Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement"), dated as of February
13, 2004, is entered into by and among Decorize, Inc., a Delaware corporation
(the "Company"), SRC Holdings Corporation, a Missouri corporation ("Purchaser"),
and Quest Capital Alliance, L.L.C., a Missouri limited liability company
("Quest").
WHEREAS, the Company proposes to issue and sell to Purchaser for cash,
500,000 shares of convertible preferred stock, $.001 par value, of the Company
(the "Preferred Stock"), which are convertible into shares of common stock,
$.001 par value, of the Company ("Common Stock"), and those certain Warrants to
purchase up to an aggregate 1,750,000 shares of Common Stock (the "Warrants"),
on the terms and conditions set forth below; and
WHEREAS, the Company, among other things, has agreed to provide certain
registration rights under the Securities Act of 1933, as amended from time to
time (the "Securities Act"), with respect to the shares of Common Stock,
including those issuable upon exercise of Warrants or conversion of the
Preferred Stock, that are being issued to Purchaser pursuant to this Agreement.
NOW THEREFORE, in consideration of the above recitals and the mutual
covenants set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 The terms defined in this Section 1.01 shall have for all purposes of
this Agreement the respective meanings specified below.
"Agreement" shall mean this Securities Purchase Agreement as it may be
amended from time to time.
"Board" shall mean the Board of Directors of the Company, as constituted
from time to time.
"Business Day" shall mean any day, other than a Saturday or Sunday, on
which commercial banks are open for business with the public in Xxxxxx County,
Missouri.
"Certificate of Designation" shall mean that certain Certificate of
Designation of the Series A Convertible Preferred Stock of Decorize, Inc. to be
filed with the Secretary of State of Delaware, which designates the rights and
preferences of the holders of that series of Preferred Stock, a copy of which is
attached as Exhibit A hereto.
"Closing" shall mean the consummation of the purchase and sale of the
Securities.
"Closing Date" shall mean February 13, 2004, or such later date on which
the conditions set forth in Articles VI and VII hereof have been satisfied or
waived.
"Closing Documents" shall mean this Agreement, the stock certificates
representing the Shares, the certificates representing the Warrants, the
Registration Rights Agreement and any other document required by this Agreement
as a condition to the obligations of Purchaser under this Agreement or executed
or delivered by the Company at the Closing.
"Common Stock" shall mean the common stock, $.001 par value, of the
Company.
"Company" shall mean Decorize, Inc., a Delaware corporation, and its
successors and assigns.
"Contingent Warrants" shall mean those certain Warrants to purchase up to
an aggregate 1,000,000 shares of Common Stock that may be issued from time to
time as provided in Section 2.05 below (the form of the certificate for which is
attached as Exhibit B). Each Contingent Warrant shall provide for the issuance
of each Warrant Share thereunder upon the payment of an exercise price of $1.40
per share (adjusted from the date of this Agreement as provided in the
Contingent Warrants). The issuance of the Contingent Warrants and the number of
shares for which each Contingent Warrant is exercisable is subject to the amount
of any advances by the Company under the Credit Line, as described in Section
2.05 below. With respect to each set of Contingent Warrants issued for a
particular advance against the Credit Line, one-third of the Warrant Shares
issuable thereunder shall expire three years from the date of issuance, another
third will expire four years from the date of issuance, and the remaining third
of such Warrant Shares will expire five years from the date of issuance.
"Credit Line" shall mean a line of credit in the aggregate principal amount
of $1,000,000, which is obtained by the Company from one or more lenders, which
are mutually approved by the Company and Purchaser, relying upon the standby
limited guarantee of Purchaser.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Exhibit" is a reference to an exhibit attached to this Agreement.
"Initial Warrants" shall mean those certain Warrants to purchase 750,000
shares of Common Stock, dated the Closing Date (the form of the certificate for
which is attached as Exhibit C), which provides for the issuance of each share
of Common Stock thereunder upon the payment of an exercise price of $1.40 per
share (adjusted as provided in the Warrants). The Warrants shall be issued in
three certificates for 250,000 shares each, with the Warrants subject thereto
terminating in three, four and five years, respectively, after the Closing Date.
"Market Price" per share of the Common Stock as of any particular day
means:
(i) if the principal trading market for the Common Stock is
a national or regional securities exchange, the average closing
price on this exchange for the twenty (20) trading days
immediately before the date;
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(ii) if sales prices for shares of Common Stock are reported
by the Nasdaq National Market System or the Nasdaq Small Cap
Market (or a similar system then in use), the average last
reported sales price for the twenty (20) trading days immediately
before the date; or
(iii) if neither (i) nor (ii) above are applicable, and if
bid and ask prices for shares of Common Stock are reported in the
over-the-counter market by Nasdaq (or, if not so reported, by the
National Quotation Bureau), the average of the high bid and low
ask prices so reported for the twenty (20) trading days
immediately before the date.
