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EXHIBIT 4.1
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
CRESCENT INTERNATIONAL LTD.
AND
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
DATED AS OF OCTOBER 31, 2000
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TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS......................................................................1
Section 1.1. "Affiliate"...........................................................................1
Section 1.2. "Capital Shares"......................................................................2
Section 1.3. "Certificate of Amendment.............................................................2
Section 1.4. "Closing".............................................................................2
Section 1.5. "Closing Date"........................................................................2
Section 1.6. "Common Stock"........................................................................2
Section 1.7. "Conversion Shares"...................................................................2
Section 1.8. "Damages".............................................................................2
Section 1.9. "Effective Date"......................................................................2
Section 1.10. "Exchange Act"........................................................................2
Section 1.11. "Incentive Warrant"...................................................................2
Section 1.12. "Legend"..............................................................................2
Section 1.13. "Material Adverse Effect".............................................................3
Section 1.14. "NASD"................................................................................3
Section 1.15. "Outstanding".........................................................................3
Section 1.16. "Person"..............................................................................3
Section 1.17. "Preferred Stock".....................................................................3
Section 1.18. "Principal Market"....................................................................3
Section 1.19. "Registrable Securities"..............................................................3
Section 1.20. "Registration Rights Agreement".......................................................4
Section 1.21. "Registration Statement"..............................................................4
Section 1.22. "Regulation D"........................................................................4
Section 1.23. "Representative"......................................................................4
Section 1.24. "SEC".................................................................................4
Section 1.25. "SEC Documents".......................................................................4
Section 1.26. "Section 4(2)"........................................................................4
Section 1.27. "Securities Act"......................................................................4
Section 1.28. "Subsidiary"..........................................................................4
Section 1.29. "Trading Day".........................................................................4
Section 1.30. "Underwriter".........................................................................4
Section 1.31. "Warrant Shares".....................................................................4
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ARTICLE II PURCHASE AND SALE OF PREFERRED STOCK AND INCENTIVE WARRANT; TERMINATION OF
OBLIGATIONS................................................................................5
Section 2.1. Investments...........................................................................5
Section 2.2. Twenty Percent Limitation.............................................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR...............................................5
Section 3.1. Intent................................................................................5
Section 3.2. Sophisticated Investor................................................................5
Section 3.3. Authority.............................................................................6
Section 3.4. Not an Affiliate......................................................................6
Section 3.5. Organization and Standing.............................................................6
Section 3.6. Absence of Conflicts..................................................................6
Section 3.7. Disclosure; Access to Information.....................................................6
Section 3.8. Manner of Sale........................................................................6
Section 3.9. Resale Restrictions...................................................................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................7
Section 4.1. Organization of the Company...........................................................7
Section 4.2. Authority.............................................................................7
Section 4.3. Corporate Documents...................................................................7
Section 4.4. Books and Records.....................................................................8
Section 4.5. Capitalization........................................................................8
Section 4.6. Registration and Listing of Common Stock..............................................8
Section 4.7. Financial Statements..................................................................8
Section 4.8. SEC Documents.........................................................................9
Section 4.9. Exemption from Registration; Valid Issuances; New Issuances...........................9
Section 4.10. No General Solicitation or Advertising...............................................10
Section 4.11. No Conflicts.........................................................................10
Section 4.12. No Material Adverse Change...........................................................11
Section 4.13. No Undisclosed Liabilities...........................................................11
Section 4.14. No Undisclosed Events or Circumstances...............................................11
Section 4.15. No Integrated Offering...............................................................11
Section 4.16. Litigation and Other Proceedings.....................................................11
Section 4.17. No Misleading or Untrue Communication................................................11
Section 4.18. Material Non-Public Information......................................................12
ARTICLE V COVENANTS OF THE INVESTOR...............................................................12
Section 5.1. Compliance...........................................................................12
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ARTICLE VI COVENANTS OF THE COMPANY................................................................12
Section 6.1. Registration Rights..................................................................12
Section 6.2. Reservation of Common Stock..........................................................12
Section 6.3. Listing of Common Stock..............................................................12
Section 6.4. Exchange Act Registration............................................................12
Section 6.5. Legends..............................................................................13
Section 6.6. Corporate Existence..................................................................13
Section 6.7. Additional SEC Documents.............................................................13
Section 6.8. Notice of Certain Events Affecting Registration......................................13
Section 6.9. Consolidation; Merger................................................................14
Section 6.10. Issuance of Conversion Shares, Warrant Shares and Additional Shares..................14
Section 6.11. Legal Opinion........................................................................14
Section 6.12. No Similar Arrangement; Right of First Refusal.......................................14
Section 6.13. Public Announcements.................................................................14
ARTICLE VII CONDITIONS TO CLOSING...................................................................15
Section 7.1. Certificate of Amendment.............................................................15
Section 7.2. Due Diligence Review; Non-Disclosure of Non-Public Information.......................15
ARTICLE VIII LEGENDS.................................................................................16
Section 8.1. Legends..............................................................................16
Section 8.2. No Other Legend or Stock Transfer Restrictions.......................................17
Section 8.3. Investor's Compliance................................................................17
ARTICLE IX INDEMNIFICATION; ARBITRATION............................................................18
Section 9.1. Indemnification......................................................................18
Section 9.2. Method of Asserting Indemnification Claims...........................................18
Section 9.3. Arbitration..........................................................................21
ARTICLE X MISCELLANEOUS...........................................................................21
Section 10.1. Closing Fees and Transaction Costs...................................................22
Section 10.2. Brokerage............................................................................22
Section 10.3. Conversion Notice....................................................................22
Section 10.4. Notices..............................................................................22
Section 10.5. Assignment...........................................................................24
Section 10.6. Amendment; No Waiver.................................................................24
Section 10.7. Annexes and Exhibits; Entire Agreement...............................................24
Section 10.8. Survival.............................................................................24
Section 10.9. Severability.........................................................................24
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Section 10.10. Title and Subtitles..................................................................24
Section 10.11. Counterparts.........................................................................24
Section 10.12. Choice of Law........................................................................24
Section 10.13. Other Expenses.......................................................................25
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STOCK PURCHASE AGREEMENT
BY AND BETWEEN
CRESCENT INTERNATIONAL LTD.
AND
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
DATED AS OF OCTOBER 31, 2000
This STOCK PURCHASE AGREEMENT is entered into as of the 31st day of
October, 2000 (this "Agreement"), by and between Crescent International Ltd.
(the "Investor"), an entity organized and existing under the laws of Bermuda,
and Chromatics Color Sciences International, Inc., a corporation organized and
existing under the laws of the State of New York (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
and the Investor shall purchase, up to $2,000,000 worth of the Preferred Stock
(as defined below);
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor an
Incentive Warrant (as defined below) for the purchase of an aggregate of up to
270,000 shares of Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the
provisions of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D")
of the U.S. Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other
exemption from the registration requirements of the Securities Act as may be
available with respect to any or all of the investments in Common Stock to be
made hereunder.
NOW, THEREFORE, in consideration of the premises, representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be legally bound hereby, the parties hereto agree
as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Affiliate" shall mean any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by, or is under
direct or indirect common control with any other Person. For the purposes of
this definition, "control," when used with respect to
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any Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the term "controls" and "controlled"
have meanings correlative to the foregoing.
Section 1.2. "Capital Shares" shall mean the Common Stock and
Preferred Stock and any shares of any other class of common stock or preferred
stock whether now or hereafter authorized, having the right to participate in
the distribution of dividends (as and when declared) or assets (upon
liquidation of the Company).
Section 1.3. "Certificate of Amendment" shall mean the Certificate
of Amendment of the Certificate of Incorporation of the Company, setting forth
the rights, preferences and limitations of the Preferred Stock, as filed by
the Company with the New York State Department of State prior to the Closing
Date.
Section 1.4. "Closing" shall mean the closing of the purchase and
sale of the Preferred Stock and the issuance of the Incentive Warrant pursuant
to Section 2.1 hereof.
Section 1.5. "Closing Date" shall mean October 31, 2000.
Section 1.6. "Common Stock" shall mean the Company's common stock,
$.001 par value per share.
Section 1.7. "Conversion Shares" shall mean all shares of Common
Stock into which the Preferred Stock may be converted.
