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As filed with the Securities and Exchange Commission on February 23, 2000
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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)
New York 13-3253392
(State of Incorporation) (I.R.S. Employer Identification No.)
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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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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)
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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. /_/
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
<TABLE>
<CAPTION>
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Proposed Maximum Offering Proposed Maximum Amount of Registration
Title of Shares to be Registered Amount to be Registered(1) Price Per Share(2) Aggregate Offering Price(2) Fee(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 976,532 shares $ 7.00 $ 6,835,724 $ 1,804.63
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</TABLE>
(1) Represents the total shares of common stock (i) issuable upon conversion
of 36,230 shares of convertible preferred stock issued by Registrant on
June 15, 1999; (ii) issuable upon conversion of 40,000 shares of
convertible preferred stock issued by Registrant for aggregate proceeds of
$4 million on February 11, 2000 (635,930 shares); and (ii) issuable upon
the exercise of 304,372 warrants issued by Registrant on February 11, 2000
at an exercise price of $6.99 per share.
(2) Estimated solely for the purpose of calculating the registration fee.
These 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 February 18, 2000.
(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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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 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.
976,532 Shares of Common Stock
The selling stockholder named in this prospectus is offering and selling shares
of our common stock. These shares were acquired by the selling stockholder upon
the exercise of convertible preferred stock and warrants sold by us to the
selling stockholder in a private financing.
The selling stockholder may sell the shares of common stock described in this
prospectus in a number of different ways. The prices at which the selling
stockholder 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 February 18, 2000 the closing sales price of our common stock on the
Nasdaq SmallCap Market was $7.00.
You should read the description of risks under the caption "Risk Factors"
beginning on page 4 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 February 22, 2000.
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SUMMARY OF THE OFFERING
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.
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(R) System. We
have developed our intellectual property and the ColorMate(R) 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 including chromaticity studies of
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 those diseases
which we believe can be diagnosed or monitored by the coloration of
human skin, tissue and fluids and
o the color coordination of products in relation to other products.
In July 1997 we received clearance from the U.S. Food and Drug
Administration for commercial marketing of our ColorMate(R) System device for
the non-invasive monitoring of infant jaundice by healthcare professionals in
the hospital, institutional, pediatricians' office or home setting. In June 1999
we entered into an agreement for the exclusive distribution of this product in
the hospital, pediatricians' office and home healthcare markets in the United
States with Datex-Ohmeda, Inc. and its Ohmeda Medical Division. The current
procedure for the initial screening for infant jaundice is the visual
observation of the yellowing of the skin by professional care providers. This is
a subjective determination prone to errors due to different skin colors. If the
initial clinical assessment suggests the possibility of infant jaundice, the
current procedure requires that a blood sample be obtained by lancing the
infant. We believe that a non-invasive instrument that monitors infant jaundice
represents a significant improvement in patient care.
The ColorMate(R) TLc-BiliTest(R) 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(TM) calibration standard used prior to each baby's measurement.
We are currently in the early stages of the commercialization of our
ColorMate(R) TLc-BiliTest(R) System for the monitoring of infant jaundice. We
will need to generate substantial revenues from the sale of our products and 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 adequate
revenues, we may be forced to curtail our operations and seek protection from
our creditors under applicable bankruptcy laws.
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In order to finance our activities, we recently completed a private
placement of securities. In February 2000 we sold 40,000 shares of convertible
preferred stock and warrants to purchase 254,372 shares of our common stock for
aggregate proceeds of $4 million. These securities are convertible into shares
of our common stock at the option of their holder at specified prices. The
conversion price of the convertible preferred stock is $6.29. The exercise price
of the warrants is $6.99. These securities are subject to mandatory conversion
if the average trading price of our common stock equals or exceeds specified
prices in the future. These prices are $9.44 for the convertible preferred
stock and $13.98 for the warrants. In addition, the conversion price of the
convertible preferred stock is subject to downward adjustment if we issue
additional shares of our common stock at less than $6.29 per share. The
convertible preferred stock is redeemable at $115 per share on February 11,
2003. We have the option to extend this redemption date to February 11, 2005.
The warrants expire on February 11, 2005. The shares of common stock into which
the preferred stock is convertible and the warrants are exercisable are the
subject of this prospectus.
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.
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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 Will Require Additional Funds if the Convertible Debentures and Convertible
Preferred Stock Are Not Converted Prior to Maturity
In April 1999 we sold $5 million in principal amount of 14% senior
convertible debentures. These securities are convertible into shares of our
common stock at the option of their holders at a conversion price of $5.00 and
are subject to mandatory conversion if the average trading price of our common
stock equals or exceeds $10.29. We will be obligated to repay the holders of
these convertible debentures $7,100,000 in cash on the April 15, 2002 maturity
date unless they elect to convert or we are able to compel conversion.
In June 1999 we sold to the selling stockholder 40,000 shares of
convertible preferred stock and warrants to purchase 220,690 shares of our
common stock for aggregate proceeds of $4 million. In February 2000 we sold to
the selling stockholder 40,000 shares of convertible preferred stock and
warrants to purchase 254,372 shares of our common stock for aggregate proceeds
of $4 million. Under the terms of these private placements, will be obligated to
repay the selling stockholder $4,600,000 on June 15, 2002 and $4,600,000 on
February 11, 2003 unless it elects to convert the convertible preferred stock or
we are able to compel conversion. Each of these redemption dates may be
postponed at our option for two years, subject to the accrual of a 8% dividend.
In the event that we postpone the redemption dates of the convertible preferred
stock, we must pay to the selling stockholder $5,240,000 on June 15, 2004 and
$5,240,000 on February 11, 2005.
The holders of the debentures 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 stockholder
generally will not elect to convert the convertible preferred stock unless the
market price of our common stock exceeds $6.29 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 holders of the
debentures 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 these obligations. Failure to
satisfy these 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 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(R) TLc-BiliTest(R) 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(R)
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 September 30,
1999, we had an accumulated deficit of $30,890,300. We expect that we will
continue to incur operating losses for the current and subsequent fiscal years.
In addition, we have or will record the following charges in connection
with the $5.0 million debt financing in April 1999 and $4.0 million preferred
stock financings in June 1999 and February 2000.
o The April financing resulted 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 resulted in a deemed dividend charge of
approximately $3.2 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 $2.0 million will be charged over the
redemption period.
o The February financing will result in a deemed dividend charge of
approximately $2.5 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, $500,000 was charged
in February 2000 and $2 million will be charged over the redemption
period.
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(R) System. Adequate funds
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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 a number of key
component parts to be assembled into our ColorMate(R) System and our
ColorMate(R) TLc-BiliTest(R) 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 distribution partner. 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 $6.29 per share
will increase the cost to us of any subsequent equity financing effected at less
than $6.29 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(R) System and our ColorMate(R) TLc BiliTest(R) 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(R) System and
our ColorMate(R) TLc-BiliTest(R) System until replacement agreements were
entered into.
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(R) System, the ColorMate(R)
TLc-BiliTest(R) System or any other products that we may develop. We rely on our
corporate partners to manufacture and to market our ColorMate(R) TLc-BiliTest(R)
System and will continue to rely on corporate partners to manufacture and to
market our ColorMate(R) 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(R) System or ColorMate(R)
TLc-BiliTest(R) System would have a material adverse effect on our business by
rendering us unable to manufacture and distribute our ColorMate(R) System and
our ColorMate(R) TLc-BiliTest(R) System until a replacement arrangement was
entered into.
We May Not Be Successful in Commercializing Our ColorMate(R) TLc-BiliTest(R)
System
Our success in commercializing our ColorMate(R)TLc-BiliTest(R)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(R) TLc-BiliTest(R) System will be
competitive with respect to these factors.
We Have Not Yet Successfully Commercialized our ColorMate(R) System for Other
Potential Medical Applications
Although we have received FDA clearance to commercially market our
ColorMate(R) TLc-BiliTest(R) System for monitoring infant jaundice, our clinical
and research development programs for other medical applications of our
ColorMate(R) 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 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.
We Have Not Yet Successfully Commercialized Our ColorMate(R) 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(R) 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(R) System.
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Extensive Governmental Regulation Could Delay, Restrict or Prevent the Marketing
of Our Products
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(R) TLc-BiliTest(R) 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.
The Medical Community May Be Reluctant to Accept Our Technology
The commercial acceptance of our ColorMate(R) TLc-BiliTest(R) 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(R) TLc-BiliTest(R) System or be
willing to commit funds to its purchase and use. Widespread acceptance of the
ColorMate(R) TLc-BiliTest(R) 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(R)
TLc-BiliTest(R) 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(R) TLc-BiliTest(R) 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(R) TLc- BiliTest(R) 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
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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(R) TLc-BiliTest(R) System obsolete or which have advantages over our
ColorMate(R) TLc-BiliTest(R) System, including greater accuracy and precision or
greater acceptance by the medical community.
To the extent that we are able to commercialize our ColorMate(R) System
for non-medical applications we will also encounter competition. We cannot
assure you that we will be able to compete successfully in these non-medical
markets.
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 unsolicited acquisition proposal.
Our Directors and Executive Officers Own a Significant Amount of Stock of
Chromatics and Exert Considerable Control over Chromatics
As of December 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 37 full-time employees,
of which 18 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. They are co-inventors
of our ColorMate(R) System and possess unique technical knowledge required in
connection with its production. 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 these 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 five 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(R) TLc-BiliTest(R)
System,
o the market size and revenue potential of our ColorMate(R)
TLc-BiliTest(R) System and
o the existence and status of negotiations with potential distributors
of our ColorMate(R) TLc-BiliTest(R) System.
Although we believe that the claims asserted in these suits are without
merit and intend to contest them vigorously, we expect to incur
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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. In determining the amount of product liability
coverage to obtain we were advised by an insurance broker with knowledge and
experience regarding prevailing insurance practices in the medical device
industry. Although we believe that the amount and scope of coverage obtained is
consistent with prevailing medical device industry practice, 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. Product liability 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.
Our Success Is Dependent Upon Our Ability to Effectively Maintain Our Patents
and Proprietary Rights Relating to our ColorMate(R) System and our ColorMate(R)
TLc-BiliTest(R) System, Which We May Not Be Able to Do
Proprietary technology maintained in our trade secrets and other
proprietary information claimed by our patents is incorporated into the
proprietary software and measurement system used in our ColorMate(R) System, our
ColorMate(R) TLc-BiliTest(R) System and our TLc- Lensette(TM) calibration
standards. Because we are dependent on the commercialization of these products
our success will depend to a significant degree on our ability to preserve our
trade secrets, to obtain and maintain our patents and to operate without
infringing the proprietary rights of others. 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 protection
of our proprietary information. In addition, the laws of a small number of
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(R)TLc-BiliTest(R) System May Prove to be Inaccurate
Our business plan and strategy for the commercialization of our
ColorMate(R) TLc-BiliTest(R) System is based upon assumptions made by our
distribution partner in our contract 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. The medical community has thus far not used a non-invasive
device for monitoring infant jaundice as a standard of care. Assumptions made by
our distribution partner about the size of the existing market were based on the
current standard of care (an invasive blood test) and, accordingly, there can be
no assurance that the market size of the ColorMate(R) TLc-BiliTest(R) System
will be the same.
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.
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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,
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 our outstanding convertible debentures is expected
to be less than the current market price of our common stock on the date of
conversion. Similarly, the conversion price of the convertible preferred stock
issued to the selling stockholder and the exercise price of the related warrants
issued to the selling stockholder 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 these 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 changes of this nature could negatively impact
our ultimate profitability. Also, the trend toward managed healthcare in the
United States and the concurrent growth of organizations like 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(R) TLc-BiliTest(R)
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 our products and related treatment are obtained from
governmental authorities, private health insurers and other organizations, like
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(R) TLc-BiliTest(R) 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, 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(R) TLc-BiliTest(R) System was correct, we cannot assure you
9
<PAGE>
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.
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(R) TLc-BiliTest(R) 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(R)
TLc-BiliTest(R) System and other applications of our ColorMate(R) 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 stockholder, in the future. As of December 1, 1999, a total of
27,132,622 shares of our common stock were authorized but unissued and
unreserved. These shares may be issued in the future without stockholder
approval. The prices at which we sell these securities and other terms and
provisions 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 stockholder hereby are sold.
The Terms of the Convertible Debentures and the Convertible Preferred Stock May
Adversely Affect the Rights of the Common Stock Holders.
Unless converted the convertible debentures and the convertible preferred
stock will be entitled to priority of payment upon maturity or redemption, as
the case may be, or in the event we are liquidated and dissolved in preference
to any distribution to the holders of our common stock. In addition, for as long
as the shares of convertible preferred stock are outstanding we are prohibited
from issuing any class or series of preferred stock with a priority of payment
superior or equal to the priority of payment of the convertible preferred stock.
RECENT EVENTS
In order to provide the ColorMate(R) TLc-BiliTest(R) 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 16
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(R) TLc-BiliTest(R) System. The newly-formed medical division
provides sales support for the ColorMate(R) TLc-BiliTest(R) 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 with an ISO
9001 certified manufacturer, Nova Biomedical of Waltham, Massachusetts
for the production of our ColorMate(R) TLc-BiliTest(R) 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(R) TLc- BiliTest(R) System. The
ColorMate(R) TLc-BiliTest(R) System as currently marketed by our
medical division has a list price of $3,000 to $6,000 depending on the
model. It 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(TM) calibration standards at $10
per unit, or minimum monthly charges of $10 per use or under a managed
use program.
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o In January, 1999 we applied for ISO 9001/EN46001 certification and the
right to affix the CE mark to our ColorMate(R) TLc-BiliTest(R) 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. The CE mark is a symbol of quality and compliance with
applicable European Union medical device directives. We have received
both the ISO 9001/EN46001 certification and the right to affix the CE
mark to our ColorMate(R) TLc-BiliTest(R) System.
o In June 1999 we entered into an agreement for the exclusive
distribution of the ColorMate(R) TLc-BiliTest(R) 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(R) TLc-BiliTest(R)
System and our TLc-Lensette(TM) 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 multiple
purchasers 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 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 the holders under the Securities Act of
1933 and to use our best efforts to maintain the effectiveness of this
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. The
registration statement covering the shares of our common stock issuable upon the
conversion of the senior convertible debentures for resale by the holders was
declared effective on January 28, 2000.
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 an affiliate of Lehman Brothers, Inc. 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 $6.29 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 a limited number of other
securities excluded under the terms of the agreement with the Lehman
Brothers affiliate) at a price of less than $6.29 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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<PAGE>
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 $9.44 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 the Lehman Brothers affiliate. An additional 50,000 warrants were
issued to the Lehman Brothers affiliate as compensation for services rendered in
connection with this placement of 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 $6.99 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 $13.98.
In February 2000, we completed a private placement of 40,000 shares of
convertible preferred stock and warrants to purchase 254,372 shares of our
common stock to the Lehman Brothers affiliate for aggregate proceeds of $4
million. The terms of the convertible preferred stock and warrants issued on
that date are identical to the convertible preferred terms described above. An
additional 50,000 warrants were issued to the Lehman Brothers affiliate as
compensation for services rendered in connection with this placement of
convertible preferred stock. 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 the Lehman
Brothers affiliate under the Securities Act of 1933 and to use our best efforts
to maintain the effectiveness of this 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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<PAGE>
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 filed
April 19, 1999, as amended by Form 10-K/A filed April 29, 1999, as further
amended by Form 10-K/A filed November 12, 1999, Form 10-K/A-2 filed
November 15, 1999, Form 10-K/A-3 filed January 21, 2000 and Form 10-K/A-4
filed January 25, 2000,
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, as amended by Form 10-Q/A filed November 12, 1999
and Form 10-Q/A-2 filed January 21, 2000,
o Current Report on Form 8-K filed June 18, 1999, as amended by Form
8-K/A filed November 19, 1999, Form 8-K/A-2 filed January 21, 2000, and
Form 8-K/2A filed January 28, 2000,
o Registration Statement on Form S-3 filed July 1, 1999, as amended on
July 27, 1999, November 12, 1999, December 29, 1999, January 11, 2000,
January 21, 2000, January 26, 2000 and January 28, 2000,
o Current Report on Form 8-K filed July 1, 1999,
o Quarterly Report on Form 10-Q for the three months ended June 30, 1999
filed August 23, 1999, as amended by Form 10-Q/A filed January 21,
2000,
o Quarterly Report on Form 10-Q for the three months ended September 30,
1999 filed November 15, 1999, as amended by Form 10- Q/A filed January
21, 2000,
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,
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,
o Current Report on Form 8-K/2A filed January 28, 2000 and Form 8-K/A
filed November 19, 1999, amending our Form 8-K filed November 3, 1998,
o Proxy Statement for 1999 Annual Meeting of Stockholders to be held on
December 20, 1999 and
o Registration Statement on Form S-3 filed February 8, 2000.
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<PAGE>
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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<PAGE>
SELLING STOCKHOLDER
In a private placement concluded in February 2000 we sold to the selling
stockholder convertible preferred stock and warrants to purchase our common
stock, and agreed to register the shares of common stock issuable upon the
conversion of the convertible preferred stock and the exercise of warrants for
resale of these securities by the selling stockholder. 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 the date that they may be sold by the selling stockholder
without registration. Our registration of the shares of common stock does not
necessarily mean that the selling stockholder will sell all or any of the
shares.
The following table sets forth pertinent information regarding the
beneficial ownership of the common stock, as of September 30, 1999, of the
selling stockholder. The information provided in the table below with respect to
the selling stockholder has been obtained from the selling stockholder. Except
as otherwise disclosed below, the selling stockholder does not have, nor within
the past three years has had, any position, office or other material
relationship with us. Because the selling stockholder may sell all or some
portion of the shares of common stock beneficially owned by it, we cannot
estimate the number of shares of common stock that will be beneficially owned by
the selling stockholder after this offering. In addition, the selling
stockholder 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 it, all or a portion of the shares of common stock
beneficially owned by it 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
stockholder.
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 these 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 these securities but are not
treated as outstanding for computing the percentage of any other person. Unless
otherwise noted, the 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 that person.
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<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Number of Shares Percentage
Beneficially Owned as Registered for Sale Beneficially Owned Ownership After
Name of Selling Stockholder of September 30, 1999 Hereunder After Offering Offering
--------------------------- --------------------- --------- -------------- --------
<S> <C> <C> <C> <C>
LB I Group Inc............................... 1,846,922 (1) 976,532 (2) 0 0%
3 World Financial Center
New York, New York 10285
</TABLE>
- --------------
(1) Represents 1,271,860 shares of common stock which may be acquired within 60
days of September 30, 1999 upon the conversion of convertible preferred
stock held by the selling stockholder and 575,062 shares of common stock
which may be acquired within 60 days of September 30, 1999 upon the
exercise of warrants issued to the selling stockholder. Mr. Frederick
Frank, Vice Chairman of Lehman Brothers, Inc., 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. Lehman Brothers Holdings Inc. and LB I Group Inc. are
affiliates of Lehman Brothers, Inc., a registered broker-dealer. LB I Group
Inc. purchased the shares of convertible preferred stock and warrants and
will purchase the shares of our common stock issuable upon conversion or
exercise of these securities in the ordinary course of its business and at
the time of this purchase, conversion, or exercise, did not and will not
have any agreements or understandings, directly or indirectly, with any
person to distribute these securities.
(2) Represents 635,930 shares of common stock which may be acquired within 60
days of September 30, 1999 upon the conversion of convertible preferred
stock held by the selling stockholder and 304,372 shares of common stock
which may be acquired within 60 days of September 30, 1999 upon the
exercise of warrants issued to the selling stockholder.
PLAN OF DISTRIBUTION
The selling stockholder or its transferee 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 these market prices or at negotiated prices. The shares may be sold
by the selling stockholder 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 that 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 of these methods of sale and
o any other method permitted pursuant to applicable law.
The selling stockholder and any broker-dealers or agents that participate
with the selling stockholder in sales of the shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with these sales. If so, any commissions received by these 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 retained Lehman Brothers, Inc. to serve as placement agent for the
securities that were ultimately placed with LB I Group Inc. in the June, 1999
financing. For its services, Lehman Brothers, Inc. was entitled to cash
compensation in addition to warrants to purchase our common stock at an exercise
price of $6.99 per share. Lehman Brothers, Inc. requested that these warrants be
issued in the name of LB I Group rather
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<PAGE>
than its own name. LB I Group Inc. is deemed to be an underwriter with respect
to any shares sold pursuant to this registration statement.
From time to time, the selling stockholder 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 these securities, and may sell and deliver the shares in
connection therewith or in settlement of securities loans. From time to time,
the selling stockholder may pledge its shares pursuant to the margin provisions
of its customer agreements with its broker. Upon a default by the selling
stockholder, the broker may offer and sell the pledged shares from time to time.
In effecting sales, brokers and dealers engaged by the selling stockholder
may arrange for other brokers or dealers to participate in these sales. Brokers
or dealers may receive commissions or discounts from the selling stockholder
(or, if any broker-dealer acts as agent for the purchaser of the shares, from
that 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 stockholder to sell a specified number of shares at a
stipulated price per share, and, to the extent the broker-dealer is unable to do
so acting as agent for the selling stockholder, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
the selling stockholder.
Broker-dealers who acquire shares as principal may thereafter resell the
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
these resales, may pay to or receive from the purchasers of the shares
commissions as described above. The selling stockholder may also sell the shares
in accordance with Rule 144 under the Securities Act of 1933, rather than
pursuant to this prospectus.
We have agreed to indemnify the selling stockholder against losses,
claims, damages and liabilities arising under the Securities Act of 1933.
We have informed the selling stockholder that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934 may apply
to the sales of its shares offered hereby. We have also advised the selling
stockholder of the requirement for delivery of this prospectus in connection
with any sale of the shares offered hereby.
The selling stockholder may from time to time purchase shares of common
stock in the open market. The selling stockholder has been notified that it
should not commence any distribution of shares unless it has terminated its
purchasing and bidding for common stock in the open market as provided in
applicable securities regulations.
There is no assurance that the selling stockholder or its transferee will
sell any or all of the shares offered by it 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.
17
<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
Page
----
Summary of the Offering......................... 2
Risk Factors.................................... 4
Recent Events................................... 11
Where You Can Get More Information.............. 14
Use of Proceeds................................. 15
Forward-Looking Statements...................... 15
Selling Stockholder............................. 16
Plan of Distribution............................ 19
Legal Matters................................... 21
Experts......................................... 21
976,532 Shares of
Common Stock
CHROMATICS COLOR
SCIENCES
INTERNATIONAL, INC.
----------------
PROSPECTUS
----------------
February 22, 2000
<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 of these expenses will be borne by the registrant.
Item Amount of Expenses
SEC Registration Fee....................................... $ 1,830.77
Printing Expenses.......................................... 10,000.00*
Accounting Fees and Expenses............................... 1,000.00*
Legal Fees and Expenses.................................... 5,000.00*
Miscellaneous Expenses..................................... 1,000.00*
----------
Total................................................. $18,830.77*
- ----------------
* 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 officers and directors 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. This insurance
may cover liabilities asserted against any present or past director or officer
incurred in the capacity of director or officer arising out of his or her
status, whether or not Chromatics would have the power to indemnify this person.
Item 16. Exhibits.
Number Description of Document
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 - Certificate of Amendment to Articles of Incorporation of
Chromatics, filed on February 10, 2000.
3.3 -- 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 -- Certificate of Amendment to Articles of Incorporation of
Chromatics, filed on February 10, 2000 (included in Exhibit
3.2)
4.3 -- Preferred Stock Purchase Agreement, dated as of February 11,
2000, by and between Chromatics and LB I Group Inc.
4.4 -- Warrant Agreement, dated as of February 11, 2000, by and
between Chromatics and LB I Group Inc.
II-1
<PAGE>
5.1 -- Opinion Regarding Legality.