Notwithstanding the foregoing, if there is no reported closing price,
last reported sales price, or bid and ask prices, as the case may be, for
the period in question, then the Market Price shall be determined as of the
latest twenty (20) trading day period before such day for which such
closing price, last reported sales price, or bid and ask prices, as the
case may be, are available, unless shares of the Common Stock have not been
traded on an exchange or in the over-the-counter market for thirty (30) or
more days immediately before the day in question, in which case the current
Market Price shall be determined in good faith by, and reflected in a
formal resolution of, the Board of Directors of the Company.
"Material Adverse Change" shall mean 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, including,
without limitation, any such material adverse change exceeding $50,000 in value.
"Preferred Stock" shall mean the Series A Convertible Preferred Stock,
$.001 par value, of the Company, having such rights as set forth in the
Certificate of Designation.
"Registration Rights Agreement" shall mean that certain Registration Rights
Agreement made and entered into as of the Closing Date, by and between the
Company and Purchaser (the form of which is attached as Exhibit D).
"Schedule" is a reference to a schedule attached to this Agreement.
"Section" shall mean a section or subsection of this Agreement.
"Securities" shall mean any of the Shares and Warrants purchased and sold
under this Agreement, and any Warrant Shares or other shares of capital stock
issued or issuable thereunder from time to time.
"Securities Act" shall have the meaning set forth in the recitals hereto.
"Shares" shall mean the shares of Preferred Stock issued and sold by the
Company to Purchaser at the Closing in the manner prescribed by this Agreement.
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"Warrants" shall mean the Initial Warrants and the Contingent Warrants
collectively.
"Warrant Shares" shall mean the shares of Common Stock issued or issuable
upon exercise of the Warrants, as such number of shares issuable may be adjusted
from time to time under the Warrants.
ARTICLE II
PURCHASE, SALE AND TERMS OF PREFERRED STOCK AND WARRANTS
2.01 The Shares. The Company has authorized the issuance and sale to
Purchaser of an aggregate 500,000 shares of Preferred Stock upon the terms and
subject to the conditions described herein. The Shares will have the rights set
forth in the Certificate of Designation.
2.02 The Warrants. The Company has also authorized the issuance and sale to
Purchaser of the Warrants, which grants Purchaser the right and option to
purchase the Warrant Shares on the terms set forth therein. The Warrants
(including any Contingent Warrants that may be issued from time to time) may be
exercised in whole or in part as set forth in each Warrant. The number of
Warrant Shares subject to each Warrant and the exercise price shall be subject
to further adjustment as set forth in this Agreement and as set forth in each
Warrant.
2.03 Closing of Purchase and Sale of Shares and Warrants. At the Closing,
the Company agrees to issue and sell to Purchaser, and Purchaser agrees to
purchase, an aggregate 500,000 Shares and the Initial Warrants for a total
purchase price equal to Five Hundred Thousand and No/100 Dollars ($500,000.00).
The purchase and sale of the Shares and the issuance of the Initial Warrants to
Purchaser shall take place by facsimile delivery exchange of signature pages
followed by express delivery exchange of the complete Closing Documents on the
Closing Date, with the Closing to be held at the offices of Xxxxxxx & Xxxxxx,
P.C., 0000 Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000. At the Closing, the
Company shall deliver to Purchaser certificates representing the Shares and the
Initial Warrants against payment of the purchase price, and the Company and
Purchaser shall deliver such other agreements, documents and certificates as
specified in this Agreement or as may be reasonably requested by each party. The
purchase price shall be paid by wire transfer to an account designated by the
Company.
2.04 Registration of Warrants. The Company shall maintain a register of the
Warrants to record therein the name and address of the registered holders
thereof, instructions for notices, and other information for transfers or
exchanges of the Warrants. No transfer of a Warrant for less than 100,000 shares
shall be valid unless made by the registered holder with the prior written
consent of the Company, which shall not be unreasonably withheld. The registered
holder of the Warrants shall be deemed the owner thereof for purposes of this
Agreement. Notwithstanding anything in this Section 2.04 to the contrary, the
transfer of any Warrant shall also be subject to the restrictions on transfer
set forth therein.
