<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:
<PAGE>
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 20, 1999
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 20, 1999,
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, 1999; and
3. To consider and vote on a proposal to amend the Company's 1992 Stock Option
Plan to increase the number of shares of Common Stock authorized to be issued
thereunder from 4,500,000 to 5,500,000, an increase of 1,000,000 shares.
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 19, 1999 are
entitled to notice of and to vote at the meeting, including any adjournments or
postponements thereof.
By order of the Board of Directors
Darby S. Macfarlane
Chairperson of the Board of Directors
New York, New York
November 22, 1999
------------------------------------------------------------------------
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.
------------------------------------------------------------------------
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<PAGE>
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
---------------------------------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 20, 1999
---------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of CHROMATICS COLOR SCIENCES INTERNATIONAL, INC., a
New York corporation (the "Company"), 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
20, 1999, 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 S. 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 2,266,220 shares of the outstanding voting stock of
the Company (representing approximately 14.59% of the shares entitled to vote at
the meeting). (See "Security Ownership of Certain Beneficial Owners and
Management.") Ms. 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, 1999.
Shareholders of record of the Common Stock and the Class A Preferred Stock at
the close of business on November 19, 1999 shall be entitled to one vote for
each share then held. On September 30, 1999, there were outstanding 15,535,481
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 19, 1999 are
entitled to notice of and to vote at the meeting, including any adjournments or
postponements thereof.
-3-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1999, 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 or the Class A Preferred
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 (the "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 or Class A Preferred Stock
listed.
<TABLE>
<CAPTION>
Class A
Name and Address of Preferred Stock(1) Percent Common Stock Percent of
Beneficial Owner Number of Shares of Class Number of Shares Class
- ------------------- ------------------ -------- ---------------- ----------
<S> <C> <C> <C> <C>
Darby Simpson Macfarlane 1,380,000 100% 1,636,220(2) 10.04%
10 Old Jackson Avenue, #28
Hastings-on-Hudson, NY 10706
David Kenneth Macfarlane 1,380,000(3) 100% 1,636,220(4)
5 East 80th Street
New York, NY 10021
Leslie Foglesong (5) 165,000 *
116 Lafayette Avenue
Brooklyn, NY 11217
Edmund Vimond 22,500 *
6967 Country Lakes Circles
Sarasota, FL 34243
Edward Mahoney 12,500 *
2044 Palisades Drive
Pacific Palisades, CA 90272
Arthur Guiry (6) 105,000 *
The Willows
11-5 Jackson Avenue
Scarsdale, New York 10583
Janssen-Meyers Associates, L.P. (7) 1,206,934 7.56%
17 State Street
New York, NY 10001
All directors and executive officers 1,380,000 100% 1,941,220 11.74%
as a group (6 persons) (8)
</TABLE>
(1) The Class A Preferred Stock is a voting security which votes together
with the Common Stock as a single class and is entitled to one vote per
share. The shares of Class A Preferred Stock are convertible into shares
of Common Stock 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 $31.11 on 30
consecutive trading days at any time prior to December 31, 2000. The
conversion ratio is .979 shares of Common Stock for each share of Class A
Preferred Stock. If neither condition to conversion is satisfied by
December 31, 2000, the Class A Preferred Stock will be redeemed by the
Company at a price of $.01 per share.
(2) Includes 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. As a result of a certain voting
agreement between them, Mrs. Macfarlane is entitled to sole voting power
and sole power of disposition over all shares of common stock held or
acquired by Mr. Macfarlane.
(3) Represents the 1,380,000 issued and outstanding shares of the Class A
Preferred Stock owned by Mrs. Macfarlane.
(4) Includes 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.
(5) Includes 150,000 shares issuable upon the exercise of options which are
currently exercisable.
-4-
<PAGE>
(6) Represents 105,000 shares issuable upon the exercise of options which
are current exercisable.
(7) Based on a representation letter from Janssen-Meyers Associates, L.P.
dated March 19, 1999, and includes 636,250 shares of Common Stock held by
Peter Janssen (an affiliate of Janssen-Meyers Associates, L.P.), 145,750
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. Peter Janssen and Bruce Meyers are
deemed to be the beneficial owners of the shares of Common Stock and
warrants held by Janssen-Meyers Associates, L.P.
