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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1999
REGISTRATION NO. 333-82071
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
NEW YORK 13-3253392
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
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5 EAST 80TH STREET
NEW YORK, NY 10021
(212) 717-6544
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
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<S> <C>
WITH A COPY TO:
DARBY S. MACFARLANE JEFFREY E. LAGUEUX, ESQ.
CHAIRPERSON OF THE BOARD AND PATTERSON, BELKNAP, WEBB & TYLER LLP
CHIEF EXECUTIVE OFFICER 1133 AVENUE OF THE AMERICAS
5 EAST 80TH STREET NEW YORK, NY 10036-6710
NEW YORK, NY 10021 (212) 336-2000
(212) 717-6544
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this form is filed to register additional securities pursuant to Rule
462(b) under the Securities Act of 1933, please check the following box and list
the Securities Act of 1933 registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$.001 2,330,690 shares $8.4375 $19,665,196.88 $7,603.06
========================================================================================================
</TABLE>
(1) Represents the total shares of common stock (i) issuable upon conversion of
14% senior convertible debentures issued by Registrant in the principal
amount of $5 million on April 15, 1999, plus all interest accrued thereon at
maturity on April 15, 2002, at a conversion price of $5.00; (ii) issuable
upon conversion of 40,000 shares of convertible preferred stock issued by
Registrant for aggregate proceeds of $4 million on June 15, 1999, plus all
dividends accrued thereon at a rate of 8% during the period from June 15,
2002 to June 15, 2004, at a conversion price of $7.25 per share; and (iii)
issuable upon the exercise of 270,690 warrants issued by Registrant on June
15, 1999 at an exercise price of $8.25 per share.
(2) Estimated solely for the purpose of calculating the registration fee. Such
estimates have been calculated in accordance with Rule 457(c) under the
Securities Act of 1933 and are based upon the average of the high and low
prices per share of the Registrant's common stock on the Nasdaq SmallCap
Market on June 28, 1999.
(3) Paid on June 30, 1999.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
The information contained in this prospectus is not complete and may be changed.
These securities may not be sold until the Registration Statement filed with the
Securities and Exchange Commission[el]is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any State where the offer or sale is not permitted.
PROSPECTUS
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
2,330,690 SHARES OF COMMON STOCK
The selling stockholders named in this prospectus are offering and selling up to
2,330,690 shares of our common stock. These shares were acquired by the selling
stockholders upon the exercise of convertible debt securities, convertible
preferred stock and warrants sold by us to the selling stockholders in private
financings.
The selling stockholders may sell the shares of common stock described in this
prospectus in a number of different ways. The prices at which the selling
stockholders may sell the shares of common stock will be determined by
prevailing market prices for the shares or by negotiated transactions. We will
not receive any of the proceeds from the sale of shares, but we will receive the
exercise price of the warrants.
Our common stock is listed on the Nasdaq SmallCap Market under the symbol
'CCSI.' On November 11, 1999 the closing sales price of our common stock on the
Nasdaq SmallCap Market was $7.50.
You should read the description of certain risks under the caption 'Risk
Factors' beginning on page 5 before purchasing any of the common stock offered
by this prospectus.
THE SHARES OFFERED OR SOLD UNDER THIS PROSPECTUS HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is November 12, 1999.
<PAGE>
GENERAL INFORMATION ABOUT CHROMATICS
We are engaged in the business of researching, developing and
commercializing intellectual property rights, technology and instrumentation we
have developed in the field of color science. Color science involves the
objective, standardized analysis, description and measurement by instrument to a
laboratory standard of accuracy of the colors composing the visual color
spectrum and their related physical properties in relation to each other.
Historically, analysis of all aspects of color could only be performed through
the subjective visual perception of the observer. Beginning in the 1930s,
however, photoelectric instruments for objectively measuring colors became
available. Since that time, increasingly precise methodologies and instruments
have been developed and refined. Applications of color science technology
include the objective, standardized measurement analysis and classification of
the color of:
o human skin,
o human tissue,
o human fluid,
o human hair,
o human teeth or
o biological subjects including plants and animals,
the detection and monitoring of conditions affecting the coloration of human
skin, tissue, fluid, hair or teeth or biological subjects and the classification
and organization by color of various consumer color-sensitive products such as:
o cosmetics,
o tooth enamel,
o hair color,
o hosiery,
o fashion and
o textiles.
We have incorporated some of these intellectual property rights, technology
and instrumentation into a proprietary color measurement system and software
marketed for various applications known as the ColorMate(Registered) System. We
have developed our intellectual property and the ColorMate(Registered) System
for:
o the color measurement to a laboratory standard of accuracy and
classification of human tissue, fluid, hair and/or
teeth color,
o the color coordination of these human skin, tissue, fluid, hair and/or
teeth color classifications in relation to products,
o the color measurement to a laboratory standard of accuracy,
classification and organization based on color of various
color-sensitive consumer products such as cosmetics, hair coloring,
hosiery, clothing, tooth enamel, paint and textiles,
o the color measurement to a laboratory standard of accuracy to monitor
infant jaundice,
o the color measurement in detecting and monitoring certain other diseases
which we believe can be diagnosed or monitored by the coloration of
human skin, tissue and fluids (although these other medical uses would
require extensive clinical testing as well as FDA and foreign market
clearances or approvals, and there is no assurance that such clearances
or approvals would be granted) and
o the color coordination of products in relation to other products.
We determine such product color classifications by conducting laboratory
product chromaticity studies, which ascertain the range of color properties
particular to a given subject and/or product.
2
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We have also developed our own line of color coordinated proprietary
cosmetics (My Colors by Chromatics(Registered)) and color coordinated
proprietary color charts and material swatchpacks for use in the cosmetics,
beauty and fashion industries.
Our ColorMate(Registered) System consists of:
o a color measurement instrument to be held against a subject's skin,
hair, teeth or sample,
o a series of filters and a computer and
o related proprietary software all housed in a portable briefcase.
The color measurement instrument in our ColorMate(Registered) System or as
a hand-held, battery operated instrument is used in all of the medical, cosmetic
and other applications of our intellectual property rights, technology and
instrumentation. This instrument is held against the subject's skin, hair, teeth
or sample and performs color measurement of coloration and luminosity. In skin
color analysis, our software analyzes the color measurement taken and assigns
the subject to one of the approximately 200 skin color categories we have
identified through our research and development efforts. In the medical
application for monitoring infant jaundice, the instrument measures the
incremental yellow content of the skin and provides a numerical index estimated
in milligrams/deciliters or micro moles correlating to the serum bilirubin
concentration within a clinically useful range.
We hold four U.S. patents and have 11 pending U.S. patent applications. In
addition, we hold several foreign patents and have filed foreign patent
applications which correspond, at least in part, to our U.S. patents. The
proprietary information claimed by our patents includes, among other things, (i)
a method of detecting a medical condition that involves a symptomatic,
detectible change in a test subject's skin coloration (such as a method for
monitoring infant jaundice in an infant test subject), (ii) a method and
instrument for identifying skin color and categories of individuals, (iii) a
method of determining color compatibility of an individual's skin with non-skin
matter and (iv) a method of assigning a skin color compatibility classification
to non-skin matter and color charts and samples made by that method. Proprietary
information claimed by our patents is incorporated in the proprietary software
and measurement system used in our ColorMate(Registered) System and in the
proprietary software and measurement system used in our ColorMate(Registered)
TLc-BiliTest(Registered) System. We also hold several registered trademarks and
believe we have copyright protection for all of the software used in our
ColorMate(Registered) System and in our ColorMate(Registered)
TLc-BiliTest(Registered) System.
In July 1997 we received clearance from the U.S. Food and Drug
Administration for commercial marketing of our ColorMate(Registered) System
device for the non-invasive monitoring of newborn bilirubinemia (infant
jaundice) by healthcare professionals in the hospital, institutional,
pediatricians' office or home setting. Our FDA market clearance authorizes use
of our technology as an aid to the physician in monitoring the status of newborn
babies for the development of newborn bilirubinemia. Following a physician's
examination of a newborn within the first hours of birth, newborn babies are
measured initially and monitored periodically by the ColorMate(Registered)
TLc-BiliTest(Registered) System for incremental changes in the yellow content of
their skin. Almost all newborns develop some degree of infant jaundice and very
high bilirubin levels, if left untreated, may, in extreme cases, lead to
permanent brain damage or death. Infant jaundice occurs in most newborns because
of a combination of increased bilirubin production, a waste product that is
normally produced from the breakdown of red blood cells, and decreased clearance
of bilirubin by the liver. Prior to birth, the bilirubin in an infant is
processed by the mother's liver and excreted. After birth, an infant must
eliminate bilirubin independent of its mother, and it may take an infant's
system several days to begin eliminating the bilirubin faster than it is being
produced.
The current procedure for the initial screening for infant jaundice is the
observation of the yellowing of the skin by professional care providers, which
is a subjective determination prone to errors due to different skin colors. If
the initial clinical assessment suggests the possibility of significant elevated
bilirubin levels, the current procedure requires that a blood sample be obtained
from the infant, usually by a so-called heelstick (lancing the infant's heel).
We believe that a non-invasive instrument that monitors infant jaundice
represents a significant improvement in patient care.
3
<PAGE>
The ColorMate(Registered) TLc-BiliTest(Registered) System monitors the
incremental change of the yellow content of the skin color in infants of all
races by non-invasively measuring the color of the skin of the newborn. Color
measurements are obtained by placing the device on different physical sites of
the newborn for five to ten seconds. Accuracy of the color measurements is
ensured by use of the TLc-Lensette(Trademark) calibration standard used prior to
each baby's measurement, a proprietary disposable color-calibration standard, a
verification standard and a protective shield to help prevent cross
contamination between patients used prior to each baby's measurement. Each color
measurement of the skin is analyzed by our proprietary technology to provide
patients a numerical index estimated in milligrams/deciliters calculating the
newborn's serum bilirubin concentration within a clinically useful range.
We believe that our intellectual property rights and our
ColorMate(Registered) System may have applications in other industries,
including the cosmetic, hair color, beauty aid and fashion industries for
cosmetics, hair color, custom blended foundation makeup, hosiery, clothing and
accessories and the dental industry for matching the exact color of teeth caps,
bonding and dentures for both dentist offices and dental laboratories. We also
believe that our ColorMate(Registered) System and intellectual property may have
commercial applications in industrial color measurement applications in order to
achieve and confirm uniformity of color shades within a given product line or
between two products of the same line (for example, paint, textile and food
products). To date, however, we have not achieved commercial market penetration
in any non-medical industry. We are currently in the early stages of the
commercialization of our ColorMate(Registered) TLc-BiliTest(Registered) System
for the monitoring of infant jaundice and have not yet generated substantial
revenues from the sale of this product. We will need to generate substantial
revenues from the sale of our products and/or the financial markets in order to
develop other medical and non-medical applications for our intellectual property
rights, technology and instrumentation and to fund our continuing operations. If
we are not successful in generating additional revenues, we may be forced to
curtail our operations and seek protection from our creditors under applicable
bankruptcy laws.
We were incorporated in New York in March 1984. Our principal executive
offices are located at 5 East 80th Street, New York, New York 10021 and our
telephone number at that address is (212) 717-6544.
4
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RISK FACTORS
Investing in our common stock is very risky. You should be able to bear a
complete loss of your investment. You should carefully consider the following
factors, in addition to the other information in this prospectus, before
investing in our common stock.
WE HAVE A LIMITED OPERATING HISTORY
We have a limited operating history and have generated insignificant
revenues to date. Although we have recently entered into agreements for the
manufacturing and distributing of our ColorMate(Registered)
TLc-BiliTest(Registered) System, to date we have not produced or sold
substantial quantities of this product. We cannot assure you that this product
can be manufactured in commercial quantities or at an acceptable cost or
marketed successfully. We also cannot assure you that we will be successful in
our efforts to commercialize our ColorMate(Registered) System for other
applications.
WE EXPECT TO CONTINUE TO OPERATE AT A LOSS AND WE MAY NEVER ACHIEVE
PROFITABILITY
We cannot be certain that we will ever achieve and sustain profitability.
To date, we have been engaged in research and development activities and have
not generated any significant revenues from product sales. As of June 30,
1999, we had an accumulated deficit of $27,744,500. We expect that we will
continue to incur operating losses for the current and subsequent fiscal years.
In addition, we will record the following charges in connection with the
$5.0 million debt financing in April 1999 and $4.0 million preferred stock
financing in June 1999.
o The April financing will result in an additional interest charge of
approximately $3.5 million, resulting from a below-market conversion
price of the debt. This amount will be expensed over the
twelve-month period ending April 2000.
o The June financing will result in a deemed dividend charge of
approximately $3.0 million, resulting from a below-market conversion
price of the preferred stock, a redemption premium and warrants
issued in connection with the financing. Of this amount, $1.2
million was charged in June 1999 and $1.8 million will be charged
over the redemption period.
If we raise the additional $4.0 million in preferred stock financing, as noted
above, there will be a similar deemed dividend charge.
IF WE DO NOT SECURE ADDITIONAL FINANCING WE WILL NOT BE ABLE TO DEVELOP AND
MARKET OUR PRODUCTS
We will require substantial additional funds for our research and product
development programs, for contractual obligations, for operating expenses, to
pursue regulatory approvals and to develop and commercialize other applications
of our ColorMate(Registered) System. Adequate funds for these purposes, whether
through the financial markets or other sources, may not be available when
needed. Additionally, under the terms of our manufacturing agreement we must
provide our manufacturing partner with certain component parts to be assembled
into our ColorMate(Registered) System and our ColorMate(Registered)
TLc-BiliTest(Registered) System. Without the funds to provide these component
parts, our products cannot be manufactured and we will be unable to fulfill our
obligations to our distrtibution partner. Lastly, the terms of the convertible
preferred stock that require a downward adjustment in the conversion price if we
issue shares of common stock at a price of less than $7.25 per share will
increase the cost to us of any subsequent equity financing effected at less than
$7.25 per share. If we fail to make any payment required or if we are otherwise
in default under the manufacturing and distribution agreements relating to our
ColorMate(Registered) System and our ColorMate(Registered)
TLc-BiliTest(Registered) System, the other parties will have the right to
terminate the agreements. Termination of any of these agreements would have a
material adverse effect on our business by rendering us unable to manufacture
and distribute our ColorMate(Registered) System and our ColorMate(Registered)
TLc-BiliTest(Registered) System until replacement agreements were entered into.
WE WILL REQUIRE ADDITIONAL FUNDS IF THE CONVERTIBLE DEBENTURES AND CONVERTIBLE
PREFERRED STOCK ARE NOT CONVERTED PRIOR TO MATURITY
We will be obligated to repay the selling stockholders in cash on the
maturity date of the convertible debentures and the redemption date of the
convertible preferred stock if the selling stockholders do not elect
5
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to convert the convertible debentures or the convertible preferred stock into
shares of our common stock and we are unable to compel such conversion pursuant
to the mandatory conversion provisions described above relating to the market
price of our common stock. The selling stockholders generally will not elect to
convert the convertible debentures unless the market price of our common stock
exceeds $5.00 per share at the time of conversion. Similarly, the selling
stockholders generally will not elect to convert the convertible preferred stock
unless the market price of our common stock exceeds $7.25 per share at the time
of conversion. In addition, if an event of default occurs with respect to the
convertible debentures prior to the stated maturity date the selling
stockholders may elect to accelerate the maturity of the convertible debentures
with the effect that the principal amount and all accrued but unpaid interest
would become immediately due and payable. We cannot assure you that we would
have sufficient funds available to us to satisfy such obligations. Failure to
satisfy such obligations would have a material adverse effect on our business
and could force us to close our operations and seek protection from our
creditors under applicable bankruptcy laws.
WE DO NOT HAVE MANUFACTURING OR MARKETING CAPABILITIES OF OUR OWN AND DEPEND ON
OTHER PARTIES FOR MANUFACTURING AND MARKETING
We currently do not have the resources to manufacture or market
independently on a commercial scale the ColorMate(Registered) System, the
ColorMate(Registered) TLc-BiliTest(Registered) System or any other products that
we may develop. We rely on our corporate partners to manufacture and to market
our ColorMate(Registered) TLc-BiliTest(Registered) System and will continue to
rely on corporate partners to manufacture and to market our
ColorMate(Registered) System for other applications. The amount and timing of
resources to be devoted to these activities by these other parties may not be
within our control. We cannot assure you that these parties will perform their
obligations as expected or that we will derive any revenue from these
arrangements. We have no experience in manufacturing or marketing any products.
The failure of our corporate partners to perform their obligations relating to
the manufacturing and distributing of our ColorMate(Registered) System or
ColorMate(Registered) TLc-BiliTest(Registered) System would have a material
adverse effect on our business by rendering us unable to manufacture and
distribute our ColorMate(Registered) System and our ColorMate(Registered)
TLc-BiliTest(Registered) System until a replacement arrangement was entered
into.
WE MAY NOT BE SUCCESSFUL IN COMMERCIALIZING OUR COLORMATE(REGISTERED)
TLC-BILITEST(REGISTERED) SYSTEM
Our success in commercializing our ColorMate(Registered)
TLc-BiliTest(Registered) System will be dependent upon its acceptance by
healthcare professionals. Their acceptance will largely depend on our ability to
show them its ability to reduce the need for heelsticks in monitoring infant
jaundice as well as its utility compared to other non-invasive methods that
currently exist or that may be developed in the future by others with respect
to:
o safety,
o effectiveness,
o ease of use and
o price.