2.05 Line of Credit. In connection with the acquisition of the Shares and
Warrants, Purchaser has agreed to provide its standby limited guarantee to allow
the Company to obtain the Credit Line, if and when the Company decides to do so;
provided, that Purchaser's obligation to provide such a guarantee and any then
outstanding guarantee shall terminate on the earliest to
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occur of (a) the time at which the Company is able to obtain on the basis of its
own financial strength a $1,000,000 line of credit from a state or national
banking institution (or any other financial institution) on business terms
reasonably acceptable to the Board, (b) the redemption by the Company of the
outstanding shares of Preferred Stock, and (c) December 31, 2006. The Company
shall have the discretion to determine when and to what extent it accesses funds
from the Credit Line; provided, that the Company shall draw down in multiples of
$250,000; and further provided that Purchaser will have the right, to reject any
draws on the Credit Line if it determines in good faith that the Company's
financial condition or outlook has suffered or is reasonably likely to suffer, a
Material Adverse Change.
In consideration for Purchaser's guarantee, and for so long as such
guarantee remains in effect, if at any time the Company draws against the Credit
Line, then promptly thereafter (but in no event later than ten (10) business
days thereafter) the Company (i) shall issue Contingent Warrants, effective as
of the date that the Company draws against the Credit Line, exercisable for a
number of shares of Common Stock equal to the aggregate dollar amount of such
advance, in the case of the first advance, and (ii) shall issue additional
Contingent Warrants exercisable for a number of shares of Common Stock equal to
the dollar amount of any additional advance(s) in the case of any subsequent
advances, with the effect that Purchaser shall have one or more Contingent
Warrants that are initially exercisable for an aggregate number of shares of
Common Stock equal to the aggregate principal amount of all advances made under
the Credit Line while the guarantee of Purchaser is in effect, in an aggregate
amount not to exceed 1,000,000 Warrant Shares. No additional Contingent Warrants
shall be issued for any advances made against the Credit Line after the
guarantee of Purchaser has terminated or been withdrawn.
2.06 Further Assurances. The Company and Purchaser shall execute and
deliver such additional documents and take such additional actions as any party
reasonably may deem to be practical and necessary in order to consummate the
transactions contemplated by this Agreement and to vest more fully Purchaser's
ownership of the Shares and Warrants.
2.07 Quest Warrants. Upon completion of the Closing, Quest shall be issued
warrants to purchase 600,000 shares of Common Stock, exercisable at an exercise
price of $1.40 per share (adjusted as provided in the Warrants). The warrants
issued to Quest (the form of which is attached as Exhibit E) will terminate pro
rata as to 200,000 shares (as adjusted therein), on each of the third, fourth
and fifth anniversary dates of the Closing, unless the warrants are exercised
before the applicable expiration date. Quest agrees to timely make all filings
required to be made by it under the Exchange Act or the Securities Act,
including without limitation any filings under Section 13 of the Exchange Act,
as a result of the transactions described in this Agreement, and such filings
shall be true and correct in all material respects and contain no material
omissions or misstatements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents, warrants and covenants, to the Company as follows:
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3.01 Authorization. Purchaser is duly organized, validly existing and in
good standing under the laws of its jurisdiction. Purchaser has the necessary
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of, and the performance under,
this Agreement by Purchaser will not conflict with any rule, regulation,
judgment or agreement applicable to Purchaser.
3.02 Investment Purpose. Purchaser was not formed for the purpose of
acquiring the Securities. Purchaser is purchasing the Securities for investment
purposes and not with a present view to, or for sale in connection with, a
distribution thereof within the meaning of the Securities Act. Purchaser
understands that it may not be able to sell or otherwise dispose of the
Securities, and accordingly it might need to bear the economic risk of this
investment indefinitely.
3.03 Reliance On Exemptions. Purchaser understands that the Securities have
not been registered under the Securities Act or any state securities laws and
are being offered and sold in reliance upon specific exemptions from the
registration requirements of federal and state securities laws, and that the
Company is relying upon the truth and accuracy of the representations and
warranties of Purchaser set forth herein in order to determine the availability
of such exemptions and the eligibility of Purchaser to acquire the Securities.
Purchaser agrees to timely make all filings required to be made by it under the
Exchange Act or the Securities Act, including without limitation any filings
under Section 13 of the Exchange Act, as a result of the transactions described
in this Agreement, and such filings shall be true and correct in all material
respects and contain no material omissions or misstatements.
3.04 Information. Purchaser has been furnished all documents relating to
the business, finances and operations of the Company that Purchaser requested
from the Company and has evaluated the risks and merits associated with an
investment in the Securities to its satisfaction. Purchaser has been afforded
the opportunity to ask questions of the Company's representatives concerning the
Company in making the decision to purchase and acquire the Securities, and such
questions have been answered to its satisfaction.
3.05 Governmental Review. Purchaser understands that no federal or state
agency or any other government or governmental agency has passed upon or made
any recommendation or endorsement of the Securities.
3.06 Purchaser's Qualifications. Purchaser is an "accredited investor" as
defined in Rule 501 under Regulation D of the Securities Act. Purchaser is
capable of evaluating the merits and risks of an investment in the Securities.
