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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
April 15, 1999
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
New York
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(State or other jurisdiction of incorporation)
0-21168 13-3253392
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(Commission File Number) (IRS Employer Identification Number)
5 East 80th Street, New York, New York 10021
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 717-6544
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Page 1 of 25 pages
Exhibit Index located on page 6
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ITEM 5. OTHER EVENTS
Private Placement of 14% Senior Convertible Debentures
On April 15, 1999, the Company issued an aggregate of $5,000,000 14%
senior convertible debentures due April 15, 2002 (the "Debentures") in a private
placement. Payments of interest on the outstanding principal amount of the
Debentures are due on the earlier of the maturity date or upon any conversion of
the Debentures into the Company's Common Stock. The accrued interest may be paid
either in cash, shares of the Company's Common Stock or a combination of Common
Stock and cash, at the option of the Company.
The outstanding principal amount of the Debentures (together with
accrued interest thereon) is not convertible until after the first anniversary
of the closing. Thereafter, the Debentures are convertible into shares of Common
Stock, at the option of the holder or holders thereof, at the conversion price
of $5.00. However, at any time prior to April 14, 2000, such portion of the
Debentures may be converted, at the option of the holder or holders thereof, as
shall result in the issuance, upon such conversion, of not more than an
aggregate of 200,000 shares of Common Stock. Subject to applicable securities
laws, the holder or holders of such 200,000 shares, in the aggregate, may only
sell not more than an aggregate of 50,000 shares of such Common Stock issued
upon such conversion during any one month period ending prior to April 14, 2000.
At any time after the 18 month anniversary of the closing, the Company
may prepay the entire amount of the Debentures or any portion thereof for a
prepayment price equal to the original principal amount of the Debentures plus
all accrued and unpaid interest. At any time after the 18 month anniversary of
the closing and prior to the Maturity Date, in the event the average closing bid
price (as reported on the Nasdaq SmallCap Market or such other principal market
or exchange on which the Common Stock is then traded) of the Company's Common
Stock for any 10 consecutive trading days equals or exceeds $10.29, the Company
can require conversion of the outstanding principal amount (together with
accrued interest) of the Debentures into Common Stock at a conversion price of
$5.00 per share.
For as long as the Debentures are outstanding, the Company's obligation
to pay the principal of and interest on the Debentures shall be senior in right
of payment and priority to any current or future (i) obligations of the Company
to commercial banks, institutional lenders or other lenders for borrowed money,
(ii) obligations of the Company to commercial banks, institutional lenders or
other lenders under guarantees by the Company of obligations of wholly-owned
subsidiaries of the Company to any such lenders and (iii) convertible preferred
equity or convertible debt security issued by the Company.
The Company is required to file a registration statement for all of the
shares of Common Stock issuable upon the conversion of the outstanding principal
amount of and accrued interest on the Debentures within 60 days of the closing,
and to use best efforts to cause such registration statement to be effective
within 120 days from the closing.
An "Event of Default" under the Debentures means any of the following:
(i) failure by the Company to make any payment (whether principal, interest or
otherwise) on the Debentures when due and such default continues for 10 days;
(ii) breach of any of the representations or warranties made by the Company in
the Debentures or Subscription Agreement therefor, or in any written statements
furnished by the Company in connection with the financing; (iii) the Company
shall fail to perform its agreements or obligations under the Debentures or the
Subscription Agreement and such failure shall continue for 30 days; (iv) the
Company shall (1) make an assignment for the benefit of its creditors or
commence proceedings for its dissolution; or (2) apply for or consent to the
appointment of a trustee, liquidator, custodian or receiver
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thereof, or for a substantial part of its property or business; (v) a trustee,
liquidator, custodian or receiver shall be appointed for the Company or for a
substantial part of its property or business without its consent and shall not
be discharged within ninety (90) days after such appointment; (vi) bankruptcy,
reorganization, insolvency or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted against the Company,
shall not be dismissed within ninety (90) trading days after such institution or
the Company shall by any action or answer approve of, consent to, or acquiesce
in any such proceeding or admit the material allegations of, or default in
answering a petition filed in any such proceeding; or (vii) the Company shall
dispose of all or substantially all of its assets in one or more transactions or
shall redeem more than a de minimis amount of its outstanding shares of capital
stock.
Following the occurrence of any Event of Default which is not waived by
the Debenture holders, the holders may accelerate the maturity of the
Debentures, whereupon all principal and interest thereunder shall be immediately
due and payable.
Pursuant to Item 601(b)(4) of Regulation S-K promulgated under the
Securities Act of 1933, the Company is filing the Subscription Agreement and
Debenture as Exhibits 4.1 and 4.2, respectively, to this report.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(c) Exhibits:
4.1 Subscription Agreement, dated April 15, 1999 between Chromatics Color
Sciences International, Inc. and Gary W. Schreiner
4.2 14% Senior Convertible Debenture, due April 15, 2002, in the original
principal amount of $5,000,000.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
By: /s/ Darby S. Macfarlane
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Name: Darby S. Macfarlane
Title: Chief Executive Officer
Date: April 30, 1999
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EXHIBIT INDEX
Document Page No.
- -------- --------
4.1 Subscription Agreement, dated April 15, 1999 between 7
Chromatics Color Sciences International, Inc. and
Gary W. Schreiner
4.2 14% Senior Convertible Debenture, due April 15, 2002, 18
in the original principal amount of $5,000,000.
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Exhibit 4.1
SUBSCRIPTION AGREEMENT
14% SENIOR CONVERTIBLE DEBENTURES
Chromatics Color Sciences International, Inc.