We cannot assure that our ColorMate(Registered) TLc-BiliTest(Registered)
System will be competitive with respect to these factors.
WE HAVE NOT YET SUCCESSFULLY COMMERCIALIZED OUR COLORMATE(REGISTERED) SYSTEM FOR
OTHER POTENTIAL MEDICAL APPLICATIONS
Although we have received FDA clearance to commercially market our
ColorMate(Registered) TLc-BiliTest(Registered) System for monitoring infant
jaundice, our clinical and research development programs for other medical
applications of our ColorMate(Registered) System are at a very preliminary
stage. Substantial additional research and development and further clinical
trials will be necessary before commercial versions of any additional proposed
products are submitted for FDA marketing clearance or approval and produced for
such other medical applications. We cannot assure you that we will be able to
successfully address the problems that may arise during the development, FDA
review process and commercialization of these other medical applications or that
any of our proposed products for these other medical applications will be
successfully developed, proven safe and effective in clinical trials, cleared or
approved by the FDA for marketing or meet applicable regulatory standards and
requirements.
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WE HAVE NOT YET SUCCESSFULLY COMMERCIALIZED OUR COLORMATE(REGISTERED) SYSTEM FOR
NON-MEDICAL APPLICATIONS
To date, we have not achieved commercial market penetration in any
non-medical industry. In order to commercialize our ColorMate(Registered) System
in connection with non-medical applications we will need to develop additional
marketing skills, incur significant expenses on sales and marketing activities,
hire additional employees and consultants and enter into arrangements with third
party distributors. We cannot assure you that we will be successful in our
efforts to commercialize any of these non-medical applications of our
ColorMate(Registered) System.
EXTENSIVE GOVERNMENTAL REGULATION COULD ADVERSELY AFFECT OUR BUSINESS
Governmental regulation may significantly delay the marketing of our
products, prevent marketing of products altogether or impose costly requirements
on our activities. The FDA and comparable foreign regulatory authorities
generally require rigorous pre-clinical testing, clinical trials and government
premarket review and clearance or approval for the type of human medical device
we market or contemplate marketing. Numerous regulations govern, among other
things, the manufacturing, safety, labeling, promotion, storage, record keeping,
reporting and marketing of medical devices. A delay in obtaining or failure to
obtain or maintain regulatory clearances or approvals for any of our products
would have an adverse effect on our business. We cannot predict the adverse
effects that existing or future government regulations may have on our business.
Even though our ColorMate(Registered) TLc-BiliTest(Registered) System
received FDA marketing clearance for monitoring infant jaundice, we may still
face difficulties in manufacturing and marketing this product. A marketed
product and its manufacturer's practices are subject to regulatory review and
the manufacturer's facilities are subject to periodic establishment inspections.
The discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on the product or manufacturer, including
withdrawal of the product from the market. The failure to comply with applicable
regulatory requirements can, among other things, result in:
o fines,
o suspended or withdrawn regulatory approvals,
o refusal to clear or approve pending applications,
o refusal to permit exports or to allow imports from the United
States,
o product recalls,
o seizure of products,
o injunctions,
o operating restrictions and
o criminal prosecutions.
WE MAY BE UNABLE TO DEVELOP POTENTIAL INTERNATIONAL MARKETS AND OBTAIN FOREIGN
REGULATORY APPROVALS
Although we believe that sales of our products to customers outside of the
United States represent a significant potential source of growth we may not be
able to obtain agreements with third party distributors for marketing outside of
the United States. We also cannot be certain that we will be able to maintain
our existing ISO 9001/EN46001 certification or that we will obtain any further
regulatory approvals in other countries. In order to market our products outside
of the United States, we must comply with numerous and varying foreign
regulatory requirements implemented by foreign authorities. The approval
procedure varies among countries and can involve additional testing. The time
required to obtain further foreign clearances or approvals may differ from that
required to obtain FDA clearances or approvals for commercial marketing. The
foreign regulatory approval process includes all of the risks associated with
obtaining FDA clearances or approvals set forth above, and clearance or approval
by the FDA does not ensure clearance or approval by the authorities of any other
country.
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THE MEDICAL COMMUNITY MAY BE RELUCTANT TO ACCEPT OUR TECHNOLOGY
The commercial acceptance of our ColorMate(Registered)
TLc-BiliTest(Registered) System is substantially dependent on its acceptance by
the medical community for the monitoring of infant jaundice. Because the medical
community is relatively slow to adopt new technologies we cannot assure you that
the medical community will perceive a need for, or accept, our
ColorMate(Registered) TLc-BiliTest(Registered) System or be willing to commit
funds to its purchase and use. Widespread acceptance of the
ColorMate(Registered) TLc-BiliTest(Registered) System for monitoring infant
jaundice will require educating the medical community about its advantages,
reliability, cost-effectiveness and utility. In addition, acceptance of the
ColorMate(Registered) TLc-BiliTest(Registered) System may be adversely affected
by competing products which may have more utility, a lower cost or be received
in a better way than our ColorMate(Registered) TLc-BiliTest(Registered) System.
OUR MAIN COMPETITORS GENERALLY HAVE MORE RESOURCES THAN WE HAVE
The medical device industry is characterized by rapid technological
advances, evolving industry standards and technological obsolescence. Our
inability to meet or surpass our competitors' technological advances in this
industry could have a material adverse effect on our business. We have several
competitors in this industry, none of whom we believe to be dominant. We believe
that, in addition to our ColorMate(Registered) TLc-BiliTest(Registered) System
the only other commercially available non-invasive devices for the monitoring of
infant jaundice with FDA marketing clearance in the United States are the
Minolta Jaundice Meter, manufactured by Minolta Co., Ltd. which is distributed
by Air Shields and the SpectRx Bilicheck, manufactured by SpectRx and
Respironics. Both Minolta and Respironics have financial, marketing and other
resources greater than our own. Our competitors in this industry may develop
products which may render our ColorMate(Registered) TLc-BiliTest(Registered)
System obsolete or which have advantages over our ColorMate(Registered)
TLc-BiliTest(Registered) System, such as greater accuracy and precision or
greater acceptance by the medical community.
To the extent that we are able to commercialize our ColorMate(Registered)
System for non-medical applications such as dentistry we will also encounter
competition. In particular, the cosmetics industry and the fashion industry are
particularly sensitive to changing consumer preferences and demands, which are
difficult to predict and beyond our control. Competition in the cosmetics and
dental industries is diverse, but is nevertheless dominated by a number of
large, established, well-known companies having significantly greater financial,
marketing and human resources than we do. These competitors also have an
established presence in the market and manufacturing capabilities. We cannot
assure you that we will be able to compete successfully in these non-medical
markets.
WE DO NOT INTEND TO DECLARE DIVIDENDS IN THE FORESEEABLE FUTURE
Our Board of Directors does not intend to declare any dividends in the
foreseeable future, but intends to retain all earnings, if any, for use in our
business operations. We have 1,380,000 shares of Class A preferred stock which
are entitled to receive annual non-cumulative dividends of $.001 per share, when
and as declared by our Board of Directors, which must be paid before any cash
dividend may be paid with respect to our common stock.
OUR BOARD OF DIRECTORS IS AUTHORIZED TO ISSUE PREFERRED STOCK WITHOUT
STOCKHOLDER AUTHORIZATION WHICH COULD BE USED AS AN ANTI-TAKEOVER DEVICE
Our Board of Directors is authorized to issue from time to time without
stockholder authorization shares of preferred stock. The issuance of preferred
stock could decrease the amount of assets and earnings available for
distribution to our other stockholders. Preferred stockholders could receive
voting rights and rights to payments on liquidation or of dividends or other
rights which are greater than the rights of the holders of our common stock. In
addition, the issuance of preferred stock may make it more difficult for a third
party to acquire, or may discourage a third party from acquiring, voting control
of our stock. This provision could also discourage an unsolicited acquisition
and could make it less likely that stockholders receive a premium for their
shares as a result of any such attempt.
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OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A SIGNIFICANT AMOUNT OF STOCK OF
CHROMATICS AND EXERT CONSIDERABLE CONTROL OVER CHROMATICS
As of November 1, 1999, our directors and executive officers beneficially
owned approximately 18.5% of voting power represented by our outstanding common
and preferred stock. As a result, these stockholders are able to significantly
influence all matters requiring stockholder approval, including the election of
directors and the approval of significant corporate transactions. This
concentration of ownership could also delay or prevent a change in control that
may be favored by other stockholders.
WE WILL NEED TO HIRE ADDITIONAL PERSONNEL TO MANAGE OUR TRANSITION FROM A
DEVELOPMENT STAGE COMPANY TO AN OPERATING COMPANY
In order to generate and service sales of our medical products we will need
to attract and retain significant additional senior and midlevel personnel
experienced in financial, administrative, marketing, sales and regulatory
matters in the medical industry. We currently only have 41 full-time employees,
of which 20 are medical marketing or regulatory personnel. Our success will
depend in part on our ability to hire, train and retain new and existing
personnel. Competition for qualified personnel is intense and we cannot assure
you that we will be successful in hiring, training or retaining additional
personnel to support our executive, operations, marketing, sales, research and
product development needs and efforts.
WE DEPEND ON THE SERVICES OF KEY PERSONNEL
Our success depends to a significant extent upon the efforts of Darby
Simpson Macfarlane, the Chairperson of our Board of Directors, our Chief
Executive Officer and one of our major stockholders, and David Kenneth
Macfarlane, our Vice President, Research and Development. Although we have
purchased key-man life insurance policies in the amounts of $1,000,000 on the
lives of each of Ms. and Mr. Macfarlane, we cannot assure you that the proceeds
from such policies would enable us to retain suitable replacements for them. The
loss of the services of either Ms. Macfarlane or Mr. Macfarlane could adversely
affect our business.
WE ARE A DEFENDANT IN PENDING SECURITIES LITIGATION AND EXPECT TO INCUR
SUBSTANTIAL EXPENSES IN CONNECTION WITH OUR DEFENSE AND COUNTERCLAIMS
We have been named, together with certain of our officers and directors, as
a defendant in three pending legal actions involving allegations that we made
false and misleading statements during the period from July 30, 1997 through
June 8, 1998 regarding:
o the new innovative nature of our ColorMate(Registered)
TLc-BiliTest(Registered) System,
o the market size and revenue potential of our ColorMate(Registered)
TLc-BiliTest(Registered) System and
o the existence and status of negotiations with potential distributors
of our ColorMate(Registered) TLc-BiliTest(Registered) System.
Although we believe that the claims asserted in these suits are without
merit and intend to contest them vigorously, we expect to incur substantial
legal expenses in connection with defending these actions and pursuing our
counterclaims and cannot assure you that the outcome of this litigation will not
have a material adverse effect on our business.
WE FACE THE RISK OF PRODUCT LIABILITY CLAIMS WHICH MAY EXCEED THE SCOPE OR
AMOUNT OF OUR INSURANCE COVERAGE
The manufacture and sale of human medical devices entails significant risk
of product liability claims. We cannot assure you that our product liability
coverage will be adequate to protect us from any liabilities we might incur in
connection with the use or sale of our products. In addition, we may require
increased product liability coverage as additional products are commercialized.
Such insurance is expensive and in the future may not be available on acceptable
terms, if at all. A successful product liability claim or series of claims
brought against us in excess of our insurance coverage could have a material
adverse effect on our business and results of operations. We must indemnify our
distribution partner against any product liability claims brought against it
arising out of products developed by us.
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OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO EFFECTIVELY MAINTAIN OUR PATENTS
AND PROPRIETARY RIGHTS, WHICH WE MAY NOT BE ABLE TO DO
Our success will depend to a significant degree on our ability to obtain
patents and licenses to patent rights, preserve trade secrets and to operate
without infringing on the proprietary rights of others. If we are not successful
in these endeavors, our business may be substantially impaired. We cannot assure
you that our existing patents will not be successfully challenged or
circumvented, that we will otherwise be able to rely on such patents, that such
patents will be sufficient to protect our technologies or that future patents
will issue from our pending patent applications or that any patent will issue on
technology arising from additional research or, if patents do issue, that claims
allowed will be sufficient to protect our technologies. We cannot assure you
that our competitors will not seek to apply for and obtain patents that prevent,
limit or interfere with our ability to make, use and sell our products either in
the United States or in foreign countries. We also cannot assure you that we
will not become subject to patent infringement claims brought by third parties
or to re-examination of previously issued patents or interference proceedings to
determine the priority of inventions.
We also rely on a combination of trade secret and copyright law, employee
and third-party nondisclosure agreements and other protective measures to
protect intellectual property rights pertaining to our products and
technologies. We cannot be certain that these measures will provide meaningful
protection of our trade secrets, know-how or other proprietary information in
the event of any unauthorized use, misappropriation or disclosure of such trade
secrets, know-how or other proprietary information. In addition, the laws of
certain foreign jurisdictions may not protect our intellectual property rights
to the same extent as the laws of the United States.
OUR ASSUMPTIONS REGARDING THE BUSINESS PLAN AND STRATEGY FOR OUR
COLORMATE(REGISTERED) TLC-BILITEST(REGISTERED) SYSTEM MAY PROVE TO BE INACCURATE
Our business plan and strategy for the commercialization of our
ColorMate(Registered) TLc-BiliTest(Registered) System is based upon assumptions
we have made regarding the size of the infant jaundice monitoring market, our
short-term and eventual share of this market, the price at which we believe we
will be able to sell or lease this product and consumer acceptance of this
product. We cannot assure you that these assumptions will prove to be correct.
OUR STOCK PRICE COULD BE ADVERSELY AFFECTED IF WE WERE DELISTED FROM THE NASDAQ
SMALLCAP MARKET
Our common stock is presently traded on the Nasdaq SmallCap Market. If we
fail to meet the Nasdaq SmallCap Market listing requirements and our common
stock was delisted the market value of our common stock could fall and holders
of common stock would likely find it more difficult to dispose of and to obtain
accurate quotations as to the market value of our common stock. If our common
stock is delisted from the Nasdaq SmallCap Market it could become subject to
rules adopted by the SEC regulating broker-dealer practices in connection with
transactions in 'penny stocks.' The penny stock rules require a broker-dealer
prior to a transaction in a penny stock not otherwise exempt from the rules to
deliver a standardized risk disclosure document which provides information about
penny stocks and the nature and level of risks in the penny stock market.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to
these penny stock rules. If our common stock becomes subject to the penny stock
rules, you may be unable to readily sell shares of our common stock.
OUR STOCK PRICE MAY BE VOLATILE
The market price of our common stock has historically been volatile as a
result of:
o analyst recommendations,
o announcements of technological innovations or new commercial
products by us or our competitors,
o market conditions relating to the medical device industry,
o sales of substantial amounts of our common stock by existing
stockholders, including short sales,
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o adverse publicity related to accusations by short sellers and
o obtaining regulatory clearances in both the U.S. and in foreign
countries.
A short sale involves the sale of borrowed shares with the expectation that
the market price of the security will decline in the future. If the anticipated
price decline occurs the short seller replaces the borrowed securities with
shares bought in the market at the lower price and realizes a profit equal to
the difference between the price at which the borrowed shares were sold and the
price at which the replacement shares are purchased. From time to time in the
past concentrated periods of short selling of our common stock have created an
imbalance between the number of shares offered to the market for sale and the
willingness of the market to absorb these shares at prevailing price levels
which has resulted in rapid and substantial declines in the market price of our
common stock.
CONVERSION OF THE CONVERTIBLE DEBENTURES AND THE CONVERTIBLE PREFERRED STOCK AND
EXERCISE OF THE RELATED WARRANTS WILL DILUTE THE INTERESTS OF EXISTING
STOCKHOLDERS
The conversion price of the convertible debentures and the convertible
preferred stock issued to the selling stockholders and the exercise price of the
related warrants issued to one of the selling stockholders is expected to be
less than the current market price of our common stock on the date of conversion
or exercise. So long as these securities remain outstanding and unconverted or
unexercised, the terms under which we could obtain additional equity financing
may be adversely affected. To the extent of any conversion or exercise of such
securities, the interests of our existing stockholders will be diluted
proportionately.
COST CONTAINMENT RELATING TO HEALTHCARE REFORM COULD ADVERSELY AFFECT OUR
BUSINESS
Political, economic and regulatory influences are subjecting the healthcare
industry in the United States to fundamental change and are increasing
cost-containment efforts. We anticipate that Congress, state legislatures and
the private sector will continue to review and assess alternative benefits,
controls on healthcare spending through limitations on the growth of private
health insurance premiums and Medicare and Medicaid spending, the creation of
large insurance purchasing groups, price controls on pharmaceuticals and medical
devices and other fundamental changes to the healthcare delivery system. Any
such changes could negatively impact our ultimate profitability. Also, the trend
toward managed healthcare in the United States and the concurrent growth of
organizations such as healthcare management organizations, which could control
or significantly influence the purchase of healthcare services and products, may
result in lower prices for our medical product candidates than we currently
expect. We cannot predict what impact the adoption of any federal or state
healthcare reform measures or future private sector reforms may have on our
business.
