EXHIBIT 99.1
FORM OF OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THE SECURITIES SUBSCRIBED FOR HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO OR
FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S) EXCEPT
PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT.
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
This Offshore Securities Subscription Agreement (the "Agreement"), dated
________ __, 1997, is entered into by and between Citadel Computer Systems,
Inc., a company incorporated in the state of Delaware (the "Company"), and
OFFSHORE NOMINEES LIMITED (the "Buyer").
The Company has offered for sale outside the United States (as that term is
defined in Regulation S ("Regulation S") under the Act up to 60 Units each Unit
consisting of a 5% Convertible Note due ___________, 2000 (the "Securities") of
original principal amount of $25,000, convertible into common stock of the
Company, together with warrants to purchase up to 5,000 shares of the Company's
common stock as set forth in the Warrant Agreement dated as of the date hereof
(together with the Securities (the "Units"). Buyer has been offered $1,500,000
in principal amount of the Securities. Interest on the Securities will be
payable as provided in the form of Convertible Note attached hereto as Annex A.
The terms on which the Securities may be converted into shares of the Company's
common stock (such shares underlying the Securities being referred to herein as
"Shares") and the other terms of the Securities are set forth in the Form of
Convertible Note attached as Annex A. Capitalized terms used herein and not
defined herein shall have the meanings given to them in Regulation S as the same
may be amended from time to time.
The parties hereto agree as follows:
1. Purchase and Sale of Securities. Upon the basis of the representations and
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warranties, and subject to the terms and conditions, set forth in this
Agreement, the Company covenants and agrees to sell to the Buyer on the Closing
Date (as hereinafter defined) $1,500,000 of the Securities at a price of 100% of
the original principal amount, and upon the basis of the representations and
warranties, and subject to the terms and conditions, set forth in this
Agreement, the Buyer covenants and agrees to purchase from the Company, on the
Closing Date $1,500,000 of the Securities of the Company at 100% of the original
principal amount.
2. Closing Instructions to Escrow Agent. (a) The closing of the purchase and
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sale of the Securities pursuant to Section 1 hereof shall take place on or
before ________ __, 1997 (the "Closing Date") after the Company has delivered to
the offices of First Bermuda Securities Limited (the "Escrow Agent") located at
Xxxxxxx Xxxxx, 0xx Xxxxx, 33/35 Xxxx Street, Xxxxxxxx, XX 12 Bermuda,
Convertible Notes (each a "Convertible Note") representing the Securities in
denominations of not less than $25,000, registered in the name of the Buyer
(representing the maximum amount of Securities to be purchased by the Buyer
hereunder) and Warrants (as defined below) registered in the name of the Buyer.
(b) The Company and the Buyer agree that they shall instruct the Escrow
Agent as provided in Annex B and as follows:
(i) On the Closing Date, for each Convertible Note subscribed for and
delivered to the Escrow Agent pursuant to paragraph 2(a) above, the Escrow Agent
shall, upon confirmation in the form of a federal funds wire number that First
Bermuda Securities Limited has wired payment of the aggregate purchase price for
the Securities (less any fees the Company has authorized Escrow Agent to deduct)
in immediately available funds to the Company's account as provided in the
escrow instructions attached as Annex B, release the Securities described in
paragraph 2(a) above. The Escrow Agent shall return to the Company any
Convertible Notes and Warrants that the Buyer does not purchase on the Closing
Date. If the closing shall not have taken place by ________ __, 1997, this
Agreement shall terminate.
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(ii) The Escrow Agent will make delivery of the number of Convertible
Notes set forth in clause (2a) above in accordance with the instructions of the
Buyer subject to customary settlement procedures upon confirmation of the wiring
of funds to the Company as described in clause 2(b)(i) above, except that all
such Convertible Notes and the Warrants shall be delivered to a location outside
the United States and none of the Convertible Notes or Warrants shall be
delivered to a U.S. Person (as defined in Regulation S).
3. Representations and Warranties of the Buyer: The Buyer understands and
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represents and warrants to, and agrees with the Company that:
(a) The Buyer understands that no federal or state agency has passed on, or
made any recommendation or endorsement of the Securities.