5 East 80th Street
New York, New York 10021
Ladies and Gentlemen:
The undersigned, Gary W. Schreiner (the "Purchaser"), understands that
Chromatics Color Sciences International, Inc., a New York corporation (the
"Company"), is offering for sale its 14% Senior Convertible Debentures, in the
form attached hereto as Exhibit A, in the aggregate original principal amount of
Five Million Dollars ($5,000,000) (the "Debentures"). The Purchaser further
understands that the offering is being made without registration of the
Debentures or the shares of common stock, par value $0.001 per share (the
"Common Stock"), issuable upon conversion thereof (the Debentures and shares of
Common Stock are hereinafter sometimes referred to as the "Securities") under
the Securities Act of 1933, as amended (the "Securities Act"), and is being made
only to "accredited investors" (as defined in Rule 501 of Regulation D under the
Securities Act).
1. Subscription. Subject to the terms and conditions hereof, the Company agrees
to sell, issue and deliver, and Purchaser hereby offers to purchase and
subscribes for Debentures in the aggregate original principal amount of Five
Million Dollars ($5,000,000) for a purchase price (the "Purchase Price") equal
to the aggregate original principal amount of the Debentures so to be purchased.
2. The Closing. The closing of the transaction contemplated hereby (the
"Closing") shall take place on April 15, 1999 at the offices of Rosenman &
Colin, LLP, 575 Madison Avenue, New York, New York 10022, at 10:00 a.m. or at
such other time and place as shall be agreed to by the Company and the Purchaser
(the "Closing Date"). At the Closing, payment of the Purchase Price shall be
made by wire transfer of immediately available funds against delivery of the
Debentures purchased by the Purchaser.
3. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows:
(a) The Purchaser has the capacity to execute and deliver this
Agreement, and perform its obligations hereunder and this Agreement has been
duly executed and delivered by the Purchaser and constitutes the valid and
legally binding agreement of the Purchaser, enforceable against the Purchaser in
accordance with its terms.
(b) Neither the execution, delivery or performance of this Agreement by
the Purchaser, nor the consummation by the Purchaser of the transactions
contemplated hereby (i) requires any consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official or (ii)
conflicts or will conflict with, or constitutes or will constitute a material
breach of, or default under, any material agreement, indenture, lease or other
instrument to which the Purchaser is a party or to which they may be bound.
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(c) The Purchaser is aware that no federal or state agency has passed
upon the Securities or has made any finding or determination concerning the
fairness of this investment and that an investment in the Securities involves a
high degree of risk.
(d) The Purchaser is purchasing the Securities for its own account, for
investment purposes only and not with a view towards the public sale or
distribution thereof. The Purchaser has no present intention of selling,
granting any participation in or otherwise distributing the same other than
pursuant to the terms of Sections 5 or 8 of this Agreement.
(e) The Purchaser understands that neither the Debentures nor the
Common Stock have been registered under the Securities Act or qualified under
any state securities laws, and that the Debentures are being offered and sold,
and the shares and Common Stock are being offered, to them in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying upon the truth and
accuracy of, and the Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Debentures and to receive an offer
of the Common Stock.
(f) The Purchaser acknowledges that, until the Registration Statement
(as such term is defined in Section 5 of this Agreement) is declared effective
by the Securities and Exchange Commission (the "SEC"), there are restrictions on
the transferability of the shares of Common Stock issuable upon conversion of
the Debentures as required pursuant to federal and state securities laws. The
Purchaser further agrees to be responsible for compliance with all conditions on
transfer imposed by any state blue sky or securities law. The Purchaser
acknowledges that each Debenture and certificate representing the Registrable
Shares (as such term is defined in Section 5 of this Agreement) shall be stamped
with a restrictive legend substantially similar to the following:
"The securities evidenced by this certificate have not been registered
under the United States Securities Act of 1933, as amended (the "Act"),
or any state securities laws, and may not be offered or sold,
transferred, pledged, hypothecated or otherwise disposed of except (i)
pursuant to an effective registration statement under the Act, (ii) to
the extent applicable, Rule 144 under the Act (or any similar rule
under the Act relating to the disposition of securities) or (iii) if an
exemption from registration under such Act is available.
Notwithstanding the foregoing, the securities evidenced by this
certificate are also subject to the registration rights set forth in
that certain Subscription Agreement by and between the original holder
hereof and the Company, a copy of which is on file at the Company?s
principal executive office."
(g) The Purchaser and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Debentures and the offer of
the underlying Common Stock, which have been requested by the Purchaser. The
Purchaser and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries and, without limiting the generality of the foregoing, the
Purchaser has had the opportunity to obtain and to review the Company's (i)
draft, dated April 12, 1999, of its Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 (the "Form 10-K Draft"), (ii) Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 and (iii) the proxy statement
for the Company's 1998 Annual Meeting of Stockholders (collectively, the "SEC
Reports"). The Purchaser has relied on the information contained herein and in
the foregoing documents and responses, and has not been furnished any other
documents, literature,
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memoranda or prospectuses. Such Purchaser has relied solely on the documents and
responses referred to above in making the Purchaser's decision to invest in the
Company.
(h) The Purchaser is an "accredited investor" as defined in Rule 501(a)
under the Securities Act. The Purchaser agrees to furnish any additional
information requested to assure compliance with applicable federal and state
securities laws in connection with the purchase and sale of the Securities.
(i) The Purchaser is aware that there is no assurance that a regular
trading market for the Company's securities will be sustained. The Purchaser is
aware that the market price for the Company's shares of Common Stock may be
significantly affected by such factors as the Company's financial performance,
the results of the Company's efforts to license its intellectual property
rights, proprietary technology, and instrumentation in the field of color
science and to market its cosmetic line and material swatch packs, and various
factors affecting the color science industry, the medical industry and the
beauty aid and cosmetics industries generally. Additionally, the Purchaser is
aware that in recent years, the stock market has experienced a high level of
price and volume volatility for many companies, particularly small and emerging
growth companies traded in the over-the-counter market, and these wide price
fluctuations are not necessarily related to the operating performance of these
companies. Accordingly, the Purchaser is aware that there may be significant
volatility in the market for the Company's securities.
