EXHIBIT 4.7
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. (▇▇▇▇▇▇ 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:
(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, ▇▇▇▇ & ▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, 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 contemplated by this Agreement, the Certificate of Amendment
and the Warrant Agreement, nor shall any such suit, action or proceeding be
threatened.
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(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.
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:
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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 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
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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 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
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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.
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
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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 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.
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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 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
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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.
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),
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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 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.
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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 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
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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 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
12
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 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
13
(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 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
14
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 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
15
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 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
16
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 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.
▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to Seller:
Chromatics Color Sciences International, Inc.
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Patterson, Belknap, ▇▇▇▇ & Tyler LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
17
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
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 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
▇▇▇▇▇▇ 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
18
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 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]
19
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: ______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Chairman and Chief Executive
Officer
LB I GROUP INC.
By:_______________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Senior Vice President
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
21
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
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
22
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 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,
23
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.
24
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.
25
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,
1
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 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 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
(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 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
3
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 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
4
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 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
5
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, 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
6
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, 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
7
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.
(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
8
(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 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
9
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.
Signed on February 10, 2000 ____________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Chairperson of the Board
and Chief Executive Officer
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. (▇▇▇▇▇▇ 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.
"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 such
Person or any of its property or to which such Person or any of its
property is subject.
2
"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 ▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ 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.
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
3
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) 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.
4
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.
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
5
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 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
6
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.
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.
7
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 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
8
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.
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.
9
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
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
10
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 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
11
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:
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
12
(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 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
13
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.
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.
14
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.
15
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:_____________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Chairman and Chief Executive
Officer
LB I GROUP INC.
By:_____________________________
Name:
Title:
16
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 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.
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2
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
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:________________________
EXHIBIT B
TO WARRANT AGREEMENT
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
Warrant No. Holder Shares Underlying Warrant
---------- ------ -------------------------
A-101 LB I Group Inc. 220,690
▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
A-102 LB I Group Inc. 50,000
▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
A-103 LB I Group Inc. 254,372
▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
A-104 LB I Group Inc. 50,000
▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