(b) The Buyer acknowledges that, in making the decision to purchase the
Securities, it has relied solely upon independent investigations made by it and
not upon any representations made by the Company with respect to the Company or
the Securities, except for the representations and warranties in this Agreement,
the Convertible Note, the Warrant, the Registration Rights Agreement and the
Officer Certificate (as defined below), except that the Buyer has received,
reviewed and relied upon the Opinion of Counsel (as defined below) and copies of
the report on Form 10-QSB for the quarter ended November 30, 1996, the report
Form 10-KSB for the year ended February 29, 1996, filed by the Company pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and all
other filings, including filings on Form 8-K, under the Exchange Act since
February 28, 1996, which, together with any filings by Company after the date
hereof and prior the Closing, are defined as "Exchange Act Reports".
(c) The Buyer understands that the Securities are being offered and sold to
it in reliance on specific exemptions from or non-application of the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the applicability of such exemptions and the
suitability of the Buyer to acquire the Securities.
(d) The Buyer is not a U.S. Person (as defined in Regulation S) and is not
and will not be an affiliate (as defined in the Exchange Act) of the Company.
To enable the Company to avoid withholding interest paid, the Buyer certifies
under penalty of perjury that it is neither a citizen nor a resident of the
United States and that its address set forth in the Escrow Agreement is correct.
(e) No public offer or solicitation of the Securities or the Shares
issuable on conversion of the Securities was made to the Buyer and no offer of
the Securities or the Shares issuable on conversion of the Securities was made
to the Buyer while the Buyer was present in the United States.
(f) At the time the buy order for the Securities was originated the Buyer
was located outside the United States and is outside the United States on the
date of the execution and delivery of this agreement and will be outside the
United States on the Closing Date.
(g) The Buyer is aware that the Securities and the Shares issuable upon
exercise of conversion rights have not been and will not be registered under the
Act (except as may be required under the Registration Rights Agreement) and may
only be offered or sold pursuant to registration under the Act or an available
exemption therefrom and Buyer has not, and will not, engage in any public
offering or distribution of the Securities or the Shares.
(h) The Buyer (i) will not, during the period commencing on the Closing
Date and ending 40 days after the Closing Date (the "Restricted Period"), offer
or sell or agree to sell the Securities in the United States, to a U.S. Person
or for the account or benefit of a U.S. Person or other than in accordance with
Rule 903 or 904, as applicable, of Regulation S, and (ii) will, after the
expiration of the Restricted Period, offer, sell, pledge or otherwise transfer
the Securities or the common stock issuable upon the exercise of conversion
rights only pursuant to registration under the Act or an available exemption
therefrom and, in any case, in accordance with applicable federal and state
securities laws.
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(i) The Buyer and its affiliates have been advised of and are familiar
with, have complied, and will comply, with the offering restrictions, and any
other requirements, of Regulation S.
(j) The transactions contemplated by this Agreement (i) have not been pre-
arranged by the Buyer with a purchaser located in the United States which is a
U.S. Person, and (ii) are not part of a plan or scheme by the Buyer to evade the
registration provisions of the Act.
(k) The Buyer is an "accredited investor" as defined in the Act and will be
purchasing the Securities for its account for the purpose of investment and not
(i) with a view to, or for sale in connection with, any distribution thereof or
(ii) for the account or on behalf of any U.S. Person.
(l) Neither the Buyer nor any of its affiliates has entered, has the
intention of entering, or will during the Restricted Period enter into, with any
U.S. Person, any put option, short position or other similar instrument or
position with respect to the Securities or securities into which the Securities
are convertible or participate in any other attempt designed to lower the
trading prices of the Company's common stock.
(m) The Buyer shall indemnify the Company against any loss, cost or damages
(including reasonable attorney's fees and expenses) incurred as a result of the
Buyer's breach of any representation, warranty, covenant or agreement in this
Agreement.
4. Registration Rights; Warrants. On or prior to the Closing Date, the
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Company and Buyer agree to execute a Registration Rights Agreement (the
"Registration Rights Agreement") and a Warrant (the "Warrant") in the forms
substantially set out in Annex C and Annex D attached hereto, respectively.
5. Conversion of Securities. The Securities may be converted into the Shares,
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as herein defined, at the option of the holder thereof under the terms set forth
in the Form of Convertible Note, attached hereto as Annex A.
