<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 29, 1996
-------------------------------
LONESTAR HOSPITALITY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-08718 75-2242792
(State or other jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
3131 Turtle Creek Blvd., Suite 1301, Dallas, Texas 75219
---------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (214) 520-9292
----------------------------
-----------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
--------------------------------
Effective February 29, 1996, Citadel Computer Systems Incorporated
("Citadel"), a Delaware corporation, merged into LSHC Acquisition, Inc.
("LSHC"), a wholly owned Delaware subsidiary of LoneStar Hospitality Corporation
(the "Company" or "LoneStar") (the "Merger"). As a result of the Merger, a
change in control of the Company occurred. See Item 2 for a description of the
Merger and related transactions.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------
MERGER WITH CITADEL. Effective February 29, 1996, Citadel merged into
LSHC, a wholly owned Delaware subsidiary of the Company, pursuant to a Second
Amended and Restated Agreement and Plan of Merger, dated February 29, 1996 (the
"Merger Agreement"). Pursuant to the terms of the Merger Agreement, each
stockholder of Citadel is entitled to receive 4.5 shares of common stock, par
value $.01 per share (the "Common Stock"), of the Company for each share of
common stock of Citadel held by such stockholder. Prior to the Merger, Citadel
had 3,000,000 shares of common stock outstanding. In addition, each outstanding
option and warrant to purchase capital stock of Citadel became an option or
warrant to purchase a number of shares of Common Stock of the Company equal to
4.5 times the number of shares subject to the Citadel options and warrants at
the same aggregate exercise price of the Citadel options and warrants. Former
stockholders of Citadel now own approximately 75% of the issued and outstanding
shares of Common Stock of the Company on a fully diluted basis. The Merger
Agreement is set forth as an exhibit hereto. The Board of Directors also
approved changing the name of LoneStar to Citadel Computer Systems Incorporated
to better reflect the recent merger of LoneStar and Citadel. See "Item 5."
Gilbert Gertner, the former Chairman of Citadel, will serve as Chairman of
the Company, George Sharp, the former President and Chief Executive Officer of
Citadel, will serve as President and Chief Executive Officer of the Company and
Steven Solomon, the former President and Chief Executive Officer of the Company,
will serve as Senior Vice President-Chief Operating Officer and Secretary of the
Company. Pursuant to the Merger Agreement, Mr. Gertner and Mr. Sharp
beneficially own more than 50% of the outstanding Common Stock of the Company.
Pursuant to the Merger Agreement, Messrs. Gertner and Sharp have become
directors of the Company. Three directors of LoneStar prior to the Merger have
remained on the Board of Directors: Chris A. Economou, Axel Sawallich and Mr.
Solomon. The other directors resigned effective as of the effective date of the
Merger.
Citadel was incorporated in Delaware in June 1992. Citadel is a Houston,
Texas-based developer and marketer of NetOff, a computer software product
designed to secure and manage computer networks. Citadel will maintain
corporate offices in Houston and Dallas. The Houston office is located at 2950
North Loop West, Suite 1080, Houston, Texas 77092.
During the past two years, Citadel has distributed over 15,000 copies of
NetOff to large network users, representing an estimated 1.5 million computers
protected by NetOff.
SALE OF THE RESTAURANT ASSETS. The Company has consummated the sale of the
five Miami Subs Grill restaurants in the Dallas, Texas area owned by its wholly-
owned subsidiary, LS Holding Corp. to Miami Subs of Fort Lauderdale, Florida.
Miami Subs is also the franchisor of the Miami Subs Grill restaurants. In
addition, Miami Subs has also acquired from LS Holding Corp. the right to
develop additional Miami Subs Grill restaurants in the Dallas/Fort Worth area
and will assume LoneStar's indebtedness of $1,500,000 to Stephens Diversified
Leasing, Inc. ("Stephens").
<PAGE>
LoneStar has received 1,325,000 shares of Miami Subs' common stock (the
"Miami Subs Stock"), and Miami Subs has agreed to file a registration statement
with the Securities and Exchange Commission (the "SEC") covering the Miami Subs
Stock within 60 days after the closing. During the six months following the
closing, LoneStar will not be able to sell any of the Miami Subs Stock, except
with the consent of Miami Subs, and Miami Subs will have the right to acquire
the Miami Subs Stock for $2.50 per share. Thereafter, LoneStar will be able to
sell the Miami Subs Stock in private transactions, or in open market
transactions not to exceed 240,000 shares per calendar quarter or 20,000 shares
per week. All sales by LoneStar will be subject to a right of first refusal by
Miami Subs.
Miami Subs has assumed no liabilities of LoneStar, except for LoneStar's
loan from Stephens and certain restaurant and equipment leases. LoneStar has
also issued to Miami Subs a promissory note in the principal amount of
$1,500,000, and is secured by the Miami Subs Stock. The note will not bear
interest and will be due on or before April 30, 1996. The maturity date of the
note may be extended to July 1, 1996 if LoneStar makes a principal payment of
$50,000 on or before April 30, 1996.
ACQUISITION OF ASSETS OF CIRCUIT MASTER SOFTWARE, INC. On March 8, 1996,
LoneStar consummated the acquisition of certain software programs of Circuit
Master Software, Inc. ("Circuit Master"). As consideration for the sale,
LoneStar will pay $240,000 in cash and notes, assume the liability for the
payment of certain trade payables and issue LoneStar Common Stock valued at
$2,000,000, based on the average closing trading price of LoneStar Common Stock
for the 30 trading days following February 29, 1996, the effective date of this
transaction.
The software programs acquired from Circuit Master are designed to automate
network functions and secure network applications. Included in the software
products that were acquired form Circuit Master are "Phantom of the Console," a
scripting software that automates repetitive tasks for Novell NetWare file
servers, and "Server Sentry," software that automatically reboots a NetWare file
server after it crashes.
ITEM 5. OTHER MATERIAL INFORMATION
--------------------------
REVERSE STOCK SPLIT. On March 6, 1996, the Board of Directors approved a
one-for-two reverse stock split. The reverse stock split has been approved by
stockholders possessing more than 50% of the issued and outstanding shares of
LoneStar Common Stock. The reverse stock split will become effective following
the filing of an Information Statement with the SEC describing the reverse stock
split, the expiration of the SEC review period with respect to the Information
Statement, and 20 days after the distribution of the Information Statement to
LoneStar stockholders.
CHANGE OF NAME. The Board of Directors also approved changing the name of
LoneStar to Citadel Computer Systems Incorporated to better reflect the recent
merger of LoneStar and Citadel. The name change has been approved by
stockholders holding more than 50% of the issued and outstanding shares of
LoneStar Common Stock and will become effective at the same time as the reverse
stock split.
ELECTION OF NEW BOARD MEMBER. On March 6, 1996, the new Board of Directors
following the consummation of the Merger set the number of directors at six and
elected Jesse Marion to become a member of the Board of Directors.
3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
It is impracticable to provide all of the required financial statements for
Citadel or Circuit Master at this time. The registrant will file such financial
statements as soon as practicable, but no later than 60 days after this report
must be filed.
Filed herewith are the following unaudited financial statements of Citadel:
Page No.
--------
Unaudited Balance Sheet as of September 30, 1995 ............ F-1
Unaudited Statement of Loss for the nine months ended
September 30, 1995 .......................................... F-2
Unaudited Statement of Cash Flows for the nine months
ended September 30, 1995 .................................... F-3
Unaudited Balance Sheet as of December 31, 1994 ............. F-4
Unaudited Statement of Loss for the year
ended December 31, 1994 ..................................... F-5
Unaudited Statement of Cash Flows for
the year ended December 31, 1994 ............................ F-6
Notes to Financial Statements ............................... F-7
(B) PRO FORMA FINANCIAL INFORMATION.
It is impracticable to provide the required pro forma financial statements
for Citadel or Circuit Master at this time. The registrant will file such
financial statements as soon as practicable, but no later than 60 days after
this report must be filed.
(C) EXHIBITS.
The following exhibits are furnished in accordance with Item 601 of
Regulation S-K.
2.1 Second Amended and Restated Plan of Merger, dated February 29,
1996, by and among LoneStar Hospitality Corporation, LSHC
Acquisition, Inc. and Citadel Computer Systems Incorporated
(without exhibits) (the exhibits and schedules to the Agreement
have been omitted pursuant to Item 601(b)(2) of Regulation S-K).
2.2 Purchase and Sale Agreement, dated March 1, 1996, by and among
LoneStar Hospitality Corporation, LS Holding Corp. and Miami Subs
USA, Inc (without exhibits) (the exhibits and schedules to the
Agreement have been omitted pursuant to Item 601(b)(2) of
Regulation S-K).
2.3 Technology Transfer Agreement, by and between LoneStar
Hospitality Corporation and Circuit Master Software, Inc., dated
February 29, 1996 (without exhibits) (the exhibits and schedules
to the Agreement have been omitted pursuant to Item 601(b)(2) of
Regulation S-K).
4
<PAGE>
2.4 Technology Transfer Agreement, by and between Citadel Computer
Systems Incorporated and Bill Mulvany, dated February 29, 1996
(without exhibits) (the exhibits and schedules to the Agreement
have been omitted pursuant to Item 601(b)(2) of Regulation S-K).
2.5 Technology Transfer Agreement, by and between Citadel Computer
Systems Incorporated and Kim Marie Newman, dated February 29,
1996 (without exhibits) (the exhibits and schedules to the
Agreement have been omitted pursuant to Item 601(b)(2) of
Regulation S-K).
27 Financial Data Schedule
ITEM 8. CHANGE IN FISCAL YEAR
---------------------
On March 6, 1996, the Board of Directors of LoneStar approved a change in
LoneStar's fiscal year end from March 31 to the last day of February, to be
effective beginning February 29, 1996. LoneStar's next periodic report to be
filed with the Securities and Exchange Commission will be a transition report on
Form 10-KSB to be filed with respect to the period ending February 29, 1996.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LONESTAR HOSPITALITY CORPORATION
(Registrant)
Date: March 8, 1996 By: /s/ Steven B. Solomon
--------------- -------------------------------
Steven B. Solomon, Chief Operating Officer
6
<PAGE>
CITADEL COMPUTER SYSTEMS INCORPORATED
SEPTEMBER 30, 1995
BALANCE SHEET
<TABLE>
<S> <C>
ASSETS
CURRENT
Accounts receivable- Winning ticket $ 300,000
Accounts receivable, less allowance
for doubtful account of 109,147 816,005
Other receivables 7,014
Other current assets 18,731
-------------
Total current assets 1,141,750
PROPERTY AND EQUIPMENT, less
accumulated depreciation 54,119
INTANGIBLE ASSETS, less accumulated
amortization 593,645
OTHER ASSETS 56,141
-------------
$ 1,845,655
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 795,985
Trade Accounts payable 493,622
Accrued expenses 55,572
-------------
Total Current Liabilities 1,345,179
TRADE ACCOUNTS PAYABLE, long-term 185,450
-------------
Total liabilities 1,530,629
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par - 3,000 shares
authorized; 2,895 shares issued and
outstanding 29
Additional paid-in capital 840,471
Deficit (705,561)
Current Earnings 180,087
-------------
Total stockholders' equity 315,026
-------------
$ 1,845,655
=============
</TABLE>
F-1
<PAGE>
STATEMENT OF LOSS
Nine Months ended September 30, 1995
<TABLE>
<S> <C>
NET SALES $ 1,304,048
COST OF SALES 93,388
-------------
GROSS PROFIT 1,210,660
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,069,780
-------------
140,880
-------------
Other income (expense):
Gain on sale of product line 258,871
Interest expense (46,874)
Other expense-including factoring expense 172,790
-------------
TOTAL OTHER INCOME, NET 39,207
-------------
NET INCOME $ 180,087
=============
</TABLE>
F-2
<PAGE>
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
Nine Months ended September 30, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 180,087
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 89,595
Provision for bad debts 50,000
Changes in assets and liabilities:
Accounts Receivable (880,449)
Intangible assets (54,848)
Other receivables (2,681)
Other assets 8,709
Accounts payable 82,726
Due to affiliates (48,628)
Accrued expenses 17,461
--------------
Net cash used in operating activities (558,028)
--------------
NET CASH USED IN INVESTING ACTIVITIES:
Capital expenditures (30,016)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (207,941)
Accounts receivable 445,985
Proceeds from notes payable 350,000
--------------
Net cash provided by financing activities 588,044
--------------
Net decrease in cash 0
Cash at beginning of year 0
--------------
0
Cash at end of year $ -
==============
</TABLE>
F-3
<PAGE>
CITADEL COMPUTER SYSTEMS INCORPORATED
DECEMBER 31, 1994
BALANCE SHEET
<TABLE>
<S> <C>
ASSETS
Current
Accounts receivable, less allowance
for doubtful accounts of $80,000 $ 155,605
Other receivables 4,333
---------
Total current assets 159,938
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
depreciation 27,274
INTANGIBLE ASSETS, less accumulated
amortization of $56,000 504,000
OTHER ASSETS 64,850
---------
$ 756,062
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 6,272
Notes payable 200,000
Accounts payable:
Trade 269,268
Affiliates 48,628
Accrued expenses 38,111
---------
Total Current Liabilities 562,279
TRADE ACCOUNTS PAYABLE, LONG-TERM 73,830
---------
Total liabilities 636,109
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER' EQUITY
Common stock, no par - 3,000 shares
authorized; 2,895 shares issued and
outstanding 29
Additional paid-in capital 825,485
Deficit (705,561)
---------
Total stockholder's equity 119,953
---------
TOTAL LIABILITIES and EQUITY $ 756,062
=========
</TABLE>
F-4
<PAGE>
STATEMENT OF LOSS
Year ended December 31, 1994
<TABLE>
<S> <C>
NET SALES $ 726,461
COST OF SALES 168,075
------------
GROSS PROFIT 558,386
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (785,462)
------------
(227,076)
------------
Other expense:
Interest expense (20,797)
Other expense (39,925)
------------
TOTAL OTHER EXPENSE (60,722)
------------
LOSS BEFORE EXTRAORDINARY ITEM (287,798)
EXTRAORDINARY ITEM, gain on the
forgiveness of debt 110,062
------------
NET LOSS $ (177,736)
============
</TABLE>
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Shares Amount
<S> <C> <C>
Common Stock:
Balance, January 1, 1994 1,400 $ 14
Conversion of debt to equity 1,495 $ 15
Net Loss
- ------------------------------------------------------
Balance December 31, 1994 2,895 $ 29
======================================================
Additional paid in Capital:
Balance, January 1, 1994 $ -
Conversion of debt to equity $ 825,485
- ------------------------------------------------------
Balance, December 31, 1994 $ 825,485
======================================================
Deficit:
Balance, January 1, 1994 $(527,825)
Net loss $(177,736)
- ------------------------------------------------------
Balance December 31, 1994 $(705,561)
======================================================
</TABLE>
F-5
<PAGE>
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
Year ended December 31, 1994
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net Loss $ (177,736)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 69,353
Forgiveness of debt (110,062)
Provision for bad debts 88,633
Changes in assets and liabilities:
Accounts Receivable (129,479)
Other receivables 9,640
Other assets (540)
Bank overdrafts 6,272
Accounts payable 157,385
Due to affiliates 39,938
Accrued expenses 19,341
-----------
NET CASH USED IN OPERATING ACTIVITIES (27,255)
-----------
NET CASH USED IN INVESTING ACTIVITIES:
Capital expenditures (25,237)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable 120,000
Proceeds from notes payable 170,000
-----------
Net cash provided by financing activities 50,000
-----------
Net decrease in cash (2,492)
Cash at beginning of year 2,492
-----------
Cash at end of year $ -
===========
</TABLE>
F-6
<PAGE>
CITADEL COMPUTER SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Citadel Computer Systems Incorporated (the COMPANY),
- ------------------
was incorporated in the state of Delaware on June 30, 1992. The company develops
and markets, throughout the United States, utility computer software used
primarily in computer networks. To date the company's activities have primarily
been limited to marketing and selling existing utility software products through
exclusive agreements.
Property, Equipment and Depreciation - Property and equipment are stated at
- ------------------------------------
cost. Depreciation is computed over estimated useful lives of the assets using
the straight-line method for financial reporting purposes and accelerated
methods for income tax purposes.
Intangible Asset - Intangible assets consist of acquired right sot market and
- ----------------
sell certain software products. These rights are stated at cost or net
realizable value and are amortized by the straight-line method over a five year
period. During the year ended December 31, 1994, the company capitalized
acquired rights totaling $560,000 and incurred amortization expense of $56,000.
Revenue Recognition - The company ships its products to customers on a thirty
- -------------------
day trial basis. The company recognizes revenues after the customers accepts the
product.
Income Taxes - Deferred income taxes result from temporary differences between
- ------------
the financial statement and income tax basis of assets and liabilities (see Note
7).
