REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), entered into as of
June 9, 1997 by and between Silenus Limited, with offices at c/o Betuvo A.G.,
Xxxxxxxxxxxxx 00, Xxxxxxxx 0000, Xxx. (the "Buyer"), and Citadel Computer
Systems, Inc., Inc., a Delaware corporation with offices at 0000 Xxxxxx Xxxxx
Xxxx., Xxxxx 000, Xxxxxx, Xxxxx 00000, U. S. A. (the "Company").
W I T N E S S E T H:
WHEREAS, pursuant to a Offshore Securities Subscription Agreement, dated as
of the date hereof (the "Subscription Agreement"), by and between the Company
and the Buyer, the Company has agreed to sell and the Buyer has agreed to
purchase U.S. $1,125,000 of the Company's 8% Redeemable Convertible Notes due
June 9, 2000 (the "Notes") convertible into shares of the Company's common
stock, $0.01 par value (the "Shares");
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Buyer's agreement to enter into the Subscription Agreement, the Company has
agreed to provide the Buyer with certain registration rights with respect to the
Shares as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Subscription Agreement and
this Registration Rights Agreement, the Company and the Buyer agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean the Shares issued to Buyer or its
designee upon conversion of the Notes or upon any stock split, stock dividend,
recapitalization or similar event with respect to such Shares or the Shares
issued to Buyer or its designee upon the exercise of the warrants issued to the
Buyer by the Company pursuant to the Warrant dated the date hereof or upon any
stock split, stock dividend, recapitalization or similar event with respect to
such Shares. Registrable Securities shall not include the Notes or the
Warrants.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with Buyer's exercise of its registration rights under
this Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, reasonable fees and disbursements of one counsel to Holders
participating in the registration for a review of the Registration Statement and
related documents, and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for Holder not included with "Registration Expenses".
"Holder" shall include the Buyer and any permitted transferee of Notes,
Shares or Registrable Securities which have not been sold to the public to whom
the registration rights
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conferred by this Agreement have been transferred in compliance with Section
11 herein.
"Registration Statement" shall have the meaning set forth in Section 3(a)
herein.
"Regulation S" shall mean Regulation S as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Rule 144" shall mean Rule 144 under the Securities Act, as such rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"Securities Act" shall mean the United States Securities Act of 1933, as
amended.
2. CONDITIONS TO REGISTRATION REQUIREMENT. The Company's obligation
hereunder to register Registrable Securities shall arise in the event that
Company determines that it has no obligation to remove or instruct the transfer
agent to remove the restrictive legend pursuant to Section 10(d) of the Offshore
Securities Subscription Agreement dated the date hereof and the Holder has not
supplied an opinion of counsel to the contrary as provided in such Section (a
"Registration Trigger Event"). Notwithstanding the foregoing, it will not be
deemed a "Registration Trigger Event" to the extent that Holder desires to
engage in a distribution of the Registrable Securities which otherwise requires
registration under the Securities Act or in activity which otherwise deems
Holder to be a statutory underwriter under Section 5 of the Securities Act. In
the event that a Registration Trigger Event has occurred, then Holder shall be
entitled to require the Company to register all of Holder's Registrable
Securities in accordance with this Agreement.
3. REQUEST FOR REGISTRATION.
(a) Upon the occurrence of a Registration Trigger Event, if the Company
shall receive from a Holder (or, in the event there is more than one Holder as a
result of the issuance by the Company of the Notes, the Company shall receive
written notice from such Holders acting with respect to their rights under this
Agreement according to a vote of a majority-in-interest of the Holders) a
written request that the Company effect any registration with respect to any
Registrable Securities, the Company shall use its commercially reasonable
efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request in
the states specified in such request. Notwithstanding the foregoing, the
Company shall not be obligated hereunder to effect such registration unless the
proposed public offering price of the securities to be included in such
registration shall be at least $100,000 (before deducting underwriting discounts
and commissions).
Subject to the previous paragraph, the Company shall file (i) a
registration statement with the Commission pursuant to Rule 415 under the
Securities Act on Form S-3 under the Securities Act (or in the event that the
Company in ineligible to use such form, such other form as the Company is
eligible to use under the Securities Act) covering the Registrable Securities so
requested to be registered ("Registration Statement"); (ii) such state
securities filings as shall have been requested by the Holder; and (iii) any
required filings with The Nasdaq Stock Market, Inc. or exchange where the Shares
are traded, as soon as practicable, after receipt of the request of the Holder.