Section 1.8. "Damages" shall mean any and all losses, claims,
damages, liabilities, costs and expenses (including, without limitation, any
and all investigative, legal and other expenses reasonably incurred in
connection with, and any and all amounts paid in defense or settlement of, any
action, suit or proceeding between any indemnified party and any indemnifying
party or between any indemnified party and any third party, or otherwise, or
any claim asserted).
Section 1.9. "Effective Date" shall mean the earlier to occur of:
(i) the date on which the SEC has declared effective the Registration
Statement registering resale of Registrable Securities as set forth in the
Registration Rights Agreement and (ii) the date on which such Registrable
Securities first become eligible for resale pursuant to Rule 144 of the
Securities Act.
Section 1.10. "Exchange Act" shall mean the U.S. Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.11. "Incentive Warrant" shall mean the Incentive Warrant in
the form of Exhibit B hereto issued pursuant to Section 2.1(b) of this
Agreement.
Section 1.12. "Legend" shall have the meaning specified in Section
8.1 of this Agreement.
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Section 1.13. "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (i) this Agreement, (ii) the Registration Rights
Agreement and (iii) the Incentive Warrant.
Section 1.14. "NASD" shall mean the National Association of
Securities Dealers, Inc.
Section 1.15. "Outstanding" when used with reference to Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in
such Shares; provided, however, that "Outstanding" shall not refer to any such
Shares then directly or indirectly owned or held by or for the account of the
Company.
Section 1.16. "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
Section 1.17. "Preferred Stock" shall mean shares of Class B Series 4
Convertible Preferred Stock, par value $.01 per share, of the Company.
Section 1.18. "Principal Market" shall mean the Nasdaq National
Market, the Nasdaq SmallCap Market, the American Stock Exchange, the
Electronic Bulletin Board or the New York Stock Exchange, whichever is at the
time the principal trading exchange or market for the Common Stock.
Section 1.19. "Registrable Securities" shall mean (i) the Conversion
Shares, (ii) the Warrant Shares and (iii) any securities issued or issuable
with respect to any of the foregoing by way of exchange, stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any
particular Registrable Securities, once issued such securities shall cease to
be Registrable Securities when (w) the applicable Registration Statement has
been declared effective by the SEC and all such Registrable Securities have
been disposed of pursuant to the applicable Registration Statement, (x) all
such Registrable Securities have been sold under circumstances under which all
of the applicable conditions of Rule 144 (or any similar provision then in
force) under the Securities Act ("Rule 144") are met, (y) such time as all
such Registrable Securities have been otherwise transferred to holders who may
trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for
such securities not bearing a restrictive legend or (z) in the opinion of
counsel to the Company, which counsel shall be reasonably acceptable to the
Investor, all such Registrable Securities may be sold by the Investor without
registration and without any time, volume or manner limitations pursuant to
Rule 144(k) (or any similar provision then in effect) under the Securities
Act.
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Section 1.20. "Registration Rights Agreement" shall mean the
registration rights agreement by and between the Company and the Investor, in
the form of Exhibit A hereto.
Section 1.21. "Registration Statement" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated
by the SEC for which the Company then qualifies and which counsel for the
Company shall deem appropriate and which form shall be available for the
resale of the Registrable Securities to be registered thereunder in accordance
with the provisions of this Agreement, the Registration Rights Agreement and
the Incentive Warrant and in accordance with the intended method of
distribution of such securities), for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.
Section 1.22. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.23. "Representative" of a party shall mean any officer,
director, employee, agent, counsel, accountant, financial advisor, consultant
or other representative of such party.
Section 1.24. "SEC" shall mean the U.S. Securities and Exchange
Commission.
Section 1.25. "SEC Documents" shall mean the Company's latest Form
10-K as of the time in question, all Forms 10-Q and 8-K filed thereafter, and
the Proxy Statement for its latest fiscal year as of the time in question
until such time the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section 1.26. "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.27. "Securities Act" shall have the meaning set forth in
the recitals of this Agreement.
Section 1.28. "Subsidiary" shall mean any Person in which the
Company, directly or indirectly through Subsidiaries or otherwise,
beneficially owns more than 50% of either the equity interests in, or the
voting control of, such Person.
Section 1.29. "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
Section 1.30. "Underwriter" shall mean any underwriter participating
in any disposition of the Registrable Securities on behalf of the Investor
pursuant to a Registration Statement.
Section 1.31. "Warrant Shares" shall mean all shares of Common Stock
issued or issuable pursuant to exercise of the Incentive Warrant.
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ARTICLE II
PURCHASE AND SALE OF PREFERRED STOCK AND
INCENTIVE WARRANT; TERMINATION OF OBLIGATIONS
Section 2.1. Investments.
(a) Preferred Stock. The Company shall issue and sell and
the Investor shall purchase, on the Closing Date, 200 shares of the
Preferred Stock for an investment amount of $2,000,000.
(b) Incentive Warrant. In partial consideration for the
Investor entering into this Agreement, on the Closing Date, the
Company shall issue the Incentive Warrant to the Investor. The
Incentive Warrant shall be delivered by the Company to the Investor
upon execution of this Agreement by the parties hereto.
Section 2.2. Twenty Percent Limitation. Unless the Company obtains
the requisite approval of its shareholders in accordance with the corporate
laws of New York and the applicable rules of the Principal Market, no more
than 19.9% of the Outstanding shares of Common Stock may be issued and sold
pursuant to the Incentive Warrant and the conversion of the Preferred Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1. Intent. The Investor is entering into this Agreement
for its own account, and the Investor has no view to the distribution of the
Registrable Securities, the Preferred Stock or the Incentive Warrant and has
no present arrangement (whether or not legally binding) at any time to sell,
assign, transfer, pledge, encumber, hypothecate or otherwise dispose of the
Registrable Securities, the Preferred Stock or the Incentive Warrant to or
through any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold the Registrable
Securities, the Preferred Stock or the Incentive Warrant for any minimum or
other specific term and reserves the right to dispose of the Registrable
Securities, the Preferred Stock or the Incentive Warrant at any time pursuant
to the Registration Statement and in accordance with federal and state
securities laws applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is a
sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D)
and an accredited investor (as defined in Rule 501 of Regulation D), and the
Investor has such experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the Common
Stock and the Preferred Stock. The Investor acknowledges that an investment in
the Common Stock and the Preferred Stock is speculative and involves a high
degree of risk.
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Section 3.3. Authority. Each of this Agreement and the Registration
Rights Agreement has been duly authorized by all necessary corporate action
and no further consent or authorization of the Investor, or its Board of
Directors or stockholders is required. Each of this Agreement and the
Registration Rights Agreement was validly executed and delivered by the
Investor and each is a valid and binding agreement of the Investor enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section 3.5. Organization and Standing. Investor is duly
organized, validly existing, and in good standing under the laws of Bermuda.
Section 3.6. Absence of Conflicts. The execution and delivery of
this Agreement and any other document or instrument contemplated hereby, and
the consummation of the transactions contemplated thereby, and compliance with
the requirements thereof, will not (a) violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (b) violate any provision of any indenture,
instrument or agreement to which Investor is a party or is subject, or by
which Investor or any of its assets is bound, (c) conflict with or constitute
a material default thereunder, (d) result in the creation or imposition of any
lien pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by Investor to any third party,
or (e) require the approval of any third-party (that has not been obtained)
pursuant to any material contract to which Investor is subject or to which any
of its assets, operations or management may be subject.
Section 3.7. Disclosure; Access to Information. Investor has
received or had access to all documents, records, books and other information
pertaining to Investor's investment in the Company that have been requested by
Investor. The Investor has received and reviewed copies of the SEC Documents.
