As filed with the Securities and Exchange Commission on December 13, 2000
May 26, 2021
Registration No. 333- - -------------------------------------------------------------------------------
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CHARLES & COLVARD, LTD.
(Exact
(Exact name of registrant as specified in its charter)
charter)
| North Carolina | 56-1928817 |
| (State or other jurisdiction of | (IRS Employer |
170 Southport Drive
Morrisville, N.C.NC 27560
(919) 468-0399
(Address, including zip code, and telephone number, including area code, of Registrant'sregistrant’s principal executive offices)
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Mr. Robert S. Thomas
_____________________
Don O’Connell
President and Chief Executive Officer
Charles & Colvard, Ltd.
3800 Gateway Boulevard, Suite 310
170 Southport Drive
Morrisville, N.C.NC 27560
(919) 468-0399
(Name,
(Name, address, including zip code, and telephone number, including area code, of agent for service)
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Copies To:
Cyrus M. Johnson, Esq.
Kenneth
_____________________
Please send copies of all communications to:
Margaret N. Shelton, Esq.
Womble Carlyle Sandridge & Rice, PLLC
3300 One First Union Center
301 South College Street
Charlotte,Rosenfeld
Patrick J. Rogers
K&L Gates LLP
4350 Lassiter at North Carolina 28202
(704) 331-4900
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Hills Avenue, Suite 300
Raleigh, NC 27609
(919) 743-7351
_____________________
Approximate date of commencement of proposed sale to the public: As soon From time to time after the effective date of this Registration Statement as practicable after this registration statement becomes effective.
determined by market conditions.
If the only securities being registered on this formForm are being offered pursuant to dividend or investmentinterest reinvestment plans, please check the following box: [_]
box. ¨
If any of the securities being registered on this formForm are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: [X]
box. x
If this formForm is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
¨
If this formForm is a registration statement pursuant to General Instruction I.D. or a post-effective amendment filedthereto that shall become effective upon filing with the Commission pursuant to Rule 462(c)462(e) under the Securities Act, check the box and listfollowing box. ¨
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act,
registration statement for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
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¨
Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated filer ¨ |
| Non-accelerated filer x | Smaller reporting company x |
| Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered |
Amount to be Registered(1)(2) |
Proposed Maximum Offering Price per Unit(2) |
Proposed Maximum Aggregate Offering Price(2) |
Amount of Registration Fee(3) |
Common Stock |
|
|
|
|
Preferred Stock |
|
|
|
|
Warrants |
|
|
|
|
Units(4) |
|
|
|
|
Total for Sale by Registrant |
|
| $25,000,000 | $1,201.06 |
(1) MaximumIncludes an unspecified number of securities of each identified class as may be issuable upon conversion, redemption, repurchase, exchange or exercise of any of the securities registered hereunder. Separate consideration may not be received for securities that are issuable on conversion, redemption, repurchase, exchange or exercise of other securities. In addition, pursuant to Rule 416 under the Securities Act of 1933, as amended, or the Securities Act, the shares being registered hereunder include such indeterminate number of shares of Common Stockcommon stock and preferred stock as may be issuable with respect to the securities being registered hereunder as a result of Charles & Colvardstock splits, stock dividends or similar transactions.
(2) The amount to be soldregistered, the proposed maximum offering price per unit and the proposed maximum aggregate offering price are not specified as to current holdersthe securities of its Common Stock in this rights offering.
(2) Calculated in accordance with Rule 457(o) based oneach identified class to be registered pursuant to Form S-3 General Instruction II.D under the estimatedSecurities Act. The maximum aggregate offering price of all securities issued by the Common Stock.
--------------Registrant pursuant to this registration statement shall not exceed $25,000,000. The registrantproposed maximum aggregate offering price is estimated solely for the purpose of computing the registration fee pursuant to Rule 457(o) under the Securities Act.
(3) Pursuant to Rule 415(a)(6) under the Securities Act, this registration statement includes a total of $13,991,200 of unsold securities that had previously been registered under the Registrant's registration statement on Form S-3 (File No. 333-225042) initially filed on May 18, 2018 (the “Prior Registration Statement”). The Prior Registration Statement registered securities for a maximum offering price of $25,000,000. The Registrant sold an aggregate of $11,008,800 of securities thereunder, leaving a balance of unsold securities with an aggregate offering price of $13,991,200. In connection with the registration of such unsold securities on the Prior Registration Statement, the Registrant paid a registration fee of $1,742.18 for such unsold securities, which fee will continue to be applied to such unsold securities. Accordingly, the amount of the registration fee has been calculated based on the proposed maximum offering price of the additional $11,008,800 of securities registered on this registration statement. Pursuant to Rule 415(a)(6), the offering of the unsold securities registered under the Prior Registration Statement will be deemed terminated as of the date of effectiveness of this registration statement.
(4) Any securities registered hereunder may be sold separately or as units with other securities registered hereunder.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrantRegistrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the Registration Statementregistration statement filed with the Securities and Exchange Commission is effective. This Prospectusprospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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SUBJECT TO COMPLETION, DATED DECEMBER , 2000
PROSPECTUS
CHARLES
Subject to completion, dated May 26, 2021
Charles & COLVARD, LTD.
Shares of Colvard, Ltd.
Prospectus
$25,000,000
Common Stock
We are offering shares of
Preferred Stock
Warrants
Units
This prospectus relates to common stock, preferred stock, warrants and units that Charles & Colvard, Ltd. may sell from time to our shareholders who owned
sharestime in one or more offerings on terms to be determined at the time of our common stock as of the close of business on , 2001, the
record date.
. You will receive, at no cost, a subscription right to purchase one share
of common stock for each share of our common stock you own on the record
date.
. The subscription price for your right is $ per share.
.sale. We will not issue fractional sharesprovide specific terms of common stock, and we will not pay
cashthese securities in place of fractional shares.
. The rights are exercisable beginning on the date ofsupplements to this prospectus. You should read this prospectus and continuing until 5:00 p.m., Eastern Standard Time, on , 2001, the
expiration date,any supplement carefully before you invest. This prospectus may not be used to offer and sell securities unless extended.
. If you wantaccompanied by a prospectus supplement for those securities.
These securities may be sold directly by us, through dealers or agents designated from time to participatetime, to or through underwriters or through a combination of these methods. See “Plan of Distribution” in this prospectus. We may also describe the plan of distribution for any particular offering of these securities in any applicable prospectus supplement. If any agents, underwriters or dealers are involved in the sale of any securities in respect of which this prospectus is being delivered, we recommend that you submit
your subscription documentswill disclose their names and the nature of our arrangements with them in a prospectus supplement. The net proceeds we expect to the subscription agent before the
expiration date or to your broker or bank at least 10 days before the
expiration date.
. All subscriptionsreceive from any such sale will also be heldincluded in escrow by our subscription agent, First
Union National Bank, until the expiration date.
. Your rights are not transferable.
. The rights will not be listed for trading on any stock exchange.
. We reserve the right to cancel this offering at any time before the
expiration date.
There is no minimum number of shares that we must sell in order to complete
this offering. Shareholders who do not participate in this offering will
continue to own the same number of shares, but will own a smaller percentage of
the total shares outstanding to the extent that other shareholders participate
in this offering.
prospectus supplement.
Our common stock is quoted for tradingtrades on Thethe Nasdaq NationalCapital Market under the trading symbol "CTHR." The closing“CTHR.” On May 25, 2021, the last reported sale price offor our common stock on , 2001Common Stock was $$2.56 per share.
INVESTING IN OUR SECURITIES INVOLVES RISKS. YOU SHOULD REVIEW CAREFULLY THE RISKS AND UNCERTAINTIES DESCRIBED UNDER THE HEADING “RISK FACTORS” CONTAINED IN THE APPLICABLE PROSPECTUS SUPPLEMENT AND ANY RELATED FREE WRITING PROSPECTUS, AND UNDER SIMILAR HEADINGS IN OTHER DOCUMENTS THAT ARE INCORPORATED BY REFERENCE INTO THIS PROSPECTUS OR ANY SUCH PROSPECTUS SUPPLEMENT. SEE “RISK FACTORS” ON PAGE 4OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined ifpassed upon the adequacy or accuracy of this prospectus is truthful or complete.prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2001.
TABLE OF CONTENTS
2021.
Table of Contents
Page
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This prospectus is part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission, or the SEC, utilizing a “shelf” registration process. Under this shelf process, we may from time to time sell any combination of securities described in this prospectus in one or more offerings.
This prospectus provides you with a general description of the securities we may offer. Each time we sell securities under this shelf registration process, we will provide a prospectus supplement that will contain specific information about the terms of the securities being offered. That prospectus supplement may include a discussion of any risk factors or other special consideration that apply to those securities. The prospectus supplement may also add, update or change information contained in this prospectus. If there is any inconsistency between the information in this prospectus and a prospectus supplement, you should rely on the information in that prospectus supplement. You should read both this prospectus and any applicable prospectus supplement together with additional information described below under the headings “Where You Can Find More Information” and “Incorporation by Reference.”
In deciding whether or not to whichinvest in our securities, you should rely on the information provided in this prospectus and the prospectus supplement, including the information incorporated by reference. Neither we, nor any underwriters or agents, have referred you. We have not authorized anyone to provide you with different information. This document may be used onlyWe are not offering the securities in any state where itsuch an offer is legal to sell
these securities. Theprohibited. You should not assume that the information in this prospectus, any prospectus supplement, or any document incorporated by reference, is only accuratetruthful or complete at any date other than the date mentioned on the datecover page of this prospectus.
On this prospectus, allthose documents. You should also carefully review the section entitled “Risk Factors”, which highlights certain risks associated with an investment in our securities, to determine whether an investment in our securities is appropriate for you.
Unless otherwise stated or the context requires otherwise, references to "Charles“Charles & Colvard," "we," "us," and
"our" refer” the “Company,” “we,” “us” or “our” are to Charles & Colvard, Ltd., unless indicated otherwise.
The stylized logo for "Charles & Colvard Created Moissanite" is a trademark
of Charles & Colvard. This prospectus may contain certain other trademarks and
service marks of other parties.
SUMMARY
This section answers in summary form some questions you may have about Charles & Colvard, Ltd. and this rights offering. Theits subsidiaries.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information set forth in this section is not complete and does notprospectus or incorporated by reference in this prospectus may contain allforward-looking statements within the meaning of Section 27A of the informationSecurities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “would,” “could,” “seek,” “intend,” “plan,” “estimate,” “goal,” “anticipate,” “project” or other comparable terms. All statements other than statements of historical facts included in this prospectus regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding: expectations for revenues, cash flows and financial performance, the anticipated results of our development efforts and the timing for receipt of required regulatory approvals and product launches.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside our control. Our actual results and financial condition may differ materially from those in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
| · | our business, financial condition and results of operations could continue to be adversely affected by an ongoing COVID-19 pandemic and related global economic conditions; |
| · | our future financial performance depends upon increased consumer acceptance, growth of sales of our products, and operational execution of our strategic initiatives; |
| · | the execution of our business plans could significantly impact our liquidity; |
| · | our business and our results of operations could be materially adversely affected as a result of general and economic conditions; |
| · | the financial difficulties or insolvency of one or more of our major customers or their lack of willingness and ability to market our products could adversely affect results; |
| · | we face intense competition in the worldwide gemstone and jewelry industry; |
| · | a failure of our information technology infrastructure or a failure to protect confidential information of our customers and our network against security breaches could adversely impact our business and operations; |
| · | we are subject to certain risks due to our international operations, distribution channels and vendors; |
| · | negative or inaccurate information on social media could adversely impact our brand and reputation; |
| · | our business and our results of operations could be materially adversely affected as a result of our inability to fulfill orders on a timely basis; |
| · | we are currently dependent on a limited number of distributor and retail partners in our Traditional segment for the sale of our products; |
| · | we rely on assumptions, estimates, and data to calculate certain of our key metrics and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business; |
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| · | we may experience quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation; |
| · | seasonality of our business may adversely affect our net sales and operating income; |
| · | our operations could be disrupted by natural disasters; |
| · | we may not be able to adequately protect our intellectual property, which could harm the value of our products and brands and adversely affect our business; |
| · | sales of moissanite and lab grown diamond jewelry could be dependent upon the pricing of precious metals, which is beyond our control; |
| · | our current customers may potentially perceive us as a competitor in the finished jewelry business; |
| · | some anti-takeover provisions of our charter documents may delay or prevent a takeover of our company; |
| · | we depend on an exclusive supply agreement, or the Supply Agreement, with Cree, Inc., or Cree, for substantially all of our silicon carbide, or SiC, crystals, the raw materials we use to produce moissanite jewels; if our supply of high-quality SiC crystals is interrupted, our business may be materially harmed; |
| · | if the e-commerce opportunity changes dramatically or if e-commerce technology or providers change their models, our results of operations may be adversely affected; |
| · | if we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer; |
| · | governmental regulation and oversight might adversely impact our operations; |
| · | our loan, pursuant to the Paycheck Protection Program, or the PPP Loan, under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, as administered by the U.S. Small Business Administration, or the SBA, may not be forgiven or may subject us to challenges and investigations regarding qualification for the loan; and |
| · | our failure to maintain compliance with The Nasdaq Stock Market’s continued listing requirements could result in the delisting of our common stock. |
We urge you to consider before exercising your subscription rights. You should readthose risks and uncertainties in evaluating our forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the entireapplicable cautionary statements. We further caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Refer to the section titled “Risk Factors” in this prospectus, carefully, includingany other risk factors set forth in the "Risk Factors" sectionapplicable prospectus supplement and in any information incorporated by reference into this prospectus or the applicable prospectus supplement to better understand the risks and uncertainties inherent in our business and underlying these forward-looking statements, as well as any other risk factors and cautionary statements described in the documents listedwe file from time to time with the SEC, including those discussed in our Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q under "How To Find Additional Information."