6. Representations and Warranties of the Company. The Company represents and
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warrants to, and agrees with, the Buyer that:
(a) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware.
(b) This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; and the Company
has full corporate power and authority necessary to enter into this Agreement
and to perform its obligations thereunder.
(c) No consent, approval, authorization or order of any court, governmental
agency or body or arbitrator having jurisdiction over the Company or any of its
affiliates is required for execution of this Agreement, including, without
limitation, the issuance and sale of the Securities, or the performance of its
obligations hereunder.
(d) Neither the sale of Securities pursuant to, nor the performance of its
obligations under this Agreement by the Company will (i) violate, conflict with,
result in a breach of, or constitute a default (or an event which with the
giving of notice or the lapse of time or both would be reasonably likely to
constitute a default) under (A) the certificate of incorporation, charter or by-
laws of the Company or any of its affiliates, (B) any decree, judgment, order,
law, treaty, rule, regulation or determination applicable to the Company or any
of its affiliates of any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or any of its affiliates or over the
properties or assets of the Company or any of its affiliates, (C) the terms of
any bond, debenture, note or any other evidence of indebtedness, or any material
agreement, stock option or other similar plan, indenture, lease, mortgage, deed
of trust or other material instrument to which the Company or any of its
affiliates is a party, by which the Company or any of its affiliates is bound,
or to which any of the properties of the Company or any of its affiliates is
subject, or (D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company or any of its
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affiliates is a party to; or (ii) result in the creation or imposition of any
lien, charge or encumbrance upon the Securities or any of the assets of the
Company or any of its affiliates.
(e) The Company has an authorized capitalization consisting of 30,000,000
shares of common stock, par value $.01 per share (the "Common Stock"), and
1,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock"). The Company has issued and outstanding __________________ shares of
Common Stock and 570 shares of Preferred Stock as of ________ __, 1997. All of
the issued shares of capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable; prior to the Closing
Date, the authorized capitalization shall include the Shares to be issued upon
conversion of the Securities. The shares of Common Stock issuable upon
conversion of the Securities, when issued and delivered in accordance with the
terms of the Securities, will be duly and validly issued, fully paid and non-
assessable. The issuance of the Shares will not be in violation of any
preemptive or similar rights of the holders of any securities of the Company.
The Securities (i) are free and clear of any security interests, liens, claims
or other encumbrances, (ii) have been duly and validly authorized and on the
Closing Date will be duly and validly issued, fully paid and non assessable,
(iii) will not have been, individually and collectively, issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company and (iv) will not subject the holders thereof to
personal liability by reason of being such holders. The Common Stock underlying
the Securities is quoted on, and will be, following the completion of the
Restricted Period (if sold in accordance with the provisions of this Agreement,
applicable securities law and Regulation S as then in effect), eligible for
trading on, The National Association of Securities Dealers Inc. Electronic
Bulletin Board ("NASDAQ").
(f) The Company is a Reporting Issuer (as defined in Regulation S) because
it has a class of securities registered pursuant to Section 12(g) of the
Exchange Act and has filed all the material required to be filed pursuant to
Section 13(a) of the Exchange Act for a period of at least twelve (12) months
preceding the date of this Agreement. The Common Stock is listed on NASDAQ and
the Company has received no notice, oral or written, with respect to its
continued eligibility for such listing. The Company hereby agrees, promptly
following the Closing of the transactions contemplated by this Agreement, to
take such action as is necessary to cause the Shares issued upon exercise of
conversion rights under the Convertible Notes to be listed on NASDAQ upon such
conversion following expiration of the Restricted Period (subject, if required,
to notice to NASDAQ of the actual number of shares issued). The Company further
agrees, if the Company applies to have the Common Stock traded on any other
principal stock exchange or market, it will include in such application the
Shares and will take such other action as is necessary or desirable to cause the
Shares to be listed on such other exchange or market upon expiration of the
Restricted Period.
(g) The Exchange Act Reports are the only filings made by the Company since
February 29, 1996 pursuant to Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act, and the Company will cause its Common Stock to continue to be
registered under Section 12(g) or 12(b) of the Securities Exchange Act of 1934,
will comply in all respects with its reporting and filing obligations under said
Act, and will not take any action or file any document (whether or not permitted
by said Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Act.