Section 3.8. Manner of Sale. At no time was Investor presented with
or solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.9. Resale Restrictions. Investor acknowledges that any
Registrable Securities, the Preferred Stock and the Incentive Warrant to be
acquired by Investor have not been registered under the federal securities
laws or any applicable state securities laws in reliance upon exemptions
available for non-public or limited offerings. Investor understands that it
must bear the economic risk of the investment in the Registrable Securities,
the Preferred Stock and the Incentive Warrant because the Registrable
Securities, the Preferred Stock and the Incentive Warrant have not been so
registered and therefore are subject to restrictions upon transfer such that
they may not be sold or otherwise transferred unless registered under the
applicable securities laws or an exemption from such registration is
available. The Investor will not reoffer, sell, assign, transfer, pledge,
encumber, hypothecate or otherwise dispose of any Registrable
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Securities, Preferred Stock, or the Incentive Warrant in the absence of an
effective registration statement, qualification or authorization relating
thereto under federal and applicable state securities laws or an opinion of
qualified counsel satisfactory to the Company to the effect that the proposed
transaction in the Registrable Securities, Preferred Stock, or the Incentive
Warrant will neither constitute or result in any violation of the federal or
state securities laws. Subject to Section 8.1 of this Agreement, any
certificate or other document that may be issued representing any shares of
Registrable Securities, Preferred Stock, or the Incentive Warrant may be
endorsed with a legend to this effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 4.1. Organization of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of New York and has all requisite power and authority to
own, lease and operate its properties and to carry on its business as now
being conducted. Except as set forth in the SEC Documents, the Company does
not own more than 50% of the outstanding capital stock of or control any other
Person. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those in which the failure so to qualify would not have a Material
Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement and the Incentive Warrant and to
issue the Conversion Shares, the Preferred Stock, the Incentive Warrant and
the Warrant Shares; (ii) the execution and delivery of this Agreement and the
Registration Rights Agreement, and the execution, issuance and delivery of the
Incentive Warrant, by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required; and (iii) each
of this Agreement and the Registration Rights Agreement has been duly executed
and delivered, and the Incentive Warrant has been duly executed, issued and
delivered, by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application.
Section 4.3. Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Certificate
of Incorporation, as amended and in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as amended and in effect on the
date hereof (the "By-Laws").
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Section 4.4. Books and Records. The minute books and other similar
records of the Company and its subsidiaries as made available to Investor
prior to the execution of this Agreement contain a true and complete record,
in all material respects, of all action taken at all meetings and by all
written consents in lieu of meetings of the stockholders, the boards of
directors and committees of the boards of directors of the Company and the
subsidiaries. The stock transfer ledgers and other similar records of the
Company and the subsidiaries as made available to Investor prior to the
execution of this Agreement accurately reflect all record transfers prior to
the execution of this Agreement in the capital stock of the Company and the
subsidiaries. Neither the Company nor any subsidiary has any of its Books and
Records recorded, stored, maintained, operated or otherwise wholly or partly
dependent upon or held by any means (including any electronic, mechanical or
photographic process, whether computerized or not) which (including all means
of access thereto and therefrom) are not under the exclusive ownership and
direct control of the Company or a subsidiary.
Section 4.5. Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock, of which 16,711,192
shares are issued and outstanding, and 11,400,200 shares of preferred stock,
of which 1,380,000 shares of Class A Preferred Stock, 25,000 shares of Class B
Series 2 Preferred Stock and 40,000 shares of Class B Series 3 Preferred Stock
are issued and outstanding. Except as set forth in Schedule 4.5 hereto and
except for (i) options to purchase not more than 3,307,728 shares of Common
Stock with purchase prices between $1.79 and $10.125 per share and (ii)
warrants to purchase not more than 1,562,871 shares of Common Stock with
purchase prices between $1.67 and $6.99 per share, there are no options,
warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for any
shares of capital stock of the Company. All of the outstanding shares of
Common Stock of the Company have been duly and validly authorized and issued
and are fully paid and nonassessable.
Section 4.6. Registration and Listing of Common Stock. The Company
has registered its Common Stock pursuant to Section 12(b) or 12(g) of the
Exchange Act and is in full compliance with all reporting requirements of the
Exchange Act, and the Company has maintained all requirements for the
continued listing or quotation of its Common Stock, and such Common Stock is
currently listed or quoted on the Principal Market. As of the date hereof, the
Principal Market is the Nasdaq SmallCap Market.
Section 4.7. Financial Statements. Prior to the execution of this
Agreement, the Company has delivered to the Investor true and complete copies
of the following financial statements:
(a) the audited balance sheets of the Company and its
consolidated subsidiaries as of December 31, 1999 and the related
audited consolidated statements of operations, stockholders' equity
and cash flows for each of the fiscal years then ended, together with
a true and correct copy of the report on such audited information by
BDO ▇▇▇▇▇▇▇, LLP, and all letters from such accountants with respect
to the results of such audits; and
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(b) the unaudited balance sheets of the Company and its
consolidated subsidiaries as of June 30, 2000 and the related
unaudited consolidated statements of operations and stockholders'
equity for the portion of the fiscal year then ended.
The financial statements of the Company delivered to the Investor
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of
the dates thereof and the results of operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
Section 4.8. SEC Documents. The Company has delivered or made
available to the Investor true and complete copies of the SEC Documents
(including, without limitation, proxy information and solicitation materials).
The Company has not provided to the Investor any information that, according
to applicable law, rule or regulation, should have been disclosed publicly
prior to the date hereof by the Company, but which has not been so disclosed.
As of their respective dates, the SEC Documents complied as to form and
substance in all material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a 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. The financial statements of the Company included in
the SEC Documents comply as to form and substance in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may include summary notes and may be
condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results
of operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
Section 4.9. Exemption from Registration; Valid Issuances; New
Issuances. The sale and issuance of the Incentive Warrant, the Warrant Shares,
the Preferred Stock and the Conversion Shares in accordance with the terms and
on the bases of the representations and warranties set forth in this
Agreement, may and will be properly issued pursuant to Rule 4(2), Regulation D
and/or any applicable state law. When issued and paid for as provided herein
and in the Incentive Warrant, the Preferred Stock, the Conversion Shares and
the Warrant Shares will be duly and validly issued, fully paid, and
nonassessable. Neither the sales of the Preferred Stock, the Conversion
Shares, the Incentive Warrant, or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the
Registration Rights Agreement or the Incentive Warrant will (i) result in the
creation or imposition of any liens,
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charges, claims or other encumbrances upon the Preferred Stock, the Conversion
Shares, the Warrant Shares, or any of the assets of the Company, or (ii)
entitle the holders of Outstanding Capital Shares to preemptive or other
rights to subscribe to or acquire the Capital Shares or other securities of
the Company. The Preferred Stock, the Conversion Shares and the Warrant Shares
will not subject the Investor to personal liability by reason of the ownership
thereof. The Preferred Stock, the Conversion Shares and Warrant Shares have
been duly authorized by the Company, but have not been issued (whether or not
subsequently repurchased by the Company) to any Person, and when issued to the
Investor in accordance with this Agreement and the Incentive Warrant will not
have been issued (whether or not subsequently repurchased by the Company) to
any Person other than the Investor.
Section 4.10. No General Solicitation or Advertising. In regard to
the transactions contemplated hereby, neither the Company nor any of its
Affiliates nor any distributor or any person acting on its or their behalf (i)
has conducted or will conduct any general solicitation (as that term is used
in Rule 502(c) of Regulation D) or general advertising with respect to any of
the Preferred Stock, the Conversion Shares, the Incentive Warrant, or the
Warrant Shares, or (ii) made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would require
registration of the Common Stock under the Securities Act.
Section 4.11. No Conflicts. The execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Preferred Stock, the Conversion Shares, the Incentive Warrant and the
Warrant Shares do not and will not (i) result in a violation of the
Certificate or By-Laws or (ii) conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture, instrument or any
"lock-up" or similar provision of any underwriting or similar agreement to
which the Company is a party, or (iii) result in a violation of any federal,
state, local or foreign law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to
the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect) nor is the Company otherwise in
violation of, conflict with or in default under any of the foregoing;
provided, however, that for purposes of the Company's representations and
warranties as to violations of foreign law, rule or regulation referenced in
clause (iii), such representations and warranties are made only to the best of
the Company's knowledge insofar as the execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby are or may be affected by the status of the
Investor under or pursuant to any such foreign law, rule or regulation. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency
in order for it to execute, deliver or perform any of its obligations under
this Agreement or issue and sell the Preferred Stock, the Conversion Shares,
the Incentive Warrant, or the Warrant Shares in accordance with the terms
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hereof (other than any SEC, NASD or state securities filings that may be
required to be made by the Company subsequent to the Closing, any registration
statement that may be filed pursuant hereto, and any shareholder approval
required by the rules applicable to companies whose common stock trades on the
Nasdaq SmallCap Market); provided that, for purposes of the representation
made in this sentence, the Company is assuming and relying upon the accuracy
of the relevant representations and agreements of the Investor herein.