(j) The Purchaser has, either alone or together with a Purchaser
Representative (as that term is defined in Regulation D), such knowledge and
experience in financial and business matters that the Purchaser is capable of
evaluating the merits and risks of an investment in the Company.
(k) The Purchaser recognizes that the Company will seek to raise
additional operating capital in the future through a variety of sources, and
that although the Company may undertake one or more public or private offerings
of its Common Stock or other securities, there can be no assurance that such
additional funds will be available or that any such offering will be made (or
that, if made, it will be successful).
(l) The Purchaser is familiar with the nature and extent of the risks
inherent in investments in unregistered securities and in the business in which
the Company intends to engage and has determined, either personally or in
consultation with his or her Purchaser Representative, that an investment in the
Company is consistent with the Purchaser's investment objectives and income
prospects.
(m) The Purchaser recognizes that an investment in the Company's
securities involves a very high degree of risk and the Purchaser recognizes and
understands all of the risk factors relating to the purchase of the Debentures
and the underlying Common Stock set forth herein, including, without limitation,
those set forth in the SEC Reports.
(n) All information which the Purchaser has provided to the Company
concerning the Purchaser, the Purchaser's financial position and the Purchaser's
knowledge of financial and business matters (including, without limitation, the
information set forth in this Agreement), is correct and complete as of the date
set forth on the last page hereof. The Purchaser agrees that financial and other
information concerning the Purchaser may be disclosed by the Company to any
persons or entities that may enter into a transaction with the Company. The
Purchaser further agrees, if requested by the Company or its authorized
representative, to provide bank references or other confirming information
concerning the Purchaser's financial information as may be reasonably requested
by the Company.
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4. Representations, Warranties and Covenants of the Company. The Company
represents and warrants to the Purchaser as follows:
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of New York with full corporate power and authority
to own, lease and operate its properties and to conduct its business as
currently conducted, and is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place where the nature
of its properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a material adverse effect on the business or financial condition of the Company.
(b) Neither the offer, sale or issuance of the Securities, the
execution, delivery or performance of this Agreement by the Company, nor the
consummation by the Company of the transactions contemplated hereby (i) requires
any consent, approval, authorization or other order of or registration or filing
with, any court, regulatory body, administrative agency or other governmental
body, agency or official or conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, the certificate of
incorporation or by-laws, or other organizational documents, of the Company or
any of its subsidiaries or (ii) conflicts or will conflict with, or constitutes
or will constitute a material breach of, or default under, any material
agreement, indenture, lease or other instrument to which the Company is a party
or by which it may be bound, or violates or will violate any statute, law, or
(except as set forth in the Debentures) will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company pursuant to the terms of any agreement or instrument to which it is a
party or by which it may be bound.
(c) The execution and delivery of, and the performance by the Company
of its obligations under this Agreement have been duly and validly authorized by
the Company, and this Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms except to the
extent that enforceability may be limited by principles of equity, bankruptcy,
insolvency or similar laws for the protection of creditors and the Company has
full corporate and legal power to enter into this Agreement and perform all of
its obligations hereunder.
(d) As of April 13, 1999, the Company has authorized (i) Fifty Million
(50,000,000) shares of Common Stock, $0.001 par value per share, of which
15,477,471 shares are issued and outstanding, (ii) One Million Four Hundred
Thousand (1,400,000) shares of Redeemable Class A Preferred Stock, $.01 par
value per share, of which One Million Three Hundred Eighty Thousand (1,380,000)
shares are issued and outstanding and (iii) Ten Million (10,000,000) shares of
Class B Preferred Stock, no par value per share, none of which are issued and
outstanding. All such outstanding shares have been duly and validly issued and
are fully paid and nonassessable. The Company has outstanding no other shares of
any class of capital stock. Except as set forth in the Form 10-K Draft, there
are no subscriptions, options, warrants, scrip, rights, calls, convertible
securities, or any other similar agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock, or other securities
of the Company obligating, or which may obligate the Company to issue, deliver
or sell or cause to be issued, delivered or sold, additional shares of its
capital stock or obligating or which may obligate the Company to grant, extend
or enter into any such subscription, option, warrant, scrip, right, call,
convertible security, or other similar agreement, arrangement, or similar
commitment.
(e) The shares of Common Stock issuable upon the conversion of the
Debentures have been duly authorized and, when issued and delivered to the
Purchaser in accordance with the terms of said Debentures, will be validly
issued, fully paid and nonassessable. The
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Company's Common Stock is currently authorized and listed for trading on the
NASDAQ SmallCap Market and is registered under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(f) The information provided by or on behalf of the Company to the
Purchaser in connection with the transactions contemplated by the Agreement,
including, without limitation, the information referred to in Section 3(g) of
this Agreement, does not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. The
Company hereby incorporates by reference herein the SEC Reports.
(g) Except as disclosed in the SEC Reports, since December 31, 1998,
there has been no material adverse change and no material adverse development in
the business or financial condition of the Company.
(h) Except as disclosed in the SEC Reports, there is no action, suit or
proceeding, before or by any court, public board or body or governmental agency
pending or, to the knowledge of the Company, threatened against the Company and,
to the knowledge of the Company, except as disclosed in the SEC Reports, there
is no inquiry or investigation before or by any court, public board or body or
governmental agency pending or threatened against the Company, in any such case
wherein an unfavorable decision, ruling or finding could have a material adverse
effect on the business or financial condition of the Company.