QUESTIONS AND ANSWERS ABOUT CHARLES & COLVARD
WHAT IS CHARLES & COLVARD?
the headings “Risk Factors,” “Legal Proceedings,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which are incorporated by reference into this prospectus.
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Charles & Colvard, Ltd. (formerly C3, Inc.), a North Carolina corporation manufactures, markets and distributesfounded in 1995 (which may be referred to as Charles & Colvard, we, us, or our) is a globally recognized fine jewelry company specializing in lab created gemstones. We manufacture, market, and distribute Charles & Colvard Created Moissanite® (which we refer to as moissanite or moissanite jewels) and in September 2020, we announced our expansion into the lab grown diamond market with the launch of Caydia™, an exclusive brand of premium lab grown diamonds. We offer gemstones and finished jewelry featuring our proprietary moissanite jewels ("moissanite" or "moissanite jewels")and premium lab grown diamonds for sale in the worldwide fine jewelry market. Moissanite, also known by its chemical name, silicon carbide (SiC)Charles & Colvard is the original source of created moissanite, and in 2015, we debuted Forever One™, our premium moissanite gemstone brand. As an e-commerce and multi-channel destination for fine jewelry featuring lab grown gemstones, we believe that the addition of lab grown diamonds is a rare, naturally occurring mineral found primarilynatural progression for the Charles & Colvard brand.
One of our unique differentiators, moissanite – The World’s Most Brilliant Gem® – is core to our ambition to create a movement around environmentally and socially responsible fine jewelry. We believe that we are leading the way in meteorites. Asdelivering the sole
manufacturer of scientifically-madepremium moissanite brand through technological advances in gemstone manufacturing, cutting, polishing, and setting. By coupling what we believe to be unprecedented moissanite jewels with responsibly sourced precious metals, we createare delivering a uniqueuniquely positioned product line for the conscientious consumer. Our Caydia™ lab grown diamonds are hand selected by our Gemological Institute of America, or GIA, certified gemologists to meet Charles & Colvard’s uncompromising standards and validated by independent third-party experts. Our Caydia™ lab grown diamonds are available currently in E, F, and G color grades (based on the GIA’s color grading scale) with a minimum clarity in accordance with the GIA’s VS1 clarity classification along with excellent polish and symmetry. All of our Caydia™ lab grown diamonds are set with responsibly sourced and mostly recycled precious metals.
Our strategy is to build a globally revered brand imageof lab created gemstones and finished jewelry that appeal to a wide consumer audience. We believe this strategy leverages our advantages of being the original and leading worldwide source of Charles & Colvard Created Moissanite® and offering a curated assortment of jewelry featuring Caydia™ lab grown diamonds, which positions moissanite aswe believe offers an ideal combination of quality and value. We believe a jeweldirect relationship with consumers is important to this strategy, which entails delivering tailored educational content, engaging in its own right, distinct from all
other jewels based on its fire, brilliance, luster, durabilitydialogue with our audience, and rarity. See
"How To Find Additional Information" (page 20).
WHERE ARE WE LOCATED?positioning our brand to meet the demands of today’s discerning consumer.
Corporate Information
We were incorporated under the laws of the State of North Carolina in 1995. Our principal executive office isoffices are located at: 3800 Gateway Boulevard, Suite
310,at 170 Southport Drive, Morrisville, North Carolina 27560.
Our27560, and our telephone number is (919) 468-0399. WHEN WERE WE FORMED?
We were formedOur Internet address is www.charlesandcolvard.com. The information on our website is not incorporated by reference into this prospectus, and you should not consider it part of this prospectus.
Investing in June 1995 asour securities involves a North Carolina corporation.
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
WHAT IS A SUBSCRIPTION RIGHT?
Wehigh degree of risk. You should carefully consider the risk factors described in our Annual Report on Form 10-K for our most recent fiscal year (together with any material changes thereto contained in subsequent filed Quarterly Reports on Form 10-Q) and those contained in our other filings with the SEC, which are distributingincorporated by reference in this prospectus and any accompanying prospectus supplement.
The prospectus supplement applicable to you, at no charge,each type or series of securities we offer may contain a subscription right to purchase
one sharediscussion of common stock for every share of common stock that you owned on
January , 2001. Each subscription right entitles you to purchase one share
of common stock for $ , subjectrisks applicable to the termsparticular types of securities that we are offering under that prospectus supplement. Prior to making a decision about investing in our securities, you should carefully consider the specific factors discussed under the caption “Risk Factors” in the applicable prospectus supplement, together with all of the other information contained in the prospectus supplement or appearing or incorporated by reference in this rights offering. When
you "exercise" a subscription right, that means that you chooseprospectus. These risks could materially affect our business, results of operations or financial condition and cause the value of our securities to purchase the
common stock that the subscription right entitles you to purchase.decline. You may
exercise any numbercould lose all or part of your subscription rights,investment.
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Except as described in any applicable prospectus supplement or you may choose not to
exercisein any subscription rights. You cannot give or sell your subscription
rights to anybody else; only you can exercise them.
WHAT IS A RIGHTS OFFERING?
A rights offering is an opportunity for you to purchase additional shares of
common stock at a fixed price to be determined before the rights offering
begins and in an amount proportional to your existing interest, which enables
you to maintain your current percentage ownership interest in us.
1
WHAT IS THE BASIC SUBSCRIPTION PRIVILEGE?
The basic subscription privilege of each subscription right entitles you to
purchase one share of our common stock at a subscription price of $ .
WHAT IS THE OVER-SUBSCRIPTION PRIVILEGE?
We do not expect that all of our shareholders will exercise all of their
basic subscription rights. By extending over-subscription privileges to our
shareholders, we are providing for the subscription for those shares which are
not purchased through exercise of basic subscription privileges. The over-
subscription privilege entitles you, if you fully exercise your basic
subscription privilege, to subscribe for additional shares of common stock not
acquired by other holders of rights at the same subscription price of $ per
share.
WHAT ARE THE LIMITATIONS ON THE OVER-SUBSCRIPTION PRIVILEGE?
We will only issue shares of common stock in the rights offering.
The number of shares available for over-subscription privileges will be
minus the number of shares purchased upon exercise of all basic subscription
privileges. The number of shares available under the over-subscription
privilege to any one shareholder or group of shareholders may be reduced by the
Company if any such shareholder or group of shareholders would own 20% or more
of the Company's common stock outstanding after the offering.
If sufficient shares are available, we will seek to honor the over-
subscription requests in full. If over-subscription requests exceed the number
of shares available, we will allocate the available shares among shareholders
who over-subscribed in proportion to the number of shares purchased by those
over-subscribing shareholders through the basic subscription privilege.
However, if your pro rata allocation exceeds the number of shares you
requested, you will receive only the number of shares that you requested, and
the remaining shares from your pro rata allocation will be divided among other
shareholders exercising their over-subscription privileges who have subscribed
for additional shares in proportion to the number of shares purchased by that
group of over-subscribing shareholders through the basic subscription
privilege. In certain circumstances, however, in order to comply with
applicable state securities laws, we may not be able to honor all over-
subscription privileges even iffree writing prospectuses we have shares available.
WHY ARE WE ENGAGING IN A RIGHTS OFFERING?
We areauthorized for use in connection with a specific offering, we currently intend to use the subscription rights to our current shareholders in order
to raise additional working capital. Our cash and cash equivalents have
decreased from approximately $13.2 million at December 31, 1999 to
approximately $4.1 million at September 30, 2000. Additional funds would
improve our liquidity. Our Board of Directors has chosen to give you the
opportunity to buy more shares and provide us with additional capital. This
option provides each shareholder the opportunity to avoid dilution of their
ownership interest. Of course, we cannot assure you that we will not need to
seek additional financing in the future.
HOW MUCH MONEY WILL CHARLES & COLVARD RECEIVE FROM THE RIGHTS OFFERING?
Our grossnet proceeds from the rightssale of the securities offered by us hereunder, if any, for working capital and general corporate purposes, including, among other things, capital expenditures.
The amounts and timing of our use of the net proceeds from this offering dependswill depend on thea number of shares
that are purchased. If we sell all shares which may be purchased upon
exercisefactors, such as the timing and progress of our strategic initiatives, technological advances and the rights offered by this prospectus, then we will receive
proceeds of $ , before deducting expenses payable by us, estimated to
be $140,000.
2
ARE THERE ANY PURCHASE COMMITMENTS IN THE RIGHTS OFFERING?competitive environment for our products. As of the date of this prospectus, certain directors and officers and other
shareholders have committed to purchase up to an aggregate of shares of
common stock pursuant to the offering which would provide the Companywe cannot specify with a
minimum subscription amount and gross proceeds of $ . To effect this
commitment, each of these purchasers have individually agreed to exercise his
basic subscription privilege in full and to subscribe for additional shares
pursuant to the over-subscription privilege.
HOW MANY SHARES MAY I PURCHASE?
You will receive one subscription right for each share of common stock that
you owned on January , 2001. We will not distribute fractional subscription
rights, but will round the number of subscription rights you receive down to
the nearest whole number. Each subscription right entitles you to purchase one
share of common stock for $ . If you exercisecertainty all of the subscription
rightsparticular uses for the net proceeds to us from the sale of the securities offered by us hereunder. As a result, our management will have broad discretion to allocate the net proceeds, if any, we receive in connection with securities offered pursuant to this prospectus for any purpose. Pending application of the net proceeds as described above, we may initially invest the net proceeds in short-term, investment-grade, interest-bearing securities.
DESCRIPTION OF SECURITIES WE MAY OFFER
We may issue from time to time, in one or more offerings, the following securities:
| ● | shares of common stock; |
| ● | shares of preferred stock; |
| ● | warrants for the purchase of common stock or preferred stock; and |
| ● | units consisting of two or more of the foregoing. |
Set forth below is a description of the capital stock that you receive, you may havebe offered under this prospectus. We will set forth in the opportunityapplicable prospectus supplement and/or free writing prospectus a description of the warrants that may be offered under this prospectus. The terms of the offering of our common stock, preferred stock or any such other securities, the initial offering price and the net proceeds to purchase additional
sharesus will be contained in the prospectus supplement, and other offering material, relating to such offer.
We may sell the securities being offered pursuant to this prospectus directly to purchasers, to or through underwriters, through dealers or agents, or through a combination of common stock. Onsuch methods. The prospectus supplement with respect to the enclosed subscription certificate, you may
request to purchase as many additional shares as you wish for $ per share.
Subject tosecurities being offered will set forth the terms of the offering of those securities, including the names of any such underwriters, dealers or agents, the purchase price, the net proceeds to us, any underwriting discounts and other items constituting underwriters’ compensation, the public offering price, any discounts or concessions allowed or reallowed or paid to dealers and any securities exchanges on which such securities may be listed.
The following description of our capital stock is based upon our Restated Articles of Incorporation, which we intendwill refer to honor allhereafter as our Articles of Incorporation, our Amended and Restated Bylaws, which we will refer to hereafter as our Bylaws, and applicable provisions of law. We have summarized certain portions of the over-
subscription requests, but ifArticles of Incorporation and Bylaws below. The summary is not you may not be able to purchase as many
shares as you requested on your subscription certificate. Subject to state
securities lawscomplete and regulations, we have the discretion to issue less than the
total number of shares that may be available for over-subscription requestsis qualified in order to comply with state securities laws. In addition, the number of shares
available under the over-subscription privilege to any one shareholder or group
of shareholders may be reducedits entirety by the Company if any such shareholder or group
of shareholders would own 20% or more of the Company's common stock outstanding
after the offering.
HOW DID WE ARRIVE AT THE $ PER SHARE PRICE?
In determining the price at which a share of common stock may be purchased
in this rights offering, we considered several factors including the historic
and current market price of the common stock, our business prospects, our
recent history of losses, general conditions in the securities market, our need
for capital, alternatives available to us for raising capital, the amount of
proceeds desired, the pricing of similar transactions, the liquidity of our
common stock, the level of risk to our investors, and the need to offer shares
at a price that would be attractive to our investors relativereference to the current
trading priceArticles of our common stock. We did not seek or obtain any opinion of
financial advisors or investment bankers in establishing the subscription
price. The subscription price represents approximately a 15% discount from the
market price of the common stock immediately priorIncorporation and Bylaws, which are incorporated by reference as exhibits to the dateregistration statement of which this prospectus.
HOW DO I EXERCISE MY SUBSCRIPTION RIGHTS?prospectus forms a part. You must properly completeshould read the attached subscription certificateArticles of Incorporation and deliver
it to the Subscription Agent before 5 p.m., Eastern Standard Time, on ,
2001. The addressBylaws for the Subscription Agent is on page 19. Your subscription
certificate must be accompanied by proper payment for each shareprovisions that you wishare important to purchase.