Section 4.12. No Material Adverse Change. Except as otherwise
disclosed in the SEC Documents, since December 31, 1999, no event has occurred
that would have a Material Adverse Effect on the Company.
Section 4.13. No Undisclosed Liabilities. Except as otherwise
disclosed in the SEC Documents, the Company has no liabilities or obligations
that are material, individually or in the aggregate, other than those incurred
in the ordinary course of the Company's businesses since December 31, 1999 and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company.
Section 4.14. No Undisclosed Events or Circumstances. Since December
31, 1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has not been so publicly announced.
Section 4.15. No Integrated Offering. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf has, directly
or indirectly, made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would require registration
of the Preferred Stock, the Conversion Shares, the Incentive Warrant or the
Warrant Shares under the Securities Act.
Section 4.16. Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit,
proceeding or investigation, which have had or might have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which has
resulted in or might result in a Material Adverse Effect.
Section 4.17. No Misleading or Untrue Communication. To the
knowledge of the Company, the Company, any Person representing the Company,
any other Person selling or offering to sell the Preferred Stock, the
Conversion Shares, the Incentive Warrant or the Warrant Shares in connection
with the transactions contemplated by this Agreement, have not made, at any
time, any communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
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Section 4.18. Material Non-Public Information. The Company is not in
possession of, nor has the Company or its agents disclosed to the Investor,
any material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has not
been so disclosed.
ARTICLE V
COVENANTS OF THE INVESTOR
Section 5.1. Compliance. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market on which the Company's Common
Stock is listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect, and the
Company shall comply in all respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof,
the Company has available and the Company shall reserve and keep available at
all times, free of preemptive rights, shares of Common Stock for the purpose
of enabling the Company to satisfy any obligation to issue the Conversion
Shares and the Warrant Shares, such amount of shares of Common Stock to be
reserved shall be calculated based upon the conversion price of the Preferred
Stock set forth in the Certificate of Amendment, and the Exercise Price of the
Incentive Warrant. The number of shares so reserved from time to time, as
theretofore increased or reduced as hereinafter provided, may be reduced by
the number of shares actually delivered.
Section 6.3. Listing of Common Stock. The Company shall maintain
the listing or quotation of the Common Stock on a Principal Market, and as
soon as practicable will cause the Conversion Shares and the Warrant Shares to
be listed on the Principal Market. The Company further shall, if the Company
applies to have the Common Stock traded on any other Principal Market, include
in such application the Conversion Shares and the Warrant Shares, and shall
take such other action as is necessary or desirable in the opinion of the
Investor to cause the Common Stock to be listed on such other Principal Market
as promptly as possible. The Company shall continue the listing and trading of
its Common Stock on the Principal Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of the NASD and the Principal Market.
Section 6.4. Exchange Act Registration. The Company shall file the
Registration Statement with the SEC within 20 calendar days following the
Closing Date, in accordance with
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the Registration Rights Agreement. After the Registration Statement becomes
effective, the Company shall cause the Common Stock covered by such
Registration Statement to continue to be registered under Section 12(g) or
12(b) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or
file any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under the Exchange Act.
Section 6.5. Legends. The certificates evidencing the Conversion
Shares and the Warrant Shares shall be free of legends, except as provided for
in Article VIII.
Section 6.6. Corporate Existence. The Company shall take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7. Additional SEC Documents. Until all Registrable
Securities issued or issuable to the Investor pursuant to this Agreement may
be sold by the Investor without registration and without any time, volume or
manner limitations pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act, the Company shall deliver to the Investor,
as and when the originals thereof are submitted to the SEC for filing, copies
of all SEC Documents so furnished or submitted to the SEC.
Section 6.8. Notice of Certain Events Affecting Registration. The
Company shall immediately notify the Investor, but in no event later than two
business days by facsimile and by overnight courier, upon the occurrence of
any of the following events in respect of a Registration Statement or related
prospectus in respect of an offering of Registrable Securities: (i) receipt of
any request for additional information by the SEC or any other federal or
state governmental authority during the period of effectiveness of the
Registration Statement for amendments or supplements to the Registration
Statement or related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any
event that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein
by reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so
that, in the case of a Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; (v) the
declaration by the SEC of the effectiveness of a Registration Statement; and
(vi) the Company's reasonable determination that a post-effective amendment to
the Registration Statement would be appropriate, and the Company shall
promptly make available to the Investor any such supplement or amendment to
the related prospectus.
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Section 6.9. Consolidation; Merger. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all of the assets of the
Company to, another entity unless the resulting successor or acquiring entity
(if not the Company) assumes by written instrument the obligation to deliver
to the Investor such shares of stock and/or securities as the Investor is
entitled to receive pursuant to this Agreement and the Incentive Warrant.
Section 6.10. Issuance of Conversion Shares, Warrant Shares and
Additional Shares. The sale of the Preferred Stock, the issuance of the
Conversion Shares pursuant to conversion of the Preferred Stock, and the
issuance of the Warrant Shares pursuant to exercise of the Incentive Warrant
shall be made in accordance with the provisions and requirements of Regulation
D and any applicable state law. Issuance of the Warrant Shares pursuant to
exercise of the Incentive Warrant through a cashless exercise shall be made in
accordance with the provisions and requirements of Section 3(a)(9) under the
Securities Act and any applicable state law.
Section 6.11. Legal Opinion. The Company's independent counsel
shall deliver to the Investor on the Closing Date an opinion in the form of
Exhibit C.
Section 6.12. No Similar Arrangement; Right of First Refusal. The
Company shall refrain from entering into any other agreements, arrangements or
understandings granting to the Company the right to sell shares of its
securities to one or more investors in placements exempt from registration
under the Securities Act until 180 calendar days after the Registration
Statement has been declared effective by the SEC (the "Exclusivity Period").
If the Company, for the purpose of obtaining any additional financing, wishes
to sell shares of its securities in placements exempt from registration under
the Securities Act during the Exclusivity Period (a "Sale") to a party other
than the Investor (the "Third Party"), the Company shall first offer (the
"Offer") to the Investor, in writing, the right to purchase such shares (the
"Offered Shares") at the bona fide price offered by the Third Party (the
"Offer Price"). The Offer shall grant the Investor the right during the five
Trading Days immediately following the date of the Offer to elect to purchase
any or all of the Offered Shares. The Company, in connection with such a Sale,
shall refrain from circumventing or attempting to circumvent the Investor's
right of first refusal by way of making such a Sale to any of its Affiliates
without first making an Offer to the Investor. If the Investor fails to
exercise its right to purchase any or all of the Offered Shares, then during
the 60 calendar days immediately following the expiration of such right, the
Company shall be free to sell any or all of the Offered Shares to a purchaser
for a purchase price not lower than the Offer Price payable on terms and
conditions that are not more favorable to such purchaser than those contained
in the Offer. In the event that the Company effects a Sale to a Third Party,
the Investor may immediately terminate this Agreement.
Section 6.13. Public Announcements. The Company, its Representatives
and legal advisors, and the Investor will not issue or make any reports,
statements or releases to the public or to any third party with respect to
this Agreement or the transactions contemplated hereby without the consent of
both the Company and the Investor, which consent shall not be unreasonably
withheld. The Company, its Representatives and legal advisers, and the
Investor also will obtain the other party's prior approval of any press
release to be issued announcing the consummation of the transactions
contemplated by this Agreement or in any way referring to the
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other party or affiliates of the other party. If either party is unable to
obtain the approval of its public report, statement, or press or other release
from the other party and such report, statement, or press or other release is,
in the opinion of legal counsel to such party, required by applicable law in
order to discharge such party's disclosure obligations, then such party may
make or issue the legally required report, statement, or press or other
release and promptly furnish the other party with a copy thereof.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1. Certificate of Amendment. The Company shall, prior to
the Closing Date, have duly filed the Certificate of Amendment with, and the
Certificate of Amendment shall have been approved by, the State of New York
Department of State.
Section 7.2. Due Diligence Review; Non-Disclosure of Non-Public
Information.
