A Preferred Stock,
including the following: (i) extension to December 31, 2000 of the expiration
date of the conversion feature and redemption period, (ii) revision of the
market price conversion feature to provide for adjustment upon the occurrence
of certain events involving the Common Stock, and (iii) revision of the
calculation of the earnings goal needed to trigger the conversion feature by
including extraordinary items and revenues and earnings generated by
businesses acquired by the Company. In connection with Mrs. Macfarlane's
agreement to defer repayment, Mrs. Macfarlane also agreed to extend the term of
her employment with the Company until December 31, 2000 and forego any
discretionary performance bonus under her employment agreement in 1999. Under
the employment agreements, the Company is obligated to provide Mr. Macfarlane
with a $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.
11
<PAGE>
The employment agreements also 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 300,000
shares of Common Stock at an exercise price of $2.25 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 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.
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.
Compensation Committee Interlocks and Insider Participation
The Company did not establish a compensation committee in
1997. The entire Board of Directors determined each executive officer's
compensation, with the relevant director
12
<PAGE>
abstaining from any decision made with respect to that director's compensation
in his or her capacity as an executive officer. The Board of Directors for the
fiscal year ended December 31, 1997 consisted of Darby S. Macfarlane, David
Kenneth Macfarlane, Leslie Foglesong and Edmund Vimond. There are no
reportable compensation committee (Board of Directors) interlocks or insider
participation transactions. The Company established a compensation committee
in January 1998 consisting of Edmund Vimond and Edward Mahoney.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors is
responsible for establishing compensation policies applicable to the Company's
executive officers; evaluating and recommending to the Board the compensation
of the chief executive officer and other executive officers; and recommending
to the Board individual stock option grants for executive officers from the
Company's 1992 Stock Option Plan. The following report relates to the
Company's compensation policies and the compensation paid to the chief
executive officer for the year ending December 31, 1997.
Compensation Policies: The Company's compensation policies for
all employees, including executive officers, are designed to provide
compensation levels that are competitive with those of small capitalization
early stage technology companies, with whom the Company must compete in the
recruitment and retention of highly qualified, motivated personnel. The
Company's executive compensation program is structured to (1) compensate its
executive officers on an annual basis with a cash salary and discretionary bonus
at a sufficient level to retain and motivate these officers and (2) provide
long-term incentives to those executives through periodic grant of stock
options.
The salary component of executive compensation and any
bonuses granted in the Company's discretion, is based on each executive's
level of responsibility in comparison to similar positions in comparable
companies. The Company believes a competitive base salary, and bonus when
warranted, is essential to the development and retention of capable
management. Base salaries for executive officers are reviewed periodically,
based on a review of competitive salaries obtained from published data and
other sources, and discretionary performance bonuses, if any, are used to
augment salary in circumstances where special achievement is to be rewarded.
The long-term incentive component recognizes the importance
of stock ownership by employees and reflects the use of stock options as an
integral part of each executive's compensation. The Company believes the
opportunity for stock appreciation through stock options which vest over time
promotes the relationship between long-term interests of executive officers
and shareholders. The size of specific grants takes into account the executive
officer's salary, number of options previously granted, and overall individual
contributions to the Company.
Chief Executive Officer Compensation: The Company extended
until December 31, 2000 the term of the employment agreement with Ms.
Macfarlane, the Chief Executive Officer, at an annual base salary of $175,000
per annum, in connection with her agreement with the Company, as recommended
by the Compensation
13
<PAGE>
Committee, to forego any bonus grant in 1999 in consideration of the Company
so extending her employment agreement and agreeing to modify certain terms of
the Class A Preferred Stock owned by Ms. Macfarlane, including extension of
the redemption date for the Preferred Stock to December 31, 2000. The
determination of this salary level was based on the same criteria applicable
to base salaries of all executive officers. Ms.
Macfarlane received no stock option or bonus grant in 1997.
