STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (this "Agreement"), dated as of the 21st day
of January, 2004, is by and between Decorize, Inc., a Delaware corporation (the
"Company") and NEST USA, Inc., a Delaware corporation ("NEST").
WHEREAS, the Company and Nest entered into that certain Securities Purchase
Agreement, dated as of February 26, 2002, as amended by that certain First
Amendment to Securities Purchase Agreement (the "Purchase Agreement"); and
WHEREAS, in connection with the Purchase Agreement, on February 27, 2002,
the Company issued to NEST that certain Convertible Term Note in the original
principal amount of $750,000, which was amended by that certain Amended and
Restated 6% Convertible Term Note in the original principal amount of $750,000,
on January 1, 2003 (the "Note");
WHEREAS, the Company desires to issue and sell to NEST, and NEST desires to
purchase from the Company, 409,700 shares (the "Shares") of the common stock,
$0.001 par value per share, of the Company ("Common Stock"), in exchange for a
reduction of the principal balance of the Note, as further set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. PURCHASE AND SALE.
1.1 Sale of Shares. Upon the terms and subject to the conditions set forth
in this Agreement, the Company hereby agrees, upon the receipt of the
consideration described herein, to issue the Shares to NEST, and NEST hereby
agrees to purchase from the Company, all right, title, and interest in and to
all of the Shares, free of all liens, claims and encumbrances. The Company has
agreed to grant registration rights to the Shares and the shares of Common Stock
issuable from time to time ("Warrant Shares") upon exercise of the Warrants (as
defined), including its agreement to file a registration statement for such
Shares within 30 days hereof, all as further described in the Registration
Rights Agreement attached as Exhibit A to this Agreement (the "Rights
Agreement").
1.2 Consideration. The aggregate purchase price for the Shares is the sum
of $409,700 (the "Purchase Price"), at a price of $1.00 per share, which shall
be paid by the reduction of the outstanding principal balance of the Note in the
amount of the Purchase Price. The reduction in the outstanding principal balance
of the Note shall be evidenced by the issuance of a Second Amended and Restated
6% Convertible Promissory Note, in the form of Exhibit B to this Agreement (the
"New Note"), which shall be issued in full replacement and substitution for the
Note. Upon issuance of the New Note and the Shares, the Note shall cease to be
of any further force or effect.
1.3 Issuance of Warrants; Amendment of Existing Warrants. In consideration
of the purchase of the Shares, the Company has agreed to issue warrants
("Warrants") exercisable for 400,000 shares of Common Stock, with an initial
exercise price of $1.40 per share. The form of the Warrants is attached as
Exhibit C to this Agreement. The Company and NEST have also agreed to
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amend and restate certain existing warrants issued in February 2002 in
connection with the Purchase Agreement ("2002 Warrants") to extend the
termination date for the 2002 Warrants to December 31, 2005, which amended and
restated warrants shall be issued in full replacement and substitution for the
2002 Warrants. The form of the amended and restated warrants is attached as
Exhibit D to this Agreement (the "Amended 2002 Warrants"). The Warrants, Shares,
New Note and Amended 2002 Warrants are collectively referred to as the
"Securities".
1.4 Closing Procedure. Concurrent with the execution of this Agreement, (i)
the Company shall deliver to NEST, stock certificate(s) representing the Shares,
issued in the name of NEST, instruments representing the other Securities, the
Rights Agreement and this Agreement (collectively, the "Closing Documents"), and
(ii) NEST shall surrender the Note and the certificate for its 2002 Warrants to
the Company for cancellation in exchange for the foregoing. All actions taken on
the date hereof with respect to the transactions contemplated hereunder shall be
deemed to have been taken simultaneously at the time the last of any such
actions is taken or completed.