HOW LONG WILL THE RIGHTS OFFERING LAST?
You will be able to exercise your subscription rights only during a limited
period. IF YOU DO NOT EXERCISE YOUR SUBSCRIPTION RIGHTS BEFORE 5 P.M., EASTERN
STANDARD TIME, ON , 2001, YOUR SUBSCRIPTION RIGHTS WILL EXPIRE. We may,
in our discretion, decide to extend the rights offering. In addition, if the
commencementyou.
Our authorized capital stock consists of the rights offering is delayed, the expiration date will
similarly be extended.
3
AFTER I EXERCISE MY SUBSCRIPTION RIGHTS, CAN I CHANGE MY MIND?
No. Once you send in your subscription certificate and payment, you cannot
revoke the exercise of your subscription rights, even if you later learn
information about us that you consider to be unfavorable. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additional50,000,000 shares of common stock, at a priceno par value per share, and 10,000,000 shares of $preferred stock in one or more series, no par value per share. IS EXERCISING MY SUBSCRIPTION RIGHTS RISKY?
The exerciseAs of your subscription rights involves certain risks. Exercising
your subscription rights means buying additionalMay 25, 2021, there were 29,852,950 shares of our common stock outstanding held of record by 231 shareholders. In addition, there are outstanding options and shouldrights to acquire up to an additional 2,295,431 shares of common stock. As of May 25, 2021, there were no shares of preferred stock outstanding.
| 5 |
Common Stock
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders and do not have cumulative voting rights. An election of directors by our shareholders shall be carefully considereddetermined by a plurality of the votes cast by the shareholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as you would viewmay be declared and paid by our board of directors, subject to such funds being legally available for the payment of dividends and any preferential dividend rights of any series of preferred stock that we may designate and issue in the future.
In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to receive proportionately our net assets available for distribution to shareholders after the payment of all debts and other equity investments.
Among other things, you should carefully considerliabilities and subject to the risks describedprior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock are, and the shares offered by us in this offering will be, when issued and paid for, validly issued, fully paid and nonassessable.
The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
The transfer agent for our common stock is American Stock Transfer & Trust Company, LLC. Our common stock is traded on the Nasdaq Capital Market and is quoted under the heading "Risk Factors," beginningsymbol CTHR.
Preferred Stock
Under the terms of our Articles of Incorporation, our board of directors is authorized to provide for the issuance of shares of preferred stock in one or more series without shareholder approval. Our board of directors has the discretion to determine the preferences, limitations and relative rights, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. The preferred stock may have voting or conversion rights that could have the effect of restricting dividends on page 6.
WHAT HAPPENS IF I CHOOSE NOT TO EXERCISE MY SUBSCRIPTION RIGHTS?
Youour common stock, diluting the voting power of our shares of common stock, impairing the rights of our common stock in the event of our dissolution, liquidation or winding-up or otherwise adversely affecting the rights of holders of our common stock. The holders of preferred stock are not entitled to vote at any meeting of shareholders, except as otherwise provided in the rights and restrictions attached to the shares by our board of directors.
We will fix the rights, preferences, privileges, qualifications and restrictions of the preferred stock of each series that we sell under this prospectus and any applicable prospectus supplements in one or more articles of amendment to our Articles of Incorporation relating to that series. We will incorporate by reference into the registration statement of which this prospectus is a part the form of any articles of amendment to our Articles of Incorporation that describe the terms of the series of preferred stock we are offering before the issuance of the related series of preferred stock. We urge you to read the prospectus supplements (and any related free writing prospectus that we may authorize to be provided to you) related to the series of preferred stock being offered, as well as the complete articles of amendment to our Articles of Incorporation that contain the terms of the applicable series of preferred stock.
Anti-Takeover Effects of North Carolina Law and Our Articles of Incorporation and Bylaws
Our Articles of Incorporation and Bylaws contain provisions that will make it more difficult for our existing shareholders to replace our board of directors as well as for another party to obtain control of the Company by replacing our board of directors. Since our board of directors has the power to retain your currentand discharge our officers, these provisions could also make it more difficult for existing shareholders or another party to effect a change in management or could otherwise impede the success of any attempt to change the control of the Company.
These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain types of transactions that may involve an actual or threatened acquisition of the Company. These provisions are also designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. However, these provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of deterring hostile takeovers or delaying changes in control of the Company or management. As a consequence, these provisions also may inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts.
| 6 |
Authorized but Unissued Stock. Our Articles of Incorporation authorize the issuance of a significant number of shares of common stock in Charles &
Colvard even if you do not exercise your subscription rights. However, if other
shareholders exercise their subscription rights and you do not, the percentagepreferred stock. A large quantity of Charles & Colvard that you own will diminish, and your relative voting
rights and economic interests will be diluted.
CAN I SELL OR GIVE AWAY MY SUBSCRIPTION RIGHTS?
No.
MUST I EXERCISE ANY SUBSCRIPTION RIGHTS?
No.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF EXERCISING MY SUBSCRIPTION
RIGHTS?
The receipt and exerciseauthorized but unissued shares may deter potential takeover attempts because of your subscription rights are intended to be
nontaxable. You should seek specific tax advice from your personal tax advisor.
WHEN WILL I RECEIVE MY NEW SHARES?
If you purchase shares of common stock through the rights offering, you will
receive certificates representing those shares as soon as practicable after
, 2001. Subject to state securities laws and regulations, we have the
discretion to delay allocation and distribution of any shares you may elect to
purchase by exercise of your basic or over-subscription privilege in order to
comply with state securities laws.
CAN WE CANCEL THE RIGHTS OFFERING?
Yes. Our Board of Directors may cancel the rights offering at any time on or
before , 2001, for any reason. If we cancel the rights offering,
any money received from shareholders will be refunded promptly, without
interest.
HOW WILL WE USE THE PROCEEDS FROM THE RIGHTS OFFERING?
We will use the proceeds from the rights offering for additional working
capital to fund operations.
4
HOW MANY SHARES WILL BE OUTSTANDING AFTER THE RIGHTS OFFERING?
The number of shares of common stock that will be outstanding after the
rights offering depends on the number of shares that are purchased. If we sell
all of the shares offered by this prospectus, then we will issue new
shares of common stock during the rights offering. In that case, we will have
approximately shares of common stock outstanding after the rights
offering.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements, including or
related to our future results, including certain projections and business
trends. Assumptions relating to forward-looking statements involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. When
used in this prospectus, the words "estimate," "project," "intend," "believe"
and "expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate, and
we may not realize the results contemplated by the forward-looking statement.
Management decisions are subjective in many respects and susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause us to alter our business strategy
or capital expenditure plans that may, in turn, affect our results of
operations. In light of the significant uncertainties inherent in the forward-
looking information included in this prospectus, you should not regard the
inclusion of such information as our representation that we will achieve any
strategy, objectives or other plans. The forward-looking statements contained
in this prospectus speak only as of the date of this prospectus as stated on
the front cover, and we have no obligation to update publicly or revise any of
these forward-looking statements.
These and other statements, which are not historical facts, are based
largely on management's current expectations and assumptions and are subject to
a number of risks and uncertainties that could cause actual results to differ
materially from those contemplated by such forward-looking statements. These
risks and uncertainties include, among others, the risks and uncertainties
described in "Risk Factors" (page 6).
5
RISK FACTORS
You should consider carefully the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially harm our business and could result in a
complete loss of your investment.
RISKS RELATED TO OUR BUSINESS
We have sustained operating losses since inception, we have an accumulated
deficit and we may not achieve profitability.
We incurred substantial operating losses from our inception through
September 30, 2000, with an accumulated deficit of $21,636,507 as of September
30, 2000. Such losses resulted principally from:
. Slower than anticipated sales growth and market acceptance of moissanite
jewels;
. Greater than anticipated marketing and advertising expenses to achieve
sales growth;
. The costs of development of sales, marketing and distribution channels;
. Research and development costs for silicon carbide (SiC) crystals and
moissanite jewels;
. Difficulties obtaining SiC crystals from its sole supplier in desired
qualities, sizes and volume; and
. Growth in general and administrative expenses until recent periods.
We may incur significant operating losses in the future as we continue our
marketing, sales, distribution and other strategic efforts. There can be no
assurance that we will be able to successfully commercialize our products or
that profitability will be achieved or, if achieved, that such profitability
will be sustained.
If we cannot maintain adequate operating capital, our business will suffer.
We have substantially less liquidity today than we had on December 31, 1999.
At September 30, 2000, our cash and cash equivalents have decreased to
approximately $4.0 million. A continuation of operating losses may eliminate
our remaining cash balances during 2001. On a going forward basis, operations
may not provide sufficient internally generated cash flows to meet our
projected requirements. In order to achieve positive cash flows, the company
has implemented plans designed to improve sales, effectively manage its
overhead costs, advertising expenditures and other expenses, as well as reduce
raw material purchases and existing inventories. However, the company may not
achieve these goals and we cannot assure you that we will be able to continue
to finance our operations, even if we sell all of the shares that we are
offering in the rights offering.
Other sources for the needed capital have not yet been identified and may not
be available.
Although the Company has received commitments from certain directors,
officers and other shareholders to subscribe for an aggregate of
shares in this offering to generate gross proceeds of $ , we may not
be able to raise the maximum amount of capital we hope to raise by this rights
offering. Even if we sell all of the shares that we are offering, the net
proceeds from this rights offering, combined with internally generated cash,
may not be sufficient to enable us to market moissanite jewels and conduct
operations, in which event we will have to seek additional capital from other
sources. The Company has been unsuccessful in securing other means of financing
in recent periods and we may not be successful in obtaining financing in future
periods. To the extent, if any, that we are able to obtain equity capital from
other sources, the issuance of more shares of stock may dilute the economic
interest of then current shareholders and will dilute their voting interests.
To the extent, if any, that we are able to obtain debt financing, the terms of
such financing may be expensive and may subject us to covenants that materially
restrict us.
6
We overbuilt our inventory position.
During 1999 and 2000, we overbuilt our inventory position in anticipation of
substantially greater sales growth than we have experienced to date. As of
September 30, 2000, the Company's inventories were approximately $21.4 million.
This has placed a serious drain on our cash resources and will continue to do
so unless we can effectively manage future growth of inventories by reducing
purchases of raw materials from our supplier and by increasing sales. If and to
the extent that we determine that the asset value of our inventory is less than
its book value, it will be necessary for us to charge the reduction in asset
value of such inventory against our earnings.
Our business operations could be adversely affected if we do not manage our
growth effectively.
We have experienced rapid growth in sales and such growth may continue in
the future if the commercialization of moissanite jewels is successful. During
2000, the Company shifted its distribution and advertising strategy to place
more emphasis on marketing through jewelry distributors and to control
advertising and overhead expenditures. Periods of rapid growth place a
significant strain on our personnel and other resources, particularly when the
Company needs to manage its liquidity and cash expenditures carefully. Our
strategy will require us to achieve rapid growth while curtailing expenditures
and motivating our employee base. We also will be required to manage multiple
relationships with various customers and other third parties. Our executive
officers have limited prior experience in managing rapidly growing businesses
under these circumstances. If we are unable to manage growth effectively, our
business, financial condition and results of operations would be materially
adversely affected.
We have a limited operating history which may impact our ability to achieve
market acceptance of our products and our ability to produce our products.
We incorporated in June 1995, and we were in the developmental stage through
June 30, 1998. We are in the process of commercializing moissanite jewels,
building consumer brand awareness and growing distribution channels for our
jewels. The timing or existence of any significantly increased revenues is
dependent on market acceptance of moissanite jewels, increasing distribution
and sales, and continued improvements in the yield of jewels in the qualities,
sizes and volumes desired from each SiC crystal. Our business is also subject
to risks inherent in rapid increases in sales and production levels. Likewise,
our products are subject to risks inherent in the development and marketing of
new products, including unforeseen design, manufacturing or other problems or
failure to develop market acceptance. Failure by us to expand distribution and
achieve market acceptance of our products or to develop the ability to produce
our products in higher quantities and qualities would have a material adverse
effect on our business, operating results and financial condition. Accordingly,
our prospects must be considered in light of the risks and difficulties
frequently encountered by companies in their early stage of development,
particularly technology-based companies, operating in the early stages of
manufacturing and distributing unproven products.
Our future financial performance depends upon consumer acceptance of our
products which is unproven at this time.
We believe that many retail jewelers and most consumers are not generally
aware of the existence and attributes of moissanite jewels. The market for
moissanite jewels among retail jewelers and consumers is in the early stages of
development as we shipped approximately 50,000 carats during the first nine
months of 2000. As is the case with any new product, market acceptance and
demand are subject to a significant amount of uncertainty. Our future financial
performance will depend upon greater consumer acceptance of the Company's
moissanite jewels as distinct from all other jewels based on their fire,
brilliance, luster, durability and rarity. In addition, consumer acceptance may
be impacted by retail jewelers' and jewelry manufacturers' acceptance of
moissanite jewels. We market loose jewels which jewelry distributors,
manufacturers and retailers set in jewelry which in turn is then further
distributed or sold to consumers. The quality, design and workmanship of
7
the jewelry settings selected by retail jewelers, which is not within our
control, could impact the consumer's perception and acceptance of our jewels.
