Restructuring Agreement

EXHIBIT 4.10


RESTRUCTURING AGREEMENT


This RESTRUCTURING AGREEMENT (the "Agreement"), executed this 16th day of October, 2001, is entered into by and between Constellation 3D, Inc., a Delaware corporation (the "Company") and Sands Brothers Venture Capital, LLC, a New York limited liability company ("Venture Capital").


W I T N E S S E T H
-------------------


WHEREAS, pursuant to the terms of that certain Placement Agency Agreement dated December 1, 1999, as amended on December 22, 1999, March 7, 2000, March 23, 2000, May 16, 2000, May 31, 2000, June 28, 2000, July 13, 2000 and August 2, 2000, and any other amendment or additional document executed on or before the date of this agreement and as supplemented by that certain letter agreement dated February 8, 2000, between the Company and Sands Brothers & Co., Ltd. (collectively, the "Placement Agency Agreement"), Sands Brothers & Co., Ltd. ("Sands Brothers") was retained by the Company to act as its placement agent and to perform, among other things, certain investment banking and financial advisory services for the Company (the "Relationship");


WHEREAS, pursuant to the Relationship, Sands Brothers identified Venture Capital as a qualified subscriber to engage in a financing transaction with the Company (the "Venture Capital Financing"), which was consummated pursuant to that certain Securities Purchase Agreement dated March 23, 2000, by and between the Company and Venture Capital (the "Securities Purchase Agreement");


WHEREAS, pursuant to the Securities Purchase Agreement, Venture Capital purchased and the Company issued and sold a 10% Subordinated Convertible Debenture dated March 24, 2000 (the "Debenture") in the principal amount of Four Million ($4,000,000) Dollars with a maturity date of September 24, 2001;


WHEREAS, pursuant to that certain Settlement Agreement reached between the parties effective as of May 31, 2001, the Debenture and all of its terms remain in full force and effect;


WHEREAS, the Company desires to amend and restructure certain terms of the Debenture and Venture Capital has agreed to do so pursuant to the terms hereof;


NOW, THEREFORE, in consideration of the mutual agreements and understandings set forth herein, intending to be legally bound, the parties hereto hereby agree as follows:


Section 1. Extension of the Maturity Date of the Debenture.
-----------------------------------------------


The Debenture issued to Venture Capital in the principal amount of Four Million ($4,000,000) Dollars, shall remain in full force and effect, however the maturity date of the principal


amount with accrued interest thereon is hereby amended and the principal and accrued interest of the Debenture shall be payable as follows:


a. Two Million Dollars ($2,000,000) of principal with accrued interest shall be paid in immediately available funds within one (1) business day after the Company's receipt and closing on or after the date hereof and before October 30, 2001, of equity and/or debt financing, equal to or in excess of Four Million Dollars ($4,000,000);


b. From the proceeds of any debt and/or equity financings by the Company that closes after October 30, 2001, the Company shall retire One Million Dollars ($1,000,000) of principal and interest for every Four Million Dollars ($4,000,000) in proceeds received within one (1) business day after the Company's receipt of the proceeds of such financings;


c. All remaining principal and accrued interest shall be due and payable in full on September 24, 2002, subject to any earlier Event of Default (as defined in the Debenture) (the "Final Maturity Date").


Section 2. Security for Debenture.
----------------------


The indebtedness evidenced by the Debenture and the payment of the principal and interest thereon shall be senior to all other indebtedness of the Company now outstanding or hereinafter incurred, and shall be secured by all the assets of the Company, as evidenced by a security agreement by and between the parties (a form of which is annexed hereto as Exhibit A); provided, however,
-------- ------- that that Venture Capital hereby consents and agrees to the issuance by the Company of Five Million Dollars ($5,000,000) of senior secured debt to Halifax Fund, L.P. that will rank pari passu with the indebtedness of the Debenture.