1.5 Preferred Stock Financing; Subordination of Note. NEST acknowledges
that the exchange of its Note for the Shares and the New Note is being made in
connection with the proposed issuance of shares of a newly created series of
preferred stock of the Company, the terms of which have been provided to NEST
(the "Financing"). Accordingly, NEST hereby waives any preemptive rights it may
have under Section 2.08 of the Purchase Agreement with respect to any preferred
stock, warrants or other securities issued by the Company to SRC Holdings
Corporation, Quest Capital Alliance, L.L.C., and any of their respective
affiliates, in connection with the Financing; provided, that it is completed on
or before March 1, 2004.
In connection with the Financing, NEST consents to the subordination of the
indebtedness owed to it by the Company, in accordance with the terms of the New
Note; provided, that the Company shall provide notice to NEST of any additional
Senior Indebtedness (as defined in the New Note) that is incurred by the
Company, including any credit line obtained in connection with the Financing.
NEST further consents to the pledge of any assets of the Company (as defined in
the Purchase Agreement) in connection with the Financing, subject to it being
closed on or before March 1, 2004.
1.6 Amendments to Purchase Agreement. In further consideration of the
transactions to be effected under this Agreement, NEST and the Company hereby
agree that effective upon the full execution of this Agreement and the delivery
of the Securities as contemplated herein, the Purchase Agreement shall be and
hereby is amended as follows:
(a) Section 2.08 of the Purchase Agreement is amended and restated to read
in its entirety: "Section 2.08. Intentionally Omitted."
(b) Section 5.06 of the Purchase Agreement is amended and restated to read
in its entirety: "Section 5.06. Intentionally Omitted."
1.7 Removal of Restrictive Legends. In connection with any proposed sale of
the Shares or Warrant Shares, any legend endorsed on a certificate pursuant to
Section 3.2(d) and any related stop transfer instructions with respect to any
Securities shall be removed, and the Company
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shall within ten (10) Business Days request its transfer agent to issue promptly
a certificate without such legend to the holder thereof, if (i) such Securities
shall be registered under the Securities Act, (ii) such legend may be properly
removed under the terms of Rule 144 under the Securities Act or (iii) such
holder shall provide the Company with an opinion of counsel, satisfactory to the
Company, to the effect that a sale, transfer or assignment of such Securities
may be made pursuant to Rule 144(k) under the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to NEST as follows:
2.1 Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all necessary corporate power and authority to own or lease
its assets and to carry on its business as now being conducted and presently
proposed to be conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which its
ownership or leasing of assets, or the conduct of its business, makes such
qualification necessary, except where the failure to be so qualified would not
result in a material and adverse change in the business, assets, financial
condition, results of operations, affairs or prospects of the Company and its
subsidiaries, taken as a whole ("Material Adverse Change"). Except for any
subsidiaries disclosed in its SEC Documents (as defined in Section 2.3), the
Company has no subsidiaries and no equity interests in any corporation,
partnership, joint venture or other entity.
2.2 Requisite Power and Authorization. The Company has all necessary
corporate power and authority to execute and deliver the Closing Documents and
to perform its obligations under each of the Closing Documents, including
without limitation the issuance of the Securities hereunder. All corporate
action of the Company required for the execution and delivery of the Closing
Documents and the issuance and delivery of the Securities has been duly and
effectively taken, and no further actions, authorizations or consents,
including, without limitation, any consents of the stockholders of the Company,
are required. Each of the Closing Documents constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditor's rights, (ii) as limited by general principles of
equity that restrict the availability of equitable remedies and (iii) as the
indemnity provisions of the Rights Agreement may be limited by law. The Warrant
Shares, if and when issued, delivered and paid for in compliance with the
provisions of this Agreement and the Warrants, as applicable, will be validly
issued, fully paid and non-assessable, free and clear of any and all liens,
charges, claims or encumbrances. The Company has reserved a sufficient number of
shares of Common Stock necessary for issuance of the Warrant Shares.
2.3 SEC Documents. The Company has filed with the Securities and Exchange
Commission (the "SEC") all reports, statements, schedules and other documents
(collectively, the "SEC Documents") required to be filed by it pursuant to the
Securities Act and the Securities Exchange Act of 0000 (xxx "Xxxxxxxx Xxx").