Compensation Committee:
Edmund G. Vimond, Edward A. Mahoney
Performance Graph
COMPARISON OF 57 MONTH CUMULATIVE TOTAL RETURN*
AMONG CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.,
THE NASDAQ STOCK MARKET (U.S) INDEX
AND THE RUSSELL 2000 INDEX
<TABLE>
<CAPTION>
Chromatics Color Sciences (CCSI)
Cumulative Total Return
----------------------------------------------
12/93 12/94 12/95 12/96 12/97 9/98
<S> <C> <C> <C> <C> <C> <C>
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. 100.00 62.50 70.83 75.00 250.00 73.44
NASDAQ STOCK MARKET (U.S.) 100.00 97.75 138.26 170.02 208.59 227.37
RUSSELL 2000 100.00 98.17 126.06 146.85 179.80 153.56
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* $100 INVESTED ON 12/31/93 IN STOCK OR INDEX
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
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, 1997, 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.
Edmund Vimond, a director of the Company, failed to file on
a timely basis a Form 3 with respect to his initial beneficial ownership of
the Company's securities at the time Mr. Vimond was elected a director of the
Company. A filing on Form 3, with respect to this transaction, has since been
made for Mr. Vimond.
SELECTION OF AUDITORS
The Board of Directors has selected BDO Seidman LLP ("BDO"),
independent auditors, to serve as auditors of the Company for the fiscal year
ending December 31, 1998. 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 disapprove of the selection, intends to consider the selection of
other auditors for the current fiscal year.
On April 21, 1998, Wiss & Company, LLP ("Wiss") informed the
Company that, based on mutual determination between the Company and Wiss, it
would not stand for re-
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election as the Company's principal accountants for the audit of the Company's
financial statements following the completion of its most recent audit of the
Company's financial statements on February 17, 1998 in connection with the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
Wiss' report on the financial statements for the fiscal year
ended December 31, 1996 included a statement, indicating that the financial
statements were prepared by Wiss on the assumption that the Company would
continue as a going concern. Wiss' report on the financial statements for the
fiscal year ended December 31, 1997 did not contain such statement. Wiss'
reports for fiscal years 1996 and 1997 contained no other adverse opinions,
disclaimers of opinion or modifications as to uncertainty, audit scope or
accounting principles.
Within the two most recent fiscal years and the subsequent
interim period preceding Wiss' notification confirming that it would not stand
for re-election, there were no disagreements between the Company and Wiss on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedures, which disagreements if not
resolved to Wiss' satisfaction would have caused it to make reference in
connection with its report to the subject matter of the disagreement.
Wiss has not advised the Company of any reportable events as
defined in paragraphs (A) through (D) of Regulation S-K Item 304(a)(1)(v).
On May 1, 1998, the Company engaged BDO as the principal
accountant to audit the Company's financial statements.
During the Company's two most recent fiscal years and the
subsequent interim period preceding the date of BDO's engagement, neither the
Company nor any person on the Company's behalf consulted BDO regarding either
(i) the application of accounting principles to a specified transaction, or
the type of audit opinion that might be rendered on the Company's financial
statements, or (ii) any matter that was a subject of disagreement or a
reportable event.
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 BDO SEIDMAN LLP.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1997, Mrs. Macfarlane agreed to (i) delay
payment to January 1999 on the note she received under her employment
agreement in respect of the Avon Settlement, (ii) extend the term of her
employment with the Company until December 31, 2000, and (iii) forego any
discretionary performance bonus under her employment agreement for 1999 in
connection with the Company's Board of Directors agreeing to modify certain
features of the Company's Class A Preferred Stock. The changes to the Class A
Preferred Stock, approved by the
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Company's shareholders on February 13, 1998, provide that, if (i) the
Company's earnings for any two calendar years during the period ending on
December 31, 2000 exceeds $20,000,000 or (ii) the closing bid price of the
Common Stock has been at least $46.67 ($31.11 giving effect to the Stock
Split) on 30 consecutive trading days at any time prior to December 31, 2000,
each outstanding share of Preferred Stock shall be converted into .979 shares
of Common Stock, subject to adjustment for stock-splits, including the Stock
Split, stock dividends, reclassification or other combinations or
subdivisions. If neither condition is satisfied by December 31, 2000, the
Preferred Stock shall be redeemed by the Company at a price of $0.01 per
share, plus any declared but unpaid dividends.
