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EXHIBIT 4.1
October 11, 2000
Millennium Partners, L.P.
c/o Millennium Management, L.L.C.
666 Fifth Avenue
New York, New York 10103
Dear Sirs:
Reference is made to that certain Securities Purchase
Agreement, dated as of August 16, 2000 (the "Purchase Agreement"), by and
between Chromatics Color Sciences International, Inc. (the "Company") and
Millennium Partners, L.P. (the "Purchaser"), that certain Registration Rights
Agreement, dated as of August 16, 2000, by and between the Company and the
Purchaser (the "Registration Rights Agreement") and that certain Adjustable
Warrant to purchase shares of the common stock, par value $.001, of the Company,
dated August 16, 2000, issued by the Company to the Purchaser (the "Warrant").
Capitalized terms used but not defined herein shall have the meanings assigned
to such terms in the Warrant.
The Company proposes to enter into a purchase and sale
agreement (the "Crescent Agreement") with Crescent International Ltd.
("Crescent"), pursuant to which the Company would issue and sell to Crescent,
and Crescent would purchase, shares of a newly-authorized series of preferred
stock of the Company (the "Crescent Preferred") for an aggregate purchase price
of up to Four Million Dollars ($4,000,000).
With respect to the foregoing, the Company and the Purchaser
agree as follows:
1. Amendments to the Purchase Agreement.
(A) The Company and the Purchaser hereby agree to delete
Section 3.14(a) of the Purchase Agreement in its entirety.
(B) The Company and the Purchaser hereby agree to delete
Section 3.14(b) of the Purchase Agreement in its entirety.
(C) The Company and the Purchaser hereby agree to delete
Section 3.14(d) of the Purchase Agreement in its entirety.
(D) The Company and the Purchaser hereby agree to delete
Section 3.14(e) of the Purchase Agreement in its entirety.
(E) The Company and the Purchaser hereby agree to delete
Section 3.14(f) of the Purchase Agreement in its entirety.
(F) The Company and the Purchaser hereby agree to delete
Section 3.14(g) of the Purchase Agreement in its entirety.
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(G) The Company and the Purchaser hereby agree to amend
Section 3.14(h) of the Purchase Agreement to read in full as follows:
"(h) The Company fails to file with the Securities and
Exchange Commission a request for the acceleration of the
effectiveness of the Underlying Shares Registration Statement
of the Company, filed with the Securities and Exchange
Commission on September 18, 2000 (SEC File No. 333-46020),
within one business day of the Company's securing from the
National Association of Securities Dealers, Inc. confirmation
of its acceptance of the Company's proposal for remaining
listed on the Nasdaq SmallCap Market."
(H) The Company and the Purchaser hereby agree to amend
Section 3.14(i) of the Purchase Agreement to read in full as follows:
"(i) The Company shall fail for any reason to deliver
certificates to a Purchaser by the fifth day in accordance
with Section 3.1(b) of this Agreement; provided, however, that
the Company's failure to deliver certificates as a result of
the limitations with respect to the issuance of Underlying
Shares set forth in Section 10(c) of the Adjustable Warrant
shall not be deemed an Event."
(I) The Company and the Purchaser hereby agree to delete
Section 3.14(j) of the Purchase Agreement in its entirety.
2. Amendments to the Registration Rights Agreement.
(A) The Company and the Purchaser hereby agree to amend
Section 1 of the Registration Rights Agreement to include the following
definition:
" "Subsequent Market" means the New York Stock Exchange, the
American Stock Exchange or Nasdaq National Market."
(B) The Company and the Purchaser hereby agree to amend
Section 2(c) of the Registration Rights Agreement to read in full as follows:
"(c) If (a) a Registration Statement is not filed
on or prior to its Filing Date (if the Company files such
Registration Statement without affording the Holder the
opportunity to review and comment on the same as required by
Section 3(a) hereof, the Company shall not be deemed to have
satisfied this clause (a)), or (b) the Company fails to file a
request for acceleration in accordance with Rule 461
promulgated under the Securities Act, within five days of the
date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that a Registration
Statement will not be "reviewed," or not subject tpa
Registration Statement filed hereunder is not declared
effective by the Commission on or prior to its Effectiveness
Date, or (c) after a Registration Statement is filed with and
declared effective by the Commission, such Registration
Statement ceases to be effective as
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to all Registrable Securities to which it is required to
relate at any time prior to the expiration of the
Effectiveness Period without being succeeded within ten
Business Days by an amendment to such Registration Statement
or by a subsequent Registration Statement filed with and
declared effective by the Commission, or (d) the exercise
rights of the Holders pursuant to the Warrants are suspended
for any reason, or (e) an amendment to a Registration
Statement is not filed by the Company with the Commission
within ten Business Days of the Commission's notifying the
Company that such amendment is required in order for such
Registration Statement to be declared effective (any such
failure or breach being referred to as an "Event," and for
purposes of clauses (a), (b), (d) the date on which such Event
occurs, or for purposes of clauses (c) and (e) the date which
such ten Business Day-period is exceeded, being referred to as
"Event Date"), then, on each such Event Date and every monthly
anniversary thereof until the applicable Event is cured, the
Company shall pay to each Holder an amount in cash, as
liquidated damages and not as a penalty, equal to 2.0% of the
purchase price paid by such Holder pursuant to the Purchase
Agreement. If the Company fails to pay any liquidated damages
pursuant to this Section in full within seven days after the
date payable, the Company will pay interest thereon at a rate
of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Holder,
accruing daily from the date such liquidated damages are due
until such amounts, plus all such interest thereon, are paid
in full. The liquidated damages pursuant to the terms hereof
shall apply on a pro-rata basis for any portion of a month
prior to the cure of an Event."
