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EXHIBIT 10.9
SERIES A CONVERTIBLE PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT
This Series A Convertible Preferred Stock and Warrant Purchase Agreement
(the "Agreement") is entered into as of June 30, 1998, by and among DuraSwitch
Industries, Inc., a Nevada corporation (the "Company") and Blackwater Capital
Partners, L.P., a Delaware limited partnership ("BCP") and Blackwater Capital
Group, LLC, a Delaware limited liability company ("BCG"). Collectively, BCP and
BCG are referred to herein as "Purchasers".
R E C I T A L S
A. The Company desires to sell, and BCP desires to buy, 2,143,321 shares of
the Company's Series A Convertible Preferred stock (the "Preferred
Shares"), which will be convertible into the same number of shares of
the Company's Common stock.
B. As an inducement for BCP to purchase the Preferred Shares, BCP has
requested that the Company issue to BCG and BCP each, warrants to
purchase 535,830 shares of the Company's common stock, and the
Company desires to accommodate BCP's request.
C. BCP has loaned US$250,000 to the Company, which is evidenced by a demand
promissory note in the same amount dated June 18, 1998 (the "Note"), and
BCP and the Company desire to cancel the Note as part of the
consideration for the Preferred Shares.
A G R E E M E N T
The parties agree as follows:
1. AGREEMENT TO EXCHANGE.
1.1 Sale and Purchase of Preferred Shares. The Company will sell and
issue to BCP, and BCP agrees to purchase from the Company, the
Preferred Shares in exchange for US$1,000,000.
1.2 Issuance of Warrants. As an inducement to purchase the Preferred
Shares, the Company will issue to BCG and BCP each, warrants to
purchase 535,830 shares of the Company's common stock exercisable
for $0.466565671 per share (the "Warrants"). The Warrants will be
in substantially the same form as Exhibit A attached to this
Agreement.
2. CLOSING, DELIVERY, PAYMENT AND EXCHANGE.
2.1 Closing Date. The Company's issuance of the Warrants and of
certificates evidencing the Preferred Shares and the BCP's
tendering of the payment for the Preferred Shares (the "Closing")
will take place at 1:00 p.m. on June 30, 1998, at the offices of
Xxxxxxx
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& Xxxxx, Xxx Xxxx Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx
00000 or at such other time or place as the Company and
Purchasers may mutually agree (the "Closing Date").
2.2 Delivery. At the Closing, the Company will deliver: (i) to BCP,
certificates representing the Preferred Shares; and (ii) to BCG
and BCP, the Warrants. At the Closing, BCP will deliver to the
Company: (i) US$750,000 payable in a cashier's check or via wire
transfer to an account designated by the Company; and (ii) the
original Note, which shall be deemed paid in full by the Company
upon the Closing Date. The Company shall immediately thereafter
pay US$80,000 to Duff & Xxxxxx Securities, LLC, a Delaware
limited liability company ("Duff & Xxxxxx").
2.3 Use of Funds. The Company must utilize the US$1,000,000 its
receives from BCP pursuant to this Agreement for expenses
associated with this transaction, working capital, audit fees,
legal fees, capital expenditures and payment of brokerage fees.
2.4 Amended Certificate and Bylaws. On or before the Closing Date,
the Company will amend its certificate of incorporation (the
"Amended Certificate") and Bylaws in the same forms as Exhibit B
and Exhibit C, respectively.
2.5 Put Option. If the Company receives more than an additional
US$1,000,000 in equity offerings from any source other than
Purchasers before June 15, 1999, BCP will have the option to
force the Company to purchase from BCP 50% of the Preferred
Shares purchased by BCP pursuant to this Agreement in exchange
for the greater of: (i) a lump sum of $800,000; or (ii) the
highest per-share price paid by such subsequent investors,
whichever is greater. BCP must give the Company notice of its
intent to exercise this option within 30 days after the Company
receives the funds from such equity offering.
2.6 Registration Rights. The Company grants to Purchasers certain
registration rights that are described further in the
Registration Rights Agreement between the Company and Purchasers
attached as Exhibit D and incorporated in this Agreement by
reference.
2.7 Corporate Governance. The Company will cause Xxxxxx X. Xxxxx to
be appointed to its Board of Directors to fill the current vacant
seat on the Board for the remainder of that seat's term, which
ends in the year 2001. The Company also will invite Xxxx X.