3.07 Restrictions on Transfer. Purchaser covenants and agrees that it shall
not transfer any of the Securities unless such Securities are registered under
the Securities Act or unless an exemption from registration and qualification
requirements is available under the Securities Act and applicable state
securities laws and the Company has received an opinion of counsel satisfactory
to it stating that such registration and qualification is not required.
Purchaser understands that certificates representing the Shares, the Warrants
and the Warrant Shares shall bear the following, or a substantially similar,
legend until such time as they have been registered
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under the Securities Act or otherwise may be sold without volume or other
limitations under Rule 144 promulgated under the Securities Act:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, OR UPON RECEIPT BY THE COMPANY
OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
3.08 Residence. Purchaser is domiciled within the jurisdiction set forth
under its name on the signature pages hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit F, the Company represents and warrants to Purchaser as follows:
4.01 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 Adverse Change. Except for any subsidiaries listed on
Section 4.02 of the Schedule of Exceptions, the Company has no subsidiaries and
no equity interests in any corporation, partnership, joint venture or other
entity. There has been no amendment of the Company's Certificate of
Incorporation or Bylaws that is not reflected in the Company's filings with the
Securities and Exchange Commission ("SEC"), other than the Certificate of
Designation.
4.02 Subsidiaries. Section 4.02 of the Schedule of Exceptions sets forth
each subsidiary of the Company, showing the jurisdiction of its incorporation or
organization. Each subsidiary is validly existing and in good standing under the
laws of the state or other jurisdiction of its incorporation and has the
requisite corporate power to own, lease and operate its properties and assets
and to conduct its business as it is now being conducted. All of the outstanding
shares of capital stock of each subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable, and are owned by the Company. None of
these subsidiaries has (i) any outstanding securities convertible into or
exchangeable for any shares of its capital stock, (ii) any rights, options,
warrants, calls or other agreements or commitments of any nature whatsoever
relating to the purchase or other acquisition of any shares of its capital stock
or securities convertible into or exchangeable for any shares of its capital
stock, or (iii) any shares of its capital stock reserved for issuance.
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4.03 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 Registration Rights Agreement
may be limited by law.
The Shares, when issued at the Closing in compliance with the provisions of
this Agreement, will be validly issued, fully paid and non-assessable, free and
clear of any and all liens, charges, claims or encumbrances. 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 (a) issuance of the Warrant Shares and (b) the conversion of
the Preferred Stock.
4.04 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 Exchange Act. Since June 30, 2002, 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
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
consolidated and consolidating financial position of the Company and its
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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.
4.05 Capitalization. The capitalization of the Company (on a fully diluted
basis) is set forth on Section 4.05 of the Schedule of Exceptions, including (i)
the authorized capital stock, (ii) the number of shares issued and outstanding,
after giving effect to the issuance of the Shares, (iii) the number of shares
reserved for issuance pursuant to stock option, employee benefit or other plans,
(iv) the number of shares reserved for issuance or issuable pursuant to
securities exercisable for, or convertible into or exchangeable for, any shares
of Common Stock, and (v) the number of Warrant Shares reserved for issuance upon
exercise of the Warrants. All outstanding shares of capital stock have been duly
authorized and validly issued, are fully paid and non-assessable, and were
issued in compliance in all material respects with applicable federal and state
laws governing the issuance of securities.
Except as set forth on Section 4.05 of the Schedule of Exceptions or
otherwise contemplated hereunder, the Company has (i) no outstanding securities
convertible into or exchangeable for any shares of capital stock of the Company,
(ii) no rights, options, warrants, calls or other agreements or commitments of
any nature whatsoever relating to the purchase or other acquisition of any
shares of its capital stock or securities convertible into or exchangeable for
any shares of its capital stock, (iii) no shares of its capital stock reserved
for issuance, and (iv) no agreements or other commitments of any nature
whatsoever relating to preferential rights or voting rights of any shares of its
capital stock or securities convertible into or exchangeable for any shares of
its capital stock.
4.06 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 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.
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4.07 Consents. Other than those that will be obtained before the Closing,
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 (i)
the filing of a Form D with the SEC, (ii) filings required under applicable
state "blue sky" laws (which shall be duly filed and effective prior to the
Closing if so required under such laws), (iii) the filing of a registration
statement or statements pursuant to the Registration Rights Agreement; and (iv)
an optional current report on Form 8-K to be filed with the SEC.
4.08 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.
4.09 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 or of any subsidiary.
4.10 The American Stock Exchange. The Common Stock is listed on The
American Stock Exchange ("AMEX"), and there are no proceedings to revoke or
suspend such listing. The sale of the Securities as contemplated hereby will not
result in a violation of the AMEX rules and regulations.