(8) Includes 1,005,000 shares issuable upon the exercise of options which
are currently exercisable.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers and the beneficial owners of more
than 10 percent of the Common Stock to file reports of ownership and changes in
ownership of their equity securities of the Company. Directors and executive
officers of the Company and such beneficial owners file such reports with the
Commission and the Nasdaq Stock Market, Inc. Directors and executive officers
and such beneficial owners are required to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely upon a review of the copies of Forms 3, 4 and 5 and amendments
thereto received by the Company, and written representations from certain
directors and executive officers and such beneficial owners of the Company that
no Forms 5 were required for such persons, the Company believes that all Section
16(a) filing requirements applicable to its directors and executive officers and
such beneficial owners were complied with during 1998.
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 plurality of the
combined voting power of the shares of Common Stock and Class A Preferred 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:
<TABLE>
<CAPTION>
Name Age Position
------------------------ --------- -------------------------------------------------
<S> <C> <C>
Darby S. Macfarlane 55 Director, Chairperson of the Board,
Chief Executive Officer, Assistant Treasurer
Arthur Guiry 59 President
David Kenneth Macfarlane 52 Director, Vice President-Research and Development
Leslie Foglesong 44 Director, Secretary and Treasurer
Edmund Vimond 64 Director
Edward Mahoney 48 Director
</TABLE>
Ms. 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, Ms. Macfarlane was the co-founder in 1974 of
Personalized Colors, Inc. Commencing in 1978, Ms. 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. 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.
-5-
<PAGE>
Mr. Macfarlane co-founded the Company and is also one of the primary inventors
of the patented technologies used in the ColorMate(Registered Trademark) System.
In addition, Mr. Macfarlane developed the manufacturing, technical and
engineering specifications necessary to have miniaturized and mass manufactured
the ColorMate(Registered Trademark) 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. Since January 1998, Mr. Vimond has
been the principal of Edmund Vimond Associates, a business development
consulting practice. Mr. Vimond received B.S.B.A. and M.B.A. degrees from
Northwestern University.
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.
Darby S. 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, 1998, the Company's Board of Directors
met on ten occasions and had ten unanimous written consents. All of the
directors participated in all such meetings and consents.
The Company has an audit committee consisting of three members. The audit
committee recommends engagement of the independent auditors, considers the fee
arrangement and scope of the audit, reviews the financial statements and the
independent auditors' report, reviews the activities and recommendations of the
Company's internal auditors, considers comments made by the independent auditors
with respect to the Company's internal control structure and reviews internal
accounting procedures and controls with the Company's financial and accounting
staff. The members of the audit committee are Leslie Foglesong, Edward Mahoney
and Edmund Vimond.
The Company established a compensation committee in January 1998 consisting of
two members. The compensation committee is responsible for making
recommendations to the Board of Directors concerning executive compensation
including base salaries, bonuses and criteria for their award, stock option
plans, stock option grants, health and life insurance and other benefits. The
-6-
<PAGE>
members of the compensation committee are Edward Mahoney and Edmund Vimond. See
"Compensation Committee Interlocks and Insider Participation." The Company does
not have a nominating committee.
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
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 year
1998 for services rendered in all capacities to the Company in the last three
fiscal years. See "Employment Agreements."
<TABLE>
<CAPTION>
Long-Term All other
Name and Principal Position Annual Compensation Compensation Compensation
- ----------------------------- ------------------------------------------------ ------------------------- ----------------
Awards
------------
Year Salary ($) Bonus ($) Options(1)(#)
------------ -------------- ------------- -------------------------
<S> <C> <C> <C> <C> <C>
Darby S. Macfarlane, 1998 175,000 0 0 0
Chief Executive Officer 1997 175,000 0 0 0
1996 125,000 20,000 450,000 5,617(2)
Arthur Guiry, President 1998 200,000 0 0 0
1997 200,000 0 0 0
1996 200,000 0 0 0
David Kenneth Macfarlane, 1998 125,000 0 0 0
Vice President, 1997 125,000 0 0 0
Research Development 1996 125,000 4,500 300,000 5,950(2)
Leslie Foglesong 1998 100,000 5,000 100,000 0
Secretary and Treasurer 1997 100,000 0 0 0
1996 75,000 103,650(3) 150,000 0
</TABLE>
(1) 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) Includes premiums paid by the Company on the term life insurance
policies and disability insurance policies of Ms. and Mr. Macfarlane.