Since August 1990, the Company has occupied office space
leased from Darby Simpson Macfarlane. The Company pays Mrs. Macfarlane $1,620
per month under the lease (representing her actual lease cost for such
premises). For the year ended December 31, 1997, the Company paid Mrs.
Macfarlane $19,400 in connection with such lease. In addition, the Company
also paid Mrs. Macfarlane approximately $10,300 for the year ended December
31, 1997, for the use of her residence as offices of the Company.
Accrued royalties under certain prior license arrangements
between the Company and Pink & Peach Computer Corp. (an affiliate of Mrs.
Macfarlane) were $147,200 at December 31, 1992. $80,000 of this amount was
paid to Pink & Peach Computer Corp. from the proceeds of the IPO, $41,100 of
this amount was paid to Pink & Peach Computer Corp. in 1996 and the balance of
$26,100 was paid in 1997.
In connection with the Avon Settlement and Mrs. Macfarlane's
employment agreement, Mrs. Macfarlane is to receive $361,200 from the proceeds
from the Avon Settlement, of which $98,800 has been paid. The remaining
$262,400 is currently payable and accrues interest at the rate of 10% per
annum. See "Employment Agreements." In addition, Mrs. Macfarlane is due
$12,100 for unpaid salary, which is currently payable without interest.
Management believes that each of the transactions described
above were obtained on terms at least as favorable as could have been obtained
from unaffiliated third parties.
MISCELLANEOUS
Any proposal of an eligible stockholder intended to be
presented at the next Annual Meeting of Shareholders must be received by the
Company to be eligible for inclusion in its proxy material and form of proxy
relating to that Annual Meeting by May 31, 1999.
Notice of any proposal for an eligible shareholder outside
the process of Rule 14a-8 promulgated under the Securities Exchange Act of
1934, in order to be considered timely, must be received by the Company by
May 31, 1999. The Company anticipates holding its next Annual Meeting of
Shareholders in the last six months of 1999.
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
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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.
/s/ Darby S. Macfarlane
Darby S. Macfarlane
Chairperson of the Board of Directors
New York, New York
November 18, 1998
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CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
December 21, 1998
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 December
21, 1998, 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 adoption
of the amendment to the Company's 1992 Stock Option Plan, "FOR" the
ratification of BDO Seidman 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 in blue or black ink.
1. Election of Directors
FOR all nominees listed ABSTAIN
below (except as marked
to the contrary below)
Nominees: Darby Simpson Macfarlane, David Kenneth Macfarlane,
Leslie Foglesong, Edward Mahoney and Edmund Vimond
Instruction: To withhold authority to vote for any individual
nominee, strike a line through the name:
Darby Simpson Macfarlane
David Kenneth Macfarlane
Leslie Foglesong
Edward Mahoney
Edmund Vimond
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2. Ratification of the selection of BDO Seidman LLP as auditors of the
Company for the year ending December 31, 1998.
FOR AGAINST ABSTAIN
3. In their discretion, on any other matters that may properly come
before the Meeting and any adjournments thereof.
Dated: , 1998
------------------
------------------------------
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
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Reseach Data Group Total Return Worksheet
Begin: 12/31/93
FYE: 12/31/97
Chromatics Color Sciences (CCSI) End: 9/30/98
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<CAPTION>
Beginning
Transaction Closing No. Of Dividend Dividend Shares Ending Cum. Tot.
Date* Type Price** Shares*** per Share Paid Reinvested Shares Return
---- ---- ----- ------ --------- ---- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/93 Begin 4.000 25.00 25.000 100.00
12/31/94 Year End 2.500 25.00 25.000 62.50
12/31/95 Year End 2.833 25.00 25.000 70.83
12/31/96 Year End 3.000 25.00 25.000 75.00
12/31/97 Year End 10.000 25.00 25.000 250.00
9/30/98 End 2.938 25.00 25.000 73.44
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* Specified ending dates or ex-dividend dates.
** All Closing Prices and Dividends are adjusted for stock splits and stock
dividends.
*** 'Begin Shares' based on $100 investment.