4.11 No Misrepresentation. No representation or warranty by the Company in
this Agreement (including any Exhibit or Schedule hereto) and no statements of
the Company contained in any document, certificate, schedule or other
information furnished or to be furnished by or on behalf of the Company pursuant
to this Agreement or any other Closing Document or in connection with the
transactions contemplated by any Closing Document contains or shall contain any
untrue statement of material fact or omits or shall omit to state a material
fact required to be stated therein or necessary in order to make such
statements, in light of the circumstances under which they were made, not
misleading. Except for the transactions contemplated hereby, no event or
circumstance has occurred or exists with respect to the Company or any of its
subsidiaries or their respective business affairs, assets, properties,
prospects, operations or financial condition which has not been publicly
disclosed, but which, under applicable law, rule or regulation, would be
required to be disclosed by the Company in a registration statement filed on the
date hereof by the Company under the Securities Act with respect to the primary
issuance of the Company's securities. The Company has delivered true and
complete copies of all documents requested by Purchaser.
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4.12 No Brokers or Finders. No person or entity has or will have, as a
result of any engagement or contractual obligation incurred by the Company, any
right, interest or valid claim against Purchaser or the Company for any
commission, fee or other compensation as a finder or broker, or in any similar
capacity, in connection with the transactions contemplated by this Agreement,
except for the warrants to be issued in the name of Quest, as described in
Section 2.07.
ARTICLE V
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
5.01 Exchange Act Filings. The Company shall file in a timely manner all
reports and other documents required to be filed by it under the Exchange Act,
and such filings shall be true and correct in all material respects and contain
no material omissions or misstatements. The Company shall not terminate its
status as an issuer required to file reports under the Exchange Act, even if the
Exchange Act or the rules and regulations promulgated thereunder would permit
such termination.
5.02 Authorized Shares. The Company shall, from and at all times after the
Closing that the Warrants remain outstanding, maintain a reserve of authorized
shares of Common Stock sufficient to cover both (a) the issuance of the Warrant
Shares underlying the Warrants and (b) the conversion of the Preferred Stock.
5.03 Removal of Legends. Any legend endorsed on a certificate pursuant to
Section 3.07 and any related stop transfer instructions with respect to any
Securities shall be removed, and the Company 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.
5.04 Board of Directors. During the period in which the Preferred Stock is
issued and outstanding, the holder of the Preferred Stock shall be entitled to
elect two (2) directors of the Company, in accordance with the rights granted to
them in the Certificate of Designation. The initial persons to be appointed to
the Board on behalf of the holders of the Preferred Stock are Xxxxxx X. Xxxxxxx
and Xxxxxx X. Xxx. Messrs. Xxxxxxx and Fox will enjoy the same directors and
officers' liability insurance protection and indemnity rights as the other
directors and executive officers of Decorize enjoy from time to time. The
Company has provided a certificate of insurance evidencing its existing
directors and officers liability insurance coverage to Messrs. Xxxxxxx and Xxx.
5.05 Chief Executive Officer; Put Option. The Board will appoint Xx.
Xxxxxxx as President and Chief Executive Officer of the Company effective as of
the Closing, to serve in such capacity until his resignation, removal or
replacement by the Board. During the period in
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which Xx. Xxxxxxx serves as President and Chief Executive Officer of the
Company, he will be eligible to receive the same benefits (including, without
limitation, life insurance, disability insurance, health insurance and dental
insurance) that the Company's other executive officers are eligible to receive.
Xx. Xxxxxxx shall receive an initial annual salary during the first two years of
his term in an amount equal to $150,000. Any such payments made to Xx. Xxxxxxx
shall be made in accordance with the Company's standard payroll procedures,
subject to all applicable deductions. Any bonus paid to Xx. Xxxxxxx from time to
time, plus the salary and benefits payable to Xx. Xxxxxxx for any period
following his initial two-year term, shall be determined by the Compensation
Committee of the Board.
Purchaser agrees that for so long as Xx. Xxxxxxx continues to serve as
President and CEO of the Company, the Company shall have the sole right and
option to require Purchaser to purchase from the Company for cash a number of
shares of Common Stock having an aggregate Market Price, on the date of
issuance, equal to the amount necessary for the Company to fund its expenditures
from Xx. Xxxxxxx'x compensation and benefits, but not exceeding $37,500 in any
quarter, on the first day of each fiscal quarter beginning on January 1, 2004
(such issuance being on the Closing Date). The Company shall give notice of its
exercise of such option for any quarter no later than the third business day
preceding the first day of the quarter, on which date the shares shall be issued
and sold to Purchaser. Upon the issuance of such shares of Common Stock, they
will be validly issued, fully paid and non-assessable, free and clear of any and
all liens, charges, claims or encumbrances.