Thereafter the Company shall use its best efforts to have such Registration
Statement and other filings declared effective.
(b) (i) Subject to the conditions contained in Section 3(a) above, if the
Company fails to file a Registration Statement complying with the requirements
of this Agreement within 45 days from the date of receipt by the Company of the
Holder's written request (provided, however, that under the circumstances
described in 3(e)(i), (ii) or (iii) below
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the Company may have an additional 45 days thereafter to file such
Registration Statement by providing written notice to the Holders requesting
such registration indicating that the Company is diligently pursuing the
filing of such Registration Statement) or if such Registration Statement has
not become effective within 90 days from the date of filing thereof, the
Holder shall have, in addition to and without limiting any other rights it
may have at law, in equity or under the Notes, the Subscription Agreement, or
this Agreement (including the right to specific performance), the right to
receive, as liquidated damages, the payments as provided in subparagraph (ii)
of this section.
(ii) If after ninety (90) days from the date of filing of the Registration
Statement, the Registration Statement has not been declared effective by the
Commission because the Company (A) has been negligent in timely responding to
any comments from the Commission on the Registration Statement; (B) has failed
to use its commercially reasonable efforts to cause the Registration Statement
to be declared effective by the Commission; (C) has otherwise acted in bad faith
in honoring its commitment to cause the Registration Statement to be declared
effective; (D) has commenced a corporate action such as an acquisition, merger
divestiture, asset sale, reorganization or similar transaction; or (E) has filed
another Registration Statement (in addition to the Registration Statement
covering the Registrable Securities) with the Commission to issue public
securities in accordance with the Securities Act which does not include a
registration of the Registrable Securities, then the Company shall pay to the
Buyer an amount equal to 3% of the Initial Principal Amount (as defined in the
Note) in cash, for each 30-day period after the ninety (90) day period that such
Registration Statement is not effective (which payment shall be pro rata for any
period of less than 30 days). In addition to the foregoing, if after 180 days
from the date hereof the Registration Statement has not been declared effective
by the Commission due to any of the causes described in clauses (A) through (E)
of this paragraph 3(b)(ii), then at the option of such Holder, the Company shall
be required to redeem all the Notes held by such Holder at a redemption price
equal to 140% of the Initial Principal Amount of the Note plus accrued interest
thereon, together with all other payments due under this paragraph and under the
Note and the Agreement.
(iii) The Company acknowledges that its failure to register the
Registrable Securities in accordance with this Agreement will cause the
Holder to suffer damages in an amount that will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in this
Registration Rights Agreement a provision for liquidated damages. The
parties acknowledge and agree that the liquidated damages provisions set
forth above represent the parties' good faith effort to quantify such damages
and, as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty.
(iv) In computing the time periods provided in this paragraph 3(b), any
delays arising from the failure or refusal of any Holder to provide information
which the Company's counsel or the Commission states in writing is required for
inclusion on the Registration Statement within ten (10) days of a written
request by the Company to provide such information, shall increase the number of
days for the Company to act by a corresponding number.
(c) If there is more than one Holder, such Holders shall act with respect
to their rights under this Agreement according to the vote of a majority-in-
interest of the Holders.
(d) The Company shall make available for inspection by a representative or
representatives of the Holder, and any attorney or accountant retained by such
Holder, all financial and other records customary for such purposes, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such representative, attorney or accountant in connection with such
Registration Statement. The Holder will agree to keep all non-public
information supplied to it confidential until such information is included in a
Registration Statement which has been made publicly available.
(e) The Company shall not be obligated to keep such Registration Statement
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continuously effective for a period of more than two years from the date it is
declared effective by the Commission; provided, however, that if so requested by
the holders of a majority-in-interest of the Registrable Securities the Company
shall agree to extend the period for which the Registration Statement remains
effective to the same extent that "suspension periods" are imposed pursuant to
the next paragraph, but only so long as the then unsold Registrable Securities
covered by such Registration are too numerous to be sold under the volume
limitations of Rule 144 in any applicable three-month period by any holder.