The Company will take all action necessary to continue the listing and trading
of its Common Stock on NASDAQ and will comply in all respects with the Company's
reporting, filing and other obligations under the by-laws or rules of the NASD
and NASDAQ.
(h) The Company has the requisite corporate power to own its properties and
to carry on its business as now being conducted. The Company is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary other than those in which the failure so
to qualify would not have a Material Adverse Effect. "Material Adverse Effect"
means any adverse effect on the business, operations, properties, prospects, or
financial condition of the entity with respect to which such term is used and
which is material to such entity.
(i) The Company has furnished or made available to the Buyer true and
correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof (the "Certificate of Incorporation"), and the Company's By-Laws, as
in effect on the date hereof (the "By-Laws").
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(j) The Company has delivered or made available to the Buyer true and
complete copies of the Exchange Act Reports (including, without limitation,
proxy information and solicitation materials excluding any preliminary proxy not
distributed). The Company has not provided to the Buyer any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed. As of their
respective dates, the Exchange Act Reports complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
SEC promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such Exchange Act Reports, and none of the Exchange
Act Reports 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. The financial statements of the Company included in the
Exchange Act Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(k) Except as set forth in the financial statements and other documents
filed by the Company under the Exchange Act, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to November 30, 1996, and (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 individually or in the aggregate, are not material
to the financial condition or operating results of the Company. The Company has
not provided to the Buyer any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but which
has not been so disclosed.
(l) Since November 30, 1996 there has been no material adverse change and
no material adverse development in the business, properties, operations,
financial condition, results of operations or prospects of the Company, except
as disclosed in accordance with the Exchange Act Reports.
(m) There is no material action, suit, proceeding, inquiry or to the
knowledge of the Company or any of its subsidiaries, investigation before or by
any court, public board, government agency, self-regulatory organization or body
pending, or to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company or any of its subsidiaries other
than as set forth in the Exchange Act Reports.
(n) Neither the Company, nor any or its affiliates, nor any person acting
on its or their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under circumstances
that would require registration of the Securities under the Act.
(o) The Company has taken no action which would give rise to any claim by
any person for brokerage commissions, finder's fees or similar payments by the
Buyer relating to this Agreement or the transactions contemplated hereby, except
for dealings with First Bermuda Securities Limited, whose commissions and fees
will be paid for by the Company.
(p) As of the date hereof, the Company has reserved and the Company shall
continue to reserve and keep available at all times, free of preemptive rights,
shares of Common Stock for the purpose of enabling the Company to satisfy any
obligation to issue shares of its Common Stock upon conversion of the
Securities; provided, however, that the number of shares so reserved shall at
all times be at least 1,800,000 in aggregate for purposes of conversion of the
Securities and exercise of the Warrants. The number of shares so reserved may
be reduced by the number of shares actually delivered pursuant to the conversion
of the Securities and exercise of the Warrants (provided that in no event shall
the number of shares so reserved be less than the number required to satisfy the
remaining conversion rights on the unconverted Securities or exercise rights on
the exercised Warrants) and the number of shares so reserved
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shall be increased to reflect stock splits and stock dividends and
distributions.
(q) No legend has been or shall be placed on the Securities or share
certificates representing the Securities or Shares and no note or stock transfer
instructions have been or shall be given to the Company's transfer agent with
respect thereto other than as set forth in Section 10.
(r) Based upon the truth and accuracy of the representations and warranties
made by the Buyer, the sale of the Securities pursuant to this Agreement will be
made in accordance with the provisions and requirements of Regulation S and
applicable state law.
(s) No offer to sell the Securities was made by the Company to any person
in the United States.
(t) None of the Company, any affiliate of the Company, or any person acting
on behalf of the Company or any such affiliate has engaged, or will engage, in
any Directed Selling Efforts as that term is defined in Regulation S with
respect to the Securities nor any general solicitation of the Securities.
(u) The transactions contemplated by this Agreement (i) have not been pre-
arranged with a purchaser who is in the United States or is a U.S. Person, and
(ii) are not part of a plan or scheme to evade the registration provisions of
the Act.
(v) The Company undertakes and agrees to make all necessary filings in
connection with this offering as required by the laws and regulations of all
appropriate jurisdictions and securities exchanges in the United States of
America.