OUR PRODUCTS MUST BE ACCEPTED FOR REIMBURSEMENT BY THIRD-PARTY PAYORS
Our ability to successfully commercialize our ColorMate(Registered)
TLc-BiliTest(Registered) System and our other medical product candidates will
depend in part on the extent to which appropriate reimbursement codes and
authorized cost reimbursement levels of such products and related treatment are
obtained from governmental authorities, private health insurers and other
organizations, such as health maintenance organizations. Third-party payors are
increasingly challenging the prices charged for medical products and services.
American Medical Association CPT codes are generally used to facilitate the
processing of insurance reimbursement claims and to provide a simplified
reporting procedure. However, assignment of a code does not assure that the
insurer will provide reimbursement or that the AMA endorses the medical
procedure at issue. In March 1998, we were assigned AMA CPT Code 82250 for
processing claims for use of the ColorMate(Registered) TLc-BiliTest(Registered)
System. This same code is assigned for the reimbursement of laboratory blood
tests currently used to monitor infant jaundice. Subsequently, the AMA informed
us that CPT Code 84999 ('Unlisted Chemistry Procedure'), not Code 82250, was the
assigned code. However, the AMA indicated that it was reviewing coding in this
area generally. Although we believe that the original code assignment to our
ColorMate(Registered) TLc-BiliTest(Registered) System was correct, we cannot
assure you that our belief will be sustained. Claims for reimbursement under CPT
Code 84999 may not be as readily processed for reimbursement as claims made
under CPT Code 82250.
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YEAR 2000 ISSUE RISKS MAY RESULT IN A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
Although we do not presently believe that, with upgrades of existing
software and/or conversion to new software, the year 2000 problem will pose
significant operational problems for our internal computer systems or have a
negative affect on our financial position or results of operations, we are
dependent on third parties for the manufacturing and marketing of our
ColorMate(Registered) TLc-BiliTest(Registered) System and we cannot assure you
that any year 2000 compliance problems of these third parties will not
negatively affect our financial position or results of operations. If we or any
third parties upon which we rely are unable to address the year 2000 issue in a
timely manner, it could have a materially adverse effect on our financial
position and results of operations. In order to assure that this does not occur,
we are in the process of developing a contingency plan and intend to devote all
resources required to attempt to resolve any significant year 2000 issues in a
timely manner.
WE EXPECT TO ISSUE ADDITIONAL SHARES IN THE FUTURE WHICH WOULD DILUTE THE
OUTSTANDING SHARES
In order to finance the commercialization of our ColorMate(Registered)
TLc-BiliTest(Registered) System and other applications of our
ColorMate(Registered) System, we expect to issue and sell additional shares of
our common stock or securities convertible into our common stock, such as the
securities which we issued to the selling stockholders, in the future. The
prices at which we sell these securities and the other terms and provisions
related to such securities will depend on prevailing market conditions and other
factors in effect at that time, all of which are beyond our control. Shares may
be issued at prices which are less than the then-current market price of our
common stock and/or at prices which are less than the prices at which the shares
of common stock being offered by the selling stockholders hereby are sold.
RECENT EVENTS
In order to provide the ColorMate(Registered) TLc-BiliTest(Registered)
System to hospitals, the medical community including clinics, pediatricians and
home healthcare providers and physicians and to expedite evaluation of the
product by the medical community we have taken a series of significant steps in
the past 12 months:
o In November 1998, we opened our medical division, supervised by
Sheila Kempf, Vice President Medical Division. Ms. Kempf is a former
Vice President-Marketing of Corometrics, a Marquette Medical Inc.
company, and a former Director of Marketing for sensors and
accessories of Nelcor Puritan Bennet, Inc. and has over 13 years
experience in the medical marketing field. We also hired neonatal
nurse clinical specialists to provide training to hospital staffs
using our ColorMate(Registered) TLc-BiliTest(Registered) System. The
newly-formed medical division provides sales support for the
ColorMate(Registered) TLc-BiliTest(Registered) System delivered to
consumers in the medical community, including hospitals,
pediatricians, clinics and home healthcare agencies, and performs
delivery, training and in-servicing for customers initially
generated by our presentations to the medical community.
o In November 1998, we entered into a manufacturing agreement within
an ISO 9001 certified manufacturer, Nova Biomedical of Waltham,
Massachusetts for the production of our ColorMate(Registered)
TLc-BiliTest(Registered) System and in February 1999 we began making
limited shipments of this product.
o In January 1999, we formed a five-person sales unit to be led by
Dennis A. McClinton, Vice President of Sales. Mr. McClinton has an
18-year background in sales of fetal and neonatal ICU monitoring
products at Marquette Medical Systems and will head a staff that
averages ten years experience in that field. This new unit is
responsible for the initial sales activity for our
ColorMate(Registered) TLc-BiliTest(Registered) System. The
ColorMate(Registered) TLc-BiliTest(Registered) System as currently
marketed by our medical division has a list price of $3,000 to
$6,000 depending on the model and may be leased or used under the
limited time offer for use and evaluation of the system, all with
either purchase of minimum monthly supplies of the
TLc-Lensette(Trademark) calibration standards at $10 per unit, or
minimum monthly charges of $10 per use or under a managed use
program.
o In January, 1999 we applied for ISO 9001/EN46001 certification and
the right to affix the CE mark to our ColorMate(Registered)
TLc-BiliTest(Registered) System in order to market this product in
the European Union. ISO 9001/EN46001 certification recognizes that
we have established a quality system for the design, development,
manufacturing, servicing and distribution of this product and the CE
mark is a symbol of quality and compliance with applicable European
Union medical device
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directives. We have received both the ISO 9001/EN46001 certification
and the right to affix the CE mark to our ColorMate(Registered)
TLc-BiliTest(Registered) System.
o In June 1999 we entered into an agreement for the exclusive
distribution of the ColorMate(Registered) TLc-BiliTest(Registered)
System in the hospital, pediatricians' offices and home healthcare
markets including clinics related to these markets in the United
States with Datex-Ohmeda, Inc. and its Ohmeda Medical Division. This
agreement provided for a four month transition period before the new
distributor would begin distribution of this product. Revenues will
be generated under this agreement from sales of our
ColorMate(Registered) TLc-BiliTest(Registered) System and our
TLc-Lensette(Trademark) calibration standards directly to
Datex-Ohmeda, Inc., as well as through a percentage of the resale
price received by the distributor for each product.
In order to finance our activities, we recently completed two private
placements of securities. In April 1999, we completed the private placement of
$5 million in principal amount of 14% senior convertible debentures to certain
of the selling stockholders for aggregate proceeds of $5 million. The 14% senior
convertible debentures:
o accrue interest at the annual rate of 14%, payable at our option in
cash or in shares of our common stock upon conversion of the senior
convertible debentures or the maturity date,
o mature on April 15, 2002 if not sooner converted,
o are partially convertible into shares of our common stock prior to
April 14, 2000, at a price of $5.00 per share, subject to adjustment
for stock splits, combinations and similar recapitalizations
affecting our common stock, so long as not more than 200,000 shares
in total are issued upon such partial conversion,
o are fully convertible into shares of our common stock from and after
April 14, 2000, at a price of $5.00 per share, subject to adjustment
for stock splits, combinations and similar recapitalizations
affecting our common stock,
o may be prepaid by us at any time after October 15, 2000 at 100% of
the principal amount plus all accrued but unpaid interest and
o are subject to mandatory conversion into shares of our common stock
at our option at any time after October 15, 2000 if the average
closing bid price of our common stock for ten consecutive trading
days equals or exceeds $10.29.
In connection with this private placement, we agreed to register the shares
of our common stock issuable upon the conversion of the senior convertible
debentures for resale by certain of the selling stockholders under the
Securities Act of 1933 and to use our best efforts to maintain the effectiveness
of such registration statement until the earlier of the date that all of the
shares of our common stock issuable upon the conversion of the senior
convertible debentures have been sold and the date that the number of remaining
shares of our common stock issued or issuable upon the conversion may be freely
sold pursuant to SEC Rule 144 in any period of three consecutive months.
In June 1999, we completed a private placement of 40,000 shares of
convertible preferred stock and warrants to purchase 220,690 shares of our
common stock to one of the selling stockholders for aggregate proceeds of $4
million. The shares of convertible preferred stock issued on that date:
o are convertible into shares of our common stock at a price of $7.25
per share, subject to adjustment for stock splits, combinations and
similar recapitalizations affecting our common stock and to downward
adjustment if we issue or agree to issue additional shares of our
common stock (excluding options under our option plan and certain
other excluded securities) at a price of less than $7.25 per share
to the price at which we issue or agree to issue the lower-priced
shares of our common stock or securities convertible or exchangeable
for shares of our common stock,
o are redeemable in cash for an amount equal to $115 per share of
convertible preferred stock on the third anniversary of the date of
initial issuance if not sooner converted unless we elect in our
discretion to extend the redemption date to the fifth anniversary of
the date of initial issuance,
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o are subject to mandatory conversion into shares of our common stock
at our option at any time after December 15, 1999 if the average
closing bid price of our common stock for ten consecutive trading
days equals or exceeds $10.88 per share,
o are not entitled to any voting rights except as otherwise required
by applicable law and
o are not entitled to any dividend rights unless we elect to extend
the redemption date to the fifth anniversary of the date of initial
issuance, in which case dividends would accrue at the rate of 8%
from and after the third anniversary of the date of initial issuance
which could be paid in shares of our common stock at our option.
In addition to the shares of convertible preferred stock, on June 15, 1999
we also issued an aggregate of 220,690 warrants to purchase shares of our common
stock to one of the selling stockholders. An additional 50,000 warrants were
issued to such selling stockholder as compensation for services rendered in
connection with the placement of the convertible preferred stock. The warrants
issued on that date:
o have a five-year term unless sooner exercised,
o are exercisable for shares of our common stock at a price of $8.25
per share, subject to adjustment in the same circumstances as the
shares of convertible preferred stock described above and
o are subject to mandatory exercise into shares of our common stock at
our option at any time after December 15, 1999 if the average
closing bid price of our common stock measured over twenty
consecutive trading days equals or exceeds $16.50.
We also agreed to issue and sell an additional 40,000 shares of convertible
preferred stock and warrants to purchase 270,690 shares of our common stock to
the same selling stockholder at a second closing. The second closing is subject
to the satisfaction of several conditions, including the effectiveness of the
registration statement of which this prospectus forms a part. The terms of the
convertible preferred stock to be sold at the second closing would be identical
to the convertible preferred terms described above except that the conversion
price would be equal to the lower of $7.25 per share or 90% of the average
closing bid price of our common stock over the five consecutive trading days
ending on the date prior to the second closing date. The terms of the warrants
to be sold at the second closing would be identical to the warrant terms
described above except that the exercise price would be equal to the lower of
$8.25 per share or 100% of the average closing bid price of our common stock
over the five consecutive trading days ending on the date prior to the second
closing date. We may elect in our discretion not to proceed with the second
closing if the conversion price of the convertible preferred stock to be sold
would be less than $7.25 per share or if the exercise price of the warrants to
be sold would be less than $8.25 per share.
In connection with this private placement, we agreed to register the shares
of our common stock issuable upon the conversion of the convertible preferred
stock and warrants for resale by one of the selling stockholders under the
Securities Act of 1933 and to use our best efforts to maintain the effectiveness
of such registration statement until the date that all of the shares of our
common stock issuable upon the conversion of the convertible preferred stock and
warrants have been sold.
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WHERE YOU CAN GET MORE INFORMATION
We are a reporting company and file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy these
reports, proxy statements and other information at the SEC's public reference
rooms in Washington, DC, New York, NY and Chicago, IL. You can request copies of
these documents by writing to the SEC and paying a fee for the copying cost.
Please call the SEC at 1-800-SEC-0330 for more information about the operation
of the public reference rooms. Our SEC filings are also available at the SEC's
web site at 'http://www.sec.gov.' In addition, you can read and copy our SEC
filings at the office of the National Association of Securities Dealers, Inc. at
1735 K Street, N.W., Washington, DC 20006.
The SEC allows us to 'incorporate by reference' information that we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
o Annual Report on Form 10-K for the year ended December 31, 1998, as
amended by Form 10-K/A filed April 29, 1999,
o Current Report on Form 8-K filed April 30, 1999,
o Quarterly Report on Form 10-Q for the three months ended March 31,
1999 filed May 17, 1999,
o Current Report on Form 8-K filed June 18, 1999,
o Current Report on Form 8-K filed June 30, 1999,
o Quarterly Report on Form 10-Q for the three months ended June 30,
1999 filed August 23, 1999,
o Quarterly Report on Form 10-Q for the three months ended September
30, 1999 filed November 15, 1999,
o The description of the common stock contained in Chromatics Color
Sciences International, Inc. Registration Statement on Form 8-A
filed February 1, 1993,
o The description of the purchase rights for Class B Series 1
preferred stock contained in the Chromatics Color Sciences
International, Inc. Registration Statement on Form 8-A filed January
5, 1999,
o Registration Statement on Form 8-A/A amending the description of the
common stock filed November 12, 1999 and
o Registration Statement on Form 8-A/A amending the description of the
purchase rights for Class B Series 1 preferred stock filed November
12, 1999.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Ms. Leslie Foglesong
Secretary
Chromatics Color Sciences International, Inc.
5 East 80th Street
New York, NY 10021
(212) 717-6544
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USE OF PROCEEDS
We will not receive any proceeds resulting from the sale of the shares of
common stock by the selling stockholders, but we will receive the proceeds from
the exercise of the warrants.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and information about our financial condition, results of
operations and business that are based on our current and future expectations.
The words 'believe,' 'anticipate,' 'expect,' 'intend,' and words of similar
import are intended to identify these statements as forward-looking statements.
Such forward-looking statements include the following:
o our belief that our existing capital resources will be adequate to
fund our needs for at least the next 12 months,
o our belief that our ColorMate(Registered) System and/or our
ColorMate(Registered) TLc-BiliTest(Registered) System can be
marketed in the medical, dental, biological, cosmetic, industrial,
soil contamination, hair color, beauty-aid or fashion industries,
o our belief that the size of the infant jaundice monitoring market in
the United States is approximately 15,000,000 tests annually and
approximately the same size in Europe and in Asia, South America and
Australia combined and that non-invasive monitoring could
potentially increase the amount of annual tests performed,
o our belief that our ColorMate(Registered) System can be successfully
commercialized for other applications,
o our belief that we will be successful in attracting and retaining
additional qualified personnel,
o our belief that the medical community will accept our
ColorMate(Registered) TLc-BiliTest(Registered) System,
o our belief that we can successfully mass manufacture our
ColorMate(Registered) TLc-BiliTest(Registered) System, the TLC
Lensette(Trademark) and our ColorMate(Registered) System,
o our belief that we can successfully generate revenues from the
commercialization of our intellectual property,
o our belief that we can successfully contract with a third party to
distribute our ColorMate(Registered) TLc-BiliTest(Registered) System
for the international markets or the parents market or expand our
sales into these markets through our own medical division (although
marketing our ColorMate(Registered) TLc-BiliTest(Registered) System
for the parents' use would require more product testing as well as
FDA marketing clearances and international and other marketing
clearances or approvals, and there is no assurance that such
clearances or approvals would be granted) and
o our belief that our distribution partner, Datex-Ohmeda, Inc., will
be successful in penetrating its targeted markets within the
projected time periods.
Forward-looking statements necessarily involve risks and uncertainties, and
our actual results could differ materially from those anticipated in the
forward-looking statements, including those set forth under 'Risk Factors' and
elsewhere in this prospectus. We caution you that no forward-looking statement
is a guarantee of future performance. You should not place undue reliance on
these forward-looking statements, which speak only of the date of this
prospectus. We do not undertake any obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after the
date of this prospectus or to reflect the occurrence of unanticipated events
which may cause our actual results to differ from those expressed or implied by
the forward-looking statements contained in this prospectus. The factors set
forth under 'Risk Factors' and other cautionary statements made in this
prospectus should be read and understood as being applicable to all related
forward-looking statements wherever they appear in this prospectus.
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SELLING STOCKHOLDERS
In private placements concluded in April 1999 and June 1999 we sold to the
selling stockholders convertible debt securities, convertible preferred stock
and warrants to purchase our common stock, and agreed to register the shares of
common stock issuable upon the conversion of these convertible debt securities
and convertible preferred stock and the exercise of warrants for resale of such
securities by the selling stockholders. We also agreed to use our commercially
reasonable best efforts to maintain the effectiveness of the registration
statement until all of the shares are sold under the registration statement or
until such date as they may be sold by the selling stockholders without
registration. Our registration of the shares of common stock does not
necessarily mean that the selling stockholders will sell all or any of the
shares.
The following table sets forth certain information regarding the beneficial
ownership of the common stock, as of September 30, 1999, of each of the selling
stockholders. The information provided in the table below with respect to each
selling stockholder has been obtained from such selling stockholder. Except as
otherwise disclosed below, none of the selling stockholders has, or within the
past three years has had, any position, office or other material relationship
with us. Because the selling stockholders may sell all or some portion of the
shares of common stock beneficially owned by them, we cannot estimate the number
of shares of common stock that will be beneficially owned by the selling
stockholders after this offering. In addition, the selling stockholders may have
sold, transferred or otherwise disposed of, or may sell, transfer or otherwise
dispose of, at any time or from time to time since the date on which they
provided the information regarding the shares of common stock beneficially owned
by them, all or a portion of the shares of common stock beneficially owned by
them in transactions exempt from the registration requirements of the Securities
Act of 1933. The following table assumes that all of the shares of common stock
being registered will be sold by the selling stockholders.
Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the SEC under the Securities Exchange Act of 1934, as amended.
Shares of common stock issuable pursuant to options, warrants and convertible
securities, to the extent such securities are currently exercisable or
convertible within 60 days of September 30, 1999, are treated as outstanding for
computing the percentage of the person holding such securities but are not
treated as outstanding for computing the percentage of any other person. Unless
otherwise noted, each person identified possesses sole voting and investment
power with respect to the shares. Shares not outstanding but deemed beneficially
owned by virtue of the right of a person to acquire them within 60 days are
treated as outstanding only for purposes of determining the number of and
percent owned by such person.
17
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES PERCENTAGE
NAME OF SELLING BENEFICIALLY OWNED REGISTERED FOR SALE BENEFICIALLY OWNED OWNERSHIP
STOCKHOLDER AS OF SEPTEMBER 30, 1999 HEREUNDER AFTER OFFERING AFTER OFFERING
- --------------------------------------- ------------------------ ------------------- ------------------ --------------
<S> <C> <C> <C> <C>
LB I Group Inc. ....................... 822,414(1) 910,690(2) 0 0%
3 World Financial Center
New York, New York 10285
B.J.S. Trust .......................... 40,000(3) 284,000(4) 0 0%
c/o P.O. Box 400
Sterling, IL 61081
G.W.S. Trust .......................... 40,000(5) 284,000(4) 0 0%
c/o P.O. Box 400
Sterling, IL 61081
S.M.S. Trust .......................... 40,000(6) 284,000(4) 0 0%
c/o P.O. Box 400
Sterling, IL 61081
L.B.P. Trust .......................... 40,000(7) 284,000(4) 0 0%
c/o P.O. Box 400
Sterling, IL 61081
Gary W. Schreiner Trust ............... 36,000(8) 255,600(9) 0 0%
c/o P.O. Box 400
Sterling, IL 61081
G.A.P. Trust .......................... 4,000(10) 28,400(11) 0 0%
c/o P.O. Box 400
Sterling, IL 61081
</TABLE>
- ------------------
(1) Represents 551,724 shares of common stock which may be acquired within 60
days of September 30, 1999 upon the conversion of the convertible preferred
stock held by such selling stockholder and 270,690 shares of common stock
which may be acquired within 60 days of September 30, 1999 upon the
exercise of the warrants issued to such selling stockholder. Mr. Frederick
Frank, Vice Chairman of Lehman Brothers, an investment banking firm, has
been an advisor to us since December 1, 1997, providing financial,
strategic and business advisory services. The consulting agreement with Mr.
Frank expired December 1, 1998 but was renewed by mutual agreement of Mr.
Frank and us. Lehman Brothers Holdings Inc. is the sole stockholder of LB
I Group Inc. and, as such, is deemed to be the beneficial owner of these
shares in accordance with Rule 13d-3(d) promulgated by the SEC under the
Securities Exchange Act of 1934, as amended. Neither Lehman Brothers
Holdings Inc. nor LB I Group Inc. is a registered broker-dealer.
(2) Represents 551,724 shares of common stock which may be acquired within 60
days of September 30, 1999 upon the conversion of the convertible preferred
stock held by such selling stockholder, 270,690 shares of common stock which
may be acquired within 60 days of September 30, 1999 upon the exercise of
the warrants issued to such selling stockholder and 88,276 shares of common
stock which may be acquired by the selling stockholder upon the conversion
of dividends that may accrue on the shares of convertible preferred stock
during the period June 15, 2002 through June 15, 2004.
(3) Represents shares of common stock which may be acquired within 60 days of
September 30, 1999 upon the conversion of the convertible debenture held by
such selling stockholder. Does not include up to an additional 160,000
shares of common stock which may be acquired by such selling stockholder
upon the conversion of the entire outstanding principal amount of the
convertible debenture held by such selling stockholder at any time after
April 15, 2000. Does not include up to an additional 84,000 shares of common
stock which may be acquired by such selling stockholder upon the conversion
of all interest accrued through April 15, 2002 with respect to the
convertible debenture held by such selling stockholder. Bradley J.
Schreiner, as trustee of the B.J.S. Trust, is deemed to be the beneficial
owner of these shares in accordance with Rule 13d-3(d) promulgated by the
SEC under the Securities Exchange Act of 1934, as amended.
(Footnotes continued on next page)
18
<PAGE>
(Footnotes continued from previous page)
(4) Represents 200,000 shares of common stock which can be acquired by such
selling stockholder upon the conversion of the entire principal amount of
convertible debenture held by such selling stockholder and 84,000 shares of
common stock which can be acquired by such selling stockholder upon the
conversion of all accrued interest on the convertible debenture held by such
selling stockholder on the maturity date of the convertible debenture.
(5) Represents shares of common stock which may be acquired within 60 days of
September 30, 1999 upon the conversion of the convertible debenture held by
such selling stockholder. Does not include up to an additional 160,000
shares of common stock which may be acquired by such selling stockholder
upon the conversion of the entire outstanding principal amount of the
convertible debenture held by such selling stockholder at any time after
April 15, 2000. Does not include up to an additional 84,000 shares of common
stock which may be acquired by such selling stockholder upon the conversion
of all interest accrued through April 15, 2002 with respect to the
convertible debenture held by such selling stockholder. Gregory W.
Schreiner, as trustee of the G.W.S. Trust, is deemed to be the beneficial
owner of these shares in accordance with Rule 13d-3(d) promulgated by the
SEC under the Securities Exchange Act of 1934, as amended.
(6) Represents shares of common stock which may be acquired within 60 days of
September 30, 1999 upon the conversion of the convertible debenture held by
such selling stockholder. Does not include up to an additional 160,000
shares of common stock which may be acquired by such selling stockholder
upon the conversion of the entire outstanding principal amount of the
convertible debenture held by such selling stockholder at any time after
April 15, 2000. Does not include up to an additional 84,000 shares of common
stock which may be acquired by such selling stockholder upon the conversion
of all interest accrued through April 15, 2002 with respect to the
convertible debenture held by such selling stockholder. Steven M. Schreiner,
as trustee of the S.M.S. Trust, is deemed to be the beneficial owner of
these shares in accordance with Rule 13d-3(d) promulgated by the SEC under
the Securities Exchange Act of 1934, as amended.
(7) Represents shares of common stock which may be acquired within 60 days of
September 30, 1999 upon the conversion of the convertible debenture held by
such selling stockholder. Does not include up to an additional 160,000
shares of common stock which may be acquired by such selling stockholder
upon the conversion of the entire outstanding principal amount of the
convertible debenture held by such selling stockholder at any time after
April 15, 2000. Does not include up to an additional 84,000 shares of common
stock which may be acquired by such selling stockholder upon the conversion
of all interest accrued through April 15, 2002 with respect to the
convertible debenture held by such selling stockholder. James M. Bergman, as
trustee of the L.B.P. Trust, is deemed to be the beneficial owner of these
shares in accordance with Rule 13d-3(d) promulgated by the SEC under the
Securities Exchange Act of 1934, as amended.
(8) Represents shares of common stock which may be acquired within 60 days of
September 30, 1999 upon the conversion of the convertible debenture held by
such selling stockholder. Does not include up to an additional 144,000
shares of common stock which may be acquired by such selling stockholder
upon the conversion of the entire outstanding principal amount of the
convertible debenture held by such selling stockholder at any time after
April 15, 2000. Does not include up to an additional 75,600 shares of common
stock which may be acquired by such selling stockholder upon the conversion
of all interest accrued through April 15, 2002 with respect to the
convertible debenture held by such selling stockholder. Gary W. Schreiner,
as trustee of the Gary W. Schreiner Trust, is deemed to be the beneficial
owner of these shares in accordance with Rule 13d-3(d) promulgated by the
SEC under the Securities Exchange Act of 1934, as amended.
(9) Represents 180,000 shares of common stock which can be acquired by such
selling stockholder upon the conversion of the entire principal amount of
convertible debenture held by such selling stockholder and
(Footnotes continued on next page)
19
<PAGE>
(Footnotes continued from previous page)
75,600 shares of common stock which can be acquired by such selling
stockholder upon the conversion of all accrued interest on the convertible
debenture held by such selling stockholder on the maturity date of the
convertible debenture.
(10) Represents shares of common stock which may be acquired within 60 days of
September 30, 1999 upon the conversion of the convertible debenture held by
such selling stockholder. Does not include up to an additional 16,000
shares of common stock which may be acquired by such selling stockholder
upon the conversion of the entire outstanding principal amount of the
convertible debenture held by such selling stockholder at any time after
April 15, 2000. Does not include up to an additional 8,400 shares of common
stock which may be acquired by such selling stockholder upon the conversion
of all interest accrued through April 15, 2002 with respect to the
convertible debenture held by such selling stockholder. Gary W. Schreiner,
as trustee of the G.A.P. Trust, is deemed to be the beneficial owner of
these shares in accordance with Rule 13d-3(d) promulgated by the SEC under
the Securities Exchange Act of 1934, as amended.
(11) Represents 20,000 shares of common stock which can be acquired by such
selling stockholder upon the conversion of the entire principal amount of
convertible debenture held by such selling stockholder and 8,400 shares of
common stock which can be acquired by such selling stockholder upon the
conversion of all accrued interest on the convertible debenture held by
such selling stockholder on the maturity date of the convertible debenture.
PLAN OF DISTRIBUTION
The selling stockholders or their transferees may, from time to time, sell
all or a portion of the shares of common stock being registered pursuant to this
prospectus in privately negotiated transactions or otherwise, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at prices
related to such market prices or at negotiated prices. The shares may be sold by
the selling stockholders by one or more of the following methods, without
limitation:
o block trades in which the broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction,
o purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus;
o an exchange distribution in accordance with the rules of the
applicable exchange,
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers,
o privately negotiated transactions,
o short sales,
o a combination of any such methods of sale and
o any other method permitted pursuant to applicable law.
From time to time, the selling stockholders may engage in short sales,
short sales against the box (in which the seller owns shares of our common stock
at the time of the sale but borrows other shares of our common stock to sell in
the short sale), puts and calls and other transactions in our securities or
derivatives of such securities, and may sell and deliver the shares in
connection therewith or in settlement of securities loans. From time to time,
the selling stockholders may pledge their shares pursuant to the margin
provisions of their customer agreements with their brokers. Upon a default by
the selling stockholders, the broker may offer and sell the pledged shares from
time to time.
In effecting sales, brokers and dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate in such sales. Brokers
or dealers may receive commissions or discounts from the selling stockholders
(or, if any such broker-dealer acts as agent for the purchaser of such shares,
from such
20
<PAGE>
purchaser) in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with
the selling stockholders to sell a specified number of such shares at a
stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for a selling stockholder, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
the selling stockholders.
Broker-dealers who acquire shares as principal may thereafter resell such
shares from time to time in transactions (which may involve block transactions
and sales to and through other broker-dealers, including transactions of the
nature described above) in the over-the-counter market or otherwise at prices
and on terms then prevailing at the time of sale, at prices then related to the
then-current market price or in negotiated transactions and, in connection with
such resales, may pay to or receive from the purchasers of such shares
commissions as described above. The selling stockholders may also sell the
shares in accordance with Rule 144 under the Securities Act of 1933, rather than
pursuant to this prospectus.
The selling stockholders and any broker-dealers or agents that participate
with the selling stockholders in sales of the shares may be deemed to be
'underwriters' within the meaning of the Securities Act of 1933 in connection
with such sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act of
1933.
We have agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act of 1933.
We have informed the selling stockholders that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934 may apply
to the sales of their shares offered hereby. We have also advised the selling
stockholders of the requirement for delivery of this prospectus in connection
with any sale of the shares offered hereby.
Certain selling stockholders may from time to time purchase shares of
common stock in the open market. These selling stockholders have been notified
that they should not commence any distribution of shares unless they have
terminated their purchasing and bidding for common stock in the open market as
provided in applicable securities regulations.
There is no assurance that the selling stockholders or their transferees
will sell any or all of the shares offered by them in this prospectus.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Patterson, Belknap, Webb & Tyler LLP, 1133 Avenue of the
Americas, New York, New York.
EXPERTS
Our financial statements as of December 31, 1998 and for the year ended
December 31, 1998 incorporated by reference in this prospectus and registration
statement have been audited by BDO Seidman LLP, independent auditors, as set
forth in their report dated March 15, 1999, except for note 6, which is dated
April 15, 1999 and are included in reliance upon the authority of BDO Seidman
LLP as experts in accounting and auditing. Our financial statements as of
December 31, 1997 and for the years ending December 31, 1997 and 1996
incorporated by reference in this prospectus and registration statement have
been audited by Wiss & Company, independent auditors, as set forth in their
report dated February 17, 1998 and are included in reliance upon the authority
of Wiss & Company as experts in accounting and auditing.
21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS. DO NOT RELY ON ANY INFORMATION
OR REPRESENTATION NOT CONTAINED IN HEREIN. THIS PROSPECTUS IS NOT AN OFFER TO
SELL ANY OF THE SECURITIES OFFERED HEREBY IN THOSE JURISDICTIONS WHERE SUCH AN
OFFER WOULD BE UNLAWFUL.
------------------------
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information About Chromatics........... 2
Risk Factors................................... 5
Recent Events.................................. 12
Where You Can Get More Information............. 15
Use of Proceeds................................ 16
Forward-Looking Statements..................... 16
Selling Stockholders........................... 17
Plan of Distribution........................... 20
Legal Matters.................................. 21
Experts........................................ 21
</TABLE>
2,330,690 SHARES OF
COMMON STOCK
CHROMATICS COLOR
SCIENCES
INTERNATIONAL, INC.
------------------------
PROSPECTUS
------------------------
NOVEMBER 12, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various estimated amount of fees and
expenses payable in connection with this offering other than sales commissions.
All such expenses will be borne by the registrant.
<TABLE>
<CAPTION>
ITEM AMOUNT OF EXPENSES
- ------------------------------------------------------ ------------------
<S> <C>
SEC Registration Fee.................................. $ 7,603.06
Printing Expenses..................................... 60,000*
Accounting Fees and Expenses.......................... 10,000*
Legal Fees and Expenses............................... 60,000*
Miscellaneous Expenses................................ 1,000*
------------------
Total............................................... $ 138,603.06*
</TABLE>
- ------------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 722 of the Business Corporation Law of the State of New York and
Article X of Chromatics' Certificate of Incorporation contain provisions for the
indemnification of officers and directors of Chromatics. The Certificate of
Incorporation requires Chromatics to indemnify such persons to the full extent
permitted by New York Law. Each person will be indemnified in any proceeding if
he or she acted in good faith and in a manner which he or she reasonably
believed to be in, or not opposed to, the best interests of Chromatics.
Indemnification would cover judgments, fines, amounts paid in settlement and
reasonable expenses, including attorney's fees.
Chromatics has directors' and officers' liability insurance. Such insurance
may cover liabilities asserted against any present or past director or officer
incurred in the capacity of director or officer arising out of such status,
whether or not Chromatics would have the power to indemnify such person.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Restated Articles of Incorporation of Chromatics (incorporated by reference to Exhibit
3.1 to Chromatics' Quarterly Report on Form 10-Q, filed on August 23, 1999).
3.2 -- By-Laws of Chromatics (incorporated by reference to Exhibit 3.2 to Chromatics' November
5, 1992 Registration Statement).
4.1 -- Restated Articles of Incorporation of Chromatics (incorporated by reference to Exhibit
3.1 to Chromatics' Quarterly Report on Form 10-Q, filed on August 23, 1999).
4.2 -- Subscription Agreement, dated April 15, 1999 between Chromatics and Gary W. Schreiner
(incorporated by reference to Exhibit 4.1 to Chromatics' Current Report on Form 8-K,
filed on April 30, 1999).
4.3 -- 14% Senior Convertible Debenture, due April 15, 2002, in the original principal amount
of $5,000,000 (incorporated by reference to Exhibit 4.2 to Chromatics' Current Report
on Form 8-K, filed on April 30, 1999).
4.4 -- Preferred Stock Purchase Agreement, dated as of June 11, 1999, by and between
Chromatics and LB I Group Inc. (incorporated by reference to Exhibit 4.1 to Chromatics'
Current Report on Form 8-K, filed on July 1, 1999).
4.5 -- Warrant Agreement, dated as of June 11, 1999, by and between Chromatics and LB I Group
Inc. (incorporated by reference to Exhibit 4.2 to Chromatics' Current Report on Form
8-K, filed on July 1, 1999).
</TABLE>
II-1
<PAGE>
ITEM 16. EXHIBITS.--(CONTINUED)
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
- --------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
5.1 -- Opinion Regarding Legality.
23.1 -- Consent of BDO Seidman, LLP.
23.2 + -- Consent of Wiss & Company, LLP.
23.3 -- Consent of Patterson, Belknap, Webb & Tyler LLP (included in Exhibit 5.1).
24.1 + -- Power of Attorney.