(i) The proceeds of this investment by the Purchaser will be used by
the Company for working capital purposes.
5. Securities Act Registration.
(a) The Company shall register promptly under the Securities Act, at
the Company's expense (other than underwriting discounts and commissions, if
any), all of the shares of Common Stock issuable upon the conversion of the
Debentures and such number of shares of Common Stock equal to the number of
shares of Common Stock that the Company may issue as payment of any accrued
interest on the Debentures (the "Registrable Shares") and in that connection
shall file, by no later than sixty (60) days after the date hereof, a
registration statement with respect to the Registrable Shares (the "Registration
Statement") with the SEC and shall use its best efforts to have such
Registration Statement declared effective by the SEC within one hundred twenty
(120) days after filing. Notice of effectiveness of the Registration Statement
shall be furnished promptly to the Purchaser. The Company shall use its best
efforts to maintain the effectiveness of the Registration Statement and from
time to time will amend or supplement such Registration Statement and the
prospectus contained therein as and to the extent necessary to comply with the
Securities Act. The Company shall use its best efforts to maintain the
effectiveness of the Registration Statement with respect to the Registrable
Shares until all of the Registrable Shares have been sold by the Purchaser
pursuant thereto or such date as all of the Registrable Shares may be sold by
the Purchaser during any one period of three (3) consecutive months pursuant to
Rule 144 under the Securities Act or otherwise without registration.
(b) In the event that the Company registers under the Securities Act
any of the Registrable Shares held by the Purchaser, the Company shall indemnify
and hold harmless the Purchaser and each underwriter, sales or placement agent
of such shares and each person, if any, who controls the Purchaser or any such
underwriter or agent within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act from and against any and all losses, claims,
damages, expenses or liabilities, joint or several, to which they or any of them
become subject under the Securities Act or the Exchange Act or otherwise, and,
except as hereinafter provided, shall reimburse the Purchaser and each of the
underwriters, agents and each such
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controlling person, if any, for any legal or other expenses reasonably incurred
by them or any of them in connection with investigating or defending any actions
whether or not resulting in any liability, insofar as such losses, claims,
damages, expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, or in the prospectus (or the Registration Statement or
prospectus as from time to time amended or supplemented by the Company) or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; provided, however, that the Company shall not
be liable to any Purchaser, underwriter or controlling person in any such case
to the extent that any such loss, claim, damage, expense or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in such Registration Statement, or preliminary, final
or summary prospectus, or amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Purchaser,
underwriter or controlling person expressly for use therein; and provided,
further, that the Company shall not be liable to any underwriter, placement or
sales agent or controlling person under the indemnity agreement in this
subsection (b): (i) who has not complied with Section 5(f) or 5(g) hereof or
(ii) with respect to the Registration Statement, or any preliminary or final or
summary prospectus, to the extent that any such loss, claim, damage, expense or
liability of such underwriter, agent or controlling person results from the fact
that such underwriter, agent or controlling person sold Registrable Shares to a
person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the related amended registration statement
or amended or supplemented prospectus which the Company has previously furnished
to such underwriter, agent or controlling person and which corrects the
statement or omission, or alleged statement or omission, out of which such loss,
claim, damage or liability arises. Promptly after receipt by the Purchaser or
any underwriter, agent or any person controlling any of them, as the case may
be, of notice of a claim to which the foregoing indemnification applies, the
Purchaser or such other person shall notify the Company in writing of the
commencement thereof, and, subject to the provisions hereinafter stated, the
Company shall assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to the Purchaser or such
underwriter, agent or controlling person, as the case may be, and the payment of
expenses) insofar as such action shall relate to any alleged liability in
respect of which indemnity may be sought against the Company. The Purchaser or
any underwriter, agent or any such controlling person shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel shall not be at the expense of
the Company unless: (x) the employment of such counsel has been specifically
authorized by the Company, (y) the Company has failed to assume the defense and
employ counsel, or (z) the named parties of any such action, suit or proceeding
(including any impleaded parties) include both the person or persons seeking
indemnification (the "indemnified person") and the Company and such indemnified
person shall have been advised by its counsel that representation of the
indemnified person and the Company by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or potential
differing interests between them (in which case the Company shall not have the
right to assume the defense of such action, suit or proceeding on behalf of such
indemnified person). The Company shall not be liable to indemnify the Purchaser
or any underwriter, agent or any such controlling person for any settlement of
any such action effected without the Company's consent.
(c) The Purchaser shall indemnify the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act,
against all losses, claims, damages, expenses or liabilities or actions to which
they or any of them become subject under the Securities Act or the Exchange Act
or otherwise, and shall reimburse the Company, its officers and directors and
each such controlling person, if any, for any legal or other expenses reasonably
incurred by them or any of
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them in connection with investigating or defending any actions whether or not
resulting in any liability, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any information relating
to the Purchaser furnished by or on behalf of the Purchaser in writing
specifically for inclusion in such Registration Statement. Notwithstanding the
above, the liability of the Purchaser under this Section 5(c) shall not exceed
the proceeds (net of underwriting discounts or commissions) received by the
Purchaser upon the sale of the Registrable Shares.
(d) Any losses, claims, damages, liabilities and reasonable expenses
for which an indemnified party is entitled to indemnification under Sections
5(b) and 5(c) of this Agreement shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities and expenses are
incurred.