Since June 30, 2003, all SEC Documents required to be filed were timely filed.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder,
and none of the SEC Documents, at
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the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the financial statements included in the SEC Documents (the "Financial
Statements") complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Except (i) as may be indicated in the notes to the Financial
Statements or (ii) in the case of the unaudited interim statements, as permitted
by Form 10-QSB under the Exchange Act, the Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present in all material respects the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal recurring year-end adjustments and
footnotes). Except as set forth in the Financial Statements filed with the SEC
prior to the date hereof, neither the Company nor any of its subsidiaries has
any liabilities, whether absolute, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such Financial Statements, (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in such Financial Statements,
which liabilities and obligations referred to in clauses (i) and (ii),
individually or in the aggregate, are not material to the financial condition or
operating results of the Company or any of its subsidiaries and (iii)
liabilities and obligations incurred in connection with the Closing Documents
and the transactions contemplated thereby.
2.4 No Conflicts. Neither the execution, delivery and performance by the
Company of this Agreement, the other Closing Documents, and all instruments and
documents to be delivered by the Company, nor the consummation of the
transactions contemplated by any of the foregoing (i) has constituted or
resulted in, or will constitute or result in, a default under or breach or
violation of any term or provision of the Certificate of Incorporation or bylaws
of the Company, as amended, or material contracts or instruments to which the
Company or any of its subsidiaries is a party or federal, state or local laws,
rules or regulations, writs, orders, judgments or decrees which are applicable
to the Company, any of its subsidiaries or their assets, (ii) will result in the
acceleration or termination of any rights under any contract or instrument to
which the Company or any of its subsidiaries is a party or (iii) will result in
the creation or imposition of any liens, charges or encumbrances upon any assets
of the Company or any of its subsidiaries.
2.5 Consents. No approval, consent, order, authorization or other action
by, or notice to or filing with, any governmental authority or regulatory agency
or any other person or entity, and no lapse of a waiting period, is required in
connection with the execution, delivery or performance by the Company of this
Agreement, any other Closing Document, the issuance and delivery of any of the
Securities or any other transactions contemplated by any of the Closing
Documents except for filings required under applicable state "blue sky" laws
(which shall be duly filed and effective prior to the issuance of the Securities
if so required under such laws) and the filing of a registration statement or
statements pursuant to the Registration Rights Agreement.
2.6 No Material Adverse Change. Since the date of the most recent SEC
Documents, the business of the Company and each subsidiary has been operated in
the ordinary course and substantially consistent with past practice and there
has not been any Material Adverse Change.
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2.7 Litigation. There is no claim, action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries, or any of their respective
directors or officers, in their capacities as such, (i) that questions the
validity of this Agreement or any other Closing Document or the issuance of the
Securities, or the right of the Company to enter into this Agreement or any
other Closing Document or to consummate the transactions contemplated by any
Closing Document or (ii) that might result, either individually or in the
aggregate, in any Material Adverse Change or in any change in the current equity
ownership of the Company.
2.8 Validity of Shares. The Shares, when issued by the Company to NEST upon
payment in full of the Purchase Price, will be validly issued, fully paid and
non-assessable. The Warrant Shares, when issued by the Company to NEST upon
payment in full of the exercise price under the Warrants, will be validly
issued, fully paid and non-assessable.
3. REPRESENTATIONS AND WARRANTIES OF NEST. NEST represents and warrants to the
Company as follows:
3.1 Due Authorization. NEST has full capacity to enter into this Agreement
and to carry out its obligations hereunder. This Agreement has been duly
executed and delivered by NEST and constitutes the legal, valid, and binding
obligations of NEST, enforceable against him in accordance with its terms.
3.2 Investment Representations. NEST further represents and warrants as
follows:
(a) The undersigned is purchasing the Securities for its own account
and not with a view to resale or redistribution in a manner which
would require registration under the Securities Act of 1933, as
amended (the "Act"), or any state securities laws, or for sale in
connection with a "distribution," as that term is used in Section
2(11) of the Act, of the Securities.