(a) The Company shall make available for inspection and review
by the Investor, advisors to and representatives of the Investor (who
may or may not be affiliated with the Investor and who are reasonably
acceptable to the Company), and any Underwriter, any Registration
Statement or amendment or supplement thereto or any blue sky, NASD or
other filing, all financial and other records, all SEC Documents and
other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company's officers, directors
and employees to supply all such information reasonably requested by
the Investor or any such representative, advisor or Underwriter in
connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of such Registration
Statement for the sole purpose of enabling the Investor and such
representatives, advisors and Underwriters and their respective
accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of such
Registration Statement.
(b) None of the Company, its officers, directors, employees and
agents shall in any event disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior
to disclosure of such information the Company identifies such
information as being non-public information and provides the
Investor, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. As
a condition to disclosing any non-public information hereunder, the
Company may require the Investor's advisors and representatives to
enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(c) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or
representatives, and the Company represents that it does not
disseminate non-public information to any investors who purchase
stock in the
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Company in a public offering, to money managers or to securities
analysts; provided, however, that notwithstanding anything herein to
the contrary, the Company shall, as hereinabove provided, immediately
notify the advisors and representatives of the Investor and any
Underwriters of any event or the existence of any circumstance
(without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public
information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or
entities), which, if not disclosed in the prospectus included in the
applicable Registration Statement would cause such prospectus to
include a material misstatement or to omit a material fact required
to be stated therein in order to make the statements, therein, in
light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.2 shall be construed to mean that
such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may
not obtain non-public information in the course of conducting due
diligence in accordance with the terms and conditions of this
Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that such
Registration Statement contains an untrue statement of a material
fact or omits a material fact required to be stated in such
Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE VIII
LEGENDS
Section 8.1. Legends. The Preferred Stock, the Incentive Warrant
and, unless otherwise provided below, each certificate representing
Registrable Securities will bear the following legend (the "Legend"):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF
CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN A STOCK PURCHASE
AGREEMENT, DATED AS OF OCTOBER 31, 2000, BETWEEN
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CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND CRESCENT
INTERNATIONAL LTD. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT
EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM CHROMATICS COLOR
SCIENCES INTERNATIONAL, INC.'S EXECUTIVE OFFICES."
At the Closing, the Company shall issue to the transfer agent for its
Common Stock (and to any substitute or replacement transfer agent for its
Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions in substantially the form of Exhibit
D hereto, with a copy to the Investor. Other than as required as a result of
change in law, such instructions shall be irrevocable by the Company from and
after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and
under the following circumstances and without consultation by the transfer
agent with the Company or its counsel and without the need for any further
advice or instruction or documentation to the transfer agent by or from the
Company or its counsel or the Investor:
(a) At any time after the applicable Effective Date, upon
surrender of one or more certificates evidencing Common Stock that
bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those
surrendered; provided that (i) the applicable Registration Statement
shall then be effective and (ii) if reasonably requested by the
transfer agent the Investor confirms to the transfer agent that the
Investor has transferred the Registrable Securities pursuant to such
Registration Statement and has complied with the prospectus delivery
requirement.
(b) At any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates
free of the Legend to replace those surrendered and containing
representations that the Investor is permitted to dispose of such
Registrable Securities without limitation as to amount or manner of
sale pursuant to Rule 144(k) under the Securities Act.
Section 8.2. No Other Legend or Stock Transfer Restrictions. No
legend other than the one specified in Section 8.1 has been or shall be placed
on the share certificates representing the Preferred Stock, Incentive Warrant
and Registrable Securities, and no instructions or "stop transfer orders," so
called, "stock transfer restrictions," or other restrictions have been or
shall be given to the Company's transfer agent with respect thereto other than
as expressly set forth in this Article VIII.
Section 8.3. Investor's Compliance. Nothing in this Article VIII
shall affect in any way the Investor's obligations to comply with all
applicable securities laws.
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ARTICLE IX
INDEMNIFICATION; ARBITRATION
Section 9.1. Indemnification. The Company agrees to indemnify and
hold harmless the Investor, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and each Person or entity, if any, who
controls the Investor within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, together with its controlling persons from
and against any Damages, joint or several, and any action in respect thereof
to which the Investor, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such controlling person becomes
subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to
perform any covenant or agreement on the part of Company contained in this
Agreement, as such Damages are incurred, unless such Damages result primarily
from the Investor's gross negligence, recklessness or bad faith in performing
its obligations under this Agreement; provided, however, that the maximum
aggregate liability of the Company shall be limited to the amount actually
invested by the Investor under this Agreement, and provided, further, that in
no event shall this provision be deemed to limit any rights to indemnification
arising under the Registration Rights Agreement.
Section 9.2. Method of Asserting Indemnification Claims. All
claims for indemnification by any Indemnified Party (as defined below) under
Section 9.1 shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section 9.1
(an "Indemnified Party") might seek indemnity under Section 9.1 is
asserted against or sought to be collected from such Indemnified
Party by a person other than the Company, the Investor or any
Affiliate of the Company (a "Third Party Claim"), the Indemnified
Party shall deliver a written notification, enclosing a copy of all
papers served, if any, and specifying the nature of and basis for
such Third Party Claim and for the Indemnified Party's claim for
indemnification that is being asserted under any provision of Section
9.1 against any person (the "Indemnifying Party"), together with the
amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such Third Party Claim (a "Claim
Notice") with reasonable promptness to the Indemnifying Party. If
the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of
such Third Party Claim, the Indemnifying Party shall not be obligated
to indemnify the Indemnified Party with respect to such Third Party
Claim to the extent that the Indemnifying Party's ability to defend
has been materially prejudiced by such failure of the Indemnified
Party. The Indemnifying Party shall notify the Indemnified Party as
soon as practicable within the period ending 30 calendar days
following receipt by the Indemnifying Party of either a Claim Notice
or an Indemnity Notice (as defined below) (the "Dispute Period")
whether the Indemnifying Party disputes its liability or the amount
of its liability to the Indemnified Party under Section 9.1 and
whether the Indemnifying Party desires, at its sole cost and expense,
to defend the Indemnified Party against such Third Party Claim.
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(i) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to
defend the Indemnified Party with respect to the Third Party Claim
pursuant to this Section 9.2(a), then the Indemnifying Party shall
have the right to defend, with counsel reasonably satisfactory to the
Indemnified Party, at the sole cost and expense of the Indemnifying
Party, such Third Party Claim by all appropriate proceedings, which
proceedings shall be diligently prosecuted by the Indemnifying Party
to a final conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified
Party, which consent shall not be unreasonably withheld, in the case
of any settlement that provides for any relief other than the payment
of monetary damages or that provides for the payment of monetary
damages as to which the Indemnified Party shall not be indemnified in
full pursuant to Section 9.1). The Indemnifying Party shall have
full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the
Indemnified Party, at any time prior to the Indemnifying Party's
delivery of the notice referred to in the first sentence of this
clause (i), file any motion, answer or other pleadings or take any
other action that the Indemnified Party reasonably believes to be
necessary or appropriate to protect its interests; and provided
further, that if requested by the Indemnifying Party, the Indemnified
Party will, at the sole cost and expense of the Indemnifying Party,
provide reasonable cooperation to the Indemnifying Party in
contesting any Third Party Claim that the Indemnifying Party elects
to contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim
controlled by the Indemnifying Party pursuant to this clause (i), and
except as provided in the preceding sentence, the Indemnified Party
shall bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party
may take over the control of the defense or settlement of a Third
Party Claim at any time if it irrevocably waives its right to
indemnity under Section 9.1 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires
to defend the Third Party Claim pursuant to Section 9.2(a), or if the
Indemnifying Party gives such notice but fails to prosecute
diligently or settle the Third Party Claim, or if the Indemnifying
Party fails to give any notice whatsoever within the Dispute Period,
then the Indemnified Party shall have the right to defend, at the
sole cost and expense of the Indemnifying Party, the Third Party
Claim by all appropriate proceedings, which proceedings shall be
prosecuted by the Indemnified Party in a reasonable manner and in
good faith or will be settled at the discretion of the Indemnified
Party (with the consent of the Indemnifying Party, which consent will
not be unreasonably withheld). The Indemnified Party will have full
control of such defense and proceedings, including any compromise or
settlement thereof; provided, however, that if requested by the
Indemnified Party, the Indemnifying Party will, at the sole cost and
expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnified Party and its counsel in contesting any
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Third Party Claim which the Indemnified Party is contesting.
