Exhibit 4.1
ACCENT COLOR SCIENCES, INC.
800 Connecticut Boulevard
East Hartford, Connecticut 06108
October 28, 1999
Zanett Lombardier, Ltd.
c/o Olympia Capital (Cayman) Limited
Williams House
20 Reid Street
Hamilton HM 11
Bermuda
RGC International Investors
Rose Glen Capital Management, L.P.
c/o Rose Glen Capital Group
3 Bala Plaza - East Suite 200
Bala Cynwyd, PA
Dear Ladies and Gentlemen:
This letter is intended to modify the letter of agreement between each
of you and Accent Color Sciences, Inc. (the "Company"), dated September 3, 1999
concerning your shares of Series B Convertible Preferred Stock of the Company in
connection with our current financing effort (the "September 3 Letter"). Each of
you has previously executed a term sheet containing an agreement in principal
under which the Company may either redeem your shares of Series B Preferred
Stock (the "Series B Stock") for their face amount plus accrued premium or
convert your shares of Series B Stock into common stock at the prevailing price
in a previously proposed common stock placement, as described in the September 3
Letter. In response to the interest of potential investors, the Company has
accepted the recommendation of its investment banker, Pennsylvania Merchant
Group, to offer investors shares of a new series of preferred stock designated
the Series C Convertible Preferred Stock (the "Series C Stock"). The Series C
Stock would have a liquidation preference of $100.00 per share, no preferred
dividend (however no dividends may be paid on the common stock without at least
an equivalent dividend paid on the Series C Stock ), no redemption rights (with
respect to either the holders of Series C Stock or the Company) and would be
convertible initially at the rate of 250 shares of Common stock for each share
of Series C Stock (a conversion rate of $.40 per share), subject to such change
in the initial conversion rate as may be necessitated to reflect market
conditions and to ongoing anti-dilution rights in the event of stock splits,
recapitializations and the like. The holders of Series C Stock would have
identical voting rights to the voting rights which you have as holders of the
Company's Series B Stock. The rights and preferences of the Series C Stock will
be substantially as set forth in the draft designation of the Series C Stock
attached to this letter agreement as Exhibit A.
For reasons substantially similar to those set out in the September 3
Letter, we continue to need your cooperation in order to pursue the current
financing which will require the same number of authorized shares of common
stock to support the conversion rights of holders of Series C Stock as would
have been required for the common stock private placement. However, we can no
longer expect you to convert your shares of Series B Stock into common stock,
assuming the conditions referred to in the September 3 Letter are met. Instead,
we have discussed with you and understand that you will agree to modify, in
accordance with the provisions of this letter agreement, your rights as holders
of all outstanding shares of the Series B Stock so as to be similar to the
rights of the holders of Series C Stock, subject however to the prior conditions
recited below.
The agreements set forth below are subject to the prior satisfaction or
fulfillment of each of the following conditions:
(a) The Company shall raise gross proceeds of at least $4 million
including both the proceeds of the bridge financing referred to in the September
3 Letter and the proposed sale of shares of Series C Stock;
(b) The Company will call and hold on or before December 2, 1999 a
shareholders' meeting and obtain the approval of an increase in authorized
shares of the Company's common stock such that the authorized shares of the
Company's common stock shall be fully sufficient to support your conversion
rights as holders of Series B Stock; and
(c) In the event that Company shall fail to obtain such shareholder
approval in accordance with the preceding subparagraph (b), (or otherwise fully
restore your conversion rights such as through a reverse stock split), the
Company will be required to redeem the Series B Stock for cash in accordance
with the provisions of the bridge financing term sheet.
Assuming fulfillment of each of the preceding conditions, each of you
agrees with us as follows:
1. We will hold a meeting of shareholders to authorize additional
shares of common stock as soon as possible and no later than December 2, 1999
(it being the Company's current intention to hold the meeting on November 29,
1999);
2. That in the interim prior to such meeting, you will retain your
rights as holders of Series B Stock, subject to the provisions of this letter
and the bridge financing term sheet;
3. Your annual premium on your shares of Series B Stock will continue
to accrue until your shares of Series B Stock are actually redeemed, converted
or modified as provided in subparagraph 4 below;
4. That upon receipt of such shareholder approval and the closing of
the private placement of Series C Stock, and assuming the Company has not
elected to redeem your shares of Series B Stock for cash as specified above, the
terms, rights and preferences of your shares of Series B Stock shall be modified
as follows:
(i) The annual premium on the Series B Stock shall cease to
accrue;
(ii) The liquidation preference amount of the Series B Stock
shall immediately become and thereafter remain an amount per share equal to the
face amount thereof ($1,000) plus the then accrued annual premium (6% per year
from date of issuance);
(iii) The conversion price shall, for all purposes, be the
conversion price applicable to the Series C Stock, from time to time, determined
by dividing the number of shares of common stock into which one share of Series
C stock is then convertible into $100;
(iv) The Company shall continue and maintain an effective
registration statement with the Securities and Exchange Commission with respect
to the common shares issuable on conversion of the Series B stock in accordance
with the Registration Rights Agreement among us dated January 9, 1998;
(v) All rights and obligations of either the Company or the
holders of Series B Stock regarding voluntary or involuntary redemption by the
Company of shares of Series B Stock shall be terminated, except that the holders
of Series B Stock shall be entitled to any such redemption rights as may apply
with respect to the Series C Stock;
(vi) All limitations on conduct and approval rights of the
Company set forth in Article XIII of the designation of the Series B Stock shall
no longer apply except to the extent that any such limitations or approval
rights are applicable with respect to the Series C Stock;
(vii) All remedies set forth in the designation of the Series
B Stock shall no longer apply except to the extent that such remedies are
similar to remedies available to holders of Series C Stock;
(viii) The limitation on the amount of Series B Stock which
may be converted into common stock at any one time set forth in subparagraph
(ii) of Paragraph C of Article IV of the designation of the Series B Stock shall
continue to apply;
(ix) The Company shall at all times reserve a sufficient
number of shares of its common stock as may be issuable upon the conversion of
all then outstanding shares of Series B Stock;
(x) The holders of Series B Stock shall rank, in right of
payment, pari passu with the holders of Series C Stock with respect to both
dividends and payments upon liquidation; and
(xi) No transfer of shares of Series B Stock by either of you
shall be permitted unless, in addition to complying with any other statutory or
contractual restrictions upon such transfer, the transferee shall agree to the
provisions of this letter agreement.
We again express our appreciation for your cooperation in facilitating
our financing effort. Please indicate your consent and agreement with the
foregoing provisions by dating, signing and returning to me the enclosed copy of
this letter.
Sincerely,
---------------------------------
Charles E. Buchheit
President and Chief Executive Officer
Consented and Agreed to:
ZANETT LOMBARDIER, LTD.
By:______________________________________ Date: _________________________
RGC INTERNATIONAL INVESTORS, LDC
BY: ROSE GLEN CAPITAL MANAGEMENT, L.P.
BY: RGC GENERAL PARTNER CORP.
By:______________________________________ Date: _________________________