Thus, our future financial performance may be impacted by:
. The willingness and ability of our jewelry distributors and other jewelry
suppliers, manufacturers and designers to market and promote moissanite
jewels to the retail jewelry trade;
. The willingness of distributors, retailers and others in the channel of
distribution to purchase loose moissanite jewels and the willingness of
manufacturers, designers and retail jewelers to undertake setting of the
loose jewels;
. The ability of manufacturers, designers and retail jewelers to select
jewelry settings that encourage consumer acceptance of and demand for our
jewels;
. The ability of jewelry manufacturers and retail jewelers to set loose
moissanite jewels in jewelry with high quality workmanship; and
. The ability of retail jewelers to effectively market and sell moissanite
jewelry to consumers.
If our products do not receive greater market acceptance, our business,
operating results and financial condition would be materially adversely
affected.
We are substantially dependent on the distribution of our jewels in North
America through Stuller Settings, Inc. and Rio Grande.
In March 2000, we entered into distribution agreements with two of the
largest national wholesale distributors, Stuller Settings, Inc. and Rio Grande,
for distribution of moissanite jewels throughout the entire North American
market. There is no assurance, however, that our distribution arrangements with
Stuller and Rio Grande will sufficiently increase sales. Although we entered
into arrangements with certain jewelry manufacturers which contemplate the
distribution of moissanite jewelry to United States jewelry retailers, we
anticipate that the vast majority of moissanite jewels sold by us in North
America will be distributed through Stuller and Rio Grande. Therefore, we are
substantially dependent upon Stuller and Rio Grande for distribution of
moissanite jewels in North America.
Historically, the North American market has accounted for a substantial
portion of our moissanite jewel sales. In the event that our distribution
arrangements with Stuller and Rio Grande fail to maintain and increase the
current level of North American sales, our revenues would be materially
adversely affected.
We have limited channels by which our jewelry can be distributed.
We began shipping moissanite to jewelry retailers in June 1998, which grew
to 237 locations primarily concentrated in certain cities along the eastern
seaboard, Texas and California by the end of 1999. While repeat sales (three or
more purchases) have been made to over 850 jewelry retailers since March 2000,
we are emphasizing expanding the domestic distribution of moissanite jewels
through the distribution agreements with Stuller and Rio Grande and agreements
with jewelry manufacturers and jewelry designers. There can be no assurance
that we will be successful in expanding distribution through such agreements.
Neither can there be any assurance that we will be able to enter into
additional agreements with other distributors, manufacturers or designers on
terms acceptable to us or that such other distributors will be successful in
their efforts to market our jewels to retailers or consumers. The inability to
achieve our desired distribution of moissanite jewels or our inability to
successfully market moissanite jewels to jewelers or consumers would have a
material adverse effect on our business, operating results and financial
condition.
We are subject to certain risks due to our international distribution channels
and vendors.
Charles & Colvard created moissanite jewels are currently being distributed
in substantially all of Western Europe and certain territories in Southeast
Asia. We currently have a total of approximately 30 distributors
8
internationally. We intend to expand the number of international markets for
our products. In addition, we expect to continue to use certain companies based
outside the United States to facet our moissanite jewels. Due to our reliance
on development of foreign markets and use of foreign vendors, we are subject to
the risks of conducting business outside of the United States. These risks
include unexpected changes in, or impositions of, legislative or regulatory
requirements, delays resulting from difficulty in obtaining export licenses,
tariffs and other trade barriers and restrictions and the burdens of complying
with a variety of foreign laws and other factors beyond our control.
Additionally, while all foreign transactions are denominated in U.S. dollars,
foreign currency fluctuations could impact demand for our products or the ability of our foreign suppliersboard of directors to continueauthorize the issuance of some or all of these shares to perform. We area friendly party, or to the public, which would make it more difficult for a potential acquirer to obtain control of the Company. This possibility may encourage persons seeking to acquire control of the Company to negotiate first with our board of directors.
Our authorized but unissued shares of preferred stock could also subjecthave anti-takeover effects. Under certain circumstances, any or all of the preferred stock could be used as a method of discouraging, delaying or preventing a change in control or management of the Company. For example, our board of directors could designate and issue a series of preferred stock in an amount that sufficiently increases the number of outstanding shares to general geopolitical risksovercome a vote by the holders of common stock, or with rights and preferences that include special voting rights to veto a change in control. The preferred stock could also be used in connection with the issuance of a shareholder rights plan, sometimes referred to as a “poison pill.” Our board of directors is able to implement a shareholder rights plan without further action by our international operations,
such as political, social, religious and economic instability, potential
hostilities and changes in diplomatic and trade or business relationships.
Further, some of these distributors operate relatively small businesses and may
not have the financial stability to assure their continuing presence in their
markets. There can be no assurance that the foregoing factors will not
adversely affect our operations in the future or require us to modify our
anticipated business practices.
We currently depend upon a single source for the supply of SiC crystals
We currently depend on a single source, Cree Inc. (Cree), for the supply of
SiC crystals. Cree has certain proprietary rights relating to its process for
growing large single crystals of SiC and its process for growing colorless SiC
crystals. Under our Exclusive Supply Agreement with Cree, we are obligated to
buy from Cree, and Cree is obligated to sell to us, 50%, by dollar volume,shareholders.
Use of our requirements for SiC material for the production of gemstones in each
calendar quarter. Although we are only required to purchase 50% of our SiC
requirements from Cree, we do not currently believe that any other SiC producer
could readily supply crystals in the qualities, sizes and volumes needed for
our products. Therefore, at the present time, we are wholly dependent on Cree
as our sole source for our principal raw material.
While Cree has improved its production processes and is currently producing
SiC crystals sufficient to meet the Company's requirements, the Company
experienced difficulties in the past in obtaining crystals from Cree in the
quality, sizes and volumes that it desired. The Company from time to time
enters into purchase agreements with Cree with respect to the specific timing,
pricing and other terms of future delivery of SiC crystals and our purchase
commitments. As a result of an accelerated improvement in quality in 1999 at
the same time that the Company experienced sales growth that was slower than it
anticipated, the Company's inventories significantly increased pursuant to its
prior purchase commitments. There can be no assurance that Cree will be able to
continue to produce and supply the Company with raw materials of sufficient
quality, sizes and volumes nor that the Company will negotiate purchase
commitments that enable it to manage its inventories and raw material costs
effectively.
We rely upon our ability to protect our intellectual property.
We have been issued U.S. product and method patents for moissanite jewels
under which we have broad, exclusive rights to manufacture, use and sell
moissanite jewels in the United States. We have applications pending in a
number of foreign jurisdictions for these same patents. We believe that these
patents create substantial technological barriers to our potential competitors.
We also have other patents and patent applications pending related to certain
methods of producing moissanite jewels and related technologies. There can be
no assurance that any other patents will be granted or that any issued patent
will have any commercial or competitive value.
At the present time, we are also dependent on Cree's technology for the
production of SiC crystals. Cree is exclusively licensed to use a patent
concerning a process for growing large single crystals of SiC, has certain
patents of its own relating to growth of large single crystals of SiC and has a
patent for a process for growing colorless SiC crystals.
There can be no assurance that any patents issued to or licensed by or to us
or Cree will provide any significant commercial protection to us or Cree, that
us or Cree will have sufficient resources to prosecute its
9
respective patents or that any patents will be upheld by a court should us,
Cree or Cree's licensor seek to enforce our respective rights against an
infringer. The existence of valid patents does not prevent other companies from
independently developing competing technologies. Existing producers of SiC or
others may refine existing processes for growing SiC crystals or develop new
technologies for growing large single crystals of SiC or colorless SiC crystals
in a manner that does not infringe patents owned or licensed by or to us or
Cree. In addition, existing producers of SiC, existing producers of other
synthetic or natural gemstones or other parties may develop new technologies
for producing moissanite jewels in a manner that does not infringe patents
owned or licensed by or to us or Cree.
As a result of the foregoing factors, existing and potential competitors may
be able to develop products that are competitive with or superior to our
products, and such competition could have a material adverse effect on our
business, operating results and financial condition.
Our success depends upon our ability to identify, reach agreements with and
work successfully with third parties.
In addition to our current dependence on Cree and on third party
distribution channels, our prospects depend upon our ability to identify, reach
agreements with and work successfully with other third parties. In particular,
we rely on third parties to facet our jewels. Faceting moissanite jewels
requires different techniques than faceting diamond and other gemstones. There
can be no assurance that we can maintain our relationships with our faceting
vendors on terms satisfactory to us or that faceting vendors will continue to
be able to provide faceting services in the quality and quantities required by
us or that we will be able to find suitable replacements if we are unable to
maintain such relationships. Our failure to achieve any of the above would have
a material adverse effect on our business, operating results and financial
condition.
Governmental regulation and oversight might adversely impact our operations.
We are subject to governmental regulations in the manufacture and sale of
moissanite jewels. In particular, the Federal Trade Commission has the power to
restrict the offer and sale of products that could deceive or have the tendency
or effect of misleading or deceiving purchasers or prospective purchasers with
regard to the type, kind, quality, character, origin or other characteristics
of a diamond. We may be under close scrutiny both by governmental agencies and
by competitors in the gemstone industry, any of which may challenge our
promotion and marketing of our moissanite jewel products. If our production or
marketing of moissanite jewels is challenged by governmental agencies or
competitors, or if regulations are issued that restrict our ability to produce
and market our products, our business, operating results and financial
condition could be materially adversely affected.
Our reputation amongst jewelers and consumers could be damaged if low-quality
gemstones or synthetics are marketed as moissanite.
If market acceptance of our products continues to grow, it is possible that
low-quality gemstones or synthetics could be marketed as moissanite. The sale
of low-quality products as moissanite could damage the perception of moissanite
as a unique jewel that compares favorably to other fine gemstones like diamond,
ruby and emerald. This could damage our reputation among retail jewelers and
consumers and result in a loss of consumer confidence in our products. The
introduction of low-quality imitation moissanite jewels and our inability to
limit the adverse effects thereof could have a material adverse effect on our
business, operating results and financial condition.
The success of our operations depends in part upon attracting and retaining key
personnel.
Our success depends in part upon retaining the services of certain executive
officers and other key employees. We have entered into employment agreements
with our Chief Executive Officer and President, Robert S. Thomas, Chief
Financial Officer, Mark W. Hahn, Director of Manufacturing, Earl R. Hines,
Directors
10
of Domestic Sales, Mark D. Scanlan and Director of International Sales, Joseph
Ambar. We do not maintain "key man" life insurance policies on any of our
executive officers or key employees. The loss of the services of our executive
officers or other key employees could have a material adverse effect on our
business, operating results and financial condition.
Due to our early stage of development, we are also dependent on our ability
to recruit, retain and motivate personnel with technical, manufacturing and
gemological skills. There are a limited number of personnel with these
qualifications and competition for such personnel is intense. The inability to
attract and retain additional qualified personnel would materially adversely
affect our business, operating results and financial condition.
RISKS RELATED TO OUR COMMON STOCK
Our Common Stock price has been and may continue to be volatile, which could
result in substantial losses for individual shareholders who exercise their
subscription rights.
The market price of our common stock ranged between a high sales price of
$18.00 per share and a low sales price of $1.125 since the Company's initial
public offering in 1997 and may continue to be highly volatile and subject to
wide fluctuations in response to factors including the following, some of which
are beyond our control:
. Actual or anticipated variations in our quarterly operating results;
. Changes in financial estimates by security analysts;
. Underperformance against analysts' estimates; and
. Fluctuations in the stock market in general and technology and small
capitalization stocks in particular.
In light of our limited operating history, there is very little data upon
which to estimate operating revenues and expenses. Our revenues will be
affected by many unpredictable factors, including those discussed elsewhere in
this prospectus. We will likely experience substantial quarterly fluctuations
in our operating results. As a result, we believe that period-to-period
comparisons of our results of operations are not necessarily meaningful and
should not be relied upon as an indication of future performance. Moreover, it
is likely that in some future quarters our operating results will be below the
expectations of public market analysts and investors. In such event, the price
of our common stock would likely be materially adversely affected.
The fluctuations in prices and volumes of the stock market in general and
stocks of technology companies in particular have been extreme from time to
time. This volatility is often unrelated or disproportionate to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of our common stock, regardless of our actual operating
performance.
We do not expect to pay Common Stock dividends.
We have not paid cash dividends in the past and do not intend to pay cash
dividends on our common stock for the foreseeable future. In determining
whether to pay dividends, our Board of Directors will consider many factors,
including our earnings, capital requirements and financial condition.
The market price of our common shares could decline if we do not meet the
requirements for continued listing on NASDAQ.
Our shares of common stock are traded on the Nasdaq National Market, which
has adopted rules that establish criteria for initial and continued listing of
securities. To comply with the continued listing criteria of the Nasdaq
National Market, a company must comply with at least one of two sets of rules.