(e) The Company shall promptly notify in writing the Purchaser or the
sales or placement agent, if any, of Registrable Shares covered by the
Registration Statement and the managing underwriter or underwriters, if any, (i)
when such Registration Statement or the prospectus included therein or any
prospectus amendment or supplement or post-effective amendment has been filed,
and, with respect to such Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of the issuance by the SEC
of any stop order suspending the effectiveness of such Registration Statement or
the initiation or threatening of any proceedings for that purpose, (iii) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Registrable Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, or (iv) at any
time when a prospectus is required to be delivered under the Securities Act,
that such Registration Statement, prospectus, prospectus amendment or supplement
or post-effective amendment, or any document incorporated by reference in any of
the foregoing, contains or may contain an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing;
(f) In the event that the Company would be required to deliver a
notice, pursuant to Section 5(e) above, the Company shall without delay prepare
and furnish to the Purchaser, to each placement or sales agent of Registrable
Shares, if any, and to each underwriter, if any, a reasonable number of copies
of a prospectus supplemented or amended so that, as thereafter delivered to
purchasers of Registrable Shares, such prospectus shall not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing. The sellers of Registrable Shares
agree that upon receipt of any notice from the Company pursuant to Section 5(e)
hereof, they shall forthwith discontinue the disposition of Registrable Shares
pursuant to the Registration Statement applicable to such Registrable Shares
until they shall have received copies of such amended or supplemented
prospectus, and if so directed by the Company, the sellers of Registrable Shares
shall deliver to the Company all copies, other than permanent file copies, then
in their possession of the prospectus covering such Registrable Shares at the
time of receipt of such notice.
(g) The Company may require the sellers of Registrable Shares to
furnish to the Company such information regarding such sellers and their
intended method of distribution of such Registrable Shares as the Company may
from time to time reasonably request in writing, but only to the extent that
such information is required in order to comply with the Securities Act. Each
such seller agrees to notify the Company as promptly as practicable of any
inaccuracy or change in information previously furnished by such seller to the
Company or of the occurrence of any event in either case as a result of which
any prospectus relating to such registration contains or would contain an untrue
statement of a material fact regarding such seller or such seller's intended
method of distribution of such
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<PAGE>
Registrable Shares or omits or would omit to state any material fact regarding
such seller or its intended method of distribution of such Registrable Shares
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and promptly to furnish
to the Company any additional information required to correct and update any
previously furnished information or required so that such prospectus shall not
contain, with respect to such seller or the distribution of such Registrable
Shares, an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.
(h) In addition to the foregoing provisions of this Section 5 and not
in limitation thereof, the Company shall have the right to suspend use of the
Registration Statement and the related prospectus for a period of up to ninety
(90) days if its Board of Directors determines in good faith that there is a
valid purpose for such suspension. For purposes of this Agreement, a valid
purpose shall include, but is not limited to, a good faith determination that
the Registration Statement may contain a material misstatement or omission
(including as a result of the Company having under consideration a significant
acquisition or disposition or other material transaction that has not been
publicly disclosed) in which case the Company may cause the Registration
Statement not to be used by the sellers of Registrable Shares until such time as
the SEC has declared effective a post-effective amendment to the Registration
Statement filed by the Company or if the misstatement or omission can be
corrected by incorporation by reference in the Registration Statement of another
SEC filing of the Company, the Company has made another filing on Form 8-K or
other appropriate form to correct such misstatement or omission. Notwithstanding
the foregoing, the Company may not suspend the use of the Registration Statement
and the related prospectus more than two (2) times during any calendar year
(i) The Company shall furnish to the Purchaser such number of copies of
a prospectus in conformity with the requirements of the Securities Act, and such
other documents as may reasonably be requested by the Purchaser in order to
facilitate the disposition of the Registrable Shares owned by the Purchaser.
(j) The Company shall use its best efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Purchaser; provided, however, that the Company shall not be required in
connection therewith, or as a condition thereto, to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act, or in any
state where the Company's securities are not already traded pursuant to a
secondary trading or "Manual" exemption.
(k) The Company will use its best efforts to make and keep public
information regarding the Company available as those terms are understood and
defined in Rule 144 under the Securities Act, at all times from and after ninety
(90) days following the effective date of the initial Registration Statement
filed by the Company under the Securities Act; and
6. Brokers. Each of the Company and Purchaser represent and warrant that no
person or entity has or will have, as a result of the transactions contemplated
by this Agreement, any right, interest, or valid claim upon or against the
Company or the Purchaser for any commission, fee or other compensation as a
finder or broker because of any act or omission by the Company or the Purchaser,
and each of the Company and the Purchaser agrees to indemnify and hold the other
party harmless against any such commissions, fees, or other compensation.
7. Waiver, Amendment. Neither this Agreement nor any provisions hereof shall be
modified, changed, discharged or terminated except by an instrument in writing,
signed by the party against whom any waiver, change, discharge or termination is
sought. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in
14
<PAGE>
exercising such right or remedy, or any course of dealings between the parties,
shall not operate as a waiver thereof or an amendment hereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or exercise of any other right or power.
8. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the parties hereto, their respective successors and assigns, and no
other person shall have any right or obligation hereunder. Neither this
Agreement nor any right, remedy, obligation or liability arising hereunder or by
reason hereof shall be assignable by either the Company or the Purchaser without
the prior written consent of other party and any assignment in violation hereof
shall be void, provided that the Purchaser may assign its rights and obligations
hereunder to any person acquiring some or all of the Securities, provided that
(i) such transfers are made to no more than ten (10) transferees, (ii) such
transferees are determined by the Company to meet the suitability requirements
for such an investment and (ii) such transferees agree in writing to be bound by
the terms hereof.