Following the effectiveness of the Registration Statement pursuant to this
Agreement, the Company may, at any time, suspend the effectiveness of such
Registration Statement and sales thereunder for up to forty-five (45) days, as
appropriate (a "Suspension Period"), by giving notice to each holder (or
underwriter, if any) selling thereunder, if the Company shall have determined
that the Company may be required to disclose any material corporate development
which disclosure (i) may have a material adverse effect on the Company, (ii) may
have a material adverse affect on the transaction or matter to be disclosed, or
(iii) would be detrimental to the Company or its stockholders. Notwithstanding
the foregoing, no more than two Suspension Periods (I.E., ninety (90) days) may
occur in immediate succession, and the Company shall use its best efforts to
limit the duration and number of any suspension periods. Holder agrees (and
shall require that any underwriter agree) that, upon receipt of any notice from
the Company of any Suspension Period, Holder shall forthwith discontinue
disposition of shares covered by the Registration Statement and related
prospectus or other offering materials (the "Prospectus") until such Holder (i)
is advised in writing by the Company that the use of the applicable Prospectus
may be resumed, (ii) has received copies of a supplemental or omitted
Prospectus, if applicable, and (iii) has received copies of any additional or
supplemental filings which are incorporated or deemed to be incorporated by
reference in such Prospectus.
4. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance with registration
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses shall be borne by the Holder.
5. REGISTRATION ON FORM S-3. Although the Company shall use its
commercially reasonable efforts to qualify for registration on Form S-3 or any
comparable or successor form or forms, or in the event that the Company is
ineligible to use such form, such form as the Company is eligible to use under
the Securities Act, nothing in the Subscription Agreement or this Agreement is
intended to require the Company to pay dividends in order to use Form S-3.
6. REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep the Holder advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will use its best efforts to:
(a) Keep such Registration Statement effective for the period ending
twenty-four (24) months after the registration has been declared effective by
the Commission or until the Holder has completed the distribution described in
the Registration Statement relating thereto, whichever first occurs.
(b) Furnish such number of Prospectuses and other documents incident
thereto as the Holder from time to time may reasonably request.
7. INDEMNIFICATION.
(a) COMPANY INDEMNITY. The Company will indemnify the Holder, each of its
officers, directors and partners, and each person controlling Holder, within the
meaning of Section 15 of the Securities Act and the rules and regulations
thereunder with respect to which registration, qualification or compliance has
been effected pursuant to this Agreement, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any Prospectus,
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(including any related Registration Statement, notification or the like)
incident to any such registration, qualification or compliance, or based on
any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any
state securities law or in either case, any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or
compliance, and will reimburse the Holder, each of its officers, directors
and partners, and each person controlling such Holder, for any legal and any
other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, provided that
the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission based upon written information furnished to the
Company by Holder and stated to be specifically for use therein. The
indemnity agreement contained in this Section 7(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Company (which consent
will not be unreasonably withheld).
(b) HOLDER INDEMNITY. The Holder will, if Registrable Securities held by
it are included in the securities as to which such registration, qualification
or compliance is being effected, indemnify the Company, each of its directors,
officers, partners, and each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act and
the rules and regulations thereunder, each other Holder (if any), and each of
their officers, directors and partners, and each person controlling such other
Holder against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statement therein not misleading, and will reimburse
the Company and such other holders and their directors, officers and partners,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by Holder and stated to be specifically for use
therein, and provided that the maximum amount for which the Holder shall be
liable under this indemnity shall not exceed the net proceeds received by the
Holder from the sale of the Registrable Securities. The indemnity agreement
contained in this Section 7(b) shall not apply to amounts paid in settlement of
any such claims, losses, damages or liabilities if such settlement is effected
without the consent of Holder (which consent shall not be unreasonably
withheld).
(c) PROCEDURE. Each party entitled to indemnification under this Section
7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after the Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim in any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 7 except to the extent
that the Indemnifying Party is materially and adversely affected by such failure
to provide notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such
5
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
8. CONTRIBUTION. If the indemnification provided for in Section 7 herein
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such Indemnifying Party, in lieu of
indemnifying the Indemnified Party, shall contribute to the amount paid or
payable by the Indemnified Party as a result of such losses, claims, damages or
liabilities (i) as between the Company and the Holder on the one hand and the
underwriters on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Holder on the one hand or
underwriters, as the case may be, on the other from the offering of the
Registrable Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and of the
Holder or underwriters, as the case may be, on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations and (ii) as
between the Company on the one hand and the Holder on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
the Holder in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations.
