As filed with the Securities and Exchange Commission on December 13, 2000
May 18, 2018
Registration No. 333- - -------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM
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)
| North Carolina | 56-1928817 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
170 Southport Drive
Morrisville, N.C.NC 27560
(919) 468-0399
(Address
(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
Suzanne T. Miglucci
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 N. Shelton, Esq.
Womble Carlyle Sandridge
Please send copies of all communications to:
Margaret Rosenfeld
Smith, Anderson, Blount, Dorsett, Mitchell & Rice, PLLC
3300 One First UnionJernigan, L.L.P.
Wells Fargo Capitol Center
301 South College
150 Fayetteville Street, Charlotte, North Carolina 28202
(704) 331-4900
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Suite 2300
Raleigh, NC 27601
(919) 821-1220
Approximate date of commencement of proposed sale to the public: As soon as
practicable
From time to time after this registration statement becomes effective.
the effective date of the Registration Statement.
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. þ
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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CALCULATION OF REGISTRATION FEE
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Proposed
Maximum
Aggregate
Title of Each Class of Amount to be Offering Amount of
Securities To Be Registered Registered(1) Price(2) Registration
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Common Stock, no par value per share.... 8,397,313 $12,092,131 $3,193.00
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(1) Maximum number¨
Indicate by check mark whether 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 shares of Common Stock of Charles & Colvard to be sold
to current holders of its Common Stock“large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in this rights offering.
(2) Calculated in accordance with Rule 457(o) based on the estimated maximum
aggregate offering price12b-2 of the Common Stock.
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Exchange Act.
| Large accelerated filer ¨ | Accelerated filer ¨ | |
| Non-accelerated filer ¨ | (Do not check if a smaller reporting company) | Smaller reporting company þ |
| 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 | ||||||||||||||||
| Title of each class of securities to be registered | Amount to be Registered (1) | Proposed maximum offering price per unit (1) | Proposed maximum aggregate offering price (2) | Amount of registration fee (3) | ||||||||||||
| Common Stock, no par value per share | ||||||||||||||||
| Preferred Stock, no par value per share | ||||||||||||||||
| Warrants | ||||||||||||||||
| Units | ||||||||||||||||
| Total | $ | 25,000,000 | $ | 3,113 | ||||||||||||
| (1) | An indeterminate amount of common stock, preferred stock, warrants to purchase common stock or preferred stock, and units consisting of any combination of the foregoing types of securities are being registered hereunder for possible issuance from time to time at indeterminate prices, but in no event will the aggregate offering price exceed $25,000,000 or the equivalent thereof in one or more foreign currencies, composite currencies or currency units. Any securities registered hereunder may be sold separately or as units with other securities registered hereunder. The securities registered also include such indeterminate amount of common stock, preferred stock and/or units as may be issued upon conversion of or exchanged for preferred stock and upon exercise of warrants or pursuant to anti-dilution provisions of any such securities. No separate consideration will be received for any securities registered hereunder that are issued upon conversion of, or in exchange for, or upon exercise of, as the case may be, convertible or exchangeable securities. Pursuant to Rule 416 under the Securities Act of 1933, as amended, there are also being registered hereunder an indeterminate number of shares of common stock and preferred stock as may be issuable with respect to the shares being registered hereunder as a result of stock splits, stock dividends or similar transactions. |
| (2) | The proposed maximum aggregate offering price per class of security will be determined from time to time by the registrant in connection with the issuance by the registrant of the securities registered hereunder and is not specified as to each class of security pursuant to General Instruction II.D of Form S-3 under the Securities Act of 1933, as amended. |
| (3) | The registration fee has been calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended, based on the proposed maximum aggregate offering price. |
The registrant hereby amends this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statementregistration 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 Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an
offer to sell, 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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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER , 2000
MAY 18, 2018
PROSPECTUS
CHARLES
Charles & COLVARD, LTD.
SharesColvard, Ltd.
$25,000,000
Common Stock
Preferred Stock
Warrants
Units
From time to time, we may offer and sell the following securities with an aggregate offering price of Common Stock
We are offeringup to $25,000,000 in amounts, at prices and on terms described in one or more supplements to this prospectus: (i) shares of common stock, to our shareholders who owned(ii) shares of our commonpreferred stock, as of the close of business on , 2001, the
record date.
. You will receive, at no cost, a subscription right(iii) warrants 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.
. We will not issue fractional shares of common stock or preferred stock, and we(iv) units consisting of any combination of the foregoing types of securities.
This prospectus describes some of the general terms that may apply to an offering of the securities. The specific terms and any other information relating to a specific offering will not pay
cashbe set forth in placea post-effective amendment to the registration statement of fractional shares.