5.06 Management Fee. The Company shall pay a management fee in the amount
of $2,500 per month to Quest during the period commencing on the Closing Date
and continuing until the later of (a) the date that is eighteen (18) months
after the Closing Date, and (b) the date on which Xx. Xxx ceases to serve as a
director of the Company. These payments shall be in lieu of any payments that
are due now or from time to time in the future pursuant to the letter agreement
dated November 19, 2002.
5.07 Option Grants. Using the form of option agreement attached to this
Agreement as Exhibit H:
(a) At the Closing Xx. Xxxxxxx and Xx. Xxx shall be granted options
under the 1999 Decorize, Inc. Equity Incentive Plan, a complete and
accurate copy of which is filed as an exhibit to the Form SB-2 filed on
September 29, 1999 (File No. 000-88083) (the "Plan"), to purchase 125,000
shares and 25,000 shares, respectively, of Common Stock at a price equal to
$1.40 per share, which options shall expire on the third anniversary of the
Closing. The form of Option Agreements are attached as Exhibit G to this
Agreement. The holder of Preferred Stock will be granted the right to
approve any amendments to the Plan by the Certificate of Designation to the
extent required by Delaware law or the rules and regulations of AMEX or the
SEC.
(b) If the Company achieves positive earnings before tax, determined
by the certified public accountants in charge of the Company's audit in
accordance with generally accepted accounting principles consistently
applied ("EBT") for two consecutive quarters, then effective as of the end
of the second consecutive quarter the Company shall grant options to Xx.
Xxxxxxx to purchase an additional 75,000 shares of
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Common Stock at the Market Price per share of the Common Stock as of the
end of the second consecutive quarter. These options will expire on the
third anniversary of their issuance.
(c) Right to Subscribe. If the Company achieves positive EBT for three
consecutive quarters (which three quarters may include the two consecutive
quarters described in (b) above), then effective as of the end of the third
consecutive quarter the Company shall grant options to Xx. Xxxxxxx to
purchase an additional 75,000 shares of Common Stock, and options to Xx.
Xxx to purchase an additional 25,000 shares of Common Stock, in each case
at the Market Price per share of the Common Stock as of the end of the
third consecutive quarter. These options will expire on the third
anniversary of their issuance.
(d) Registration of Option Shares. The Company represents and warrants
to Purchaser that, the shares of Common Stock issuable upon exercise of the
stock options described in Section 5.07(a) above are the subject of an
effective Registration Statement on Form S-8 (File No. 333-111058) filed by
the Company with the SEC.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER AT THE CLOSING
The obligation of Purchaser to purchase the Shares and the Warrants at the
Closing shall be subject to the fulfillment on or prior to the Closing Date of
the following conditions, any one or more of which may be waived by Purchaser:
6.01 Closing Documents. The Company shall have delivered to Purchaser this
Agreement, the certificate representing the Shares, the certificates
representing the Warrants, the Registration Rights Agreement and all other
documentation required by this Agreement relating to the transactions
contemplated hereby, all duly executed by the Company.
6.02 Representations and Warranties; Performance of Obligations. The
representations and warranties made by the Company in this Agreement and in any
other Closing Document shall be true and correct when made, and shall be true
and correct in all material respects on the Closing Date with the same force and
effect as if they had been made on and as of said date, except for
representations and warranties made as of a specific date which shall be true
and correct as of such date. The Company shall have performed, satisfied and
complied with all obligations and conditions required to be performed or
observed by it under this Agreement or any other Closing Document on or prior to
the Closing Date.
6.03 Consents and Waivers. The Company shall have made all filings and
obtained any and all consents (including, without limitation, all governmental
or regulatory consents), approvals or authorizations, permits and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement and any other Closing Document. The Company shall have delivered
to Purchaser and to Quest the resolutions of the Company's Board of Directors
authorizing and approving the transactions contemplated under this Agreement,
certified as of the Closing Date by the Company's Secretary.
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6.04 No Litigation or Legislation. No federal, state or local statute,
rule, regulation, decree, ruling or injunction shall have been enacted or
entered, and no litigation, proceeding, government inquiry or investigation
shall be pending, which challenges, prohibits or restricts, or seeks to prohibit
or restrict, the consummation of the transactions contemplated by this Agreement
or any other Closing Document, or restricts or impairs the ability of Purchaser
to own an equity interest in the Company.
6.05 Compliance Certificate. The Company shall have delivered to Purchaser
a certificate, executed by the President of the Company, dated as of the Closing
Date, certifying to the fulfillment of the conditions set forth in Sections
6.02, 6.03 and 6.04.
6.06 Incumbancy Certificate. The Company shall have delivered to Purchaser
a certificate, executed by the Company's Secretary and dated as of the Closing,
certifying as to the authority and signatures of the individuals signing this
Agreement and the documents the Company is to deliver to Purchaser or to Quest
at the Closing.