10. Choice of Law; Conflict of Law; Jurisdiction and Venue. Except as otherwise
expressly provided herein, the terms, conditions and enforceability of this
Agreement shall be governed by and interpreted under the laws of the State of
New York. Any claim, dispute or disagreement relating to the terms and
conditions of this Agreement, or arising from this Agreement or the subject
matter of this Agreement, may be brought only in the state and Federal courts of
New York which shall have exclusive jurisdiction thereof. The parties to this
Agreement consent to such jurisdiction and venue and hereby knowingly and
voluntarily waive all objections thereto on the basis of lack of personal
jurisdiction, venue or convenience.
11. Section and Other Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
12. Multiple Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
will constitute one and the same instrument. However, in enforcing any party?s
rights under this Agreement it will be necessary to produce only one copy of
this Agreement signed by the party to be charged.
13. Notice. Any notice to be given or to be served upon any party in connection
with this Agreement must be in writing and will be deemed to have been given and
received upon confirmed receipt, if sent by facsimile, or two (2) days after it
has been submitted for delivery by Federal Express or an equivalent carrier,
charges prepaid and addressed to the following addresses with a confirmation of
delivery:
If to the Company, to:
Chromatics Color Sciences International, Inc.
5 East 80th Street
New York, New York 10021
Attn: Darby S. Macfarlane
Telephone: (212) 717-6544
Facsimile: (212) 717-6675
With a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
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<PAGE>
Attn: Eric M. Lerner
Telephone: (212) 940-8800
Facsimile: (212) 940-8776
If to the Purchaser, to:
Gary W. Schreiner
2126 Melvin Drive
Rock Falls, Illinois 61071
Telephone: ( ) ___________
Facsimile: ( ) ___________
With a copy to;
Ward Murray Pace & Johnson P.C.
P.O. Box 400
Sterling, Illinois 61081
Attn.: Mr. Laurence F. Johnson
Telephone: ( )______________
Facsimile: ( )______________
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
15. Fees and Expenses. Each of Purchaser and the Company agrees to pay its own
expenses incident to the performance of its obligations hereunder including, but
not limited to, the fees and disbursements of such party?s legal counsel;
provided, however, that the prevailing party in any action, suit or proceeding
brought before or by any court or governmental agency or body, domestic or
foreign arising out of the transactions contemplated hereby shall be entitled to
be reimbursed for its reasonable legal fees and expenses.
16. Confidentiality. Each of the Company and the Purchaser agrees to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law.
{Signature Page Follows}
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<PAGE>
The undersigned acknowledges that this Agreement shall not be effective
unless and until accepted by the Company as indicated below.
Dated this 15th day of April, 1999.
By:
----------------------------------------
Gary W. Schreiner
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 15TH DAY OF APRIL,
1999.
Chromatics Color Sciences International, Inc.
By:
----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
17
Exhibit 4.2
THE SECURITIES REPRESENTED BY THE DEBENTURES AND THE SHARES OF COMMON STOCK OF
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. TO BE ISSUED UPON ANY CONVERSION
OF THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II)
TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE
ACT RELATING TO THE DISTRIBUTION OF SECURITIES) OR (III) IF AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE. THE SECURITIES EVIDENCED BY THIS
DEBENTURE ARE ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN THAT CERTAIN
SUBSCRIPTION AND PURCHASE AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE
COMPANY, A COPY OF WHICH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICE.
Debenture No. 1 $5,000,000
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
14% SENIOR CONVERTIBLE DEBENTURE DUE
APRIL 15, 2002
THIS DEBENTURE is one of a duly authorized issue of Debentures
of Chromatics Color Sciences International, Inc., a corporation duly organized
and existing under the laws of the State of New York (the "Company"), designated
as its 14% Senior Convertible Debentures due April 15, 2002 in an aggregate
original principal amount not exceeding Five Million Dollars ($5,000,000)
(individually, the "Debenture" and collectively, the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to Gary W.
Schreiner, registered holder hereof (the "Holder"), the principal sum of Five
Million Dollars ($5,000,000) on April 15, 2002 (the "Maturity Date") and to pay
interest on the principal sum outstanding in arrears at the rate of 14% per
annum, compounded annually and computed on the basis of the actual number of
days elapsed in a 365-day year. Accrual of interest shall commence on the date
hereof until payment in full of the principal sum has been made or duly provided
for. The interest so payable, less any amounts required by law to be deducted or
withheld, will be paid on the Maturity Date or, if earlier, on each Conversion
Date (hereinafter defined), to the person in whose name this Debenture is
registered on the records of the Company regarding registration and transfers of
this Debenture (the "Debenture Register"); provided, however, that the Company?s
obligation to a transferee of this Debenture arises only if such transfer, sale
or other disposition is made in accordance with the terms and conditions of that
certain Subscription Agreement of even date herewith, executed by the Company
and the original Holder hereof in connection with the purchase of this Debenture
(the "Subscription Agreement"). The principal of, and interest on, this
Debenture is payable in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private debts,
at the address last appearing on the Debenture Register of the Company, as
designated in writing by the Holder from time to time. In lieu of a cash
interest payment, the Company may, in its discretion, issue shares of its common
stock, $0.001 par value per share (the "Common Stock"), or a combination of
Common Stock and cash as payment of the interest then due and payable. If the
Company elects to pay all or a portion of the interest in Common Stock, the
Company shall issue
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<PAGE>
to the Holder such number of fully paid and non-assessable shares of Common
Stock equal to the quotient of (i) the amount of interest which the Holder is
entitled to receive and (ii) $5.00.