. The rights are exercisable beginning on the date ofwhich this prospectus is a part or in a supplement to this prospectus, or may be set forth in one or more documents incorporated by reference into this prospectus. We may also authorize one or more free writing prospectuses to be provided to you in connection with a specific offering. You should read carefully this prospectus, the applicable prospectus supplement and continuing until 5:00 p.m., Eastern Standard Time, on , 2001, the
expiration date, unless extended.
. If you want to participateany related free writing prospectuses that we have authorized for use in connection with a specific offering, as well as any documents incorporated by reference in this offering, we recommend thatprospectus, before you submit
your subscription documentsinvest.
We may offer and sell the securities to or through one or more underwriters, dealers and agents, or directly to purchasers, on a continuous or delayed basis. If any agents or underwriters are involved in the subscription agent beforesale of any of the expiration datesecurities offered by this prospectus, their names, and any applicable purchase price, fee, commission or to your brokerdiscount arrangement between or bank at least 10 days before the
expiration date.
. All subscriptionsamong them, will be heldset forth, or will be calculable from the information set forth, in escrow by our subscription agent, First
Union National Bank, until the expiration date.
. Your rights are not transferable.
.applicable prospectus supplement. The rightssupplements to this prospectus will not be listed for trading on any stock exchange.
. We reserveprovide 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 percentagespecific terms of the total shares outstandingplan of distribution. The net proceeds we expect to receive from sales by us will be set forth in the extent that other shareholders participate
in this offering.
applicable prospectus supplement.
Our common stock is quoted for tradingtraded on Thethe Nasdaq NationalCapital Market and is quoted under the trading symbol "CTHR." The closingCTHR. On May 16, 2018, the last reported sale price of our common stock on , 2001
was $$1.23 per share.
As of May 16, 2018, the aggregate market value of our outstanding common stock held by us, estimatednon-affiliates, or the public float, was approximately $26,617,007, which was calculated based on 17,744,671 shares of our outstanding common stock held by non-affiliates and a price of $1.50 per share, the last reported sale price for our common stock on May 2, 2018. Pursuant to be $140,000.
See "Risk Factors" commencingGeneral Instruction I.B.6 of Form S-3, in no event will we sell securities in a public primary offering with a value exceeding one-third of our public float in any 12-month period unless our public float subsequently rises to $75.0 million or more. We have not offered any securities pursuant to General Instruction I.B.6 of Form S-3 during the 12 calendar months prior to and including the date of this prospectus.
Investing in our securities involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors” on page 62 and those contained in the applicable prospectus supplement and in any related free writing prospectuses that we have authorized for use in connection with a discussion of certain factorsspecific offering and in our Securities and Exchange Commission filings that you should consider before purchasing our common stock.
are incorporated by reference into this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2001.
TABLE OF CONTENTS
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This prospectus is part of a shelf registration statement that we filed with the U.S. Securities and Exchange Commission, or the SEC, using a “shelf” registration process. By using a shelf registration statement, we may sell any combination of the securities referred to herein from time to time and in one or more offerings as described herein up to a maximum aggregate offering price of $25,000,000. Each time that we sell securities, we will provide a prospectus supplement to this prospectus that contains specific information about the securities being offered and the specific terms of that offering. 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 any prospectus supplement, you should rely on the prospectus supplement. Before purchasing any securities, you should carefully read both this prospectus and any prospectus supplement, together with the additional information described under the heading “Where You Can Find More Information.”
You should rely only on the information contained or incorporated by reference in this prospectus or to
which we have referred you.and in any prospectus supplement. We have not authorized anyone to provide you with
different information. This document may be used only where it is legalgive any information or to make any representation other than those contained or incorporated by reference in this prospectus and the accompanying supplement to this prospectus. We will not make an offer to sell these securities. Thesecurities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus and the prospectus supplement to this prospectus is accurate as of the date on its respective cover, and that any information incorporated by reference is accurate only accurate onas of the date of the document incorporated by reference, unless we indicate otherwise. Our business, financial condition, results of operations and prospects may have changed since those dates. This prospectus incorporates by reference market data and industry statistics and forecasts that are based on independent industry publications and other publicly available information. Although we believe these sources are reliable, we do not guarantee the accuracy or completeness of this information and we have not independently verified this information. Although we are not aware of any misstatements regarding the market and industry data presented in this prospectus and the documents incorporated herein by reference, these estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” contained in this prospectus, any applicable prospectus supplement and any related free writing prospectus, and under similar headings in the other documents that are incorporated by reference into this prospectus. OnAccordingly, investors should not place undue reliance on this information.
When we refer to “Charles & Colvard,” “the Company,” “we,” “our” and “us” in this prospectus, all references to "Charles & Colvard," "we," "us," and
"our" refer towe mean Charles & Colvard, Ltd., a North Carolina corporation, unless indicated otherwise.