3. Amendments to the Warrant.
(A) The Company and the Purchaser hereby agree to amend
Section 3(a) of the Warrant to read in full as follows:
"(a) The vesting of the Warrant Shares which the
Holder is permitted to acquire pursuant to this Warrant shall
occur on the dates set forth below. On each such date, this
Warrant shall vest on a cumulative basis with respect to a
number of Warrant Shares calculated pursuant to Section 3(b)
below. Only the Warrant Shares that have vested may be
acquired upon exercise of this Warrant.
(i) The "First Vesting Date" shall
occur on March 30, 2001. A Vesting Period shall be
extended for a number of days that an Underlying
Shares Registration Statement ceases to be effective
or the
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prospectus included in the Underlying Shares
Registration Statement may not be used by the holders
thereof for the resale of Underlying Shares.
(ii) The "Second Vesting Date" shall
occur on October 11, 2001.
Each of the First Vesting Date and the Second Vesting
Date shall be referred to herein as a "Vesting Date" and each
of the 40 Trading Day periods ending on the First Vesting Date
or the Second Vesting Date, respectively, shall be referred to
herein as a "Vesting Period."
(B) The Company and the Purchaser hereby agree to amend
Section 3(b) of the Warrant to read in full as follows:
"(b) On each Vesting Date, this Warrant shall
vest and become exercisable with respect to the number of
Warrant Shares calculated in accordance with the following
formula (the capitalized terms contained in the formula are
defined in Exhibit A attached hereto):
(Applicable Share Number) x [(Purchase Price/0. 87) -
(Adjustment Period Price)]
Adjustment Period Price
If the number calculated in accordance with the
foregoing formula is zero or a negative number, no Warrant
Shares shall vest hereunder for such Vesting Date and the
Holder shall not be obligated to transfer any shares of Common
Stock to the Company. In addition, the Holder shall not be
obligated to transfer any shares of Common Stock to the
Company and the number of Warrant Shares exercisable hereunder
which shall have previously vested will not decrease.
Notwithstanding anything herein to the contrary, the
Adjustment Period Price for purposes of the First Vesting Date
only shall be deemed to be the greater of (i) $1.00 and (ii)
the average of the lowest 10 Per Share Market Values (which
need not occur on consecutive Trading Days) during the 40
consecutive Trading Days preceding the First Vesting Date."
(C) The Company and the Purchaser hereby agree to amend
the first paragraph of Section 3(e) of the Warrant to read in full as follows:
"(e) Notwithstanding the foregoing provisions of
this Section 3, if any of the following events (each, an
"Event") shall occur, the Holder shall have the option to
elect, by notice to the Company (an "Event Vesting Notice"),
to have this Warrant vest with respect to
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those Warrant Shares (whether by increase to 100% of the
unused portion of the Applicable Share Number, an acceleration
of the next scheduled Vesting Date or otherwise) that have not
yet already vested (the "Vested Warrant Shares");"
(D) The Company and the Purchaser hereby agree to delete
Section 3(e)(iv) of the Warrant in its entirety.
(E) The Company and the Purchaser hereby agree to delete
Section 3(e)(v) of the Warrant in its entirety.
(F) The Company and the Purchaser hereby agree to amend
Section 3(e)(vii) of the Warrant to read in full as follows:
"(vii) The Company fails to file with the Securities and
Exchange Commission a request for the acceleration of the
effectiveness of the Underlying Shares Registration Statement
of the Company, filed with the Securities and Exchange
Commission on September 18, 2000 (SEC File No. 333-46020),
within one business day of the Company's securing from the
National Association of Securities Dealers, Inc. confirmation
of its acceptance of the Company's proposal for remaining
listed on the Nasdaq SmallCap Market."
(G) The Company and the Purchaser hereby agree to amend
Section 3(e)(viii) of the Warrant to read in full as follows:
"(viii) The Company shall fail for any reason to deliver
certificates to a Holder by the fifth day iafter a Date of
Exercise pursuant to and in accordance with Section 4(a) of
this Agreement; provided, however, that the Company's failure
to deliver certificates as a result of the limitations with
respect to the issuance of Underlying Shares set forth in
Section 10(c) hereof shall not be deemed an Event."
(H) The Company and the Purchaser hereby agree to delete
Section 3(e)(ix) of the Warrant in its entirety.
(I) The Company and the Purchaser hereby agree to delete
Section 3(e)(x) of the Warrant in its entirety.