2. PROPERTY AND EQUIPMENT
Major classes of property and equipment and their estimate useful lives at
December 31, 1994, were as follows:
Lives Amount
Furniture 5 $ 15,136
Office equipment 5 9,031
Computer equipment 3 7,185
- ----------------------------------------------------
$ 31,352
Less accumulated depreciation (4,078)
- ----------------------------------------------------
Net property and equipment $ 27,274
F-7
<PAGE>
CITADEL COMPUTER SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. INTANGIBLE ASSETS
Effective June 24, 1994, the company acquired exclusive rights to market and
sell certain software from Danasoft Incorporated (Danasoft) for $560,000,
payable in non-interest bearing monthly installments ranging from $15,000 to
$25,000. On October 31, 1994, the company entered into an agreement to issue 5%
of the company's common stock to Danasoft to satisfy their unpaid obligation of
$465,000. Under the terms of the agreement Danasoft has the right to redeem
their shares of common stock for $250,000 at any time from October 1996 through
October 1999. The company has the right to redeem these shares of common stock
for $450,000 during the same period.
4. NOTE PAYABLE
The company has a revolving line of credit facility with a bank. The credit
agreement provides for maximum borrowing of $200,000 and bears interest at prime
rate plus $% and expires January 1995. Borrowings under the agreement totaling
$200,000 at December 31, 1994 and are collateralized by under accounts
receivable. The borrowings under this agreement were paid off subsequent to year
end and the line of credit was not renewed (see Note 9).
5. RELATED PARTY TRANSACTIONS
Effective February 9, 1994, the company entered into an agreement with a related
company, whereby the company has the right to advertise, market and sell a
certain software program. The company pays the affiliated company an amount, as
defined by the agreement for each program sold. For the year ended December 31,
1994, the company paid approximately $22,000 under this agreement.
6. FORGIVENESS OF DEBT
During the year ended December 31, 1994, the company negotiated a reduction in
amounts due to certain vendors and extended the payment terms. Accordingly, the
company has recorded a gain on the forgiveness of debt totaling $110,062 and has
classified a portion of accounts payable as long-term.
F-8
<PAGE>
CITADEL COMPUTER SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
7. INCOME TAXES
The deferred income tax asset is comprised of the following at December 31,
1994:
Amount
Deferred tax asset:
Net operating losses $ 213,000
Allowance for doubtful accounts 27,000
----------------------------------------------------------------
Deferred income tax asset 240,000
Valuation allowance (240,000)
----------------------------------------------------------------
Net deferred income tax asset $ -
================================================================
The company has estimated its net operating loss carryforward for tax reporting
purposes to be approximately $625,000 and is currently reviewing previously
filed tax returns to determine if amended returns are needed. the final net
operating loss carryforward is available to offset future taxable income through
2009.
8. COMMITMENTS AND CONTINGENCIES
The company leases its office space under an operating lease agreement. Future
minimum lease payments under this operating lease at December 31, 1994, were as
follows:
Amount
1995 $ 45,408
1996 $ 45,408
1997 $ 45,408
1998 $ 18,920
--------------------------- --------
Total $155,144
================================================================================
Rental expense under the operating leases totaled approximately $44,000 for the
year ended December 31, 1994.
Effective June 1994, the company has entered into a two year employment
agreement with an individual. The employee is responsible for developing company
products on an as-needed basis. Under the terms of the agreement, the employee
will receive $50,000 per year.
F-9
<PAGE>
CITADEL COMPUTER SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The company is involved in various legal actions arising in the normal course
of business. Management is of the opinion that their outcome will not have a
material adverse effect on the company's financial position or results of
operations.
9. SUBSEQUENT EVENTS
Effective January 19, 1995, the company entered into a $228,412
unsecured note payable agreement with a stockholder.
The agreement requires interest to be paid monthly at 15% with
principal and unpaid interest due December 31, 1995. Proceeds from
this note were used to retire the outstanding debt under the line of
credit facility.
Effective March 3, 1995, the company entered into an agreement to factor
accounts receivable with recourse on an as needed basis to supplement cash flow.
Under the terms of the agreement, the company will incur a fee ranging from 4%
to 7% on all accounts that are factored. As of May 26, 1996, $6,106 of the
accounts receivable outstanding at December 31, 1994 have been factored.
Effective May 11, 1995, the company entered into a $300,000 loan agreement with
an unrelated party, who has expressed an interest in acquiring the company. The
agreement prohibits the company from soliciting offers from any other party for
a ninety-day period. the note is due August 1995, bears interest at 12% and is
collateralized by common stock held by certain stockholders. As of May 26, 1995,
no formal agreement has been entered into to sell the company.
10. SUPPLEMENTAL CASH FLOW INFORMATION
The company paid interest totaling $20,797 during the year ended December 31,
1994. During the year ended December 31, 1994, the company acquired marketing
and selling rights and issued a note payable of $560,000.
During the year ended December 31, 1994, t he company converted notes payable
totaling $825,500 to equity and issued 1,510 shares of the company's common
stock.
F-10
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT PAGE
----------- ------- ----
2.1 Second Amended and Restated Plan of Merger,
dated February 29, 1996, by and among LoneStar
Hospitality Corporation, LSHC Acquisition, Inc.
and Citadel Computer Systems Incorporated
(without exhibits) (the exhibits and schedules to the
Agreement have been omitted pursuant to Item
601(b)(2) of Regulation S-K).
2.2 Purchase and Sale Agreement, dated March 1,
1996, by and among LoneStar Hospitality
Corporation, LS Holding Corp. and Miami Subs
USA, Inc. (without exhibits) (the exhibits and
schedules to the Agreement have been omitted
pursuant to Item 601(b)(2) of Regulation S-K).
2.3 Technology Transfer Agreement, by and between
LoneStar Hospitality Corporation and Circuit
Master Software, Inc., dated February 29, 1996
(without exhibits) (the exhibits and schedules to the
Agreement have been omitted pursuant to Item
601(b)(2) of Regulation S-K).
2.4 Technology Transfer Agreement, by and between
Citadel Computer Systems Incorporated and Bill
Mulvany, dated February 29, 1996 (without
exhibits) (the exhibits and schedules to the
Agreement have been omitted pursuant to Item
601(b)(2) of Regulation S-K).
2.5 Technology Transfer Agreement, by and between
Citadel Computer Systems Incorporated and Kim
Marie Newman, dated February 29, 1996 (without
exhibits) (the exhibits and schedules to the
Agreement have been omitted pursuant to Item
601(b)(2) of Regulation S-K).
27 Financial Data Schedule
<PAGE>
EXHIBIT 2.1
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LONESTAR HOSPITALITY CORPORATION
AND
LSHC ACQUISITION, INC.
AND
CITADEL COMPUTER SYSTEMS, INC.
* * * * *
DATED: FEBRUARY 29, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Recitals............................................................ 1
Agreement........................................................... 1
1. Definitions............................................... 1
2. The Merger................................................ 4
2.1 The Merger........................................... 4
2.2 Effective Time....................................... 4
2.3 The Certificate of Incorporation..................... 4
2.4 The Bylaws........................................... 4
2.5 Officers and Directors............................... 4
2.6 Conversion or Cancellation of Citadel Common Stock... 4
2.7 Exchange of Certificates............................. 5
2.8 Appraisal Rights..................................... 5
2.9 Approval of the Stockholders......................... 6
2.10 Reporting of Merger.................................. 6
3. The Closing............................................... 6
3.1 Time and Place of Closing............................ 6
3.2 Obligations of Citadel at or Prior to the Closing.... 6
3.3 Obligations of LoneStar and Acquisition at or Prior
to the Closing..................................... 7
4. Representations, Warranties and Covenants of Citadel...... 7
4.1 Corporate Organization............................... 7
4.2 Capitalization....................................... 8
4.3 Authority; No Violation.............................. 8
4.4 Consents and Approvals............................... 8
4.5 Violation of Laws, Permits, etc...................... 8
4.6 Citadel Financial Statements......................... 9
4.7 No Undisclosed Liabilities, etc...................... 9
4.8 Absence of Certain Changes........................... 9
4.9 Title to Property; Encumbrances...................... 10
4.10 Litigation........................................... 10
4.11 Taxes................................................ 10
4.12 Insurance............................................ 11
4.13 Contracts............................................ 11
4.14 Compensation and Employee Plans...................... 12
4.15 Brokers, Finders and Advisors........................ 13
4.16 Labor Force.......................................... 13
4.17 Books and Records.................................... 13
4.18 Payments............................................. 13
4.19 Disclosure........................................... 13
4.20 Joint Ventures....................................... 13
4.21 Subsidiaries......................................... 13
4.22 Approval of Stockholders............................ 13
4.23 Intellectual Property............................... 13
5. Representations, Warranties and Covenants of LoneStar
and Acquisition........................................ 14
5.1 Corporate Organization............................... 14
5.2 Capitalization....................................... 14
5.3 Authority............................................ 14
5.4 Consents and Approvals............................... 15
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5.5 Violation of Laws, Permits, etc...................... 15
5.6 LoneStar and Acquisition Financial Statements........ 15
5.7 No Undisclosed Liabilities, etc...................... 15
5.8 Absence of Certain Changes........................... 15
5.9 Title to Property; Encumbrances...................... 16
5.10 Litigation........................................... 16
5.11 Taxes................................................ 17
5.12 Insurance............................................ 18
5.13 Contracts............................................ 18
5.14 Compensation and Employee Plans...................... 19
5.15 Brokers, Finders and Advisors........................ 19
5.16 Labor Force.......................................... 19
5.17 Books and Records.................................... 19
5.18 Payments............................................. 19
5.19 Disclosure........................................... 20
5.20 Joint Ventures....................................... 20
5.21 Subsidiaries......................................... 20
5.22 Approval of Merger................................... 20
5.23 Intellectual Property................................ 20
5.24 SEC Filings.......................................... 20
5.25 Liabilities.......................................... 20
6. Actions of Citadel Prior to the Closing Date.............. 20
6.1 Affirmative Covenants................................ 20
6.2 Negative Covenants................................... 21
6.3 Consents............................................. 21
6.4 Advice of Changes.................................... 21
6.5 Best Efforts......................................... 21
6.6 Access to Properties and Records..................... 21
6.7 Supply Documents, Reports, etc....................... 21
6.8 Stockholder Approval................................. 22
7. Actions of LoneStar and Acquisition Prior to the
Closing Date........................................... 22
7.1 Affirmative Covenants................................ 22
7.2 Negative Covenants................................... 22
7.3 Consents............................................. 22
7.4 Advice of Changes.................................... 22
7.5 OTC Bulletin Board................................... 23
7.6 Best Efforts......................................... 23
8. Conditions to LoneStar's and Acquisition's Obligations.... 23
9. Conditions to Citadel's Obligations....................... 24
10. Additional Agreements..................................... 26
10.1 Confidentiality..................................... 26
10.2 Further Assurances.................................. 26
11. Termination, Waiver and Amendment......................... 26
11.1 Termination......................................... 26
11.2 Manner of Exercise.................................. 26
11.3 Effect of Termination............................... 26
11.4 Waiver.............................................. 26
11.5 Amendment........................................... 26
12. Miscellaneous............................................. 27
12.1 Expenses............................................ 27
12.2 Press Releases...................................... 27
12.3 Binding Effect...................................... 27
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12.4 Severability........................................ 27
12.5 Notices............................................. 27
12.6 Entire Agreement.................................... 28
12.7 Amendments; Waivers................................. 28
12.8 Headings............................................ 28
12.9 Counterparts........................................ 28
12.10 Specific Performance................................ 28
12.11 GOVERNING LAW....................................... 28
12.12 Time of Essence..................................... 28
12.13 Best Efforts........................................ 28
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SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement") is entered into as of February 29, 1996, by and among LONESTAR
HOSPITALITY CORPORATION, a Delaware corporation ("LoneStar"), LSHC ACQUISITION,
INC., a Delaware corporation ("Acquisition"), and CITADEL COMPUTER SYSTEMS, INC.
("Citadel"), a Delaware corporation.
RECITALS
--------
LoneStar, Acquisition and Citadel each executed an Agreement and Plan of
Merger on January 31, 1996 and a First Amended and Restated Agreement and Plan
of Merger on February 28, 1996.
LoneStar, Acquisition and Citadel now desire to amend and restate such
First Amended and Restated Agreement and Plan of Merger in accordance with the
following.
AGREEMENT
---------
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements hereinafter set forth, in accordance with the provisions of
applicable law, the parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement and documents delivered
-----------
pursuant to this Agreement, the following terms shall have the following
meanings:
ACQUISITION. "Acquisition" means LSHC Acquisition, Inc., which is
a wholly-owned subsidiary of LoneStar.
ACQUISITION COMMON STOCK. "Acquisition Common Stock" means
Acquisition's common stock, par value $.01 per share.
ACQUISITION FINANCIAL STATEMENTS. "Acquisition Financial
Statements" are the unaudited Financial Statements of Acquisition for the year
ended December 31, 1995.
AFFILIATE. "Affiliate" means an "affiliate" or "associate" as those
terms are defined in Rule 12b-2 promulgated by the Commission under the Exchange
Act.
CERTIFICATE OF MERGER. "Certificate of Merger" is as defined in
SECTION 2.2.
CITADEL. "Citadel" means Citadel Computer Systems, Inc.
CITADEL COMMON STOCK. "Citadel Common Stock" means Citadel's
common stock, par value $.01 per share.
CITADEL DISCLOSURE SCHEDULE. The "Citadel Disclosure Schedule" is
the disclosure schedule delivered by Citadel to LoneStar contemporaneously with
the execution of this Agreement. Each heading in the Citadel Disclosure Schedule
shall refer to the applicable section of this Agreement.
CITADEL FINANCIAL STATEMENTS. "Citadel Financial Statements" are,
collectively, the audited Financial Statements of Citadel as of and for the year
ended December 31, 1994 and the unaudited Financial Statements of Citadel as of
and for year ended December 31, 1993 and the nine months ended September 30,
1995.
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CITADEL WARRANT HOLDERS. "Citadel Warrant Holders" means the
warrant holders referred to in SECTION 3.2(K).
CLOSING. "Closing" means the closing referred to in SECTION 3.1.
CLOSING DATE. The "Closing Date" shall be such date as shall be set
by the parties in writing following satisfaction (or waiver) of the conditions
to the Closing set forth in SECTIONS 8 and 9 hereof.
CODE. "Code" means the Internal Revenue Code of 1986, as amended,
or any successor statute.
COMMISSION. "Commission" means the Securities and Exchange
Commission and/or any other Governmental Entity that administers either the
Securities Act or the Exchange Act.
DGCL. "DGCL" means the Delaware General Corporation Law, as
amended, or any successor statute.
EFFECTIVE DATE. "Effective Date" is as defined in SECTION 2.2.
EFFECTIVE TIME. "Effective Time" is as defined in SECTION 2.2.
ENCUMBRANCE. An "Encumbrance" is any option, pledge, security
interest, lien, charge, encumbrance, or restriction (whether on voting, sale,
transfer, disposition or otherwise), whether imposed by agreement,
understanding, law or otherwise, except those arising under applicable federal
or state securities laws.
ERISA. "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, or any successor statute.
EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of
1934, as amended, or any successor statute.
GAAP. "GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants, in statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.
GOVERNMENTAL ENTITY. A "Governmental Entity" is any federal, state,
municipal, domestic or foreign court, tribunal, administrative agency,
department, commission, board, bureau or other governmental authority or
instrumentality.
INTELLECTUAL PROPERTY. "Intellectual Property" is as defined in
SECTION 4.23.
JOINT VENTURE AND JOINT VENTURES. "Joint Venture" or "Joint
Ventures" means any partnership or joint venture with third parties in which
Citadel is a partner, venturer or participant.
LONESTAR. "LoneStar" means LoneStar Hospitality Corporation and any
Subsidiary of LoneStar, except for Acquisition.
LONESTAR AND ACQUISITION DISCLOSURE SCHEDULE. "LoneStar and
Acquisition Disclosure Schedule" is the disclosure schedule delivered by
LoneStar and Acquisition to Citadel contemporaneously with the
2
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execution of this Agreement. Each heading in the LoneStar and Acquisition
Disclosure Schedule shall refer to the applicable section of this Agreement.
LONESTAR COMMON STOCK. "LoneStar Common Stock" means LoneStar's
common stock, par value $0.01 per share.
LONESTAR FINANCIAL STATEMENTS. "LoneStar Financial Statements" are
collectively, the audited Financial Statements of LoneStar as of the year ended
March 31, 1994 and 1995, and the unaudited Financial Statements of LoneStar for
the six months ended September 30, 1995.
LONESTAR SEC DOCUMENTS. "LoneStar SEC Documents" are collectively
LoneStar's Form 10-KSB for the year ended March 31, 1995, as amended, Form 10-
QSB for the quarterly period ended September 30, 1995 and Form 8-K dated
December 4, 1995.
LONESTAR SHARES. "LoneStar Shares" mean the LoneStar Common Stock
to be issued to Citadel in connection with the Merger.
MATERIAL EFFECT. "Material Effect" means a material adverse effect
in the business, operations, properties, assets, liabilities, prospects or
condition (financial or otherwise) of Citadel, LoneStar or Acquisition, as the
context requires.
MERGER. "Merger" means the merger of Citadel with and into
Acquisition as described in SECTION 2.1.
NASDAQ. "NASDAQ" means the National Association of Securities
Dealers Automated Quotations.