23.1 -- Consent of BDO Seidman, LLP (to be filed supplementally).
23.2 -- Consent of Wiss & Company, LLP (to be filed supplementally).
23.3 -- Consent of Patterson, Belknap, Webb & Tyler LLP (included in
Exhibit 5.1).
24.1 -- Power of Attorney (see page II-3 of this Registration
Statement).
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 February 22, 2000.
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
Date: February 22, 2000 By: /s/ DARBY S. MACFARLANE
------------------------------------
Darby S. Macfarlane
Chairperson of the Board
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Darby Simpson Macfarlane and Leslie Foglesong, jointly
and severally, his or her true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments to this registration statement, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that each of said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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 February 22, 2000
- -------------------------------- Officer (Principal Executive Officer)
Darby S. Macfarlane
/s/ FRANCIS MARCHESE Chief Financial Officer (Principal Financial and February 22, 2000
- -------------------------------- Accounting Officer)
Francis Marchese
/s/ LESLIE FOGLESONG Director February 22, 2000
- --------------------------------
Leslie Foglesong
/s/DAVID KENNETH MACFARLANE Director, Vice-President--Research and February 22, 2000
- -------------------------------- Development
David Kenneth Macfarlane
/s/ EDMUND VIMOND Director February 22, 2000
- --------------------------------
Edmund Vimond
/s/ EDWARD MAHONEY Director February 22, 2000
- --------------------------------
Edward Mahoney
/s/ DARBY S. MACFARLANE
- --------------------------------
Darby S. Macfarlane
Attorney-In-Fact
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
Number Description of Document
------ -----------------------
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 - Certificate of Amendment to Articles of Incorporation of
Chromatics, filed on February 10, 2000.
3.3 -- 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 -- Certificate of Amendment to Articles of Incorporation of
Chromatics, filed on February 10, 2000 (included in Exhibit
3.2).
4.3 -- Preferred Stock Purchase Agreement, dated as of February 11,
2000, by and between Chromatics and LB I Group Inc.
4.4 -- Warrant Agreement, dated as of February 11, 2000, by and
between Chromatics and LB I Group Inc.
5.1 -- Opinion Regarding Legality.
23.1 -- Consent of BDO Seidman, LLP (to be filed supplementally).
23.2 -- Consent of Wiss & Company, LLP (to be filed supplementally).
23.3 -- Consent of Patterson, Belknap, Webb & Tyler LLP (included in
Exhibit 5.1).
24.1 -- Power of Attorney (see page II-3 of this Registration
Statement).
II-4
<PAGE>
Exhibit 3.2
Certificate of Amendment of the Certificate of Incorporation
of
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
Under Section 805 of the Business Corporation Law
----------------
It is hereby certified that:
FIRST: The name of the corporation (the "Corporation") is CHROMATICS
COLOR SCIENCES INTERNATIONAL, INC.
SECOND: The Certificate of Incorporation of the Corporation was filed
by the Department of State on March 30, 1984. The Corporation was formed under
the name Chromatics International, Inc.
THIRD: The Certificate of Incorporation of the Corporation, as
heretofore amended, is hereby further amended to fix the relative rights,
preferences and limitations with respect to the Class B Preferred Stock of the
Corporation.
FOURTH: To accomplish the foregoing,
(i) Paragraph D of Article FOURTH of the Certificate of Incorporation
of the Corporation is amended to add a new Section 4 thereof to read in full as
follows:
"4. Class B Series 3 Preferred Stock:
(1) The Corporation has authorized the creation of a series of Class B
Preferred Stock to be designated "Class B Series 3 Convertible Preferred Stock"
(the "Series 3 Preferred Stock").
(2) The number of shares constituting the Series 3 Preferred Stock shall be
fixed at 40,000. The Series 3 Preferred Stock shall have no par value.
(3) The shares of Series 3 Preferred Stock shall, with respect to the
distribution of assets on liquidation, dissolution or winding up of the
Corporation, rank (i) senior and prior to the common stock, $.001 par value (the
"Common Stock"), of the Corporation and any other class or series of capital
stock of the Corporation hereafter issued, the terms of which specifically
provide that shares of such class or series shall rank junior to shares of
Series 3 Preferred Stock (collectively, the "Junior Securities"), (ii) on a
parity with any other class or series of capital stock of the Corporation
<PAGE>
hereafter issued, the terms of which specifically provide that shares of such
class or series shall rank on a parity with the shares of Series 3 Preferred
Stock (collectively, the "Parity Securities") and (iii) junior to the Class A
Convertible Preferred Stock and any other class or series of capital stock of
the Corporation hereafter issued, the terms of which specifically provide that
shares of such class or series shall rank senior to shares of Series 3 Preferred
Stock (collectively, the "Senior Securities").
(4) The holders of shares of Series 3 Preferred Stock shall not be entitled
to any voting rights other than those provided by law. However, so long as any
shares of Series 3 Preferred Stock are outstanding, the Corporation shall not
and shall cause its subsidiaries not to, without the affirmative vote of the
holders of a majority of the shares of the Series 3 Preferred Stock then
outstanding, (a) alter or change adversely the absolute or relative powers,
preferences or rights given to the Series 3 Preferred Stock, (b) alter or amend
this Certificate of Amendment, (c) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a liquidation or
otherwise senior to the Series 3 Preferred Stock, (d) amend its Certificate of
Incorporation, bylaws or other charter documents so as to affect adversely any
rights of any holders of Series 3 Preferred Stock, (e) increase the authorized
number of shares of Series 3 Preferred Stock or (f) enter into any agreement
with respect to the foregoing.
(5) Except as set forth in Section 7 hereof, the holders of shares of
Series 3 Preferred Stock shall not be entitled to receive dividends with respect
thereto.
(6) (a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, before any
distribution or payment shall be made to the holders of outstanding Junior
Securities, including, but not limited to, the Common Stock, the holders of
outstanding shares of Series 3 Preferred Stock shall be entitled to receive, out
of the assets of the Corporation at the time legally available therefor, in
exchange for their shares of Series 3 Preferred Stock an amount in cash equal to
$100.00 per share of Series 3 Preferred Stock, together with all accrued but
unpaid dividends thereon, on a pari passu basis with the rights of the holders
of any Parity Securities; provided, however, that the holders of the Series 3
Preferred Stock and any outstanding Parity Securities shall not be entitled to
receive such preferential liquidation payments until the preferential
liquidation payments on all outstanding Senior Securities have been paid in
full. If, upon any such voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the assets of the Corporation
available therefor shall be insufficient to permit the payment in full to the
holders of outstanding shares of Series 3 Preferred Stock of the preferential
liquidation amounts to which they are then entitled pursuant to the provisions
of this clause (a), the entire assets of the Corporation thus distributable
shall be distributed among the holders of outstanding shares of Series 3
Preferred Stock and any Parity Securities ratably, in proportion to the full
amounts to which such holders would otherwise be entitled if such assets were
sufficient to permit payment in full.
2
<PAGE>
(b) Upon any such voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, after the payment in full to the
holders of outstanding shares of Series 3 Preferred Stock and any Parity
Securities of the preferential liquidation amounts to which they are then
entitled pursuant to the provisions of clause (a) above, the holders of
outstanding shares of Series 3 Preferred Stock shall not be entitled to
participate in any further distributions made to the holders of the Common Stock
or any other class of Senior Securities or Junior Securities.
(c) At the option of the holders of a majority of the issued and
outstanding Series 3 Preferred Stock, the sale of all or substantially all of
the assets of the Corporation or the merger of the Corporation with or into
another corporation shall be deemed to be a dissolution, liquidation or winding
up of the Corporation.
(7) (a) On the third anniversary of the date of issuance of the shares of
Series 3 Preferred Stock (the "Redemption Date"), and provided the Corporation
has not delivered a timely Extension Notice (as hereinafter defined), all of the
outstanding shares of Series 3 Preferred Stock shall be subject to mandatory
redemption by the Corporation for a purchase price payable in cash equal to
$115.00 per share (such amount is hereinafter referred to the "Redemption
Amount").
(b) From and after the Redemption Date, unless (i) default shall be made by
the Corporation on the Redemption Date in providing funds for the payment of the
Redemption Amount payable, or (ii) the Corporation, in its sole discretion, has
notified the holders of the shares of Series 3 Preferred Stock by written notice
delivered at least thirty (30) days prior to the Redemption Date (the "Extension
Notice") of its election to extend the Redemption Date to the fifth anniversary
of the date of issuance of the shares of Series 3 Preferred Stock (the "Extended
Redemption Date"), all rights of the holders of the shares of Series 3 Preferred
Stock surrendered for redemption, except the right to receive the Redemption
Amount in respect of such shares, shall cease and terminate. The redemption of
the shares of Series 3 Preferred Stock upon the Redemption Date shall take place
at the principal place of business of the Corporation. On the Redemption Date,
the Corporation shall tender the Redemption Amount by check, subject to
collection, against receipt of the certificate or certificates representing the
shares of Series 3 Preferred Stock being redeemed.
(c) If the Redemption Date has been extended to the Extended Redemption
Date by timely delivery by the Corporation of the Extension Notice to each of
the holders of the shares of Series 3 Preferred Stock then outstanding, on the
Extended Redemption Date all of the outstanding shares of Series 3 Preferred
Stock shall be subject to mandatory redemption by the Corporation for a purchase
price payable in cash equal to $115.00 per share, together with all accrued but
unpaid Extension Dividends (as hereinafter defined) (such amount is hereinafter
referred to the
3
<PAGE>
"Extended Redemption Amount"). The "Extension Dividends" shall be the aggregate
amount of dividends accrued and owing on the Series 3 Preferred Stock, which
shall be paid at the rate of $8.00 per share per annum (computed on the basis of
the actual number of days elapsed over a year of 365 days), shall accrue
beginning on the day after the Redemption Date and shall be cumulative whether
or not declared. From and after the Extended Redemption Date, unless default
shall be made by the Corporation on the Extended Redemption Date in providing
funds for the payment of the Extended Redemption Amount payable, all rights of
the holders of the shares of Series 3 Preferred Stock surrendered for
redemption, except the right to receive the Extended Redemption Amount in
respect of such shares, shall cease and terminate. The redemption of the shares
of Series 3 Preferred Stock upon the Extended Redemption Date shall take place
at the principal place of business of the Corporation. On the Extended
Redemption Date, the Corporation shall tender the Extended Redemption Amount by
check, subject to collection, against receipt of the certificate or certificates
representing the shares of Series 3 Preferred Stock being redeemed.
(8) (a) Subject to the provision for adjustment set forth below, each share
of the Series 3 Preferred Stock, plus the aggregate amount of all accrued but
unpaid Extension Dividends, shall be convertible at the option of the holder
thereof at any time after the date hereof, into a number of shares of Common
Stock equal to the then effective Conversion Ratio (as hereinafter defined). As
used herein, "Conversion Ratio," determined as of any date, shall equal the
number of shares of Common Stock into which one share of Series 3 Preferred
Stock is convertible pursuant to this Section 8, which shall be determined by
dividing $100.00, plus the amount of all accrued but unpaid Extension Dividends
per share, by the then effective Conversion Price (as defined below). The
"Conversion Price" shall be the lower of (i) $6.67 and (ii) 90% of the average
of the closing bid prices of the Common Stock over the five consecutive trading
days ending on the date immediately prior to the date of issuance (the "Issue
Date"). The Conversion Ratio shall be subject to adjustment as provided in
Section 8(d).
(b) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of Series 3 Preferred Stock, free from any
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of Series 3 Preferred Stock, such number of shares of its
authorized but unissued shares of Common Stock as will from time to time be
necessary to permit the conversion of all outstanding shares of Series 3
Preferred Stock, together with all accrued but unpaid dividends thereon, into
shares of Common Stock, and shall take all action required to increase the
authorized number of shares of Common Stock if necessary to permit the
conversion of all outstanding shares of Series 3 Preferred Stock. The
Corporation covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, fully paid, nonassessable and
freely tradeable.
4
<PAGE>
(c) (i) Conversion of Series 3 Preferred Stock may be effected by any
holder thereof upon the surrender to the Corporation at the offices of the
Corporation of certificates representing Series 3 Preferred Stock to be
converted, accompanied by a written notice stating that such holder elects to
convert all or a specified portion of such Series 3 Preferred Stock in
accordance with the provisions of this Section 8 and specifying the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. The Corporation shall pay the issue and transfer
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series 3 Preferred Stock pursuant hereto. As
promptly as practicable, and in any event within two business days after the
surrender of such certificates representing Series 3 Preferred Stock and the
receipt of such notice relating thereto, the Corporation shall deliver or cause
to be delivered (i) certificates representing the number of validly issued,
fully paid and nonassessable shares of Common Stock to which the holder of
Series 3 Preferred Stock being converted shall be entitled and (ii) if less than
all of the shares represented by the surrendered certificates are being
converted, a new certificate representing the number of shares of Series 3
Preferred Stock which remains outstanding upon such partial conversion. Such
conversion shall be deemed to have been made at the close of business on the
date of giving such notice so that the rights of the holder thereof as to Series
3 Preferred Stock being converted shall cease except for the right to receive
shares of Common Stock in accordance herewith, and the persons entitled to
receive shares of Common Stock shall be treated for all purposes as having
become the record holder of such shares of Common Stock at such time.
(ii) If the Corporation fails to deliver to the holder such certificate or
certificates pursuant to this Section 8, including for purposes hereof, any
shares of Common Stock to be issued on account of accrued but unpaid dividends
hereunder, on or prior to the third trading day after the date the holder
surrenders to the Corporation the certificates to be converted (the "Delivery
Date"), in addition to all other remedies that such holder may pursue hereunder
or otherwise, the Corporation shall pay to such holder in cash, as liquidated
damages and not as a penalty, $1,000 per day (increasing to $5,000 per day after
the fifth trading day after the Delivery Date) until such certificates are
delivered. If the Corporation fails to deliver to the holder such certificate or
certificates pursuant to this Section 8 prior to the 15th day after the Delivery
Date the Corporation shall, at the holder's option, (i) redeem from funds
legally available therefor at the time of such redemption, such number of shares
of Preferred Stock then held by such holder, as requested by such holder and
(ii) pay all accrued but unpaid dividends on account of the Series 3 Preferred
Stock for which the Corporation shall have failed to issue Common Stock
certificates hereunder, in cash. If such holder opts to redeem any number of
shares of Preferred Stock pursuant to this Section 8(c)(ii), then the
Corporation shall immediately redeem, from funds legally available therefor at
the time of such redemption, such number of shares of Series 3 Preferred Stock
then held by such holder, as requested by such holder. The
5
<PAGE>
redemption price shall be equal to the sum of (A) the aggregate of all accrued
but unpaid dividends, plus (B) the number of shares of Series 3 Preferred Stock
then held by such holder multiplied by (1) the average closing price of the
Corporation's Common Stock for the five trading days immediately preceding the
Delivery Date multiplied by (2) the Conversion Ratio calculated on the Delivery
Date. If the holder has requested that the Corporation redeem shares of Series 3
Preferred Stock pursuant to this Section 8(c)(ii) and the Corporation fails for
any reason to pay the redemption price referenced above within seven days after
such notice is deemed delivered pursuant to Section 8(c)(ii), the Corporation
will pay interest on the redemption price at a rate of 15% per annum in cash to
such holder, accruing from such seventh day until the redemption price and any
accrued interest thereon is paid in full. Nothing herein shall limit a holder's
right to pursue actual damages for the Corporation's failure to deliver
certificates representing shares of Common Stock upon conversion within the
period specified herein (including, without limitation, damages relating to any
purchase of shares of Common Stock by such holder to make delivery on a sale
effected in anticipation of receiving certificates representing shares of Common
Stock upon conversion, such damages to be in an amount equal to (A) the
aggregate amount paid by such holder for the shares of Common Stock so purchased
minus (B) the aggregate amount of net proceeds, if any, received by such holder
from the sale of the shares of Common Stock issued by the Corporation pursuant
to such conversion), and such holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief).
(iii) In addition to any other rights available to the holder, if the
Corporation fails to deliver to the holder such certificate or certificates
pursuant to Section 8(c)(ii) by the Delivery Date and after the Delivery Date
the holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver to the satisfaction of a sale by such holder of the
shares underlying the Series 3 Preferred Stock which the holder anticipated
receiving on the Delivery Date upon such conversion (a "Buy-In"), then the
Corporation shall pay in cash to the holder (in addition to any remedies
available to or elected by the holder) the amount by which (A) the holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock purchased for a Buy-In exceeds (B) the aggregate Conversion Price
for the number of shares of Common Stock in the Buy-In for which such conversion
was not timely honored. For example, if the holder purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 aggregate Conversion Price for the number of
shares of Common Stock in the Buy-In, the Corporation shall be required to pay
the holder $1,000. The holder shall provide the Corporation written notice
indicating the amounts payable to the holder in respect of the Buy-In.
(d) (i) In the event of any change in the number of issued and outstanding
shares of capital stock of the Corporation by reason of any stock split, stock
dividend,
6
<PAGE>
subdivision, merger, consolidation, recapitalization, combination, conversion or
exchange of shares, or any other change in the corporate or capital structure of
the Corporation which would have the effect of diluting or otherwise adversely
affecting the rights and privileges of the holders of Series 3 Preferred Stock
under this Section 8, the Conversion Ratio and Conversion Price in effect on the
effective date thereof shall be adjusted so that the holder of any shares of
Series 3 Preferred Stock shall be entitled to receive the number and type of
shares of Common Stock or other securities of the Corporation which such holder
would have owned or have been entitled to receive after the happening of any of
the events described above had such shares of Series 3 Preferred Stock been
converted into Common Stock immediately prior to the happening of such event or
the record date therefor. An adjustment made pursuant to this Section 8(d) shall
become effective (x) in the case of any such dividend or distribution to holders
of shares of Common Stock entitled to receive such dividend or distribution, or
(y) in the case of such subdivision, merger, consolidation, recapitalization,
combination, conversion or exchange, at the close of business on the day upon
which such corporate action becomes effective.
(ii) Except with respect to Excluded Securities (as defined below), in case
the Corporation shall issue any shares of Common Stock or Common Stock
Equivalents (as defined below) after the Issue Date at a price per share (or
having a conversion or exercise price per share) of less than the Conversion
Price per share (the "Adjusted Conversion Price"), in each such case the
Conversion Price as in effect immediately prior thereto shall be reduced (but
not increased) to the Adjusted Conversion Price and the Conversion Ratio shall
be recalculated and increased (but not decreased) by dividing $100.00 by the
Adjusted Conversion Price. Any adjustment made pursuant to this clause (ii)
shall be made on the next business day following the date on which any such
issuance is made and shall be effective retroactively to the close of business
on the date of such issuance. For purposes of this clause (ii), the
consideration receivable by the Corporation in connection with the issuance of
additional shares of Common Stock or of Common Stock Equivalents since the Issue
Date shall be deemed to be equal to (X) in the case the consideration received
by the Corporation is cash, the sum of the aggregate offering price (before
deduction of underwriting discounts or commissions and expenses payable to third
parties, if any) of all such Common Stock and/or Common Stock Equivalents plus
the minimum aggregate amount, if any, payable upon conversion, exchange or
exercise of any such Common Stock Equivalents, and (Y) in the case the
consideration received by the Corporation is other than cash, the fair market
value of the consideration received by the Corporation as determined by the good
faith judgment of the Board of Directors of the Corporation provided, however,
that in the event the holder disagrees in good faith with the determination of
the Board of Directors of the Corporation, such fair market value shall be
determined by a nationally recognized or major regional investment banking firm
or firm of independent certified public accountants of recognized standing (an
"Appraiser") selected in good faith by the holders of the Series 3 Preferred
Stock; and provided,
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further, that the Corporation, after receipt of the determination by such
Appraiser shall have the right to select in good faith an additional Appraiser
meeting the same qualifications, in which case the fair market value shall be
equal to the average of the determinations by each such Appraiser. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above. The issuance or
reissuance of any shares of Common Stock or Common Stock Equivalents (whether
treasury shares or newly issued shares) pursuant to a dividend or distribution
on, or subdivision, combination or reclassification of, the outstanding shares
of Common Stock requiring an adjustment in the Conversion Price and Conversion
Ratio pursuant to this clause (ii) shall not be deemed to constitute an issuance
of Common Stock or Common Stock Equivalents by the Corporation to which clause
(i) of this Section 8(d) applies. Upon the expiration or termination of any
unconverted, unexchanged or unexercised Common Stock Equivalents for which an
adjustment has been made pursuant to this clause (ii), the adjustments shall
forthwith be reversed to effect such Conversion Ratio as would have been in
effect at the time of such expiration or termination had such Common Stock
Equivalents, to the extent outstanding immediately prior to such expiration or
termination, had never been issued. As used herein, "Excluded Securities" shall
mean: (i) shares of Common Stock issuable upon conversion of the Series 3
Preferred Stock; (ii) shares of Common Stock issuable or issued to employees of
or consultants to the Corporation pursuant to the Management Option Plan (as
hereinafter defined); (iii) any capital stock issued as a stock dividend or upon
any stock split or other subdivision or combination of shares of the
Corporation's capital stock; (iv) shares of Common Stock issuable upon
conversion of any Common Stock Equivalents outstanding on the Issue Date, (v)
shares of Common Stock issuable upon conversion of the Corporation's Class A
Convertible Preferred Stock outstanding on the Issue Date or (vi) Common Stock
issued upon the conversion or exercise of Common Stock Equivalents issued after
the Issue Date as to which an adjustment to the Conversion Ratio has been made
pursuant to this clause (d) upon the issuance of such Common Stock Equivalents.
As used herein, "Common Stock Equivalents" shall mean securities convertible
into, or exchangeable or exercisable for, shares of Common Stock of the
Corporation. As used herein, the "Management Option Plan" shall mean the
Corporation's 1992 Stock Option Plan, as amended.
(iii) If the Corporation shall set a record date for the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution and shall thereafter, and before such dividend or distribution is
paid or delivered to stockholders entitled thereto, legally abandon its plan to
pay or deliver such dividend or distribution, then no adjustment in the
Conversion Ratio or the Conversion Price then in effect shall be made by reason
of the taking of such record, and any such adjustment previously made as a
result of the taking of such record shall be reversed.
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(e) (i) Unless sooner redeemed or converted in accordance with the
provisions of Section 7 hereof or this Section 8 the outstanding shares of
Series 3 Preferred Stock shall be subject to involuntary conversion at the
option of the Corporation, at its sole discretion, in whole but not in part, at
any time after six months after the Issue Date, for shares of the Corporation's
Common Stock at the Conversion Ratio. The Corporation may effectuate such
involuntary conversion on such date (the "Involuntary Conversion Date") provided
that the following conditions have been met:
(A) the Current Market Price (as hereinafter defined) of the Common Stock
is equal to or in excess of one hundred and fifty percent (150%) of
the Conversion Price for a period of at least ten (10) consecutive
trading days; and
(B) all of the shares of Common Stock into which the Preferred Stock is
being converted have been registered under the Securities Act of 1933,
as amended, and such registration has been declared effective by the
Securities and Exchange Commission, and is effective on such date; and
(C) the Corporation has a sufficient number of authorized shares of Common
Stock reserved for issuance upon full conversion of the Series 3
Preferred Stock.
As used herein, "Current Market Price" shall mean for any day, the last sale
price for the Common Stock on the principal securities exchange on which the
Common Stock is listed or admitted to trading, or, if not so listed or admitted
to trading on any securities exchange, the last sale price for the Common Stock
on the National Association of Securities Dealers National Market System, or, if
the Common Stock shall not be listed on such system, the closing bid price in
the over-the-counter market.
(ii) Notice of involuntary conversion of outstanding shares of Series 3
Preferred Stock shall be sent by or on behalf of the Corporation, postage
prepaid, to the holders of record of outstanding shares of Series 3 Preferred
Stock not less than ten (10) and not more than twenty (20) days prior to the
Involuntary Conversion Date.