The stylized logo for "Charles & Colvard Created Moissanite" is a trademarkotherwise specified. References to our “common stock” refer to the common stock, no par value per share, of Charles & Colvard. ThisColvard, Ltd.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information set forth in this prospectus and the information it incorporates by reference may contain certain other trademarks and
service marksvarious “forward-looking statements” within the meaning of other parties.
SUMMARY
This section answers in summary form some questions you may have about
Charles & Colvard, Ltd. and this rights offering. The information in this
section is not complete and does not contain allSection 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All information relative to expressing expectations regarding our future and projections relating to products, sales, revenues, and earnings, as well as other statements containing words such as “believe,” “project,” “may,” “will,” “anticipate,” “target,” “plan,” “estimate,” “expect” and “intend” and other similar expressions constitute forward-looking statements. These forward-looking statements are subject to business, economic and other risks and uncertainties, both known and unknown, and actual results may differ materially from those contained in the forward-looking statements. Examples of risks and uncertainties that could cause actual results to differ materially from historical performance and any forward-looking statements include, but are not limited to, the risks described under the heading “Risk Factors” on page 2 of this prospectus, in our most recent Annual Report on Form 10-K, our most recent Quarterly Report on Form 10-Q, as well as any subsequent filings with the SEC. Given these risks, uncertainties and other factors, you should consider before exercising your subscription rights.not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date such forward-looking statements are made. You should read carefully this prospectus, any applicable prospectus supplement and any related free writing prospectuses that we have authorized for use in connection with this offering, together with the entire prospectus carefully, includinginformation incorporated herein or therein by reference as described under the "Risk Factors" sectionheading “Where You Can Find More Information,” completely and with the documents listed under "How To Find Additional Information."
QUESTIONS AND ANSWERS understanding that our actual future results may be materially different from what we expect. We hereby qualify all of our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
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ABOUT CHARLES & COLVARD, WHAT IS CHARLES & COLVARD?
LTD.
Charles & Colvard Ltd. (formerly C3, Inc.), a North Carolina corporation, manufactures, markets and distributes Charles & Colvard createdCreated Moissanite® (hereinafter referred to as moissanite jewels ("moissanite" or "moissanite jewels")moissanite jewels) and finished jewelry featuring moissanite for sale in the worldwide jewelry market. Moissanite, also known by its chemical name silicon carbide, (SiC),or SiC, is a rare mineral first discovered in a meteorite crater. Because naturally occurring mineral found primarilySiC crystals are too small for commercial use, larger crystals must be grown in meteorites. As the sole
manufacturer of scientifically-madea laboratory. We sell loose moissanite jewels we create a unique brand
image which positionsand finished jewelry at wholesale prices to distributors, manufacturers, retailers, television shopping networks and designers, including some of the largest distributors and jewelry manufacturers in the world. Our finished jewelry and loose moissanite as a jeweljewels that are mounted into fine jewelry by other manufacturers are sold at retail outlets and via the Internet. We sell at retail prices to end consumers through our wholly owned operating subsidiary, charlesandcolvard.com, LLC, third-party online marketplaces, drop-ship and other pure-play, exclusively e-commerce outlets.
We were incorporated under the laws of the State of North Carolina in its own right, distinct from all
other jewels based on its fire, brilliance, luster, durability and rarity. See
"How To Find Additional Information" (page 20).
WHERE ARE WE LOCATED?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 formed in June 1995 as a North Carolina corporation.
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
WHAT IS A SUBSCRIPTION RIGHT?
We are distributing toOur Internet address iswww.charlesandcolvard.com. The information on our website is not incorporated by reference into this prospectus, and you at no charge, a subscription right to purchase
one share 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 $ , subject to the termsshould not consider it part of this rights offering. When
you "exercise"prospectus.
An investment in any securities offered pursuant to this prospectus and any applicable prospectus supplement is speculative and involves a subscription right, that means that you choosehigh degree of risk. You should carefully consider the risk factors incorporated by reference to purchaseour most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, and all other information contained or incorporated by reference in this prospectus, as updated by our subsequent filings under the common stock thatExchange Act, and the subscription right entitles you to purchase. You may
exerciserisk factors and other information contained in any numberapplicable prospectus supplement before acquiring any of your subscription rights, or you may choose not to
exercisesuch securities. If 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 fixedthe risks actually occur, our business, results of operations, financial condition and cash flows could be materially adversely affected, the trading 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 pricecould decline significantly, and you might lose all or part 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 privilegesyour investment. You should also refer to our shareholders, we are providing forfinancial statements and the subscription fornotes to those sharesstatements, 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
acquiredincorporated 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 stockreference 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 tothis prospectus. For more information, see “Where You Can Find More Information.”
Except as described in any one shareholderapplicable prospectus supplement or group of shareholders may be reduced by the
Company ifin 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, we cannot specify with certainty all of the particular 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.