PLAN. "Plan" is as defined in SECTION 4.14.
RESTAURANT ASSETS. "Restaurant Assets" mean assets used in or in
connection with the operation of restaurants by LoneStar.
SECURITIES ACT. "Securities Act" means the Securities Act of 1933,
as amended, or any successor statute.
SPECIAL MEETING. "Special Meeting" means the Special Meeting of
Citadel Stockholders to be held in 1996 to consider the Merger.
STOCKHOLDERS. "Stockholders" means the stockholders of Citadel on
the record date with respect to the Special Meeting as set forth in the Proxy
Statement.
SUBSIDIARY AND SUBSIDIARIES. "Subsidiary" or "Subsidiaries" means
any corporation with more than 50 percent of its voting power owned directly or
indirectly by Citadel, Acquisition, LoneStar or other relevant person, as the
context requires.
SURVIVING CORPORATION. "Surviving Corporation" is as defined in
SECTION 2.1.
TAXES. "Taxes" is as defined in SECTION 4.11.
TAX RETURN. "Tax Return" is as defined in SECTION 4.11.
TRANSFER AGENT. "Transfer Agent" means the American Securities
Transfer, Inc.
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<PAGE>
2. THE MERGER.
----------
2.1 THE MERGER. Subject to the terms and conditions of this
----------
Agreement, at the Effective Time, Citadel shall be merged with and into
Acquisition and the separate corporate existence of Citadel shall cease (the
"Merger"). Acquisition shall be the surviving corporation in the Merger
(sometimes referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Delaware, and the separate corporate
existence of Acquisition with all its rights, privileges, immunities, powers
and franchises shall continue unaffected by the Merger, except as set forth
below in this ARTICLE 2. The Merger shall have the effects specified in the
DGCL.
2.2 EFFECTIVE TIME. The Merger will become effective upon the
--------------
proper filing of a Certificate of Merger with the Secretary of State of the
State of Delaware in accordance with Sections 251 and 103 of the DGCL (the time
of such filing referred to as the "Effective Time" and the date of such filing
referred to as the "Effective Date"). The Certificate of Merger will be
delivered to the Secretary of State of the State of Delaware as soon as
practicable after approval of this Agreement by the Stockholders and
satisfaction or waiver of the other conditions precedent to consummation of the
Merger. It is presently expected that the Merger will become effective on the
date of the Special Meeting. The stock transfer books relating to the Citadel
Common Stock will be closed as of the close of business on the Effective Date,
and thereafter no transfers of record of certificates theretofore representing
shares of Citadel Common Stock will be made.
2.3 THE CERTIFICATE OF INCORPORATION. The Certificate of
--------------------------------
Incorporation of the Surviving Corporation will be the Certificate of
Incorporation of Acquisition following the Effective Date unless and until it is
duly amended in accordance with the terms thereof and the DGCL, except that the
Certificate of Merger shall further amend the Certificate of Incorporation of
Acquisition to change the name of Acquisition to "Citadel Computer Systems,
Inc." Following the Effective Time, LoneStar will use its best efforts to amend
its certificate of incorporation, as promptly as practicable, to change its name
to "Citadel Computer Systems, Inc."
2.4 THE BYLAWS. The Bylaws of Acquisition in effect at the
----------
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with the terms thereof and the DGCL.
2.5 OFFICERS AND DIRECTORS. The officers of LoneStar and
----------------------
Acquisition at the Effective Time shall be Gilbert Gertner as Chairman of the
Board, George Sharp as President, Chief Executive Officer and Assistant
Secretary and Steve Solomon as Chief Operating Officer and Secretary, and the
directors of Acquisition shall be Gilbert Gertner, George Sharp and Steve
Solomon, until such officer's and director's successor has been duly elected or
appointed and qualified or until such officer's and director's earlier death,
resignation or removal in accordance with Acquisition's Certificate of
Incorporation and Bylaws and the DGCL. In addition, Gilbert Gertner and George
Sharp shall become directors of LoneStar at the Effective Time. Additional
officers and directors may be added from time to time in accordance with
Acquisition's and LoneStar's Certificates of Incorporation and Bylaws and the
DGCL and shall be added if necessary to comply with applicable law and the rules
and regulations of NASDAQ.
2.6 CONVERSION OR CANCELLATION OF CITADEL COMMON STOCK. The
--------------------------------------------------
Citadel Common Stock shall be converted or canceled in the Merger as follows:
Subject to SECTION 2.8, each certificate that prior to the Effective
Date represented outstanding shares of Citadel Common Stock will, after such
time, be deemed for all purposes to evidence only the right to receive four and
one-half (4.5) shares of LoneStar Common Stock. No interest will accrue or be
payable with respect to the amounts payable upon exchange of certificates. Any
shares of Citadel Common Stock held in the treasury of Citadel will be canceled
upon consummation of the Merger, and no consideration will be delivered in
exchange for
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<PAGE>
those shares. No share of Acquisition Common Stock shall be affected in any
manner by the consummation of the Merger.
No fraction of a share of LoneStar Common Stock will be issued upon such
exchange of shares of Citadel Common Stock, but any holder of shares of Citadel
Common Stock who would otherwise be entitled to a fraction of a shares of
LoneStar Common Stock will instead receive a cash payment in lieu of and with
respect to said fraction of a share to which such holder would be so entitled
determined by multiplying (i) the value of a share of LoneStar Common Stock
(calculated as hereinafter provided) times (ii) the fractional share interest to
which such holder would otherwise be entitled, which product shall be rounded to
the nearest whole cent. For purposes of computing such cash payment, the value
of a share of LoneStar Common Stock shall be the average of the closing bid
prices of LoneStar Common Stock on the OTC Bulletin Board for the last five
trading days prior to the Effective Time. Such cash payment shall be paid in
U.S. dollars at the time of presentation for surrender to the Transfer Agent of
the certificate representing shares of Citadel Common Stock. The right to
receive such cash payment shall, if the holder thereof shall not prior thereto
so present such certificate, terminate on the second anniversary date of the
Effective Time.
At the Effective Time, each outstanding option and warrant to purchase
capital stock of Citadel, listed in the Citadel Disclosure Schedule and
outstanding immediately prior to the Effective Time, shall become an option or
warrant after the Effective Time to purchase a number of shares of LoneStar
Common Stock equal to four and one-half (4.5) times the number of shares subject
to the Citadel options and warrants set forth in the Citadel Disclosure Schedule
at the same aggregate exercise price of Citadel options and warrants as set
forth in the Citadel Disclosure Schedule, which is 22.2% of the per share
exercise price of the Citadel options and warrants as set forth in the Citadel
Disclosure Schedule; provided, however, that this provision shall not apply to
the outstanding contingent rights held by certain Citadel noteholders and set
forth in the Citadel Disclosure Schedule to acquire warrants to purchase
LoneStar Common Stock following the Merger.
2.7 EXCHANGE OF CERTIFICATES. Promptly after the Effective Time,
------------------------
LoneStar shall cause the Transfer Agent to mail to each record holder, as of the
Effective time, of an outstanding certificate or certificates that immediately
prior to the Effective Time represented issued and outstanding shares of Citadel
Common Stock, a form letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the certificates shall pass,
only upon proper delivery of the certificates to the Transfer Agent) and
instructions for use in effecting the surrender of the certificates. Upon
surrender to the Transfer Agent of such certificate, together with such letter
of transmittal duly executed, each holder of such certificates formerly
representing shares of Citadel Common Stock shall be entitled to receive in
exchange therefor a certificate representing the whole number of shares of
LoneStar Common Stock into which such shares of Citadel Common Stock shall have
been converted as set forth herein and such certificates of Citadel Common Stock
shall then be canceled.
2.8 APPRAISAL RIGHTS.
----------------
(a) Notwithstanding any other provision of this Agreement to the
contrary, shares of Citadel Common Stock issued and outstanding
immediately prior to the Effective Time and which are held by
shareholders who object to the Merger and comply with all of the
relevant provisions of the DGCL ("Dissenting Shares") shall not be
converted into or represent a right to receive LoneStar Common Stock
hereunder or pursuant to the Articles of Merger at or after the
Effective Time, but instead shall be entitled to receive payment of the
appraised value of such shares in accordance with the provisions of the
DGCL, unless and until the holder thereof shall have failed to perfect,
or shall have effectively withdrawn or lost, such rights to appraisal
and payment under the DGCL. If a holder of Dissenting Shares shall have
so failed to perfect or shall have effectively withdrawn or lost such
right to appraisal and payment, then as of the Effective Time or the
occurrence of such event, whichever last occurs, such holder's
Dissenting Shares shall be converted into and solely represent the right
to receive shares of LoneStar Common Stock, as provided herein. Citadel
shall give LoneStar prompt notice upon receipt by Citadel of any written
objection to the plan of merger set
5
<PAGE>
forth herein (any shareholder duly making such objection being
hereinafter called a "Dissenting Shareholder"). Citadel agrees that
prior to the Effective Time, it will not, without the prior written
consent of LoneStar, voluntarily make or agree to make any payment with
respect to, or settle or offer to settle, any such objection.
(b) Each Dissenting Shareholder who becomes entitled, pursuant to
the provisions of the DGCL, to payment for his Dissenting Shares shall
receive payment therefor after the Effective Time from the Surviving
Corporation (but only after the amount thereof shall have been agreed
upon or finally determined pursuant to such provisions) and such shares
shall be canceled.
2.9 APPROVAL OF THE STOCKHOLDERS. As soon as reasonably
----------------------------
practicable after the date of this Agreement, Citadel will, in compliance with
all applicable state and federal laws, obtain the approval of the Stockholders
to the Merger. The materials sent by Citadel, in connection with the approval
of Stockholders, will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
2.10 REPORTING OF MERGER. For federal, state and local income tax
-------------------
return reporting purposes, all parties agree to treat the Merger as a forward
subsidiary merger under section 368(a)(2)(D) of the Code.
3. THE CLOSING.
-----------
3.1 TIME AND PLACE OF CLOSING. The closing of the Merger (the
-------------------------
"Closing"), shall, unless otherwise agreed to in writing by the parties, take
place at the offices of Looper, Reed, Mark & McGraw, 9 Greenway Plaza, Suite
1717, Houston, Texas at 10:00 a.m., local time, on the Closing Date.
3.2 OBLIGATIONS OF CITADEL AT OR PRIOR TO THE CLOSING. At or
-------------------------------------------------
prior to Closing, and subject to the satisfaction by Lonestar and Acquisition of
their respective obligations hereunder, Citadel shall deliver to LoneStar the
following:
(a) A copy of the charter of Citadel certified as of a date within
thirty days of the Closing Date by the Secretary of State of the state of
incorporation and certified by Citadel's corporate secretary as to the absence
of any amendments between the date of certification by the Secretary of State
and the Closing Date;
(b) A certificate from the appropriate governmental officials of the
state of incorporation as to the existence and good standing of Citadel and the
payment of Taxes by Citadel as of a date within thirty days of the Closing Date,
and a telegram or other verification from such officials as to the same matters
dated the business day before the Closing Date;
(c) A certificate from the appropriate governmental officials of the
Other Citadel States (as defined in SECTION 4.1 below) as to the good standing
of Citadel and the payment of Taxes by Citadel as of a date within thirty days
of the Closing Date, and a telegram or other verification from such officials as
to the same matters dated the business day before the Closing Date;
(d) A certificate of the corporate secretary of Citadel attaching
thereto a true and correct copy of the bylaws of Citadel and the corporate
resolutions duly adopted by the board of directors and stockholders of Citadel
authorizing the consummation of the transactions contemplated hereby;
(e) The Certificate of Merger duly executed on behalf of Citadel;
(f) The certificate of Citadel referred to in SECTION 8(A);
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<PAGE>
(g) All consents or approvals of any third party or any
Governmental Entity that are required under SECTION 8(B);
(h) The warrant agreement to purchase LoneStar Shares (the "Warrant
Agreement") in substantially the same form as the warrant agreement to purchase
shares of Citadel Common Stock, executed by all Citadel Warrant Holders, as
listed in the Citadel Disclosure Schedule; and
(i) Such other documents as are required pursuant to this Agreement or
as may reasonably be requested from Citadel by LoneStar or its counsel.
3.3 OBLIGATIONS OF LONESTAR AND ACQUISITION AT OR PRIOR TO THE
----------------------------------------------------------
CLOSING. At or prior to the Closing, and subject to the satisfaction by Citadel
- -------
of its obligations hereunder, LoneStar and Acquisition, as the context requires,
shall deliver to Citadel the following:
(a) A copy of the charter of LoneStar and Acquisition certified as of
a date within thirty days of the Closing Date by the Secretary of State of the
state of incorporation and certified by the respective corporate secretary of
LoneStar and Acquisition as to the absence of any amendments between the date of
certification by the respective Secretary of State and the Closing Date.
(b) A certificate from the appropriate governmental officials of the
respective Secretary of State as to the existence and good standing of LoneStar
and Acquisition and the payment of Taxes by LoneStar and Acquisition as of a
date within thirty days of the Closing Date, and a telegram or other
verification from such officials as to the same matters dated the business day
before the Closing Date;
(c) A certificate from the appropriate governmental officials of the
Other LoneStar States (as defined in SECTION 5.1 below) as to the good standing
of LoneStar and the payment of Taxes by LoneStar as of a date within thirty days
of the Closing Date, and a telegram of other verification from such officials as
to the same matters dated the business day before the Closing Date;
(d) A certificate of the corporate secretary of LoneStar and
Acquisition attaching thereto a true and correct copies of the bylaws of
LoneStar and Acquisition and the corporate resolutions duly adopted by the board
of directors of LoneStar and the board of directors and stockholders of
Acquisition authorizing the consummation of the transactions contemplated
hereby;
(e) The Certificate of Merger duly executed on behalf of LoneStar
and Acquisition;
(f) The certificate of LoneStar and Acquisition referred to in
SECTION 9(A);
(g) All consents or approvals from any third parties or any
Governmental Entity that are required under SECTION 9(B); and
(h) Such other documents as are required pursuant to this Agreement or
as may reasonably be requested from LoneStar or Acquisition by Citadel or its
counsel.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF CITADEL. Except as
----------------------------------------------------
expressly set forth and specifically identified by the section number of this
Agreement in the Citadel Disclosure Schedule, Citadel represents, warrants and
covenants to each of LoneStar and Acquisition, on the date hereof and as of the
Closing Date, as follows:
4.1 CORPORATE ORGANIZATION. Citadel is a corporation duly
----------------------
incorporated and validly existing as a corporation and in good standing under
the laws of its jurisdiction of incorporation. Citadel has the requisite
corporate power and authority to carry on its business as now being conducted
and to own, lease and
7
<PAGE>
operate its property and assets, and Citadel is duly qualified or licensed to do
business and is in good standing in every jurisdiction (the "Other Citadel
States") in which the failure to be so qualified and licensed could have a
Material Effect. SECTION 4.1 of the Citadel Disclosure Schedule sets forth the
name and state of incorporation of Citadel and each state in which it is
qualified or licensed to do business.
4.2 CAPITALIZATION.
--------------
(a) The authorized, issued and outstanding capital stock of Citadel,
all outstanding securities convertible into or exchangeable or exercisable for
shares of capital stock of Citadel and all rights, agreements or other
commitments of Citadel to issue, transfer or sell its capital stock is as set
forth in SECTION 4.2 of the Citadel Disclosure Schedule. All of the issued and
outstanding shares of capital stock of Citadel are validly issued, fully paid
and nonassessable, and none of such shares have been issued in violation of the
preemptive rights of any person.
(b) Citadel does not own or hold any equity, debt or other interest in
any entity or business or any option to acquire any such interest, except for
accounts receivable that have arisen in the ordinary course of business.
4.3 AUTHORITY; NO VIOLATION.
-----------------------
(a) The execution and performance of this Agreement by Citadel has
been duly and validly authorized by the board of directors of Citadel, and no
other corporate action is necessary to authorize the execution, delivery and
performance of this Agreement by Citadel, except for approval of the Merger by
the stockholders of Citadel. Citadel has the corporate power and authority to
execute and perform this Agreement and to carry out the transactions
contemplated hereby. This Agreement has been duly and validly executed by
Citadel and is a valid and binding obligation of Citadel, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, moratorium, reorganization, receivership or similar laws affecting
the rights of creditors generally.
(b) None of the execution, delivery or performance of this Agreement
does or will: (i) result in any violation of or be in conflict with or
constitute a default under any term or provision of the Certificate of
Incorporation or Bylaws of Citadel or any term or provision of any judgment,
decree, order, statute, injunction, rule or regulation applicable to Citadel, or
of any material note, bond, mortgage, indenture, lease, license, franchise,
agreement or other instrument or obligation to which Citadel is bound; (ii)
result in the creation of any material Encumbrance upon any of the properties or
assets of Citadel or Acquisition pursuant to any such term or provision; or
(iii) constitute a default under, terminate, accelerate, amend or modify, or
give any party the right to terminate, accelerate, amend, modify, abandon or
refuse to perform or comply with, any material contract, agreement, arrangement,
commitment or plan to which Citadel is a party, or by which Citadel or any of
its properties or assets may be subject or bound.