Notwithstanding the foregoing provisions of this clause (ii), if the
Indemnifying Party has notified the Indemnified Party within the
Dispute Period that the Indemnifying Party disputes its liability or
the amount of its liability hereunder to the Indemnified Party with
respect to such Third Party Claim, and if such dispute is resolved in
favor of the Indemnifying Party in the manner provided in clause
(iii) below, the Indemnifying Party will not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to
this clause (ii) or of the Indemnifying Party's participation therein
at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all reasonable costs and
expenses incurred by the Indemnifying Party in connection with such
litigation. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified
Party pursuant to this clause (ii), and the Indemnifying Party shall
bear its own costs and expenses with respect to such participation.
(iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability or the amount of its liability
to the Indemnified Party with respect to the Third Party Claim under
Section 9.1 or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes its liability
or the amount of its liability to the Indemnified Party with respect
to such Third Party Claim, the Damages in the amount specified in the
Claim Notice shall be conclusively deemed a liability of the
Indemnifying Party under Section 9.1 and the Indemnifying Party shall
pay the amount of such Damages to the Indemnified Party on demand. If
the Indemnifying Party has timely disputed its liability or the
amount of its liability with respect to such claim, the Indemnifying
Party and the Indemnified Party shall proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through
negotiations within the period of 30 calendar days immediately
following the Dispute Period, such dispute shall be resolved by
arbitration in accordance with Section 9.3.
(b) In the event any Indemnified Party should have a claim under
Section 9.1 against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim
for indemnity under Section 9.1 specifying the nature of and basis for such
claim, together with the amount or, if not then reasonably ascertainable, the
estimated amount, determined in good faith, of such claim (an "Indemnity
Notice") with reasonable promptness to the Indemnifying Party. The failure by
any Indemnified Party to give the Indemnity Notice shall not impair such
party's rights hereunder except to the extent that the Indemnifying Party
demonstrates that it has been materially prejudiced thereby. If the
Indemnifying Party notifies the Indemnified Party that it does not dispute the
claim or the amount of the claim described in such Indemnity Notice or fails
to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes the claim or the amount of the claim described in
such Indemnity Notice, the Damages in the amount specified in the Indemnity
Notice will be conclusively deemed a liability of the Indemnifying Party under
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Section 9.1 and the Indemnifying Party shall pay the amount of
such Damages to the Indemnified Party on demand. If the Indemnifying Party
has timely disputed its liability or the amount of its liability with respect
to such claim, the Indemnifying Party and the Indemnified Party shall proceed
in good faith to negotiate a resolution of such dispute, and if not resolved
through negotiations within the period of 30 calendar days immediately
following the Dispute Period, such dispute shall be resolved by arbitration in
accordance with Section 9.3.
Section 9.3. Arbitration. Any controversy, claim or dispute arising
out of or in connection with this Agreement, the Registration Rights
Agreement, or the Incentive Warrant, including any question regarding its
existence, validity, interpretation, breach, or termination, shall be referred
to and finally resolved in accordance with the International Arbitration Rules
of the American Arbitration Association, and judgment upon the award rendered
by the arbitral tribunal may be entered by any court having jurisdiction
thereof or having jurisdiction over any party or any party's assets.
(a) The tribunal shall consist of three arbitrators, two of
whom shall be appointed by the respective parties and the third, who
shall be the chairperson of the tribunal, by the two party-appointed
arbitrators within 30 days of the last of their appointments. Save
that, if either party should fail to appoint an arbitrator within 30
days of receiving written notice of the appointment of an arbitrator
by the other party, the second arbitrator shall, at the written
request of the party which has already made an appointment, be
appointed forthwith by the American Arbitration Association.
Likewise, if the party-appointed arbitrators fail to make an agreed
appointment for the chairperson within 30 days of the last of their
appointments, the chairperson shall, at the written request of either
party, be appointed forthwith by the American Arbitration
Association.
(b) The place of arbitration shall be New York, New York.
(c) This arbitration clause and the conduct of the arbitral
proceedings shall be governed by the Federal Arbitration Act, 9
U.S.C.A. sec. 1 et seq.
(d) The language of the arbitration shall be English.
(e) Nothing in these dispute resolution provisions shall be
construed as preventing either party from seeking conservatory or
similar interim relief in any court of competent jurisdiction.
(f) To the extent practicable, the arbitral tribunal shall
render its award no more than 60 calendar days from the date that the
three member tribunal is constituted. The arbitral tribunal shall not
lose jurisdiction over the matter based on a failure to render an
award within this time period.
ARTICLE X
MISCELLANEOUS
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Section 10.1. Closing Fees and Transaction Costs. In connection with
the execution of this agreement the following Closing Fees and Transaction
Costs (as defined below) are payable by the Company. The Investor is
authorized by the Company to retain and to pay, on behalf of the Company, the
Closing Fees and Transaction Costs to the payee entities in accordance with
Schedule 10.1, and may deduct such amounts from any sums due to the Company on
the Closing Date.
(a) Closing Fees. The Company shall pay certain fees (the
"Closing Fees") to the payee entities in accordance with Schedule
10.1.
(b) Transaction Costs. The fees, expenses and disbursements of
the Investor's counsel (the "Investor Legal Fees") shall be paid as
follows: (i) the Investor shall pay the initial $10,000 of Investor
Legal Fees and (ii) the Company shall pay all Investor Legal Fees in
excess of $10,000. The Company shall pay the Investor due diligence
costs in connection with the consummation of this Agreement and the
transactions contemplated hereby (the "Due Diligence Costs," and
together with the Investor Legal Fees, the "Transaction Costs"), up
to a maximum amount of $7,500. The Company shall pay to the Investor
the Company's share of the Transaction Costs on the Closing Date, to
the extent such share of the Transaction Costs can be determined on
the Closing Date. The Company shall pay its share of the remaining
Transaction Costs to the Investor not later than ten days after
receipt of notice from the Investor that such amount is due. The
Company agrees to pay its own expenses incident to the performance of
its obligations hereunder.
Section 10.2. Brokerage. Except as disclosed in Section 10.1, each
of the parties hereto represents that it has had no dealings in connection
with this transaction with any finder or broker which would impose a legal
obligation to pay any fee or commission. The Company on the one hand, and the
Investor, on the other hand, agree to indemnify the other against and hold the
other harmless from any and all liabilities to any persons claiming brokerage
commissions or finder's fees on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this Agreement
or the transactions contemplated hereby.
Section 10.3. Conversion Notice. Any conversion of the Preferred
Stock shall be effected in accordance with the Certificate of Amendment of the
Company, as amended, and any conversion notice delivered to the Company by the
Investor shall be in the form of Exhibit E hereto.
Section 10.4. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be
in writing and, unless otherwise specified herein, shall be (i) personally
served, (ii) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier service
with charges prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as such party
shall have specified most recently by written notice given in accordance
herewith. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal
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business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company:
Chromatics Color Sciences International, Inc.
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Chairperson
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
Patterson, Belknap, ▇▇▇▇ & Tyler LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. La Gueux, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Investor:
Crescent International Ltd.
c/o GreenLight (Switzerland) SA
▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇/Maxi Brezzi
Telephone: ▇▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇
Facsimile: ▇▇▇ ▇▇ ▇▇▇ ▇▇ ▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇▇▇▇ Chance ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Either party hereto from time to time may change its address or facsimile
number for notices under this Section by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the
other party hereto.
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Section 10.5. Assignment. Neither this Agreement nor any rights of
the Investor or the Company hereunder may be assigned by either party to any
other Person. Notwithstanding the foregoing, the Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any Affiliate
of the Investor upon the prior written consent of the Company, which consent
shall not to be unreasonably withheld provided, however, that any such
assignment or transfer shall relieve the Investor of its duties under this
Agreement only upon performance thereof by any such assignee or transferee.
Section 10.6. Amendment; No Waiver. No party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth in this Agreement. Except as
expressly provided in this Agreement, neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by both parties hereto. The failure of the either
party to insist on strict compliance with this Agreement, or to exercise any
right or remedy under this Agreement, shall not constitute a waiver of any
rights provided under this Agreement, nor estop the parties from thereafter
demanding full and complete compliance nor prevent the parties from exercising
such a right or remedy in the future.