(w) The Company shall indemnify the Holder against any loss, cost or
damages (including reasonable attorney's fees and expenses) incurred as a result
of the Company's breach of any representation, warranty, covenant or agreement
in this Agreement.
7. Offering Materials. All offering materials and documents used in
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connection with the offers and sales of the Securities prior to the expiration
of the Restricted Period include statements to the effect that the Securities
and the Shares issuable upon the exercise of conversion rights have not been
registered under the Act and that the Buyer, may not directly or indirectly
offer or sell the Securities or such shares in the United States or to a U.S.
Persons (other than distributors) unless the Securities or shares are registered
under the Act, or an exemption from the registration requirements of the Act is
available. Such statements shall appear (1) on the cover of any prospectus or
offering circular used in connection with the offer or sale of the Securities
and (2) in the placement section of any prospectus or offering circular used in
connection with the offer or sale of the Securities. Buyer represents that all
offering materials and documents received by it in connection with the offers
and sales of the Securities prior to the Closing of the transactions
contemplated herein have complied with the foregoing. Nothing contained in this
Section 7 shall negate or detract from any of the representations, warranties
and agreements of Buyer contained in Section 3 above.
8. Covenants of the Company. (a) The Company covenants and agrees that
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during the period beginning on the date hereof and ending 90 days following the
Closing Date, the Company will not, without the prior written consent of a
"Majority-in-interest" of the Buyers, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) pursuant to the exemption from the registration requirements of
Regulation S (the "Future Offerings"). In addition, the Company will not
conduct any Future Offerings during the period beginning on the 90/th/ day
following the date hereof and ending 180 days following the Closing Date unless
it shall have first delivered to the Buyer at least ten (10) business days prior
to the closing of such Future Offering, written notice describing the proposed
Future Offering, including the terms and conditions thereof, and providing the
Buyer an option during such ten (10) day period to purchase all or any portion
of its "pro-rata" share of the securities being offered in the Future Offerings
on the same terms as contemplated by such Future Offering (the limitations
referred to in this and the immediately preceding sentence are collectively
referred to as the "Capital Raising Limitation"). The Capital Raising
Limitation shall not apply to any transaction involving the Company's commercial
banking arrangements or issuances of securities in connection with a merger,
consolidation or sale of assets, or in connection with any strategic partnership
or joint venture (the primary
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purpose of which is not to raise equity capital), or in connection with the
disposition or acquisition of a business, product or license by the Company (so
long as the securities so issued are "restricted securities" within the meaning
of Rule 144 under the 1933 Act and do not carry registration or piggy back
rights for at least 360 days from the date of this Agreement), the issuance of
securities to settle securities litigation, or exercise of options by or the
grant of performance shares to employees, consultants or directors. The terms
(i) "majority-in-interest" means Holders of 5% Convertible Notes holding more
than 50% of the Common Stock underlying the Securities (treating the Securities
on an as converted basis) and (ii) "pro-rata share" means the principal amount
of the Securities initially purchased divided by the aggregate principal amount
of all Securities sold hereunder.
(b) The parties shall use their best efforts timely to satisfy each of the
conditions described in Section 9 of this Agreement.
(c) So long as the Buyer beneficially owns any of the Securities, the
Company shall timely file all reports required to be filed with the SEC pursuant
to the Exchange Act, and 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 thereunder would permit such termination, except in the
event of a merger, consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for trading on the
AMEX, the NYSE or the NASDAQ.
(d) At Buyer's request, the Company agrees to send the following reports to
Buyer until Buyer transfers, assigns, or sells all of the Securities: (i) within
ten (10) days after the filing with the SEC, a copy of its Annual Report on Form
10-KSB, its Quarterly Reports on Form 10-QSB and any Current Reports on Form 8-
K; and (ii) within two (2) business days after release, copies of all press
releases issued by the Company or any of its subsidiaries.
(e) The Company shall at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the full conversion of the outstanding Securities and issuance of the Shares
in connection therewith (based on the conversion price of the Securities in
effect from time to time). In that regard, on the Closing Date, the Company
shall have at least 1,800,000 shares reserved for issuance upon conversion of
the Securities and the exercise of the Warrants (subject to adjustment in order
to comply with the immediately preceding sentence); provided that the Company
shall not reduce the number of shares of Common Stock reserved for issuance upon
conversion of the Securities and the exercise of the Warrants without the
consent of a majority-in-interest of the buyers of the Securities, which consent
will not be unreasonably withheld.