Under one set of rules, a company must maintain at least $4,000,000 of net
tangible assets, have at least 750,000 publicly held
11
shares with a market value of over $5,000,000 and not have a minimum bid price
under $1.00 per share. Under another set of rules, a company must maintain a
market capitalization of at least $50,000,000, or total assets and total
revenue of at least $50,000,000 each for the most recently completed fiscal
year or two of the three most recently completed fiscal years. Although we
currently meet the first set of rules for continued listing, a continuing
decline in the market price of our common stock or future losses from
operations could cause us to fail to meet the Nasdaq listing criteria in the
future. If our common stock is delisted from the Nasdaq National Market,
trading in our common stock could be conducted on the Nasdaq SmallCap Market or
on an electronic bulletin board established for securities that do not meet the
Nasdaq listing requirements. If our common stock were delisted from the Nasdaq
National Market and were not listed on the Nasdaq SmallCap Market, it would be
subject to the so-called penny stock rules that impose restrictive sales
practice requirements on broker-dealers who sell those securities.
Consequently, delisting, if it occurred, could affect the ability of
shareholders to sell their commonpreferred stock in the secondary market. The
restrictions applicable to shares that are de-listed, as well as the lack of
liquidity for shares that are traded on an electronic bulletin board, may
adversely affect the market price of such shares.
Some anti-takeover provisions of our charter documents, agreements and plans
may delay or prevent a takeover of our Company.
A number of provisions of our articles of incorporation and bylaws deal with
matters of corporate governance and the rights of shareholders. Certain of
these provisions may be deemed to have an anti-takeover effect and may delay or
prevent takeover attempts not first approved by the Board of Directors
(including takeovers that certain shareholders may deem to be in their best
interests). These provisions alsoforegoing manner could delay or frustrate a merger, tender offer or proxy contest, the removal of incumbent directors or the assumption of control by shareholders, even if these actions would be beneficial to our shareholders. We believe
that these provisions are appropriateIn addition, the existence of authorized but unissued shares of preferred stock could discourage bids for the Company even if such bid represents a premium over our then-existing trading price.
No Cumulative Voting. Because our shareholders do not have cumulative voting rights, our shareholders holding a majority of the voting power of our shares of common stock outstanding will be able to protect our interests andelect all of our directors.
Special Meetings of Shareholders. Our Bylaws provide that special meetings of shareholders may be called only by our president or by our board of directors. Shareholders are not permitted to call a special meeting of shareholders or to require that our president or our board of directors request the calling of a special meeting of shareholders. UnderThese provisions may make a change in control of the Company more difficult by delaying shareholder actions to elect directors until the next annual shareholder meeting.
Advance Notice Requirement. Shareholder proposals to be brought before an annual meeting of our shareholders must comply with advance notice procedures. These advance notice procedures require timely notice and apply in several situations, including shareholder proposals relating to the nomination of persons for election to our board of directors. Generally, to be timely, notice must be delivered to or mailed and received at our principal executive offices not less than 60 nor more than 90 days prior to the first anniversary of the notice date in our proxy statement for the previous year’s annual meeting of shareholders. These provisions may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
Election and Removal of Directors; Filling Vacancies. Our Bylaws permit vacancies in our board of directors to be filled by our board of directors, or in the event that the remaining directors in office constitute fewer than a quorum of the board of directors, by the affirmative vote of a majority of the remaining directors or by a plurality of the votes cast at a meeting of shareholders. Given that a special shareholder meeting may only be called by our president or by our board of directors, effectively only the board of directors may fill vacancies.
While we do not currently have a classified board, our Bylaws provide that at any time that we have nine or more directors, the directors will be divided into three classes, as nearly equal in number as possible. As a result, if we have nine or more directors, only one class of directors will be elected at each annual meeting of shareholders, with the other classes continuing for the remainder of their respective three-year terms. The classification of our board of directors and provisions described above may have the effect of delaying or preventing changes in our control or management.
| 7 |
Shareholder Approval of Certain Business Combinations. Our Articles of Incorporation contain a supermajority vote provision requiring approval of two-thirds in interest of our issued and outstanding voting shares for certain business combinations involving significant beneficial owners, or Interested Shareholders, such as a merger, unless (i) the business combination has been approved by at least two-thirds of the directors serving on the date the supermajority provisions of the articles of incorporation were adopted by our shareholders, or directors who have been nominated by us to directly succeed such a director or to join the board of directors, or the Continuing Directors, and, if deemed advisable by a majority of the Continuing Directors, the Board has obtained an opinion of a reputable investment banking firm stating that the financial terms of such business combination are fair from a financial point of view to the holders of our voting shares, or (ii) all of the following conditions are satisfied: (A) the consideration to be received by the shareholders is cash or in the same form as previously paid by or on behalf of any Interested Shareholder in connection with its direct or indirect acquisition of beneficial ownership of any shares of common stock, (B) the aggregate amount of the cash and the fair market value of consideration other than cash to be received per share by holders of common stock in any business combination is at least equal to the greater of (1) the fair market value per share of common stock on the date of the first public announcement of the proposal of a business combination, or the Announcement Date, or on the date on which the Interested Shareholder became an Interested Shareholder, whichever is higher, multiplied by the ratio of (a) the highest per share price paid by the Interested Shareholder for any shares of common stock acquired by it within the two-year period immediately prior to the Announcement Date to (b) the fair market value per share of common stock on the first day in such two-year period on which the Interested Shareholder acquired any shares of common stock, or (2) the highest per share price paid by such Interested Shareholder in acquiring any of our common stock; and (C) after becoming an Interested Shareholder and prior to the consummation of any business combination, (1) such Interested Shareholder must not have acquired any newly issued shares of capital stock, directly or indirectly, from us (except upon conversion of convertible securities acquired by it prior to becoming an Interested Shareholder or upon compliance with the supermajority provisions of the Articles of Incorporation or as a result of a pro rata stock dividend or stock split) and (2) such Interested Shareholder must not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by us, or made any significant changes in our business or equity capital structure.
DESCRIPTION OF WARRANTS WE MAY OFFER
We may issue warrants for the purchase of common stock or preferred stock. Warrants may be issued independently or together with common stock or preferred stock and may be attached to or separate from any offered securities. Any issue of warrants will be governed by the terms of the Exclusive Supply Agreement,applicable form of warrant and any related warrant agreement which we are prohibited from
entering into an exclusive marketingwill file with the SEC and they will be incorporated by reference to the registration statement of which this prospectus is a part on or distribution agreement with DeBeers or
its affiliates orbefore the Central Selling Organization (the international carteltime we issue any warrants.
The particular terms of diamond producers) or any party whose primary business is the development,
manufacture, marketing or saleissue of diamond gemstones or any non-gemstone and
non-jewelry industry competitor of Cree (collectively, the "Prohibited
Parties"). The agreement also prohibits us from entering into certain merger,
acquisition, sale of assets, or similar transactions with a Prohibited Party.
These provisions of the Exclusive Supply Agreement could limit the price that
third parties mightwarrants will be willing to paydescribed in the future for some or all ofprospectus supplement relating to the shares of our common stock. In addition, this agreement could prevent us from
entering into certain potentially profitable transactions with Prohibited
Parties.
On February 21, 1999, we adopted a Shareholder Rights Plan under which all
shareholders of record as of March 8, 1999, received rightsissue. Those terms may include:
| · | the title of such warrants; |
| · | the aggregate number of such warrants; |
| · | the price or prices at which such warrants will be issued; |
| · | the currency or currencies (including composite currencies) in which the price of such warrants may be payable; |
| · | the terms of the securities issuable upon exercise of such warrants and the procedures and conditions relating to the exercise of such warrants; |
| · | the price at which the securities issuable upon exercise of such warrants may be acquired; |
| · | the dates on which the right to exercise such warrants will commence and expire; |
| 8 |
| · | any provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the exercise price of the warrants; |
| · | if applicable, the minimum or maximum amount of such warrants that may be exercised at any one time; |
| · | if applicable, the designation and terms of the securities with which such warrants are issued and the number of such warrants issued with each such security or principal amount of such security; |
| · | if applicable, the date on and after which such warrants and the related securities will be separately transferable; |
| · | information with respect to book-entry procedures, if any; and |
| · | any other terms of such warrants, including terms, procedures and limitations relating to the exchange or exercise of such warrants. |
The prospectus supplement relating to any warrants to purchase shares
ofequity securities may also include, if applicable, a new series of Preferred Stock.
The Rights Plan is designed to enable all of our shareholders to realize the
full value of their investment and to provide for fair and equal treatment for
all shareholders in the event that an unsolicited attempt is made to acquire
us. The adoption of the Rights Plan is intended as a means to guard against
abusive takeover tactics and is not in response to any particular proposal.
The rights, which expire in 2009, will be exercisable only if a person or
group acquires 20% or more of our common stock or announces a tender offer for
20% or more of the common stock. If a person or group acquires 20% or more of
our common stock, all shareholders except the purchaser will be entitled to
acquire our common stock at a 50% discount. The effect will be to discourage
acquisitions of more than 20% of our common stock without negotiations with the
Board.
The rights will trade with our common stock, unless and until they are
separated upon the occurrencediscussion of certain future events. Our Board of Directors
may redeemU.S. federal income tax and ERISA considerations.
Warrants for the rights prior to the expiration of a specified period following
the acquisition of more than 20% of our common stock.
12
RISKS RELATING TO RIGHTS OFFERING
If you do not exercise all of your subscription rights, you may suffer
significant dilution of your percentage ownership of our common stock.
This rights offering is designed to allow all current shareholders to
purchase additional shares of common stock at a discount from the market price
of theand preferred stock on the date the rights are offered. The purpose of this structure
is to enable us to raise capital while allowing current shareholders to
maintain their relative proportionate voting and economic interest. To the
extent that current shareholders do not exercise their subscription rights and
shares are purchased by other shareholders in the rights offering, the
proportionate voting interest of the non-exercising shareholders will be reduced,offered and the percentage that their original shares represent of our
expanded equity after exercise of the subscription rights will be
disproportionately diluted.
The price of our common stock may decline before or after the subscription
rights expire.
We cannot assure you that the public trading market price of our common
stock will not decline below the subscription price after you exercise your
subscription rights. If that occurs, you will have committed to buy shares of
common stock at a price above the prevailing market price and you will have an
immediate unrealized loss. Moreover, we cannot assure you that following the
exercise of subscription rights you will be able to sell your shares of common
stock at a price equal to or greater than the subscription price. Until
certificates are delivered upon expiration of the rights offering, you may not
be able to sell the shares of our common stock that you purchase in the rights
offering. Certificates representing shares of our common stock purchased will
be delivered as soon as practicable after expiration of the rights offering. We
will not pay you interest on funds delivered to the Subscription Agent pursuant
to the exercise of rights.
Once you exercise your subscription rights, you may not revoke the exercise.
Once you exercise your subscription rights, you may not revoke the exercise,
even if less than all of the shares that we are offering are actually
purchased. If we elect to withdraw or terminate the rights offering, neither we
nor the Subscription Agent will have any obligation with respect to the
subscription rights except to return, without interest, any subscription
payments.
The subscription price is not an indication of the value of our company.
The subscription price was set by us after considering a variety of factors,
including the desire to encourage full shareholder participation in this rights
offering by setting an exercise price below the current market price of the
common stock. The subscription price does not necessarily bear any relationship
to the book value of our assets, past operations, cash flows, losses, financial
condition or any other established criteriaexercisable for value. You should not consider
the subscription price as an indication of our present or future value. We have
established the subscription price at approximately a 15% discount from the
current market price of the common stock to encourage all shareholders to
exercise their subscription rights and thereby raise capital without diluting
the interests of current shareholders. We have neither sought nor obtained a
valuation opinion from an outside financial consultant or investment banker.
13
USE OF PROCEEDS
If all shares being offered pursuant to this rights offering are sold, we
estimate that the proceeds to Charles & Colvard will be approximately $
before the fees and expenses related to this offering. The net proceeds will be
used for working capital purposes.
THE RIGHTS OFFERING
BEFORE EXERCISING YOUR SUBSCRIPTION RIGHTS, YOU SHOULD READ CAREFULLY THE
INFORMATION SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 6.
THE SUBSCRIPTION RIGHTS
We are distributing non-transferable subscription rights to shareholders who
owned shares of our common stock on , 2001, at no cost to the
shareholders. We will give you one subscription right for each share of common
stock that you owned on , 2001. U.S. dollars only.
Each subscription rightwarrant will entitle youits holder to purchase one share of common stock for $ . If you wish to exercise your
subscription rights, you must do so before 5 P.M., Eastern Standard Time, on
, 2001. After that date, the subscription rights will expire and will no
longer be exercisable unless the offering is extended.
BASIC SUBSCRIPTION PRIVILEGE
Each subscription right will entitle you to receive, upon payment of $ ,
one share of common stock. You will receive certificates representing the
shares that you purchase pursuant to your basic subscription privilege as soon
as practicable after , 2001, whether you exercise your subscription
rights immediately prior to that date or earlier.
OVER-SUBSCRIPTION PRIVILEGE
Subject to the allocation described below, each subscription right also
grants you an over-subscription privilege to purchase additional shares of
common stock that are not purchased by other shareholders. You are entitled to
exercise your over-subscription privilege only if you exercise your basic
subscription privilege in full. If you wish to exercise your over-subscription
privilege, you should indicate the number of additional shares that you would
like to purchase in the space provided on your subscription certificate. When
you send in your subscription certificate, you must also send the full purchase
price for the number of additional shares that you have requested to purchase
(in addition to the payment due for shares purchased through your basic
subscription privilege). If the number of shares remaining after the exercise
of all basic subscription privileges is not sufficient to satisfy all over-
subscription privileges, we will allocate the available shares among
shareholders who over-subscribed in proportion to the number of shares
purchased by those over-subscribing shareholders through the basic subscription
privilege. However, if your pro rata allocation exceeds the number of shares
you requested, you will receive only the number of shares that you requested,
and the remaining shares from your pro rata allocation will be divided among
other shareholders exercising their over-subscription privileges who have
subscribed for additional shares in proportion to the number of shares
purchased by that group of over-subscribing shareholders through the basic
subscription privilege. In certain circumstances, however, in order to comply
with applicable state securities laws, we may not be able to honor all over-
subscription privileges even if we have shares available. The number of shares
available under the over-subscription privilege to any one shareholder or group
of shareholders may be reduced by the Company if any such shareholder or group
of shareholders would own 20% or more of the Company's common stock outstanding
after the offering.