Section 3. Warrant Terms.
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In consideration for entering into this Agreement, the Company hereby grants to Venture Capital a warrant to purchase, at any time from the date hereof, until 5:30 p.m. New York time on September 24, 2004, up to Five Hundred Thousand (500,000) fully-paid and non-assessable shares of the common stock, $.00001 par value per share (the "Common Stock") of the Company, at an initial exercise price of $1.50 per share of Common Stock. The Warrants shall be evidenced by a warrant certificate, a form of which is attached as Exhibit B
--------- hereto, which shall be issued upon execution of this Agreement by both parties. The shares of Common Stock underlying the Warrants acquired upon exercise of the Warrants shall have the same registration rights as afforded to those certain retained and additional retained warrants to purchase shares of the Company's common stock issued to Sands Brothers and its designees pursuant to that certain Settlement and Release Agreement dated May 31, 2001 (the "Original Warrants").


Section 4. Additional Provisions.
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a. In the event that the Company has not paid the entire indebtedness evidenced by the Debenture and accrued interest thereon on or before the Final Maturity Date, at its option,


2


Venture Capital may cause the then current Board of Directors of the Company to resign and Venture Capital shall have the right to replace the Company's Board of Directors with nominees of its own election, each of whom shall be independent and subject only to the consent and approval of Halifax Fund, L.P., not to be unreasonably withheld or delayed.


b. Venture Capital shall, at its option and upon the approval of Halifax Fund, L.P., be entitled to nominate an individual of its choosing to serve as an independent member of the Board of Directors of the Company. Such individual shall serve on the Company's audit and compensation committees. Notwithstanding the foregoing, the Company hereby consents to the immediate appointment by Venture Capital of an observer to the Company's Board of Directors (the "Observer"). The Observer (after executing the Company's standard non-disclosure agreement) shall be provided notice of any and all meetings of the Board of Directors of the Company and shall be entitled to participate in such meetings as well as all meetings of the Company's audit and compensation committees.


c. Venture Capital hereby agrees that it shall not (by itself or through any affiliated persons and/or entities) make or cause to be made any trade with respect to any capital shares or capital shares equivalents and/or any derivatives thereof, and/or in any manner change or attempt to alter or affect the market price of the Company's stock. This prohibition shall include without limitation: (i) engaging in any short sales of the Company's stock; (ii) selling derivatives linked to the Company's stock; and/or (iii) engaging in any other perceived hedging activity in any way related to the Company's stock. The foregoing limitations shall not apply to non-affiliates who maintain brokerage accounts at Sands Brothers & Co., Ltd.


d. The Company hereby agrees that if any installment of the principal of or the interest on the Debenture is not paid when due, then the overdue amount shall bear interest at the annual rate of 12%, which interest shall accrue from the date such overdue amount became due through the date of payment of such overdue amount (including interest thereon) has been duly made. Interest shall be computed on the basis of a 360-day year of twelve 30-day months for the actual number of days elapsed.


Section 5. Notice. For purposes of this Agreement, notices and all other
------ communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid as follows:


If to the Company:


Constellation 3D, Inc.
805 Third Avenue - 14/th/ Floor
New York, NY 10022
Attn: Craig Weiner, Esq., General Counsel
Fax: (212)308-3572


With a copy to:


3


James Brandt, Esq.
Jeff Tochner, Esq.
Latham & Watkins
885 Third Avenue
New York, NY 10022
Fax:


If to Venture Capital:


90 Park Avenue, 39/th/ Floor
New York, NY 10016
Attn: Steven B. Sands
Fax: 212) 697-5200


With a copy to:


Littman Krooks & Roth P.C.
65 Third Avenue
New York, NY 10017
Attn: Mitchell C. Littman, Esq.
Fax: (212) 490-2990


or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.


Section 6. Miscellaneous.
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a. Enforcement; Governing Law; Jurisdiction. This Agreement shall
---------------------------------------- be governed by and construed in accordance with the laws of the State of New York without regard to its conflicts of law principles.


b. Headings. The section and paragraph headings contained in this
-------- Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.


c. Counterparts. This Agreement may be executed in two or more
------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.


d. Entire Agreement. This Agreement constitutes the entire
---------------- agreement, and supersedes any and all prior agreements, and understandings, both written and oral, between the parties hereto with respect to the subject matter hereof except as otherwise provided herein.


e. Severability. If any term or other provision of this Agreement
------------ is invalid ...