(f) So long as the Buyer beneficially owns any Securities, the Company
shall maintain its corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the Company's assets, as
long as the surviving or successor entity in such transaction (i) assumes the
Company's obligations hereunder and under the agreements and instruments entered
into in connection herewith and (ii) is a publicly traded corporation whose
Common Stock is listed for trading on the AMEX, the NYSE or the NASDAQ.
(g) The Company and the Buyer agree that the Closing Date, when certified
by Escrow Agent as the Closing shall be deemed to be a conclusion of the
offering of the Securities contemplated hereby. The Company acknowledges and
agrees that, for purposes of clarifying and specifying the applicable Restricted
Period under Regulation S, the Buyer intends to observe as the Restricted Period
(as defined in Regulation S) for the Securities, the period of 40 days
commencing on the Closing Date and ending 40 days thereafter.
(h) The Shares issued upon conversion of the Securities and the
certificates evidencing the same shall at all times be free of legends (except
as provided in Section 10 below), "stock transfer restrictions," or other
restrictions, except as expressly set forth in this Agreement and the
Convertible Note.
9. Conditions Precedent to the Buyer's Obligation. The obligations of the
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Buyer hereunder are subject
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to the performance by the Company of the following additional conditions
precedent:
(a) The Buyer shall receive, on the Closing Date, an opinion of counsel to
the Company, dated the Closing Date, as to the representations made by the
Company in Sections 6(a) through and including 6(f) and in Sections 6(m) and
6(n) hereof, and such other matters as Buyer reasonably requests (collectively,
the "Opinion of Counsel"). The form of the Opinion of Counsel shall be as set
forth in Exhibit 1 hereof.
(b) Delivery of the notes representing the Securities with restrictive
legends to the Escrow Agent as set forth herein.
(c) The Company shall have delivered to the Buyer a certificate (the
"Officer Certificate") in form and substance reasonably satisfactory to the
Buyer, executed by an executive officer of the Company, to the effect that all
the conditions to the Closing shall have been satisfied and the representations
and warranties of the Company herein are true and correct as of the date when
made and as of the Closing Date, and certifying as to the Company's Certificate
of Incorporation, By-Laws, resolutions authorizing transaction, and incumbency
of Company officers.
(d) The Company and the Buyer shall have entered into the Registration
Rights Agreement and the Warrant as contemplated by Section 4.
10. Legends. (a) The certificates representing the Securities, and the Shares
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issued during the Restricted Period, shall bear the following legend (the
"Legend"):
"The securities represented hereby have been issued pursuant to Regulation
S promulgated under the Securities Act of 1933, as amended (the "1933
Act"), and have not been registered under the 1933 Act. Such securities
may not be transferred, offered or sold prior to the end of the forty (40)
day period (the "Restricted Period") commencing on ________ __, 1997 unless
such transfer, offer or sale is made in an "offshore transaction" and not
to or for the account of or benefit of a "U.S. Person" (as such terms are
defined in Regulation S) and is otherwise in accordance with the
requirements of Regulation S. Following the expiration of the Restricted
Period, the securities represented hereby may not be offered, sold or
otherwise transferred in the United States or to a U.S. Person unless the
securities are registered under the 1933 Act and applicable state
securities laws, or such offers, sales and transfers are made pursuant to
an available exemption from the registration requirements of those laws."
(b) Following the expiration of the Restricted Period, and subject to
Section 10(d) below, the Company will remove or will promptly instruct its
transfer agent to remove the Legend from the Shares issued during the Restricted
Period (and will instruct its transfer agent to issue without the Legend, the
Shares issuable upon any conversion or exercise occurring after the Restricted
Period), if the Buyer holding such Securities or any other person in whose name
the certificates have been or are to be validly and legally issued shall have
delivered a certificate (a "Removal Certificate") to the Company to the
following effect:
"The undersigned acknowledges that the securities to which this certificate
relates have not been registered under Securities Act of 1933, as amended
(the "1933 Act") and that offers, sales or other transfer of such
securities must be made in compliance with Regulation S promulgated under
the 1933 Act, pursuant to an effective registration statement under the
1933 Act or pursuant to an available exemption from registration, and the
undersigned certifies that the undersigned has not made, nor will the
undersigned make or cause to be made, any offer, sale or other transfer of
such securities, in violation of the 1933 Act, other applicable securities
laws or the rules and regulations of the Securities and Exchange
Commission."