(J) The Company and the Purchaser hereby agree to amend
Section 10(c) of the Warrant to read in full as follows:
"(c) If the Company Stock is then listed for
trading on the Nasdaq or the Nasdaq SmallCap Market and the
Company has not obtained the Shareholder Approval (as defined
below), then the Company may not, upon exercise of this
Warrant, issue in excess of the product of (i) 3,342,071
Warrant Shares (which equals 19.999% of the number of shares
of Common Stock outstanding on the Closing Date) and (ii) the
quotient obtained by dividing (x) the number of shares of
Common Stock issued and sold to the original Holder on the
Closing Date by (y) the number of shares of Common Stock
issued and sold by the Company on the Closing Date (such
number of shares, the "Issuable Maximum"). If any Holder shall
no longer hold Warrants then such Holder's remaining portion
of the Issuable Maximum shall be
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allocated pro-rata among the remaining Holders. If on any Date
of Exercise (A) the Company Stock is listed for trading on the
Nasdaq or the Nasdaq SmallCap Market, (B) the Exercise Price
then in effect is such that the aggregate number of shares of
Common Stock that would then be issuable upon exercise in full
of this Warrant, together with any shares of Common Stock
previously issued upon exercise of this Warrant, would equal
or exceed the Issuable Maximum, and (C) the Company shall not
have previously obtained the vote of shareholders, if any, as
may be required by the applicable rules and regulations of the
Nasdaq Stock Market to approve the issuance of shares of
Common Stock in excess of the Issuable Maximum pursuant to the
terms hereof (the "Shareholder Approval"), then the Company
shall issue to the Holder a number of shares of Common Stock
equal to the Issuable Maximum and, with respect to the shares
whose issuance would result in an issuance of shares of Common
Stock in excess of the Issuable Maximum, (the "Excess Warrant
Shares"), the Holder shall require the Company to use its best
efforts to obtain the Shareholder Approval applicable to such
issuance as soon as possible, but in any event no later than
60 days after such request. The Company and the Holder
understand and agree that shares of Common Stock issued upon
exercise of this Warrant and then held by the Holder or an
affiliate thereof may not cast votes or be deemed outstanding
for purposes of any vote to obtain the Shareholder Approval."
(K) The Company and the Purchaser hereby agree to amend
the definition of "Applicable Share Number" set forth in item (ii) of Exhibit A
to the Warrant to read in full as follows:
"(ii) "Applicable Share Number" (i) for purposes of
calculating the number of Warrant Shares which shall vest and
become exercisable on the First Vesting Date means 1/3 of the
number of shares of Common Stock purchased by the Holder
pursuant to the Purchase Agreement and (ii) for purposes of
calculating the number of Warrant Shares which shall vest and
become exercisable on the Second Vesting Date means 2/3 of the
number of shares of Common Stock purchased by the Holder
pursuant to the Purchase Agreement."
4. Waiver. Solely for purposes of the transaction
contemplated by the Crescent Agreement, the Purchaser hereby agrees to
irrevocably waive any right or claim that it may have (i) to adjust the Exercise
Price of the Warrant or the number of Warrant Shares issuable thereto as a
result of the issuance of the Crescent Preferred and (ii) pursuant to Section
3.9 of the Purchase Agreement.
5. Ratification. By the execution and delivery hereof,
each of the parties hereto hereby ratifies and confirms the terms of the
Purchase Agreement, the Registration Rights Agreement and the Warrant as hereby
amended.
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6. Governing Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of New York,
without reference to the choice of law provisions thereof.
7. Effectiveness. The effectiveness of the agreements
set forth herein shall be subject to and conditioned upon (i) the closing of the
transactions contemplated by the Crescent Agreement, pursuant to which Crescent
will make an investment in the Company of not less than $2,000,000, (ii) the
Company's securing from the National Association of Securities Dealers, Inc.
confirmation of its acceptance of the Company's proposal for remaining listed on
the Nasdaq SmallCap Market and (iii) the Company's entering into letter
agreements with LB I Group, Inc. (the "Lehman Agreement") and the holders of the
Company's outstanding 14% Senior Convertible Debentures, due April 15, 2002 (the
"Debenture Holders' Agreement"), in the forms attached hereto as Exhibit C and
Exhibit D. If each of the foregoing conditions has not been satisfied on or
prior to 5:00 p.m. New York time on November 1, 2000, this Agreement shall be
void and of no further force or effect.
8. Entire Agreement. This Agreement, together with the
Lehman Agreement and the Debenture Holders' Agreement, constitutes the entire
agreement and supersedes all prior agreements and undertakings, both written and
oral, between the parties with respect to the subject matter hereof and thereof.
9. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but both of
which together shall constitute one and the same instrument.
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If you agree to the foregoing, please so indicate by signing
the enclosed counterpart of this Agreement and returning it to the undersigned,
whereupon this Agreement shall become a binding contract between the parties
hereto.
Very truly yours,
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
By:
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Darby S. Macfarlane
Chairperson of the Board
ACCEPTED AND AGREED TO
THIS ____ DAY OF OCTOBER, 2000:
MILLENNIUM PARTNERS, L.P.
By:
-------------------------
Name:
Title:
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