4.4 CONSENTS AND APPROVALS. No federal, state or other regulatory
----------------------
approvals are required to be obtained, nor any regulatory requirements complied
with, by Citadel in connection with the Merger.
4.5 VIOLATION OF LAWS, PERMITS, ETC.
-------------------------------
(a) Citadel is not in violation of any term or provision of its
Certificate of Incorporation or Bylaws, or of any material term or provision of
any judgment, decree, order, statute, law, injunction, rule, ordinance or
governmental regulation that is applicable to it and where the failure to comply
with which would have a Material Effect.
8
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(b) Citadel has maintained in full force and effect all certificates,
licenses and permits material to the conduct of its business, and has not
received any notification that any revocation or limitation thereof is
threatened or pending.
4.6 CITADEL FINANCIAL STATEMENTS. The Citadel Financial
----------------------------
Statements fairly present the assets, liabilities and financial position of
Citadel purported to be covered thereby as of the dates thereof and the results
of their operations for the respective periods ended on such dates, all in
conformity with GAAP consistently applied.
4.7 NO UNDISCLOSED LIABILITIES, ETC. Citadel does not have any
--------------------------------
material liabilities or obligations, whether direct, indirect, absolute or
contingent (including, without limitation, liabilities as guarantor or otherwise
with respect to obligations of others), except (a) liabilities that are fully
reflected on or reserved against on the latest balance sheet included in the
Citadel Financial Statements, (b) liabilities incurred in the ordinary course of
business since the date of the latest balance sheet included in the Citadel
Financial Statements that are consistent with past practice and are included in
the latest Citadel Financial Statements, or (c) as specifically disclosed in the
Citadel Financial Statements.
4.8 ABSENCE OF CERTAIN CHANGES. Since the date of the latest
--------------------------
Financial Statement, except as specifically disclosed in the latest Citadel
Financial Statements, Citadel has not:
(a) Suffered any change that would be likely to result in a
Material Effect;
(b) Adopted or made any change in any pension, retirement, profit
sharing or other employee benefit plan or arrangement;
(c) Borrowed or agreed to borrow any money or incurred, assumed or
become subject to, whether directly or by way of guarantee or otherwise, any
other obligation or liability for borrowed money, whether absolute, contingent,
known, unknown, or otherwise, except in the ordinary course of business and
consistent with past practice;
(d) (i) Issued, purchased or redeemed any of its capital securities or
any option, warrant or right to purchase any of the same; (ii) authorized,
declared or paid stock dividends; (iii) authorized, declared or paid any
dividends, distributions of earnings or capital on, or splits or any other
reclassification of, its equity securities;
(e) Mortgaged, pledged or subjected to any Encumbrance any material
portion of its assets, tangible or intangible;
(f) Acquired or disposed of, or entered into any agreement to acquire
or dispose of, any material assets or properties, other than in the ordinary
course of business;
(g) Increased the salaries, compensation, pension or other benefits
payable to its officers and directors or their Affiliates;
(h) Forgiven or cancelled any debts or claims or waived any rights
against Citadel or its Affiliates or forgiven or cancelled any material debts or
claims or waived any material rights against any other person;
(i) Entered into, terminated or received notice of the termination of
any commitment, contract, agreement or transaction that is material to Citadel;
or
9
<PAGE>
(j) Agreed, either in writing or otherwise, to take any action
described in this SECTION 4.8.
(k) Made any capital expenditure or commitment, except capital
expenditures that individually or in the aggregate do not exceed $50,000, as
Citadel may, in its discretion, deem appropriate.
4.9 TITLE TO PROPERTY; ENCUMBRANCES. Citadel has good and
-------------------------------
indefeasible title to and other legal right to use all properties and assets,
real, personal and mixed, tangible and intangible, reflected as owned on the
latest balance sheet included in the Citadel Financial Statements or acquired
after the date of such balance sheet, except for properties and assets disposed
of in accordance with customary practice in the business or disposed of for full
and fair value since the date of such balance sheet in the ordinary course of
business consistent with past practice and except for matters that would not
have a Material Effect.
4.10 LITIGATION.
----------
(a) There is no action, proceeding, investigation or inquiry pending
or, to the best of Citadel's knowledge, threatened (i) against or affecting any
of Citadel's assets or business that, if determined adversely to Citadel, would
result in a Material Effect or (ii) that questions this Agreement or any action
contemplated by this Agreement or in connection with the Merger.
(b) There are no citations, fines or penalties heretofore asserted
against Citadel or its assets under any federal, state or local law relating to
air, noise or water pollution or other environmental protection matters, or
relating to occupational health or safety, of which Citadel has received notice
and that remain unpaid or that could otherwise bind the assets of Citadel and
that would result in a Material Effect.
(c) Citadel has no knowledge of any state of facts or of the
occurrence or nonoccurrence of any event or group of related events, that should
reasonably cause Citadel to determine that there exists any basis for any
material claim against Citadel for any of the matters described in paragraphs
(a) or (b) above.
4.11 TAXES.
-----
(a) Citadel has duly filed all required separate, consolidated,
combined or unitary tax returns (including any estimated tax returns), reports,
elections, information returns, declarations, statements or other filings
(including any amendments thereto) required to be filed with any relevant taxing
authority ("Tax Returns"). All taxes, imposts, duties, fees, levies,
withholdings or other like assessments or charges, including, without
limitation, income, gross receipts, capital, transfer, excise, occupancy, real
and personal property, sales, use, employment franchise, ad valorem, social
-- -------
security, payroll, unemployment compensation, stamp, net worth, surplus,
environmental, privilege, windfall profits, value-added, customs or other taxes
of any sort, imposed by the United States, or any state, local or foreign
government or subdivision or agency thereof, including any interest, penalties
and additions to tax attributable thereto ("Taxes") owed by Citadel have been
paid in all material respects. Citadel has caused to be duly filed all required
Tax Returns for any partnerships as to which it is the general partner. All
such Tax Returns described are complete and accurate in all material respects
and there is no basis for any material assessment of any addition to the Tax
shown thereon and (i) none of such Tax Returns has been audited by the Internal
Revenue Service or any state, local or other taxing authority, (ii) Citadel has
no proposed or outstanding Tax deficiency or assessment (except as disclosed in
the Citadel Financial Statements) nor has Citadel been notified of any Tax
Return examination applicable to the business or assets of Citadel (or of any
examination of any consolidated, combined or unitary Tax Returns of any
affiliated group within the meaning of Section 1504 of the Code (or any similar
group defined under comparable provisions of state, local or foreign law) (an
"Affiliated Group") of which Citadel was a member and which relate in part to
Citadel), (iii) no waiver of any statute of limitations relating to such Tax
Returns (or to Taxes payable by or chargeable as a lien upon the assets of
Citadel) has been given or requested, and (iv) no extension of the period for
assessment or collection of any such Taxes has been agreed, (v) there are no Tax
liens on any of the assets or properties of Citadel other than liens for current
10
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Taxes not yet due and payable, and (vi) Citadel has no deferred gain or loss (y)
arising from deferred intercompany transactions (as described in Treasury
Regulations Section 1.1502-13) or (z) with respect to the stock or obligations
of any other corporation (as described in Treasury Regulations Section 1.1502-
14). All Taxes payable by, or chargeable as a lien upon the assets of Citadel
as of the Closing have been duly paid, and the latest balance sheet reflects an
adequate reserve for all Taxes payable or asserted to be payable by or
chargeable as a lien upon the assets of Citadel for all taxable periods or
portions thereof through the date thereof. Any tax sharing agreements or
arrangements between Citadel on the one hand and any other corporation on the
other and any obligations to make payments under any such agreement or
arrangement shall be or has been cancelled without any liability of any party to
such agreement or arrangement, or affiliates thereof as of the Closing.
(b) No consent has been filed under Section 341(f) of the Code with
respect to Citadel.
(c) Citadel is not a "United States real property holding corporation"
(as defined in Section 897(c)(2) of the Code).
(d) Citadel has not made any material payments, is not obligated to
make any material payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any material payments that will
not be deductible under Section 280G of the Code.
(e) Citadel has no liability for the Taxes of any person other than
Citadel (1) under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local, or foreign law), (2) as a transferee or successor,
(1) by contract or (2) otherwise.
(f) Citadel has delivered to LoneStar correct and complete copies of
all federal, state and local Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by Citadel since its first fiscal
year.
(g) The Citadel Disclosure Schedule sets forth the following
information with respect to Citadel (or, in the case of clause (2) below, with
respect to each of the Subsidiaries) as of the most recent practicable date (as
well as on an estimated pro forma basis as of the Closing giving effect to the
consummation of the transactions contemplated hereby): (1) the adjusted tax
basis of Citadel in its assets; (2) the adjusted tax basis of the stockholder(s)
of each Subsidiary in its stock (or the amount of any Excess Loss Account as
defined in Treas. Reg. (S)1.1502-32(e)(1) or Treas. Reg. (S)1.1502-32(a)(3)(ii),
as the case may be; (3) the amount of any net operating loss carryforward, net
capital loss, unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to Citadel; and (4) the amount of any deferred
gain or loss allocable to Citadel out of any deferred intercompany transaction.
4.12 INSURANCE. The policies of fire, casualty and extended
---------
coverage, public liability, products liability, worker's compensation and other
forms of insurance owned or held by or for the benefit of Citadel are sufficient
for compliance with all requirements of law and all agreements to which Citadel
is a party, are valid and enforceable policies, and will not in any way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by this Agreement. All premiums due under such policies have been paid and
Citadel has complied in all material respects with such policies.
4.13 CONTRACTS.
---------
(a) SECTION 4.13 of the Citadel Disclosure Schedule contains a
complete and correct list as of the date hereof of all material agreements,
contracts and commitments of the following types (and all amendments thereto),
written or oral, to which Citadel is a party or by which any of its properties
is bound:
(i) notes, agreements, mortgages, indentures, security
agreements and other instruments relating to the borrowing of money
or evidence of credit or the deferred purchase
11
<PAGE>
price of property, or the direct or indirect guarantee by such
entities of any such indebtedness or deferred purchase price;
(ii) leases of real property and material personal property
(other than Leases);
(iii) Joint Venture agreements;
(iv) management, employment and consulting agreements or other
contracts for personal services that are not terminable by any of
such entities on not more than one month's notice without penalty;
(v) any agreements providing for liability for severance pay,
collective bargaining agreements, labor contracts, or labor or
personnel policies;
(vi) material surety, performance and maintenance bonds;
(vii) any plan, contract or arrangement providing for
bonuses, pensions, deferred compensation, retirement plan payments,
profit sharing, incentive pay, or for any other employee benefit
plan;
(viii) brokerage or finder's agreements;
(ix) any agreement that (a) restricts the right of such
entities to engage in any place in any line of business, other than
in the ordinary course of business or (b) would restrict the right
of Acquisition or any subsidiary of Acquisition to engage in any
line of business after the Closing Date, other than in the ordinary
course of business; and
(x) any contract, commitment or agreement that individually or
in the aggregate is material to Citadel, except contemplated by
this Agreement or in the ordinary course of business and consistent
with past practice.
(b) Citadel has made available to LoneStar complete and correct copies
of all material written agreements, contracts and commitments, together with all
amendments thereto, and accurate (in all material respects) descriptions of all
material oral agreements. Such agreements, contracts and commitments are in
full force and effect, and all of such entities and, to the best of Citadel's
knowledge, all other parties to such agreements, contracts and commitments have
performed all obligations required to be performed by them to date thereunder in
all material respects and are not in default thereunder in any material respect.
4.14 COMPENSATION AND EMPLOYEE PLANS.
-------------------------------
(a) For all purposes of this Section, "Plan" means (i) any employee
benefit plan as defined in Section 3(3) of the ERISA, that is (a) maintained by
Citadel, or (b) to which Citadel is making or accruing an obligation to make
contributions, or (ii) any other formal or informal obligation to, arrangement
with, or plan or program for the benefit of, employees of Citadel, including,
but not limited to, stock options, stock bonuses, stock purchase agreements,
bonuses, incentive compensation, deferred compensation, supplemental pensions,
vacations, severance pay, insurance or any other benefit, program or practice.
SECTION 4.14 of the Citadel Disclosure Schedule sets forth the name of each Plan
and lists all documents evidencing any Plan.
(b) Each Plan is now, and has been from its inception, administered in
compliance in all material respects with the provisions of all applicable laws
and regulations, including ERISA, the Code and the Age Discrimination in
Employment Act, as amended, insofar as such statutes are applicable to such
Plan.
12
<PAGE>
4.15 BROKERS, FINDERS AND ADVISORS. Citadel has not employed any
-----------------------------
broker, finder, or investment advisor on its behalf, or incurred any liability
for any brokerage or finder's fees or commissions, in connection with the
transaction contemplated hereby.
4.16 LABOR FORCE.
-----------
(a) Citadel is in compliance in all material respects with all
applicable laws (including, without limitation, federal income tax laws),
ordinances, regulations, statutes, rules and restrictions of any Governmental
Entity respecting employment and employment practices and terms and conditions
of employment.
(b) No union representation question exists respecting the employees
of Citadel and, to Citadel's knowledge, no union organizing activities are
taking place.
4.17 BOOKS AND RECORDS. The books and records of Citadel (including,
-----------------
without limitation, the books of account, minute books and stock record books)
are complete and correct in all material respects and have been maintained in
accordance with sound business practices. The minute books of Citadel contain
accurate and complete records in all material respects of all meetings held of,
and corporate action taken by, the stockholders and the Boards of Directors of
the respective entities, and no meetings of or actions by such stockholders or
any such Boards of Directors have been held or taken for which minutes have not
been prepared and are not contained in such minute books. None of the records
and written documents furnished or made available by Citadel or its agents to
LoneStar's representatives or agents, when considered in context and together
with any relevant or related documents also so furnished or made available,
contain any untrue statement of material fact or omit a material fact necessary
to make any statement therein not misleading.
4.18 PAYMENTS. Citadel has not, directly or indirectly, paid or
--------
delivered any fee, commission or other sum of money or item of property however
characterized to any finder, agent, government official or other party, in the
United States or any other country, in any manner related to its business or
operations, that Citadel knows or has reason to believe to have been illegal
under any federal, state or local laws of the United States or any other country
or territory having jurisdiction over such entity, and has not participated,
directly or indirectly, in any boycotts or similar practices.
4.19 DISCLOSURE. No representation or warranty made by Citadel in
----------
this Agreement (including, without limitation, in the Citadel Disclosure
Schedule) contains any untrue statement of material fact or omits to state any
material fact necessary to make the statements herein or therein not misleading
in light of the circumstances under which made.
4.20 JOINT VENTURES. Citadel is not a member of any partnership,
--------------
joint venture or other business entity.
4.21 SUBSIDIARIES. Citadel does not own any subsidiaries.
------------
4.22 APPROVAL OF STOCKHOLDERS. The board of directors of Citadel
------------------------
have recommended approval of the Merger by the Stockholders, without reservation
or qualification. Gilbert Gertner and George Sharp have executed concurrently
herewith the Voting Agreement substantially in the form of EXHIBIT I.
4.23 INTELLECTUAL PROPERTY. Citadel owns and has the right to use
---------------------
all right, title and interest in and to all patents, trademarks, tradenames,
logos, commercial symbols, service marks, copyrights, software, trade secrets
and know-how used in its businesses (the "Intellectual Property"). All such
Intellectual Property is owned by Citadel, and Citadel has the full right to use
such Intellectual Property, free and clear of all liens, security interests,
charges, encumbrances, equities and other adverse claims. No such item of
Intellectual Property (a) is infringed or has been challenged or threatened in
any material respect; (b) infringes or has been alleged to infringe any similar
property right of any third party; or (c) has been or is now involved in any
13
<PAGE>
opposition, invalidation or cancellation proceeding (nor is any such action
threatened with respect to any such item). Citadel is not aware of any
potentially infringing patent, trademark, copyright or application therefor of
any third party.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LONESTAR AND
---------------------------------------------------------
ACQUISITION. Except as expressly set forth and specifically identified by the
- -----------
section number of this Agreement in the LoneStar and Acquisition Disclosure
Schedule, LoneStar and Acquisition hereby represent, warrant and covenant to
Citadel, on the date hereof and as of the Closing Date, as follows:
5.1 CORPORATE ORGANIZATION. LoneStar and Acquisition each are a
-----------------------
corporation duly incorporated and validly existing as a corporation and in good
standing under the laws of their respective jurisdictions of incorporation.
LoneStar and Acquisition each have the requisite corporate power and authority
to carry on their respective business as now being conducted and to own, lease
and operate their respective property and assets, and LoneStar and Acquisition
is each duly qualified or licensed to do business and is in good standing in
every jurisdiction (the "Other LoneStar States") in which the failure to be so
qualified and licensed could have a Material Effect. SECTION 5.1 of the
LoneStar and Acquisition Disclosure Schedule sets forth the name and state of
incorporation of LoneStar and each state in which it is qualified or licensed to
do business.