(iii) Notice having been so given as provided in clause (ii) above, from
and after the Involuntary Conversion Date, unless default shall be made by the
Corporation on the Involuntary Conversion Date in issuing the Common Stock
issuable upon conversion of the Series 3 Preferred Stock pursuant to the
Conversion Ratio, all rights of the holders of the shares of Series 3 Preferred
Stock surrendered for conversion, except the right to receive the Common Stock
in respect of such shares, shall cease and terminate. The involuntary conversion
of the shares of Series 3 Preferred Stock for the Common Stock upon the
Involuntary Conversion Date shall take place at the principal place of business
of the Corporation. On the Involuntary Conversion Date, the
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Corporation shall tender such Common Stock against receipt of the certificate or
certificates representing the shares of Series 3 Preferred Stock being
converted.
(iv) If any portion of the applicable redemption price under Sections 7 or
8 shall not be paid by the Corporation within seven (7) calendar days after the
date due, interest shall accrue thereon at the rate of 15% per annum until the
redemption price plus all such interest is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). In addition, if any portion of
such redemption price remains unpaid for more than seven (7) calendar days after
the date due, the holder of the Series 3 Preferred Stock subject to such
redemption may elect, by written notice to the Corporation given within 30 days
after the date due, to either (i) demand conversion in accordance with the
formula and the time frame therefor set forth in Section 8 of all of the shares
of Series 3 Preferred Stock for which such redemption price, plus accrued
liquidated damages thereof, has not been paid in full (the "Unpaid Redemption
Shares"), in which event the Conversion Price for such shares shall be the lower
of the Current Market Price of the Corporation's Common Stock on the date such
redemption price was originally due and the Current Market Price of the
Corporation's Common Stock as of the holder's written demand for conversion, or
(ii) invalidate ab initio such redemption, notwithstanding anything herein
contained to the contrary. If the holder elects option (i) above, the
Corporation shall within five (5) trading days of its receipt of such election
deliver to the holder the shares of Common Stock issuable upon conversion of the
Unpaid Redemption Shares subject to such holder conversion demand and otherwise
perform its obligations hereunder with respect thereto; or, if the holder elects
option (ii) above, the Corporation shall promptly, and in any event not later
than five (5) trading days from receipt of holder's notice of such election,
return to the holder all of the Unpaid Redemption Shares.
(9) Upon any adjustment of the Conversion Price and the Conversion Ratio
then in effect pursuant to the provisions of Section 8, then, and in each such
case, the Corporation shall promptly deliver to each of the holders of Series 3
Preferred Stock a certificate signed by the President or a Vice President and by
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation setting forth in reasonable detail the event
requiring the adjustment, the method by which such adjustment was calculated and
the Conversion Price and Conversion Ratio then in effect following such
adjustment. Where appropriate, such notice to the holders of Series 3 Preferred
Stock may be given in advance. "
FIFTH: The foregoing Amendment of the Certificate of Incorporation of
the Corporation was authorized by unanimous consent of the Board of Directors of
the Corporation.
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Signed on February 10, 2000
---------------------------
Darby S. Macfarlane
Chairperson of the Board
and Chief Executive Officer
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Exhibit 4.3
PREFERRED STOCK PURCHASE AGREEMENT
This Preferred Stock Purchase Agreement (the "Agreement") is made and
entered into as of the 11th day of February 2000, by and between CHROMATICS
COLOR SCIENCES INTERNATIONAL, INC., a New York corporation ("Seller"), and LB I
GROUP INC. (Lehman Brothers Group Inc.), a Delaware corporation ("Purchaser").
In consideration of the mutual promises and covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. BASIC TRANSACTION
1.1 Authorization of the Securities. Seller has authorized the
issuance and sale to Purchaser of an aggregate of up to 40,000 shares (the
"Shares") of its Class B Series 3 Convertible Preferred Stock, no par value (the
"Preferred Stock"), having all of the powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions of such preferences and rights set forth in the
Certificate of Amendment to the Certificate of Incorporation of Seller (the
"Certificate of Amendment") attached hereto as Exhibit A, for a purchase price
of $100.00 per share of Preferred Stock (the "Purchase Price"). In connection
with the consummation of the sale of the Shares pursuant to this Agreement,
Seller shall issue to Purchaser warrants ("Warrants") to purchase the number of
shares of Seller's common stock, $.001 par value ("Common Stock"), as set forth
in, and subject to the terms and conditions of, the Warrant Agreement, by and
among Seller and Purchaser (the "Warrant Agreement") in the form attached hereto
as Exhibit B (the Shares and the Warrants are hereafter collectively referred to
as the "Securities").
1.2 Issuance of the Securities. Subject to the terms and conditions
hereof and the Warrant Agreement and in reliance upon the representations,
warranties, covenants and agreements contained herein and therein, Seller will
issue, sell and deliver the Securities to Purchaser, and Purchaser will purchase
the Securities from Seller, at the Closing (as hereinafter defined). At the
Closing Purchaser shall purchase the number of Shares and be issued the number
of Warrants set forth opposite its name on Schedule 1.2 annexed hereto for the
aggregate Purchase Price set forth next to Purchaser's name on Schedule 1.2
annexed hereto.
2. CLOSING
2.1 Time and Place. The closing of the transaction contemplated by
Section 1.2 above shall take place in the following manner:
<PAGE>
(a)(i) The closing of the purchase and sale of the Securities set
forth on Schedule 1.2 to be effected at the closing (the "Closing") shall take
place on February 11, 2000, at 5:00 P.M. at the offices of Patterson, Belknap,
Webb & Tyler LLP, 1133 Avenue of the Americas, New York, New York 10036, or at
such other time and location as the parties hereto may otherwise agree.
(ii) At the Closing, Seller shall deliver to Purchaser a certificate
representing the Shares to be purchased by Purchaser at the Closing, duly
executed on behalf of Seller and registered in the name of Purchaser in the
denomination set forth on Schedule 1.2 and a Warrant Certificate in the form of
Exhibit A to the Warrant Agreement duly executed on behalf of Seller and
registered in the name of Purchaser in the denomination set forth on Schedule
1.2. Delivery of such certificates to Purchaser shall be made against receipt by
Seller from Purchaser of the aggregate Purchase Price, which shall be reduced by
(a) $200,000.00 in respect of the broker fee payable to Purchaser pursuant to
Section 7.11 hereof and (b) $190,000.00 in respect of the Registration Delay
Payments owed to Purchaser pursuant to Section 6.1(d) of the Preferred Stock
Purchase Agreement, dated as of June 11, 1999, between Purchaser and Seller,
executed in connection with the first closing (the "First Closing"), and which
shall be paid by Purchaser at the Closing by wire transfer of immediately
available funds in such amount to an account designated by Seller at least three
business days prior to the Closing.
(iii) The obligation of Purchaser hereunder to acquire and pay for the
Securities is subject to the satisfaction (or waiver by Purchaser) at or before
the Closing of each of the following conditions:
(A) The representations and warranties of Seller contained herein
shall be true and correct in all material respects as of the date when made and
as of the date of the Closing as though made on and as of such date and
Purchaser shall have received a certificate, dated the date of the Closing and
signed by the Chief Executive Officer of Seller, to such effect.
(B) Seller shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by this
Agreement, the Certificate of Amendment and the Warrant Agreement to be
performed, satisfied or complied with by Seller at or prior to the date of the
Closing and Purchaser shall have received a certificate, dated the date of the
Closing and signed by the Chief Executive Officer of Seller, to such effect.
(C) No suit, action or other proceeding shall have been commenced (and
be pending) by any governmental authority or self-regulatory agency which seeks
to restrain or prohibit or questions the validity or legality of the
transactions
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contemplated by this Agreement, the Certificate of Amendment and the Warrant
Agreement, nor shall any such suit, action or proceeding be threatened.
(D) The trading in the Common Stock shall not have been suspended for
a continuous period in excess of two (2) full trading days, and such shares
shall have been, and on the date of the Closing will be, listed for trading on
the Nasdaq SmallCap Market.
2.2 Additional Closing Deliveries.
(a) Seller will deliver the following to Purchaser at the Closing:
(i) A copy of the Certificate of Amendment, duly certified by
the Secretary of State of the State of New York;
(ii) A counterpart copy of the Warrant Agreement duly executed on
behalf of Seller;
(iii) A certificate of the Secretary of Seller, dated the date of
the Closing, certifying that attached thereto is a true and
complete copy of (a) Seller's bylaws, as amended and in
effect on the date of such certificate, (b) Seller's
Certificate of Incorporation, as amended and in effect on
the date of such certificate and (c) a resolution adopted by
Seller's Board of Directors authorizing the execution,
delivery and performance of this Agreement and the Warrant
Agreement and the filing of the Certificate of Amendment,
and that such resolution has not been modified, rescinded or
amended and is in full force and effect; and
(iv) A certificate signed by the Chief Financial Officer of
Seller setting forth the adjusted Conversion Price and the
adjusted Exercise Price of the shares of Class B Series 2
Preferred Stock and Warrants, respectively, issued to
Purchaser at the First Closing.
(b) Purchaser will deliver to Seller at the Closing a counterpart
copy of the Warrant Agreement duly executed by Purchaser.
(c) The deliveries referred to in clauses (a) and (b) of this Section
2.2 shall take place simultaneously with one another, and are
conditions precedent to the effectiveness of this Agreement.
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3. REPRESENTATIONS AND WARRANTIES OF SELLER.
In order to induce Purchaser to enter into this Agreement and purchase
the Securities, Seller represents and warrants to Purchaser as follows:
3.1 Organization, Good Standing and Corporate Power. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York, with all requisite corporate power and authority to
own its properties and to conduct its business as presently conducted. Seller is
qualified to do business and is in good standing (or has active status) in each
jurisdiction in which the failure to be so qualified is reasonably likely to
have a Material Adverse Effect (as hereinafter defined). Seller has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder, including, without limitation, the issuance
and sale of the Securities.
3.2 Due Authorization; Enforceability; No Conflicts. Seller has taken
all corporate and stockholder action necessary to authorize the execution,
delivery and performance by it of this Agreement. Assuming the due execution and
delivery of this Agreement by Purchaser, this Agreement constitutes a valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to the enforcement of creditors' rights
generally, the availability of equitable remedies and to general equity
principles. The execution, delivery and performance by Seller of this Agreement
and compliance by Seller with the terms hereof will not violate, conflict with
or cause an event of default under Seller's Certificate of Incorporation, the
Certificate of Amendment or Seller's Bylaws, or any resolutions of Seller's
Board of Directors or stockholders or any agreement, instrument, judgment,
order, law, rule or regulation applicable to Seller or by which Seller is bound
or to which any of Seller's properties are subject, except where such violation,
conflict or event of default would not result in a material adverse effect on
Seller's business, financial condition, results of operations or properties (a
"Material Adverse Effect"). The Shares, upon issuance in accordance with the
terms of this Agreement, and the Warrants, upon issuance in accordance with the
terms of the Warrant Agreement, are and will continue upon issuance to be duly
authorized and reserved, validly issued, fully-paid and nonassessable and free
of any liens, claims or encumbrances and rights of first refusal
("Encumbrances") other than the terms and provisions of the Certificate of
Amendment, the Warrant Agreement and restrictions imposed by applicable federal
and state securities laws.
3.3 Capitalization. The authorized capital stock of Seller consists of
(a) 1,400,000 shares of Class A preferred stock, par value $.01 per share (the
"Class A Preferred Stock") , of which 1,380,000 shares are issued and
outstanding, (b) 10,000,000 shares of Class B preferred stock, no par value, of
which (x) 500,000 shares have been designated Class B Series 1 Preferred Stock,
par value $.001 per
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share, no shares of which are issued and outstanding, (y) 80,000 shares have
been designated Class B Series 2 Preferred Stock, par value $.001 per share, of
which 40,000 shares are issued and outstanding, and (z) 40,000 shares have been
designated as Preferred Stock, all of such Preferred Stock will be outstanding
upon the issuance of the Shares to be sold to Purchaser hereunder and (c)
50,000,000 shares of Common Stock, of which 15,535,481 shares are issued and
outstanding. Except with respect to the Securities or as set forth on Schedule
3.3 annexed hereto, there are no outstanding subscriptions, rights, options,
warrants, conversion rights, agreements or other claims for the purchase or
acquisition from Seller of any shares of its capital stock or obligating Seller
to issue, repurchase, register or otherwise acquire, any shares of its capital
stock or any securities convertible into, exercisable or exchangeable for, or
otherwise entitling the holder to acquire, any shares of capital stock of
Seller.
3.4 Reports and Financial Statements. Seller has previously furnished
Purchaser with true and complete copies, as amended or supplemented, of its (i)
Annual Report on Form 10-K for the year ended December 31, 1998 as filed with
the Securities and Exchange Commission ("SEC"), (ii) proxy statements relating
to all meetings of its shareholders (whether annual or special) since January 1,
1998 and (iii) all other reports or registration statements filed by Seller with
the SEC since January 1, 1998 (such reports, registration statements and other
filings, together with any amendments or supplements thereto, are collectively
referred to as the "Seller Commission Filings"). Seller Commission Filings
constituted all of the documents required to be filed by Seller with the SEC
since January 1, 1998. As of their respective dates, such Seller Commission
Filings (as amended or supplemented) complied in all material respects with the
requirements of the Securities Act and the Securities Exchange Act of 1934 and
the rules and regulations of the SEC promulgated thereunder, and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and any unaudited interim financial
statements of Seller included in such Seller Commission Filings comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, and have been
prepared in accordance with United States generally accepted accounting
principles (except as may be indicated therein or in the notes thereto and, in
the case of the quarterly financial statements, as permitted by Form 10-Q of the
Securities Exchange Act of 1934) and fairly present the financial position of
Seller at the dates thereof and the results of its operations and its cash flows
for the periods then ended.
3.5 Absence of Certain Changes or Events. Except as publicly disclosed
prior to the date of this Agreement or as otherwise contemplated by this
Agreement, since December 31, 1998, there has not been any material adverse
change or material adverse development in the financial condition or in the
results of
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operations or the business, properties, assets or liabilities of Seller or, in
so far as can reasonably be foreseen, prospects of Seller.
3.6 Information in the Registration Statement. None of the information
relating to Seller, its officers or directors, supplied by Seller for inclusion
or incorporation by reference in the registration statement to be filed with the
SEC by Seller pursuant to Section 6.1 hereof (the "Registration Statement") or
any amendments or supplements thereto, will, at the time it becomes effective
under the Securities Act and at the effective date, contain any untrue statement
of material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If at any time prior
to the effective date any event with respect to Seller, its officers or
directors should occur which is required to be described in an amendment, or a
supplement to, the Registration Statement, such event shall be so described and
such description in such amendment or supplement of such information will not
contain any statement which, at the time and in light of circumstances under
which it is made, is false or misleading with respect to any material fact or
omits to state any material fact required to be stated therein or in the
Registration Statement or necessary to make the statements therein or in the
Registration Statement not false or misleading.
3.7 Compliance With Laws. The conduct of the business of Seller
complies in all material respects with all statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable thereto. Seller has
not received notice of any alleged material violation of any statute, law,
regulation, ordinance, rule, judgment, order or decree from any governmental
authority applicable to Seller or any of its assets or properties which has not
been satisfactorily disposed of.
3.8 Consents. No consent or waiver of, order or approval by, or filing
with any governmental authority or other third party is required in connection
with Seller's execution, delivery and performance of this Agreement, including
the issuance of the Shares to Purchaser hereunder except as otherwise
contemplated by Section 6.1 hereof.
3.9 Litigation Proceedings. Except as set forth on Schedule 3.9
annexed hereto, there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of Seller, threatened against or
affecting Seller or any of its properties before or by any court, governmental
or administrative agency or regulatory authority (federal, state, county, local
or foreign) which (i) adversely affects or challenges the legality, validity or
enforceability of any of this Agreement, the Certificate of Amendment or the
Warrant Agreement and (ii) could reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect.
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3.10 No Default or Violation. Seller (i) is not in default under or in
violation of any indenture, loan or other credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is not in violation of any order of any court,
arbitrator or governmental body applicable to it, (iii) is not in violation of
any statute, rule or regulation of any governmental authority to which it is
subject or (iv) is not in default under or in violation of its Certificate of
Incorporation, Bylaws or other organizational documents, respectively, except in
each case for defaults and violations which individually or in the aggregate
will not have a Material Adverse Effect. The business of Seller is not being
conducted, and shall not be conducted in violation of any law, ordinance, rule
or regulation of any governmental entity, except where such violations have not
resulted or would not reasonably result, individually or in the aggregate, in a
Material Adverse Effect. Seller is not in breach of any agreement where such
breach, individually or in the aggregate, would have a Material Adverse Effect.
3.11 Private Offering. Neither Seller nor any person acting on its
behalf has taken or will take any action which might subject the offering,
issuance or sale of the Securities to Purchaser hereunder to the registration
requirements of the Securities Act. The offer, sale and issuance of the
Securities to Purchaser will not be integrated with any other offer, sale and
issuance of Seller's securities (past, current, or future) under the Securities
Act or any regulations of any exchange or automated quotation system on which
any of the securities of Seller are listed or designated or for purposes of any
stockholder approval provision applicable to Seller or its securities. Subject
to the accuracy and completeness of the representations and warranties of
Purchaser contained in Article IV hereof, the offer, sale and issuance by Seller
to Purchaser of the Securities hereunder is exempt from the registration
requirements of the Securities Act.
3.12 Investment Company. Seller is not, and is not controlled by or
under common control with an affiliate of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
3.13 Solicitation Materials. Seller has not (i) distributed any
offering materials in connection with the offering and sale of the Securities to
Purchaser hereunder or (ii) solicited any offer to buy or sell the Securities
hereunder by means of any form of general solicitation or advertising.
3.14 Form S-3 Eligibility. Seller is, as of the date of the Closing,
eligible to register securities for resale with the SEC under Form S-3
promulgated under the Securities Act.
3.15 Listing and Maintenance Requirements Compliance. Seller has not
in the two years preceding the date hereof received written notice from any
stock exchange or market on which the Common Stock is or has been listed (or on
which it
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has been quoted) to the effect that Seller is not in compliance with the listing
or maintenance requirements of such exchange or market.
3.16 Registration Rights; Rights of Participation. Except as set forth
on Schedule 3.16 annexed hereto, Seller has not granted or agreed to grant to
any person any rights (including "piggy-back" registration rights) to have any
securities of Seller registered with the SEC or any other governmental authority
which has not been satisfied, and no person, including, but not limited to,
current or former stockholders of Seller, underwriters, brokers or agents, has
any right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by this Agreement,
the Certificate of Amendment or the Warrant Agreement.
3.17 Firpta. Seller is not a "United States real property holding
corporation" within the meaning of Section 847(c)(2) of the Internal Revenue
Code of 1986, as amended.
3.18 Datex-Ohmeda Agreement. Seller has signed an agreement with
Datex-Ohmeda, Inc. for the distribution and marketing of Seller's
ColorMate(R)TLc- BiliTest(R)System and such agreement is still in full force and
effect as of the date hereof.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
In order to induce Seller to enter into this Agreement and issue the
Securities, Purchaser represents and warrants to Seller as follows:
4.1 Organization, Good Standing and Corporate Power. Purchaser is a
corporation duly formed, validly existing and in good standing under the laws of
the State of its organization, with all requisite corporate power and authority
to own its properties, conduct its business, enter into this Agreement and
perform its obligations hereunder.
4.2 Due Authorization; Enforceability; No Conflicts. Purchaser has
taken all corporate action necessary to authorize the execution, delivery and
performance by it of this Agreement. Assuming the due execution and delivery of
this Agreement by Seller, this Agreement constitutes a valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to the enforcement of creditors' rights
generally, the availability of equitable remedies and general equity principles.
The execution, delivery and performance by Purchaser of this Agreement and
compliance by Purchaser with the terms hereof will not violate, conflict with or
cause an event of default under Purchaser's Certificate of Incorporation or any
other agreement, instrument, judgment, order, law, rule or
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regulation by which Purchaser is bound or to which any properties of Purchaser
are subject.
4.3 Accredited Investor. Purchaser represents that it is an
"accredited investor" as that term is defined in Rule 501(a) under the
Securities Act.
4.4 Suitability as an Investor. Purchaser represents that it can bear
the economic risk of its investment in the Securities of Seller and is investing
in its own name and for its own account.
4.5 Investment. Purchaser is acquiring the Securities for investment
for its own account and not with a present view to, or for resale in connection
with, any distribution thereof. Purchaser understands that the Shares and the
shares of Common Stock issuable upon conversion thereof have not been registered
under the Securities Act or applicable state securities laws by reason of
certain exemptions from the registration provisions thereof that depend upon,
among other things, the truth and accuracy of Purchaser's representations and
warranties herein; provided, however, that by making the representations herein,
Purchaser does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the Securities Act.
4.6 Restricted Transferability. Purchaser acknowledges that the Shares
and the shares of Common Stock issuable upon conversion thereof are being
offered and sold hereunder in a private placement that is exempt from the
registration requirements of the Securities Act and that certificates for such
Shares will bear the legend referred to in Section 6.2 below.
4.7 Risk of Investment. Purchaser recognizes, acknowledges and
warrants that it has such knowledge and experience in business and financial
affairs as to be capable of evaluating the merits and risks of the investment in
the Securities of Seller contemplated hereby and is aware of the speculative
nature of and risks of loss associated with such investment. Purchaser
recognizes, acknowledges and warrants that Seller has made available to it, at a
reasonable time prior to the Closing under this Agreement, the opportunity to
ask questions and receive answers concerning the terms and conditions of the
Securities and to obtain any additional information which Seller possesses which
Purchaser judges necessary to evaluate its investment in the Securities. The
financial situation of Purchaser enables it to bear the risks of this investment
in the Securities and, at the present time, Purchaser is able to afford a
complete loss of such investment.
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5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
(a) The representations and warranties of Seller set forth in Section
3 shall survive one year from the date of the Closing. The representations and
warranties of Purchaser set forth in Section 4 shall survive one year from the
date of the Closing.
(b) Indemnification. In consideration of Purchaser's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of Seller's other obligations under this Agreement, the
Certificate of Amendment and the Warrant Agreement, Seller shall defend,
protect, indemnify and hold harmless Purchaser, its past and present affiliates
and their successors and assigns (in accordance with the provisions of Section
7.5 hereof), each other holder of the Securities and all of their stockholders,
officers, directors, employees and direct or indirect investors and any of the
foregoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, proceedings, costs (as
incurred), penalties, fees (including reasonable legal fees and expenses),
liabilities and damages, and expenses in connection therewith (including costs,
fees and expenses incurred by an Indemnitee in connection with any action, suit
or proceeding to which the Indemnitee is not a named party if such costs, fees
or expenses relate to, or are incurred in connection with, a request made by or
on behalf of Seller), and including interest, penalties and attorneys' fees and
disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a
result of, or arising out of, or relating to (a) any material misrepresentation
or breach of any representation or warranty made by Seller in this Agreement,
the Certificate of Amendment or the Warrant Agreement, or any other certificate,
instrument or document contemplated hereby or thereby, (b) any material breach
of any covenant, agreement or obligation of Seller contained in this Agreement,
the Certificate of Amendment or the Warrant Agreement, or any other certificate,
instrument or document contemplated hereby or thereby or (c) any cause of
action, suit or claim brought or made, other than by Seller, against such
Indemnitee and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement, the Certificate of Amendment or
the Warrant Agreement; provided, however, that in the absence of fraud the
aggregate amount of claims for which Seller may be liable under this Section
5(b) shall not exceed the Purchase Price received by the Seller for the
Securities. The indemnification obligations of Seller under this paragraph shall
be in addition to any liability which Seller may otherwise have, shall extend
upon the same terms and conditions to any affiliate of Purchaser and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of Purchaser and any such affiliate, and shall be binding upon and inure to
the benefit of any successors, assigns, heirs and personal representatives of
Seller, Purchaser and
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any such affiliate and any such person. Seller also agrees that neither
Purchaser nor any such affiliates, partners, directors, agents, employees or
controlling person shall have any liability to Seller or any person asserting
claims on behalf of or in right of Seller in connection with or as a result of
the consummation of this Agreement, the Certificate of Amendment or the Warrant
Agreement except to the extent that any losses, claims, damages, liabilities or
expenses incurred by Seller result from the gross negligence or willful
misconduct of Purchaser or such entity in connection with the transactions
contemplated by this Agreement, the Certificate of Amendment or the Warrant
Agreement. To the extent that the foregoing undertaking by Seller may be
unenforceable for any reason, Seller shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
(c) Purchaser agrees to indemnify and hold Seller harmless from and
against all damages, losses or expenses (including, but not limited to,
reasonable attorneys' fees) incurred, suffered or paid, directly or indirectly,
by Seller arising out of the failure of any representation and warranty made by
Purchaser in this Agreement to be true and correct in all material respects as
of the Closing; provided, however, that the aggregate amount of claims for which
Purchaser may be liable under this Section 5(c) shall not exceed the Purchase
Price paid for the Securities.