</TABLE>
- ------------------
+ Filed previously.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10 (a) (3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represents a fundamental
change in the information set forth in the registration
statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
provided, however, that paragraphs (i) and (ii) do not apply to this
registration statement if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15 (d) of the
Securities Exchange Act of 1934 and incorporated by reference in this
registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) the undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13 (a) or Section 15 (d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in the first paragraph of Item
15 above, or otherwise, the registrant has been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in said
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in New York, State of New York, on November 12, 1999.
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
Date: November 12, 1999 By: /s/ DARBY S. MACFARLANE
----------------------------------
Darby S. Macfarlane
Chairperson of the Board
and Chief Executive Officer
IN ACCORDANCE WITH THE SECURITIES ACT OF 1933, THIS REPORT HAS BEEN SIGNED
BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES
AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ----------------------------------------- ---------------------------------------------- -----------------
<S> <C> <C>
/s/ DARBY S. MACFARLANE Chairperson of the Board and Chief Executive November 12, 1999
- ---------------------------------------- Officer (Principal Executive Officer)
Darby S. Macfarlane
* Director, Secretary and Treasurer (Principal November 12, 1999
- ---------------------------------------- Financial and Accounting Officer)
Leslie Foglesong
* Director, Vice-President--Research and November 12, 1999
- ---------------------------------------- Development
David Kenneth Macfarlane
* Director November 12, 1999
- ----------------------------------------
Edmund Vimond
* Director November 12, 1999
- ----------------------------------------
Edward Mahoney
By: /s/ DARBY S. MACFARLANE
- ----------------------------------------
Darby S. Macfarlane
Attorney-In-Fact
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
- ---------- --------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Restated Articles of Incorporation of Chromatics (incorporated by reference to Exhibit
3.1 to Chromatics' Quarterly Report on Form 10-Q, filed on August 23, 1999).
3.2 -- By-Laws of Chromatics (incorporated by reference to Exhibit 3.2 to Chromatics'
November 5, 1992 Registration Statement).
4.1 -- Restated Articles of Incorporation of Chromatics (incorporated by reference to Exhibit
3.1 to Chromatics' Quarterly Report on Form 10-Q, filed on August 23, 1999).
4.2 -- Subscription Agreement, dated April 15, 1999 between Chromatics and Gary W. Schreiner
(incorporated by reference to Exhibit 4.1 to Chromatics' Current Report on Form 8-K,
filed on April 30, 1999).
4.3 -- 14% Senior Convertible Debenture, due April 15, 2002, in the original principal amount
of $5,000,000 (incorporated by reference to Exhibit 4.2 to Chromatics' Current Report
on Form 8-K, filed on April 30, 1999).
4.4 -- Preferred Stock Purchase Agreement, dated as of June 11, 1999, by and between
Chromatics and LB I Group Inc. (incorporated by reference to Exhibit 4.1 to
Chromatics' Current Report on Form 8-K, filed on July 1, 1999).
4.5 -- Warrant Agreement, dated as of June 11, 1999, by and between Chromatics and LB I Group
Inc. (incorporated by reference to Exhibit 4.2 to Chromatics' Current Report on Form
8-K, filed on July 1, 1999).
5.1 -- Opinion Regarding Legality.
23.1 -- Consent of BDO Seidman, LLP.
23.2+ -- Consent of Wiss & Company, LLP.
23.3 -- Consent of Patterson, Belknap, Webb & Tyler LLP (included in Exhibit 5.1).
24.1+ -- Power of Attorney.
</TABLE>
- ------------------
+ Filed previously.
<PAGE>
EXHIBIT 5.1
OPINION OF PATTERSON, BELKNAP, WEBB & TYLER LLP
November 12, 1999
Chromatics Color Sciences International, Inc.
5 East 80th Street
New York, New York 10021
Dear Sirs:
We have acted as counsel to Chromatics Color Sciences International,
Inc., a New York corporation (the "Company"), in connection with the proposed
registration by the Company under the Securities Act of 1933, as amended (the
"Act"), of 2,330,690 shares (the "Shares") of the Company's common stock, par
value $.001 per share (the "Common Stock"), pursuant to the Company's
registration statement on Form S-3 filed with the Securities and Exchange
Commission (the "Commission") on July 1, 1999, as amended on July 27, 1999 and
on November 12, 1999 (the "Registration Statement").
In rendering this opinion we have examined the Company's Certificate of
Incorporation and Bylaws, each as amended to date, and the minutes of the
corporate proceedings taken by the Company in connection with the authorization
of the Shares. We have also examined the originals, or copies certified or
otherwise identified to us, of the corporate records of the Company,
certificates of public officials and representatives of the Company, and such
other documents and records, and have made such investigations of law, as we
have deemed necessary for purposes of this opinion. We have assumed the
genuineness of all signatures, the conformity to the original of all copies and
the factual accuracy of all certificates submitted to us.
On the basis of the foregoing, we are of the opinion that the Shares
have been duly authorized by all necessary corporate action on the part of the
Company and when sold and delivered as contemplated by the Registration
Statement will constitute duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock.
We note that we are referred to under the heading "Legal Matters" in
the Registration Statement filed with the Commission pursuant to the Act and
hereby consent to the use of our name therein and to the use of this opinion for
filing with the Commission as an exhibit to the Registration Statement. In
furnishing this opinion and giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the Act, or
the rules and regulations of the Commission thereunder.
<PAGE>
PATTERSON, BELKNAP, WEBB & TYLER LLP
By: /s/ Jeffrey E. LaGueux
--------------------------------
A Member of the Firm
cc: Ms. Darby S. Macfarlane
<PAGE>
EXHIBIT 10.23
LICENSE AGREEMENT
This license agreement ("Agreement"), dated September 1, 1998, is by
and between Chromatics Color Sciences International, Inc., a New York
corporation, having its offices at 5 E. 80 St., New York, NY 10021
("Chromatics") and Nordstrom, Inc., a Washington corporation, having its offices
at 1617 6th Ave., Suite 500, Seattle, WA 98101 ("Nordstrom").
RECITALS
WHEREAS, Chromatics is the developer and owner of certain technology
and processes for skin and cosmetic product color analysis and custom color
formulation of cosmetics, whereby the color of various cosmetic products can be
coordinated to each other and to skin color;
WHEREAS, Nordstrom is a high quality specialty retailer of fashion wear
and related products including cosmetics and wishes to sell the Products defined
herein as a Nordstrom line of cosmetic products under the name C[2]O Color to
Order, a trademark solely owned by Nordstrom;
WHEREAS, Chromatics wishes to grant to Nordstrom and Nordstrom wishes
to accept from Chromatics, a license to use the software for the
Colormate(Registered) II System to sell the Products provided by Chromatics and
lease the Colormate(Registered) II System in the Territory for a Test Period
described in the Term of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
For purpose if this Agreement, the following terms shall have the meaning stated
below:
1.1 "Bulk Materials" means the lipsticks and foundations to be provided by
Chromatics for Nordstrom to sell which are recommended by the
Colormate(Registered) II System. Nordstrom shall approve the non-color related
formulations of these lipsticks and foundations within 30 days of signing this
Agreement providing such formulations are delivered to Nordstrom at least two
(2) weeks prior to the expiration of such thirty (30) days.
1.2 "Colormate(Registered) II System" refers to the Chromatics color measurement
units which measure and analyze skin color and based on such analysis select a
cosmetic color formulation which matches or compliments the skin color or other
Products.
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1.3 "Marketing Intangibles" means Nordstrom's trademark "C[2]O Color to Order,"
and all trademarks, trade names, brand names, logos, trade dress, art work,
designs, service marks, packaging, marketing strategies, customer lists,
customer identification information, marketing campaigns, sales promotions and
advertising materials created, owned and/or registered to or by Nordstrom
relating to the marketing of any Products including searches concerning any such
Marketing Intangibles and any copyrights, and other rights which may exist in or
otherwise protect such Marketing Intangibles. Nordstrom does not claim, and
shall not acquire, any rights in or ownership of any Technology or Products or
other property of Chromatics by virtue of the fact that such items are
referenced or described in any Marketing Intangibles.
1.4 "Products" means all cosmetic color products produced using the Technology,
which currently include foundation, concealer, blush, eyeshadow, face powder and
lipstick.
1.5 "Technology" means all technology, relating to the Colormate(Registered) II
System, its color measurement hardware and software including without limitation
the Product Color Recommendations and the Product Color Formulations of the
Products developed by Chromatics as part of the custom color cosmetic system
embodied in the Colormate(Registered) II System.
1.6 "Territory" means the four Nordstrom full line specialty stores in the
United States to be designated by Nordstrom within 30 days of the signing of
this Agreement.
1.7 "Specialty Retail Department Stores" means retailers other than Nordstrom
that sell apparel, footwear, cosmetics and/or similar merchandise in multiple
departments within one store such as The Bon Marche, J.C. Penney, Macys, Neiman
Marcus and similar stores. This excludes specialty chain stores, such as, The
Gap, The Limited and Victoria's Secret.
1.8 "Custom Blending" means the custom mixing and blending of cosmetic pigments
by the salesperson for the Product to make a particular shade and formula of the
Product at point of sale (a physical location at the time the Product is sold to
a particular customer) based on the Product Color Formulations and Product Color
Recommendations for that particular customer. This does not include a Product
(which may be claimed to be custom blended) but which is carried in a line of
cosmetic products and recommended and sold to a particular customer based on a
Product Color Formulation and a Product Color Recommendation for that particular
customer if it is not custom blended as specified above.
1.9 "Product Color Formulations" means the color formulations of the Products
produced using the Technology.
1.10 "Product Color Recommendations" means the cosmetic Product colors
recommended for a customer's use by the Technology.
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ARTICLE 2
GRANT
2.1 License Grant. Chromatics hereby grants to Nordstrom, and Nordstrom hereby
accepts, a non-exclusive license in the Territory to use the Technology solely
to sell the Products in the Territory in order to evaluate the Technology (the
"Test") for the six month term of this Agreement.
2.2 Additional Options. Chromatics hereby grants to Nordstrom for the six month
term of this Agreement and under terms acceptable to both parties the right of
first refusal for the exclusive use of the Technology for the sale of Products
in Specialty Retail Department Stores in the Territory and the exclusive right
to do Custom Blending of the Products in the Territory during the six month term
of this Agreement. In the event Chromatics at any time during the six month term
of this Agreement offers a license to any third party (except for this
non-exclusive six month license) for the use of the Technology, or any part
thereof as defined in Section 1.5, for the sale of Products in Specialty Retail
Department Stores and/or the Custom Blending of the Products in the United
States, Chromatics shall give Nordstrom written notice thereof, including the
terms of any proposed license or agreement that Chromatics desires to enter
into, and Nordstrom may exercise its right of first refusal by written notice to
Chromatics within thirty (30) days after receipt of such notice after which date
Nordstrom's right of first refusal for such license if not exercised will
expire. In the event Nordstrom exercises its right of first refusal hereunder,
the non-exclusive license granted in Section 2.1 shall become an exclusive
license as specified above for the remainder of the six month term of this
Agreement, under terms no less favorable than the terms offered or to be offered
to such third party.
ARTICLE 3
DUTIES OF NORDSTROM
3.1 Reasonable Efforts. During the term of this Agreement, Nordstrom shall give
and devote commercially reasonable efforts to the marketing, promotion and sale
of the Products under the name C[2]O Color to Order in the Territory. Nordstrom
shall provide computers capable of interfacing with the Colormate(Registered) II
Systems at each of the four (4) Nordstrom store locations of the Territory.
Chromatics can take credit publicly for the Technology, the
Colormate(Registered) II System, the Product Color Formulations and the Product
Color Recommendations of the Products providing, such credit shall not make use
of the Nordstrom name other than to say the technology is used in the Nordstrom
stores in any SEC filing, or related press release for public disclosure by
Chromatics or, unless otherwise agreed in advance in writing.
3.2 Equipment and Insurance. Nordstrom shall lease one Colormate(Registered) II
System unit from Chromatics for each of the four (4) Nordstrom full-line
specialty stores of the Territory, at a cost of Two Hundred Dollars U.S. ($200)
per month for four units for a three month period
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commencing on the date of delivery of the Colormate(Registered) II System units.
In the event of theft, loss or extensive damage to any Colormate(Registered) II
System unit while in Nordstrom's possession or control, Nordstrom will be
responsible for the replacement cost of $3,500 for each such unit.
3.3 Purchase Orders. Nordstrom shall place an initial order for six hundred
(600) each of thirty-five (35) lipsticks at a cost per lipstick of $3.00 and one
thousand (1,000) each of seventeen (17) foundations at a cost per foundation of
$3.00 for delivery no later than three (3) months from the date this Agreement
is fully executed.
3.4 License Fee. Nordstrom shall pay Chromatics $45,000 upon signing of this
Agreement for the six month non-exclusive license of: the software including the
Product Color Recommendations of the Colormate(Registered) II System, the
Technology, the Colormate(Registered) II System and the Product Color
Formulation of Products and Product Color Recommendations of the
Colormate(Registered) II System software program. This fee will include
Chromatics' inclusion of the pigments submitted to Chromatics by Nordstrom for
use in formulating certain eyeshadows, blush, face powder, concealer and
foundations in the Product Color Formulation of Products within three (3) months
of the date on which Chromatics receives thirty (30) unit doses of each shade of
such pigment formulations from Nordstrom.
ARTICLE 4
DUTIES OF CHROMATICS
4.1 Colormate(Registered) II Systems. Chromatics shall provide to Nordstrom no
later than three (3) months from the date this Agreement is fully executed, one
Colormate(Registered) II System unit each for the four Nordstrom full line
specialty stores of the Territory including Roosevelt Field, NY, Downtown
Seattle, WA and Dallas Galleria, TX, and one additional store in California to
be designated by Nordstrom within 30 days of the signing of this Agreement.
Chromatics shall also provide the software contained in the
Colormate(Registered) II System to Nordstrom in accordance with Section 3.4 and
4.3. During the term of this Agreement Chromatics shall repair or replace at its
own expense any Colormate(Registered) II System units that are not functioning
properly if due to defect in workmanship in the Colormate(Registered) II System,
promptly after receiving a request from Nordstrom. If such non-functioning unit
is due to damage caused by a negligent act of Nordstrom or of an employee or
agent of Nordstrom, Chromatics shall repair or replace any such
Colormate(Registered) II System unit at Nordstrom's expense.
4.2 Bulk Materials. Chromatics shall sell and deliver to Nordstrom, no later
than three (3) months from the date this Agreement is fully executed, the Bulk
Materials ordered by Nordstrom in accordance with Section 3.3 of this Agreement,
subject to the terms and conditions of 3.4.
4.3 Training and Operation. Chromatics shall provide Nordstrom with all
necessary training and operational information for the efficient use and
operation of the Colormate II System licensed, provided or purchased under this
Agreement at no additional cost, including but not
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limited to operational information for the use of the software that will collect
and store all contact information, Product Color Formulations and Product Color
Recommendations for each Nordstrom customer.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Chromatics represents that to the best of its knowledge and belief, the
Technology and Products do not infringe any rights owned or possessed by any
third party;
5.2 Chromatics represents that it is the sole and exclusive owner of the
Technology, all of which is free and clear of any liens, charges and
encumbrances, and no other person or entity has any claim of ownership with
respect to the Technology whatsoever;
5.3 Chromatics warrants that it has the full right, power and authority to enter
into this Agreement and to grant the interest in the Technology granted herein
and that it has registered the trademark "My Colors by Chromatics(Registered)"
and "Colormate(Registered);"
5.4 Chromatics represents that there are no claims, judgements, or settlements
to be paid by Chromatics or pending claims or litigation relating to the
Technology or Products;
5.5 Chromatics represents that foundations provided to Nordstrom under this
Agreement comply with the manufacturing and product safety standards described
in the Nordstrom purchase order attached as Exhibit A;
5.6 Chromatics represents that the Colormate(Registered) II System units, are
UL and FCC approved for use pursuant to this Agreement.
5.7 Nordstrom represents that it has filed an application for registration of
the trademark "C[2]O Color to Order" in the United States Patent and Trademark
Office ("PTO") and will take reasonable efforts to prosecute said application to
final determination by the PTO;
5.8 Nordstrom warrants that it has the full right, power and authority to enter
into this Agreement.
ARTICLE 6
PAYMENT
6.1 Amount of Payment. As full consideration for the rights and license granted
under this Agreement, Nordstrom shall pay Chromatics the License Fee of Section
3.4 and the lease
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payments for leased Colormate(Registered) II System units and the purchase price
of the Bulk Materials ordered from Chromatics in accordance with Sections 3.2,
3.3, 3.4, 6.1 and 6.2.
6.2 Terms of Payment. Nordstrom shall pay Chromatics its License fee on the date
of signing of this Agreement. Payment for the initial order of foundations shall
be made 1/2 at the time of the order and the balance within seven (7) days of
Nordstrom's receipt of an invoice from Chromatics or the delivery of such
foundations to Nordstrom, whichever is later. Payment for the initial order of
lipsticks shall be made as the lipsticks are sold, every thirty days during the
term of this Agreement and a final payment within thirty (30) days of the
expiration of the term of this Agreement. Any remaining unsold lipsticks will be
returned to Chromatics within thirty (30) days of the expiration of the term of
this Agreement. Any lipsticks not returned to Chromatics or not paid previously
for by Nordstrom to Chromatics will be paid for by Nordstrom to Chromatics in
the final payment.