5.2 CAPITALIZATION.
--------------
(a) The authorized, issued and outstanding capital stock of
LoneStar and Acquisition, all outstanding securities convertible into or
exchangeable or exercisable for shares of capital stock of LoneStar or
Acquisition and all rights agreements or other commitments of LoneStar or
Acquisition to issue, transfer or sell their capital stock is as set forth in
SECTION 5.2 of the LoneStar and Acquisition Disclosure Schedule. All of the
issued shares of LoneStar and Acquisition are validly issued, fully paid and
nonassessable, and none of such shares have been issued in violation of the
preemptive rights of any person.
(b) The LoneStar Shares shall be validly issued, fully paid and
nonassessable.
(c) LoneStar and Acquisition do not own or hold any equity, debt or
other interest in any entity or business on any option to acquire any such
interest, except for LoneStar's interest in Acquisition and accounts receivable
that have arisen in the ordinary course of business.
5.3 AUTHORITY.
---------
(a) The execution and performance of this Agreement have been duly
and validly authorized by the board of directors of LoneStar and the board of
directors and stockholder of Acquisition, and no other corporate action by
LoneStar or Acquisition is necessary to authorize the execution, delivery and
performance of this Agreement. LoneStar and Acquisition have the corporate power
and authority to execute and perform this Agreement and to carry out the
transactions contemplated hereby. This Agreement has been duly and validly
executed on behalf of LoneStar and Acquisition and is a valid and binding
obligation of LoneStar and Acquisition, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, moratorium,
reorganization, receivership or similar laws affecting the rights of creditors
generally.
(b) None of the execution, delivery or performance of this
Agreement does or will, after the giving of notice, lapse of time or otherwise,
(i) result in any violation of or be in conflict with or constitute a default
under any term or provision of the Certificate of Incorporation or Bylaws of
LoneStar or Acquisition or any term or provision of any instrument, judgment,
decree, order, statute, injunction, rule or regulation applicable to LoneStar or
Acquisition or of any material note, bond, mortgage, indenture, lease, license,
franchise, agreement or other instrument or obligation to which LoneStar or
Acquisition is bound; or (ii) result in the creation of any material lien upon
any of the properties or assets of LoneStar or Acquisition pursuant to any such
term or provision; or (iii) constitute a default under, terminate, accelerate,
amend or modify, or give any party the right to terminate,
14
<PAGE>
accelerate, amend, modify, abandon or refuse to perform or comply with any
material contract, agreement, arrangement, commitment or plan to which LoneStar
or Acquisition is a party, or by which LoneStar or Acquisition or any of the
rights, properties or assets of LoneStar or Acquisition may be subject or bound.
5.4 CONSENTS AND APPROVALS. No federal, state or other regulatory
-----------------------
approvals are required to be obtained, nor any regulatory requirements complied
with, by LoneStar or Acquisition in connection with the Merger.
5.5 VIOLATION OF LAWS, PERMITS, ETC.
--------------------------------
(a) Neither LoneStar nor Acquisition is in violation of any term or
provision of their respective Certificates of Incorporation or Bylaws, or in any
material respect of any term or provision of any judgment, decree, order,
statute, injunction, rule, ordinance or governmental regulation applicable to
them and where the failure to comply with which would have a Material Effect.
(b) LoneStar and Acquisition have maintained in full force and effect
all certificates, licenses and permits material to the conduct of their
respective business, and have not received any notification that any revocation
or limitation thereof is threatened or pending.
5.6 LONESTAR AND ACQUISITION FINANCIAL STATEMENTS. The LoneStar
---------------------------------------------
Financial Statements and Acquisition Financial Statements fairly present the
assets, liabilities and financial position of such entity as of the dates
thereof and the results of its operations for the respective periods ended on
such dates, all in conformity with GAAP consistently applied.
5.7 NO UNDISCLOSED LIABILITIES, ETC. Neither LoneStar nor
-------------------------------
Acquisition have any material liabilities or obligations, whether direct,
indirect, absolute or contingent (including, without limitation, liabilities as
guarantor or otherwise with respect to obligations of others), except (a)
liabilities that are fully reflected on or reserved against on the latest
balance sheet included in the LoneStar Financial Statements and the Acquisition
Financial Statements, (b) liabilities incurred in the ordinary course of
business since the date of the latest balance sheet included in the LoneStar
Financial Statements or the Acquisition Financial Statements that are consistent
with past practice and are included in the latest LoneStar Financial Statements
or the Acquisition Financial Statements, or (c) as specifically disclosed in the
LoneStar Financial Statements or the Acquisition Financial Statements.
5.8 ABSENCE OF CERTAIN CHANGES. Since the date of the latest
--------------------------
LoneStar Financial Statement, except as specifically disclosed in the latest
Financial Statements for LoneStar, neither LoneStar nor Acquisition have:
(a) Suffered any change that would be likely to result in a Material
Effect;
(b) Adopted or made any change in any pension, retirement, profit
sharing or other employee benefit plan or arrangement;
(c) Borrowed or agreed to borrow any money or incurred, assumed or
become subject to, whether directly or by way of guarantee or otherwise, any
other obligation or liability for borrowed money, whether absolute, contingent,
known, unknown, or otherwise, except in the ordinary course of business and
consistent with past practice;
(d) (i) Issued, purchased or redeemed any of its capital securities or
any option, warrant or right to purchase any of the same; (ii) authorized,
declared or paid stock dividends; (iii) authorized, declared or paid any
dividends, distributions of earnings or capital on, or splits or any other
reclassification of, its equity securities;
15
<PAGE>
(e) Mortgaged, pledged or subjected to any Encumbrance any material
portion of its assets, tangible or intangible;
(f) Acquired or disposed of, or entered into any agreement to acquire
or dispose of, any material assets or properties, other than in the ordinary
course of business;
(g) Increased the salaries, compensation, pension or other benefits
payable to its officers and directors or their Affiliates;
(h) Forgiven or cancelled any debts or claims or waived any rights
against LoneStar or Acquisition or their Affiliates or forgiven or cancelled any
material debts or claims or waived any material rights against any other person;
(i) Entered into, terminated or received notice of the termination of
any commitment, contract, agreement or transaction that is material to LoneStar
or Acquisition; or
(j) Agreed, either in writing or otherwise, to take any action
described in this SECTION 5.8.
(k) Made any capital expenditure or commitment, except capital
expenditures that individually or in the aggregate do not exceed $50,000, as
LoneStar or Acquisition may, in its discretion, deem appropriate.
5.9 TITLE TO PROPERTY; ENCUMBRANCES. LoneStar and Acquisition,
-------------------------------
either directly or indirectly, have good and indefeasible title to and other
legal right to use all properties and assets, real, personal and mixed, tangible
and intangible, reflected as owned on their latest balance sheets included in
the LoneStar or Acquisition Financial Statements or acquired after the date of
such balance sheet, except for properties and assets disposed of in accordance
with customary practice in the business or disposed of for full and fair value
since the date of such balance sheet in the ordinary course of business
consistent with past practice and except for matters that would not have a
Material Effect.
5.10 LITIGATION.
----------
(a) There is no action, proceeding, investigation or inquiry pending
or, to the best of LoneStar's or Acquisition's knowledge, threatened (i) against
or affecting any of LoneStar's or Acquisition's assets or business that, if
determined adversely to LoneStar or Acquisition, would result in a Material
Effect or (ii) that questions this Agreement or any action contemplated by this
Agreement or in connection with the Merger.
(b) There are no citations, fines or penalties heretofore asserted
against LoneStar or Acquisition or their assets under any federal, state or
local law relating to air, noise or water pollution or other environmental
protection matters, or relating to occupational health or safety, of which
LoneStar or Acquisition have received notice and that remain unpaid or that
could otherwise bind the assets of LoneStar or Acquisition and that would result
in a Material Effect.
(c) Neither LoneStar nor Acquisition have knowledge of any state of
facts or of the occurrence or nonoccurrence of any event or group of related
events, that should reasonably cause LoneStar or Acquisition to determine that
there exists any basis for any material claim against LoneStar or Acquisition
for any of the matters described in paragraphs (a) or (b) above.
16
<PAGE>
5.11 TAXES.
-----
(a) LoneStar and Acquisition have duly filed all required Tax Returns.
All Taxes owed by LoneStar and Acquisition have been paid in all material
respects, except as disclosed in the LoneStar Financial Statements. LoneStar
and Acquisition have caused to be timely and duly filed all required Tax Returns
for any partnerships as to which either is the general partner. All such Tax
Returns described are complete and accurate in all material respects and there
is no basis for any material assessment of any addition to the Tax shown thereon
and (i) none of such Tax Returns has been audited by the Internal Revenue
Service or any state, local or other taxing authority, (ii) LoneStar and
Acquisition have no proposed or outstanding Tax deficiency (except as disclosed
in the LoneStar Financial Statements) or assessment nor have they been notified
of any Tax Return examination applicable to the business or assets of LoneStar
or Acquisition (or of any examination of any consolidated, combined or unitary
Tax Returns of any Affiliated Group of which LoneStar or Acquisition was a
member and which relate in part to LoneStar or Acquisition, (iii) no waiver of
any statute of limitations relating to such Tax Returns (or to Taxes payable by
or chargeable as a lien upon the assets of LoneStar or Acquisition) has been
given or requested, (iv) no extension of the period for assessment or collection
of any such Taxes has been agreed, (v) there are no Tax liens on any of the
assets or properties of LoneStar or Acquisition other than liens for current
Taxes not yet due and payable, and (vi) LoneStar and Acquisition have no
deferred gain or loss (y) arising from deferred intercompany transactions (as
described in Treasury Regulations Section 1.1502-13) or (z) with respect to the
stock or obligations of any other corporation (as described in Treasury
Regulations Section 1.1502-14). All Taxes payable by, or chargeable as a lien
upon the assets of LoneStar or Acquisition as of the Closing have been duly
paid, and the balance sheet in the latest LoneStar Financial Statement reflects
an adequate reserve for all Taxes payable or asserted to be payable by or
chargeable as a lien upon the assets of LoneStar or Acquisition for all taxable
periods or portions thereof through the date thereof. Any tax sharing
agreements or arrangements between LoneStar or Acquisition on the one hand and
any other corporation on the other and any obligations to make payments under
any such agreement or arrangement shall be or has been cancelled without any
liability of any party to such agreement or arrangement, or affiliates thereof
as of the Closing.
(b) No consent has been filed under Section 341(f) of the Code with
respect to LoneStar or Acquisition.
(c) Neither LoneStar nor Acquisition is a "United States real property
holding corporation" (as defined in Section 897(c)(2) of the Code).
(d) Neither LoneStar nor Acquisition has made any material payments,
is not obligated to make any material payments, and is not a party to any
agreement that under certain circumstances could obligate it to make any
material payments that will not be deductible under Section 280G of the Code.
(e) Neither LoneStar nor Acquisition has any material liability for
the Taxes of any person other than LoneStar and Acquisition (1) under Treasury
Regulations Section 1.1502-6 (or any similar provision of state, local, or
foreign law), (2) as a transferee or successor, (3) by contract or (4)
otherwise.
(f) LoneStar has delivered to Citadel correct and complete copies of
all federal, state and local Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by LoneStar since its first fiscal
year.
(g) The LoneStar and Acquisition Disclosure Schedule sets forth the
following information with respect to LoneStar and Acquisition (or, in the case
of clause (2) below, with respect to each of the Subsidiaries) as of the most
recent practicable date (as well as on an estimated pro forma basis as of the
Closing giving effect to the consummation of the transactions contemplated
hereby): (1) the adjusted tax basis of LoneStar and Acquisition and their
assets; (2) the adjusted tax basis of the stockholder(s) of each Subsidiary in
its stock (or the amount of any Excess Loss Account as defined in Treas. Reg.
(S)1.1502-32(e)(1) or Treas. Reg. (S)1.1502-32(a)(3)(ii), as the case may be;
(3) the amount of any net operating loss carryforward, net capital loss, unused
17
<PAGE>
investment or other credit, unused foreign tax, or excess charitable
contribution allocable to LoneStar or Acquisition and (4) the amount of any
deferred gain or loss allocable to LoneStar or Acquisition out of any deferred
intercompany transaction.
5.12 INSURANCE. The policies of fire, casualty and extended
---------
coverage, public liability, products liability, worker's compensation and other
forms of insurance owned or held by or for the benefit of LoneStar and
Acquisition are sufficient for compliance with all requirements of law and all
agreements to which LoneStar or Acquisition are a party, are valid and
enforceable policies, and will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement. All
premiums due under such policies have been paid and LoneStar and Acquisition
have complied in all material respects with such policies.
5.13 CONTRACTS.
---------
(a) SECTION 5.13 of LoneStar and Acquisition Disclosure Schedule
contains a complete and correct list as of the date hereof of all material
agreements, contracts and commitments of the following types (and all amendments
thereto), written or oral, to which LoneStar or Acquisition are a party or by
which any of its properties is bound:
(i) notes, agreements, mortgages, indentures, security
agreements and other instruments relating to the borrowing of money
or evidence of credit or the deferred purchase price of property,
or the direct or indirect guarantee by such entities of any such
indebtedness or deferred purchase price;
(ii) leases of real property and material personal property
(other than Leases);
(iii) Joint Venture agreements;
(iv) management, employment and consulting agreements or other
contracts for personal services that are not terminable by any of
such entities on not more than one month's notice without penalty;
(v) any agreements providing for liability for severance pay,
collective bargaining agreements, labor contracts, or labor or
personnel policies;
(vi) material surety, performance and maintenance bonds;
(vii) any plan, contract or arrangement providing for
bonuses, pensions, deferred compensation, retirement plan payments,
profit sharing, incentive pay, or for any other employee benefit
plan;
(viii) brokerage or finder's agreements;
(ix) any agreement that (a) restricts the right of such
entities to engage in any place in any line of business, other than
in the ordinary course of business or (b) would restrict the right
of LoneStar or any subsidiary of LoneStar to engage in any line of
business after the Closing Date, other than in the ordinary course
of business; and
(x) any contract, commitment or agreement that individually or
in the aggregate is material to LoneStar and Acquisition, except
contemplated by this Agreement or in the ordinary course of
business and consistent with past practice.
18
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(b) LoneStar and Acquisition have made available to Citadel complete
and correct copies of all material written agreements, contracts and
commitments, together with all amendments thereto, and accurate (in all material
respects) descriptions of all material oral agreements. Such agreements,
contracts and commitments are in full force and effect, and all of such entities
and, to the best of LoneStar's and Acquisition's knowledge, all other parties to
such agreements, contracts and commitments have performed all obligations
required to be performed by them to date thereunder in all material respects and
are not in default thereunder in any material respect.
5.14 COMPENSATION AND EMPLOYEE PLANS.
-------------------------------
(a) For all purposes of this Section, "Plan" means (i) any employee
benefit plan as defined in Section 3(3) of the ERISA, that is (a) maintained by
LoneStar or Acquisition, or (b) to which LoneStar or Acquisition is making or
accruing an obligation to make contributions, or (ii) any other formal or
informal obligation to, arrangement with, or plan or program for the benefit of,
employees of LoneStar or Acquisition, including, but not limited to, stock
options, stock bonuses, stock purchase agreements, bonuses, incentive
compensation, deferred compensation, supplemental pensions, vacations, severance
pay, insurance or any other benefit, program or practice. SECTION 5.14 of the
LoneStar and Acquisition Disclosure Schedule sets forth the name of each Plan
and lists all documents evidencing any Plan.
(b) Each Plan is now, and has been from its inception, administered in
compliance in all material respects with the provisions of all applicable laws
and regulations, including ERISA, the Code and the Age Discrimination in
Employment Act, as amended, insofar as such statutes are applicable to such
Plan.
5.15 BROKERS, FINDERS AND ADVISORS. Neither LoneStar nor Acquisition
-----------------------------
has employed any broker, finder, or investment advisor on its behalf, or
incurred any liability for any brokerage or finder's fees or commissions, in
connection with the transaction contemplated hereby.
5.16 LABOR FORCE.
-----------
(a) LoneStar and Acquisition are in compliance in all material
respects with all applicable laws (including, without limitation, federal income
tax laws), ordinances, regulations, statutes, rules and restrictions of any
Governmental Entity respecting employment and employment practices and terms and
conditions of employment.
(b) No union representation question exists respecting the employees
of LoneStar and Acquisition and, to LoneStar's and Acquisition's knowledge, no
union organizing activities are taking place.
5.17 BOOKS AND RECORDS. The books and records of LoneStar and
-----------------
Acquisition (including, without limitation, the books of account, minute books
and stock record books) are complete and correct in all material respects and
have been maintained in accordance with sound business practices. The minute
books of LoneStar and Acquisition contain accurate and complete records in all
material respects of all meetings held of, and corporate action taken by, the
stockholders and the Boards of Directors of the respective entities, and no
meetings of or actions by such stockholders or any such Boards of Directors have
been held or taken for which minutes have not been prepared and are not
contained in such minute books. None of the records and written documents
furnished or made available by LoneStar and Acquisition or their agents to
Citadel's representatives or agents, when considered in context and together
with any relevant or related documents also so furnished or made available,
contain any untrue statement of material fact or omit a material fact necessary
to make any statement therein not misleading.