This Debenture is subject to the following additional provisions:
1. Subject to the provisions of Section 3 hereof, from and after April 14, 2000,
the Holder of this Debenture shall have the option to convert up to One Hundred
(100%) percent of the of the principal amount of this Debenture at any time and
from time to time into shares of the Company's Common Stock, at a conversion
price for each share of Common Stock equal to $5.00 (as adjusted for stock
splits, combinations and similar recapitalizations affecting the Common Stock as
provided herein, the "Conversion Price"). Notwithstanding the foregoing, at any
time from and after the date hereof and prior to April 14, 2000, the Holder or
Holders of the Debentures, as the case may be, may, in the aggregate, convert,
pursuant to Section 2 hereof, up to such portion of the Debentures as shall
result in the issuance upon such conversion of not more than an aggregate of
200,000 shares of Common Stock and, provided, further, that subject to
applicable securities laws, the Holder or Holders, as the case may be, in the
aggregate shall be permitted to sell up to an aggregate of 50,000 shares of such
Common Stock issued upon such conversion during any one month period ending
prior to April 14, 2000.
2. Conversion of this Debenture shall be effectuated by surrendering this
Debenture to the Company with the form of Notice of Conversion attached hereto
as Schedule 1, executed by the Holder of this Debenture evidencing such Holder's
intention to convert this Debenture or a specified portion (as provided for
above) hereof. At the discretion of the Company, the amount of accrued but
unpaid interest as of the Conversion Date (hereinafter defined) may be paid in
shares of Common Stock as provided above. No fractional shares of the Common
Stock or scrip representing fractional shares will be issued on conversion, but
the number of shares of Common Stock issuable shall be rounded to the nearest
whole share. The date on which Notice of Conversion is given shall be deemed to
be the date on which the Holder has delivered this Debenture, with the Notice of
Conversion duly executed, to the Company, or if earlier, the date such Notice of
Conversion is delivered to the Company provided this Debenture is received by
the Company within three (3) trading days thereafter. Such date is referred to
herein as the "Conversion Date." Facsimile delivery of the Notice of Conversion
shall be accepted by the Company. The Company shall issue, as promptly as is
practicable after delivery to the Company of such Notice of Conversion, if the
Company has received the original Notice of Conversion and Debenture(s) being so
converted, the number of shares of Common Stock to which the Holder shall be
entitled, registered in such street or nominee name as may be directed by the
Holder in the Notice of Conversion. The Company shall ensure that the shares of
Common Stock are at all times Depository Trust Corporation eligible.
3. The Conversion Price and number of shares of Common Stock issuable upon
conversion shall be subject to adjustment from time to time as provided in this
Section 3.
(a) In the event the Company should at any time or from time to time
after the date of this Debenture fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the Conversion
Price shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of this Debenture shall be increased in proportion
to such increase in the aggregate number of
19
<PAGE>
shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the date of this Debenture is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of this Debenture shall
be decreased in proportion to such decrease in outstanding shares.
(c) In case of any consolidation of the Company with, or merger of the
Company into, any other corporation in which the Company is not the surviving or
resulting corporation and in which the stockholders of the Company immediately
prior to the merger or consolidation hold less than 50% of the voting stock of
the Company following the merger or consolidation, or in case of any sale or
transfer of all or substantially all of the assets of the Company, or in the
case of any statutory exchange of securities with another corporation (including
any exchange effected in connection with a merger of a third corporation into
the Company, where the Company is not the surviving entity and the stockholders
of the Company immediately prior to the exchange hold less than 50% of the
voting stock of the Company after the exchange), the Holder shall be entitled to
receive, upon conversion of this Debenture, the kind and amount of shares of
stock and other securities and property receivable upon such consolidation,
merger, sale, transfer, or exchange of securities, or upon the dissolution
following such sale or other transfer, by a holder of the number of shares of
Common Stock purchasable upon conversion of this Debenture immediately prior to
such consolidation, merger, sale, transfer, or exchange.
4. This Debenture has been issued subject to certain investment representations
of the original Holder hereof (set forth in Section 3 of the Subscription
Agreement) and may be offered, sold, transferred or exchanged only in compliance
with the terms of the Subscription Agreement and the Securities Act. Prior to
due presentment for transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered on
the Debenture Register as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
5. The Debentures are issuable in denominations of not less than One Hundred
Thousand Dollars ($100,000) and integral multiples thereof. This Debenture is
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder. No service charge will be
made for such registration or transfer or exchange.
6. The Company shall be entitled to withhold from all payments of interest on
this Debenture any amounts required to be withheld under the applicable
provisions of the United States income tax laws or any other applicable laws at
the time of such payments.
7. The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Debentures, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the outstanding principal amount and accrued interest thereon.
8. (a) At any time after the eighteen (18) month anniversary of the date hereof,
the Company shall be entitled to prepay the entire amount of the Debentures or
any portion hereof, at any time or from time to time, upon not less than ten
(10) (nor more than twenty (20)) days prior written notice. The prepayment price
shall equal One Hundred percent (100%) of the principal amount so to be prepaid
plus all accrued and unpaid interest. Such prepayment shall be effected by
written notice to the Holder, accompanied by prepayment by wire transfer of
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<PAGE>
immediately available funds to an account designated by the Holder. Any such
prepayment shall be made pro rata among the Debentures in proportion to the
original principal amount thereof.
(b) If, at any time after the eighteen (18) month anniversary of the
date hereof and prior to the Maturity Date, the average closing bid price (as
reported on the Nasdaq SmallCap Market or such other principal market or
exchange on which the Common Stock is then traded) of the Company's Common Stock
for ten (10) consecutive trading days ending on the trading day immediately
preceding the date such written notice is provided to the Holder is equal to or
exceeds $10.29, the Company may require the Holder to convert One Hundred (100%)
percent of the of the principal amount (together with any accrued and unpaid
interest) of this Debenture into shares of Common Stock at a conversion price of
$5.00 per share pursuant to the terms of Section 2 hereof.