6. SECURITIES ACT MATTERS
6.1 Securities Act Registration
(a) Seller shall, at Seller's expense, register under the
Securities Act the shares of Common Stock issuable upon conversion of the Shares
and exercise of the Warrants (collectively, the "Registrable Securities") and in
that connection shall file, by no later than February 22, 2000 (the "Filing
Date"), a registration statement with respect to the Registrable Securities with
the SEC (the "Registration Statement"). Seller shall use its commercially
reasonable best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event on or prior the that date which is forty (40) days
from the Filing Date (the "Effectiveness Date"). The number of shares of Common
Stock included in the Registration Statement shall at all times be at least
equal to 100% of the sum of the number of shares that are then issuable upon
conversion of the Shares and exercise of the Warrants, and shall include any
additional Registrable Securities issuable to Purchaser in connection with the
First Closing which were not included on the registration statements filed in
connection with the First Closing, without regard to any limitation on
Purchaser's ability to convert the Shares or exercise the Warrants. Notice of
effectiveness of the Registration Statement shall be furnished promptly to
Purchaser. Seller shall use its commercially reasonable best efforts to maintain
the effectiveness of the Registration Statement and from time to time
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will amend or supplement such Registration Statement and the prospectus
contained therein as and to the extent necessary to comply with the Securities
Act to permit the sale of the Registrable Securities by Purchaser. Seller shall
use its commercially reasonable best efforts to maintain the effectiveness of
the Registration Statement with respect to the Registrable Securities until all
of the Registrable Shares have been sold by Purchaser pursuant thereto or such
date as all of the Registrable Securities may be sold by Purchaser without
registration.
(b) As a condition to the inclusion of the Registrable Securities
in the Registration Statement, Purchaser will furnish to Seller such information
with respect to Purchaser as is required to be disclosed in the Registration
Statement (and the prospectus included therein) by the applicable rules,
regulations and guidelines of the SEC.
(c) In connection with the registration of Registrable Securities
under the Securities Act, Seller shall:
(i) prepare and file with the SEC a Registration Statement
on the appropriate form with respect to such Registrable Securities and use its
commercially reasonable best efforts to cause such Registration Statement to
become effective as soon as practicable after such filing;
(ii) prepare and file with the SEC such amendments and
supplements (including post-effective amendments and supplements) to the
Registration Statement covering such Registrable Securities and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
Registration Statement until such time as all of the Registrable Securities
registered thereunder have been disposed of in accordance with the intended
method of disposition by Purchaser;
(iii) furnish to Purchaser of such Registrable Securities
registered under the Securities Act such number of copies of a prospectus and
preliminary prospectus in conformity with the requirements of the Securities
Act, and such other documents as Purchaser may reasonably request, in order to
facilitate the public sale or other disposition of such Registrable Securities;
(iv) notify Purchaser of such Registrable Securities if, at
any time when a prospectus relating to such Registrable Securities is required
to be delivered under the Securities Act, any event shall have occurred as a
result of which the prospectus then in use with respect to such Registrable
Securities would include an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which made
or for any other reason it shall be necessary to
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<PAGE>
amend or supplement such prospectus in order to comply with the Securities Act,
and prepare and furnish to Purchaser a reasonable number of copies of a
supplement to or an amendment of such prospectus which will correct such
statement or omission or effect such compliance;
(v) use its commercially reasonable best efforts to register
or qualify such Registrable Securities under such other securities or blue sky
laws of such jurisdictions as Purchaser shall reasonably request, to keep such
registrations and qualifications in effect for so long as the Registration
Statement referred to in paragraph 6.1(c)(i) above remains in effect, and to do
any and all other acts and things which may be necessary or desirable to enable
Purchaser to consummate the public sale or other disposition in each such
jurisdiction of such Registrable Securities owned by Purchaser; provided,
however, that Seller will not be required to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph 6.1(c)(v) or (B) consent to general service of process in any such
jurisdiction;
(vi) keep the Purchaser informed of Seller's best estimate
of the earliest date on which such Registration Statement or any post-effective
amendment or supplement thereto will become effective and promptly notify
Purchaser of the following: (A) when such Registration Statement or any
post-effective amendment or supplement thereto becomes effective or is approved,
(B) of the issuance by any competent authority of any stop order suspending the
effectiveness or qualification of such Registration Statement or the prospectus
then in use or the initiation or threat of any proceeding for that purpose, and
(C) of the suspension of the qualification of any Registrable Securities
included in such registration statement for sale in any jurisdiction;
(vii) cooperate with Purchaser, give Purchaser and its
counsel and accountants, such access to its books and records and such
opportunities to discuss the business of Seller with its officers and
independent public accountants as shall be necessary to enable them to conduct a
reasonable investigation within the meaning of the Securities Act; and
(viii) pay all costs and expenses incident to the
performance and compliance by Seller with the provisions of this Section 6.1,
including without limitation, (A) all registration and filing fees, (B) all
printing expenses, (C) all fees and disbursements of counsel and independent
public accountants for Seller, including, without limitation, the entire expense
of any special audits required by the rules and regulations of the SEC, (D) all
blue sky fees and expenses (including fees and expenses of counsel in connection
with blue sky surveys) and (E) the cost of distributing prospectuses in
preliminary and final form as well as any supplements thereto; expressly
excluding, however, commissions relating to the Registrable
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Securities sold and the fees and expenses of counsel for Purchaser. Seller shall
(i) not later that the third business day following the Closing prepare and file
with Nasdaq an additional shares listing application covering the shares of
Common Stock issuable upon conversion of the Shares and exercise of the
Warrants, (ii) take all steps after the Closing necessary to cause such
Securities to be approved for listing on Nasdaq (as well as on any other
national securities exchange or market on which the Common Stock is then listed)
as soon as possible thereafter, and (iii) provide to Purchaser evidence of such
listing. Seller shall maintain the listing of its Common Stock on such exchange.
(d) If (i) the Registration Statement is not (A) filed with the
SEC on or before the Filing Date or (B) declared effective by the SEC on or
before the Effectiveness Date, (ii) on any day after the Registration Statement
has been declared effective by the SEC (A) sales of the Registrable Securities
required to be included on the Registration Statement cannot be made pursuant to
the Registration Statement (including, without limitation, because of a failure
to keep the Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to the Registration Statement, or to
register sufficient shares of Common Stock) or (B) the Common Stock is not
listed or included for quotation on the Nasdaq Stock Market (Nasdaq SmallCap or
Nasdaq National Market), after being so listed or included for quotation, due to
events or circumstances within the control of Seller and such condition
continues unremedied for fifteen (15) days or (iii) Seller shall otherwise fail
to file the Registration Statement (each such event specified in (i), (ii) and
(iii) above, an "Event"), then, as partial relief for the damages to Purchaser
by reason of any such delay in or reduction of its ability to sell the
Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity): (y) Seller shall pay to Purchaser an
amount in cash (a "Registration Delay Payment") equal to two percent (2%) of the
product of (I) the number of Shares held by Purchaser and (II) $100, multiplied
by the sum of: (i) the number of months (prorated for partial months) after the
end of the Effectiveness Date and prior to the date the Registration Statement
is declared effective by the SEC; provided, however, that there shall be
excluded from such period any delays which are solely attributable to changes
required by Purchaser in the Registration Statement with respect to information
relating to Purchaser, (ii) the number of months (prorated for partial months)
that sales cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective and (iii) the number of
months (prorated for partial months) that the Common Stock is not listed or
included for quotation on the Nasdaq or that trading thereon is halted after the
Registration Statement has been declared effective; and (z) the Conversion Price
(as defined in the Certificate of Amendment) of the Shares and the Exercise
Price (as defined in the Warrant Agreement) shall be decreased 2% on the date of
such Event and shall be decreased an additional 2% as of each monthly
anniversary of the date of such Event. Seller shall pay any required
Registration Delay Payment to Purchaser in cash on the last business day of each
month during which an Event has occurred and
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is continuing. In the event Seller fails to make a Registration Delay Payment in
a timely manner, such Registration Delay Payment shall bear interest at the rate
of 2.0% per month (prorated for partial months) until paid in full.
(e) (i) Seller will indemnify and hold harmless Purchaser and
each person, if any, who Controls (as defined below) Purchaser from and against
any and all losses, claims, damages, liabilities and legal and other expenses
(including costs of investigation) caused by any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Securities were registered under the Securities
Act, any prospectus or preliminary prospectus contained therein or any amendment
or supplement thereto, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
made, except to the extent that such losses, claims, damages, liabilities or
expenses are caused by any such untrue statement or omission or alleged untrue
statement or omission included in reliance upon and in conformity with
information furnished to Seller in writing by such seller expressly for use
therein. As used in this paragraph 6.1(e)(i) and in paragraph 6.1(e)(ii) below,
a person "Controls" another person if such first person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such second person, whether through the ownership of voting
securities, by contract, or otherwise.
(ii) It shall be a condition to the obligation of Seller to
effect a registration of Registrable Securities under the Securities Act
pursuant hereto that Purchaser indemnify and hold harmless Seller and each
person, if any, who Controls Seller to the same extent as the indemnity from
Seller in the foregoing paragraph, but only with reference to information
included in reliance upon and in conformity with information furnished to Seller
in writing by Purchaser expressly for use in the Registration Statement, any
prospectus or preliminary prospectus contained therein or any amendment or
supplement thereto; provided, however, that in the absence of fraud the
aggregate amount of claims for which Purchaser may be liable under this
paragraph 6.1(e)(ii) shall not exceed the Purchase Price paid by Purchaser for
the Securities.
(iii) In case any claim shall be made or any proceeding
(including any governmental investigation) shall be instituted involving any
indemnified party in respect of which indemnity may be sought pursuant to this
paragraph (e), such indemnified party shall promptly notify the indemnifying
party in writing of the same; provided that failure to notify the indemnifying
party shall not relieve it from any liability it may have to an indemnified
party otherwise than under this paragraph (e). The indemnifying party, upon
request of the indemnified party or parties, shall retain one counsel reasonably
satisfactory to the indemnified party or parties to represent the indemnified
party or parties in such proceeding and shall pay the reasonable fees and
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disbursements of such counsel. In any such claim or proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (A) the indemnifying party shall have failed to retain counsel for the
indemnified party as aforesaid, (B) the indemnifying party and such indemnified
party shall have mutually agreed to the retention of such counsel or (C)
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate in the opinion of counsel to such
indemnified party due to actual or potential conflicts of interest between such
indemnified party and any other party represented by such counsel in such
proceeding; provided that Seller shall not be liable for the fees and
disbursements of more than one counsel for all indemnified parties. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
6.2 Restrictive Legend. Purchaser acknowledges and agrees that each
certificate representing the Shares and any shares of Common Stock issuable upon
conversion thereof will (unless the securities evidenced by such certificate
shall have been registered under the Securities Act) be stamped or otherwise
imprinted with a legend in substantially the following form (in addition to any
additional legend required under applicable state securities laws):
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "SECURITIES LAWS") AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES LAWS COVERING SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES, REASONABLY SATISFACTORY TO THE
ISSUER, TO THE EFFECT THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH SECURITIES LAWS."
Neither the Securities nor any shares of Common Stock issuable upon
conversion or exercise thereof shall contain the legend set forth above (or any
other legend) (i) at any time while a registration statement is effective under
the Securities Act covering such security, (ii) if in the written opinion of
counsel to Seller experienced in the area of United States securities laws (the
form and substance of which opinion shall be customary for opinions of counsel
in comparable transactions), such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the SEC) or (iii) if such Securities may
be sold pursuant to Rule 144(k). Seller agrees that it will provide
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Purchaser, upon request, with a certificate or certificates representing such
Securities, free from such legend at such time as such legend is no longer
required hereunder. If such certificate or certificates had previously been
issued with such a legend or any other legend, Seller shall, upon request,
receive such certificate or certificates free of any legend. Seller may not make
any notation on its records or give instruction to any transfer agent of Seller
which enlarge the restrictions set forth above.
6.3 Restriction on Conversion by Purchaser. Notwithstanding anything
herein, or in the Certificate of Amendment or the Warrant Agreement to the
contrary, in no event shall Purchaser have the right to (i) convert the Shares
or (ii) exercise the Warrants if, as a result of such conversion or exercise,
the aggregate number of shares of Common Stock beneficially owned by such
Purchaser and its affiliates would exceed 9.99% of the outstanding shares of the
Common Stock following such exercise. For purposes of this Section 6.3,
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act. The provisions of this Section 6.3 may be waived by Purchaser as
to itself (and solely as to itself) upon not less than 65 days prior written
notice to Seller, and the provisions of this Section 6.3 shall continue to apply
until such 65th day (or later, if stated in the notice of waiver). Nothing in
this Section 6.3 shall be deemed to limit or otherwise affect Seller's right to
compel the involuntary conversion of the Shares or the involuntary exercise of
the Warrants in accordance with the provisions of the Certificate of Amendment
and the Warrant Agreement.
7. MISCELLANEOUS
7.1 Expenses. Except as otherwise expressly set forth herein,
each party will pay all of its own expenses in connection with the negotiation
of this Agreement, the performance of its obligations hereunder and the
consummation of the transactions contemplated hereby.
7.2 Further Assurance. Purchaser and Seller covenant and agree to
take any and all such further action and to execute, acknowledge and deliver
such instruments, documents and agreements as any other party hereto may
reasonably request to effectuate, consummate or confirm the transactions
contemplated hereby.
7.3 Amendment and Waiver. This Agreement may be amended only in a
writing signed by all parties hereto. Any provision of this Agreement may be
waived by the party entitled to the benefit thereof only in a writing executed
by the party against whom such waiver is sought to be enforced; provided,
however, that, with the exception of any waiver that would have an adverse
affect on the economic terms of the Securities, the holders of a majority of the
Shares may waive any provision for the benefit of holders of such Shares, which
waiver shall be binding on all holders of
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Shares. No waiver shall be deemed a waiver of any other provision of this
Agreement, and no waiver of a breach hereunder shall be deemed a waiver of any
other or subsequent breach of this Agreement.
7.4 Notice. All notices, demands and other communications to be
given or delivered hereunder shall be in writing and will be deemed to have been
given if personally delivered, sent by overnight courier or telecopied (in each
such case delivery will be effective upon receipt) or mailed by certified mail,
postage prepaid, return receipt requested (delivery will be effective three days
after the date of mailing) to the addresses indicated below or to such other
addresses as the parties may specify on notice as herein provided:
If to Purchaser:
LB I Group Inc.
3 World Financial Center
New York, New York 10285
Attention: Mr. Kevin Genirs
Telecopier: (212) 526-2198
If to Seller:
Chromatics Color Sciences International, Inc.
5 East 80th Street
New York, New York 10021-0109
Attention: Ms. Darby S. Macfarlane
Chairman and Chief Executive Officer
Telecopier: (212) 717-6675
With a copy to:
Patterson, Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, New York 10036
Attention: Jeffrey E. LaGueux, Esq.
Telecopier: (212) 336-2222
7.5 Binding Agreement; Assignment. This Agreement and all of the
provisions hereof will be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Purchaser will not
be entitled to assign any of its rights and obligations hereunder to any third
party without the prior
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written consent of Seller which may be granted or withheld in the sole and
absolute discretion of Seller.
7.6 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
7.7 Captions. The captions used in this Agreement are for convenience
of reference only and do not constitute a part of this Agreement and will not be
deemed to limit, characterize or in any way affect any provision of this
Agreement and all provisions of this Agreement will be enforced and construed as
if no captions had been used in this Agreement.
7.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which need not contain signatures of more than one party,
but all such counterparts taken together will constitute one and the same
instrument. Signatures may be exchanged by telecopy, with original signatures to
follow. Each party to this Agreement agrees that it will be bound by its own
telecopied signature and that it accepts the telecopied signatures of the other
parties to this Agreement.
7.9 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of New York, without reference
to the choice of law provisions thereof.
7.10 Seniority; Exclusivity. Except for the shares of Class A
Preferred Stock, no class of equity securities of Seller will be senior to the
Preferred Stock in right of dividends or other payment, whether upon
liquidation, dissolution or otherwise. Seller shall not issue and sell any
Preferred Stock, other than to Purchaser pursuant to this Agreement, without the
prior written consent of Purchaser.
7.11 Broker Fees. Except for the fees payable by Seller to Lehman
Brothers International, no fees or commissions or similar payments with respect
to the transactions contemplated by this Agreement, the Warrant Agreement or the
Certificate of Amendment have been paid or will be payable by Seller to any
broker, financial advisor, finder, investment banker, or bank. Purchaser shall
have no obligation with respect to any fees or with respect to any claims made
by or on behalf of other persons for fees of a type contemplated in this Section
7.11 that may be due in connection with the transactions contemplated by this
Agreement, the Warrant Agreement or the Certificate of Amendment. As
compensation for Purchaser's services in connection with the financing
contemplated herein, Seller will pay to Purchaser at the Closing (i) a
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fee equal to 7% of the Purchase Price of the Shares sold, which fee shall be
payable in cash or, at Seller's option, (ii) a fee equal to 5% of the Purchase
Price of the Shares sold plus 50,000 warrants, such warrants having the same
terms and conditions as the Warrants to be issued pursuant to the Warrant
Agreement. In addition, Seller will reimburse upon demand for Purchaser's
reasonable expenses (including reasonable fees and expenses of counsel) incurred
in connection with the financing contemplated herein, subject to a maximum
reimbursement of $10,000.
7.12 Press Releases. From and after the date of the Closing, Seller
and Purchaser shall consult with each other in issuing any press releases or
otherwise making public statements with respect to the transactions contemplated
hereby and neither party shall issue any such press release or otherwise make
any such public statement without the prior written consent of the other, which
consent shall not be unreasonably withheld or delayed, except that no prior
consent shall be required if such disclosure is required by law (or recommended
by corporate counsel to fulfill the disclosure obligations of the disclosing
party), in which such case the disclosing party shall provide the other party
with prior notice of such public statement.
7.13 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Preferred
Stock Purchase Agreement to be executed and delivered on their behalf as of the
day and year first above written.
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
By:
-----------------------------
Darby S. Macfarlane
Chairman and Chief Executive Officer
LB I GROUP INC.
By:
-----------------------------
Name: Steven Weinstein
Title: Senior Vice President
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Exhibits and Schedules
Exhibit A Certificate of Designation
Exhibit B Warrant Agreement
Schedule 1.2 Allocation of Shares and Warrants
Schedule 3.3 Outstanding Options and Other Dilutive Securities
Schedule 3.9 Litigation
Schedule 3.16 Registration Rights
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SCHEDULE 1.2
Name of Purchaser Number of Number of Purchase
Shares Warrants Price
LB I Group Inc.
3 World Financial Center 40,000 254,372 $4,000,000
New York, New York 10285
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Schedule 3.3 Capital Stock
Seller maintains a stock option plan entitled "1992 Stock Option Plan".
Seller may grant up to 5,500,000 shares of Common Stock pursuant to the 1992
Stock Option Plan, as amended. The 1992 Stock Option Plan permits grants to
employees, consultants and certain other professionals who provide services to
Seller. As of December 31, 1999, options for 3,146,499 shares of Common Stock
were issued and outstanding.
At February 11, 2000, warrants to purchase 451,965 shares of Common Stock
at $1.67 per share were outstanding. These warrants, issued to a placement agent
in previous years in connection with equity financings, expire as follows: (i)
124,299 warrants issued on January 6, 1995 expire January 6, 2002; 408 warrants
issued on March 13, 1995 expire March 13, 2002; (iii) 93,628 warrants issued on
May 4, 1995 expire on May 4, 2002; and (iv) 259,938 warrants issued on June 8,
1995 expire on June 8, 2002.
On December 31, 1998, Seller's Board of Directors adopted a Shareholders'
Rights Plan (the "Plan"). Under the Plan, each shareholder will receive a
dividend of one right for each share of Seller's outstanding Common Stock (a
"Right") subject to the terms of the rights agreement between Seller and its
transfer agent. Each Right will entitle the holder to purchase one one-hundredth
of a share of Seller's Class B Series 1 Preferred Stock at an initial exercise
price of $28.00 per share. If a person (other than an existing shareholder or
pursuant to any pre-approved acquisition) becomes a 20% owner in Seller, all
Rights holders, other than such person, will be entitled to purchase shares of
Seller's stock at a discount price. If Seller is acquired in a merger after such
an acquisition, all Rights holders except the buyer will be entitled to purchase
stock in the buyer at the discount. The distribution of Rights was made on
January 11, 1999 to shareholders of record of Common Stock on that date and
shares of Common Stock that are newly issued after that date will also carry
Rights until the Rights become detached from the common stock. The Rights will
expire on January 11, 2009.
The Class A Preferred Stock has voting rights equivalent to each share of
Common Stock and is convertible into 0.979 shares of Common Stock if (i)
Seller's earnings (pre-tax income before interest expense) for any two
consecutive calender years ending on December 31, 2000 exceed $20,000,000 or
(ii) the closing bid price of the Common Stock has been at least $31.11 on 30
consecutive trading days at any time ending on December 31, 2000. Such shares of
Class A Preferred Stock shall otherwise be called for redemption during 120 days
following December 31, 2000 at $.01 per share plus any declared but unpaid
dividends.
On April 15, 1999, Seller issued an aggregate of $5,000,000 14% senior
convertible debentures due April 15, 2002 in a private placement. The
outstanding
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principal amount of the debentures, together with accrued interest thereon, is
convertible into shares of Common Stock of Seller, at a conversion price of
$5.00, subject to the anti-dilution provisions stated therein. Pursuant to the
terms of the private placement, Seller was required to file a registration
statement for all shares of Common Stock of Seller issuable upon conversion of
the outstanding principal amount of and accrued interest on the debentures. Such
registration statement was filed on July 1, 1999 and declared effective on
January 28, 2000 with respect to the shares of Common Stock of Seller issuable
upon conversion of the outstanding principal amount of the debentures. Seller
will file an amendment to such registration statement covering the shares of
Common Stock of Seller issuable upon conversion of the accrued interest on the
debentures and use its best efforts to cause such registration statement to be
effective.
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Schedule 3.16 Registration Rights
On April 15, 1999, Seller issued an aggregate of $5,000,000 14% senior
convertible debentures due April 15, 2002 in a private placement. The
outstanding principal amount of the debentures, together with accrued interest
thereon, is convertible into shares of Common Stock of Seller. Pursuant to the
terms of the private placement, Seller was required to file a registration
statement for all shares of Common Stock of Seller issuable upon conversion of
the outstanding principal amount of and accrued interest on the debentures. Such
registration statement was filed on July 1, 1999 and declared effective on
January 28, 2000 with respect to the shares of Common Stock of Seller issuable
upon conversion of the outstanding principal amount of the debentures. Seller
will file an amendment to such registration statement covering the shares of
Common Stock of Seller issuable upon conversion of the accrued interest on the
debentures and use its best efforts to cause such registration statement to be
effective.