The following description of our capital stock is based upon our Restated Articles of Incorporation, which we will refer to hereafter 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 directorsportions of the Articles of Incorporation and officersBylaws below. The summary is not complete and other
shareholders have committedis qualified in its entirety by reference to purchase upthe Articles of Incorporation and Bylaws, which are incorporated by reference as exhibits to an aggregatethe registration statement of which this prospectus forms a part. You should read the Articles of Incorporation and Bylaws for the provisions that are important to you.
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Our authorized capital stock consists of 50,000,000 shares of common stock, pursuant to the offering which would provide the Company with a
minimum subscription amountno par value per share, 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 exercise all of the subscription
rights that you receive, you may have the opportunity to purchase additional10,000,000 shares of common stock. On the enclosed subscription certificate, you may
request to purchase as many additional shares as you wish for $preferred stock in one or more series, no par value per share. Subject to the termsAs of the offering, we intend to honor all of the over-
subscription requests, but if not, you may not be able to purchase as many
shares as you requested on your subscription certificate. Subject to state
securities laws and regulations, we have the discretion to issue less than the
total number of shares that may be available for over-subscription requests 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 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.
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 relative to the current
trading price 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 prior to the date of this
prospectus.
HOW DO I EXERCISE MY SUBSCRIPTION RIGHTS?
You must properly complete the attached subscription certificate and deliver
it to the Subscription Agent before 5 p.m., Eastern Standard Time, on ,
2001. The address for the Subscription Agent is on page 19. Your subscription
certificate must be accompanied by proper payment for each share that you wish
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
commencement of the rights offering is delayed, the expiration date will
similarly be extended.
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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 additional shares of common stock at a price of $ per share.
IS EXERCISING MY SUBSCRIPTION RIGHTS RISKY?
The exercise of your subscription rights involves certain risks. Exercising
your subscription rights means buying additionalMay 16, 2018, there were 21,575,673 shares of our common stock outstanding held of record by 240 shareholders. In addition, there are outstanding options, warrants and shouldrights to acquire up to an additional 2,453,919 shares of common stock. As of May 16, 2018, there were no shares of preferred stock outstanding.
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.
| 3 |
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.
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 believeIn 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 Written Consent of Shareholders. Our Articles of Incorporation provide that these provisions are appropriateshareholders may not act by written consent. As a result, any shareholder action is required to protectbe taken at a duly called meeting of shareholders, which may make it more difficult for a potential acquirer to accomplish its objectives.
No Cumulative Voting. Because our interests andshareholders 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 elect 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. Under the termsThese provisions may make a change in control of the Exclusive Supply Agreement, we are prohibited from
entering intoCompany 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 exclusive marketing or distribution agreement with DeBeers or
its affiliates or the Central Selling Organization (the international cartel of
diamond producers) or any party whose primary business is the development,
manufacture, marketing or sale 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 might be willing to pay in the future for some or all of 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 rights to purchase shares
of a new series of Preferred Stock.
The Rights Plan is designed to enable allannual 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 realize the full valuenomination of their investmentpersons 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 providethe first anniversary of the notice date in our proxy statement for fairthe 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.
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Election and equal treatment for
all shareholdersRemoval 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 an unsolicited attempt is made to acquire
us. The adoptionthe remaining directors in office constitute fewer than a quorum of the Rights Plan is intendedboard 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 and that shareholders may not act by written consent, 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.
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 meansmerger, 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 guard against
abusive takeover tacticsdirectly 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 response to any particular proposal.
The rights, which expire in 2009, will be exercisable only if a personour business or group acquires 20% or moreequity capital structure.
We may issue warrants for the purchase of shares of our common stock or announcespreferred stock. We may issue warrants independently or together with other securities, and the warrants may be attached to or separate from any offered securities. Each series of warrants will be issued under a tender offer for
20%separate warrant agreement to be entered into between us and the investors or morea warrant agent. The following summary of material provisions of the common stock. Ifwarrants and warrant agreements are subject to, and qualified in their entirety by reference to, all the provisions of the warrant agreement and warrant certificate applicable to a person or group acquires 20% or moreparticular series of our common stock, all shareholders exceptwarrants. The terms of any warrants offered under a prospectus supplement may differ from the purchaserterms described below. We urge you to read the applicable prospectus supplement and any related free writing prospectus, as well as the complete warrant agreements and warrant certificates that contain the terms of the warrants.
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The particular terms of any issue of warrants will be described in the prospectus supplement relating to the series. 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; |
| · | 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 equity securities may also include, if applicable, a discussion of certain U.S. federal income tax and ERISA considerations. Holders of warrants will not be entitled to acquire our common stock at a 50% discount. The effect will bevote, consent or receive dividends, receive notice as stockholders with respect to discourage
acquisitionsany meeting of more than 20%stockholders for the election of our common stock without negotiations withdirectors or any other matter, or exercise any rights as stockholders of the Board.
The rightsCompany.