9. Any of the following shall constitute an "Event of Default":
(a) The Company shall fail to make any payment (whether principal,
interest or otherwise) on this Debenture as and when the same shall be due and
payable and such default shall continue for ten (10) days after the due date
thereof;
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate or financial or
other written statements heretofore or hereafter furnished by or on behalf of
the Company in connection with the execution and delivery of the Debentures or
the Subscription Agreement shall be false or misleading in any material respect
as of the date made;
(c) The Company shall fail to perform or observe, in any material
respect, any other material covenant, term, provision, condition, agreement or
obligation of the Company under the Debentures or the Subscription Agreement and
such failure shall continue uncured for a period of thirty (30) days after the
first date on which such failure arises;
(d) The Company shall (1) make an assignment for the benefit of its
creditors or commence proceedings for its dissolution; or (2) apply for or
consent to the appointment of a trustee, liquidator, custodian or receiver
thereof, or for a substantial part of its property or business;
(e) A trustee, liquidator, custodian or receiver shall be appointed for
the Company or for a substantial part of its property or business without its
consent and shall not be discharged within ninety (90) days after such
appointment;
(f) Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within ninety (90)
trading days after such institution or the Company shall by any action or answer
approve of, consent to, or acquiesce in any such proceeding or admit the
material allegations of, or default in answering a petition filed in any such
proceeding; and
(g) The Company shall dispose of all or substantially all of its assets
in one or more transactions or shall redeem more than a de minimis amount of its
outstanding shares of capital stock.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent Event of Default) at the option of the Holder in the Holder?s sole
discretion, the Holder may, upon written notice to the Company,
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<PAGE>
accelerate the maturity hereof, whereupon all principal and interest hereunder
shall be immediately due and payable in cash or shares of Common Stock, (at a
conversion price for each share of Common Stock equal to $5.00) upon presentment
of this Debenture.
10. (a) Anything in this Debenture to the contrary notwithstanding, the
obligation of the Company to pay the principal of and interest on this
Debenture, and to discharge all of its other obligations hereunder, shall be
senior in right of payment and priority, to (x) all obligations of the Company
to commercial banks, institutional lenders or other lenders for borrowed money,
(y) all obligations of the Company to commercial banks, institutional lenders or
other lenders under guarantees by the Company of obligations of wholly-owned
subsidiaries of the Company to commercial banks, institutional lenders or other
lenders for borrowed money and (z) any other convertible preferred equity or
convertible debt security issued by the Company, in each case, whether such
obligations are outstanding at the date of this Debenture or created or incurred
after the date of this Debenture but prior to the maturity of this Debenture
(hereinafter referred to as "Junior Indebtedness").
(b) In the event of any insolvency proceedings, and any receivership,
liquidation or other similar proceedings in connection therewith, relative to
the Company or its property, and in the event of any proceedings for voluntary
or involuntary liquidation, dissolution or other winding-up of the Company,
whether or not involving insolvency, then the holders of the Debentures shall be
entitled to receive payment in full of all principal, interest fees and charges,
including without limitation post-petition interest, hereunder before payment in
respect of any Junior Indebtedness to any other person.
(c) If funds or assets which would otherwise be available to make
payments in respect of this Debenture are instead paid or distributed to persons
other than the Holder, the Holder shall be subrogated to the rights of such
other persons to receive payments or distributions of assets of the Company.
11. Any notice to be given or to be served upon any party in connection with
this Debenture must be in writing and will be deemed to have been given and
received upon confirmed receipt, if sent by facsimile, or two (2) days after it
has been submitted for delivery by Federal Express or an equivalent carrier,
charges prepaid and addressed to the following addresses with a confirmation of
delivery:
If to the Company, to:
Chromatics Color Sciences International, Inc.
5 East 80th Street
New York, New York 10021
Attn: Darby S. Macfarlane
Telephone: (212) 717-6544
Facsimile: (212) 717-6675
With a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attn: Eric M. Lerner
Telephone: (212) 940-8800
Facsimile: (212) 940-8776
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<PAGE>
If to the Holder, to:
Gary W. Schreiner
2126 Melvin Drive
Rock Falls, Illinois 61071
Telephone: ( )
Facsimile: ( )
With a copy to;
Ward Murray Pace & Johnson P.C.
P.O. Box 400
Sterling, Illinois 61081
Attn.: Mr. Laurence F. Johnson
Telephone: ( )
Facsimile: ( ) ________________
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
12. Upon receipt of the Company of evidence of loss, theft, destruction or
mutilation of this Debenture, and (in the case of loss, theft or destruction)
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of this Debenture, if mutilated, the Company shall execute and
deliver a new Debenture of like tenor and date.
13. Except as otherwise expressly provided herein, the terms, conditions and
enforceability of this Debenture shall be governed by and interpreted under the
laws of the State of New York. Any claim, dispute or disagreement relating to
the terms and conditions of this Debenture, or arising from this Agreement or
the subject matter of this Debenture, may be brought only in the state and
Federal courts of New York which shall have exclusive jurisdiction thereof. The
parties to this Debenture consent to such jurisdiction and venue and hereby
knowingly and voluntarily waive all objections thereto on the basis of lack of
personal jurisdiction, venue or convenience.
{Signature Page Follows}
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by an officer thereunto duly authorized
Dated: April 15, 1999 Chromatics Color Sciences International, Inc.
By:
------------------------------------------
Name:
----------------------------------------
Title:
--------------------------------------
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<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No.
into ______________________ shares of Common Stock of Chromatics Color Sciences
International, Inc. (the "Company") according to the conditions hereof, as of
the date written below.
----------------------------------
Date of Notice
Signature
Name
Address:
______
* The original Debenture and a manually signed original of this Notice of
Conversion must be received by the Company by the third business day
following the date of delivery of this Notice of Conversion by
facsimile.
25