Section 10.7. Annexes and Exhibits; Entire Agreement. All annexes
and exhibits to this Agreement are incorporated herein by reference and shall
constitute part of this Agreement. This Agreement, the Incentive Warrant and
the Registration Rights Agreement set forth the entire agreement and
understanding of the parties relating to the subject matter hereof and thereof
and supersede all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written, relating to the
subject matter hereof.
Section 10.8. Survival. The provisions of Articles VI, VIII, IX and
X, and of Section 7.2, shall survive the Closing.
Section 10.9. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force
and effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 10.10. Title and Subtitles. The titles and subtitles used in
this Agreement are used for the convenience of reference and are not to be
considered in construing or interpreting this Agreement.
Section 10.11. Counterparts. This Agreement may be executed in
multiple counterparts, each of which may be executed by less than all of the
parties and shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument.
Section 10.12. Choice of Law. This Agreement shall be construed
under the laws of the State of New York.
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Section 10.13. Other Expenses. In the event that a dispute between
the parties is not determined by a Board of Arbitration, the non-prevailing
party in any action, suit or proceeding shall bear all investigative, legal
and other expenses reasonably incurred in connection with, and any and all
amounts paid in defense or settlement of such action, suit or proceeding.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by the undersigned, thereunto duly authorized, as of the date
first set forth above.
CRESCENT INTERNATIONAL LTD.
By:
-------------------------------------
Name:
Title:
CHROMATICS COLOR SCIENCES INTERNATIONAL,
INC.
By:
-------------------------------------
Name:
Title:
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SCHEDULE 4.5
CAPITALIZATION
On August 17, 2000, the Company issued an adjustable warrant that
provides that the holder thereof has the right to acquire, at an exercise
price equal to $.001, an adjustable number of shares of Common Stock to be
determined according to a formula contained therein on or after each of two
"vesting dates": March 30, 2001 and October 11, 2001. The number of Adjustable
Warrant Shares issuable upon the exercise of the Adjustable Warrant cannot be
determined at the present time. However, the formula for calculating this
number of shares is as follows:
(Applicable Share Number) x [$4.68/.87 - (Adjustment Period Price)]
-------------------------------------------------------------------
Adjustment Period Price
Applicable Share Number = 284,900 shares of Common Stock on the First
Vesting Date (as defined in the Adjustable Warrant); 569,801 shares of Common
Stock on the Second Vesting Date (as defined in the Adjustable Warrant).
Adjustment Period Price = the greater of (i) $1.00 and (ii) the average
of the ten lowest Per Share Market Values (as defined in the Adjustable
Warrant) (which need not occur on consecutive trading days) during the forty
consecutive trading days preceding the First Vesting Date; the average of the
ten lowest Per Share Market Values (which need not occur on consecutive
trading days) preceding the Second Vesting Date.
On April 15, 1999, the Company 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, at a conversion price of
$5.00, subject to the anti-dilution provisions stated therein. Pursuant to a
Letter Agreement dated October 11, 2000, the Company agreed with the holders
of the 14% Senior Convertible Debentures (the "Debentures") to convert the
$5,000,000 principal amount of the Debentures, as well as any accrued but
unpaid interest thereon, into a newly-authorized series of convertible
preferred stock of the Company (the "New Preferred"). This conversion will be
deemed effective October 31, 2000, subject to the satisfaction of certain
conditions. The New Preferred will be convertible into shares of Common Stock
at a conversion price of $4.68 per share and will accrue cumulative dividends
at a rate of 8% per annum beginning on April 15, 2002. With respect to the
distribution of assets on the liquidation, dissolution or winding up of the
Company, the New Preferred shall rank senior and prior to all classes or
series of capital stock of the Company issued prior thereto or thereafter. The
New Preferred will also be subject to involuntary conversion into shares of
Common Stock at the option of the Company at a conversion price of $4.68 per
share if the average closing bid price of the Company's Common Stock for ten
consecutive trading days exceeds $10.29.
On December 31, 1998, the Company'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 the Company's outstanding
Common Stock (a "Right") subject to the terms of the rights agreement between
the Company and its transfer agent. Each Right will
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entitle the holder to purchase one one-hundredth of a share of the Company'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 the Company, all Rights
holders, other than such person, will be entitled to purchase shares of the
Company's stock at a discount price. If the Company 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.
In connection with the acquisition of ▇▇▇▇▇▇ Acquisition Corp., the
Company is further obligated to issue (i) 70,595 shares of Common Stock to
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ at $6.29 per share and (ii) 10,461 shares of Common Stock
to Boeing Capital Corporation at $6.29 per share.
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SCHEDULE 10.1
The Company shall pay to the payee entities set forth below the following
Closing Fees and Transaction Costs under Section 10.1, which the Investor
shall then allocate as follows:
EVENTS TRIGGERING THE FEES / TRANSACTION AMOUNT ON WHICH THE PAYEE ENTITY AMOUNT
PAYMENT COSTS FEE IS CALCULATED
-----------------------------------------------------------------------------------------------------------------------------
Closing Date Closing Fee Investment Amount GreenLight (Switzerland) $50,000
S.A.
-----------------------------------------------------------------------------------------------------------------------------
Closing Date Legal Fees Investor Legal Fees Crescent International Ltd. Investor Legal
Fees less
$10,000
-----------------------------------------------------------------------------------------------------------------------------
Closing Date Due Diligence Due Diligence Costs GreenLight (Switzerland) 100%
Costs with a maximum S.A.
amount of $7,5000
-----------------------------------------------------------------------------------------------------------------------------
Closing Date Escrow Amount Escrow Amount Retained by Crescent $125,000
International Ltd. at
Closing
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EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
30
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EXHIBIT B
FORM OF INCENTIVE WARRANT
31
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EXHIBIT C
[FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL]
October 31, 2000
Crescent International Ltd.
▇/▇ ▇▇▇▇▇▇▇▇▇▇ (▇▇▇▇▇▇▇▇▇▇▇) ▇▇
▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇
Dear Sirs:
We have acted as counsel to Chromatics Color Sciences International,
Inc., a New York corporation (the "Company"), in connection with the
negotiation, execution and delivery by the Company of (i) the Stock Purchase
Agreement, dated as of October 30, 2000 (the "Stock Purchase Agreement"), by
and between the Company and Crescent International Ltd., a Bermuda entity (the
"Purchaser"), which provides for the issuance and sale by the Company to the
Purchaser pursuant thereto of 200 shares of the Company's Class B Series 4
Preferred Stock, par value $.01 per share (collectively, the "Shares"), which
are convertible into shares of the Company's common stock, $.001 par value per
share (the "Common Stock"), and a warrant (the "Incentive Warrant") to
purchase 270,000 shares of Common Stock, subject to adjustment as provided in
the Incentive Warrant (the shares of Common Stock issuable pursuant to the
exercise of the Incentive Warrant are referred to herein as the "Warrant
Shares"), (ii) the Incentive Warrant and (iii) the Registration Rights
Agreement, dated as of October 30, 2000, by and between the Company and the
Purchaser (the "Registration Rights Agreement" and, together with the Stock
Purchase Agreement, the "Agreements"). This opinion is being delivered to you
pursuant to Section 6.11 of the Stock Purchase Agreement. All capitalized
terms used herein but not otherwise defined are used with the meanings defined
for them in the Stock Purchase Agreement.
For purposes of this opinion letter, "Actual Knowledge" means the
conscious awareness of facts or other information by the partner who has
signed this opinion letter, any lawyer in our firm who has been actively
involved in negotiating or preparing the Agreements, the Incentive Warrant or
this opinion letter, any lawyer in our firm who regularly represents the
Company or any lawyer in our firm who has been primarily responsible for
providing the responses in this opinion letter which are limited to our Actual
Knowledge.
For purposes of this opinion letter, we have examined such documents
as we have deemed appropriate, including, without limitation, the Agreements,
a letter to the Company from The Nasdaq Stock Market, Inc. ("Nasdaq"), dated
October 25, 2000 (the "Nasdaq Letter"), the Certificate of Incorporation of
the Company as amended by the Certificate of Amendment, the Bylaws of the
Company, as amended, certificates, telexes or telegrams issued by public
officials
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in the State of New York as to the incorporation and good standing of the
Company (the "Public Authority Documents") and minutes of proceedings taken
and resolutions executed by the Board of Directors of the Company for the
purpose of authorizing the execution and delivery of the Agreements and the
consummation of the transaction contemplated thereby. As to certain matters of
fact material to the opinions expressed in this opinion letter, we have relied
on the representations made in the Agreements, the Public Authority Documents
and certificates of officers of the Company. We have not independently
established the facts so relied on.