ARTICLE 7
INTELLECTUAL PROPERTY OWNERSHIP
7.1 Ownership of Technology. Nordstrom acknowledges that all Technology, the
Product Color Formulations, and the Product Color Recommendations of the
Products, the Colormate(Registered) II System and its software are the exclusive
property of Chromatics, subject to the license hereby granted.
7.2 Ownership of Marketing Intangibles. Chromatics acknowledges that Marketing
Intangibles are and shall remain the exclusive property of Nordstrom. Chromatics
is the owner of the Product Color Formulations and Product Color
Recommendations, the trademarks "Colormate(Registered)" and "My Colors by
Chromatics" and the Colormate(Registered) II System as the color analysis system
for the Products. Chromatics shall not use the name "Nordstrom", the trademark
"C[2]O Color to Order," or any other trademark, trade name, service mark, logo,
or other intellectual property of Nordstrom for any purpose, except as
specifically authorized by Nordstrom in writing. Nordstrom shall not use the
name Chromatics, the trademarks, "Colormate(Registered)" or "My Colors by
Chromatics(Registered)" or any other trademark, trade name, service mark, logo,
Product Color Formulations and Product Color Recommendations of the
Colormate(Registered) II System or other intellectual property of Chromatics for
any purpose except as specifically authorized by Chromatics in writing.
ARTICLE 8
TERM & TERMINATION
8.1 Term. Unless earlier terminated in accordance with Section 8.2 below, this
Agreement shall continue in effect for a period of six (6) months from the date
of the signing of this Agreement (the "Test Period") as a non-exclusive license
and lease of the Colormate(Registered) II System
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and Technology. If sales of the Products are deemed successful during the Test
Period of this Agreement, then the term of this Agreement may be renewed until
December 31, 1999 upon terms mutually agreeable to both parties. Thereafter this
Agreement may be renewed annually for a period of one year on January I of each
subsequent year, and expanded to additional Nordstrom stores by written notice
given by Nordstrom to Chromatics thirty (30) days before January 1 of the
renewal year for a total additional period of five (5) years under terms
mutually acceptable to both parties. Sale of such Products will be deemed
successful if one-third of the quantities purchased in the initial order as
specified in Section 3.3 are sold during the term of this Agreement.
8.2 Termination Events. This Agreement may be terminated upon the occurrence of
any of the following events:
8.2.1 The parties may, at any time, mutually agree to terminate this
Agreement, such termination to be effective at such time as they deem
appropriate, however, Nordstrom will be responsible to Chromatics for
all payments in Sections 3.2, 3.3, 3.4, 6.1 and 6.2. Lease payments for
the Colormate(Registered) II System will be prorated to date of
termination.
8.2.2 Upon the breach or the discovery of a breach of a warranty set
forth in Article 5, either party may terminate this Agreement by
notice, to take effect immediately upon receipt thereof by the other
party, unless otherwise specified in the notice.
8.2.3 If either party makes any transfer in violation of Section 11.2,
the non-transferring party shall have the right to terminate this
Agreement immediately by giving written notice to the transferring
party.
8.2.4 If either party fails to perform any of its obligations or
covenants contained in this Agreement and fails to cure such default
within thirty (30) days after notice from the other party, the party
giving such notice shall have the right to terminate this Agreement
immediately by giving written notice to the defaulting party. Absence
of a notice of default or of a written notice of termination under this
Section shall not constitute a waiver of any rights arising as a result
of such default. An election to terminate the Agreement under this
Section shall not constitute a waiver of any damages that may be
available to the non-breaching party as a result of the default by the
other party.
8.3 Rights and Obligations of Termination.
8.3.1 Upon the expiration of this Agreement, Nordstrom shall return the
Colormate(Registered) II System units in good and working condition to
Chromatics, or pay for repair or replacement of any damaged unit.
8.3.2 Upon the termination of this Agreement, all right, title, and
interest in any Marketing Intangibles owned by Nordstrom shall remain
exclusively with Nordstrom.
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8.3.3 During the term of this Agreement (with the exception of the
non-exclusive six month license granted herein) and upon the
termination of this Agreement, all right, title, and interest in the
Technology, Colormate(Registered) II System, Product Color
Recommendations and Product Color Formulations, all of which have been
developed or are owned by Chromatics shall remain exclusively with
Chromatics.
8.4 In the event that the six month term of this Agreement is not renewed and a
customer who purchased from Nordstrom during the six month term of this
Agreement a Product of a particular shade recommended for that customer by the
Technology in the Colormate(Registered) II System wishes to purchase a Product
of the same particular shade after termination of this Agreement, Nordstrom
shall purchase the Product of that particular shade from Chromatics at the same
or a comparable cost at which the Product of that particular shade was
originally purchased from Chromatics unless (i) Chromatics is unable or
unwilling to provide the Product of that particular shade, or (ii) Chromatics
has been acquired by another company, in either event of which Nordstrom shall
have the right to have that cosmetic product of a shade matching that particular
shade of Product made for it by any party other than Chromatics and the right to
sell that matched cosmetic product solely to the customer who purchased the
Product of that particular shade during the six month term of this Agreement so
as to continue to serve that particular customer. Nothing in this paragraph or
this Agreement shall limit or restrict Nordstrom's rights to purchase cosmetic
products from others or to sell cosmetic products which compete with the
Products licensed under this Agreement as long as the sale of such competitive
cosmetic products by Nordstrom is not a breach of this Agreement, including
Exhibit B.
ARTICLE 9
REASONABLE PRECAUTIONS TO MAINTAIN SECRECY
9.1 Precautions. Nordstrom shall treat all Chromatics' Confidential Information
as provided in the "Confidential Agreement" attached as Exhibit B and shall use
the Confidential Information solely as specified in the Confidential Agreement
and in this Agreement and solely during the term of this Agreement or as
expressly provided for in Section 8.4 herein.
9.2 Survival. This Article 9 shall survive the termination of this Agreement,
regardless of the reason for such termination.
ARTICLE 10
INDEMNIFICATIONS
10.1 Indemnification. Chromatics shall defend (with counsel acceptable to
Nordstrom), indemnify, and hold Nordstrom harmless from any and all claims,
suits, liabilities, damages, losses or expenses, including attorneys' fees,
asserted against or incurred by Nordstrom by reason of, or arising out of, or
occurring in connection with any infringement or alleged infringement of
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intellectual property resulting from the use of the Technology and the
Colormate(Registered) II System or the manufacture, sale or use of the Products
(other than the Marketing Intangibles) by Nordstrom. In the event that Nordstrom
learns of any infringement or threatened infringement by the Technology and the
Colormate(Registered) II System, Nordstrom shall notify Chromatics forthwith.
Nordstrom agrees to cooperate and provide necessary information and assistance
to Chromatics at Chromatic's expense for actions that Chromatics may take to
defend Chromatics proprietary interest in the Technology and the
Colormate(Registered) II System. Chromatics agrees that Nordstrom may maintain
records of Chromatics compliance with the representations and warranties of
Chromatics made in this Agreement or otherwise, and that Nordstrom may at any
time, upon reasonable notice to Chromatics, undertake inspection of Chromatic's
manufacturing facilities for foundations, excluding lipsticks and equipment, in
order to determine such compliance with subsection 5.5 herein. The lipsticks
provided pursuant to this Agreement are ready for shipment and any inspection of
such lipsticks is limited to the finished product.
10.2 Indemnification. Nordstrom shall defend (with counsel acceptable to
Chromatics), indemnify and hold Chromatics harmless from any and all claims,
suits, liabilities, damages, losses or expenses, including attorneys' fees,
asserted against or incurred by Chromatics by reason of, or arising out of, or
occurring in connection with any infringement or alleged infringement of
intellectual properties resulting from the use of the Marketing Intangibles for
the sale of Products by Nordstrom. In the event that Chromatics learns of any
infringement or threatened infringement by Marketing Intangibles, Chromatics
shall notify Nordstrom forthwith. Chromatics agrees to cooperate and provide
necessary information and assistance to Nordstrom at Nordstrom's expense for
actions that Nordstrom may take to defend Nordstrom's proprietary interest in
the Marketing Intangibles.
10.3 Survival. This Article 10 shall survive the termination of this Agreement,
regardless of the reason for such termination.
ARTICLE 11
GENERAL PROVISIONS
11.1 Governing Law. This Agreement, and any disputes arising out of or in
connection with this Agreement, shall be governed by and construed in accordance
with the laws of the state of Washington.
11.2 Assignment. Neither party shall have the right or the power to assign,
delegate, or otherwise transfer any or all of its rights or obligations arising
under this Agreement without the prior written consent of the other party. The
transfer, assignment, or change in the beneficial ownership of stock or voting
control of Chromatics in the aggregate in excess of 50% shall constitute an
assignment hereunder.
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11.3 Legal Expenses. The prevailing party in any legal proceeding brought by one
party against the other party to this Agreement, and arising out of or in
connection with this Agreement, shall be entitled to recover its legal expenses
including costs and reasonable attorneys' fees.
11.4 Force Majeure. Neither party shall be liable to the other party for any
delay or omission in the performance of any obligation under this Agreement,
other than the obligation to pay monies, where the delay or omission is due to
any cause or condition beyond the reasonable control of the party who is obliged
to perform.
11.5 Purchase Order. The terms and conditions of Nordstrom's purchase order,
attached hereto as Exhibit A, shall be incorporated herein by reference. To the
extent of any inconsistency, the terms and conditions of the purchase order
shall override the specific terms of this Agreement. Subsection 10 of the
purchase order attached hereto as Exhibit A is deleted from this Agreement.
11.6 Notices. All notices required by this Agreement shall be in writing and
sent by facsimile and by certified U.S. mail, postage prepaid, return receipt
requested to Chromatics or Nordstrom at their addresses as listed herein, or to
such addresses as either party may from time to time advise the other party in
writing in accordance with this notice requirement.
To Chromatics: To Nordstrom:
Chromatics Color Sciences Nordstrom, Inc.
International, Inc. 1617 6th Ave., Suite 500
5 East 80 St. Seattle, WA 98101
New York, NY 10021 Attn: Dale Crichton
Attn: Darby Macfarlane
Tel. No.: (212) 717-6544 Tel. No.: (206) 628-1118
Fax No.: (212) 717-6675 Fax. No.: (206) 628-1105
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 1st day of September, 1998.
Chromatics Color Sciences. Nordstrom, Inc.
International, Inc.
BY: /s/ Darby Macfarlane BY: /s/ Dale C. Crichton
------------------------------ -----------------------------
Darby S. Macfarlane Dale C. Crichton
Chief Executive Officer Executive Vice President
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EXHIBIT A
NORDSTROM
TERMS AND CONDITIONS OF PURCHASE ORDER
The following terms and conditions, in addition to those on the front hereof,
are a part of this purchase order and are binding upon Seller.
ACCEPTANCE BY SELLER IS LIMITED TO THE TERMS OF THIS PURCHASE ORDER. PURCHASER
OBJECTS TO ANY DIFFERENT OR ADDITIONAL TERMS IN SELLER'S ACCEPTANCE OR ANY OTHER
DOCUMENT OR FORM TRANSMITTED ON BEHALF OF SELLER, UNLESS PURCHASER'S WRITTEN
CONSENT IS FIRST OBTAINED.
1. This order is not valid unless signed or otherwise authorized in writing by
the Purchaser's buyer and, when applicable, by Purchaser's Merchandise Manager.
2. Purchaser will not assume liability for any goods shipped to it or upon which
work is commenced by Seller prior to receipt by Seller of the order duty signed
or otherwise authorized.
3. In the event Seller is unable to deliver any part or all of the merchandise
called for by this order, Seller agrees to notify the Purchaser immediately.
Such notice will not limit the remedies available to Purchaser or the liability
of Seller for nonperformance.
4. Purchaser or Purchaser's agent may refuse delivery or return F.O.B.
Purchaser's dock:
a. Shipments made before the earliest ship date or after the cancel
date specified on the face of this order, time of shipment being
of the essence of this order.
b. Shipments of less than or in excess of quantities ordered.
c. Goods which are not according to sample or which are not specified
in this order.
d. Goods which are not as represented or as warranted.
e. Shipments which are not in compliance with the packing
instructions and invoicing instructions specified on the face of
this order.
f. Shipments which are not in compliance with the transportation
terms and conditions contained in this order or in the Nordstrom
Routing Guide.
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g. Goods which for any reason, except payment of applicable duties
and tariffs, will not be cleared for entry by U.S. Customs.
5. All goods furnished under this order shall be subject to inspection and
testing by representatives of Purchaser, its customers or agents. Payments for
goods prior to inspection shall not constitute acceptance and Purchaser reserves
the right to hold for Seller or return to Seller, at Seller's expense, any
rejected goods.
6. Seller warrants that the merchandise shipped under this order is fit and safe
for the use for which it was manufactured and that said merchandise or the
resale thereof by Purchaser does not and will not violate any laws, regulations,
orders or ordinances of the country of origin or of the United States or any
state or any agency or political subdivision thereof.
7. Seller warrants that it does not and will not in violation of applicable law,
custom or practice (a) discriminate in hiring on the basis of race, color,
national origin, gender, religion or sexual orientation, or (b) utilize child
labor, prison labor or indentured or force labor in the operation of its
business.
8. Seller warrants that the merchandise shipped under this order, including
packaging and labeling: (a) was produced in compliance with all applicable laws,
regulations, orders and ordinances of the country of origin and of the United
States and any state, or any agency or political subdivision thereof, including
without limitation any environmental or hazardous substance laws and
regulations, the Federal Fair Labor Standards Act and other state and local wage
and hour and wage payment laws and regulations; (b) does not and will not
infringe any patent, trademark, trade name, copyright, trade secret or other
similar right; (c) is accurately labeled and clearly identifies the country of
origin; and (d) is labeled in accordance with and complies in all respects with
any and all applicable federal, state and local laws, regulations, orders and
ordinances, including without limitation any applicable rules of the Federal
Trade Commission, the Consumer Products Safety Commission and the Department of
Health, Education and Welfare and the requirements of each of the following Acts
to which it may be subject: The Federal Food, Drug and Cosmetic Act, the Wool
Products Labeling Act of 1939, the Fair Packaging and Labeling Act, the Fur
Products Labeling Act, the Textile Fiber Products Identification Act, the
Federal Hazardous Substances Act and the Flammable Fabrics Act.
9. Seller agrees to defend (with counsel acceptable to Purchaser), indemnify and
save harmless the Purchaser from any and all claims, suits, liabilities,
damages, losses or expenses, including attorneys' fees, asserted against or
incurred by Purchaser by reason of, or arising out of or occurring in connection
with (a) any breach or alleged breach of any of the terms of conditions of this
order or any representations or warranties of Seller made in this order or
otherwise, (b) any act or omission of Seller, or the servants, agents or
subcontractors of Seller, in the furnishing of goods in the performance of work
hereunder, or (c) the use of Seller's merchandise by customers of Purchaser or
others. Seller agrees that Purchaser may maintain records of Seller's compliance
with the representations and warranties of Seller made in this order or
otherwise and that
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Purchaser may at any time, upon notice to Seller, undertake inspection of
Seller's facilities in order to determine such compliance.
10. The prices herein specified are guaranteed by Seller against manufacturer's
or Seller's own price decline and against legitimate competition until date of
shipment. In the event that prior to final shipment under this order Seller
sells or offers to sell to others goods substantially of the same kind as
ordered herein at lower prices and/or on terms more favorable to a third party
than those stated in this order, the prices and/or terms herein shall be
automatically revised to equal the lowest prices and/or most favorable terms at
which Seller shall have sold or shall have offered such goods and payment shall
be made accordingly. In the event Purchaser shall become entitled to such lower
prices, but shall have made payment at any price in excess thereof, Seller shall
promptly refund the differences in price to the Purchaser. Seller agrees to meet
the price of legitimate competition or accept cancellation of this order by
Purchaser. Unless otherwise provided in this order, prices include all charges
for packaging, boxing, crating and freight, F.O.B. destination.
11. Purchaser reserves the right to cancel all or any part of this order which
has not actually been shipped by Seller in the event Purchaser's business is
interrupted because of strikes, labor disturbances, lockout, riot, fire, act of
God, or the public enemy, or any other cause, whether like or unlike the
foregoing, if beyond the reasonable efforts of the Purchaser to control.
12. A waiver of and/or failure to perform any one or more of the conditions of
this order shall not constitute a waiver of or an excuse for nonperformance as
to any other part of this or any other order.
13. All dating except "end of month" begins at the date on which the merchandise
is received. "Eng of month" terming for shipments received after the 25th of the
month will be considered next month's business. Discount terms begin with the
receipt of invoice or goods, whichever is later.
14. In addition to any other remedies available to Purchaser, failure to comply
with any terms and conditions of this purchase order or the Nordstrom routing
Guide will result in additional handling charges and expenses being charged to
Seller. In any dispute hereunder, whether or not litigation is commenced, the
prevailing party shall be entitled to its costs and expenses incurred, including
reasonable attorneys' fees. The rights and remedies herein expressly provided
shall be in addition to any other rights and remedies given by law, including
without limitation the right to recover all incidental and consequential
damages. All warranties, representations and guaranties made by Seller herein
are in addition to any and all expenses or implied warranties provided by law.