PURCHASE COMMITMENTS
As of the date of this prospectus, certain directors, officers and other
shareholders have committed to purchase up to an aggregate of shares of
common stock pursuant to the offering which would provide the Company with a
minimum subscription amount and gross proceeds of $ . To effect this
14
commitment, each of these purchasers have individually agreed to exercise his
basic subscription privilege in full and to subscribe for additional shares
pursuant to the over-subscription privilege as follows:
Basic Subscription Over-Subscription
Name and Position Commitment Commitment Total Commitment
- ----------------- ------------------ ----------------- ----------------
NO RECOMMENDATION
We are not making any recommendations as to whether or not you should
exercise your subscription rights. You should make your decision based on your
own assessment of your best interests.
EXPIRATION DATE
The rights will expire at 5:00 p.m., Eastern Standard Time, on ,
2001, unless we decide to extend the rights offering. If you do not exercise
your subscription rights prior to that time, your subscription rights will be
null and void. We will not be required to issue shares of common stock to you
if the Subscription Agent receives your subscription certificate or your
payment after that time, regardless of when you sent the subscription
certificate and payment, unless you send the documents in compliance with the
guaranteed delivery procedures described below.
WITHDRAWAL RIGHT
Our Board of Directors may withdraw the rights offering in its sole
discretion at any time prior to or on , 2001, for any reason
(including, without limitation, a change in the market price of the common
stock). If we withdraw the rights offering, any funds you paid will be promptly
refunded, without interest or penalty.
DETERMINATION OF SUBSCRIPTION PRICE
Our Board of Directors chose the $ per share subscription price after
considering a variety of factors, including the following:
-- the historic and current market price of the common stock;
-- our business prospects;
-- our history of losses;
-- general conditions in the securities market;
-- our need for capital;
-- alternatives available to us for raising capital;
-- the amount of proceeds desired;
-- pricing of similar transactions;
-- the liquidity of our common stock;
-- the level of risk to our investors; and
-- the need to offer shares at a price that would be attractive to our
investors relative to the current trading price of our common stock.
15
The $ per share subscription price should not be considered an
indication of the actual value of Charles & Colvard or of our common stock. We
cannot assure you that the market price of the common stock will not decline
during or after the rights offering. We also cannot assure you that you will be
able to sell shares of common stock purchased during the rights offering at a
price equal to or greater than $ per share.
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS
Both the basic subscription rights and over-subscription rights are non-
transferable and non-assignable. Only you may exercise these rights.
EXERCISE OF SUBSCRIPTION RIGHTS
You may exercise your subscription rights by delivering to the Subscription
Agent on or prior to , 2001:
-- A properly completed and duly executed subscription certificate;
-- Any required signature guarantees; and
-- Payment in full of $ per share for the shares of common stock
subscribed for by exercising your basic subscription rights and, if
desired, your over-subscription rights.
You should deliver your subscription certificate and payment to the
Subscription Agent at the address shown under the heading "Subscription Agent."
Registered mail or overnight delivery is recommended. We will not pay you
interest on funds delivered to the Subscription Agent pursuant to the exercise
of rights.
METHOD OF PAYMENT
Payment for the shares must be made by check or bank draft (cashier's check)
drawn upon a United States bank or a postal, telegraphic or express money order
payable to the order of First Union National Bank, as Subscription Agent.
Payment for basic subscription rights and over-subscription rights may also be
effected through wire transfer as follows:
Bank Name:First Union National Bank
Address:
ABA#:
Account #:
Account Name:
Payment will be deemed to have been received by the Subscription Agent only
upon:
(A) clearance of any uncertified check;
(B) receipt by the Subscription Agent of any certified check or bank
draft drawn upon a U.S. bank or of any postal, telegraphic or express money
order;
(C) receipt by the Subscription Agent of any funds transferred by wire
transfer; or
(D) receipt of funds by the Subscription Agent through an alternative
payment method approved by Charles & Colvard.
Please note that funds paid by uncertified personal check may take at least
ten business days to clear. Accordingly, if you wish to pay by means of an
uncertified personal check, we urge you to make payment sufficiently in advance
of , 2001, to ensure that the payment is received and clears before
that date. We also urge you to consider payment by means of a certified or
cashier's check or money order.
16
GUARANTEED DELIVERY PROCEDURES
If you want to exercise your subscription rights, but time will not permit
your subscription certificate to reach the Subscription Agent on or prior to
, 2001, you may exercise your subscription rights if you satisfy the
following guaranteed delivery procedures:
(1) You send, and the Subscription Agent receives, payment in full for
each share of common stock being subscribed for through the basic
subscription privilege and the over-subscription privilege, on or prior to
, 2001;
(2) You send, and the Subscription Agent receives, on or prior to
, 2001, a notice of guaranteed delivery, substantially in the
form provided with the attached instructions, from a member firm of a
registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States. The notice
of guaranteed delivery must state your name, the number of subscription
rights that you hold, the number of shares of common stock that you wishor preferred stock at the exercise price set forth in, or calculable as set forth in, the applicable prospectus supplement.
After the close of business on the expiration date, unexercised warrants will become void. We will specify the place or places where, and the manner in which, warrants may be exercised in the applicable prospectus supplement.
Prior to the exercise of any warrants to purchase pursuant to the basic subscription privilege and the number of
shares, if any, you wish to purchase pursuant to the over-subscription
privilege. The notice of guaranteed delivery must guarantee the delivery of
your subscription certificate to the Subscription Agent within three Nasdaq
National Market trading days following the datecommon stock or preferred stock, holders of the notice of guaranteed
delivery; and
(3) You send, and the Subscription Agent receives, your properly
completed and duly executed subscription certificate, includingwarrants will not have any
required signature guarantees, within three Nasdaq National Market trading
days following the date of your notice of guaranteed delivery. The notice
of guaranteed delivery may be delivered to the Subscription Agent in the
same manner as your subscription certificate at the addresses set forth
under the heading "Subscription Agent," or may be transmitted to the
Subscription Agent by facsimile transmission, to facsimile number
. You can obtain additional copies of the formrights of noticeholders of guaranteed delivery by requesting them from the Subscription Agent at the
address set forth under the heading "Subscription Agent."
SIGNATURE GUARANTEE
Signatures on the subscription certificate do not need to be guaranteed if
either the subscription certificate provides that the shares of common stock to
be purchased are to be delivered directly to the record owneror preferred stock purchasable upon exercise.
DESCRIPTION OF UNITS WE MAY OFFER
We may issue units consisting of such
subscription rights, or the subscription certificate is submitted for the
account of a member firm of a registered national securities exchange or a
memberany combination of the National Associationother types of Securities Dealers, Inc.,securities offered under this prospectus in one or more series. We may evidence each series of units by unit certificates that we will issue under a commercialseparate agreement. We may enter into unit agreements with a unit agent. Each unit agent will be a bank or trust company having an office or correspondentthat we select. We will indicate the name and address of the unit agent in the United States.
Ifapplicable prospectus supplement relating to a signature guarantee is required, signatures onparticular series of units.
The following description, together with the subscription
certificate must be guaranteed by an Eligible Guarantor Institution, as definedadditional information included in Rule 17Ad-15any applicable prospectus supplement, summarizes the general features of the Securities Exchange Act of 1934, as amended, subjectunits that we may offer under this prospectus. We urge you to read the prospectus supplements (and any related free writing prospectus that we may authorize to be provided to you) related to the standards and procedures adopted byseries of units being offered, as well as the Subscription Agent. Eligible
Guarantor Institutions include banks, brokers, dealers, credit unions, national
securities exchanges and savings associations.
SHARES HELD FOR OTHERS
If you are a broker, a trustee or a depository for securities, or you
otherwise hold shares of common stock for the account of a beneficial owner of
common stock, you should notify the beneficial owner of such shares as soon as
possible to obtain instructions with respect to their subscription rights. If
you are a beneficial owner of common stock held by a holder of record, such as
a broker, trustee or a depository for securities, you should contact the holder
and ask him or her to effect transactions in accordance with your instructions.
AMBIGUITIES IN EXERCISE OF SUBSCRIPTION RIGHTS
If you do not specify the number of subscription rights being exercised on
your subscription certificate, or if your payment is not sufficient to pay the
total purchase price for all of the sharescomplete unit agreements that you indicated you wished to
purchase, you will be deemed to have exercised the maximum number of
subscription rights that
17
could be exercised for the amount of the payment that the Subscription Agent
receives from you. If your payment exceeds the total purchase price for all of
the subscription rights shown on your subscription certificate, your payment
will be applied, until depleted, to subscribe for shares of common stock in the
following order:
(1) to subscribe for the number of shares, if any, that you indicated on
the subscription certificate that you wished to purchase through your basic
subscription privilege;
(2) to subscribe for shares of common stock until your basic
subscription privilege has been fully exercised;
(3) to subscribe for additional shares of common stock pursuant to the
over-subscription privilege (subject to any applicable proration).
Any excess payment remaining after the foregoing allocation will be returned
to you as soon as practicable by mail, without interest or deduction.
REGULATORY LIMITATION
We will not be required to issue you shares of common stock pursuant to the
rights offering if, in our opinion, you would be required to obtain prior
clearance or approval from any state or federal regulatory authorities to own
or control such shares if, at the time the subscription rights expire, you have
not obtained such clearance or approval.
STATE AND FOREIGN SECURITIES LAWS
The rights offering is not being made in any state or other jurisdiction in
which it is unlawful to do so, nor are we selling or accepting any offers to
purchase any shares of common stock to you if you are a resident of any such
state or other jurisdiction. We may delay the commencement of the rights
offering in certain states or other jurisdictions in order to comply with the
securities law requirements of such states or other jurisdictions. It is not
anticipated that there will be any changes incontain the terms of the rights offering.
In our sole discretion,units. Specific unit agreements will contain additional important terms and provisions and we may decline to make modificationswill file as an exhibit to the registration statement of which this prospectus is a part, or will incorporate by reference from another report that we file with the SEC, the form of each unit agreement relating to units offered under this prospectus.
If we offer any units, certain terms of that series of units will be described in the rightsapplicable prospectus supplement, including, without limitation, the following, as applicable:
| · | the title of the series of units; |
| · | identification and description of the separate constituent securities comprised in the units; |
| · | the price or prices at which the units will be issued; |
| 9 |
| · | the date, if any, on and after which the constituent securities comprised in the units will be separately transferable; |
| · | a discussion of certain U.S. federal income tax considerations applicable to the units; and |
| · | any other terms of the units and their constituent securities. |
We may sell the securities offered by this prospectus to one or more underwriters or dealers for public offering, requestedthrough agents, directly to purchasers or through a combination of any such methods of sale. The name of any such underwriters, dealers or agents involved in the offer and sale of the securities, the amounts underwritten and the nature of its obligation to take the securities will be specified in the applicable prospectus supplement. We have reserved the right to sell the securities directly to investors on our own behalf in those jurisdictions where we are authorized to do so. The sale of the securities may be effected in transactions (a) on any national or international securities exchange or quotation service on which the securities may be listed or quoted at the time of sale, (b) in the over-the-counter market, (c) in transactions otherwise than on such exchanges or in the over-the-counter market or (d) through the writing of options.
We and our agents and underwriters may offer and sell the securities at a fixed price or prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The securities may be offered on an exchange, which will be disclosed in the applicable prospectus supplement. We may, from time to time, authorize dealers, acting as our agents, to offer and sell the securities upon such terms and conditions as set forth in the applicable prospectus supplement. We may also sell the securities offered by any applicable prospectus supplement in “at-the-market offerings” within the meaning of Rule 415 of the Securities Act, to or through a market maker or into an existing trading market, on an exchange or otherwise.
If we use underwriters to sell securities, we will enter into an underwriting agreement with them at the time of the sale to them. In connection with the sale of the securities, underwriters may receive compensation from us in the form of underwriting discounts or commissions and may also receive commissions from purchasers of the securities for whom they may act as agent. Any underwriting compensation paid by us to underwriters or agents in connection with the offering of the securities, and any discounts, concessions or commissions allowed by underwriters to participating dealers, will be set forth in the applicable prospectus supplement to the extent required by applicable law. Underwriters may sell the securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters or commissions (which may be changed from time to time) from the purchasers for whom they may act as agents.
Dealers and agents participating in the distribution of the securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the securities may be deemed to be underwriting discounts and commissions under the Securities Act. Unless otherwise indicated in the applicable prospectus supplement, an agent will be acting on a best efforts basis.