5.18 PAYMENTS. Neither LoneStar nor Acquisition has, directly or
--------
indirectly, paid or delivered any fee, commission or other sum of money or item
of property however characterized to any finder, agent, government official or
other party, in the United States or any other country, in any manner related to
its
19
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business or operations, that LoneStar or Acquisition knows or has reason to
believe to have been illegal under any federal, state or local laws of the
United States or any other country or territory having jurisdiction over such
entity, and has not participated, directly or indirectly, in any boycotts or
similar practices.
5.19 DISCLOSURE. No representation or warranty made by LoneStar or
----------
Acquisition in this Agreement (including, without limitation, in the LoneStar
and Acquisition Disclosure Schedule) contains any untrue statement of material
fact or omits to state any material fact necessary to make the statements herein
or therein not misleading in light of the circumstances under which made.
5.20 JOINT VENTURES. Neither LoneStar or Acquisition is a member of
--------------
any partnership, joint venture or other business entity.
5.21 SUBSIDIARIES. Neither LoneStar or Acquisition own any
------------
subsidiaries except for LoneStar's ownership of Acquisition.
5.22 APPROVAL OF MERGER. The board of directors of LoneStar and
------------------
Acquisition have approved the Merger without reservation or qualification.
5.23 INTELLECTUAL PROPERTY. LoneStar and Acquisition own and have
---------------------
the right to use all right, title and interest in and to Intellectual Property
used in their business. All such Intellectual Property is owned by LoneStar or
Acquisition and LoneStar or Acquisition have the full right to use such
Intellectual Property, free and clear of all liens, security interests, charges,
encumbrances, equities and other adverse claims. No such item of Intellectual
Property (a) is infringed or has been challenged or threatened in any material
respect; (b) infringes or has been alleged to infringe any similar property
right of any third party; or (c) has been or is now involved in any opposition,
invalidation or cancellation proceeding (nor is any such action threatened with
respect to any such item). Neither LoneStar nor Acquisition is aware of any
potentially infringing patent, trademark, copyright or application therefor of
any third party.
5.24 SEC FILINGS. LoneStar has filed all forms, reports and
-----------
documents required to be filed with the Commission. All of such filings were
prepared in accordance with the requirements of all applicable laws in all
material respects, and did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
5.25 LIABILITIES. As of the Closing Date, neither LoneStar nor
-----------
Acquisition have any outstanding payables other than (i) indebtedness to
Stephens Diversified Leasing, Inc. and to Miami Subs U.S.A., Inc. and (ii) as
listed in Section 5.25 of the LoneStar and Acquisition Disclosure Schedule.
6. ACTIONS OF CITADEL PRIOR TO THE CLOSING DATE.
--------------------------------------------
6.1 AFFIRMATIVE COVENANTS. Prior to the Closing Date, Citadel
---------------------
covenants that, unless the prior written consent of LoneStar is first obtained,
which consent shall not be unreasonably withheld, Citadel will:
(a) During the period from the date of this Agreement to the Effective
Time, Citadel will conducts its operations according to its ordinary and usual
course of business and consistent with past practice, and Citadel will use its
best efforts to preserve intact its business organization, to keep available the
services of its officers and employees and to maintain satisfactory
relationships with licensors, licensees, suppliers, contractors, distributors,
customers and others having business relationships with Citadel.
20
<PAGE>
(b) Duly comply with all laws applicable to them and their respective
properties, operations, business and employees that if not complied with would
result in a Material Effect.
(c) Provide each Citadel Warrant Holder with notice as required
pursuant to such Citadel Warrant Holder's agreement with Citadel.
(d) Execute and deliver to LoneStar the note containing the terms set
forth in SECTION 7.1(C) hereof and in a form that is mutually agreeable to
LoneStar and Citadel (the "Note"), upon LoneStar commencing the funding of the
loan referred to in SECTION 7.1(C) hereof.
(e) Furnish to LoneStar and Acquisition the Citadel Disclosure
Schedule within three business days of the date hereof.
6.2 NEGATIVE COVENANTS. Prior to the Closing Date, except with the
------------------
prior written consent of LoneStar, which consent shall not be unreasonably
withheld, Citadel will not:
(a) Do any of the restricted acts set forth in SECTION 4.8 hereof, or
enter into any agreement of a nature set forth in SECTION 4.13 hereof;
(b) Enter into any transaction other than in the ordinary course of
business; or
(c) Amend the respective organizational or governing documents of
Citadel.
6.3 CONSENTS. Citadel will use best efforts to obtain all consents
--------
from third parties, including, without limitation, Governmental Entities
necessary or appropriate to effectuate the transactions contemplated by this
Agreement.
6.4 ADVICE OF CHANGES. Citadel will promptly advise LoneStar in
-----------------
writing from time to time prior to the Closing Date with respect to any matter
hereafter arising and known to them that, if existing or occurring at the date
of this Agreement, would have been required to be set forth or described in the
Citadel Disclosure Schedule or would have resulted in any representation of
Citadel in this Agreement being untrue.
6.5 BEST EFFORTS. Citadel will use best efforts to cause to be
------------
fulfilled those of the conditions to LoneStar's and/or Acquisition's obligations
to consummate the transactions contemplated by this Agreement that are dependent
upon Citadel's actions and to execute and deliver such instruments and take such
other actions as necessary or appropriate in order to carry out the intent of
this Agreement.
6.6 ACCESS TO PROPERTIES AND RECORDS. From and after the date of
--------------------------------
this Agreement through the earlier of the Closing or the termination of this
Agreement, Citadel shall (a) provide LoneStar an identification of and access to
all books, records and documents, including contracts, agreements, consents,
settlements, revenue and expense information, and (b) afford to LoneStar and its
officers, attorneys, accountants and other authorized representatives free and
full access during normal business hours to the offices, properties, books and
records of Citadel.
6.7 SUPPLY DOCUMENTS, REPORTS, ETC.
-------------------------------
(a) Citadel shall furnish or make available to LoneStar all documents,
reports and other information and data (including financial statements)
concerning Citadel as LoneStar may reasonably require in connection with any
statement, application, or document required to be filed with applicable
Governmental Entities in connection with the transaction contemplated by this
Agreement or furnished to any other person, firm, corporation or Governmental
Entity in connection with this Agreement, including, but not limited to the
Commission.
21
<PAGE>
(b) Citadel represents and warrants that all such information shall be
true, correct, and complete in all material respects and shall not omit any
material fact required to be stated to make such information not misleading in
light of the circumstances under which made.
6.8 STOCKHOLDER APPROVAL. Citadel will use its best efforts to
--------------------
submit this Agreement to the Stockholders for approval at the Special Meeting to
be held at the earliest practicable date for the purpose, among other things, of
considering and voting upon a proposal to approve and adopt this Agreement.
7. ACTIONS OF LONESTAR AND ACQUISITION PRIOR TO THE CLOSING DATE.
-------------------------------------------------------------
7.1 AFFIRMATIVE COVENANTS. Prior to the Closing Date, LoneStar and
---------------------
Acquisition covenant that, unless the prior written consent of Citadel is first
obtained, each (except with respect to subparagraph (c) below that applies
solely to LoneStar) will:
(a) During the period from the date of this Agreement to the Effective
Time, conduct their operations according to their ordinary and usual course of
business and consistent with past practice, and will use their best efforts to
preserve intact their business organizations, to keep available the services of
their officers and employees and to maintain satisfactory relationships with
licensors, licensees, suppliers, contractors, distributors, customers and others
having business relationships with LoneStar or Acquisition.
(b) Duly comply with all laws applicable to them and their respective
properties, operations, business and employees that if not complied with would
result in a Material Effect.
(c) Within two business days of the date hereof, LoneStar shall
advance to Citadel $100,000 as an unsecured loan and upon any financing of debt
or equity by LoneStar after the date hereof, LoneStar shall, within two business
days of LoneStar's receipt of such proceeds, fund to Citadel such proceeds until
Citadel has received an unsecured loan to Citadel in an additional principal
amount of $400,000, pursuant to the Note to be executed by Citadel. The Note
shall be for a term of one year, shall bear interest at 12% per annum, shall be
an unsecured obligation and shall be in a form that is mutually agreeable to
LoneStar and Citadel.
(d) Furnish to Citadel the LoneStar and Acquisition Disclosure
Schedule within three business days of the date hereof.
7.2 NEGATIVE COVENANTS. Prior to the Closing Date without the prior
------------------
written consent of Citadel, LoneStar and Acquisition will not:
(a) Do any of the restricted acts set forth in SECTION 5.8 hereof, or
enter into any agreement of a nature set forth in SECTION 5.13 hereof;
(b) Enter into any transaction other than in the ordinary course of
business; or
(c) Amend their respective organizational or governing documents of
LoneStar and Acquisition.
7.3 CONSENTS. LoneStar and Acquisition will use best efforts to
--------
obtain all consents from third parties, including, without limitation,
Governmental Entities necessary or appropriate to effectuate the transactions
contemplated by this Agreement.
7.4 ADVICE OF CHANGES. LoneStar will promptly advise Citadel in
-----------------
writing from time to time prior to the Closing Date with respect to any matter
hereafter arising and known to it that, if existing or occurring at the date of
this Agreement, would have been required to be set forth or described in the
LoneStar and
22
<PAGE>
Acquisition Disclosure Schedule or would have resulted in any representation of
LoneStar or Acquisition in this Agreement being untrue in any material respect.
7.5 OTC BULLETIN BOARD. LoneStar will use its best efforts to
------------------
maintain the listing on the OTC Bulletin Board of the LoneStar Common Stock.
7.6 BEST EFFORTS. LoneStar and Acquisition will use their best
------------
efforts to cause to be fulfilled those of the conditions to Citadel's
obligations to consummate the transactions contemplated by this Agreement that
are dependent upon LoneStar's or Acquisition's actions and to execute and
deliver such instruments and take such other actions as necessary or appropriate
in order to carry out the intent of this Agreement.
7.7 ACCESS TO PROPERTIES AND RECORDS. From and after the date of
--------------------------------
this Agreement through the earlier of the Closing or the termination of this
Agreement, LoneStar and Acquisition shall (a) provide Citadel an identification
of and access to all books, records and documents, including contracts,
agreements, consents, settlements, revenue and expense information, and (b)
afford to Citadel and its officers, attorneys, accounts and other authorized
representatives free and full access during normal business hours to the
offices, properties, books and records of LoneStar and Acquisition.
7.8 SUPPLY DOCUMENTS, REPORTS, ETC.
------------------------------
(a) LoneStar and Acquisition shall furnish or make available to
Citadel all documents, reports and other information and data (including
financial statements) concerning LoneStar and Acquisition as Citadel may
reasonably require in connection with any statement, application, or document
required to be filed with applicable Government Entities in connection with the
transaction contemplated by this Agreement or furnished to any other person,
firm, corporation or Governmental Entity in connection with this Agreement,
including, but not limited to the Commission.
(b) LoneStar and Acquisition represent and warrant that all such
information shall be true, correct, and complete in all material respects and
shall not omit any material fact required to be stated to make such information
not misleading in light of the circumstances under which made.
8. CONDITIONS TO LONESTAR'S AND ACQUISITION'S OBLIGATIONS. Each and
------------------------------------------------------
every obligation of LoneStar and Acquisition under this Agreement (other than
the obligation to make the loan referenced in SECTION 7.1(C) hereof) to be
performed on or before the Closing Date is, at the option of LoneStar or
Acquisition, subject to the satisfaction on or before the Closing Date of each
of the following conditions:
(a) (i) All of the terms, covenants and conditions of this Agreement
to be complied with or performed by Citadel at or before the Closing Date shall
have been duly complied with and performed in all material respects, (ii) the
representations and warranties of Citadel set forth in ARTICLE 4, as modified by
the statements contained in the Citadel Disclosure Schedule, shall be true in
all material respects on and as of the Closing Date with the same force and
effect as if such representations and warranties had been made on and as of the
Closing Date and (iii) LoneStar shall have received a certificate to such effect
from the President of Citadel.
(b) All consents, waivers, approvals, licenses, authorizations of, or
filings or declarations with third parties or Governmental Entities required to
be obtained by Citadel in order to permit the transactions contemplated by this
Agreement to be consummated in accordance with agreements and court orders
applicable to Citadel and applicable governmental laws, rules, regulations and
agreements shall have been obtained and any waiting period thereunder shall have
expired or been terminated and LoneStar shall have received a certificate to
such effect from the President of Citadel.
(c) LoneStar shall have received from each Stockholder an investment
letter executed by such Stockholder reasonably acceptable to LoneStar pursuant
to which, among other things, such Stockholder
23
<PAGE>
acknowledges that the LoneStar Shares are restricted securities under the
Securities Act and represents that such Stockholder is acquiring the LoneStar
Shares without a view to distribution.
(d) LoneStar shall have received the written opinion of Endeavour
Capital Corporation as to the fairness to LoneStar's Stockholders of the Merger.
(e) LoneStar shall have received a Voting Agreement substantially in
the form of EXHIBIT I executed by Gilbert Gertner and George Sharp.
(f) All actions, proceedings, instruments and documents in connection
with the consummation of the transactions contemplated by this Agreement,
including the forms of all documents, legal matters, opinions and procedures in
connection therewith, shall have been approved in form and substance by counsel
for LoneStar, which approval shall not be unreasonably withheld.
(g) Citadel shall have furnished such certificates to evidence
compliance with the conditions set forth in this Article, as may be reasonably
requested by LoneStar or its counsel.
(h) Citadel shall not have suffered any Material Effect.
(i) No material information or data provided or made available to
LoneStar or Acquisition by or on behalf of Citadel shall be incorrect in any
material respect.
(j) No investigation and no suit, action or proceeding before any
court or any governmental or regulatory authority shall be pending or threatened
by any state or federal governmental or regulatory authority, against Citadel or
any of its affiliates, associates, officers or directors seeking to restrain,
prevent or change in any material respect the transactions contemplated hereby
or seeking damages in connection with such transactions that are material to
Citadel.
(k) The Placement Agency Agreement, dated November 14, 1995, by and
between Citadel and Jannsen-Meyers Associates, L.P. shall have been terminated
by Citadel without any liability except as provided for in Section 12 thereof.
(l) Holders of no more than 15% of the issued and outstanding shares
of the capital stock of Citadel shall have exercised appraisal rights under the
DGCL.
(m) An Employment Agreement shall have been executed and delivered by
Steven B. Solomon in substantially the same form as the employment agreements
executed by Messrs. Gertner and Sharp referred to in subparagraph 9(j) below.
9. CONDITIONS TO CITADEL'S OBLIGATIONS. Except as set forth below,
-----------------------------------
each and every obligation of Citadel under this Agreement to be performed on the
Closing Date is, at the option of Citadel, subject to the satisfaction on or
before the Closing Date, of each of the following conditions:
(a) (i) All of the terms, covenants and conditions of this Agreement
to be complied with or performed by LoneStar and Acquisition at or before the
Closing Date shall have been duly complied with and performed in all material
respects, (ii) the representations and warranties of Acquisition set forth in
ARTICLE 5 shall be true in all material respects on and as of the Closing Date
with the same force and effect as if such representations and warranties had
been made on and as of the Closing Date, and (iii) Citadel shall have received a
certificate from an officer of LoneStar and an officer of Acquisition at Closing
to such effect.
(b) All consents, waivers, approvals, licenses, authorizations of, or
filings or declarations with third parties or Governmental Entities required to
be obtained by LoneStar and Acquisition in order to permit
24
<PAGE>
the transactions contemplated by this Agreement to be consummated in accordance
with agreements and court orders applicable to LoneStar and Acquisition and
applicable governmental laws, rules, regulations and agreements shall have been
obtained and any waiting period thereunder shall have expired or been terminated
and Citadel shall have received a certificate from an officer of LoneStar and an
officer of Acquisition at Closing to such effect.
(c) All actions, proceedings, instruments and documents in connection
with the consummation of the transactions contemplated by this Agreement,
including the forms of all documents, legal matters, opinions and procedures in
connection therewith, shall have been approved in form and substance by counsel
for Citadel, which approval shall not be unreasonably withheld.
(d) LoneStar shall have furnished such certificates of its officers
and others to evidence compliance with the conditions set forth in this Article,
as may be reasonably requested by Citadel or their counsel.
(e) Neither LoneStar nor Acquisition shall have suffered any Material
Effect.
(f) No material information or data provided or made available to
Citadel by or on behalf of LoneStar or Acquisition shall be incorrect in any
material respect.
(g) No investigation and no suit, action or proceeding before any
court or any governmental or regulatory authority shall be pending or threatened
by any state or federal governmental or regulatory authority, against LoneStar
or Acquisition or any of their affiliates, associates, officers or directors
seeking to restrain, prevent or change in any material respect the transactions
contemplated hereby or seeking damages in connection with such transactions that
are material to LoneStar or Acquisition.
(h) Citadel shall be reasonably satisfied that LoneStar's cash flow
from the Restaurant Assets is positive as of the Closing Date; provided,
however, that for this purpose, expenses not directly related to restaurant
operations, including, but not limited to, general and administrative expenses;
legal and other expenses in connection with financing activities, the
transactions contemplated by this Agreement, and other acquisition and/or
dispositions of assets not in the ordinary course of business; and litigation
expenses, including judgments, settlements and legal fees and expenses, shall
not be included in the calculation of cash flow.