(b) The undersigned understands that the Securities are not
registered under the Act or the securities laws of any state and
may not be disposed of in whole or in part in the absence of
registration under the Act or any state securities laws, unless
an exemption from registration is available.
(c) The undersigned understands that there will be no public market
for the Securities, and that even if such a market were to
develop, it may not be possible for the undersigned to readily
liquidate its investment. As a consequence, the undersigned may
never be able to sell or dispose of such securities and may thus
have to bear the risk of investment in such securities for a
substantial period of time. The undersigned has adequate means of
providing for its current and future contingencies and has no
need for liquidity with regard to its investment in the
Securities.
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(d) The undersigned has been informed and understands that the
Securities, upon issue, will have such restrictive legends as are
required by law or as the Company may otherwise deem appropriate.
(e) The undersigned has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits
and risks of an investment in the Securities and making an
informed decision with respect to the purchase of the Securities.
NEST is not relying upon any representation or warranty by the
Company with respect to the value of the Securities, and
accordingly no such representations or warranties are made.
(f) The undersigned has had an opportunity to ask questions of and
receive satisfactory answers from the Company, or any person or
persons acting on the Company's behalf, concerning the terms and
conditions of this investment, and all such questions have been
answered to the full satisfaction of NEST.
4. MISCELLANEOUS PROVISIONS
4.1 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, heirs, and
assigns.
4.2 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.3 Entire Agreement. This Agreement and the documents referred to herein
contain the entire understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties,
conveyances or undertakings other than those expressly set forth herein. This
Agreement supersedes any prior agreements and understandings between the parties
with respect to the subject matter of this Agreement.
4.4 Modification. No change or modification of this Agreement shall be
valid or binding upon the parties hereto, nor shall any waiver of any term or
condition in the future be so binding, unless such change or modification or
waiver shall be in writing and signed by the parties hereto.
4.5 GOVERNING LAW; VENUE. NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT
MAY BE EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF
DELAWARE AS APPLIED TO AGREEMENTS AMONG DELAWARE RESIDENTS ENTERED INTO AND TO
BE PERFORMED ENTIRELY WITHIN DELAWARE, WITHOUT REGARD TO THE CONFLICT OF LAW
PROVISIONS OF SUCH JURISDICTION. VENUE FOR ANY ACTION TO ENFORCE, INTERPRET, OR
RESOLVE ANY DISPUTE WITH RESPECT TO ANY PROVISION OF THIS AGREEMENT SHALL BE
EXCLUSIVELY IN XXXXXX COUNTY, MISSOURI, AND ALL PARTIES HERETO AGREE THAT ANY
LITIGATION DIRECTLY OR INDIRECTLY RELATING TO THIS AGREEMENT MUST BE
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BROUGHT BEFORE AND DETERMINED BY A COURT OF COMPETENT JURISDICTION WITHIN SUCH
COUNTY AND STATE. EACH OF THE PARTIES FURTHER ACKNOWLEDGE THAT SUCH VENUE IS
APPROPRIATE AND AGREE NOT TO RAISE ANY ARGUMENT THAT SUCH VENUE IS IN ANY WAY
UNDULY INCONVENIENT FOR ANY OF THEM, WITH THEIR EXECUTION HEREOF BEING EVIDENCE
OF THEIR AGREEMENT TO SUBMIT TO THE JURISDICTION OF SUCH COURTS.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
The Company:
DECORIZE, INC.,
a Delaware corporation
By:
--------------------------------------
Xxxx Xxxxxxxxx
Executive Vice President and
Chief Financial Officer
NEST:
NEST USA, INC.,
a Delaware corporation
By:
--------------------------------------
[Name]
[Title]
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Exhibit A
Registration Rights Agreement
Exhibit B
Amended and Restated Promissory Note
Exhibit C
New Warrants
Exhibit D
Amended Warrants