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Exhibit A
Certificate of Amendment of the Certificate of Incorporation
of
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
Under Section 805 of the Business Corporation Law
----------------
It is hereby certified that:
FIRST: The name of the corporation (the "Corporation") is
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
SECOND: The Certificate of Incorporation of the Corporation was
filed by the Department of State on March 30, 1984. The Corporation was formed
under the name Chromatics International, Inc.
THIRD: The Certificate of Incorporation of the Corporation, as
heretofore amended, is hereby further amended to fix the relative rights,
preferences and limitations with respect to the Class B Preferred Stock of the
Corporation.
FOURTH: To accomplish the foregoing,
(i) Paragraph D of Article FOURTH of the Certificate of
Incorporation of the Corporation is amended to add a new Section 4 thereof to
read in full as follows:
"4. Class B Series 3 Preferred Stock:
8.The Corporation has authorized the creation of a series of Class B Preferred
Stock to be designated "Class B Series 3 Convertible Preferred Stock" (the
"Series 3 Preferred Stock").
9.The number of shares constituting the Series 3 Preferred Stock shall be fixed
at 40,000. The Series 3 Preferred Stock shall have no par value.
10.The shares of Series 3 Preferred Stock shall, with respect to the
distribution of assets on liquidation, dissolution or winding up of the
Corporation, rank (i) senior and prior to the common stock, $.001 par value (the
"Common Stock"), of the Corporation and any other class or series of capital
stock of the Corporation hereafter issued, the terms of which specifically
provide that shares of such class or series shall rank junior
1
<PAGE>
to shares of Series 3 Preferred Stock (collectively, the "Junior Securities"),
(ii) on a parity with any other class or series of capital stock of the
Corporation hereafter issued, the terms of which specifically provide that
shares of such class or series shall rank on a parity with the shares of Series
3 Preferred Stock (collectively, the "Parity Securities") and (iii) junior to
the Class A Convertible Preferred Stock and any other class or series of capital
stock of the Corporation hereafter issued, the terms of which specifically
provide that shares of such class or series shall rank senior to shares of
Series 3 Preferred Stock (collectively, the "Senior Securities").
11.The holders of shares of Series 3 Preferred Stock shall not be entitled to
any voting rights other than those provided by law. However, so long as any
shares of Series 3 Preferred Stock are outstanding, the Corporation shall not
and shall cause its subsidiaries not to, without the affirmative vote of the
holders of a majority of the shares of the Series 3 Preferred Stock then
outstanding, (a) alter or change adversely the absolute or relative powers,
preferences or rights given to the Series 3 Preferred Stock, (b) alter or amend
this Certificate of Amendment, (c) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a liquidation or
otherwise senior to the Series 3 Preferred Stock, (d) amend its Certificate of
Incorporation, bylaws or other charter documents so as to affect adversely any
rights of any holders of Series 3 Preferred Stock, (e) increase the authorized
number of shares of Series 3 Preferred Stock or (f) enter into any agreement
with respect to the foregoing.
12.Except as set forth in Section 7 hereof, the holders of shares of Series 3
Preferred Stock shall not be entitled to receive dividends with respect thereto.
13.(a) In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, before any distribution or payment
shall be made to the holders of outstanding Junior Securities, including, but
not limited to, the Common Stock, the holders of outstanding shares of Series 3
Preferred Stock shall be entitled to receive, out of the assets of the
Corporation at the time legally available therefor, in exchange for their shares
of Series 3 Preferred Stock an amount in cash equal to $100.00 per share of
Series 3 Preferred Stock, together with all accrued but unpaid dividends
thereon, on a pari passu basis with the rights of the holders of any Parity
Securities; provided, however, that the holders of the Series 3 Preferred Stock
and any outstanding Parity Securities shall not be entitled to receive such
preferential liquidation payments until the preferential liquidation payments on
all outstanding Senior Securities have been paid in full. If, upon any such
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, the assets of the Corporation available therefor shall be
insufficient to permit the payment in full to the holders of outstanding shares
of Series 3 Preferred Stock of the preferential liquidation amounts to which
they are then entitled pursuant to the provisions of this clause (a), the entire
assets of the Corporation thus distributable shall be distributed among the
holders of outstanding shares of Series 3 Preferred Stock and any Parity
Securities
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ratably, in proportion to the full amounts to which such holders would otherwise
be entitled if such assets were sufficient to permit payment in full.
(b) Upon any such voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, after the payment in full to the
holders of outstanding shares of Series 3 Preferred Stock and any Parity
Securities of the preferential liquidation amounts to which they are then
entitled pursuant to the provisions of clause (a) above, the holders of
outstanding shares of Series 3 Preferred Stock shall not be entitled to
participate in any further distributions made to the holders of the Common Stock
or any other class of Senior Securities or Junior Securities.
(c) At the option of the holders of a majority of the issued and
outstanding Series 3 Preferred Stock, the sale of all or substantially all of
the assets of the Corporation or the merger of the Corporation with or into
another corporation shall be deemed to be a dissolution, liquidation or winding
up of the Corporation.
14.(a) On the third anniversary of the date of issuance of the shares of Series
3 Preferred Stock (the "Redemption Date"), and provided the Corporation has not
delivered a timely Extension Notice (as hereinafter defined), all of the
outstanding shares of Series 3 Preferred Stock shall be subject to mandatory
redemption by the Corporation for a purchase price payable in cash equal to
$115.00 per share (such amount is hereinafter referred to the "Redemption
Amount").
(b) From and after the Redemption Date, unless (i) default shall be made by
the Corporation on the Redemption Date in providing funds for the payment of the
Redemption Amount payable, or (ii) the Corporation, in its sole discretion, has
notified the holders of the shares of Series 3 Preferred Stock by written notice
delivered at least thirty (30) days prior to the Redemption Date (the "Extension
Notice") of its election to extend the Redemption Date to the fifth anniversary
of the date of issuance of the shares of Series 3 Preferred Stock (the "Extended
Redemption Date"), all rights of the holders of the shares of Series 3 Preferred
Stock surrendered for redemption, except the right to receive the Redemption
Amount in respect of such shares, shall cease and terminate. The redemption of
the shares of Series 3 Preferred Stock upon the Redemption Date shall take place
at the principal place of business of the Corporation. On the Redemption Date,
the Corporation shall tender the Redemption Amount by check, subject to
collection, against receipt of the certificate or certificates representing the
shares of Series 3 Preferred Stock being redeemed.
(c) If the Redemption Date has been extended to the Extended Redemption
Date by timely delivery by the Corporation of the Extension Notice to each of
the holders of the shares of Series 3 Preferred Stock then outstanding, on the
Extended Redemption Date all of the outstanding shares of Series 3 Preferred
Stock shall be subject to mandatory redemption by the Corporation for a purchase
price payable in
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<PAGE>
cash equal to $115.00 per share, together with all accrued but unpaid Extension
Dividends (as hereinafter defined) (such amount is hereinafter referred to the
"Extended Redemption Amount"). The "Extension Dividends" shall be the aggregate
amount of dividends accrued and owing on the Series 3 Preferred Stock, which
shall be paid at the rate of $8.00 per share per annum (computed on the basis of
the actual number of days elapsed over a year of 365 days), shall accrue
beginning on the day after the Redemption Date and shall be cumulative whether
or not declared. From and after the Extended Redemption Date, unless default
shall be made by the Corporation on the Extended Redemption Date in providing
funds for the payment of the Extended Redemption Amount payable, all rights of
the holders of the shares of Series 3 Preferred Stock surrendered for
redemption, except the right to receive the Extended Redemption Amount in
respect of such shares, shall cease and terminate. The redemption of the shares
of Series 3 Preferred Stock upon the Extended Redemption Date shall take place
at the principal place of business of the Corporation. On the Extended
Redemption Date, the Corporation shall tender the Extended Redemption Amount by
check, subject to collection, against receipt of the certificate or certificates
representing the shares of Series 3 Preferred Stock being redeemed.
15.(a) Subject to the provision for adjustment set forth below, each share of
the Series 3 Preferred Stock, plus the aggregate amount of all accrued but
unpaid Extension Dividends, shall be convertible at the option of the holder
thereof at any time after the date hereof, into a number of shares of Common
Stock equal to the then effective Conversion Ratio (as hereinafter defined). As
used herein, "Conversion Ratio," determined as of any date, shall equal the
number of shares of Common Stock into which one share of Series 3 Preferred
Stock is convertible pursuant to this Section 8, which shall be determined by
dividing $100.00, plus the amount of all accrued but unpaid Extension Dividends
per share, by the then effective Conversion Price (as defined below). The
"Conversion Price" shall be the lower of (i) $6.67 and (ii) 90% of the average
of the closing bid prices of the Common Stock over the five consecutive trading
days ending on the date immediately prior to the date of issuance (the "Issue
Date"). The Conversion Ratio shall be subject to adjustment as provided in
Section 8(d).
(b) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of Series 3 Preferred Stock, free from any
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of Series 3 Preferred Stock, such number of shares of its
authorized but unissued shares of Common Stock as will from time to time be
necessary to permit the conversion of all outstanding shares of Series 3
Preferred Stock, together with all accrued but unpaid dividends thereon, into
shares of Common Stock, and shall take all action required to increase the
authorized number of shares of Common Stock if necessary to permit the
conversion of all outstanding shares of Series 3 Preferred Stock. The
Corporation
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<PAGE>
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, fully paid, nonassessable and freely
tradeable.
(c) (i) Conversion of Series 3 Preferred Stock may be effected by any
holder thereof upon the surrender to the Corporation at the offices of the
Corporation of certificates representing Series 3 Preferred Stock to be
converted, accompanied by a written notice stating that such holder elects to
convert all or a specified portion of such Series 3 Preferred Stock in
accordance with the provisions of this Section 8 and specifying the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. The Corporation shall pay the issue and transfer
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series 3 Preferred Stock pursuant hereto. As
promptly as practicable, and in any event within two business days after the
surrender of such certificates representing Series 3 Preferred Stock and the
receipt of such notice relating thereto, the Corporation shall deliver or cause
to be delivered (i) certificates representing the number of validly issued,
fully paid and nonassessable shares of Common Stock to which the holder of
Series 3 Preferred Stock being converted shall be entitled and (ii) if less than
all of the shares represented by the surrendered certificates are being
converted, a new certificate representing the number of shares of Series 3
Preferred Stock which remains outstanding upon such partial conversion. Such
conversion shall be deemed to have been made at the close of business on the
date of giving such notice so that the rights of the holder thereof as to Series
3 Preferred Stock being converted shall cease except for the right to receive
shares of Common Stock in accordance herewith, and the persons entitled to
receive shares of Common Stock shall be treated for all purposes as having
become the record holder of such shares of Common Stock at such time.
(ii) If the Corporation fails to deliver to the holder such certificate or
certificates pursuant to this Section 8, including for purposes hereof, any
shares of Common Stock to be issued on account of accrued but unpaid dividends
hereunder, on or prior to the third trading day after the date the holder
surrenders to the Corporation the certificates to be converted (the "Delivery
Date"), in addition to all other remedies that such holder may pursue hereunder
or otherwise, the Corporation shall pay to such holder in cash, as liquidated
damages and not as a penalty, $1,000 per day (increasing to $5,000 per day after
the fifth trading day after the Delivery Date) until such certificates are
delivered. If the Corporation fails to deliver to the holder such certificate or
certificates pursuant to this Section 8 prior to the 15th day after the Delivery
Date the Corporation shall, at the holder's option, (i) redeem from funds
legally available therefor at the time of such redemption, such number of shares
of Preferred Stock then held by such holder, as requested by such holder and
(ii) pay all accrued but unpaid dividends on account of the Series 3 Preferred
Stock for which the Corporation shall have failed to issue Common Stock
certificates hereunder, in cash. If such holder opts to redeem any number of
shares of Preferred Stock pursuant to this
5
<PAGE>
Section 8(c)(ii), then the Corporation shall immediately redeem, from funds
legally available therefor at the time of such redemption, such number of shares
of Series 3 Preferred Stock then held by such holder, as requested by such
holder. The redemption price shall be equal to the sum of (A) the aggregate of
all accrued but unpaid dividends, plus (B) the number of shares of Series 3
Preferred Stock then held by such holder multiplied by (1) the average closing
price of the Corporation's Common Stock for the five trading days immediately
preceding the Delivery Date multiplied by (2) the Conversion Ratio calculated on
the Delivery Date. If the holder has requested that the Corporation redeem
shares of Series 3 Preferred Stock pursuant to this Section 8(c)(ii) and the
Corporation fails for any reason to pay the redemption price referenced above
within seven days after such notice is deemed delivered pursuant to Section
8(c)(ii), the Corporation will pay interest on the redemption price at a rate of
15% per annum in cash to such holder, accruing from such seventh day until the
redemption price and any accrued interest thereon is paid in full. Nothing
herein shall limit a holder's right to pursue actual damages for the
Corporation's failure to deliver certificates representing shares of Common
Stock upon conversion within the period specified herein (including, without
limitation, damages relating to any purchase of shares of Common Stock by such
holder to make delivery on a sale effected in anticipation of receiving
certificates representing shares of Common Stock upon conversion, such damages
to be in an amount equal to (A) the aggregate amount paid by such holder for the
shares of Common Stock so purchased minus (B) the aggregate amount of net
proceeds, if any, received by such holder from the sale of the shares of Common
Stock issued by the Corporation pursuant to such conversion), and such holder
shall have the right to pursue all remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).
(iii) In addition to any other rights available to the holder, if the
Corporation fails to deliver to the holder such certificate or certificates
pursuant to Section 8(c)(ii) by the Delivery Date and after the Delivery Date
the holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver to the satisfaction of a sale by such holder of the
shares underlying the Series 3 Preferred Stock which the holder anticipated
receiving on the Delivery Date upon such conversion (a "Buy-In"), then the
Corporation shall pay in cash to the holder (in addition to any remedies
available to or elected by the holder) the amount by which (A) the holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock purchased for a Buy-In exceeds (B) the aggregate Conversion Price
for the number of shares of Common Stock in the Buy-In for which such conversion
was not timely honored. For example, if the holder purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 aggregate Conversion Price for the number of
shares of Common Stock in the Buy-In, the Corporation shall be required to pay
the holder $1,000. The holder shall provide the Corporation written notice
indicating the amounts payable to the holder in respect of the Buy-In.
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<PAGE>
(d) (i) In the event of any change in the number of issued and outstanding
shares of capital stock of the Corporation by reason of any stock split, stock
dividend, subdivision, merger, consolidation, recapitalization, combination,
conversion or exchange of shares, or any other change in the corporate or
capital structure of the Corporation which would have the effect of diluting or
otherwise adversely affecting the rights and privileges of the holders of Series
3 Preferred Stock under this Section 8, the Conversion Ratio and Conversion
Price in effect on the effective date thereof shall be adjusted so that the
holder of any shares of Series 3 Preferred Stock shall be entitled to receive
the number and type of shares of Common Stock or other securities of the
Corporation which such holder would have owned or have been entitled to receive
after the happening of any of the events described above had such shares of
Series 3 Preferred Stock been converted into Common Stock immediately prior to
the happening of such event or the record date therefor. An adjustment made
pursuant to this Section 8(d) shall become effective (x) in the case of any such
dividend or distribution to holders of shares of Common Stock entitled to
receive such dividend or distribution, or (y) in the case of such subdivision,
merger, consolidation, recapitalization, combination, conversion or exchange, at
the close of business on the day upon which such corporate action becomes
effective.
(ii) Except with respect to Excluded Securities (as defined below), in case
the Corporation shall issue any shares of Common Stock or Common Stock
Equivalents (as defined below) after the Issue Date at a price per share (or
having a conversion or exercise price per share) of less than the Conversion
Price per share (the "Adjusted Conversion Price"), in each such case the
Conversion Price as in effect immediately prior thereto shall be reduced (but
not increased) to the Adjusted Conversion Price and the Conversion Ratio shall
be recalculated and increased (but not decreased) by dividing $100.00 by the
Adjusted Conversion Price. Any adjustment made pursuant to this clause (ii)
shall be made on the next business day following the date on which any such
issuance is made and shall be effective retroactively to the close of business
on the date of such issuance. For purposes of this clause (ii), the
consideration receivable by the Corporation in connection with the issuance of
additional shares of Common Stock or of Common Stock Equivalents since the Issue
Date shall be deemed to be equal to (X) in the case the consideration received
by the Corporation is cash, the sum of the aggregate offering price (before
deduction of underwriting discounts or commissions and expenses payable to third
parties, if any) of all such Common Stock and/or Common Stock Equivalents plus
the minimum aggregate amount, if any, payable upon conversion, exchange or
exercise of any such Common Stock Equivalents, and (Y) in the case the
consideration received by the Corporation is other than cash, the fair market
value of the consideration received by the Corporation as determined by the good
faith judgment of the Board of Directors of the Corporation provided, however,
that in the event the holder disagrees in good faith with the determination of
the Board of Directors of the Corporation, such fair market value shall
7
<PAGE>
be determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized standing
(an "Appraiser") selected in good faith by the holders of the Series 3 Preferred
Stock; and provided, further, that the Corporation, after receipt of the
determination by such Appraiser shall have the right to select in good faith an
additional Appraiser meeting the same qualifications, in which case the fair
market value shall be equal to the average of the determinations by each such
Appraiser. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned above.
The issuance or reissuance of any shares of Common Stock or Common Stock
Equivalents (whether treasury shares or newly issued shares) pursuant to a
dividend or distribution on, or subdivision, combination or reclassification of,
the outstanding shares of Common Stock requiring an adjustment in the Conversion
Price and Conversion Ratio pursuant to this clause (ii) shall not be deemed to
constitute an issuance of Common Stock or Common Stock Equivalents by the
Corporation to which clause (i) of this Section 8(d) applies. Upon the
expiration or termination of any unconverted, unexchanged or unexercised Common
Stock Equivalents for which an adjustment has been made pursuant to this clause
(ii), the adjustments shall forthwith be reversed to effect such Conversion
Ratio as would have been in effect at the time of such expiration or termination
had such Common Stock Equivalents, to the extent outstanding immediately prior
to such expiration or termination, had never been issued. As used herein,
"Excluded Securities" shall mean: (i) shares of Common Stock issuable upon
conversion of the Series 3 Preferred Stock; (ii) shares of Common Stock issuable
or issued to employees of or consultants to the Corporation pursuant to the
Management Option Plan (as hereinafter defined); (iii) any capital stock issued
as a stock dividend or upon any stock split or other subdivision or combination
of shares of the Corporation's capital stock; (iv) shares of Common Stock
issuable upon conversion of any Common Stock Equivalents outstanding on the
Issue Date, (v) shares of Common Stock issuable upon conversion of the
Corporation's Class A Convertible Preferred Stock outstanding on the Issue Date
or (vi) Common Stock issued upon the conversion or exercise of Common Stock
Equivalents issued after the Issue Date as to which an adjustment to the
Conversion Ratio has been made pursuant to this clause (d) upon the issuance of
such Common Stock Equivalents. As used herein, "Common Stock Equivalents" shall
mean securities convertible into, or exchangeable or exercisable for, shares of
Common Stock of the Corporation. As used herein, the "Management Option Plan"
shall mean the Corporation's 1992 Stock Option Plan, as amended.
(iii) If the Corporation shall set a record date for the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution and shall thereafter, and before such dividend or distribution is
paid or delivered to stockholders entitled thereto, legally abandon its plan to
pay or deliver such dividend or distribution, then no adjustment in the
Conversion Ratio or the Conversion Price then in
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<PAGE>
effect shall be made by reason of the taking of such record, and any such
adjustment previously made as a result of the taking of such record shall be
reversed.
(e) (i) Unless sooner redeemed or converted in accordance with the
provisions of Section 7 hereof or this Section 8 the outstanding shares of
Series 3 Preferred Stock shall be subject to involuntary conversion at the
option of the Corporation, at its sole discretion, in whole but not in part, at
any time after six months after the Issue Date, for shares of the Corporation's
Common Stock at the Conversion Ratio. The Corporation may effectuate such
involuntary conversion on such date (the "Involuntary Conversion Date") provided
that the following conditions have been met:
(A) the Current Market Price (as hereinafter defined) of the Common Stock
is equal to or in excess of one hundred and fifty percent (150%) of
the Conversion Price for a period of at least ten (10) consecutive
trading days; and
(B) all of the shares of Common Stock into which the Preferred Stock is
being converted have been registered under the Securities Act of 1933,
as amended, and such registration has been declared effective by the
Securities and Exchange Commission, and is effective on such date; and
(C) the Corporation has a sufficient number of authorized shares of Common
Stock reserved for issuance upon full conversion of the Series 3
Preferred Stock.
As used herein, "Current Market Price" shall mean for any day, the last sale
price for the Common Stock on the principal securities exchange on which the
Common Stock is listed or admitted to trading, or, if not so listed or admitted
to trading on any securities exchange, the last sale price for the Common Stock
on the National Association of Securities Dealers National Market System, or, if
the Common Stock shall not be listed on such system, the closing bid price in
the over-the-counter market.
(ii) Notice of involuntary conversion of outstanding shares of Series 3
Preferred Stock shall be sent by or on behalf of the Corporation, postage
prepaid, to the holders of record of outstanding shares of Series 3 Preferred
Stock not less than ten (10) and not more than twenty (20) days prior to the
Involuntary Conversion Date.
(iii) Notice having been so given as provided in clause (ii) above, from
and after the Involuntary Conversion Date, unless default shall be made by the
Corporation on the Involuntary Conversion Date in issuing the Common Stock
issuable upon conversion of the Series 3 Preferred Stock pursuant to the
Conversion Ratio, all rights of the holders of the shares of Series 3 Preferred
Stock surrendered for conversion, except the right to receive the Common Stock
in respect of such shares, shall cease
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and terminate. The involuntary conversion of the shares of Series 3 Preferred
Stock for the Common Stock upon the Involuntary Conversion Date shall take place
at the principal place of business of the Corporation. On the Involuntary
Conversion Date, the Corporation shall tender such Common Stock against receipt
of the certificate or certificates representing the shares of Series 3 Preferred
Stock being converted.
(iv) If any portion of the applicable redemption price under Sections 7 or
8 shall not be paid by the Corporation within seven (7) calendar days after the
date due, interest shall accrue thereon at the rate of 15% per annum until the
redemption price plus all such interest is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). In addition, if any portion of
such redemption price remains unpaid for more than seven (7) calendar days after
the date due, the holder of the Series 3 Preferred Stock subject to such
redemption may elect, by written notice to the Corporation given within 30 days
after the date due, to either (i) demand conversion in accordance with the
formula and the time frame therefor set forth in Section 8 of all of the shares
of Series 3 Preferred Stock for which such redemption price, plus accrued
liquidated damages thereof, has not been paid in full (the "Unpaid Redemption
Shares"), in which event the Conversion Price for such shares shall be the lower
of the Current Market Price of the Corporation's Common Stock on the date such
redemption price was originally due and the Current Market Price of the
Corporation's Common Stock as of the holder's written demand for conversion, or
(ii) invalidate ab initio such redemption, notwithstanding anything herein
contained to the contrary. If the holder elects option (i) above, the
Corporation shall within five (5) trading days of its receipt of such election
deliver to the holder the shares of Common Stock issuable upon conversion of the
Unpaid Redemption Shares subject to such holder conversion demand and otherwise
perform its obligations hereunder with respect thereto; or, if the holder elects
option (ii) above, the Corporation shall promptly, and in any event not later
than five (5) trading days from receipt of holder's notice of such election,
return to the holder all of the Unpaid Redemption Shares.