If so indicated in the prospectus supplement, we will authorize underwriters, dealers or agents to solicit offers by certain statesspecified institutions to purchase offered securities from us at the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. Such contracts will be subject to any conditions set forth in the applicable prospectus supplement and the prospectus supplement will set forth the commission payable for solicitation of such contracts. The underwriters and other persons soliciting such contracts will have no responsibility for the validity or performance of any such contracts.
Underwriters, dealers and agents may be entitled, under agreements entered into with us, to indemnification against and contribution towards certain civil liabilities, including any liabilities under the Securities Act.
To facilitate the offering of securities, certain persons participating in the offering may engage in transactions that stabilize, maintain, or otherwise affect the price of the securities. These may include over-allotment, stabilization, syndicate short covering transactions and penalty bids. Over-allotment involves sales in excess of the offering size, which creates a short position. Stabilizing transactions involve bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate short covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the underwriters to reclaim selling concessions from dealers when the securities originally sold by the dealers are purchased in covering transactions to cover syndicate short positions. These transactions may cause the price of the securities sold in an offering to be higher than it would otherwise be. These transactions, if commenced, may be discontinued by the underwriters at any time.
| 10 |
Any securities other jurisdictions,than our common stock issued hereunder may be new issues of securities with no established trading market. Any underwriters or agents to or through whom such securities are sold for public offering and sale may make a market in which case shareholders who live in those statessuch securities, but such underwriters or jurisdictionsagents will not be eligibleobligated to participatedo so and may discontinue any market making at any time without notice. No assurance can be given as to the liquidity of the trading market for any such securities. The amount of expenses expected to be incurred by us in connection with any issuance of securities will be set forth in the rights offering.
OUR DECISION REGARDING CERTAIN MATTERS BINDING ON YOU
All questions concerningapplicable prospectus supplement. Certain of the timeliness, validity, formunderwriters, dealers or agents and eligibility of
any exercise of subscription rights will be determined bytheir associates may engage in transactions with, and perform services for, us and certain of our determinations will be final and binding. In our sole discretion, we may waive
any defect or irregularity, or permit a defect or irregularity to be corrected
withinaffiliates in the ordinary course of business.
During such time as we may determine,be engaged in a distribution of the securities covered by this prospectus we are required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes us, any affiliated purchasers, and any broker-dealer or reject the purported exercise of any
subscription right by reason of any defect or irregularityother person who participates in such exercise.
Subscriptions will not be deemeddistribution from bidding for or purchasing, or attempting to have been receivedinduce any person to bid for or acceptedpurchase, any security which is the subject of the distribution until all
irregularities have been waivedthe entire distribution is complete. Regulation M also restricts bids or cured within such time as we determinepurchases made in our sole discretion. Neither Charles & Colvard nororder to stabilize the Subscription Agent will
be under any duty to notify youprice of any defect or irregularitya security in connection with the submissiondistribution of a subscription certificate or incur any liability for
failure to give such notification.
NO REVOCATION
After you have exercised your basic subscription privilege or over-
subscription privilege, YOU MAY NOT REVOKE THAT EXERCISE. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additionalsecurity. All of the foregoing may affect the marketability of our shares of common stock.
SHARES OF COMMON STOCK OUTSTANDING AFTER THE RIGHTS OFFERING
Assuming we issue all
The validity and legality of the sharessecurities offered hereby and certain other legal matters will be passed upon for the Company by K&L Gates LLP, Raleigh, North Carolina.
The consolidated financial statements as of common stock offeredJune 30, 2020 and 2019 and for the years then ended incorporated by reference in this Prospectus and in the rights
offering, approximately shares of common stock will be issued and
outstanding. This would represent a 100% increase in the number of
18
outstanding shares of common stock. IF YOU DO NOT EXERCISE YOUR BASIC
SUBSCRIPTION RIGHTS, THE PERCENTAGE OF COMMON STOCK THAT YOU HOLD WILL DECREASE
IF SHARES ARE PURCHASED IN THE RIGHTS OFFERING.
FEES AND EXPENSES
We will pay all fees charged by the Subscription Agent. You are responsible
for paying any other commissions, fees, taxes or other expenses incurred in
connection with the exercise of the subscription rights. Neither Charles &
Colvard nor the Subscription Agent will pay such expenses.
SUBSCRIPTION AGENT
We have appointed our transfer agent, First Union National Bank, as
Subscription Agent for the rights offering. The Subscription Agent's address
for packages sent by mail or overnight delivery is:
First Union National Bank
Attention:
1525 West W.T. Harris Boulevard, 3C3
Charlotte, North Carolina 28262-1153
The Subscription Agent's telephone number is and its facsimile
number is . You should deliver your subscription certificate,
payment of the subscription price and notice of guaranteed delivery (if any) to
the Subscription Agent. We will pay a fee of $6,500 plus certain expenses of
the Subscription Agent. We have also agreed to indemnify the Subscription Agent
from certain liabilities which it may incur in connection with the rights
offering.
IMPORTANT
PLEASE CAREFULLY READ THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION
CERTIFICATE AND FOLLOW THOSE INSTRUCTIONS IN DETAIL. DO NOT SEND SUBSCRIPTION
CERTIFICATES DIRECTLY TO US. YOU ARE RESPONSIBLE FOR CHOOSING THE PAYMENT AND
DELIVERY METHOD FOR YOUR SUBSCRIPTION CERTIFICATE, AND YOU BEAR THE RISKS
ASSOCIATED WITH SUCH DELIVERY. IF YOU CHOOSE TO DELIVER YOUR SUBSCRIPTION
CERTIFICATE AND PAYMENT BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. WE ALSO RECOMMEND THAT YOU
ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT
AND CLEARANCE OF PAYMENT PRIOR TO , 2001. BECAUSE UNCERTIFIED
PERSONAL CHECKS MAY TAKE AT LEAST TEN BUSINESS DAYS TO CLEAR, WE STRONGLY URGE
YOU TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR
MONEY ORDER.
IF YOU HAVE QUESTIONS
If you have questions or need assistance concerning the procedure for
exercising subscription rights or if you would like additional copies of this
prospectus, the instructions, or the Notice of Guaranteed Delivery, you should
contact Mark W. Hahn, of Charles & Colvard, at:
3800 Gateway Boulevard, Suite 311
Morrisville, North Carolina 27560
Telephone (919) 468-0399
19
PLAN OF DISTRIBUTION
On or about , 2001, we will distribute the subscription rights,
subscription certificates and copies of this prospectus to individuals who
owned shares of common stock on , 2001. If you wish to exercise your
subscription rights and purchase shares of common stock, you should complete
the subscription certificate and return it with payment for the shares, to the
Subscription Agent, First Union National Bank, at the address on page 19. If
you have any questions, you should contact our Chief Financial Officer, Mark W.
Hahn, at the telephone number and address on page 19.
We estimate that our total expenses in connection with the rights offering
will be $140,000.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1999 have been audited by Deloitte
& Touche LLP, independent auditors as stated in their report, which is
incorporated herein by reference, andRegistration Statement have been so incorporated in reliance uponon the report of suchBDO USA, LLP, an independent registered public accounting firm, incorporated herein by reference, given upon theiron the authority of said firm as experts in accountingauditing and auditing.
LEGAL MATTERS
Womble Carlyle Sandridge & Rice, PLLC, Charlotte, North Carolina, will pass
on the validity of the issuance of the shares of our common stock offered by
this prospectus for us. A member of Womble Carlyle Sandridge & Rice, PLLC owns
25,100 shares of our common stock.
HOW TOaccounting.
WHERE YOU CAN FIND ADDITIONALMORE INFORMATION
Charles & Colvard files
We file annual, quarterly and specialcurrent reports, proxy statementstatements and other information with the SEC. You may read and copy this
informationOur SEC filings are available to the public over the Internet at the SEC's public reference rooms, which are located at:
450 Fifth Street, N.W.
Washington, D.C. 20549
7 World Trade Center, Suite 1300
New York, NY 10048
500 West Madison Street, Suite 1400
Chicago, IL 60661-2511
Please callSEC’s website at www.sec.gov. Copies of certain information filed by us with the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. This information isare also available online through the SEC's
Electronic Data Gathering, Analysison our website at www.charlesandcolvard.com. Our website is not a part of this prospectus and Retrieval System ("EDGAR"), located on
the SEC's web site (http://www.sec.gov).
Also,is not incorporated by reference in this prospectus.
This prospectus is part of a registration statement we will provide you (free of charge) with any of our documents filed with the SEC. To get your free copies, please call or write to Charles &
Colvard at:
3800 Gateway Boulevard, Suite 310
Morrisville, N.C. 27560
Attention: Chief Financial Officer
Telephone: (919) 468-0399
We have filed a registration statement with the SEC on Form S-3 with respect
to the rights offering. This prospectus is a part of the registration
statement, but the prospectus does not repeat importantomits some information that
20
you can findcontained in the registration statement reportsin accordance with SEC rules and other documentsregulations. You should review the information and exhibits in the registration statement for further information about us and our consolidated subsidiary and the securities we are offering. Statements in this prospectus concerning any document we filed as an exhibit to the registration statement or that we haveotherwise filed with the SEC. SEC are not intended to be comprehensive and are qualified by reference to these filings and the exhibits attached thereto. You should review the complete document to evaluate these statements.
The SEC allows us to "incorporate“incorporate by reference" thosereference” information from other documents that we file with it, which means that we can disclose important information to you by referring you to otherthose documents. The documents that areinformation incorporated by reference are legallyis considered to be a part of this prospectus. The documentsInformation in this prospectus supersedes information incorporated by reference are:
(1) our Annual Report on Form 10-K for the year ended December 31, 1999;
(2) our Quarterly Reports on Form 10-Q for the periods ended March 31,
2000, June 30, 2000 and September 30, 2000;
(3) the description of our common stock, no par value per share,
contained in our Registration Statement on Form 8-A, as amended
(Registration No. 0-23329),that we filed with the SEC prior to the date of this prospectus.
| 11 |
We incorporate by reference into this prospectus and the registration statement of which this prospectus is a part the information or documents listed below that we have filed with the SEC:
| · | Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed with the SEC on September 4, 2020; |
| · | Quarterly Reports on Form 10-Q for the period ended September 30, 2020, filed with the SEC on November 6, 2020, for the period ended December 31, 2020, filed with the SEC on February 4, 2021, and for the period ended March 31, 2021, filed with the SEC on May 7, 2021; |
| · | Current Reports on Form 8-K filed with the SEC on August 4, 2020, November 20, 2020, and December 2, 2020; |
| · | The information incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 from our Proxy Statement on Schedule 14A related to our 2020 Annual Meeting of Stockholders, filed with the SEC on October 2, 2020; and |
| · | The description of our common stock contained in our Registration Statement on Form 8-A filed with the SEC on November 7, 1997 (file number 000-23329), and any amendments or reports filed for the purpose of updating such description. |
We also incorporate by reference any future filings (other than current reports furnished under Item 2.02 or Item 7.01 of Form 8-K and exhibits filed on November 13, 1997; and
(4) any filings we makesuch form that are related to such items unless such Form 8-K expressly provides to the contrary) made with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act, of 1934 betweenincluding those made on or after the date of the initial filing of the registration statement of which this prospectus is a part and prior to effectiveness of such registration statement, until we file a post-effective amendment that indicates the termination of the offering of the Securities made by this prospectus and will become a part of this prospectus from the expiration ofdate that such documents are filed with the rights offering.
As you readSEC. Information in such future filings updates and supplements the above documents, you may find some inconsistenciesinformation provided in information from one document to another. If you find inconsistencies between
the documents, or betweenthis prospectus. Any statement contained in a document andincorporated or deemed to be incorporated by reference in this prospectus you should rely onwill be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement made in the most recent document.
You should rely only on the informationcontained in this prospectus or in any other subsequently filed document which also is or is deemed to be incorporated by reference.reference in this prospectus modifies or supersedes that statement. Any statement that is modified or superseded will not constitute a part of this prospectus, except as modified or superseded.
We will furnish without charge to you, on written or oral request, a copy of any or all of the documents incorporated by reference, including exhibits to these documents. You should direct any requests for documents to Charles & Colvard, Ltd., 170 Southport Drive, Morrisville, North Carolina 27560; Telephone: (919) 468-0399. Copies of the above reports may also be accessed from our web site at www.charlesandcolvard.com. We have not authorized anyoneno one to provide you with any different
information.
This prospectus is not an offer to sell nor is it seeking an offer to buy
these securities in any state where the offer or sale is not permitted. This
prospectus is not an offer to sell nor is it seeking an offer to buy securities
other than the shares of common stock to be issued pursuant to the rights
offering. The information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of the delivery of this
prospectus or any sale of these securities.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable in that jurisdiction.
21
Shares
CHARLES & COLVARD, LTD.
Common Stock
----------------
PROSPECTUS
----------------
, 2001
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information differentdiffers from that contained in this prospectus. This prospectus doesAccordingly, you should not constitute an offer to
sell, or a solicitation of an offer to buy, torely on any personinformation that is not contained in any jurisdiction
where offers and sales arethis prospectus. You should not permitted. Theassume that the information contained in this prospectus is accurate only as of any date other than the date of this prospectus, regardless of
the time of deliveryfront cover of this prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of our common stock or possession or distribution of
this prospectus in that jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
| 12 |
Charles & Colvard, Ltd.