Each warrant will trade with our common stock, unless and until they are
separated uponentitle the occurrence of certain future events. Our Board of Directors
may redeem the rights prior to the expiration of a specified period following
the acquisition of more than 20% of our common stock.
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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 shareholdersholder thereof to purchase additionalsuch number of shares of common stock or preferred stock at the exercise price as will in each case be set forth in, or be determinable as set forth in, the applicable prospectus supplement. Warrants may be exercised at any time up to the close of business on the expiration date set forth in the applicable prospectus supplement. After the close of business on the expiration date, unexercised warrants will become void. Warrants may be exercised as set forth in the applicable prospectus supplement relating to the warrants offered thereby. Upon receipt of payment and the warrant certificate properly completed and duly executed at the corporate trust office of the warrant agent or any other office indicated in the applicable prospectus supplement, we will, as soon as practicable, forward the purchased securities. If less than all of the warrants represented by the warrant certificate are exercised, a discountnew warrant certificate will be issued for the remaining warrants.
Each warrant agent will act solely as our agent under the applicable warrant agreement and will not assume any obligation or relationship of agency or trust with any holder of any warrant. A single bank or trust company may act as warrant agent for more than one issue of warrants. A warrant agent will have no duty or responsibility in case of any default by us under the applicable warrant agreement or warrant, including any duty or responsibility to initiate any proceedings at law or otherwise, or to make any demand upon us. Any holder of a warrant may, without the consent of the related warrant agent or the holder of any other warrant, enforce by appropriate legal action its right to exercise, and receive the securities purchasable upon exercise of, that holder’s warrant(s).
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We may issue units consisting of any combination of the other types of 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 separate agreement. We may enter into unit agreements with a unit agent. Each unit agent will be a bank or trust company that we select. We will indicate the name and address of the unit agent in the applicable prospectus supplement relating to a particular series of units.
The following description, together with the additional information included in any applicable prospectus supplement, summarizes the general features of the units 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 series of units being offered, as well as the complete unit agreements that contain the terms of the units. Specific unit agreements will contain additional important terms and provisions and we will 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 applicable 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; |
| · | 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 from time to time pursuant to underwritten public offerings, negotiated transactions, block trades or a combination of these methods or through underwriters or dealers, through agents and/or directly to one or more purchasers. The securities may be distributed from time to time in one or more transactions:
| · | at a fixed price or prices, which may be changed; |
| · | at market prices prevailing at the time of sale; |
| · | at prices related to such prevailing market prices; |
| · | at negotiated prices; or |
| · | at varying prices determined at the time of sale. |
Each time that we sell securities covered by this prospectus, we will provide a prospectus supplement or supplements that will describe the method of distribution and set forth the terms and conditions of the offering of such securities, including the offering price of the securities and the proceeds to us.
Offers to purchase the securities being offered by this prospectus may be solicited directly. Agents may also be designated to solicit offers to purchase the securities from time to time. Any agent involved in the offer or sale of our securities will be identified in a prospectus supplement.
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If a dealer is utilized in the sale of the securities being offered by this prospectus, the securities will be sold to the dealer, as principal. The dealer may then resell the securities to the public at varying prices to be determined by the dealer at the time of resale.
If an underwriter is utilized in the sale of the securities being offered by this prospectus, an underwriting agreement will be executed with the underwriter at the time of sale and the name of any underwriter will be provided in the prospectus supplement that the underwriter will use to make resales of the securities to the public. In connection with the sale of the securities, we or the purchasers of securities for whom the underwriter may act as agent, may compensate the underwriter in the form of underwriting discounts or commissions. The underwriter may sell the securities to or through dealers, and those dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for which they may act as agent. Unless otherwise indicated in a prospectus supplement, an agent will be acting on a best efforts basis and a dealer will purchase securities as a principal, and may then resell the securities at varying prices to be determined by the dealer.
Any compensation paid to underwriters, dealers or agents in connection with the offering of the securities, and any discounts, concessions or commissions allowed by underwriters to participating dealers will be provided in the applicable prospectus supplement. Underwriters, dealers and agents participating in the distribution of the securities may be deemed to be underwriters within the meaning of the Securities Act, 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. We may enter into agreements to indemnify underwriters, dealers and agents against civil liabilities, including liabilities under the Securities Act, or to contribute to payments they may be required to make in respect thereof and to reimburse those persons for certain expenses.
Any common stock will be listed on the Nasdaq Capital Market, but any other securities may or may not be listed on a national securities exchange. 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. This may include over-allotments or short sales of the securities, which involve the sale by persons participating in the offering of more securities than were sold to them. In these circumstances, these persons would cover such over-allotments or short positions by making purchases in the open market or by exercising their over-allotment option, if any. In addition, these persons may stabilize or maintain the price of the securities by bidding for or purchasing securities in the open market or by imposing penalty bids, whereby selling concessions allowed to dealers participating in the offering may be reclaimed if securities sold by them are repurchased in connection with stabilization transactions. The effect of these transactions may be to stabilize or maintain the market price of the 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
extentsecurities at a level above that current shareholders do not exercise their subscription rights and
shares are purchased by other shareholderswhich might otherwise prevail in the rightsopen market. These transactions may be discontinued at any time.