16.Upon any adjustment of the Conversion Price and the Conversion Ratio then in
effect pursuant to the provisions of Section 8, then, and in each such case, the
Corporation shall promptly deliver to each of the holders of Series 3 Preferred
Stock a certificate signed by the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation setting forth in reasonable detail the event requiring the
adjustment, the method by which such adjustment was calculated and the
Conversion Price and Conversion Ratio then in effect following such adjustment.
Where appropriate, such notice to the holders of Series 3 Preferred Stock may be
given in advance."
FIFTH: The foregoing Amendment of the Certificate of Incorporation of
the Corporation was authorized by unanimous consent of the Board of Directors of
the Corporation.
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Signed on February 10, 2000
---------------------------
Darby S. Macfarlane
Chairperson of the Board
and Chief Executive Officer
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Exhibit B
WARRANT AGREEMENT
THIS WARRANT AGREEMENT, dated as of February 11, 2000, by and between
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC., a New York corporation (the
"Issuer"), and LB I GROUP INC. (Lehman Brothers Group Inc.), a Delaware
corporation (the "Warrant Holder").
W I T N E S S E T H
WHEREAS, the Issuer and the Warrant Holder are parties to the
Preferred Stock Purchase Agreement, dated as of the date hereof (as the same may
be amended, supplemented or otherwise modified from time to time, the "Stock
Purchase Agreement"), pursuant to which the Warrant Holder agreed to purchase
shares of Class B Series 3 Convertible Preferred Stock (the "Preferred Stock")
from the Issuer; and
WHEREAS, in order to induce the Warrant Holder to purchase the
Preferred Stock from the Issuer pursuant to the Stock Purchase Agreement, the
Issuer has agreed to execute and deliver this Warrant Agreement and to issue to
the Warrant Holder the Warrants hereinafter described;
NOW, THEREFORE, in consideration of the premises the parties hereto
agree as follows:
17. Definitions. Capitalized terms used herein which are defined in
the Stock Purchase Agreement and are not otherwise defined herein shall have the
respective meanings given thereto in the Stock Purchase Agreement (regardless of
whether such Stock Purchase Agreement shall still be in effect); and the
following terms used herein shall have the meanings indicated below, unless the
context otherwise requires:
"Affiliate" shall have the meaning set forth in Rule 144 adopted
by the Commission pursuant to the Securities Act.
"Business Day" shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banks in New
York, New York are not authorized to conduct business or are required
to be closed.
"Capital Stock" shall have the meaning specified in Section 2(d)
hereof.
"Commission" shall mean the Securities and Exchange Commission or
any entity succeeding to any or all of its functions.
"Common Stock" shall mean the common stock, $.001 par value, of
the Issuer.
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"Contractual Obligation" shall mean, as to any Person, any
provision of any security issued by such Person or of any agreement,
instrument or other undertaking to which such Person is a party or by
which it or any of its property is bound.
"Convertible Securities" shall mean any stock or other securities
convertible into or exchangeable for shares of Common Stock.
"Current Market Price Per Share" shall have the meaning specified
in Section 7 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute.
"Exercise Price" shall mean the exercise price of a Warrant,
which shall be $6.99 per Warrant Share, subject to adjustment as
provided in Section 11 hereof.
"Expiration Date" shall mean the five (5) year anniversary of the
date of the Closing or, if such day is not a Business Day, the next
succeeding Business Day.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Management Option Plan" shall mean the Issuer's 1992 Stock
Option Plan, as in effect on the date hereof, which plan provides for
the issuance, upon exercise of the options granted pursuant thereto of
up to 5,500,000 shares of Common Stock in the aggregate to the
employees of and certain consultants to the Issuer to be designated by
the Issuer's Board of Directors.
"Management Options" shall mean options granted or issued by the
Issuer pursuant to the Management Option Plan.
"Person" shall mean any natural person, corporation, partnership,
limited liability company, trust or other entity.
"Preferred Stock" shall mean the Class B Series 3 Preferred
Stock, no par value, of the Issuer.
"Requirement of Law" shall mean as to any Person, the Certificate
of Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon
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such Person or any of its property or to which such Person or any of
its property is subject.
"Rights" shall mean any rights to subscribe for or to purchase,
or any options or warrants for the purchase of, shares of Common Stock
or Convertible Securities. The term "Rights" shall include, without
limitation, the Warrants and the Management Options.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute.
"Total Warrants" shall mean 254,372, which is the maximum number
of Warrants contemplated under the Stock Purchase Agreement to be
issued in connection with the sale of Preferred Stock.
"Trading Day" shall mean a day on which the securities market on
which the Common Stock is listed is open for trading.
"Warrant" shall mean a warrant issued pursuant to this Warrant
Agreement as contemplated under the Stock Purchase Agreement entitling
the record holder thereof to purchase from the Issuer at the Warrant
Office one share of Common Stock (subject to adjustment as provided in
Section 11 hereof) at the Exercise Price at any time before 5:00 P.M.
local time on the Expiration Date.
"Warrant Certificate" shall mean a certificate evidencing one or
more Warrants, substantially in the form of Exhibit A hereto, with
such changes therein as may be required to reflect any adjustments
made pursuant to Section 11 hereof.
"Warrant Office" shall mean the office or agency of the Issuer at
which the Warrant Register shall be maintained and where the Warrants
may be presented for exercise, exchange, substitution and transfer,
which office or agency will be the office of the Issuer at 5 East 80th
Street, New York, New York 10021 which office or agency may be changed
by the Issuer pursuant to notice in writing to the Persons named in
the Warrant Register as the holders of the Warrants.
"Warrant Register" shall mean the register, substantially in the
form of Exhibit B hereto, maintained by the Issuer at the Warrant
Office.
"Warrant Shares" shall mean the shares of Common Stock issuable
or issued upon exercise of all or any of the Warrants as the number
and/or type of such shares may be adjusted from time to time pursuant
to Section 11 hereof.
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18. Representations and Warranties. The Issuer hereby represents and
warrants to the Warrant Holder as follows:
18.1 The Issuer is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New York has the
corporate power and authority to execute and deliver this Warrant Agreement
and the Warrant Certificate, to issue the Warrants and to perform its
obligations under this Warrant Agreement and the Warrant Certificate.
18.2 The execution, delivery and performance by the Issuer of this
Warrant Agreement and the Warrant Certificate, the issuance of the Warrants
and the issuance of the Warrant Shares upon exercise of the Warrants have
been duly authorized by all necessary corporate action on the part of the
Issuer and do not and will not violate, or result in a breach of, or
constitute a default under, or require any consent under, or result in the
creation of a lien upon the assets of the Issuer pursuant to, any
Requirement of Law or any Contractual Obligation binding upon the Issuer.
18.3 This Warrant Agreement has been duly executed and delivered by
the Issuer and constitutes a legal, valid, binding and enforceable
obligation of the Issuer, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and except as equitable
remedies may be limited by general principles of equity. When the Warrants
and Warrant Certificates have been issued as contemplated hereby, (i) the
Warrants and the Warrant Certificates will constitute legal, valid, binding
and enforceable obligations of the Issuer, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and except as equitable
remedies may be limited by general principles of equity (whether such
remedies are sought in a proceeding at law or in equity) and (ii) the
Warrant Shares, when issued upon exercise of the Warrants in accordance
with the terms hereof, will be duly authorized, validly issued, fully paid
and nonassessable shares of the Common Stock.
18.4 As of the date of the Closing immediately after giving effect to
the purchase and sale of the Preferred Stock and Warrants on that date (i)
the Issuer's capital stock (the "Capital Stock") consists of (a) 1,400,000
shares of Class A preferred stock, par value $.01 per share, of which
1,380,000 shares are issued and outstanding, (b) 10,000,000 shares of Class
B preferred stock, no par value, of which (x) 500,000 shares have been
designated Class B Series 1 Preferred Stock, par value $.001 per share, of
which no shares are issued and outstanding, (y) 80,000 shares have been
designated Class B Series 2 Preferred Stock, par value $.001 per share, of
which 40,000 shares are issued and outstanding, and (z)
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40,000 shares have been designated as Preferred Stock, all of such
Preferred Stock will be issued and outstanding upon the consummation of the
Closing and (c) 50,000,000 shares of Common Stock, of which 15,535,481
shares are issued and outstanding. All issued and outstanding shares of
Capital Stock are validly authorized and issued, fully paid and
nonassessable and were issued in accordance with the registration or
qualification provisions of the Securities Act or pursuant to valid
exemptions therefrom.
19. Issuance of Warrants. The Issuer hereby agrees to issue and deliver to
the Warrant Holder on the date of the Closing Warrants evidencing rights to
purchase 6.3593 shares of Common Stock, subject to adjustment as provided in
Section 11 hereof, for each share of Preferred Stock purchased by the Warrant
Holder pursuant to the Stock Purchase Agreement on the date of the Closing and
at any time on or before 5:00 P.M., New York City time, on the Expiration Date
at a price per share equal to the Exercise Price. On the date of the Closing
simultaneously with the purchase of the Preferred Stock by the Warrant Holder
pursuant to the Stock Purchase Agreement, the Issuer shall deliver to the
Warrant Holder a Warrant Certificate evidencing the Warrants which the Warrant
Holder is entitled to receive at the Closing in accordance with the terms
hereof.
20. Registration, Transfer and Exchange of Certificates.
20.1 The Issuer shall maintain at the Warrant Office the Warrant
Register for registration of the Warrants and Warrant Certificates and
transfers thereof. On the date hereof the Issuer shall register the
outstanding Warrants and Warrant Certificates in the name of the Warrant
Holder. The Issuer may deem and treat the registered holder(s) of the
Warrant Certificates as the absolute owner(s) thereof and the Warrants
represented thereby (notwithstanding any notation of ownership or other
writing on the Warrant Certificates made by any Person) for the purpose of
any exercise thereof or any distribution to the holder(s) thereof, and for
all other purposes, and the Issuer shall not be affected by any notice to
the contrary.
20.2 Subject to Section 13 hereof, the Issuer shall register the
transfer of any outstanding Warrants in the Warrant Register upon surrender
of the Warrant Certificate(s) evidencing such warrants to the Issuer at the
Warrant Office, accompanied (if so required by it) by a written instrument
or instruments of transfer in form satisfactory to it, duly executed by the
registered holder or holders thereof or by the duly appointed legal
representative thereof. Upon any such registration of transfer, new Warrant
Certificate(s) evidencing such transferred Warrants shall be issued to the
transferee(s) and the surrendered Warrant Certificate(s) shall be canceled.
If less than all the Warrants evidenced by Warrant Certificate(s)
surrendered for transfer are to be transferred, new Warrant Certificate(s)
shall be issued to the holder surrendering such Warrant Certificate(s)
evidencing such remaining number of Warrants.
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20.3 Warrant Certificates may be exchanged at the option of the
holder(s) thereof, when surrendered to the Issuer at the Warrant Office,
for another Warrant Certificate or other Warrant Certificates of like tenor
and representing in the aggregate a like number of Warrants. Warrant
Certificates surrendered for exchange shall be canceled.
20.4 No charge shall be made for any such transfer or exchange except
for any tax or other governmental charge imposed in connection therewith.
Except as provided in Section 13(b) hereof, each Warrant Certificate issued
upon transfer or exchange shall bear the legend set forth in Section 13(b)
hereof if the Warrant Certificate presented for transfer or exchange bore
such legend.
21. Mutilated or Missing Warrant Certificates. If any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Issuer shall issue, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Issuer of such loss, theft or destruction of such Warrant Certificate and,
if reasonably requested, indemnity satisfactory to it. No service charge shall
be made for any such substitution, but all expenses and reasonable charges
associated with procuring such indemnity and all stamp, tax and other
governmental duties that may be imposed in relation thereto shall be borne by
the holder of such Warrant Certificate. Each Warrant Certificate issued in any
such substitution shall bear the legend set forth in Section 13(b) hereof if the
Warrant Certificate for which such substitution was made bore such legend.
22. Duration and Exercise of Warrants.
22.1 The Warrants evidenced by a Warrant Certificate shall be
exercisable in whole or in part by the registered holder thereof on any
Business Day at any time from and after the date of the Closing and prior
to 5:00 P.M. in New York City on the Expiration Date.
22.2 Subject to the provisions of this Warrant Agreement, upon
presentation of the Warrant Certificate evidencing the Warrants to be
exercised, with the form of election to purchase on the reverse thereof
duly completed and signed by the registered holder or holders thereof, to
the Issuer at the Warrant Office, and upon payment of the aggregate
Exercise Price for the number of Warrant Shares in respect of which such
Warrants are being exercised in lawful money of the United States of
America, the Issuer shall issue and cause to be delivered to or upon the
written order of the registered holder(s) of such Warrants and in such name
or names as such registered holder(s) may designate, a certificate for the
Warrant Shares issued upon such exercise of such Warrants. Any Person(s) so
designated to be named therein shall be deemed to have become
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holder(s) of record of such Warrant Shares as of the date of exercise of
such Warrants. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Warrant
Certificate, shall be delivered to the registered holder within a
reasonable time, not exceeding three (3) Business Days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in
such denominations as may be requested by the registered holder and shall
be registered in the name of the registered holder or such other name as
shall be designated by such registered holder.
22.3 If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant Certificate or
Certificates shall be issued for the remaining number of Warrants evidenced
by such Warrant Certificate. Each new Warrant Certificate so issued shall
bear the legend set forth in Section 13(b) hereof if the Warrant
Certificate presented in connection with partial exercise thereof bore such
legend. All Warrant Certificates surrendered upon exercise of Warrants
shall be canceled.
22.4 Notwithstanding the foregoing, at any time after the six-month
anniversary of the date hereof, the Issuer may, at its sole option, compel
the involuntary conversion of all, but not less than all, of the
outstanding Warrants into Warrant Shares at the Exercise Price in the event
that (i) the Current Market Price Per Share (as hereinafter defined) is
equal to or in excess of two hundred percent (200%) of the Exercise Price
per Warrant Share for a period of at least twenty consecutive Trading Days,
(ii) the Warrant Shares have been registered under the Securities Act
pursuant to Section 6.1 of the Stock Purchase Agreement and such
registration has been declared effective by the Commission and is effective
on such date and (iii) the Issuer has a sufficient number of authorized
shares of Common Stock reserved for issuance upon conversion of the
Warrants. In the event that the Issuer elects to compel such involuntary
conversion of all outstanding Warrants, it shall promptly notify the
Warrant Holder of such election at least ten (10) days in advance of the
date set forth in such conversion notice whereupon the Warrants shall be
deemed converted into shares of Common Stock as of the date set forth in
the Issuer's conversion notice.
22.5 In lieu of physical delivery of the Warrants, provided that
Issuer's transfer agent is participating in The Depository Trust Company
("DTC") Shares Fast Automated Securities Transfer ("FAST") program, upon
request of the Warrant Holder and in compliance with the provisions hereof,
the Issuer shall use its best efforts to cause its transfer agent to
electronically transmit the Warrant Shares to the Warrant Holder by
crediting the account of the Warrant Holder's prime broker with DTC through
its Deposit Withdrawal Agent Commission system. The time period for
delivery described herein shall apply to the electronic transmittals
described herein.
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23. No Fractional Shares. The Issuer shall not be required to issue
fractional shares of Common Stock upon exercise of the Warrants but may pay for
any such fraction of a share an amount in cash equal to the Current Market Price
per Share of Common Stock of such share multiplied by such fraction. The
"Current Market Price Per Share" on any date shall be deemed to be, for any day,
the last bid price for the Common Stock on the principal securities exchange on
which the Common Stock is listed or admitted to trading, or, if not so listed or
admitted to trading on any securities exchange, the last sale price for the
Common Stock on the National Association of Securities Dealers National Market
System, or, if the Common Stock shall not be listed on such system, the closing
bid price of the Common Stock in the over-the-counter market.
24. Payment of Taxes. The Issuer will pay all taxes (other than any
applicable income or similar taxes payable by the holders of the Warrants or
Warrant Shares) attributable to the initial issuance of Warrant Shares upon the
exercise of the Warrants; provided that the Issuer shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issue of
any Warrant Certificate or any certificate for Warrant Shares in a name other
than that of the registered holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Issuer shall not be required to issue or deliver
such certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Issuer the amount of such tax or shall have
established to the satisfaction of the Issuer that such tax has been paid.
25. Reservation and Issuance of Warrant Shares.
25.1 The Issuer will at all times have authorized, and reserve and
keep available for the purpose of enabling it to satisfy any obligation to
issue Warrant Shares upon the exercise of the Warrants, the number of
shares of Common Stock deliverable upon exercise of all outstanding
Warrants.
25.2 Before taking any action which would cause an adjustment pursuant
to Section 11 hereof reducing the Exercise Price below the then par value
(if any) of the Warrant Shares issuable upon exercise of the Warrants, the
Issuer will take any corporate action which may be necessary in order that
the Issuer may validly and legally issue fully paid and nonassessable
Warrant Shares at the Exercise Price as so adjusted.
25.3 The Issuer covenants that all Warrant Shares will, upon issuance
in accordance with the terms of this Warrant Agreement, be duly and validly
issued, fully paid and nonassessable and free from all taxes with respect
to the issuance thereof and from all liens, charges and security interests
created (whether by
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affirmative action or inaction) by the Issuer and shall not have any
legends or restrictions on resale, except as required by Section 13(b)
hereof.
(d) The Issuer shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of the Warrants upon the national
securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of the Warrants) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of the
Warrants.
26. Obtaining of Governmental Approvals and Stock Exchange Listings. The
Issuer will, at its own expense, (a) obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities which
may from time to time be required of the Issuer in order to satisfy its
obligations hereunder and (b) take all action which may be necessary so that the
Warrant Shares, immediately upon their issuance upon the exercise of the
Warrants, will be listed on each securities exchange or over-the- counter
market, if any, on which the Common Stock is then listed if such listing is
permitted by applicable law, regulation or rule.
27. Adjustment of Exercise Price and Number of Warrant Shares Purchasable.
Prior to the Expiration Date, the Exercise Price and the number of Warrant
Shares purchasable upon the exercise of each Warrant are subject to adjustment
from time to time upon the occurrence of any of the events enumerated in this
Section 11.
27.1 In the event that the Issuer shall at any time after the date of
this Agreement (i) declare a dividend on the Common Stock in Common Stock,
Convertible Securities or other Rights, (ii) split or subdivide the
outstanding Common Stock, (iii) combine the outstanding Common Stock into a
smaller number of shares, or (iv) issue by reclassification of its Common
Stock any shares of Common Stock, Convertible Securities or other Rights,
then, in each such event, the number of Warrant Shares purchasable upon
exercise of each Warrant immediately prior thereto shall be adjusted so
that the holder shall be entitled to receive the kind and number of such
shares or other securities of the Issuer which the holder would have owned
or have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to the
happening of such event (or any record date with respect thereto). Such
adjustment shall be made whenever any of the events listed above shall
occur. An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of the event retroactive to
the record date, if any, for the event.
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27.2 If at any time, as a result of an adjustment made pursuant to
this Section 11, the holder of any Warrant thereafter exercised shall
become entitled to receive any shares of the Issuer other than shares of
Common Stock, thereafter the number of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in this Section 11, and the
provisions of this Agreement with respect to the Warrant Shares shall apply
on like terms to such other shares.
27.3 Whenever the number of Warrant Shares purchasable upon the
exercise of each warrant is adjusted pursuant to Section 11(a) hereof, the
Exercise Price per Warrant Share payable upon exercise of each Warrant
shall be adjusted by multiplying such Exercise Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number
of Warrant Shares purchasable upon the exercise of each Warrant immediately
prior to such adjustment, and the denominator of which shall be the number
of Warrant Shares purchasable immediately after such adjustment; provided,
however, that in no event shall the Exercise Price be adjusted to an amount
which is less than the par value of the Common Stock.
27.4 In the event of any capital reorganization of the Issuer, or of
any reclassification of the Common Stock (other than a reclassification
referred to in Section 11(a)(iv) above), or in case of the consolidation of
the Issuer with or the merger of the Issuer with or into any other
corporation or of the sale of the properties and assets of the Issuer as,
or substantially as, an entirety to any other Person, each Warrant shall,
after such capital reorganization, reclassification of Common Stock,
consolidation, merger or sale, and in lieu of being exercisable for Warrant
Shares, be exercisable, upon the terms and conditions specified in this
Warrant Agreement, for the number of shares of stock or other securities or
assets to which a holder of the number of Warrant Shares purchasable (at
the time of such capital reorganization, reclassification of Common Stock,
consolidation, merger or sale) upon exercise of such Warrant would have
been entitled upon such capital reorganization, reclassification of Common
Stock, consolidation, merger or sale; and in any such case, if necessary,
the provisions set forth in this Section 11 with respect to the rights
thereafter of the holders of the Warrants shall be appropriately adjusted
so as to be applicable, as nearly as they may reasonably be, to any shares
of stock or other securities or assets thereafter deliverable on the
exercise of the Warrants. The Issuer shall not effect any such
consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof the successor corporation (if other than the Issuer)
resulting from such consolidation or merger or the corporation purchasing
such assets or the appropriate corporation or entity shall assume, by
written instrument, the obligation to deliver to the holder of each Warrant
the shares of stock, securities or assets to which, in accordance with the
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foregoing provisions, such holder may be entitled and all other obligations
of the Issuer under this Warrant Agreement. The provisions of this
paragraph (d) shall apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
27.5 Except with respect to Excluded Securities (as defined below), in
case the Issuer shall issue any shares of Common Stock or Convertible
Securities after the date hereof at a price per share (or having a
conversion or exercise price per share) of less than the Exercise Price per
Warrant Share, the Exercise Price per Warrant Share shall be appropriately
adjusted by decreasing (but not increasing) the Exercise Price per Warrant
Share to such lower price per share. An adjustment made pursuant to clause
(a) shall be made the next Business Day following the date on which any
such issuance is made and shall be effective retroactively to the close of
business on the date of such issuance. For purposes of this clause (e), the
consideration receivable by the Issuer in connection with the issuance of
additional shares of Common Stock or of Convertible Securities after the
date hereof shall be deemed to be equal to (X) in the case the
consideration received by the Issuer is cash, the sum of the aggregate
offering price (before deduction of underwriting discounts or commissions
and expenses payable to third parties, if any) of all such Common Stock
and/or Convertible Securities plus the minimum aggregate amount, if any,
payable upon conversion, exchange or exercise of any such Convertible
Securities, and (Y) in the case the consideration received by the Issuer is
other than cash, the fair market value of the consideration received by the
Issuer as determined by the good faith judgment of the Board of Directors
of the Issuer; provided, however, that in the event the Warrant Holder
disagrees in good faith with the determination of the Board of Directors of
the Issuer, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (an "Appraiser")
selected in good faith by the Warrant Holder; and provided, further, that
the Issuer, after receipt of the determination by such Appraiser shall have
the right to select in good faith an additional Appraiser meeting the same
qualifications, in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. The issuance or
reissuance of any shares of Common Stock or Convertible Securities (whether
treasury shares or newly issued shares) pursuant to a dividend or
distribution on, or subdivision, combination or reclassification of, the
outstanding shares of Common Stock requiring an adjustment in the Exercise
Price per Warrant Share pursuant to clause (a), shall not be deemed to
constitute an issuance of Common Stock or Convertible Securities by the
Issuer pursuant to which this clause (e) applies. Upon the expiration or
termination of any unconverted, unexchanged or unexercised Convertible
Securities for which an adjustment has been made pursuant to this clause
(e), the adjustments shall forthwith be reversed to effect such Exercise
Price per Warrant Share as would have been in effect at the time of
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such expiration or termination had such Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, had
never been issued. For purposes of this clause (e), "Excluded Securities"
shall mean: (i) shares of Common Stock issuable upon conversion of the
Preferred Stock; (ii) shares of Common Stock issuable or issued to
employees of and consultants to the Issuer pursuant to the Management
Option Plan; (iii) any capital stock issued as a stock dividend or upon any
stock split or other subdivision or combination of shares of the Issuer's
capital stock; (iv) shares of Common Stock issuable upon conversion of any
Convertible Securities issued prior to the date hereof and outstanding on
the date hereof, (v) shares of Common Stock issuable upon conversion of the
Issuer's Class A Convertible Preferred Stock outstanding on the date hereof
or (vi) Common Stock issued upon the conversion or exercise of Convertible
Securities issued after the date hereof as to which an adjustment to the
Exercise Price per Warrant Share has been made pursuant to this clause (e)
upon the issuance of such Convertible Securities.