(3) Includes 1995 bonus not paid until 1996.
Leslie Foglesong, the Company's Secretary and Treasurer, was granted 100,000
options under the 1992 Plan on October 30, 1998, which became exercisable on
October 30, 1999 and expire on October 30, 2003.
-7-
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Value Table
The following table sets forth information with respect to stock options
exercised during the fiscal year ended December 31, 1998 and the value at
December 31, 1998 of unexercised stock options held by the Chief Executive
Officer and the other executive officers of the Company. The number of shares
presented gives effect to the Stock Split:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options at
Options at Fiscal Year-End Fiscal Year-End (1)
---------------------------- -------------------------
Shares Acquired on Value Exercisable/ Unexercisable Exercisable/
Name Exercise (#) Realized (#) Unexercisable
- ------------------------ ------------------ -------------- ---------------------------- -------------------------
<S> <C> <C> <C> <C>
Darby S. Macfarlane 0 0 450,000/0 $2,257,875
Arthur Guiry 0 0 105.000/0 $597,187
David Kenneth Macfarlane 0 0 300,000/0 $1,505,250
Leslie Foglesong 0 0 150,000/100,000 $755,675/
$256,250
</TABLE>
(1) 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, 1998
($7.938 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.
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
S. Macfarlane and David Kenneth Macfarlane, providing for Ms. Macfarlane's
employment as Chief Executive Officer and for Mr. Macfarlane's employment as
Vice President, Research and Development. The agreements with Ms. and Mr.
Macfarlane provide for current annual base salaries in 1998 of $175,000 and
$125,000, respectively, subject to annual increases at the discretion of the
Board of Directors. In addition, Ms. 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, Ms. 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 Ms. 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 Ms. Macfarlane's agreement to defer
repayment, Ms. 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 Ms.
Macfarlane with a $500,000 term life insurance policy and disability insurance.
The Company maintains key-man life insurance on each of Ms. and Mr. Macfarlane
in the amount of $1,000,000.
-8-
<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 Ms. 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 Ms. Macfarlane and Mr. Macfarlane,
as applicable, an amount equal to two years aggregate base salary in the case of
Ms. 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
There are no reportable compensation committee (Board of Directors) interlocks
or insider participation transactions.
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 of
Directors 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 ended December 31, 1998.
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
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<PAGE>
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 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 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
Class A 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
1998.
1992 Stock Option Plan
Pursuant to the 1992 Stock Option Plan, certain directors, employees and
officers of the Company will be given the opportunity to acquire shares of
Common Stock through the grant of options. Such options may be either incentive
stock options within the meaning of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonqualified stock options. A maximum of 4,500,000
shares of Common Stock are currently authorized for issuance with respect to
options granted under the 1992 Stock Option Plan. The material features of the
1992 Stock Option Plan are described below.
The purpose of the 1992 Stock Option Plan is to promote the long-term success of
the Company by providing financial incentives to key employees who are in
positions to make significant contributions toward success. The 1992 Stock
Option Plan is designed to attract individuals of outstanding ability to
employment with the Company, to provide key employees with a proprietary
interest in the Company, and to encourage such employees to continue their
employment with the Company and to render superior performance during such
employment.
The 1992 Stock Option Plan is administered by the Compensation Committee of the
Board of Directors, which has authority to determine the employees to whom
awards will be granted, the form and amount of the awards, the dates of grant,
vesting periods, and other terms of each award.
The 1992 Stock Option Plan provides for both incentive stock options, as defined
in Section 422 of the Code, and nonqualified stock options. With certain limited
exceptions, options are granted at an exercise price per share equal to not less
than 100% of the fair market value of the Common Stock on the date the option is
granted. The Company receives no consideration upon the granting of an option.
Full payment of the option exercise price must be made by the optionee when an
option is exercised. The exercise price may be paid in cash or in such other
form as the Company may approve, including shares of Common Stock valued at
their fair market value on the date of option exercise. The proceeds received by
the Company from the sale of shares under the 1992 Stock Option Plan are used
for general corporate purposes. Options granted under the 1992 Stock Option Plan
are not exercisable sooner than 12 months after the date of grant, vest
incrementally over a three-year period, and are not exercisable later than 10
years after the date of grant. Options are not transferable by the holder other
than by will or applicable laws of descent and distribution.