(c) Upon the submission, at any time after the expiration of the Restricted
Period, by Buyer of a written request for legend removal for the purpose of a
bona fide pledge or deposit of the Shares with a margin account, together with
the certificates for which the legend removal is being requested and a Removal
Certificate signed by both the Buyer and the pledgee or other holder of the
Shares, the Company will reissue or will promptly instruct its transfer agent to
reissue the certificates representing the Shares to be so pledged or deposited
without the Legend.
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(d) Notwithstanding the provisions of this Section 10, if with respect to
the Company's receipt of a Removal Certificate from any person, prior to any
removal of the Legend, there shall have been after the date hereof any amendment
to the Act or Regulation S or any no action letter, interpretative release or
other advice from the Securities and Exchange Commission after the date hereof
which disallows the removal of the Legend under the circumstances in which the
request that it be removed is being made, then the Company shall have no
obligation to remove or to instruct its transfer agent to remove the Legend,
unless the Company shall have received from the person requesting such removal a
written letter of counsel to such person reasonably acceptable to the Company
and its counsel confirming that the Legend may be so removed or share
certificates may be so issued without the Legend without violation of the Act.
If the person requesting a removal of the Legend is unable to supply the legal
opinion referred to above then the Company shall, upon demand of such person, be
obligated to register the Common Stock for resale pursuant to the terms of the
Registration Rights Agreement.
11. Transfer Agent Instructions. The Company's transfer agent will be
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instructed to reserve for issuance such number of shares of the Company's Common
Stock as would be issuable if the Convertible Notes were converted on the
Closing Date and such additional number of shares as, from time to time, shall
be necessary to provide for the issuance of Shares upon the conversion of the
Convertible Notes. Additionally, the Company shall deliver to its transfer
agent promptly after closing irrevocable instructions substantially in the form
set forth in Annex E attached hereto, pursuant to which the transfer agent shall
be instructed to issue upon conversion the number of shares provided for in the
Convertible Note being converted on the terms provided for therein without
restrictive legend, registered in the names provided by the Holders, subject to
the terms and conditions in this Agreement and in the Convertible Note. The
Company warrants and covenants that no instructions restricting the
transferability of the Shares other than the instructions in the immediately
preceding sentence and instructions for a "stop transfer" instruction until the
end of the Restricted Period have been given, or shall be given, to the transfer
agent, and that the Shares shall otherwise be freely transferable on the books
and records of the Company, subject to the restrictions in this Agreement and in
the Convertible Note. Nothing in this section, however, shall affect in any way
the obligations and agreement of the Buyer to comply with all applicable
federal, state and foreign securities laws upon resale of the Securities.
12. Miscellaneous. (a) This Agreement may be executed in one or more
--------------
counterparts and it is not necessary that signatures of all parties appear on
the same counterpart, but such counterparts together shall constitute but one
and the same agreement.
(b) This Agreement shall be governed by and constructed in accordance with
the laws of the State of Delaware.
(c) This agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective successors, and no other person shall have any
right or obligation hereunder. This Agreement shall not be assignable by either
party without the prior written consent of the other, and any assignment in
violation hereof shall be void. Notwithstanding the foregoing, the Buyer may
assign its rights in this Agreement subject to the terms and conditions of this
Agreement and the Convertible Note, and the provisions of this Agreement shall
then inure to the benefit of, and be enforceable by, any transferee of any of
the Securities or Shares.
(d) This Agreement together with the Convertible Note, the Registration
Rights Agreement and the Warrant constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all prior oral or
written proposals or agreements related thereto. This Agreement may not be
amended or any provision hereof waived, in whole or in part, except by a written
amendment signed by both of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement, all as of the day and year above written.
CITADEL COMPUTER SYSTEMS INCORPORATED
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By:
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Xxxxxx X. Xxxxxxx, Chief Operating Officer & Secretary
BUYER: OFFSHORE NOMINEES LIMITED
By:
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