We have also made such investigations of law as we have deemed
necessary for purposes of this opinion letter. We express no opinion as to any
laws other than the laws of the State of New York and the federal laws of the
United States of America. The opinions set forth below are also based upon and
subject to the assumptions, exceptions and limitations customary in New York
practice for opinion letters of this type, including, without limitation, the
effects of applicable bankruptcy, insolvency, reorganization, fraudulent
transfer and other similar laws affecting the enforcement of creditors' rights
and remedies in general and of general principles of equity (regardless of
whether considered in a proceeding in equity or in law), and others described
in the Reports of the TriBar Opinion Committee entitled Third Party "Closing"
Opinions, 53 Bus. Law. 592 (1998).
On the basis of and subject to the foregoing, it is our opinion that:
1. The Company is a corporation validly existing and in good
standing under the laws of the State of New York and has the
corporate power and authority under New York law to own, lease and
operate its properties and assets and to transact business as
described in the Company's SEC Documents. To our Actual Knowledge,
(i) except as otherwise disclosed in the SEC Documents, the Company
does not own more than fifty percent (50%) of the outstanding capital
stock of or otherwise control any other business entity and (ii) the
Company is duly qualified as a foreign corporation to do business in
and is in good standing in each jurisdiction in which the Company
owns or leases a material amount of property, other than those in
which the failure to so qualify would not have a Material Adverse
Effect.
2. The Company has the corporate power and authority to execute
and deliver each of the Agreements and the Incentive Warrant, to
issue the Shares, the Conversion Shares, the Incentive Warrant and
the Warrant Shares thereunder and to perform its obligations
thereunder and has taken all requisite corporate action to authorize
the execution, delivery and performance by it of each of the
Agreements and the Incentive Warrant. No further authorization or
consent of the Board of Directors or stockholders of the Company is
required for such execution, delivery or performance. Each of the
Agreements and the Incentive Warrant has been duly executed and
delivered by the Company and each of the Agreements and the Incentive
Warrant constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms.
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3. The execution and delivery by the Company of, and
performance by the Company of its obligations under, the Agreements
and the Incentive Warrant and the issuance of the Shares will not (i)
violate any provision of the Certificate of Incorporation or Bylaws
of the Company, (ii) to our Actual Knowledge, conflict with, or
constitute a material default (or an event that with notice or lapse
of time or both would become a default) under, or give rise to any
rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture, instrument or any "lock-up" or
similar provision of any underwriting or similar agreement to which
the Company is a party, except for such conflicts, defaults,
terminations, amendments, accelerations, and cancellations as would
not, individually or in the aggregate, have a Material Adverse Effect
on the Company or (iii) contravene any applicable provisions of any
New York or federal statutory law or regulation. To our Actual
Knowledge, the Company is not in material violation of any terms of
its Certificate of Incorporation or Bylaws.
4. The issuance of the Shares and the Incentive Warrant in
accordance with the Stock Purchase Agreement, the issuance of the
Conversion Shares upon conversion of the Shares in accordance with
Certificate of Amendment and the issuance of the Warrant Shares in
accordance with the Incentive Warrant is exempt from the registration
requirements of the Securities Act of 1933, as amended, and is not
subject to the registration requirements of the ▇▇▇▇▇▇ Act pursuant
to Section 359 - e thereof.
5. The Shares and the Incentive Warrant have been duly
authorized, validly issued and are fully paid, nonassessable and free
of any liens, encumbrances and preemptive or similar rights contained
in the Company's Certificate of Incorporation and Bylaws or, to our
Actual Knowledge, any agreement to which the Company is a party. Upon
issuance in accordance with the terms of the Shares and the Incentive
Warrant the Conversion Shares and the Warrant Shares will have been
duly authorized and validly issued and will be fully paid,
nonassessable and free of any liens, encumbrances and preemptive or
similar rights contained in the Company's Certificate of
Incorporation and Bylaws or, to our Actual Knowledge, any agreement
to which the Company is a party.
6. The Company has been granted an extension of time by the
staff of Nasdaq pursuant to the Nasdaq Letter (a copy of which has
previously been provided to you) to regain compliance with
Marketplace Rule 4310(c)(2)(B) and, subject to the satisfaction of
the conditions set forth in the Nasdaq Letter, the Company meets the
requirements for continued listing of the Common Stock on the Nasdaq
SmallCap Market.
7. To our Actual Knowledge, except as disclosed in the SEC
Documents, there are no claims, actions, suits, proceedings or
investigations that are pending against the Company or its
properties, or against any officer or director of the Company in his
or her capacity as such, nor has the Company received any written
threat of any such claims, actions, suits, proceedings or
investigations which are required to be and have not been disclosed
in the SEC Documents.
8. To our Actual Knowledge, there are no outstanding options,
warrants, calls or commitments of any character whatsoever to which
the Company is a party relating to or
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securities, rights or obligations issued by the Company convertible
into or exchangeable for, or giving any right to subscribe for or
acquire, any shares of Common Stock or Preferred Stock, or contracts,
commitments, understandings or arrangements by which the Company is
or may become bound to issue additional shares of Common Stock or
Preferred Stock, or securities or rights convertible or exchangeable
into shares of Common Stock or Preferred Stock, except in each case
as described in the SEC Documents.
This opinion letter may be relied upon by you only in connection with
the transactions contemplated the Agreements and may not be used or relied
upon by you or any other person for any other purpose whatsoever, without in
each instance our prior written consent, except for its use (i) in connection
with a review of the transactions contemplated by the Agreements by any
regulatory agency having supervisory authority over you, for the purpose of
confirming the existence of this opinion letter, (ii) in connection with the
enforcement of your rights and remedies under the Agreements and the Incentive
Warrant or the assertion of a defense as to which this opinion letter is
relevant and necessary or (iii) in response to a court order.
Very truly yours,
PATTERSON, BELKNAP, ▇▇▇▇ & TYLER LLP
By:
--------------------------------
A Member of the Firm
cc: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
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EXHIBIT D
FORM OF TRANSFER AGENT INSTRUCTIONS
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EXHIBIT E
[FORM OF CONVERSION NOTICE]
CONVERSION NOTICE No. ___
To: Chromatics Color Sciences International, Inc.
Attn: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Fax: ▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇
CC: Patterson, Belknap, ▇▇▇▇ & Tyler LLP
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: ▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇
The undersigned holder of [TOTAL] shares of Class B Series 4
Convertible Preferred Stock, par value $.01 per share (the "Preferred Stock"),
of Chromatics Color Sciences International, Inc. (the "Company") hereby
irrevocably exercises the option to convert ___________ shares of Preferred
Stock into common stock, par value $0.001 per share, of the Company (the
"Common Stock"), in accordance with the terms of the Preferred Stock. The
applicable conversion price is US$______________ and the number of shares of
Common Stock issuable upon conversion is ________________ (the "Conversion
Shares").
The undersigned directs that:
(i) the Conversion Shares be issued in the name of Crescent
International Ltd., and stock certificates representing
such Conversion Shares be delivered to ____________ in
accordance with the Transfer Agent Instructions, dated
__________, 2000, delivered by the Company to
[NAME/ADDRESS]; and
(ii) a new stock certificate in the name of Crescent
International Ltd., representing the number of shares of
Preferred Stock, if any, held by the undersigned
immediately following the conversion of __________ shares
of Preferred Stock in accordance with this Conversion
Notice, be delivered to GreenLight (Switzerland) S.A. at
▇▇, ▇▇. ▇▇▇▇▇ ▇▇▇▇▇, ▇▇-▇▇▇▇ ▇▇▇▇▇▇▇▇/▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇.
Dated:
------------------------
-----------------------------------------
Signature of Registered Holder
Name of Registered Holder
Please acknowledge receipt by faxing a duly executed copy of this Conversion
Notice to GreenLight (Switzerland) SA, at facsimile number ▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇.
Acknowledged: Date:
---------------------- ------------------
Contact person: Phone:
---------------------- ------------------
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Chromatics Color Sciences
International, Inc.
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