The grant of an incentive stock option generally has no immediate federal income
tax consequences to the Company or the holder. If the holder of the incentive
stock option sells the shares of Common Stock received on the exercise thereof
more than two years after the date the incentive stock option was granted to the
holder and more than one year after the date of exercise of the incentive stock
option, the difference between the sale proceeds and the exercise price of the
option will be eligible for long-term capital gain or loss treatment. In such
event, no amount will be taxable as ordinary income and the Company will not be
entitled to a deduction for federal income tax purposes.
-10-
<PAGE>
However, in general, the difference between the fair market value of the Common
Stock on the date of exercise and the exercise price will be included in the
holder's alternative minimum taxable income for alternative minimum tax
purposes. Whether or not a holder of such an option would be subject to
alternative minimum tax depends on such individual's particular tax situation.
If the holder disposes of the shares of Common Stock acquired upon the exercise
of an incentive stock option or applies such stock to the exercise of another
option prior to the end of the holding periods described above (a "disqualifying
disposition"), the difference between the fair market value of the Common Stock
on the date of exercise and the exercise price is taxable as ordinary income in
the year of disposition and any excess of the amount realized on disposition
over the value of the Common Stock on the date of exercise is eligible for
long-term or short-term capital gain treatment depending on how long the shares
were held. If, in a disqualifying disposition, the holder sells the Common Stock
for less than its fair market value on the date he or she exercised the
incentive stock option, then, generally, only the amount of the difference
between the amount realized on the disposition and the purchase price will be
treated as ordinary income. If the holder of an incentive stock option makes a
disqualifying disposition, the Company generally will be entitled to a deduction
equal to the amount treated as ordinary income to such holder for the Company's
taxable year in which such holder recognizes such income.
The grant of a nonqualified stock option has no immediate federal income tax
consequences to the Company or the holder. The exercise of a nonqualified stock
option will require the holder to include in the holder's gross income the
amount by which the fair market value of the acquired shares on the exercise
date (or, in the case of certain employees who are officers or directors subject
to the profit recapture provisions of Section 16(b) of the Securities Exchange
Act of 1934, in certain circumstances thereafter) exceeds the exercise price. An
officer or director may avoid this six-month deferral provision by electing
under Section 83(b) of the Code to realize the income with respect to the
exercise of the option at the time of exercise.
The Company is required by the Code to withhold income and employment taxes from
the employee's wages or to receive a payment from the employee to provide for
the taxes on the ordinary income which is considered to have been paid in shares
of Common Stock to the holder upon exercise of the option or, in the case of an
employee subject to Section 16(b) of the Securities Exchange Act of 1934 who
does not make a Section 83(b) election, at the end of the six-month period
following such exercise.
The Company is entitled to an income tax deduction (provided applicable
withholding requirements are met) equal to the amount of ordinary income
included as compensation in the gross income of the holder for the taxable year
of the Company during which the holder includes such amount in the holder's
income.
The closing price of the Company's Common Stock as reported on the Nasdaq
SmallCap Market published in The Wall Street Journal on September 30, 1999 was
$7.8125 per share.
At December 31, 1998 (the end of the Company's 1998 fiscal year), options were
outstanding under the 1992 Stock Option Plan to purchase an aggregate of
3,111,548 shares of Common Stock.
-11-
<PAGE>
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
Chromatics Color Sciences (CCSI)
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------
12/94 12/95 12/96 12/97 12/98 9/99
<S> <C> <C> <C> <C> <C> <C>
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. 100 117 120 400 316 313
NASDAQ STOCK MARKET (U.S.) 100 141 174 213 300 376
RUSSELL 2000 100 128 150 183 182 184
</TABLE>
*$100 INVESTED ON 12/31/94 IN STOCK OR INDEX INCLUDING REINSTATEMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
-12-
<PAGE>
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, 1999. 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-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, Ms. 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 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
-13-
<PAGE>
December 31, 2000, each outstanding share of the Class A 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 S.
Macfarlane. The Company pays Ms. Macfarlane $1,620 per month under the lease
(representing her actual lease cost for such premises). For the year ended
December 31, 1998, the Company paid Ms. Macfarlane $19,400 in connection with
such lease. In addition, the Company also paid Ms. Macfarlane approximately
$10,300 for the year ended December 31, 1998, for the use of her residence as
offices of the Company.