$25,000,000
Common Stock
Preferred Stock
Warrants
Units
PROSPECTUS
, 2021
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Distribution.
The following table sets forthis an itemized statement of expenses of the fees and expenses incurred by Charles &
Colvard, Ltd.Company in connection with the issuance and distributiondelivery of the securities being registered.
| SEC registration fee | $ | 1,201.06 | ||
| Printing Expenses | * | |||
| NASDAQ Listing Fees | * | |||
| Trustee Fees and Expenses | * | |||
| Accounting Fees and Expenses | * | |||
| Legal Fees and Expenses | * | |||
| Miscellaneous | * | |||
| Total | $ | 1,201.06 |
* These fees will be dependent on the types of securities offered and number of offerings and, therefore, cannot be estimated at this time.
Item 15. Indemnification of Directors and Officers
Officers.
The following summary is qualified in its entirety by reference to the complete text of any statutes referred to below and the Restated Articles of Incorporation of Charles & Colvard, Ltd., a North Carolina corporation.
Sections 55-8-50 through 55-8-58 of the North Carolina Business Corporation Act, contains specific provisions relating to indemnification of directors and
officers of North Carolina corporations. In general, such sections provide that
(i)or the NCBCA, permit a corporation mustto indemnify its directors, officers, employees, or agents under either or both a statutory or non-statutory scheme of indemnification. Under the statutory scheme, a corporation may, with certain exceptions, indemnify a director, officer, employee, or agent of the corporation who was, is, or is threatened to be made, a party to any threatened, pending, or completed legal action, suit, or proceeding, whether civil, criminal, administrative, or investigative, because such person is or was a director, officer, whoagent, or employee of the corporation, or is wholly successfulor was serving at the request of such corporation as a director, officer, employee, or agent of another corporation or enterprise. This indemnity may include the obligation to pay any judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), and reasonable expenses incurred in connection with a proceeding (including counsel fees), but no such indemnification may be granted unless such director, officer, agent or employee (i) conducted himself in good faith, (ii) reasonably believed (A) that his conduct in his defenseofficial capacity with the corporation was in the best interests of athe corporation or (B) that in all other cases his conduct at least was not opposed to the corporation’s best interests, and (iii) in the case of any criminal proceeding, had no reasonable cause to which he is a party because ofbelieve his status as
such, unless limited by the articles of incorporation, and (ii) a corporation
may indemnifyconduct was unlawful. Whether a director, officer, employee or officer if he is not wholly successful in such
defense and it is determined as provided by statute thatagent has met the director or
officer meets a certainrequisite standard of conduct butfor the type of indemnification set forth above is determined by the board of directors, a committee of directors, special legal counsel, or the shareholders in accordance with Section 55-8-55. A corporation may not indemnify a director, officer, agent, or employee under the statutory scheme in connection with a proceeding by or in the right of the corporation in which the director, officer, if he isagent, or employee was adjudged liable to the corporation or isin connection with a proceeding in which a director, officer, agent, or employee was adjudged liable on the basis thatof having received an improper personal benefit was improperly received by
him. A director or officerbenefit.
In addition to, and separate and apart from the indemnification described above under the statutory scheme, Section 55-8-57 of the NCBCA permits a corporation who is a party to aindemnify or agree to indemnify any of its directors, officers, employees, or agents against liability and expenses (including counsel fees) in any proceeding may
also apply to the courts for indemnification, and the court may order
indemnification under certain circumstances set forth in the statute. A
corporation may, in its articles of incorporation(including proceedings brought by or bylaws or by contract or
resolution, provide indemnification in addition to that provided by statute,
subject to certain conditions.
The Registrant's bylaws provide for the indemnification of any director or
officeron behalf of the Registrant against liabilities and litigation expensescorporation) arising out of histheir status as such excluding (i)or their activities in any liabilitiesof such capacities; provided, however, that a corporation may not indemnify or litigationagree to indemnify a person against liability or expenses relating tosuch person may incur on account of activities whichthat were, at the time taken, known or believed by suchthe person to be clearly in conflict with the best interestinterests of the Registrant and
(ii) that portioncorporation.
Our Bylaws provide for indemnification, to the fullest extent from time to time permitted by law, of any liabilitiesperson who at any time serves or litigation expenses with respecthas served as a director or officer of the Company, or, at our request, is or was serving as a director or officer of another entity in the event such person is made, or is threatened to be made, a party to any threatened, pending, or completed civil, criminal, administrative, or investigative action, suit, or proceeding, and any appeal of such an action, whether or not brought by or on behalf of the Company, seeking to hold such person liable by reason of the fact that he or she is or was acting in such capacity.
| II-1 |
The rights of indemnification found in our Bylaws cover:
| · | reasonable expenses, including without limitation all attorneys’ fees actually incurred by such person in connection with any action, suit or proceeding; |
| · | payments in satisfaction of any judgment, money decree, fine, penalty or settlement; and |
| · | all reasonable expenses incurred in enforcing such person’s indemnification rights. |
Sections 55-8-52 and 55-8-56 of the NCBCA require a corporation, unless limited by its articles of incorporation, to indemnify a director or officer who has been wholly successful, on the merits or otherwise, in the defense of any proceeding to which such persondirector or officer was a party because he is entitled to receive payment under any insurance policy.
The Registrant'sor was a director or officer of the corporation against reasonable expenses incurred in connection with the proceeding. Unless a corporation’s articles of incorporation provide otherwise, a director or officer also may apply for and obtain court-ordered indemnification if the eliminationcourt determines that such director or officer is fairly and reasonably entitled to such indemnification as provided in Sections 55-8-54 and 55-8-56.
Finally, Section 55-8-57 of the NCBCA provides that a corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation against liability asserted against or incurred by such person, whether or not the corporation is otherwise authorized by the NCBCA to indemnify such party. Our directors and officers are currently covered under directors’ and officers’ insurance policies maintained by the Company. Our Articles of Incorporation do not limit the personal liability of directors for monetary damages for breaches of duty as a director.
In addition, we have also entered into an indemnification agreement with each of our directors and executive officers. The indemnification agreement requires the Company to indemnify the indemnitee against liability and expenses in any threatened, pending, or completed action, suit, or proceeding arising out of such indemnitee’s present or former status as an officer or director of the RegistrantCompany to the fullest extent permitted by law.
In connection with this offering, the Registrant intends to obtain
directors' and officers' liability insurance, under which any controlling
person, director or officerlaw in effect as of the Registrant will be insured or indemnified
against certain liabilities which he may incur in his capacity as such.
II-1
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits. The following is a list of exhibits filed as part of the
Registration Statement.
Exhibit
No. Description
------- -----------
4.1 Amended and Restated Articles of Incorporation of Charles & Colvard,
Ltd. which is hereby incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 of C3, Inc. (File No. 333-36809).
4.2 Articles of Amendment of C3, Inc., as filed with the Secretary of
State on February 23, 1999, which is hereby incorporated by
reference to Exhibit 3.2 to the Form 10-K for the Fiscal Year Ended
December 31, 1999 of C3, Inc. (File No. 0-23329).
4.3 Amended and Restated Bylaws of Charles & Colvard, Ltd. which is
hereby incorporated by reference to Exhibit 3.2 to the Registration
Statement on Form S-1 of C3, Inc. (File No. 333-36809).
5.1 Form of Opinion of Womble Carlyle Sandridge and Rice PLLC
23.1 Consent of Deloitte & Touche LLP
24 Power of Attorney (included in the Signature Page contained in Part
II of the Registration Statement).
99.1 Form of Subscription Certificate
99.2 Instructions on Use of Charles & Colvard, Ltd. Subscription
Certificate
99.3 Form of Letter to Shareholders
99.4 Form of Letter to Brokers
99.5 Notice of Guaranteed Delivery
- --------
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (oragreement or to such greater extent as applicable law may subsequently permit. The indemnification agreement further requires the most recent
post-effective amendment thereof) which, individuallyCompany to advance expenses incurred in connection with any threatened, pending, or completed action, suit, or proceeding if requested by the indemnitee. The indemnification agreement also includes an undertaking by the indemnitee to reimburse the Company for any amounts advanced if it is ultimately determined that indemnification is not appropriate. The rights provided in the aggregate, representindemnification agreement are in addition to rights provided in our Bylaws, Articles of Incorporation, and the NCBCA.
The limitations of liability and indemnification provisions in our Articles of Incorporation, Bylaws and indemnification agreements may discourage shareholders from bringing a fundamental change inlawsuit against directors for breach of their fiduciary duty. These provisions may also have the information ineffect of reducing the registration statement. Notwithstanding the foregoing, any increase or
decrease in volumelikelihood of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)derivative litigation against directors and any
deviation from the low or high end of the estimated maximum offering
rangeofficers, even though such an action, if successful, might otherwise benefit our stockholders and us. In addition, your investment may be reflected inadversely affected to the formextent we pay the costs of prospectus filed with the
Commissionsettlement and damage awards against directors and officers pursuant to rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendments is contained in periodic
reports filed by the registrant pursuant to Section 13 or
II-2
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining liability under the Securities
Act, the registrant will treat each post-effective amendment as a new
registration statement of the securities offered, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering.
(3) That, the registrant will file a post-effective amendment to remove
from registration any of the securities that remain unsold at the end of
the offering.
The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
these indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of 1933 (the "Securities Act")the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
| II-2 |
Item 16. Exhibits.
|
|
|
|
|
|
| Incorporated by Reference | |||||
| Exhibit Number |
| Exhibit Description |
| Filed Herewith |
| Form |
| Exhibit |
| Filing Date |
| Registration/File No. |
| 1.1 |
| Form of Underwriting Agreement* |
|
|
|
|
|
|
|
|
|
|
| 3.1 |
| Restated Articles of Incorporation of Charles & Colvard, Ltd. |
|
| 10-K |
| 3.1 |
| 3/21/05 |
| 000-23329 | |
| 3.2 | Bylaws of Charles & Colvard, Ltd., as amended and restated, effective May 19, 2011 | 8-K | 3.1 | 5/25/11 | 000-23329 | |||||||
| 4.1 |
| Specimen Certificate of Common Stock |
|
| 10-K |
| 4.1 |
| 3/18/98 |
| 000-23329 | |
| 4.2 |
| Form of Preferred Stock Certificate * |
|
|
|
|
| |||||
| 4.3 |
| Form of Certificate of Designations for Preferred Stock* |
|
|
|
|
| |||||
| 4.4 |
| Form of Warrant Agreement (including form of warrant certificate)* |
|
|
|
|
| |||||
| 4.5 |
| Form of Unit Agreement (including form of unit)* |
|
|
|
|
| |||||
| 5.1 |
| Opinion of K&L Gates LLP as to legality of securities being registered |
| X |
|
|
|
| ||||
| 23.1 |
| Consent of BDO USA, LLP, Independent Registered Public Accounting Firm |
| X |
|
|
|
| ||||
| 23.2 |
| Consent of K&L Gates LLP (contained in Exhibit 5.1) |
| X |
|
|
|
| ||||
| 24.1 |
| Power of Attorney (included on signature page) |
| X |
|
|
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* To be filed, if necessary, with a Current Report on Form 8-K or a Post-Effective Amendment to the registration statement.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant, pursuant to the foregoing provisions described under Item 15 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification by it is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrantregistrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act;
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(ii) to reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement); and
(iii) to include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement;
provided, however, that subparagraphs (i), (ii) and (iii) do not apply if the information required to be included in a post-effective amendment by those subparagraphs is contained in reports filed with or furnished to the SEC by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, that are incorporated by reference in this registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration, by means of a post-effective amendment, any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser if the registrant is relying on Rule 430B: (A) each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and (B) each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(5) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
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(6) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: the undersigned registrant undertakes that:that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) Forany preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(7) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(8) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus tiledfiled as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrantregistrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of thethis registration statement as of the time it was declared effective. (ii) For
(9) That, for the purposespurpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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(10) To file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrantregistrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Form S-3
Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the CityTown of Morrisville, State of North Carolina, on the
13ththis 26th day of December, 2000.
Charles & Colvard, Ltd.
/s/ Robert S. Thomas
By: _________________________________
Robert S. Thomas
President and Chief Executive
Officer
May 2021.
CHARLES & COLVARD, LTD. /s/ Don O’Connell Don O’Connell Director, President and Chief Executive Officer (Principal Executive Officer) |
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each
Each person whose signature appears below constitutes and appoints Robert S. Thomas, asDon O’Connell and Clint J. Pete, and each of them, his attorney-in-
fact,true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, severally, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each said attorney-in-factattorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this Form S-3
Registration Statementregistration statement has been signed by the following persons in the capacities and on the dates indicated.
Dated: May 26, 2021 | /s/ Don O’Connell Don O’Connell Director, President and (Principal Executive Officer) |
| Dated: May 26, 2021 | /s/ Clint J. Pete Clint J. Pete Chief Financial Officer (Principal Financial Officer and |
Dated: May 26, 2021 | /s/ Neal I. Goldman Neal I. Goldman, Chairman of the Board of |
Dated: May 26, 2021 | /s/ Anne M. Butler Anne M. Butler, Director |
Dated: May 26, 2021 | /s/ Benedetta Casamento Benedetta Casamento, Director |
| Dated: May 26, 2021 | /s/ Ollin B. Sykes Ollin B. Sykes, Director |