We may engage in at-the-market offerings into an existing trading market in accordance with Rule 415(a)(4) under the Securities Act. In addition, we may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If any applicable prospectus supplement so indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and, if not identified in this prospectus, will be named in the applicable prospectus supplement (or a post-effective amendment). In addition, we may otherwise loan or pledge securities to a financial institution or other third party that in turn may sell the securities short using this prospectus and an applicable prospectus supplement. Such financial institution or other third party may transfer its economic short position to investors in our securities or in connection with a concurrent offering of other securities.
The specific terms of any lock-up provisions in respect of any given offering will be described in the proportionate voting interestapplicable prospectus supplement.
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In compliance with the guidelines of the non-exercising shareholdersFinancial Industry Regulatory Authority, Inc., or FINRA, the maximum consideration or discount to be received by any FINRA member or independent broker dealer may not exceed 8% of the aggregate proceeds of the offering.
The underwriters, dealers and agents may engage in transactions with us, or perform services for us, in the ordinary course of business for which they receive compensation.
Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell securities in a public primary offering with a value exceeding one-third of our public float in any 12-month period so long as our public float remains below $75.0 million.
The validity of our securities issuable hereunder and certain other legal matters will be reduced, 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 deliveredpassed 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 setfor us 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 criteria 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.
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USE OF PROCEEDS
If all shares being offered pursuant to this rights offering are sold, we
estimate that the proceeds to CharlesSmith, Anderson, Blount, Dorsett, Mitchell & 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. Each subscription right will entitle you
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 COMMITMENTSJernigan, LLP, Raleigh, North Carolina. As of the date of this prospectus,Registration Statement, certain directors, officers and other
shareholders have committed to purchase up tocurrent individual attorneys with Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P. beneficially own an aggregate of 72,237 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 levelstock.
The consolidated financial statements as of risk to our investors;December 31, 2017 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 rights2016 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 foryears then ended incorporated 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 wish 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 date of the notice of guaranteed
delivery; and
(3) You send, and the Subscription Agent receives, your properly
completed and duly executed subscription certificate, including 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 form of notice 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 owner 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
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.
If a signature guarantee is required, signatures on the subscription
certificate must be guaranteed by an Eligible Guarantor Institution, as defined
in Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, subject to
the standards and procedures adopted by 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 shares 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 in the terms of the rights offering.
In our sole discretion, we may decline to make modifications to the terms of
the rights offering requested by certain states or other jurisdictions, in
which case shareholders who live in those states or jurisdictions will not be
eligible to participate in the rights offering.
OUR DECISION REGARDING CERTAIN MATTERS BINDING ON YOU
All questions concerning the timeliness, validity, form and eligibility of
any exercise of subscription rights will be determined by us, and 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
within such time as we may determine, or reject the purported exercise of any
subscription right by reason of any defect or irregularity in such exercise.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as we determine in
our sole discretion. Neither Charles & Colvard nor the Subscription Agent will
be under any duty to notify you of any defect or irregularity in connection
with the submission 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 additional shares of common stock.
SHARES OF COMMON STOCK OUTSTANDING AFTER THE RIGHTS OFFERING
Assuming we issue all of the shares of common stock offered 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
incorporatedreference 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, and have been so incorporated in reliance upon 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 annual, quarterly and special
We file reports, proxy statementstatements and other information with the SEC. You may readInformation we file with the SEC can be inspected and copy this
informationcopied 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 callPublic Reference Room maintained by the SEC at 1-800-SEC-0330 for further100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of this information by mail from the Public Reference Room of the SEC at prescribed rates. Further information on the public
reference rooms. operation of the SEC’s Public Reference Room in Washington, D.C. can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy and information statements and other information about issuers, such as us, who file electronically with the SEC. The address of that website iswww.sec.gov.
Our website address iswww.charlesandcolvard.com. The information on our website, however, is not, and should not be deemed to be, a part of this prospectus.
This information is also available online through the SEC's
Electronic Data Gathering, Analysisprospectus and Retrieval System ("EDGAR"), located on
the SEC's web site (http://www.sec.gov).