15. In the event of any proceeding, voluntary or involuntary, in bankruptcy or
insolvency by or against the Seller, including any proceeding under the United
States bankruptcy laws, or any bankruptcy, insolvency or receivership laws of
any state or any foreign country, or any political
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subdivision thereof or in the event of the appointment with or without Seller's
consent of a receiver or an assignee for the benefit of creditors, Purchaser
may, at its option, cancel this order as to any undelivered portion of the
merchandise.
16. Seller agrees that it will not use any trademark or trade name of Purchaser,
including but not limited to "Nordstrom, "Nordstrom Rack," "Place Two," and
"Nordstrom Factory Direct" except in connection with merchandise shipped to
Purchaser in accordance with this order. Seller agrees that all trademarks and
trade names of Purchaser belong to Purchaser and Seller will make no claim of
ownership nor attempt to register any such trademark or trade name. Seller
agrees that merchandise rejected or returned for any reason pursuant to the
terms of this order, whether or not such rejection is disputed by Seller,
including but not limited to merchandise rejected or returned due to shipment
after the cancel date specified on the face of this order, will not be resold or
otherwise distributed by Seller unless all labels, tags, logos, monograms and
other items or characteristics identifying Nordstrom, Nordstrom Rack, Place Two,
Nordstrom Factory Direct, or any other trademark or trade name of Purchaser have
first been removed.
17. This order and the rights and obligations of the parties hereunder shall be
determined in accordance with the laws of the State of Washington and shall not
be subject to or governed by the U.N. Convention on Contracts for the
International Sale of Goods. If litigation arises hereunder or as a consequence
of any transaction contemplated or resulting from this or either party's
performance or breach thereof, jurisdiction and venue of such litigation shall
be in the Superior Court for the State of Washington for King County, or the
United States District Court for the Western District of Washington in Seattle,
at the option of Purchaser, and Seller hereby consents to such jurisdiction and
venue. Any award or judgment of any of said counts may be entered and enforced
in any other domestic or foreign court of competent jurisdiction, and shall be
awarded full faith and credit.
18. No claim, action or demand arising out of the transactions under this order
may be brought by Seller more than one year after the cause of action has
accrued.
19. Seller hereby assigns to Purchaser all assignable warranty rights with
respect to the merchandise in this order, including without limitation all
rights of Seller under warranties of any manufacturer of any of the merchandise
or any part or component thereof.
20. This order is enforceable by Purchaser directly against Seller, regardless
of whether the order was submitted directly to Seller by Purchaser or was
submitted to Seller by another party on behalf of Purchaser. No such other party
shall have any authority to act for Purchaser, bind Purchaser to any agreements
or modifications or otherwise act as agent for Purchaser.
Transportation Terms and Conditions
A. Routing mode specified on face of purchase order must be adhered to exactly
unless permission to deviate is given by Purchaser's Traffic Manager or Buyer,
or if there is a written
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agreement or exception signed by Purchaser on file. Authorized carrier selection
should be made from Nordstrom Routing Guide. Any questions should be directed to
the Regional Traffic Department. For questions concerning foreign shipments,
please contact the Corporate Traffic and Distribution Office.
B. Orders shipped F.O.B. city of purchase or any specific city and/or state will
be delivered free of charge to Purchaser's consolidator and will be considered
F.O.B. consolidator. Advance charges to the consolidation point will be Seller's
expense.
Orders shipped F.O.B. factory will not be free of charge to Purchaser's
consolidator and freight charges will be the responsibility of the Purchaser
from the shipper's door.
Orders shipped F.O.B. store will be delivered free of charge to Purchaser's
receiving facility and total freight charges will be at Seller's expense.
Notwithstanding any agreement to pay freight or other transportation charges,
delivery will not be deemed complete and all risk of loss shall remain with
Seller until the goods have been actually received and accepted by Purchaser.
C. All C.O.D. shipments will be refused.
D. For all domestic shipments:
(i) in addition to any other remedies available to Purchaser, any
deviation from the terms of this order or the Nordstrom routing Guide
will result in chargebacks to Seller for freight expenses and handling
charges.
(ii) Merchandise must be packed, shipped and described on bills of
lading in accordance with applicable freight tariffs, and shipment must
be without declared value except when shipping Parcel Post or UPS
prepaid. Any deviation will result in a chargeback to Seller.
(iii) Enter all packages forwarded during the same day to the same
final destination on one bill of lading or airbill. If more than one
page is needed, label "1 of 2", "2 of 2," etc., and include total
weight and number of cartons only on the last page of the bill of
lading or airbill. If shipping to several final destinations, a
separate bill of lading must be filled out for each address.
(iv) Prepaid shipments: All shipments to Purchaser via motor freight
must be sent "collect," except Parcel Post and UPS shipments, which by
their nature must be sent "prepaid." Purchaser will not reimburse
Seller for "prepaid" shipments via motor and air freight.
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(v) Shipping surface: Articles not authorized for air shipment must
follow Purchaser's shipping instructions for surface. Seller is
responsible for marking "surface" on the top of general bill of lading.
An air bill which is used for surface shipment must have the special
services requested box marked.
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EXHIBIT B
CONFIDENTIALITY AGREEMENT
This Agreement made this ____ day of September 1998, is between
Chromatics Color Sciences International, Inc. ("Chromatics"), and Nordstrom,
Inc. ("Nordstrom").
WHEREAS, Chromatics owns technology and information relating to skin
and cosmetic product color analysis and custom color formulations of cosmetics
so that the color of various cosmetic products can be coordinated to each other
and to skin color, which is not disclosed in Chromatics' patents or publications
or by a Product sold to an individual customer as recommended by the
Color-Mate(Registered) II system, and which Chromatics considers to be
confidential, proprietary and secret in nature, hereinafter referred to as the
"Confidential Information."
WHEREAS, Nordstrom acknowledges and recognizes the need to preserve the
confidential nature of the Confidential Information.
WHEREAS, Chromatics desires to disclose certain portions of the
Confidential Information to Nordstrom under the following terms and conditions.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Chromatics shall disclose the Confidential Information to Nordstrom in
confidence solely for the purpose of permitting Nordstrom to use and evaluate
the Confidential Information in accordance with the License Agreement entered
into by the parties concurrently herewith. Nordstrom shall be under an
obligation to treat as confidential and maintain in confidence the Confidential
Information disclosed by Chromatics to Nordstrom, provided such information is
(a) disclosed in written form and marked prominently as "Confidential", or (b)
if not disclosed in written form, is identified and designated as confidential
in a written notice received by Nordstrom within ten (10) business days of the
disclosure. Nordstrom shall take all precautions reasonably necessary to prevent
any unauthorized disclosure of the Confidential Information.
2. Nordstrom may disclose the Confidential Information disclosed by Chromatics
to those of its employees or independent agents whose access to the Confidential
Information is necessary in order to carry out the purpose of the aforesaid
License Agreement; provided, however, that prior to any such disclosure (a)
Nordstrom informs the employee or independent agent that the disclosure is of
Confidential Information and is subject to the obligations of confidentiality
and non-use set forth in this agreement and (b) Nordstrom obtains from such
employee or independent agent a written undertaking, in the form annexed hereto,
to comply with those obligations with respect to all Confidential Information
that comes into the employee's or independent agent's possession.
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3. Nordstrom shall not (a) directly or indirectly disclose or otherwise make
available to any third party the Confidential Information disclosed by
Chromatics to Nordstrom, in whole or in part; (b) permit any third party access
to any portion of the Confidential Information; or (c) use the Confidential
Information for any purpose other than the purpose of the aforesaid License
Agreement, without the prior written consent of Chromatics.
4. Nordstrom shall not copy, duplicate or otherwise replicate any of the
Confidential Information disclosed by Chromatics to Nordstrom, in whole or in
part, for any purpose other than the purpose of the aforesaid License Agreement,
without the prior written consent of Chromatics.
5 Upon the request of Chromatics, Nordstrom shall return to Chromatics all
tangible materials provided by Chromatics to Nordstrom, and shall certify to the
destruction of any writings, data, reports, records, plans, correspondence,
notes or memoranda of conversations, discussions, considerations or evaluations
which contain or summarize Confidential Information, including all copies and
all electronic, magnetic or other records thereof, within thirty (30) days after
Chromatics' request for their return and/or destruction.
6. The obligations of confidentiality and non-use set forth in this agreement
shall not apply to information which (a) was known to Nordstrom prior to
disclosure by Chromatics to Nordstrom, as evidenced by written records dated
prior to such disclosure, and was not acquired directly or indirectly from
Chromatics; (b) was publicly available or generally known in the trade at the
time of disclosure by Chromatics to Nordstrom, or becomes publicly available or
generally known in the trade after the disclosure by Chromatics to Nordstrom
through no act or fault of Nordstrom; (c) was rightfully received by Nordstrom
from a third party whose disclosure to Nordstrom did not violate any obligation
of confidentiality owed directly or indirectly to Chromatics; or (d) is
independently developed by or for Nordstrom and such independent development can
be shown by clear and convincing evidence. The fact that Nordstrom may be
relieved of its obligations of confidence under subparagraphs (a), (c) or (d)
above shall not prevent Chromatics from continuing to claim in its dealings with
third parties unrelated to Nordstrom or Nordstrom's suppliers or customers, in
appropriate situations, that the effected information remains confidential or
proprietary to Chromatics.
7. In the event that Nordstrom is requested or becomes legally compelled (by
oral questions, interrogatories, requests for information or documents,
subpoena, criminal or civil investigative demand or similar process) to disclose
any Confidential Information (including disclosures to regulatory agencies such
as the FDA), Nordstrom will, to the extent it is aware of such fact, provide
Chromatics with prompt written notice of such requirement and use reasonable
efforts to obtain a protective order or other appropriate remedy. Nordstrom also
agrees to cooperate with and assist Chromatics in any efforts it may make to
seek a protective order or other appropriate remedy. In the event that such
protective order or other remedy is not obtained, Nordstrom shall furnish only
that portion of the Confidential Information which it is advised in writing by
counsel of its choice it is legally required to furnish.
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IN WITNESS WHEREOF, the parties have caused this agreement to be
executed as of the date first written above.
Chromatics Color Sciences
International, Inc. Nordstrom, Inc.
BY: /s/ Darby S. Macfarlane BY: /s/ Dale C. Crichton
--------------------------------- -------------------------------
Darby S. Macfarlane Dale C. Crichton
TITLE: Chief Executive Officer TITLE Executive Vice President
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UNDERTAKING
OF
-----------------------------------
I, , state that:
--------------------------------
1. My residence address is .
----------------------------------------------
My present employer is and the address of
----------------------------
my present employer is
------------------------------. My present
occupation is
---------------------------.
2. 1 have received a copy of the Confidentiality Agreement between
Chromatics Color Sciences International, Inc. ("Chromatics") and
Nordstrom, Inc. ("Nordstrom"), dated September , 1998 ("the
Confidentiality Agreement"). I have carefully read and understand the
provisions of the Confidentiality Agreement.
3. 1 will comply with all of the obligations set forth in the
Confidentiality Agreement, including those relating to confidentiality
and non-use with respect to the Confidential Information that comes
into my possession.
----------------------------------
Signature
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EXHIBIT 10.24
AGREEMENT
This Agreement effective as of December 13, 1996 is by and between
Gordon Laboratories, Inc. ("Gordon"), and Chromatics Color Sciences
International, Inc. ("Chromatics).
WHEREAS, Chromatics has designed and developed a device which analyzes
a consumer's skin tone and may be programmed to recommend the foundation
cosmetic shades best suited for each particular skin tone (the "Colormate
System");
WHEREAS, Gordon and Chromatics desire to utilize Chromatics's technical
expertise in the programming and operation of Colormate Systems for custom
blended cosmetic foundations, all of which shall remain the property of
Chromatics.
WHEREAS, the parties intend to set forth the terms and conditions under
which Chromatics will make available pursuant to the terms hereof the Colormate
System for use in a field test retail program as described herein.
Capitalized terms used herein and not otherwise defined shall have the
meaning ascribed thereto in Schedule 1 hereto.
NOW, THEREFORE, in consideration of the mutual covenants and terms
herein set forth, the parties agree as follows:
I. Colormate System Lease; Technology License
1. Unless sooner terminated pursuant to the terms hereof, the term of
this Agreement will be from the date hereof until six months after the later of
the date (i) Chromatics first notifies Gordon in writing that twenty (20)
Colormate Systems are immediately available for shipment for use in the Field
Test (the "Ship Notice"), (ii) that Gordon provides the "Final Samples" (as
defined in Article II), and (iii) that Gordon provides the twenty (20) Custom
Blended Foundation Cosmetic Product Dispensing Systems. During the term of this
Agreement, Chromatics shall lease for a term not to exceed the earlier of (i)
six months from the date of the lease and (ii) the date of termination of this
Agreement or the Field Test to Gordon's customers approved in writing by
Chromatics ("Gordon Approved Customers"), pursuant to lease documentation
satisfactory to Chromatics, a total of twenty (20) portable briefcase Colormate
Systems. In consideration of providing such Colormate Systems, Chromatics shall
receive from the "Budget Account" and pursuant to the "Budget" six equal
payments of $1,667 each on the first day of each month during the term hereof
commencing with the first day of the month following the month in which
Chromatics delivers the Ship Notice. Gordon Approved Customers will not be
charged any lease or rental fee under such leases for the use of the Colormate
Systems during the Term of the Field Test. The Colormate Systems will be
available for use by the date of the Ship Notice and will be shipped from
Chromatics directly to the Customer Location. One Colormate System shall be
provided by Chromatics for each Customer Location and shall be used pursuant to
the lease solely at such Customer Location and shall not be used at any other
location without
<PAGE>
prior written consent of Chromatics. The leases shall expressly provide that the
Colormate Systems shall be returned directly to Chromatics at the earlier of
conclusion of the Field Test, the expiration of the Lease or the termination of
this Agreement.
2. Beginning on the date of the signing of this Agreement and
continuing until six months after the later of the date (i) of the Ship Notice,
(ii) Gordon provides the Final Samples, and (iii) Gordon provides the twenty
(20) Custom Blended Foundation Cosmetic Product Dispensing Systems, unless
sooner terminated pursuant hereto, Chromatics agrees to grant to Gordon a
non-exclusive license solely in the contiguous states of the United States of
America for the Colormate Systems, "Software" (as defined in Article II
paragraph 1 below) and "Foundation Products Color Formulations" solely for use
in the marketing, distribution and sale to Gordon Approved Customers in the
"Specialty Store Market" at Customer Locations of Foundation Cosmetic Products
manufactured directly by Gordon for Chromatics under the terms specified in this
Agreement for a Field Test as described herein.
The Colormate Systems, Software and Foundation Product Color
Forumlations shall remain the property of Chromatics. Gordon acknowledges and
agrees that the Colormate Systems, Software, and Foundation Products Color
Formulations may not be used in any manner whatsoever by Gordon or by Gordon
Approved Customers other than in the Field Test, and may not be used
independently of each other. In this regard, and by way of example but without
limitation, the Foundation Products Color Formulations may not be used in any
manner whatsoever other than in conjunction with formulation and manufacture of
the Foundation Cosmetics Products for distribution in the Field Test, the
Software may not be used in any manner whatsoever other than in conjunction with
the Colormate System for marketing efforts in the Field Test, and the Colormate
System and Software may not be used in any manner whatsoever other than in
conjunction with making analyses and recommendations in the sale of the
Foundation Cosmetic Products in the Field Test. Under no circumstances may the
Colormate System, Software or Foundation Product Color Formulations be used to
develop, distribute, manufacture, market or sell any cosmetic product other than
the Foundation Cosmetic Product for sale in the Field Test. Gordon shall have no
right to subcontract, submanufacture, or otherwise retain any third party to
manufacture the Foundation Cosmetic Products, and shall not sublicense, assign,
pledge, transfer or dispose of in any manner whatsoever the license or any
portion thereof granted by Chromatics hereunder.
3. Beginning on the latest of the date of the Ship Notice, the date
Gordon provides the Final Samples, and the date Gordon provides the twenty (20)
Custom Blended Foundation Cosmetic Product Dispensing Systems, and continuing
for six months thereafter (the "Field Test"), Chromatics shall have available
for lease twenty (20) Colormate Systems, appropriately programmed with the
Software to recommend Foundation Cosmetic Products manufactured solely by Gordon
for Chromatics as required by paragraph 1 of Article II hereof, to Gordon
Approved Customers at the Customer Locations based on mutually agreed on
criteria. Gordon shall arrange for the schedules and on-site training in the
operation of the Colormate Systems of the Gordon Approved Customers personnel at
the Customer Locations at Gordon's sole cost and
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expense (but reimbursable as set forth in the Budget), utilizing up to two (2)
Gordon personnel so trained by Chromatics in the operation of the Colormate
Systems. Chromatics shall use its best efforts to so train such Gordon personnel
prior to the date of the Ship Notice. Chromatics shall not be paid any
additional compensation for training up to two (2) such Gordon personnel
(provided, however, that the Budget will provide for travel and expenses
incurred by Chromatics in training such Gordon personnel); any additional
training requirements or the training of additional personnel shall be at rates
to be agreed upon by the parties. Prior to any disclosure of any confidential
information of Chromatics, including, without limitation, any confidential
information contemplated by Article IV hereof, Gordon shall cause those of its
personnel and those of the Gordon Approved Customers receiving such training, to
enter into confidentiality agreements with Chromatics in the form annexed as
Schedule 2 hereto, and the lease agreement between Chromatics and Gordon
Approved Customers.