(i) The Placement Agency Agreement, dated November 14, 1995, by and
between Citadel and Jannsen-Meyers Associates, L.P. shall have been terminated
by Citadel without any liability except as provided for in Section 12 thereof.
(j) Employment Agreements shall have been executed and delivered by
Gilbert Gertner and George Sharp in a form reasonably satisfactory to LoneStar
and Citadel.
(k) LoneStar shall have sold the Restaurant Assets on terms and
conditions no less favorable to LoneStar than as set forth on EXHIBIT II or if
the Restaurant Assets have not been sold on such terms, Citadel shall be
reasonably satisfied with LoneStar's progress in selling the Restaurant Assets.
(l) Lone Star has made the loan to Citadel described in SECTION
7(C)(I) by February 15, 1996.
Notwithstanding the foregoing, if LoneStar shall have sold the
Restaurant Assets as provided in (k) above and has made the loan as described in
(l) above, all other conditions set forth in SECTION 9 shall have been deemed to
be satisfied.
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10. ADDITIONAL AGREEMENTS.
---------------------
10.1 CONFIDENTIALITY. The parties hereto will, and will cause their
---------------
officers, directors, employees and authorized representatives to, hold in
confidence all, and not to use or to disclose to others any, nonpublic
information received by them from another party hereto in connection with the
transactions contemplated by this Agreement; provided, however, the foregoing
shall not restrict necessary disclosures in compliance with requirements of any
law, governmental order or regulation.
10.2 FURTHER ASSURANCES. After Closing, the parties shall execute,
------------------
acknowledge and deliver or cause to be executed, acknowledged and delivered such
instruments and take such other action including payment of monies as may be
necessary or advisable to carry out their obligations under this Agreement and
under any document, certificate or other instrument delivered pursuant hereto or
required by law. If at any time subsequent to the Closing, any party comes into
possession of money or property belonging to another party, such money or
property shall be promptly turned over to the party entitled thereto.
11. TERMINATION, WAIVER AND AMENDMENT.
---------------------------------
11.1 TERMINATION. This Agreement may be terminated prior to the
-----------
Effective Date before or after approval by the Stockholders by: (i) mutual
consent of the board of directors of LoneStar, Acquisition and Citadel for any
reason; (ii) LoneStar or Acquisition, if Citadel has failed to comply in any
material respect with any of its covenants or agreements under this Agreement
that are required to be complied with prior to the date of such termination;
(iii) Citadel, if LoneStar or Acquisition has failed to comply in any material
respect with any of their covenants or agreements under this Agreement that are
required to be complied with prior to the date of such termination; (iv) either
LoneStar, Acquisition or Citadel, if the Closing does not take place prior to
February 28, 1996, except that such date may be extended until March 31, 1996,
by LoneStar, Acquisition or Citadel if such delay is attributable to actions by
a Governmental Entity; (v) either LoneStar, Acquisition or Citadel, if a
Governmental Entity has permanently enjoined or prohibited consummation of the
Merger and such court or government action is final and nonappealable; or (vi)
Citadel, if LoneStar has not advanced at least $500,000 as an unsecured loan to
Citadel as provided in SECTION 7.1(C) by February 15, 1996.
11.2 MANNER OF EXERCISE. In the event of termination and abandonment
------------------
by LoneStar, Acquisition or Citadel, pursuant to SECTION 11.1, written notice
thereof shall forthwith be given to the other parties, and this Agreement shall
terminate and the transactions contemplated hereunder shall be abandoned without
further action by the parties.
11.3 EFFECT OF TERMINATION. In the event of the termination and
---------------------
abandonment pursuant to SECTION 11.1, this Agreement shall become void and have
no effect, without any liability on the part of any of the parties or their
directors or officers or stockholders in respect of this Agreement and the
transactions contemplated hereby except that a party that breaches this
Agreement may have liability to the other parties hereto arising out of such
breach. Except as allowed under this Agreement, if the Merger is not
consummated, each party to this Agreement will bear its own costs and expenses
in connection therewith and the transactions contemplated thereby.
11.4 WAIVER. The respective obligations of LoneStar, Acquisition and
------
Citadel to effect the Merger are subject to written waiver thereof.
11.5 AMENDMENT. LoneStar, Acquisition and Citadel may amend this
---------
Agreement before or after approval by the stockholders of the companies, but no
amendment may be made after such approval if the amendment would change the
exchange ratio provided in SECTION 2.6 hereof or if any such amendment would
materially adversely affect the rights of any such stockholder, except with the
further approval of the stockholders so adversely affected. The parties to this
Agreement may, at any time prior to the Effective Date, extend the time for
performance of any of the other parties' obligations under this Agreement and
waive any inaccuracies in the
26
<PAGE>
representations and warranties contained herein and waive compliance with any of
the agreements or conditions contained herein that may be legally waived.
12. MISCELLANEOUS.
-------------
12.1 EXPENSES. Except as otherwise provided herein, each party shall
--------
pay all expenses and costs in connection with this Agreement and the
transactions contemplated hereby.
12.2 PRESS RELEASES. No party shall make any public announcement or
--------------
press release with respect to this transaction without written consent of the
others (which shall not be unreasonably withheld), except as required by law.
12.3 BINDING EFFECT. This Agreement and all of the provisions hereof
--------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any party
without the prior written consent of the others. Nothing contained herein,
express or implied, is intended to confer on any person other than the parties
hereto or their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
12.4 SEVERABILITY. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, in such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12.5 NOTICES. Any notice, request, instructions or other document to
-------
be given hereunder to any party shall be in writing, sent by facsimile
transmission or delivered personally or by courier or sent by certified mail,
postage prepaid, as follows:
If to Citadel:
Citadel Computer Systems, Inc.
2950 North Loop West
Suite 1800
Houston, Texas 77092
Attention: George Sharp, President
If to LoneStar or Acquisition:
LoneStar Hospitality Corporation
3131 Turtle Creek
Suite 1301
Dallas, Texas 75219
Attention: Steven B. Solomon, President
Any party may change its address for purposes of this Section by giving written
notice of such change of address to the other parties in the manner herein
provided for giving notice. Any notice or communication hereunder shall be
deemed to have been given when (i) deposited in the United States mail, if by
certified mail, and (ii) received, if delivered personally or by courier or
facsimile transmission.
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12.6 ENTIRE AGREEMENT. This Agreement (including the instruments
----------------
between the parties referred to herein and any waivers delivered pursuant
hereto) constitutes the entire agreement among the parties and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof. The
Exhibits and Schedules are a part of this Agreement as if fully set forth
herein. All references to articles, sections, subsections, paragraphs, clauses,
exhibits and schedules shall be deemed references to such part of this
Agreement, unless the context shall otherwise require.
12.7 AMENDMENTS; WAIVERS. No supplement, modification, or amendment
-------------------
of this Agreement or waiver of any provision of this Agreement will be binding
unless executed in writing by, or on behalf of, all parties to this Agreement.
No waiver of any of the provisions of this Agreement will be deemed or will
constitute a waiver of any other provision of this Agreement (regardless of
whether similar), nor will any such waiver constitute a continuing waiver unless
otherwise expressly provided.
12.8 HEADINGS. Descriptive headings contained herein are for
--------
convenience of reference only and shall not affect the meaning or interpretation
hereof.
12.9 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one agreement.
12.10 SPECIFIC PERFORMANCE. The parties hereto agree that
--------------------
irreparable damage would occur if any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provision hereof in any court of the United States of
America or any state having jurisdiction, in addition to any other remedy to
which they are entitled at law or in equity.
12.11 GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN
-------------
THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN THAT STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
12.12 TIME OF ESSENCE. Time is of the essence of the parties'
---------------
obligation to consummate the transactions contemplated by this Agreement on the
Closing Date.
12.13 BEST EFFORTS. No provision of this Agreement calling for a
------------
party to use its best efforts or reasonable efforts shall be construed so as to
require such party to incur out-of-pocket expenditures other than expenditures
normally incurred in transactions similar to the Merger or to take any step that
would not be commercially reasonable, in light of all of the circumstances.
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EXECUTED as of the day and year first above written.
LONESTAR HOSPITALITY CORPORATION
By:
-------------------------
Name:
-----------------------
Title:
----------------------
LSHC ACQUISITION, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
CITADEL COMPUTER SYSTEMS, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE>
EXHIBIT 2.2
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of March, 1996,
by and among LoneStar Hospitality Corporation, a Delaware corporation,
("LSHC"), LS Holding Corp., a Delaware corporation (formerly known as LoneStar
Hospitality Corp.) (LS") (LSHC and LS referred to collectively herein as
"LoneStar") and Miami Subs U.S.A., Inc., a Florida Corporation ("MSUSA").
RECITALS
1. LoneStar owns and operates five Miami Subs Grill restaurants (the
"Restaurants") located at (i) 13535 Preston Road, Dallas, Texas (the "Preston
Restaurant"), (ii) 3826 Lemmon Avenue, Dallas, Texas (the "Lemmon Restaurant"),
(iii) 1240 E. Belt Line Road, Richardson, Texas (the "Belt Line Restaurant"),
(iv) 7700 North Central Expressway, Dallas, Texas (the "Southwestern
Restaurant"), and (v) 2103 Town East Boulevard, Mesquite, Texas (the "Town East
Restaurant") (collectively, the "Premises"). LoneStar operates the Restaurants
pursuant to the Area Development Agreement between LS and MSUSA dated July 1,
1992, as amended from time to time (the "Area Development Agreement"), and the
franchise agreements between LoneStar and MSUSA relating to each such restaurant
(collectively, the"Franchise Agreements").
2. LoneStar desires to sell, and MSUSA desires to purchase, the
Restaurants.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, MSUSA and LoneStar hereby agree as follows:
1. AGREEMENT TO PURCHASE AND SELL.
(a) MSUSA agrees to purchase from LoneStar , and LoneStar agrees to
sell and deliver to MSUSA , all of the assets (the "Assets") of the
Restaurants, which assets shall include all leasehold improvements,
furniture, fixtures and equipment to which LoneStar has title, leases, all
territory rights, inventory, Cash on Hand (as hereinafter defined), prepaid
rents, utility and other deposits, transferrable licenses (other than
liquor licenses), and smallwares. MSUSA will not be acquiring any ownership
interest in the alcoholic beverage inventory.
(b) The sale of the Assets will be made free and clear of all claims,
liens and obligations, except for the liens and encumbrances placed on the
Assets in connection with the loan to the LoneStar of $1,500,000 (the
"Stephens Loan") by Stephens Diversified Leasing, d/b/a Stephens Franchise
Finance ("Stephens") and as otherwise specifically set forth in this
Agreement. The parties acknowledge that MSUSA is not assuming any
liabilities of LoneStar, or any liability or obligation in connection with
the Assets, the employees of LoneStar, the Restaurants, the Premises or the
business relating thereto, except as otherwise specifically stated herein.
(c) The closing of this transaction (the "Closing") shall take place
on or before March 1, 1996 at the offices of LoneStar, or at such other
time and place as shall be mutually agreed upon by the parties (the
"Closing Date").
(d) The Assets being conveyed hereunder, and the land and the
Premises, shall be
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conveyed in an "AS IS" condition, as of the date of Closing. LoneStar shall
transfer any warranties it may receive from the manufacturer of any
equipment located on the premises
2. CONSIDERATION. As consideration for its purchase of the Assets, on
and as of the Closing, MSUSA will:
(a) cause its parent, Miami Subs Corporation ("MSC") to issue and
deliver to LoneStar 1,325,000 shares of common stock, par value $.01, of
MSC (the "MSC Shares"); and
(b) assume the Stephens Loan, subject to approval by Stephens and the
release of LoneStar from the Stephens Loan;
(c) assume the leases of real estate properties listed in Schedule "A"
hereto;
(d) assume the leases of equipment listed in Schedule "B" hereto;
3. CLOSING. At Closing, LoneStar shall:
(a) pay all fees owed (or estimated to be owed) to MSUSA as of the
Closing Date (including royalties and advertising fees due under the Area
Development Agreement and the Franchise Agreements), all as set forth in
Schedule "C" to this Agreement, and interest accrued thereon; provided
that, within 14 days after the Closing Date, the actual amounts shown on
Schedule "C" as estimates shall be determined, and each party shall pay to
the other any amounts owed upon reconciliation of estimated amounts paid
with actual amounts;
(b) transfer to MSUSA all food, beverage (other than alcoholic
beverages) and paper inventories in the Restaurants, cash funds on hand and
lease/equipment deposits related to any leases assumed by MSUSA, as listed
on Schedule "D" to this Agreement (collectively, the "Cash Equivalents")
and transferrable licenses, other than liquor licenses. To determine the
cash funds on hand in the cash drawers of the Restaurants, representatives
of LoneStar and MSUSA will count the cash in the cash drawers at the time
of the Closing. The parties shall pay to one another any amounts owed
pursuant to any adjustments from amounts shown on Schedule D. The Cash
Equivalents will be credited to the principal balance owed by LoneStar
pursuant to the Promissory Note defined and described in Section 3(d),
below;
(c) pay to MSUSA additional cash in an amount equal to the greater of
(i) the difference between the amount of the Cash Equivalents and $200,000,
or (ii) $100,000. The Cash Equivalents and amounts paid pursuant to this
Section 3(c) will be credited to the principal balance owed by LoneStar
pursuant to the Promissory Note defined and described in Section 3(d),
below;
(d) deliver to MSUSA a promissory note in the principal amount of
$1,500,000, (the "Promissory Note"). The Promissory Note will not bear
interest and will be secured by the MSC Shares. The remaining principal
under Promissory Note (including any amounts added to the principal balance
pursuant to Section 4(c)(i) of this Agreement) will be due and payable on
April 30, 1996 (the "Maturity Date"), provided that, if LoneStar pays to
MSUSA a payment of $50,000 of the principal amount of the Promissory Note
on or before April 30, 1996, the Maturity Date will be extended so that
remaining principal amount of the Promissory Note will be due and payable
on
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<PAGE>
or before July 1, 1996. If the Promissory Note has not been paid in full or
the Maturity Date Extended as provided in this Section 3(d), MSUSA may, at
its option, cancel the Promissory Note and foreclose upon the MSC Shares
and shall not have any further liability or obligation whatsoever to
LoneStar.
(e) deliver to MSUSA a bill of sale for each Restaurant with
warranties of title and schedule of Assets for each such Restaurant, so as
to transfer to MSUSA title to all of the tangible personal property being
conveyed, subject to liens and encumbrances permitted herein , and such
documents and instruments as may be reasonably required by counsel for
MSUSA.
(f) deliver to MSUSA or its designee all operating manuals, training
manuals and marketing materials, and copies thereof, used in the day-to-day
operation of the Restaurants.
(g) deliver to MSC (i) a stock pledge agreement in form satisfactory
to MSC collateralizing the MSC Shares and (ii) a conditional stock power
agreement appointing the secretary of MSC as LoneStar's attorney-in-fact
upon default.
(h) deliver to MSUSA of estoppel certificates and landlord consents in
form satisfactory to MSUSA. The parties acknowledge that the leases and
subleases of Premises of which Shoney's, Inc. is the landlord permit
LoneStar to assign such leases and subleases without the consent of
Shoney's, Inc.; and
(i) have a normal inventory of food, paper and supplies, and beverages
adequate for the operation of the Restaurants.
4. COVENANTS.
(a) LoneStar shall provide all necessary records (including originals
and copies of employee records of employees that MSUSA elects to hire, and
information on existing benefit plans), financial and other information
(including, if required for purposes of preparing filings with the
Securities and Exchange Commission ("SEC"), audited financial statements,
at LoneStar's expense), all Restaurant leases and lease files, and such
other information that MSUSA may reasonably request.
(b) MSUSA shall provide all necessary records, financial and other
information (including, if required for purposes of preparing necessary
filings with the SEC, audited financial statements, at MSC's expense) and
such other information that LoneStar may reasonably request.
(c) Following the Closing, LoneStar shall:
(i) satisfy or pay all employees, vendors and suppliers to the
Restaurants any outstanding amounts owed for work performed, products
or services delivered and/or rendered to the Restaurants prior to the
Closing. If MSUSA deems it necessary to satisfy any such remaining
obligation of LoneStar in order to prevent disruption of ongoing
Restaurant operations, MSUSA shall notify LoneStar in writing of such
remaining obligation; LoneStar shall have ten (10) days from the date
of receipt of such notice to cure
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<PAGE>
any such obligation. If LoneStar has not cured such obligation by the
end of such 10-day period, MSUSA may satisfy such obligation; any
payments made by MSUSA pursuant to this Section 4(c)(i), including
payments of interest and penalties, shall be added to the principal
amount of the Promissory Note or, if the Promissory Note has been paid
or cancelled, such amounts shall be immediately payable to MSUSA by
LoneStar.
(ii) not seek to employ Dante Heredia or any other person
employed by LoneStar at any of the Restaurants (excluding any
corporate, clerical or managerial personnel of LoneStar) for two years
following the Closing without the consent of MSUSA.