Also,any prospectus supplement are part of a registration statement that we will provide you (free of charge) with any of our documents filed with the SEC. To get your free copies, please callSEC and do not contain all of the information in the registration statement. Documents establishing the terms of the offered securities are or write to Charles &
Colvard at:
3800 Gateway Boulevard, Suite 310
Morrisville, N.C. 27560
Attention: Chief Financial Officer
Telephone: (919) 468-0399
We havemay be filed a registration statement with the SEC on Form S-3 with respectas exhibits to the rights offering. Thisregistration statement. Statements in this prospectus or any prospectus supplement about these documents are summaries and each statement is qualified in all respects by reference to the document to which it refers. You should refer to the actual documents for a partmore complete description of the relevant matters. You may inspect a copy of the registration statement butat the prospectus does not repeat important information that
20
you can findSEC’s Public Reference Room in Washington, D.C. or through the registration statement, reports and other documents that we
have filed with the SEC. SEC’s website, as provided above.
| 9 |
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate“incorporate by reference" those
documents,reference” in this prospectus the information we file with the SEC, which means that we can disclose important information to you by referring you to otherthose documents. The following documents that are incorporated by
reference are legally considered to be a part of this prospectus. The documents
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), filed with the SEC on November 13, 1997; and
(4) any filings we makeare hereby incorporated by reference in this prospectus:
| · | Our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 9, 2018; |
| · | Our Quarterly Report on Form 10-Q for the period ended March 31, 2018, filed with the SEC on May 9, 2018; |
| · | Our Current Report on Form 8-K filed with the SEC on February 1, 2018; and |
| · | The description of our common stock contained in our Registration Statement on Form 8-A filed with the SEC on November 7, 1997, and any amendments or reports filed for the purpose of updating such description. |
In addition, all documents subsequently filed by Charles & Colvard pursuant to Sections 13(a), 13(c), 14 orand 15(d) of the Securities Exchange Act, prior to the filing of 1934a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold and also between the date of the registration statement that contains this prospectus and the expirationprior to effectiveness of the rights offering.
As you read the above documents, you may find some inconsistencies in
information from one documentsuch registration statement, shall be deemed to another. If you find inconsistencies between
the documents, or between a document and this prospectus, you should rely on
the statement made in the most recent document.
You should rely only on the informationbe incorporated by reference in this prospectus or incorporated
by reference. We have not authorized anyone 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 stockand to be issued pursuant to the rights
offering. The information contained in this prospectus is correct only as ofa part hereof from the date of filing of such documents. However, any documents or portions thereof, whether specifically listed above or filed in the future, that are not deemed “filed” with the SEC, including without limitation any information furnished pursuant to Item 2.02 or 7.01 of Form 8-K or certain exhibits furnished pursuant to Item 9.01 of Form 8-K, shall not be deemed to be incorporated by reference in this prospectus, regardless ofprospectus.
Any statement in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the time of the deliverypurposes of this prospectus to the extent that a statement contained herein or any sale of these securities.
No action is being taken in any jurisdiction outside the United Statesother subsequently filed document which also is incorporated or deemed to permitbe incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a public offeringpart of this prospectus.
We will furnish without charge to you, upon written or oral request, a copy of any or all of the common stock or possession or distribution of
this prospectus in anydocuments incorporated by reference herein, other than exhibits to 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 indocuments 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 different from that
contained in this prospectus. This prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, to any person in any jurisdiction
where offers and sales are not permitted. Thespecifically incorporated by reference herein. All requests for such information containedshould be sent to the attention of Investor Relations, Charles & Colvard, Ltd., 170 Southport Drive, Morrisville, North Carolina 27560 or made via telephone at (919) 468-0399.
| 10 |
$25,000,000
Common Stock
Preferred Stock
Warrants
Units
PROSPECTUS
Part II
Information Not Required in this
prospectus is accurate only as of the date of this prospectus, regardless of
the time of delivery 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.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Prospectus
| Item 14. | Other Expenses of Issuance and Distribution |
The following table sets forth an itemization of the fees andvarious expenses, incurred by Charles &
Colvard, Ltd.all of which we will pay, in connection with the issuance and distribution of the securities being registered. All of the amounts shown are estimated except the SEC registration fee.
| SEC registration fee | $ | 3,113 | ||
| FINRA filing fee | * | |||
| Printing expenses | * | |||
| Legal fees and expenses | * | |||
| Accounting fees and expenses | * | |||
| Blue Sky, qualification fees and expenses | * | |||
| Transfer agent fees and expenses | * | |||
| Warrant agent fees and expenses | * | |||
| Miscellaneous | * | |||
| Total | $ | 3,113 |
| * | These fees are calculated based on the securities offered and |
| Item 15. | Indemnification of Directors and |
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.
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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.
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.
Inlaw in effect as of the date of the agreement or to such greater extent as applicable law may subsequently permit. The indemnification agreement further requires the Company to advance expenses incurred in connection with this offering,any threatened, pending, or completed action, suit, or proceeding if requested by the Registrant intendsindemnitee. The indemnification agreement also includes an undertaking by the indemnitee to obtain
directors'reimburse the Company for any amounts advanced if it is ultimately determined that indemnification is not appropriate. The rights provided in the indemnification agreement are in addition to rights provided in our Bylaws, Articles of Incorporation, and officers'the NCBCA.