27.6 Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of the Warrants, Warrant
Certificates theretofore or thereafter issued may continue to express the
same Exercise Price per share and number and kind of shares as are stated
on the Warrant Certificates initially issuable pursuant to this Agreement.
27.7 If any question shall at any time arise with respect to the
adjusted Exercise Price or Warrant Shares issuable upon exercise, such
question shall be determined by the independent auditors of the Issuer and
such determination shall be binding upon the Issuer and the holders of the
Warrants and the Warrant Shares.
28. Notices to the Warrant Holder. Upon any adjustment of the Exercise
Price or number of Warrant Shares issuable upon exercise pursuant to Section 11
hereof the Issuer shall promptly, but in any event within ten Business Days
thereafter, cause to be given to the Warrant Holder, at its address appearing on
the Warrant Register by first- class mail, postage prepaid, a certificate signed
by its chief financial officer setting forth the Exercise Price as so adjusted
and/or the number of shares of Common Stock issuable upon the exercise of each
Warrant as so adjusted and describing in reasonable detail the facts accounting
for such adjustment and the method of calculation used. Where appropriate, such
certificate may be given in advance and included as a part of the notice
required to be mailed under the other provisions of this Section 12.
In the event:
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28.1 the Issuer shall authorize issuance to all holders of Common
Stock of rights or warrants to subscribe for or purchase Capital Stock of
the Issuer or of any other subscription rights or warrants; or
28.2 the Issuer shall authorize a dividend or other distribution to
all holders of Common Stock payable in evidences of its indebtedness, cash
or assets; or
28.3 of any consolidation or merger to which the Issuer is a party and
for which approval of any stockholders of the Issuer is required, or of the
conveyance or transfer of the properties and assets of the Issuer
substantially as an entirety, or of any capital reorganization or
reclassification or change of the Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination); or
28.4 of the voluntary or involuntary dissolution, liquidation or
winding up of the Issuer; or
28.5 the Issuer shall authorize any other action which would require
an adjustment of the Exercise Price or number of Warrant Shares issuable
upon exercise pursuant to Section 11 hereof;
then the Issuer shall cause to be given to the Warrant Holder at its address
appearing on the Warrant Register, at least twenty (20) Business Days prior to
the applicable record date hereinafter specified (or as expeditiously as
possible after the occurrence of any involuntary dissolution, liquidation or
winding up referred to in clause (d) above), by first-class mail, postage
prepaid, a written notice stating (i) the date as of which the holders of record
of Common Stock to be entitled to receive any such rights, warrants or
distribution are to be determined, or (ii) the date on which any such
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up is expected to become effective (or has become effective, in the case of any
involuntary dissolution, liquidation or winding up), and the date as of which it
is expected that holders of record of Common Stock shall be entitled to exchange
their shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 12 or any defect therein shall not affect the legality or validity of
any distribution, right, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
29. Restrictions on Transfer.
29.1 The Warrant Holder represents that it is not acquiring the
Warrants (and upon any exercise of the Warrants, each holder represents
that it will not be acquiring the Warrant Shares) with a view to any
distribution or public offering
13
<PAGE>
within the meaning of the Securities Act but subject to any requirement of
law that the disposition of its property shall at all times be within its
control. The Warrant Holder acknowledges that the Warrant Shares issuable
upon exercise of the Warrants have not as of the date hereof been
registered under the Securities Act and agrees that it will not sell or
otherwise transfer any of its Warrant Shares except upon the terms and
conditions specified herein.
29.2 (i) The Warrant Holder agrees, and each subsequent transferee
described in paragraph (ii) below shall agree, that it will not transfer
any Warrant Shares except pursuant to an exemption from, or otherwise in a
transaction not subject to, the registration requirements of the Securities
Act (as confirmed in an opinion of counsel reasonably acceptable to the
Issuer to the transferor to the effect that the proposed transfer may be
effected without registration under the Securities Act) or pursuant to an
effective registration statement under the Securities Act.
(ii) Each Warrant Certificate and each certificate for the Warrant
Shares (unless the legal opinion delivered in connection therewith is to
the effect that the first paragraph of such legend is not required in order
to ensure compliance with the Securities Act) shall include a legend in
substantially the following form:
THE WARRANTS AND UNDERLYING SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR STATE SECURITIES LAWS
AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER, AN EXEMPTION FROM, OR OTHERWISE IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF SUCH ACT.
IN ADDITION, THE WARRANTS AND UNDERLYING SHARES MAY BE TRANSFERRED ONLY IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE WARRANT AGREEMENT, DATED AS
OF JUNE 11, 1999, BETWEEN THE ISSUER AND THE INITIAL HOLDER OF THE WARRANTS
NAMED THEREIN, A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL BE FURNISHED TO
THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
30. Amendments and Waivers. Any provision of this Warrant Agreement
may be amended, supplemented, waived, discharged or terminated by a written
instrument signed by the Issuer and the holders of a majority of the then
outstanding Warrants.
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31. Notices.
31.1 Any notice or demand to be given or made by the holders of the
Warrants or the Warrant Shares to the Issuer pursuant to this Warrant
Agreement shall be sufficiently given or made if personally delivered, sent
by overnight courier or telecopied (in each such case delivery will be
effective upon receipt) or mailed by certified mail, postage prepaid,
return receipt requested (delivery will be effective three days after the
date of mailing) addressed to the Issuer at the Warrant Office.
31.2 Any notice to be given by the Issuer to the Warrant Holder shall
be sufficiently given if personally delivered, sent by overnight courier or
telecopied (in each such case delivery will be effective upon receipt) or
mailed by certified mail, postage prepaid, return receipt requested
(delivery will be effective three days after the date of mailing) addressed
to such holder as such holder's name and address shall appear on the
Warrant Register.
32. Binding Effect; Third Party Rights. This Warrant Agreement shall
be binding upon and inure to the sole and exclusive benefit of the Issuer,
its successors and assigns, the Warrant Holder, the registered holders from
time to time of the Warrants and the Warrant Shares.
33. Termination. This Warrant Agreement shall terminate and be of no
further force and effect at 5:00 P.M. New York City time on the Expiration
Date or the date on which none of the Warrants shall be outstanding
(whether by reason of the involuntary conversion thereof or the expiration
thereof by the Issuer).
34. Counterparts. This Warrant Agreement may be executed in two or
more separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
35. Governing Law. This Warrant Agreement and each Warrant Certificate
shall be governed by and construed in accordance with the laws of the State
of New York without regard to the choice of law provisions thereof.
36. Benefits of this Warrant Agreement. Nothing in this Warrant
Agreement shall be construed to give to any Person other than the Issuer
and the registered holders of the Warrants and the Warrant Shares any legal
or equitable right, remedy or claim under this Warrant Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed and delivered by their proper and duly authorized officers,
as of the date and year first above written.
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
By:
----------------------------------
Darby S. Macfarlane
Chairman and Chief Executive Officer
LB I GROUP INC.
By:
----------------------------------
Name:
Title:
16
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS AND UNDERLYING SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR STATE SECURITIES LAWS AND MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER, AN EXEMPTION FROM, OR OTHERWISE IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF SUCH ACT. IN ADDITION, THE WARRANTS AND UNDERLYING
SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THE WARRANT AGREEMENT, DATED AS OF JUNE 11, 1999, BETWEEN THE ISSUER AND THE
INITIAL HOLDER OF THE WARRANTS NAMED THEREIN, A COMPLETE AND CORRECT COPY OF
WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL
BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
WARRANT CERTIFICATE
Evidencing Warrants
to Purchase Common Stock of
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
No. ___-___ Warrants
This Warrant Certificate certifies that __________________________
_________________________________________, or registered assigns, is the
registered holder of ____ Warrants (the "Warrants") to purchase Common Stock,
$.001 par value (the "Common Stock"), of CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC., a New York corporation (the "Issuer"). Each Warrant
entitles the holder, but only subject to the conditions set forth herein and in
the Warrant Agreement referred to below, to purchase from the Issuer at any time
prior to 5:00 P.M., New York City time at the Warrant Office, on February 11,
2005 or, if such day is not a Business Day, the next succeeding Business Day
(the "Expiration Date"), one fully paid and nonassessable share of the Common
Stock of the Issuer (the "Warrant Shares") at a price (the "Exercise Price") of
$______ per Warrant Share payable in lawful money of the United States of
America, upon surrender of this Warrant Certificate, execution of the annexed
Form of Election to Purchase and payment of the Exercise Price at the principal
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place of business of the Issuer (the "Warrant Office"). The Exercise Price and
number of Warrant Shares purchasable upon exercise of the Warrants are subject
to adjustment upon the occurrence of certain events as set forth in the Warrant
Agreement referred to below.
The Issuer may deem and treat the registered holder(s) of the Warrants
evidenced hereby as the absolute owner(s) thereof (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof and of any distribution to the holder(s) hereof, and for all
other purposes, and the Issuer shall not be affected by any notice to the
contrary.
Warrant Certificates, when surrendered at the Warrant Office by the
registered holder hereof in person or by a legal representative duly authorized
in writing, may be exchanged, in the manner and subject to the limitations
provided in the Warrant Agreement, but without payment of any service charge,
for another Warrant Certificate or Warrant Certificates of like tenor evidencing
in the aggregate a like number of Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued in exchange for this Warrant Certificate to the
transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
This Warrant Certificate is one of the Warrant Certificates referred to in
the Warrant Agreement, dated as of February 11, 2000, by and between the Issuer
and the Warrant Holder named therein (the "Warrant Agreement"). Said Warrant
Agreement is hereby incorporated by reference in and made a part of this Warrant
Certificate and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Issuer and the holders.
[The remainder of this page intentionally left blank]
2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Warrant Certificate to be
signed by its duly authorized officers and has caused its corporate seal to be
affixed hereunto.
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
By:
----------------------
Name:
Title:
(CORPORATE SEAL)
ATTEST:
- ---------------------
Name:
Title:
3
<PAGE>
ANNEX TO
WARRANT CERTIFICATE
[FORM OF ELECTION TO PURCHASE]
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase Warrant Shares and herewith
tenders payment for such Warrant Shares to the order of the Issuer in the amount
of $__________ in accordance with the terms hereof. The undersigned requests
that a certificate for such Warrant Shares be registered in the name of
__________________________ whose address is _______________ and that such
certificate be delivered to ________________ whose address is
____________________. If said number of Warrant Shares is less than all of the
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the remaining balance of the Warrant Shares be
registered n the name of _______________ whose address is
_______________________ and that such Warrant Certificate be delivered to
_______________________ whose address is _______________________________.
Signature:
----------------------------
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant Certificate)
Date:
---------------------------
<PAGE>
EXHIBIT B
TO WARRANT AGREEMENT
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
Warrant No. Holder Shares Underlying Warrant
- ----------- ------ -------------------------
A-101 LB I Group Inc. 220,690
3 World Financial Center
New York, New York 10285
A-102 LB I Group Inc. 50,000
3 World Financial Center
New York, New York 10285
A-103 LB I Group Inc. 254,372
3 World Financial Center
New York, New York 10285
A-104 LB I Group Inc. 50,000
3 World Financial Center
New York, New York 10285
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT, dated as of February 11, 2000, by and between
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC., a New York corporation (the
"Issuer"), and LB I GROUP INC. (Lehman Brothers Group Inc.), a Delaware
corporation (the "Warrant Holder").
W I T N E S S E T H
WHEREAS, the Issuer and the Warrant Holder are parties to the
Preferred Stock Purchase Agreement, dated as of the date hereof (as the same may
be amended, supplemented or otherwise modified from time to time, the "Stock
Purchase Agreement"), pursuant to which the Warrant Holder agreed to purchase
shares of Class B Series 3 Convertible Preferred Stock (the "Preferred Stock")
from the Issuer; and
WHEREAS, in order to induce the Warrant Holder to purchase the
Preferred Stock from the Issuer pursuant to the Stock Purchase Agreement, the
Issuer has agreed to execute and deliver this Warrant Agreement and to issue to
the Warrant Holder the Warrants hereinafter described;
NOW, THEREFORE, in consideration of the premises the parties hereto
agree as follows:
SECTION 1. Definitions. Capitalized terms used herein which are
defined in the Stock Purchase Agreement and are not otherwise defined herein
shall have the respective meanings given thereto in the Stock Purchase Agreement
(regardless of whether such Stock Purchase Agreement shall still be in effect);
and the following terms used herein shall have the meanings indicated below,
unless the context otherwise requires:
"Affiliate" shall have the meaning set forth in Rule 144 adopted by
the Commission pursuant to the Securities Act.
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banks in New York, New
York are not authorized to conduct business or are required to be closed.
"Capital Stock" shall have the meaning specified in Section 2(d)
hereof.
"Commission" shall mean the Securities and Exchange Commission or any
entity succeeding to any or all of its functions.
"Common Stock" shall mean the common stock, $.001 par value, of the
<PAGE>
Issuer.
"Contractual Obligation" shall mean, as to any Person, any provision
of any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or any of
its property is bound.
"Convertible Securities" shall mean any stock or other securities
convertible into or exchangeable for shares of Common Stock.
"Current Market Price Per Share" shall have the meaning specified in
Section 7 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute.
"Exercise Price" shall mean the exercise price of a Warrant, which
shall be $6.99 per Warrant Share, subject to adjustment as provided in
Section 11 hereof.
"Expiration Date" shall mean the five (5) year anniversary of the date
of the Closing or, if such day is not a Business Day, the next succeeding
Business Day.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Management Option Plan" shall mean the Issuer's 1992 Stock Option
Plan, as in effect on the date hereof, which plan provides for the
issuance, upon exercise of the options granted pursuant thereto of up to
5,500,000 shares of Common Stock in the aggregate to the employees of and
certain consultants to the Issuer to be designated by the Issuer's Board of
Directors.
"Management Options" shall mean options granted or issued by the
Issuer pursuant to the Management Option Plan.
"Person" shall mean any natural person, corporation, partnership,
limited liability company, trust or other entity.
"Preferred Stock" shall mean the Class B Series 3 Preferred Stock, no
par value, of the Issuer.
"Requirement of Law" shall mean as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such
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<PAGE>
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Rights" shall mean any rights to subscribe for or to purchase, or any
options or warrants for the purchase of, shares of Common Stock or
Convertible Securities. The term "Rights" shall include, without
limitation, the Warrants and the Management Options.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute.
"Total Warrants" shall mean 254,372, which is the maximum number of
Warrants contemplated under the Stock Purchase Agreement to be issued in
connection with the sale of Preferred Stock.
"Trading Day" shall mean a day on which the securities market on which
the Common Stock is listed is open for trading.
"Warrant" shall mean a warrant issued pursuant to this Warrant
Agreement as contemplated under the Stock Purchase Agreement entitling the
record holder thereof to purchase from the Issuer at the Warrant Office one
share of Common Stock (subject to adjustment as provided in Section 11
hereof) at the Exercise Price at any time before 5:00 P.M. local time on
the Expiration Date.
"Warrant Certificate" shall mean a certificate evidencing one or more
Warrants, substantially in the form of Exhibit A hereto, with such changes
therein as may be required to reflect any adjustments made pursuant to
Section 11 hereof.
"Warrant Office" shall mean the office or agency of the Issuer at
which the Warrant Register shall be maintained and where the Warrants may
be presented for exercise, exchange, substitution and transfer, which
office or agency will be the office of the Issuer at 5 East 80th Street,
New York, New York 10021 which office or agency may be changed by the
Issuer pursuant to notice in writing to the Persons named in the Warrant
Register as the holders of the Warrants.
"Warrant Register" shall mean the register, substantially in the form
of Exhibit B hereto, maintained by the Issuer at the Warrant Office.
"Warrant Shares" shall mean the shares of Common Stock issuable or
issued upon exercise of all or any of the Warrants as the number and/or
type of such shares may be adjusted from time to time pursuant to Section
11 hereof.
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<PAGE>
SECTION 2. Representations and Warranties. The Issuer hereby represents and
warrants to the Warrant Holder as follows:
(a) The Issuer is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New York has the
corporate power and authority to execute and deliver this Warrant Agreement
and the Warrant Certificate, to issue the Warrants and to perform its
obligations under this Warrant Agreement and the Warrant Certificate.
(b) The execution, delivery and performance by the Issuer of this
Warrant Agreement and the Warrant Certificate, the issuance of the Warrants
and the issuance of the Warrant Shares upon exercise of the Warrants have
been duly authorized by all necessary corporate action on the part of the
Issuer and do not and will not violate, or result in a breach of, or
constitute a default under, or require any consent under, or result in the
creation of a lien upon the assets of the Issuer pursuant to, any
Requirement of Law or any Contractual Obligation binding upon the Issuer.
(c) This Warrant Agreement has been duly executed and delivered by the
Issuer and constitutes a legal, valid, binding and enforceable obligation
of the Issuer, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and except as equitable remedies may
be limited by general principles of equity. When the Warrants and Warrant
Certificates have been issued as contemplated hereby, (i) the Warrants and
the Warrant Certificates will constitute legal, valid, binding and
enforceable obligations of the Issuer, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and except as equitable
remedies may be limited by general principles of equity (whether such
remedies are sought in a proceeding at law or in equity) and (ii) the
Warrant Shares, when issued upon exercise of the Warrants in accordance
with the terms hereof, will be duly authorized, validly issued, fully paid
and nonassessable shares of the Common Stock.
(d) As of the date of the Closing immediately after giving effect to
the purchase and sale of the Preferred Stock and Warrants on that date (i)
the Issuer's capital stock (the "Capital Stock") consists of (a) 1,400,000
shares of Class A preferred stock, par value $.01 per share, of which
1,380,000 shares are issued and outstanding, (b) 10,000,000 shares of Class
B preferred stock, no par value, of which (x) 500,000 shares have been
designated Class B Series 1 Preferred Stock, par value $.001 per share, of
which no shares are issued and outstanding, (y) 80,000 shares have been
designated Class B Series 2 Preferred Stock, par
4
<PAGE>
value $.001 per share, of which 40,000 shares are issued and outstanding,
and (z) 40,000 shares have been designated as Preferred Stock, all of such
Preferred Stock will be issued and outstanding upon the consummation of the
Closing and (c) 50,000,000 shares of Common Stock, of which 15,535,481
shares are issued and outstanding. All issued and outstanding shares of
Capital Stock are validly authorized and issued, fully paid and
nonassessable and were issued in accordance with the registration or
qualification provisions of the Securities Act or pursuant to valid
exemptions therefrom.
SECTION 3. Issuance of Warrants. The Issuer hereby agrees to issue and
deliver to the Warrant Holder on the date of the Closing Warrants evidencing
rights to purchase 6.3593 shares of Common Stock, subject to adjustment as
provided in Section 11 hereof, for each share of Preferred Stock purchased by
the Warrant Holder pursuant to the Stock Purchase Agreement on the date of the
Closing and at any time on or before 5:00 P.M., New York City time, on the
Expiration Date at a price per share equal to the Exercise Price. On the date of
the Closing simultaneously with the purchase of the Preferred Stock by the
Warrant Holder pursuant to the Stock Purchase Agreement, the Issuer shall
deliver to the Warrant Holder a Warrant Certificate evidencing the Warrants
which the Warrant Holder is entitled to receive at the Closing in accordance
with the terms hereof.
SECTION 4. Registration, Transfer and Exchange of Certificates.
(a) The Issuer shall maintain at the Warrant Office the Warrant
Register for registration of the Warrants and Warrant Certificates and
transfers thereof. On the date hereof the Issuer shall register the
outstanding Warrants and Warrant Certificates in the name of the Warrant
Holder. The Issuer may deem and treat the registered holder(s) of the
Warrant Certificates as the absolute owner(s) thereof and the Warrants
represented thereby (notwithstanding any notation of ownership or other
writing on the Warrant Certificates made by any Person) for the purpose of
any exercise thereof or any distribution to the holder(s) thereof, and for
all other purposes, and the Issuer shall not be affected by any notice to
the contrary.
(b) Subject to Section 13 hereof, the Issuer shall register the
transfer of any outstanding Warrants in the Warrant Register upon surrender
of the Warrant Certificate(s) evidencing such warrants to the Issuer at the
Warrant Office, accompanied (if so required by it) by a written instrument
or instruments of transfer in form satisfactory to it, duly executed by the
registered holder or holders thereof or by the duly appointed legal
representative thereof. Upon any such registration of transfer, new Warrant
Certificate(s) evidencing such transferred Warrants shall be issued to the
transferee(s) and the surrendered Warrant Certificate(s) shall be canceled.
If less than all the Warrants evidenced by Warrant Certificate(s)
surrendered for transfer are to be transferred, new Warrant Certificate(s)
shall be issued to the holder surrendering such Warrant Certificate(s)
evidencing such
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<PAGE>
remaining number of Warrants.
(c) Warrant Certificates may be exchanged at the option of the
holder(s) thereof, when surrendered to the Issuer at the Warrant Office,
for another Warrant Certificate or other Warrant Certificates of like tenor
and representing in the aggregate a like number of Warrants. Warrant
Certificates surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange except
for any tax or other governmental charge imposed in connection therewith.
Except as provided in Section 13(b) hereof, each Warrant Certificate issued
upon transfer or exchange shall bear the legend set forth in Section 13(b)
hereof if the Warrant Certificate presented for transfer or exchange bore
such legend.
SECTION 5. Mutilated or Missing Warrant Certificates. If any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Issuer shall
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and substitution for the Warrant Certificate
lost, stolen or destroyed, a new Warrant Certificate of like tenor and
representing an equivalent number of Warrants, but only upon receipt of evidence
satisfactory to the Issuer of such loss, theft or destruction of such Warrant
Certificate and, if reasonably requested, indemnity satisfactory to it. No
service charge shall be made for any such substitution, but all expenses and
reasonable charges associated with procuring such indemnity and all stamp, tax
and other governmental duties that may be imposed in relation thereto shall be
borne by the holder of such Warrant Certificate. Each Warrant Certificate issued
in any such substitution shall bear the legend set forth in Section 13(b) hereof
if the Warrant Certificate for which such substitution was made bore such
legend.
SECTION 6. Duration and Exercise of Warrants.
(a) The Warrants evidenced by a Warrant Certificate shall be
exercisable in whole or in part by the registered holder thereof on any
Business Day at any time from and after the date of the Closing and prior
to 5:00 P.M. in New York City on the Expiration Date.
(b) Subject to the provisions of this Warrant Agreement, upon
presentation of the Warrant Certificate evidencing the Warrants to be
exercised, with the form of election to purchase on the reverse thereof
duly completed and signed by the registered holder or holders thereof, to
the Issuer at the Warrant Office, and upon payment of the aggregate
Exercise Price for the number of Warrant Shares in respect of which such
Warrants are being exercised in lawful money of the United States of
America, the Issuer shall issue and cause to be delivered to or upon the
written order of the registered holder(s) of such Warrants
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<PAGE>
and in such name or names as such registered holder(s) may designate, a
certificate for the Warrant Shares issued upon such exercise of such
Warrants. Any Person(s) so designated to be named therein shall be deemed
to have become holder(s) of record of such Warrant Shares as of the date of
exercise of such Warrants. Certificates for the Warrant Shares so
purchased, representing the aggregate number of shares specified in the
Warrant Certificate, shall be delivered to the registered holder within a
reasonable time, not exceeding three (3) Business Days, after this Warrant
shall have been so exercised. The certificates so delivered shall be in
such denominations as may be requested by the registered holder and shall
be registered in the name of the registered holder or such other name as
shall be designated by such registered holder.