In connection with the Avon Settlement and Ms. Macfarlane's employment
agreement, Ms. 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, Ms. Macfarlane is due $12,100 for unpaid salary, which
is currently payable without interest.
Management believes that each of the transactions described above were obtained
on terms at least as favorable as could have been obtained from unaffiliated
third parties.
AMENDMENT TO 1992 STOCK OPTION PLAN
The Board of Directors has adopted, subject to shareholder approval, an
amendment to the1992 Stock Option Plan (the "Amendment") which increases the
number of shares of Common Stock authorized to be issued thereunder from
4,500,000 to 5,500,000, an increase of 1,000,000 shares. The full text of the
Amendment will be furnished to any shareholder upon written request made to the
Secretary of the Company. For a description of the material features of the 1992
Stock Option Plan, see "1992 Stock Option Plan" above.
The following table sets forth the number (and dollar value) of additional
shares under the 1992 Option Plan that will be received by the named executive
officers and groups, to the extent determinable.
New Plan Benefit Table
<TABLE>
<CAPTION>
Name and Principal Position Dollar Value ($) Number of Units
- --------------------------- ---------------- ---------------
<S> <C> <C>
Darby S. Macfarlane, Chief Executive Officer * *
Arthur Guiry, President * *
David Kenneth Macfarlane, Vice President Research and Development * *
Leslie Foglesong, Secretary and Treasurer * *
</TABLE>
* Awards of options for the additional 1,000,000 shares are not yet determinable
as none are currently contemplated.
The Board of Directors believes that the 1992 Option Plan is an important
component of the Company's compensation package because it secures for the
Company and its shareholders the advantages of the incentive inherent in stock
ownership on the part of its key employees. The Company believes that stock
ownership incentives give employees a greater concern for the welfare of the
Company and its future growth and encourage them to continue their association
with the Company. The Company issued a significant portion of the 4,500,000
option shares currently authorized under the 1992 Option Plan. Additional shares
will be needed, in future years, to maintain this element of the Company's
incentive compensation program for the Company's key employees. Accordingly, the
Board of Directors recommends that the shareholders vote in favor of amending
the 1992 Option Plan to increase the shares available for issuance by the sum of
1,000,000 shares.
-14-
<PAGE>
Vote Required and Recommendation of Board
Under the Company's Bylaws, the proposal to amend the 1992 Option Plan is
approved if the affirmative votes cast by the Company's outstanding shares of
Common Stock and Class A Preferred Stock entitled to vote and represented (in
person or by proxy) at the Meeting exceed the negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT
AND THE ENCLOSED PROXY WILL BE VOTED IN THAT MANNER UNLESS THE
SHAREHOLDER EXECUTING THE PROXY SPECIFICALLY DIRECTS THE
PROXY TO THE CONTRARY (OR ABSTAINS)
-15-
<PAGE>
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 February 29, 2000.
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 March 15, 2000. The
Company anticipates holding its next Annual Meeting of Shareholders in the first
six months of 2000.
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 materials 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 materials to their principals.
Darby S. Macfarlane
Chairperson of the Board of Directors
New York, New York
November 22, 1999
-16-
<PAGE>
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 20, 1999
This Proxy is solicited by the Board of Directors.
The undersigned shareholder of Chromatics Color Sciences International,
Inc. (the "Company") hereby appoints Darby S. 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 Monday, December 20, 1999, 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 ratification of BDO Seidman
LLP as auditors of the Company, "FOR" the adoption of the amendment to the
Company's 1992 Stock Option Plan 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 below (except as marked to the [ ] ABSTAIN
contrary below)
Nominees: Darby S. 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 S. Macfarlane, David Kenneth Macfarlane, Leslie
Foglesong, Edward Mahoney, Edmund Vimond
(continued and to be signed and dated on reverse side)
2. Ratification of the selection of BDO Seidman LLP as auditors of the Company
for the year ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Amendment of the Company's 1992 Stock Option Plan to increase the number of
shares of Common Stock authorized to be issued thereunder from 4,500,000 to
5,500,000, an increase of 1,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated: , 1999
------------------ ------------------------------------------
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.
-17-
<PAGE>
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD PROMPTLY
-18-