Xxxxxx Xx. and Xxxxx X. Xxxxxx to all Board meetings as
non-voting advisors to the Board for the period of time that Duff
& Xxxxxx is retained by the Company as an investment advisor.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchasers as follows:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada. The Company has all
requisite corporate power and authority to own and operate its
properties and assets, to execute and deliver this Agreement, to
issue and sell the Preferred Shares, Warrants and the common
stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants (the "Conversion Shares"), to carry out
the provisions of this Agreement, and to carry on its business as
presently conducted and as presently proposed to be conducted.
The Company is duly qualified and is authorized to do business
and is in good standing as a foreign corporation in all
jurisdictions in which the nature of its activities and of its
properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its
business.
3.2 Capitalization; Voting Rights. The authorized capital stock of the
Company, immediately after the Closing, will consist of 40,000,000
shares of common stock, 19,289,889 shares of which are issued and
outstanding, 6,800,000 shares of which are reserved for future
issuance as a result of the exercise of options and warrants and
upon conversion of preferred stock and the remainder are not
issued or outstanding; and 10,000,000 shares of preferred stock,
2,143,321 of which are designated Series A Convertible Preferred
Stock, 2,143,321 of which are issued and outstanding and the
reaminder of which are undesignated preferred stock, none of which
are issued or outstanding. All issued and outstanding shares of
the Company's common stock and preferred stock (i) have been duly
authorized and validly issued (ii) are fully paid and
nonassessable, and (iii) were issued in compliance with all
applicable state and federal laws concerning the issuance of
securities. The rights, preferences, privileges and restrictions
of the Preferred Shares will be as stated in the Amended
Certificate. When issued, the Preferred Shares and the Conversion
Shares will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances; provided, however, that
the Preferred Shares and the Conversion Shares may be subject to
restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required by such laws at
the time a transfer is proposed.
3.3 Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers, directors and shareholders
necessary for the authorization of this Agreement, the performance
of all obligations of the Company hereunder and thereunder at the
Closing and the authorization, sale, issuance and delivery of the
Preferred Shares pursuant to this Agreement and the Conversion
Shares pursuant to the Amended Certificate has been taken or will
be taken prior to the Closing. This Agreement, when executed and
delivered, will be valid and binding obligations of the
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Company enforceable in accordance with their terms, except: (i) as
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting
enforcement of creditors' rights; and (ii) general principles of
equity that restrict the availability of equitable remedies. The
sale of the Preferred Shares and the subsequent conversion of
Preferred Shares into Conversion Shares are not and will not be
subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
3.4 Offering Valid. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.3, the offer,
sale and issuance of the Preferred Shares and the Conversion
Shares will be exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). Neither
the Company nor any agent on its behalf has solicited or will
solicit any offers to sell or has offered to sell or will offer to
sell all or any part of the Preferred Shares to any person or
persons so as to bring the sale of such Preferred Shares by the
Company within the registration provisions of the Securities Act.
3.5 Filings with the SEC. To the knowledge of the Company's Board: (i)
the Company has made all filings with the Securities and Exchange
Commission (the "SEC") that it has been required by law to make
within the past three (3) years under the Securities Act of 1933,
as amended (the "Securities Act"), and the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (collectively, the
"Public Filings"); (ii) each of the Public Filings has complied
with the Securities Act and the Exchange Act in all material
respects; (iii) none of the Public Filings, as of their respective
dates, contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which
they were made, not misleading; (iv) the Company has delivered to
the Purchasers a correct and complete copy of the most recent
Public Filing (as amended to date); and (v) the Company is in
compliance with, in all material respects, the rules and
regulations of each stock exchange on which the Company's stock is
listed.
3.6 Financial Statements.
(a) To the knowledge of the Company's Board, the financial
statements (including any footnotes thereto) provided to
Purchasers have been prepared in accordance with GAAP,
applied on a consistent basis during the periods involved,
except as indicated in the notes thereto or, in the case
of unaudited statements, as permitted by Form 10-Q, and
fairly present the financial position of the Company as of
the dates thereof and the results of operations, changes
in stockholders' equity and cash flows for the periods
then ended (subject, in the case of the unaudited
statements, to recurring year end adjustments normal in
nature and amount and the absence of footnotes.)