The limitations of liability insurance,and indemnification provisions in our Articles of Incorporation, Bylaws and indemnification agreements may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit our stockholders and us. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Insofar as indemnification for liabilities arising under which anythe Securities Act may be permitted to our directors, officers and controlling person, directorpersons pursuant to the foregoing provisions, or officerotherwise, we have been advised that, in the opinion of the Registrant will be insured or indemnifiedSEC, such indemnification is against certain liabilities which he may incurpublic policy as expressed in his capacity as such.
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Item 16. Exhibitsthe Securities Act and Financial Statement Schedules
(a) Exhibits. is, therefore, unenforceable.
II-2
| Item 16. | Exhibits |
The following is a listexhibits have been or are being filed herewith and are numbered in accordance with Item 601 of exhibits filed as part of the
Registration Statement.
Regulation S-K:
| * | If applicable, to be filed by amendment or as an exhibit to a Current Report on Form |
| Item 17. | Undertakings |
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by sectionSection 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any factsacts or events arising after the effective date of thethis 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 thethis 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 CommissionSEC pursuant to ruleRule 424(b) under the Securities Act 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“Calculation of Registration Fee"Fee” table in the effective registration statement; and
II-3
(iii) to include any material information with respect to the plan of distribution not previously disclosed in thethis registration statement or any material change to such information in thethis registration statement;
provided,however, that paragraphs (a)(1)(i), (a)(1)(ii) and (ii)(a)(1)(iii) do not apply if the information required to be included in a post-effective amendmentsamendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant pursuant to Sectionsection 13 or II-2
Sectionsection 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the 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, the registrant will treat each such post-effective amendment asshall be deemed to be a new registration statement ofrelating to the securities offered therein, and the offering of thesuch securities at that time shall be deemed to be the initial bona fide offering.
offering thereof.
(3) That, the registrant will fileTo remove from registration, by means of a post-effective amendment, to remove
from registration any of the securities thatbeing registered which remain unsold at the endtermination of the offering.
The
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) 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
(ii) 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 of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant hereby undertakes 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) Any 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
II-4
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6) That, for the purposes of determining any liability under the Securities Act of 1933, each filing of the registrant'sregistrant’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 thethis 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
(7) That, for purposes of Rule 14a-3 or Rule 14c-3determining any liability under the Securities ExchangeAct:
(i) the information omitted from the form of prospectus filed as part of the registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of
1934; and, where interim financial information requiredshall be deemed to be presented by
Article 3part of Regulation S-X are not set forth in the registration statement as of the time it was declared effective; and
(ii) each post-effective amendment that contains a form of prospectus to deliver, or
causeshall be deemed to be delivereda new registration statement relating to each personthe securities offered therein, and the offering of such securities at that time shall be deemed to whombe 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.
initialbona fide offering thereof; and
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrantregistrants, pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification 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 Registrant hereby undertakes that: (i) For the purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus tiled as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of the registration statement as of the time it was
declared effective. (ii) For the purposes of determining any liability under
the Securities Act, 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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II-5
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
13th day of December, 2000.
Charles & Colvard, Ltd.
/s/ Robert S. Thomas
By: _________________________________
Robert S. Thomas
President and Chief Executive
Officer
May 18, 2018.
| CHARLES & COLVARD, LTD. | ||
| By: | /s/ Suzanne T. Miglucci | |
| Suzanne T. Miglucci | ||
| President and Chief Executive Officer | ||
KNOW ALL THESE PERSONS BY THESE PRESENTS that each personindividual whose signature appears below constitutes and appoints Robert S. Thomas, asSuzanne T. Miglucci and Clint J. Pete, and each of them individually, his attorney-in-
fact,or her true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and otherall documents in connection therewith, making such changes in this Registration Statement as such person or persons so acting deems appropriate, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent 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-fact and agent, or his or her substitute, or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Form S-3 Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Suzanne Miglucci | Director, President and | May 18, 2018 | ||
| Suzanne Miglucci | ||||
| /s/ Clint J. Pete | Chief Financial Officer | May 18, 2018 | ||
| Clint J. Pete | (Principal Financial Officer and | |||
| /s/ Neal I. Goldman | Chairman of the Board of | May 18, 2018 | ||
| Neal I. Goldman | ||||
| /s/ Anne M. Butler | Director |
| May 18, 2018 | ||||
| Anne M. Butler | ||||
| /s/ Benedetta Casamento | Director | May 18, 2018 | ||
| Benedetta Casamento | ||||
| /s/ Jaqui Lividini | Director | May 18, 2018 | ||
| Jaqui Lividini | ||||
| /s/ Ollin B. Sykes | Director | May 18, 2018 | ||
| Ollin B. Sykes |