II. Field Test
1. On or before 30 days from the date hereof, Gordon shall provide
Chromatics with samples and specifications of basic Foundation Product
Formulations to be included in the Field Test, which Foundation Product
Formulations must be approved by Chromatics. Chromatics shall be entitled to
unilaterally terminate this agreement without penalty pursuant to Article VI
hereof by written notice to Gordon if such basic Foundation Product Formulations
have not been delivered by Gordon and approved by Chromatics within 60 days of
the date hereof. Upon approval, Chromatics shall perform chromaticity studies at
Chromatics' expense on the sample to determine the appropriate color
compatibilities ("Chromaticity Studies"). Upon completion of the Chromaticity
Studies (approximately three (3) months), Chromatics shall provide to Gordon a
written report of Foundation Product Color Formulations which report and
Foundation Product Color Formulations shall remain the property of Chromatics.
Promptly following receipt of such written report (but in no event later than 30
days from such receipt, plus an additional 30 days grace period), Gordon shall
provide to Chromatics, for review and approval by Chromatics, such number of
samples and reformulation of each Foundation Product Formulation as Chromatics
may request, until such samples shall meet Chromatics' specifications for the
Foundation Product Color Formulations (the "Final Samples"). Gordon shall not
manufacture quantities of any Foundation Cosmetic Products unless and until it
has received written notice from Chromatics that, based on the Final Samples,
all Foundation Product Formulations meet Chromatics, specifications. Chromatics
shall give, Gordon the Ship Notice within 30 days (plus an additional 15 days
grace period) of Chromatics receipt of the Final Samples. If Gordon fails to
deliver and have available twenty (20) Custom Blended Foundation Cosmetic
Product Dispensing Systems by the date of the Ship Notice, or fails to provide
Chromatics within thirty (30) days (plus an additional 30 days grace period)
following delivery to Gordon of the written report regarding the Chromaticity
Studies (but in no event later than the date of the Ship Notice) with Final
Samples for all Foundation Product Formulations that meet Chromatic's
specifications, Chromatics shall have the right, to unilaterally terminate this
Agreement pursuant to Article VI hereof without penalty or liability to either
party by written notice to Gordon. In the event that Chromatics has not
completed the Chromaticity Studies by April 1, 1997 (plus an additional 15 (days
grace
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<PAGE>
period), or delivered the Ship Notice within 30 days (plus an additional 15 days
grace period) of receipt of the Final Samples, either Chromatics or Gordon may
unilaterally terminate this Agreement without penalty or liability to either
party pursuant to Article VI hereof on written notice to the other. All
Foundation Cosmetic Product manufactured by Gordon under the terms of this
Agreement will bear the label of Chromatics and will remain the property of
Chromatics. Gordon shall manufacture the initial inventory of Foundation
Cosmetic Product to implement the Field Test, together with, at no additional
cost, the bottle, cap, label and packaging, at a price of $1.25 per ounce of
Foundation Cosmetic Products, payable solely from the Budget Account (but in an
amount not to exceed $8,650) except as set forth in the last sentence of the
next paragraph. Gordon shall manufacture additional quantities of such inventory
and such related materials as agreed upon by both parties to be needed to
implement the Field Test at the same per ounce cost, payable from the Budget
Account.
The suggested wholesale price and retail resale price and other terms
of sales of the Foundation Cosmetic Products to be offered to Gordon Approved
Customers and their customers, respectively, to the extent not specifically set
forth herein, shall be mutually agreed upon by Gordon and Chromatics, including
without limitation providing written instructions directing such Gordon Approved
Customers to direct payment for Foundation Cosmetic Products invoiced by Gordon
to the Budget Account. At the end of the Field Test Chromatics will purchase
from Gordon all remaining inventory of Foundation Cosmetic Products manufactured
by Gordon under the Budget at a cost of $.625 per ounce of Foundation Cosmetic
Products, together with at no additional cost the bottle, cap, label and
packaging, dispenser and customer support/sales materials used in connection
with the Field Test, but only to the extent that (i) the foregoing have not been
invoiced to Gordon Approved Customers, (ii) any such purchase by Chromatics does
not exceed $4,325 in the aggregate, (iii) that the funds remaining in the Budget
Account are not sufficient therefor, and (iv) any such amount to be paid to
Gordon by Chromatics is in excess of amounts otherwise to be paid to Chromatics
pursuant hereto as contemplated by the Budget.
Chromatics shall develop software proprietary to Chromatics
recommending appropriate shades of the Foundation Cosmetic Products based on
skin tone (the "Software") for distribution and installation in the Colormate
Systems. The Software will provide a custom color formulation for each skin tone
that may be custom blended (pigments mixed with the basic Foundation Product
Formulation colors). At the conclusion of the Field Test, Chromatics shall
receive from the Budget Account and pursuant to the Budget in consideration of
developing and programming such Software the sum of $10,000.
2. During the Field Test, Chromatics' at its cost and expense shall
maintain and keep in good working order all Colormate Systems used in this test,
providing such maintenance is required as a result of normal wear and tear. Each
Gordon Approved Customer will insure, pursuant to the terms of the Chromatics
lease, the Colormate System for damage or replacement under their existing
policies and Chromatics will be named the beneficiary and loss payee under these
policies for this purpose. Each Colormate System also will be insured while
shipping for its
4
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replacement cost of $3,500.00 per System; payable to Chromatics, and the cost of
all such shipping and insurance will be paid from the Budget Account in
conformity with the Budget. In the event any Colormate System is damaged for
reasons other than normal wear and tear then Chromatics shall be reimbursed from
the insurance carrier.
3. During the term of this Agreement, Gordon shall provide the
following promotional, marketing, distribution, formulations, research and
merchandising functions for the consideration indicated below, payable solely
from the Budget Account and as set forth in the Budget as being payable to
Gordon:
a) Design, develop and provide prior to the date of the Ship
Notice in quantities necessary, (but in no event fewer than
twenty (20)), point of sale packaging and custom blending
dispensing system as approved in writing by Chromatics (the
"Custom Blended Foundation Cosmetic Product Dispensing
System") for Foundation Cosmetic Products to be used at
Customer Locations, for consideration as set forth in the
Budget (Item #10) (and not in excess of $4,375 in the
aggregate).
b) Provide twenty (20) Customer Locations which will utilize the
Chromatics Colormate System and the Foundation Product Color
Formulations solely in connection with the sale, utilizing the
Custom Blended Foundation Cosmetic Product Dispensing System,
of Foundation Cosmetic Products as described herein solely at
each such Customer Location for the term of the Field Test,
without additional compensation.
c) Design and supply any supporting promotional literature, to be
approved by Chromatics, not to be unreasonably withheld for
consideration as set forth in the Budget (Item #2); provided,
however, that Chromatics shall in all events have final legal
approval.
d) Supply and distribute the Foundation Cosmetic Product, the
supporting promotional literature and the printer paper rolls
supplied by Chromatics for computer print-outs in quantities
as needed for each Customer Location during the Field Test,
without additional compensation. Gordon Approved Customers
shall pay to Chromatics $2.00 per roll for each additional
roll beyond the first such roll provided by Chromatics
e) Compile and tabulate research/sales data relating to the Field
Test as specified in Exhibit A, without additional
compensation other than that approved for personnel in the
Budget (Item #1).
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f) Provide in-store training for each Customer Location during
the Field Test, at Gordon's cost and expense (but reimbursed
as set forth in the Budget) (Items #1 and 6) and utilizing
Gordon personnel trained by Chromatics as described above.
g) Provide a name, logo and mechanical art work for the Colormate
Systems to be used at Customer Locations. Cost of producing
and installing this into the Colormate Systems will be paid to
Chromatics as provided in the Budget (Item #3).
h) Provide Foundation Cosmetic Product tester kits for each of
twenty (20) Customer Locations for consideration as provided
in the Budget (Item #11).
i) Provide two (2) Foundation Product Formulations in 10 basic
color formulations specified by Chromatics and up to 3 pigment
formulations specified by Chromatics (all of which are to be
approved by Chromatics and which remain the property of and
proprietary to Chromatics and for use only in this Field Test
and under the terms of this Agreement) for aggregate
consideration of $10,000 payable at the conclusion of the
Field Test (Item #13).
j) Coordinate distribution and sales support and overall customer
support during the term of the Field Test, without additional
compensation other than as provided in the Budget (Items #1,
2, 4, 6).
k) Manage overall activities of the Field Test as approved by
Chromatics, without additional compensation other than as
provided in the Budget (Items #1, 5). Disbursement of Budget
items requires joint signatures by Chromatics and Gordon.
4. If The Field Test has met the requirements set forth in Exhibit A
hereto, Chromatics and Gordon intend to enter into good faith negotiations to
establish a joint venture under terms acceptable to both parties and which shall
include the terms referenced in Exhibit C hereto, it being expressly
acknowledged that there are no other obligations or agreements of the parties
with respect to the formation of any joint venture or other business
arrangement.
III. Budget Matters
1. Chromatics and Gordon will each contribute $37,500.00 (the "Initial
Payment") to the Budget on the date which is 30 days prior to the date
Chromatics reasonably anticipates delivering the Ship Notice (as notified in
writing to Gordon by Chromatics), to jointly finance this Field Test. The Budget
for the use of these funds including use of any sales income received from the
Field Test is attached hereto as Exhibit B. Any sales income generated by the
Field Test in excess of Field Test expenses in the Budget and reimbursement to
be provided to the parties as set forth herein and pursuant to the Budget shall
be shared equally by Chromatics and Gordon. It
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is agreed by the parties that should there be less sales income than projected
in the Budget or no sales income received from the Field Test to contribute to
the Budget, then each of Gordon and Chromatics will pay, in equal amounts, up to
$5,234 each (the "Additional Payment").
2. In no event will either Gordon or Chromatics be responsible to pay
an amount in excess of the sum of the Initial Payment and the Additional Payment
unless mutually agreed upon in writing by both parties. Gordon shall be entitled
to make payments from the Budget Account to third parties in the amounts
specified as set forth in Exhibit D hereto ("Approved Payments"). Any payments
from the Budget Account other than Approved Payments (including, without
limitation, any payments to either Gordon, Chromatics or their respective
affiliates, other than (i) $8,650 to Gordon for initial inventory, (ii) $4,375 t
o Gordon for the Custom Blended Foundation Cosmetic Product Dispensing Systems,
(iii) $10,000 in 6 monthly installments of $1,667 to Chromatics for the
Colormate II Systems, and (iv) $2,500 to Chromatics for repackaging the
Colormate II Systems, which amounts shall be paid by Gordon without additional
consent of Chromatics) shall require the consent of both parties.
IV. Additional Limitations and Confidentiality
1. a) Gordon may not grant any rights in any Software, Colormate System
or any custom blended foundation (including without limitation any Foundation
Product Color Formulation) or any Foundation Cosmetic Product or system
utilizing any color formulations or systems of color formulations or pigments
provided or disclosed to Gordon by Chromatics or permit anyone else to take
credit for the invention, development or design of such Colormate Systems or
formulations or pigments without the prior written approval of Chromatics.
Gordon acknowledges that the Colormate System and the Software, including,
without limitation, the processes, Foundation Product Color Formulations,
pigments, custom blended foundation colors, Foundation Cosmetic Product, color
formulations or systems of color formulations or pigments, techniques, programs,
parts, methods, color chart and swatch pack colors, designs and ideas embodied
therein are the proprietary products of Chromatics (and any licensor to
Chromatics), shall remain the property of Chromatics (and any such licensor) and
are furnished on a strictly confidential basis, for use exclusively in the Field
Test provided herein and agrees that no other use shall be made thereof. No
title to or ownership of any of the same or any rights therein, including all
rights to patents, trade names and copyrights applicable thereto, or any copies
thereof, in whole or in part, shall be transferred to Gordon. In addition,
Gordon shall keep confidential and use only for the Field Test and under the
terms of this Agreement all of the kinds of following information;
1) Hardware design, parts, and integration.
2) All aspects of software for systems.
3) Foundation Product Color Formulation, Foundation Color Pigments,
Chromaticity Studies, including the results of the Chromaticity
Studies.
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4) Color Consultant Training Techniques.
2. a) Nothing in this Agreement will restrict Gordon in the use or
treatment of any of Chromatics' confidential information:
(a) which is freely available to the public on a
unrestricted basis and without violation of any
confidentiality obligations prior to the disclosure
of same by Chromatics to Gordon; or
(b) which can be shown by written contemporaneous records
to have been known to Gordon prior to the date of
disclosure by Chromatics to Gordon of the same; or
(c) after such Chromatics confidential information
becomes freely available to the public on an
unrestricted basis through no fault of Gordon.
This paragraph shall not limit any patent protection Chromatics may have.
V. Indemnity
1. Chromatics shall indemnify and hold Gordon harmless from and against
any and all actions, causes of action, claims, demands, liabilities, losses,
judgments, damages or expenses and charges which Gordon shall or may at any time
incur, sustain, or become subject to by reason of any claim or claims against
Gordon arising out of any act or omissions of Chromatics related to this
Agreement, or the performance thereof (provided that Chromatics will not be
responsible for any of the foregoing attributable to failure to use the
Colormate System strictly in accordance with the training and instructions
provided by Chromatics) ; provided that Chromatics is given prompt notice of
such claims and has the right to manage and control all such claims with
attorneys of its own selection.
2. Gordon shall indemnify and hold Chromatics harmless from and against
any and all actions, causes of actions, claims, demands, liabilities, losses,
judgments, damages or expenses and charges which Chromatics shall or may at any
time incur, sustain, or become subject to by reason of any claim or claims
against Chromatics arising out of any act of omission of Gordon related to this
Agreement, or the performance thereof, including but not limited to claims
regarding: advertising or product claims or promises made by Gordon; consumer
use or purchase of Gordon manufactured products, including without limitation
Foundation Cosmetics Products; loss of business due to damage to the Colormate
Systems in transport and any act which is the responsibility of Gordon as
provided in this Agreement; provided, that Gordon is given prompt notice of such
claims and has the right to manage and control all such claims with attorneys of
its own selection.
VI. Miscellaneous
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1. This Agreement will be governed by the laws of the State of New York
without giving effect to the conflict of laws principles thereof. The parties
hereto hereby irrevocably submit to the jurisdiction of any New York State or
Federal court sitting in the County of New York, State of New York, in any
action or proceeding arising out of or relating to this Agreement, and the
parties hereby irrevocably agree that all claims in respect of such action or
proceeding shall be heard and determined in such New York State or Federal
court. The parties hereto irrevocably waive, to the fullest extent permitted by
law, any objection which they or any of them may now or hereafter have to the
laying of the venue of any such action or proceeding brought in any such court,
and any claim that any such action or proceeding brought in any such court has
been brought in an inconvenient forum. The parties hereto agree that a final
judgment in any such action or proceeding shall be conclusive and binding on the
parties hereto.
2. This Agreement will continue in effect until six months after the
latest of the date (i) of the Ship Notice, (ii) Gordon delivers the Final
Samples, and (iii) Gordon delivers twenty (20) Custom Blended Foundation
Cosmetic Product Dispensing Systems, unless earlier terminated pursuant to
Article II hereof by Chromatics or Gordon, as applicable, provided the
provisions of Articles IV, V and VI, shall survive the termination of this
Agreement. In the event of such termination, all funds in the Budget Account
after any required payments to third party suppliers, shall be disbursed to
Gordon and Chromatics, in their capacity as creditors in accordance with the
Budget, and all other funds in the Budget Account shall be disbursed Fifty
Percent (50%) to Chromatics and Fifty Percent (50%) to Gordon. Upon the
termination of this Agreement, Gordon will immediately return to Chromatics all
documents and materials of Chromatics referred to in Article IV hereof and/or
otherwise provided to Gordon or its customers by Chromatics, including, without
limitation, the Colormate Systems provided by Chromatics and all documents,
including copies, extracts, or derivations thereof prepared by Gordon or such
customers, including without limitation any marketing material relating to the
Field Test whether or not provided by Chromatics.
3. Nothing contained herein shall place the parties in the relationship
of partners, joint venturers, principal-agent, or employer-employee and neither
party shall have any power to obligate or bind the other whatsoever.
4. None of the terms of this Agreement may be waived or modified, nor
may this Agreement be renewed or extended except by express agreement in writing
signed by both parties.
5. All notices which must or may be given pursuant to this Agreement
shall be delivered by hand or sent by certified or registered mail in the case
of Gordon to-
with a copy to:
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Lawrence Braun, Esq.
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street, 48th Floor
Los Angeles, California 90071
and in the case of Chromatics to:
Mrs. Darby Macfarlane
Chromatics Color Sciences International, Inc.
5 East 80th St.
New York, New York 10021
with a copy to:
Eric M. Lerner, Esq.
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AGREED:
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC. GORDON LABORATORIES, INC.
By: /s/ By: /s/
--------------------------------- ---------------------------------
Title: President and CEO Title: President and CEO
------------------------------ ------------------------------
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Chromatics Color Sciences International, Inc.
New York, New York
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement on Form S-3 of our report
dated March 15, 1999, except for Note 6 which is as of April 15, 1999, relating
to the financial statements of Chromatics Color Sciences International Inc.,
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
November 8, 1999