6.07 Opinion of Counsel. Purchaser shall have received from Xxxxxxx &
Xxxxxx, P.C., counsel to the Company, an opinion addressed to Purchaser, dated
as of the Closing Date, in substantially the form attached hereto as Exhibit H.
6.08 Appointments. Effective as of the Closing, the Company shall have
named Xxxxxx X. Xxxxxxx as its President and Chief Executive Officer and the
Board shall have appointed Xxxxxx X. Xxxxxxx and Xxxxxx X. Xxx to the Board, as
the nominees of Purchaser.
6.09 Lock Up of Shares. Xxxxx X. Xxxxxxx, the current President and Chief
Executive Officer of the Company, shall have entered into a lock-up agreement
with the Company and Purchaser in form reasonably satisfactory to Purchaser that
restricts the sale of his shares of Common Stock for a period of two years and
grants Purchaser the right to vote his shares of Common Stock for two years with
respect to any sale of all the outstanding Common Stock or substantially all of
the assets of the Company or any merger or consolidation in which the Company
engages.
6.10 Company Debt. A portion of the outstanding debt owed by the Company to
Xxx Xxxxx, Xx. Xxxxxxx and Xxxxxxx Xxxxxx in the aggregate principal amount of
$1,000,500, shall have been converted into shares of Common Stock at a price
equal to $1.00 per share, and having such other terms as approved by the current
Board and reasonably acceptable to Purchaser. NEST USA, Inc. and the Company
shall have amended the terms of the outstanding promissory note issued to NEST
USA, Inc. on terms acceptable to Purchaser, including the conversion of a
portion of such debt into shares of Common Stock. The Company has provided
complete and accurate copies of the documentation of these conversions to
Purchaser.
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ARTICLE VII
CONDITIONS TO OBLIGATION OF THE COMPANY AT THE CLOSING
The obligation of the Company to sell and issue the Securities to Purchaser
at the Closing shall be subject to the fulfillment on or prior to the Closing
Date of the following conditions, any one or more of which may be waived by the
Company:
7.01 Purchase Price; Closing Documents. Purchaser shall have delivered the
purchase price for the Securities to be purchased by Purchaser hereunder.
Purchaser shall have delivered to the Company this Agreement and all related
documentation required by this Agreement or the transactions contemplated
hereby, all duly executed by Purchaser.
7.02 Representations and Warranties; Performance of Obligations. The
representations and warranties made by Purchaser in this Agreement shall be true
and correct when made, and shall be true and correct in all material respects on
the Closing Date with the same force and effect as if they had been made on and
as of said date. Purchaser shall have performed, satisfied and complied with all
obligations and conditions required to be performed or observed by it under this
Agreement or any other Closing Document on or prior to the Closing Date.
7.03 No Litigation or Legislation. No federal, state or local statute,
rule, regulation, decree, ruling or injunction shall have been enacted or
entered, and no litigation, proceeding, government inquiry or investigation
shall be pending, which challenges, prohibits or restricts, or seeks to prohibit
or restrict, the consummation of the transactions contemplated by this Agreement
or any other Closing Document, or restricts or impairs the ability of Purchaser
to own an equity interest in the Company.
ARTICLE VIII
MISCELLANEOUS
8.01 Waiver. No course of dealing between Purchaser and any other party
hereto or any failure or delay on the part of Purchaser in exercising any rights
or remedies under this Agreement or any of the Closing Documents shall operate
as a waiver of any rights or remedies of Purchaser. No single or partial
exercise of any rights or remedies under this Agreement or any of the Closing
Documents shall operate as a waiver or preclude the exercise of any other rights
or remedies hereunder or thereunder.
8.02 Survival of Covenants; Successors and Assigns. All representations and
warranties of the Company contained in this Agreement, in the Schedules, or in
any exhibit, certificate, document or instrument delivered pursuant to this
Agreement shall survive the Closing and shall continue in full force and effect
for three years after the Closing Date. The parties hereto understand and agree
that this Agreement contains obligations, agreements and covenants that are
intended to and shall continue after the Closing and except as otherwise
provided herein, all covenants, agreements and obligations made herein, in the
other Closing Documents and in certificates delivered in connection herewith or
on behalf of the Company, shall survive the execution and delivery of this
Agreement and shall bind and inure to the benefit
15
of the Company and its successors and assigns and the holders of the Securities
from time to time.