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(b) Since January 1, 1998, the books and records of the Company
and any subsidiaries of the Company have been, and are
being, maintained in material compliance with applicable
legal and accounting requirements, and such books and
records accurately reflect in all material respects all
material transactions customarily reflected in such books
and records in respect of the business, assets, liabilities
and affairs of the Company on a consolidated basis.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.
Each Purchaser hereby represents and warrants to the Company as follows:
4.1 Requisite Power and Authority. Purchaser has all necessary power
and authority under all applicable provisions of law to execute
and deliver this Agreement and to carry out its provisions. All
action on Purchaser's part required for the lawful execution and
delivery of this Agreement has been or will be effectively taken
prior to the Closing. Upon its execution and delivery, the terms
of this Agreement will be valid and binding obligations of
Purchaser enforceable in accordance with its terms, except: (i)
as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting
enforcement of creditors' rights and (ii) general principles of
equity that restrict the availability of equitable remedies.
4.2 Consents. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or
filings with any governmental or banking authority on the part of
Purchaser required in connection with the consummation of the
transactions contemplated in the Agreement have been or will be
obtained prior to and be effective as of the Closing.
4.3 Investment Representations. Purchaser understands that the
Warrants, Preferred Shares and the Conversion Shares have not
been registered under the Securities Act or any applicable state
securities laws. Purchaser also understands that the Warrants and
Preferred Shares are being offered and sold pursuant to
exemptions from registration contained in the Securities Act and
applicable state securities laws based in part upon Purchaser's
representations contained in this Agreement.
(a) Purchasers Bears Economic Risk. Purchaser has substantial
experience in evaluating and investing in private
placement transactions involving securities of companies
similar to the Company, is capable of evaluating the
merits and risks of its investment in the Company and has
the analytical and financial capacity to protect its own
interests. Purchaser understands that it must bear the
economic risk of this investment indefinitely unless the
Warrants, Preferred Shares or the Conversion Shares are
registered pursuant to the Securities Act and applicable
state securities laws, or exemptions from such
registrations are available. Purchaser understands that
the Company has no present intention of registering
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the Warrants, Preferred Shares or the Conversion Shares.
Purchaser also understands that there is no assurance that
exemptions from registration under the Securities Act and
applicable state securities laws will be available and
that, even if available, such exemptions may not allow
Purchaser to transfer all or any portion of the Warrants,
Preferred Shares or the Conversion Shares under the
circumstances, in the amounts or at the times Purchaser
might propose.
(b) Acquisition for Own Account. Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own
accounts for investment only, and not with a view towards
their distribution.
(c) Purchasers Can Protect Its Interest. Purchaser represents
that by reason of its, or of its management's, business or
financial experience, Purchaser has the capacity to
protect their own interests in connection with the
transactions contemplated in this Agreement. Further,
Purchaser is aware of no publication of any advertisement
in connection with the transactions contemplated in this
Agreement.
(d) Accredited Investor. Purchaser represents it is an
"accredited investor" within the meaning of Regulation D
under the Securities Act.
(e) Company Information. Purchaser has received and read the
Company's financial statements and has had an opportunity
to discuss the Company's business, management and
financial affairs with directors, officers and management
of the Company and has had the opportunity to review the
Company's operations and facilities. Purchaser also has
been given the opportunity to ask all desired questions of
and received adequate answers from, the Company and its
management regarding the terms and conditions of this
investment.
5. COVENANTS.
The Company covenants and agrees that from and after the date of this
Agreement (except as otherwise provided herein, or unless each Purchaser has
given its prior written consent) so long as any Purchaser owns any shares of
Preferred Stock or any of the Warrants are outstanding:
5.1 Maintenance of Existence: Compliance with Law. The Company shall
preserve and maintain in good standing its corporate legal
existence and all of its rights, privileges and franchises which
are necessary to conduct its business as currently being
conducted.
5.2 Conduct of Businesses. The Company shall, and shall cause its
Subsidiaries to, conduct their businesses in the ordinary course,
consistent with the present conduct of
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their businesses, and will use their best efforts to maintain,
preserve and protect their assets and good-will.
5.3 Books and Records. The Company shall, and shall cause its
Subsidiaries to, keep adequate records and books of account with
respect to their business activities, in which proper entries,
reflecting all of their financial transactions, are made in
accordance with GAAP.