The relative benefits received by the Company on the one hand and the
Holder or the underwriters, as the case may be, on the other shall be deemed to
be in the same proportion as the proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
from the initial sale of the Notes which can be converted into Registrable
Securities by the Company to the Holder pursuant to the Subscription Agreement
which corresponds to this Agreement bear to the gain realized by such Holder or
the total underwriting discounts and commissions received by the underwriters as
set forth in the table on the cover page of the prospectus, as the case may be.
The relative fault of the Company on the one hand and of the Holder or
underwriters, as the case may be, on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company, by the Holder or by the underwriters.
In no event shall the obligation of any Indemnifying Party to contribute
under this Section 8 exceed the amount that the Indemnifying Party would have
been obligated to pay by way of indemnification if the indemnification provided
for under Section 7(a) or 7(b) hereof had been available under the
circumstances.
The Company and the Holder agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by PRO RATA allocation
(even if the Holder or the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraphs.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraphs shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by the Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section, no Holder or underwriter shall
be required to contribute any amount in excess of the amount by which (i) in the
case of the Holder, the net proceeds received by the Holder from the sale of
Registrable Securities or (ii) in the case of an underwriter, the total price at
which the Registrable Securities purchased by it and distributed to the public
were offered to the public exceeds, in any such case, the amount of any damages
that the Holder or underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be
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entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
9. SURVIVAL. The indemnity and contribution agreements contained in
Sections 7 and 8 shall remain operative and in full force and effect regardless
of (i) any termination of the Subscription Agreement or any underwriting
agreement, (ii) any investigation made by or on behalf of any Indemnified Party
or by or on behalf of the Company and (iii) the consummation of the sale or
successive resales of the Registrable Securities.
10. INFORMATION BY HOLDER. The Holder shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement.
11. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights, granted to
Buyer by the Company under this Registration Rights Agreement, to cause the
Company to register Registrable Securities, may be transferred or assigned to a
transferee or assignee of not less than $50,000 in principal amount of Notes,
provided that the Company is given written notice by Holder at the time of or
within a reasonable time after said transfer or assignment, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned, and
provided further that the transferee or assignee of such rights is not deemed by
the board of directors of the Company, in its reasonable judgment, to be a
competitor of the Company; and provided further that the transferee or assignee
of such rights agrees to be bound by this Agreement.
Any action to be taken under this Agreement or any term of this Agreement
may be amended or waived only with written action by the Company and the holders
of at least a majority-in-interest of the total of the Registrable Securities.
Any action, amendment or waiver effected in accordance with this paragraph shall
be binding upon each of the other holders of Registrable Securities at the time
then outstanding.
12. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement of the parties, and may not be modified or terminated except by a
written agreement signed by both parties.
(b) NOTICES. Any notice or other communication given or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given
if personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid or by air courier, (a) if to Buyer, at its address
hereinabove set forth, (b) if to the Company, at its address hereinabove set
forth, and (c) if to a holder other than Buyer, at the address thereof furnished
by like notice to the Company, or (d) to any such addresses at such other
address or addresses as shall be so furnished to the other parties by like
notice.
(c) GENDER OF TERMS. All terms used herein shall be deemed to include the
feminine and the neuter, and the singular and the plural, as the context
requires.
(d) GOVERNING LAW; CONSENT OF JURISDICTION. This Agreement and the
validity and performance of the terms hereof shall be governed by and construed
in accordance with the laws
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of the State of Delaware. The parties hereto hereby consent to, and waive any
objection to the exercise of, personal jurisdiction in the State of Delaware
with respect to any action or proceeding arising out of this Agreement.
(e) TITLES. The titles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
(f) PROSPECTUS DELIVERY REQUIREMENTS. Holder agrees, on Holder's behalf,
and shall require any transferee or assignee pursuant to Section 11 above to
agree, to comply with all prospectus delivery requirements applicable to resales
of the securities pursuant to the Registration Statement.
(g) TERMINATION. The rights of Holder to require the Company to request a
registration pursuant to this Agreement shall terminate on the date which is
five (5) years from the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BUYER: CITADEL COMPUTER SYSTEMS INCORPORATED,
a Delaware Corporation
By:
----------------------------------- -------------------------------------
Name: Xxxxxx X. Xxxxxxx
--------------------------------- Chief Operating Officer
(Printed Name)
Title:
-------------------------------
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