8.03 Notices. Any notice or communication to be given under this Agreement
must be in writing and given by (a) deposit in the United States mail, addressed
to the party to be notified, postage prepaid and registered or certified with
return receipt requested, (b) delivery in person or by courier service providing
evidence of delivery, or (c) transmission by telecopy. Each notice or
communication that is mailed, delivered, or transmitted in the manner described
above shall be deemed sufficiently given, served, sent, and received, in the
case of mailed notices, on the third business day following the date on which it
is mailed and, in the case of notices delivered by hand, courier service, or
telecopy, at such time as it is delivered to the addressee (with the delivery
receipt or the affidavit of messenger) or at such time as delivery is refused by
the addressee upon presentation. Any notice or communication under this
Agreement must be addressed as set forth on the signature pages to this
Agreement. Any party may change its address for notice by written notice to the
other parties hereto. Any notices delivered to Purchaser under this Agreement
must also be delivered to Purchaser's General Counsel at the address set forth
under Purchaser's name on the signature pages to this Agreement.
8.04 Descriptive Headings. The descriptive headings of this Agreement have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
8.05 GOVERNING LAW. THIS AGREEMENT, THE WARRANTS, THE OTHER CLOSING
DOCUMENTS AND THE OTHER INSTRUMENTS EXECUTED HEREUNDER, ARE PERFORMABLE IN
XXXXXX COUNTY, MISSOURI, AND SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH, UNDER AND GOVERNED BY, THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO
ITS CONFLICTS OF LAWS PROVISIONS. The parties irrevocably submit to the
exclusive jurisdiction of the state and federal courts located in Xxxxxx County,
Missouri for the purpose of any suit, action or other proceeding arising out of
or based on this Agreement, the Warrants, the other closing documents and the
other instruments executed under this Agreement, or their respective subject
matter. Each party, to the extent applicable law permits, waives, and will not
assert by way of motion, as a defense or otherwise, in any suit, action or
proceeding brought in the above-named courts, any claim that (a) it is not
subject personally to the jurisdiction of those courts, (b) the suit, action or
proceeding is brought in an inconvenient forum, (c) the venue of the suit,
action or proceeding is improper, or (d) any of these agreements and
instruments, or their respective subject matter, may not be enforced in or by
these courts.
8.06 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed an original and all
of which shall constitute the same instrument, but only one of which need be
produced.
8.07 Expenses. All expenses, including (without limitation) attorneys' and
accountants' fees incurred or to be paid by the Company or Purchaser in
connection with the transactions contemplated by this Agreement shall be paid by
whichever of them incurred such expenses, as the case may be.
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8.08 Binding Effect. This Agreement shall be binding upon the parties
hereto, together with their respective executors, administrators, successors,
personal representatives, heirs and assigns.
8.09 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
8.10 Changes, Modifications or Waivers. 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 Company and
Purchaser.
8.11 Miscellaneous. No failure or delay on the part of any party in
exercising any right, power or remedy hereunder or under the Warrants shall
operate as a waiver thereof. The waiver by any party of a breach of any
provision of this Agreement or the Warrants shall not operate or be construed as
a waiver of any subsequent breach. No modification, amendment or termination
under this Agreement or the Warrants shall be valid unless evidenced by a
writing signed by Purchaser. This Agreement and the other Closing Documents
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all proposals and agreements, whether written or
oral, and all other communications between the parties relating to the subject
matter of this Agreement, the Shares or the Warrants. In the event that the
terms set forth in this Agreement and in the other Closing Documents conflict,
this Agreement shall control. The invalidity, illegality or unenforceability of
any provision of this Agreement or the other Closing Documents shall in no way
affect the validity, legality or enforceability of any other provision. This
Agreement and the other Closing Documents shall be binding upon and inure to the
benefit of the Company and Purchaser and their respective successors and
assigns.
8.12 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date (a) by
mutual written consent of the Company and Purchaser; or (b) by either the
Company or Purchaser if the transactions contemplated hereby shall not have been
consummated on or before the close of business on February 16, 2004. In the
event of termination of this Agreement as provided above, this Agreement shall
forthwith become of no further effect and there shall be no liability or
obligation on the part of any party.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as an instrument under seal and as of the date first above written.
THE COMPANY:
DECORIZE, INC.,
a Delaware corporation
By: /s/ Xxxx Xxxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxxx
Title: Executive Vice President
and Chief Financial Officer
Address: 0000 Xxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxx 00000
Attn: Chief Financial Officer
PURCHASER:
SRC HOLDINGS CORPORATION,
a Missouri corporation
By: /s/ Xxxx X. Xxxxx
------------------------------------
Name: Xxxx X. Xxxxx
Title: President
Address: 0000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Copy to: General Counsel
0000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
QUEST CAPITAL ALLIANCE, L.L.C.,
a Missouri limited liability company
By: /s/ Xxxxxx X. Xxx
------------------------------------
Name: Xxxxxx X. Xxx
Title: General Manager
Address: 0000 Xxxx Xxxxxxxx
Xxxxxxxxxxx, Xxxxxxxx 00000
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