5.4 Issuance of Additional Preferred Stock. As long as any of the
Warrants shall remain outstanding, the Company shall not issue
any additional shares of preferred stock other than as dividends
on the Preferred Stock.
6. MISCELLANEOUS.
6.1 Governing Law and Venue. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of
the State of Arizona without reference to principles of conflict
of laws. The parties to this Agreement hereby consent to the
jurisdiction in personam of the Superior Court of the State of
Arizona, in and for the County of Maricopa or of the United
States District Court for the District of Arizona, in any legal
proceeding to enforce any obligations under this Agreement, and
agree that venue in Maricopa County is not inconvenient.
6.2 Survival. The representations, warranties, covenants and
agreements made in this Agreement will survive the closing of the
transactions contemplated by this Agreement.
6.3 Successors and Assigns. Except as otherwise expressly provided in
this Agreement, the provisions of this Agreement will inure to
the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the Company and
Purchasers.
6.4 Entire Agreement. This Agreement, its the Exhibits and Schedules
and the other documents delivered pursuant to it constitute the
full and entire understanding and agreement between the parties
with regard to the subjects of this Agreement and no party will
be liable or bound to any other in any manner by any
representations, warranties, covenants or agreements except as
specifically set forth herein and therein.
6.5 Separability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
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6.6 Amendment and Waiver. This Agreement may be amended or modified
only upon the written consent of all the parties. Any waiver,
permit, consent or approval of any kind or character of any
breach, default or noncompliance under this Agreement or under
the Amended Certificate or any waiver of any provisions or
conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, the Amended
Certificate, by-law, or otherwise afforded to any party, will be
cumulative and not alternative.
6.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon
any breach, default or noncompliance by another party under this
Agreement will impair any such right, power or remedy; nor will
it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any
similar breach, default or noncompliance occurring afterward.
6.8 Notices. All notices required or permitted under this Agreement
must be in writing and are deemed effectively given: (i) upon
personal delivery to the party to be notified; (ii) when sent by
confirmed facsimile and first class mail if sent during normal
business hours of the recipient, or if not, then on the next
business day; (iii) five days after having been sent by
registered or certified mail, return receipt requested, postage
prepaid; or (iv) one day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications must be sent
to the Company and Purchasers at the address as set forth on the
signature page of this Agreement or at such other address as the
Company or Purchasers may designate by 10 days advance notice to
the other parties to this Agreement in accordance with the notice
provisions in this Section.
6.9 Expenses. Each party shall pay its own costs, fees and expenses
with respect to the negotiation, execution, delivery and
performance of this Agreement.
6.10 Attorneys' Fees. If any dispute among the parties to this
Agreement results in litigation, the prevailing party in such
dispute is entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement, including without
limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
6.11 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
6.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
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6.13 Broker's Fees. The Company has paid a finder's fee to Duff &
Xxxxxx in connection with the transactions contemplated by this
Agreement. Purchasers represent and warrant that no agent,
broker, investment banker, person or firm acting on behalf of or
under the authority of such party is or will be entitled to any
broker's or finder's fee from the Company or any other commission
directly or indirectly from the Company in connection with the
transactions contemplated in this Agreement.
6.14 Attachments. The Exhibits and Schedules which are attached to
this Agreement are incorporated herein by this reference as if
fully set forth herein.
6.15 Facsimiles. This Agreement may be executed by manual or facsimile
signatures.
The Company and Purchasers have executed this Agreement as of the date
set forth in the first paragraph of this Agreement.
COMPANY:
DURASWITCH INDUSTRIES, INC.
000 Xxxxx Xxxx Xxxxx
Xxxx, Xxxxxxx 00000
Fax: 000-000-0000
/S/ R. Xxxxxx Xxxxxx
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R. Xxxxxx Xxxxxx, President
PURCHASERS:
BLACKWATER CAPITAL PARTNERS, L.P.
0000 Xxxxxxxx Xxxx
Xxxxxxxx, XX 00000
Fax: 000-000-0000
/s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, General Partner
BLACKWATER CAPITAL GROUP, LLC
0000 Xxxxxxxx Xxxx
Xxxxxxxx, XX 00000
Fax: 000-000-0000
/s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, General Partner
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