(c) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant Certificate or
Certificates shall be issued for the remaining number of Warrants evidenced
by such Warrant Certificate. Each new Warrant Certificate so issued shall
bear the legend set forth in Section 13(b) hereof if the Warrant
Certificate presented in connection with partial exercise thereof bore such
legend. All Warrant Certificates surrendered upon exercise of Warrants
shall be canceled.
(d) Notwithstanding the foregoing, at any time after the six-month
anniversary of the date hereof, the Issuer may, at its sole option, compel
the involuntary conversion of all, but not less than all, of the
outstanding Warrants into Warrant Shares at the Exercise Price in the event
that (i) the Current Market Price Per Share (as hereinafter defined) is
equal to or in excess of two hundred percent (200%) of the Exercise Price
per Warrant Share for a period of at least twenty consecutive Trading Days,
(ii) the Warrant Shares have been registered under the Securities Act
pursuant to Section 6.1 of the Stock Purchase Agreement and such
registration has been declared effective by the Commission and is effective
on such date and (iii) the Issuer has a sufficient number of authorized
shares of Common Stock reserved for issuance upon conversion of the
Warrants. In the event that the Issuer elects to compel such involuntary
conversion of all outstanding Warrants, it shall promptly notify the
Warrant Holder of such election at least ten (10) days in advance of the
date set forth in such conversion notice whereupon the Warrants shall be
deemed converted into shares of Common Stock as of the date set forth in
the Issuer's conversion notice.
(e) In lieu of physical delivery of the Warrants, provided that
Issuer's transfer agent is participating in The Depository Trust Company
("DTC") Shares Fast Automated Securities Transfer ("FAST") program, upon
request of the Warrant Holder and in compliance with the provisions hereof,
the Issuer shall use its best efforts to cause its transfer agent to
electronically transmit the Warrant Shares to the Warrant Holder by
crediting the account of the Warrant Holder's prime broker
7
<PAGE>
with DTC through its Deposit Withdrawal Agent Commission system. The time
period for delivery described herein shall apply to the electronic
transmittals described herein.
SECTION 7. No Fractional Shares. The Issuer shall not be required to issue
fractional shares of Common Stock upon exercise of the Warrants but may pay for
any such fraction of a share an amount in cash equal to the Current Market Price
per Share of Common Stock of such share multiplied by such fraction. The
"Current Market Price Per Share" on any date shall be deemed to be, for any day,
the last bid price for the Common Stock on the principal securities exchange on
which the Common Stock is listed or admitted to trading, or, if not so listed or
admitted to trading on any securities exchange, the last sale price for the
Common Stock on the National Association of Securities Dealers National Market
System, or, if the Common Stock shall not be listed on such system, the closing
bid price of the Common Stock in the over-the-counter market.
SECTION 8. Payment of Taxes. The Issuer will pay all taxes (other than any
applicable income or similar taxes payable by the holders of the Warrants or
Warrant Shares) attributable to the initial issuance of Warrant Shares upon the
exercise of the Warrants; provided that the Issuer shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issue of
any Warrant Certificate or any certificate for Warrant Shares in a name other
than that of the registered holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Issuer shall not be required to issue or deliver
such certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Issuer the amount of such tax or shall have
established to the satisfaction of the Issuer that such tax has been paid.
SECTION 9. Reservation and Issuance of Warrant Shares.
(a) The Issuer will at all times have authorized, and reserve and keep
available for the purpose of enabling it to satisfy any obligation to issue
Warrant Shares upon the exercise of the Warrants, the number of shares of
Common Stock deliverable upon exercise of all outstanding Warrants.
(b) Before taking any action which would cause an adjustment pursuant
to Section 11 hereof reducing the Exercise Price below the then par value
(if any) of the Warrant Shares issuable upon exercise of the Warrants, the
Issuer will take any corporate action which may be necessary in order that
the Issuer may validly and legally issue fully paid and nonassessable
Warrant Shares at the Exercise Price as so adjusted.
(c) The Issuer covenants that all Warrant Shares will, upon issuance
in accordance with the terms of this Warrant Agreement, be duly and validly
issued,
8
<PAGE>
fully paid and nonassessable and free from all taxes with respect to the
issuance thereof and from all liens, charges and security interests created
(whether by affirmative action or inaction) by the Issuer and shall not
have any legends or restrictions on resale, except as required by Section
13(b) hereof.
(d) The Issuer shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of the Warrants upon the national
securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of the Warrants) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of the
Warrants.
SECTION 10. Obtaining of Governmental Approvals and Stock Exchange
Listings. The Issuer will, at its own expense, (a) obtain and keep effective any
and all permits, consents and approvals of governmental agencies and authorities
which may from time to time be required of the Issuer in order to satisfy its
obligations hereunder and (b) take all action which may be necessary so that the
Warrant Shares, immediately upon their issuance upon the exercise of the
Warrants, will be listed on each securities exchange or over-the-counter market,
if any, on which the Common Stock is then listed if such listing is permitted by
applicable law, regulation or rule.
SECTION 11. Adjustment of Exercise Price and Number of Warrant Shares
Purchasable. Prior to the Expiration Date, the Exercise Price and the number of
Warrant Shares purchasable upon the exercise of each Warrant are subject to
adjustment from time to time upon the occurrence of any of the events enumerated
in this Section 11.
(a) In the event that the Issuer shall at any time after the date of
this Agreement (i) declare a dividend on the Common Stock in Common Stock,
Convertible Securities or other Rights, (ii) split or subdivide the
outstanding Common Stock, (iii) combine the outstanding Common Stock into a
smaller number of shares, or (iv) issue by reclassification of its Common
Stock any shares of Common Stock, Convertible Securities or other Rights,
then, in each such event, the number of Warrant Shares purchasable upon
exercise of each Warrant immediately prior thereto shall be adjusted so
that the holder shall be entitled to receive the kind and number of such
shares or other securities of the Issuer which the holder would have owned
or have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to the
happening of such event (or any record date with respect thereto). Such
adjustment shall be made whenever any of the events listed above shall
occur. An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of the event retroactive to
the record date, if any, for the event.
9
<PAGE>
(b) If at any time, as a result of an adjustment made pursuant to this
Section 11, the holder of any Warrant thereafter exercised shall become
entitled to receive any shares of the Issuer other than shares of Common
Stock, thereafter the number of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in this Section 11, and the
provisions of this Agreement with respect to the Warrant Shares shall apply
on like terms to such other shares.
(c) Whenever the number of Warrant Shares purchasable upon the
exercise of each warrant is adjusted pursuant to Section 11(a) hereof, the
Exercise Price per Warrant Share payable upon exercise of each Warrant
shall be adjusted by multiplying such Exercise Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number
of Warrant Shares purchasable upon the exercise of each Warrant immediately
prior to such adjustment, and the denominator of which shall be the number
of Warrant Shares purchasable immediately after such adjustment; provided,
however, that in no event shall the Exercise Price be adjusted to an amount
which is less than the par value of the Common Stock.
(d) In the event of any capital reorganization of the Issuer, or of
any reclassification of the Common Stock (other than a reclassification
referred to in Section 11(a)(iv) above), or in case of the consolidation of
the Issuer with or the merger of the Issuer with or into any other
corporation or of the sale of the properties and assets of the Issuer as,
or substantially as, an entirety to any other Person, each Warrant shall,
after such capital reorganization, reclassification of Common Stock,
consolidation, merger or sale, and in lieu of being exercisable for Warrant
Shares, be exercisable, upon the terms and conditions specified in this
Warrant Agreement, for the number of shares of stock or other securities or
assets to which a holder of the number of Warrant Shares purchasable (at
the time of such capital reorganization, reclassification of Common Stock,
consolidation, merger or sale) upon exercise of such Warrant would have
been entitled upon such capital reorganization, reclassification of Common
Stock, consolidation, merger or sale; and in any such case, if necessary,
the provisions set forth in this Section 11 with respect to the rights
thereafter of the holders of the Warrants shall be appropriately adjusted
so as to be applicable, as nearly as they may reasonably be, to any shares
of stock or other securities or assets thereafter deliverable on the
exercise of the Warrants. The Issuer shall not effect any such
consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof the successor corporation (if other than the Issuer)
resulting from such consolidation or merger or the corporation purchasing
such assets or the appropriate corporation or entity shall assume, by
written instrument, the obligation to deliver to the holder of each Warrant
the shares of stock, securities or assets to which, in accordance with the
10
<PAGE>
foregoing provisions, such holder may be entitled and all other obligations
of the Issuer under this Warrant Agreement. The provisions of this
paragraph (d) shall apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
(e) Except with respect to Excluded Securities (as defined below), in
case the Issuer shall issue any shares of Common Stock or Convertible
Securities after the date hereof at a price per share (or having a
conversion or exercise price per share) of less than the Exercise Price per
Warrant Share, the Exercise Price per Warrant Share shall be appropriately
adjusted by decreasing (but not increasing) the Exercise Price per Warrant
Share to such lower price per share. An adjustment made pursuant to clause
(a) shall be made the next Business Day following the date on which any
such issuance is made and shall be effective retroactively to the close of
business on the date of such issuance. For purposes of this clause (e), the
consideration receivable by the Issuer in connection with the issuance of
additional shares of Common Stock or of Convertible Securities after the
date hereof shall be deemed to be equal to (X) in the case the
consideration received by the Issuer is cash, the sum of the aggregate
offering price (before deduction of underwriting discounts or commissions
and expenses payable to third parties, if any) of all such Common Stock
and/or Convertible Securities plus the minimum aggregate amount, if any,
payable upon conversion, exchange or exercise of any such Convertible
Securities, and (Y) in the case the consideration received by the Issuer is
other than cash, the fair market value of the consideration received by the
Issuer as determined by the good faith judgment of the Board of Directors
of the Issuer; provided, however, that in the event the Warrant Holder
disagrees in good faith with the determination of the Board of Directors of
the Issuer, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (an "Appraiser")
selected in good faith by the Warrant Holder; and provided, further, that
the Issuer, after receipt of the determination by such Appraiser shall have
the right to select in good faith an additional Appraiser meeting the same
qualifications, in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. The issuance or
reissuance of any shares of Common Stock or Convertible Securities (whether
treasury shares or newly issued shares) pursuant to a dividend or
distribution on, or subdivision, combination or reclassification of, the
outstanding shares of Common Stock requiring an adjustment in the Exercise
Price per Warrant Share pursuant to clause (a), shall not be deemed to
constitute an issuance of Common Stock or Convertible Securities by the
Issuer pursuant to which this clause (e) applies. Upon the expiration or
termination of any unconverted, unexchanged or unexercised Convertible
Securities for which an adjustment has been made pursuant to this clause
(e), the adjustments shall forthwith be reversed to effect such Exercise
Price per Warrant Share as would have been in effect at the time of
11
<PAGE>
such expiration or termination had such Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, had
never been issued. For purposes of this clause (e), "Excluded Securities"
shall mean: (i) shares of Common Stock issuable upon conversion of the
Preferred Stock; (ii) shares of Common Stock issuable or issued to
employees of and consultants to the Issuer pursuant to the Management
Option Plan; (iii) any capital stock issued as a stock dividend or upon any
stock split or other subdivision or combination of shares of the Issuer's
capital stock; (iv) shares of Common Stock issuable upon conversion of any
Convertible Securities issued prior to the date hereof and outstanding on
the date hereof, (v) shares of Common Stock issuable upon conversion of the
Issuer's Class A Convertible Preferred Stock outstanding on the date hereof
or (vi) Common Stock issued upon the conversion or exercise of Convertible
Securities issued after the date hereof as to which an adjustment to the
Exercise Price per Warrant Share has been made pursuant to this clause (e)
upon the issuance of such Convertible Securities.
(f) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of the Warrants, Warrant
Certificates theretofore or thereafter issued may continue to express the
same Exercise Price per share and number and kind of shares as are stated
on the Warrant Certificates initially issuable pursuant to this Agreement.
(g) If any question shall at any time arise with respect to the
adjusted Exercise Price or Warrant Shares issuable upon exercise, such
question shall be determined by the independent auditors of the Issuer and
such determination shall be binding upon the Issuer and the holders of the
Warrants and the Warrant Shares.
SECTION 12. Notices to the Warrant Holder. Upon any adjustment of the
Exercise Price or number of Warrant Shares issuable upon exercise pursuant to
Section 11 hereof the Issuer shall promptly, but in any event within ten
Business Days thereafter, cause to be given to the Warrant Holder, at its
address appearing on the Warrant Register by first- class mail, postage prepaid,
a certificate signed by its chief financial officer setting forth the Exercise
Price as so adjusted and/or the number of shares of Common Stock issuable upon
the exercise of each Warrant as so adjusted and describing in reasonable detail
the facts accounting for such adjustment and the method of calculation used.
Where appropriate, such certificate may be given in advance and included as a
part of the notice required to be mailed under the other provisions of this
Section 12.
In the event:
(a) the Issuer shall authorize issuance to all holders of Common Stock
of rights or warrants to subscribe for or purchase Capital Stock of the
Issuer or of any
12
<PAGE>
other subscription rights or warrants; or
(b) the Issuer shall authorize a dividend or other distribution to all
holders of Common Stock payable in evidences of its indebtedness, cash or
assets; or
(c) of any consolidation or merger to which the Issuer is a party and
for which approval of any stockholders of the Issuer is required, or of the
conveyance or transfer of the properties and assets of the Issuer
substantially as an entirety, or of any capital reorganization or
reclassification or change of the Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination); or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Issuer; or
(e) the Issuer shall authorize any other action which would require an
adjustment of the Exercise Price or number of Warrant Shares issuable upon
exercise pursuant to Section 11 hereof;
then the Issuer shall cause to be given to the Warrant Holder at its address
appearing on the Warrant Register, at least twenty (20) Business Days prior to
the applicable record date hereinafter specified (or as expeditiously as
possible after the occurrence of any involuntary dissolution, liquidation or
winding up referred to in clause (d) above), by first- class mail, postage
prepaid, a written notice stating (i) the date as of which the holders of record
of Common Stock to be entitled to receive any such rights, warrants or
distribution are to be determined, or (ii) the date on which any such
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up is expected to become effective (or has become effective, in the case of any
involuntary dissolution, liquidation or winding up), and the date as of which it
is expected that holders of record of Common Stock shall be entitled to exchange
their shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 12 or any defect therein shall not affect the legality or validity of
any distribution, right, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
SECTION 13. Restrictions on Transfer.
(a) The Warrant Holder represents that it is not acquiring the
Warrants (and upon any exercise of the Warrants, each holder represents
that it will not be acquiring the Warrant Shares) with a view to any
distribution or public offering within the meaning of the Securities Act
but subject to any requirement of law that the disposition of its property
shall at all times be within its control. The Warrant
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<PAGE>
Holder acknowledges that the Warrant Shares issuable upon exercise of the
Warrants have not as of the date hereof been registered under the
Securities Act and agrees that it will not sell or otherwise transfer any
of its Warrant Shares except upon the terms and conditions specified
herein.
(b) (i) The Warrant Holder agrees, and each subsequent transferee
described in paragraph (ii) below shall agree, that it will not transfer
any Warrant Shares except pursuant to an exemption from, or otherwise in a
transaction not subject to, the registration requirements of the Securities
Act (as confirmed in an opinion of counsel reasonably acceptable to the
Issuer to the transferor to the effect that the proposed transfer may be
effected without registration under the Securities Act) or pursuant to an
effective registration statement under the Securities Act.
(ii) Each Warrant Certificate and each certificate for the Warrant
Shares (unless the legal opinion delivered in connection therewith is to
the effect that the first paragraph of such legend is not required in order
to ensure compliance with the Securities Act) shall include a legend in
substantially the following form:
THE WARRANTS AND UNDERLYING SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR STATE SECURITIES LAWS
AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER, AN EXEMPTION FROM, OR OTHERWISE IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF SUCH ACT.
IN ADDITION, THE WARRANTS AND UNDERLYING SHARES MAY BE TRANSFERRED ONLY IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE WARRANT AGREEMENT, DATED AS
OF JUNE 11, 1999, BETWEEN THE ISSUER AND THE INITIAL HOLDER OF THE WARRANTS
NAMED THEREIN, A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL BE FURNISHED TO
THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
SECTION 14. Amendments and Waivers. Any provision of this Warrant
Agreement may be amended, supplemented, waived, discharged or terminated by a
written instrument signed by the Issuer and the holders of a majority of the
then outstanding Warrants.
SECTION 15. Notices.
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<PAGE>
(a) Any notice or demand to be given or made by the holders of the
Warrants or the Warrant Shares to the Issuer pursuant to this Warrant
Agreement shall be sufficiently given or made if personally delivered, sent
by overnight courier or telecopied (in each such case delivery will be
effective upon receipt) or mailed by certified mail, postage prepaid,
return receipt requested (delivery will be effective three days after the
date of mailing) addressed to the Issuer at the Warrant Office.
(b) Any notice to be given by the Issuer to the Warrant Holder shall
be sufficiently given if personally delivered, sent by overnight courier or
telecopied (in each such case delivery will be effective upon receipt) or
mailed by certified mail, postage prepaid, return receipt requested
(delivery will be effective three days after the date of mailing) addressed
to such holder as such holder's name and address shall appear on the
Warrant Register.
SECTION 16. Binding Effect; Third Party Rights. This Warrant Agreement
shall be binding upon and inure to the sole and exclusive benefit of the
Issuer, its successors and assigns, the Warrant Holder, the registered
holders from time to time of the Warrants and the Warrant Shares.
SECTION 17. Termination. This Warrant Agreement shall terminate and be
of no further force and effect at 5:00 P.M. New York City time on the
Expiration Date or the date on which none of the Warrants shall be
outstanding (whether by reason of the involuntary conversion thereof or the
expiration thereof by the Issuer).
SECTION 18. Counterparts. This Warrant Agreement may be executed in
two or more separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
SECTION 19. Governing Law. This Warrant Agreement and each Warrant
Certificate shall be governed by and construed in accordance with the laws
of the State of New York without regard to the choice of law provisions
thereof.
SECTION 20. Benefits of this Warrant Agreement. Nothing in this
Warrant Agreement shall be construed to give to any Person other than the
Issuer and the registered holders of the Warrants and the Warrant Shares
any legal or equitable right, remedy or claim under this Warrant Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed and delivered by their proper and duly authorized officers,
as of the date and year first above written.
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
By:
---------------------------
Darby S. Macfarlane
Chairman and Chief Executive Officer
LB I GROUP INC.
By:
---------------------------
Name:
Title:
16
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS AND UNDERLYING SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR STATE SECURITIES LAWS AND MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER, AN EXEMPTION FROM, OR OTHERWISE IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF SUCH ACT. IN ADDITION, THE WARRANTS AND UNDERLYING
SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THE WARRANT AGREEMENT, DATED AS OF JUNE 11, 1999, BETWEEN THE ISSUER AND THE
INITIAL HOLDER OF THE WARRANTS NAMED THEREIN, A COMPLETE AND CORRECT COPY OF
WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL
BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
WARRANT CERTIFICATE
Evidencing Warrants
to Purchase Common Stock of
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
No. ___-___ Warrants
This Warrant Certificate certifies that __________________________
_________________________________________, or registered assigns, is the
registered holder of ____ Warrants (the "Warrants") to purchase Common Stock,
$.001 par value (the "Common Stock"), of CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC., a New York corporation (the "Issuer"). Each Warrant
entitles the holder, but only subject to the conditions set forth herein and in
the Warrant Agreement referred to below, to purchase from the Issuer at any time
prior to 5:00 P.M., New York City time at the Warrant Office, on February 11,
2005 or, if such day is not a Business Day, the next succeeding Business Day
(the "Expiration Date"), one fully paid and nonassessable share of the Common
Stock of the Issuer (the "Warrant Shares") at a price (the "Exercise Price") of
$______ per Warrant Share payable in lawful money of the United States of
America, upon surrender of this Warrant Certificate, execution of the annexed
Form of Election to Purchase and payment of the Exercise Price at the principal
<PAGE>
place of business of the Issuer (the "Warrant Office"). The Exercise Price and
number of Warrant Shares purchasable upon exercise of the Warrants are subject
to adjustment upon the occurrence of certain events as set forth in the Warrant
Agreement referred to below.
The Issuer may deem and treat the registered holder(s) of the Warrants
evidenced hereby as the absolute owner(s) thereof (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof and of any distribution to the holder(s) hereof, and for all
other purposes, and the Issuer shall not be affected by any notice to the
contrary.
Warrant Certificates, when surrendered at the Warrant Office by the
registered holder hereof in person or by a legal representative duly authorized
in writing, may be exchanged, in the manner and subject to the limitations
provided in the Warrant Agreement, but without payment of any service charge,
for another Warrant Certificate or Warrant Certificates of like tenor evidencing
in the aggregate a like number of Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued in exchange for this Warrant Certificate to the
transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
This Warrant Certificate is one of the Warrant Certificates referred to in
the Warrant Agreement, dated as of February 11, 2000, by and between the Issuer
and the Warrant Holder named therein (the "Warrant Agreement"). Said Warrant
Agreement is hereby incorporated by reference in and made a part of this Warrant
Certificate and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Issuer and the holders.
[The remainder of this page intentionally left blank]
2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Warrant Certificate to be
signed by its duly authorized officers and has caused its corporate seal to be
affixed hereunto.
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
By:
----------------------
Name:
Title:
(CORPORATE SEAL)
ATTEST:
- ---------------------
Name:
Title:
3
<PAGE>
ANNEX TO
WARRANT CERTIFICATE
[FORM OF ELECTION TO PURCHASE]
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase Warrant Shares and herewith
tenders payment for such Warrant Shares to the order of the Issuer in the amount
of $__________ in accordance with the terms hereof. The undersigned requests
that a certificate for such Warrant Shares be registered in the name of
__________________________ whose address is _______________ and that such
certificate be delivered to ________________ whose address is
____________________. If said number of Warrant Shares is less than all of the
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the remaining balance of the Warrant Shares be
registered n the name of _______________ whose address is
_______________________ and that such Warrant Certificate be delivered to
_______________________ whose address is _______________________________.
Signature:
-----------------------------------
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant Certificate)
Date:
-------------------------------
<PAGE>
EXHIBIT B
TO WARRANT AGREEMENT
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
Warrant No. Holder Shares Underlying Warrant
- ----------- ------ -------------------------
A-101 LB I Group Inc. 220,690
3 World Financial Center
New York, New York 10285
A-102 LB I Group Inc. 50,000
3 World Financial Center
New York, New York 10285
A-103 LB I Group Inc. 254,372
3 World Financial Center
New York, New York 10285
A-104 LB I Group Inc. 50,000
3 World Financial Center
New York, New York 10285
EXHIBIT 5.1
OPINION OF PATTERSON, BELKNAP, WEBB & TYLER LLP
February 22, 2000
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 976,532 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 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") on February 22, 2000.
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 express no opinion as to any laws other than the Business
Corporation Law of the State of New York and the federal laws of the United
States of America.
We hereby consent to the filing of this opinion with the Commission
as an exhibit to the Registration Statement. In furnishing this opinion and
<PAGE>
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.
PATTERSON, BELKNAP, WEBB & TYLER LLP
By: /s/ Jeffrey E. LaGueux
------------------------------
A Member of the Firm
cc: Ms. Darby S. Macfarlane