(d) Provided that, following the Closing, LoneStar has complied with
the terms and conditions of this Agreement, and with the covenants
representations and warranties therein,
(i) within 60 days after the Closing, MSUSA shall cause MSC to
file with the SEC a registration statement on Form S-3 or other
appropriate form relating to the sale of the MSC Shares; use its best
efforts to cause the effectiveness of such registration statement;
and, to the extent required, register or qualify the MSC Shares under
the securities laws of those states that LoneStar may designate. Upon
effectiveness of such registration statement, MSUSA shall cause MSC to
keep such registration open for a period that shall expire on the
earlier of the date that is 24 months after the Closing or the time at
which LoneStar shall have sold or disposed of all the MSC Shares. MSC
shall bear all expenses of any registration of MSC Shares pursuant to
this Section 4(d)(i);
(ii) pay to LoneStar 50% of the aggregate cash proceeds of the
sale of one or more of the Restaurants pursuant to one or more
contracts of sale entered into during the 12-month period following
the Closing, to the extent such aggregate cash proceeds exceed
$2,300,000. For purposes of this Agreement, cash proceeds shall
include marketable securities and other cash equivalents, as well as
principal payments received on notes issued in connection with such
sale or sales, and cash.
(e) Following the Closing, MSUSA shall permit LoneStar to originate
television programming at the Southwestern Restaurant at no cost to
LoneStar, subject to conditions and parameters mutually agreeable to
LoneStar and MSUSA.
(f) For a period of five (5) years following the Closing, LoneStar
shall not enter into or acquire one or more restaurants in the Dallas/Fort
Worth, Texas that compete with the Restaurants. Notwithstanding the
foregoing, LoneStar may hold publicly traded securities in one or more
companies that own or operate such restaurants, if LoneStar is not an
affiliate (as such term is defined in Rule 405 promulgated under the
Securities Act of 1933) of such companies.
(g) If requested by MSUSA, and at MSUSA's expense, LoneStar shall
timely cooperate and assist MSUSA in transferring each Restaurant's liquor
license to MSUSA or an affiliate of MSUSA or in acquiring a new liquor
license. Until MSUSA secures its own liquor licenses for each Restaurant,
LoneStar agrees, if permitted by law, to consent to MSUSA or its affiliate,
at no cost or expense to LoneStar or its affiliates, to sell alcoholic
beverages using the existing liquor licenses owned by LoneStar or its
affiliates. MSUSA agrees to indemnify and hold LoneStar and its affiliates
harmless from any claims or actions arising thereunder from the date of
Closing. MSUSA
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<PAGE>
agrees to use due diligence and best efforts to apply for new permits and
licenses. LoneStar, or its affiliates, agrees to exercise its best efforts
to cause Sub Club II, Inc., operating in the Southwestern Restaurant, and
Sub Club I, private club permit #N232052, operating at the Preston
Restaurant, and Miami Subs Grill private club permit #N241750, operating at
the Belt Line Restaurant to continue the sale of alcoholic beverages,
subject only to termination of such use by the permit holder upon thirty
(30) days notice to MSUSA. LoneStar, or its affiliate, will cause the
permit holders, if requested by MSUSA, to timely execute and deliver such
instruments and take such actions as are reasonable and necessary to allow
MSUSA to transfer such licenses, reacquire the existing licenses and/or
acquire new licenses, all at the expense of MSUSA or its affiliates.
(h) LoneStar shall timely pay all Restaurant employees for services
rendered through the Closing Date. LoneStar shall be current with any
payments due to any federal, state or governmental entity for any payroll
or withholding taxes, and provide MSUSA with receipts and verification of
such payment satisfactory to MSUSA. LoneStar shall pay any and all employee
taxes accrued through the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
(a) LoneStar represents and warrants that:
(i) This Agreement, including the covenants set forth in Section
4, is a valid and binding obligation of LoneStar. Neither the delivery
of this Agreement nor the consummation of the transactions it
contemplates will result in a breach, or give rise to termination, or
accelerate the performance required by any terms of any agreement to
which LoneStar is a party, or constitute a default thereunder, or
result in the creation of any lien, charge or encumbrance upon any of
the assets of LoneStar. LSHC and LS represent and warrant that this
transaction does not violate their respective Certificates of
Incorporation and Bylaws, each as amended, and that the execution and
delivery of this Agreement by their respective officers have been duly
approved by their respective boards of directors. Except for the
approval of Stephens to the assumption by MSUSA of the Stephens Loan,
and the approval by the lessors of the Premises and the lessors of
equipment leased by LoneStar, the consent or approval of a third party
is not required in order that LoneStar may enter into this Agreement;
(ii) LoneStar has good and marketable title to all of the Assets,
subject to no liens, mortgages, restrictions, pledges, encumbrances or
charges as of the date of Closing.
(iii) There are no actions, suits, proceedings, investigations
pending or, to LoneStar's knowledge, threatened in any court or before
any governmental agency or instrumentality against, that will have a
material adverse effect (for purposes of this subsection, in excess of
$10,000) on LoneStar or the Assets or that are disclosed in Schedule F
to this Agreement
(iv) LoneStar has not received notice of any violation of any
applicable Federal, State or local statute, law or regulation
(including, without limitation, any applicable building, zoning or
other law, ordinance or regulations), that will have a material
adverse effect (for purposes of this subsection, in excess of $10,000)
on the Assets and the business
5
<PAGE>
being sold, and, to LoneStar's knowledge, there are no such
violations;
(v) LoneStar knows of no broker, finder, intermediary, attorney
or other person who may have been involved in this transaction who
would be entitled to the commission or finder's fee upon its
consummation;
(vi) To LoneStar's knowledge, the Restaurants and Assets are in
good operating condition, structurally sound and in good repair;
(vii) LoneStar is acquiring the MSC Shares for investment
purposes only, and not with a view to their distribution;
(viii) All tax returns and reports of the business have been
filed as required by law; all taxes, assessments, fees, and other
governmental charges upon the business or upon any of the Assets,
employees, property or income that are due and payable as of the
Closing date have been paid (other than those not yet due and payable
without penalty or interest), including, but not limited to, sales
taxes, personal property taxes, real estate taxes, unemployment
compensation taxes, social security and all other withholding and
payroll taxes;
(ix) The leases for each of the Restaurants are in good standing;
all rent and other amounts payable have been paid; there are no
material defaults under any of the Leases and no material grounds for
default or early termination exists; and there are no material
violations of any kind, pending or, to LoneStar's knowledge,
threatened regarding the premises, including health department,
building code or zoning violations; the premises are in substantial
compliance with all codes and ordinances;
(x) To the best of LoneStar's knowledge, LoneStar has not
deposited or disposed of any hazardous materials or waste on the
premises, and there are no hazardous materials or wastes on the
premises;
(xi) LoneStar shall comply with all applicable bulk sales laws
and indemnify and hold MSUSA and its affiliates harmless from the
failure to comply with any such laws;
(xii) LoneStar shall pay to the law firm of Winstead, Sechrest &
Minick $15,277.27 on or before the Closing Date.
(xiii) all covenants, warranties and representations made herein
shall survive the Closing.
(b) MSUSA represents and warrants that:
(i). This agreement is a valid and binding obligation of MSUSA and
neither the delivery of this Agreement nor the consummation of the
transactions it contemplates will result in a breach, or give rise to
termination, or accelerate the performance required by any terms of
any agreement to which MSUSA is a party, or constitute a default
thereunder, or result in the creation of any lien, charge or
encumbrance upon any of the assets of MSUSA.
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MSUSA represents and warrants that this transaction does not violate
its Articles of Incorporation or Bylaws, as amended, and that the
execution and delivery of this Agreement by its officers has been duly
approved by its board of directors. The consent or approval of a third
party is not required in order that MSUSA may enter into this
Agreement.
(ii) The issuance and delivery of the MSC Shares, the filing of
the registration statement pursuant to Section 4(c)(1) of this
Agreement and related transactions and have been duly authorized by
the MSC board of directors. The MSC Shares, when issued, will be duly
authorized and non-assessable and, upon full payment of the Promissory
Note, fully paid.
(iii) There are no actions, suits, proceedings, investigations
pending or, to MSUSA's knowledge, threatened in any court or before
any governmental agency or instrumentality against, by or affecting
MSUSA that adversely affect MSUSA's ability to enter into this
Agreement, the transactions contemplated herein, or the MSC Shares,
except as may be disclosed in the reports filed by MSC with the SEC.
(iv) MSUSA knows of no broker, finder, intermediary, attorney or
other person who may have been involved in this transaction who would
be entitled to the commission or finder's fee upon its consummation.
6. CONDITIONS OF CLOSING. Closing of this transaction is made expressly
conditioned upon the following:
(a). All representations, warranties and covenants of LoneStar and
MSUSA contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date;
(b) LoneStar and MSUSA shall have performed and complied with all of
the terms, covenants, agreements and conditions of this Agreement in all
material respects prior to or at the Closing;
7. RESTRICTIONS ON RESALE, RIGHTS TO REPURCHASE, RIGHT OF FIRST REFUSAL
OF MSC SHARES. The MSC Shares are subject to the following restrictions on
resale, right of repurchase and rights of first refusal:
(a) Except as otherwise provided herein, during the six (6) month
period following the Closing, LoneStar shall not sell or dispose of any of
the MSC Shares, without the approval of MSC.
(b) During the six (6) month period following the Closing, MSC will
have the right to acquire from LoneStar all or any portion of the MSC
Shares at for $2.50 per share (the "Repurchase Price"). The Repurchase
Price shall be proportionately adjusted whenever any of the following
events occur: if MSC should (i) declare or pay a dividend on the its
outstanding common stock payable in shares of its capital stock; (ii)
subdivide its outstanding common stock, combine the outstanding Common
Stock into a smaller number of shares; (iii) issue any shares of its
capital stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which MSC
is the continuing corporation); or (iv) make any distribution of its assets
to holders of its Common Stock as a liquidation or partial liquidation
dividend or by way
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of return of capital.
(c) Following the six (6) month period provided in Section 7(a),
above, LoneStar shall not sell or dispose of more than 240,000 MSC Shares
per calendar quarter or 20,000 MSC Shares per week, except in a private
transaction, and subject to the MSC right of first refusal provided in
Section 7(d), below and applicable provisions of the Securities Act of 1933
and the rules promulgated thereunder. The number of shares that LoneStar
may sell or dispose of pursuant to this paragraph shall be proportionately
adjusted upon the occurrence of any of the events listed in Section 7(b),
above.
(d) For a period of thirty (30) months following the six (6) month
period provided in Section 7(a), above, MSC shall have a right of first
refusal to acquire any MSC Shares proposed to be sold by LoneStar at then-
current market trading price, less applicable brokerage commissions, if
any, or on the same terms as offered to a third party.
8. TERMINATION OF AREA DEVELOPMENT AGREEMENT AND FRANCHISE AGREEMENTS.
(a) LoneStar acknowledges and agrees that the Area Development
Agreement and the Franchise Agreements will be terminated in their entirety
upon Closing, except for the obligations of confidentiality and post-
termination noncompetition provisions set forth therein, and that neither
LoneStar nor anyone claiming by or through LoneStar will have any right,
title or interest in the Area Development Agreement or the Franchise
Agreements.
(b) MSUSA acknowledges and agrees that,
(i) upon Closing of this Agreement and the termination of the
Area Development Agreement and the Franchise Agreements as provided
herein, MSUSA shall release LoneStar from all obligations to MSUSA
under the Area Development Agreement and Franchise Agreements
including, without limitation, the development of new Miami Subs Grill
restaurants in the Dallas/Fort Worth area and the payment of any fees,
royalties or other payments to MSUSA that accrue after the Closing,
except for the obligations of confidentiality and post-termination
noncompetition provisions set forth therein; and
(ii) upon Closing of this Agreement, the termination of the Area
Development Agreement and Franchise Agreements, the assumption by
MSUSA of the Stephens Loan and the payment by LoneStar of legal fees
to the law firm of Winstead, Sechrest & Minick, as provided herein,
MSUSA shall release LoneStar from all obligations to MSUSA under that
certain Forbearance and Restructuring Agreement dated as of June 30,
1995.
9. EXPENSES AND TAXES.
(a) All sales, transfer or use taxes, real estate, payroll,
unemployment compensation and/or other taxes and fees, if any, including
sales taxes that may be imposed or assessed as the result of the
transactions effected by this Agreement, except those taxes imposed upon
the income of LoneStar, if any, shall be reported and paid by LoneStar as
soon after the Closing as may be required
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by taxing authorities pursuant to Federal, State or local laws. Each party
shall pay its own attorneys' fees.
(b) MSUSA and LoneStar agree to adjust and pay their respective pro-
rata share of, as of the date of Closing, sewer charges, water charges,
public utility service charges, fuel charges, payroll, unemployment
compensation and other pro-ratable charges attributable to the operation of
the Premises. MSUSA shall either reimburse LoneStar at Closing and take an
assignment of such deposits, or shall post its own deposits in which event
all deposits paid by LoneStar shall be returned to LoneStar. LoneStar
acknowledges that MSUSA will use and deposit credit card sales into
LoneStar's account and LoneStar will reimburse MSUSA for all such deposits
on a weekly basis.
(c) LoneStar's pro rata portion of estimated real estate and personal
property taxes for 1996, set forth on Schedule E, shall be added to the
principal balance of the Promissory Note. The parties shall pay to one
another any amounts owed as a result of differences between the estimated
amounts set forth on Schedule E and actual real estate and personal
property taxes paid.
10. INDEMNIFICATION.
(a) INDEMNIFICATION. (i) MSUSA hereby agrees to hold harmless, defend
and indemnify LoneStar from any and all losses, damages, liabilities and
costs and expenses incurred or suffered by LoneStar as a result of the
breach by MSUSA of any covenant, representation or warranty contained in
this Agreement, any obligation or liability arising as a result of the
operation of the Restaurants subsequent to the Closing, in the case of
LoneStar, and any third party claims (including, without limitation, any
creditor, employee vendor, supplier and governmental entity arising
subsequent to the Closing.
(ii) LoneStar hereby agrees to hold harmless, defend and
indemnify MSUSA from any and all losses, damages, liabilities and
costs and expenses incurred or suffered by MSUSA as a result of the
breach of any covenant, representation or warranty contained in this
Agreement, any obligation or liability arising as a result of the
operation of the Restaurants prior to the Closing, and any third party
claims (including, without limitation, any creditor, employee vendor,
supplier and governmental entity arising prior to the Closing.
(iii) This Section 10 shall survive the Closing.
(b) PROCEDURE FOR INDEMNIFICATION. In the event of any claim, suit or
proceeding brought against a party for which another party owes an
indemnification obligation under this Section 10 (a "Claim"), the following
shall apply:
i. The indemnified party shall promptly provide written notice to
the indemnifying party of the Claim, and the indemnifying party shall
have sole control and authority to defend and resolve the Claim.
However, the indemnifying party shall not settle any Claim without the
prior written consent of the indemnified party, which consent shall
not be unreasonably withheld.
ii. The indemnified party shall have the right, at its own
expense, to appoint its own counsel to participate in the Claim, and
the indemnifying party shall cooperate with
9
<PAGE>
such counsel. Moreover, if the indemnifying party does not reasonably
defend the indemnified party with regard to a Claim, the indemnifying
party shall pay the costs and expenses of the indemnified party's
counsel in defending the Claim.
11. MISCELLANEOUS
(a) NOTICES. All notices, requests, demands and other communications
required or permitted to be given under this Agreement shall be in writing
and shall be deemed to have been properly delivered and received by each
party if delivered personally, by hand, or mailed first class, postage
prepaid, registered or certified mail, return receipt requested, or
delivered by courier or delivered by fax with confirmation of receipt, as
follows:
LONESTAR: LoneStar Hospitality Corp.
3131 Turtle Creek Boulevard, # 1301
Dallas, Texas 75219
Attn.: Steven B. Solomon, President
MSUSA: Miami Subs U.S.A., Inc.
6300 Northwest 31st Avenue
Fort Lauderdale, Florida 33309
Attn: Jerry W. Woda, Vice President and Chief Financial Officer
Any party hereto may change the address or addresses to which such
communications should be directed by giving written notice to the other
party of such change.
(b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties in respect to the transactions
contemplated by it and supersedes any and all prior agreements and
understandings relating to the subject matter of this Agreement. No
representations, promises, inducement or statement of intention have been
made by LoneStar to MSUSA that is not embodied in this Agreement or the
written statements or other documents delivered in connection with it or in
connection with the transactions contemplated by this Agreement. Without
limiting the foregoing, LoneStar has made no representation to MSUSA about
the viability or future success of the business.
(c) SURVIVAL. The representations, warranties, obligations, covenants
and agreements of LoneStar and MSUSA made herein shall survive the Closing
Date and shall be binding upon and shall inure to the benefit of the
parties and their successors, assigns, heirs and personal representatives.
(d) AMENDMENT. This Agreement may be amended, modified, superseded or
cancelled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by
the parties or, in the case of a waiver, by the party waiving compliance.
(e) SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, then (a)
such provision shall be fully severable and this Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable
provision
10
<PAGE>
were not a part hereof; (b) the remaining provisions of this Agreement
shall remain in full force and effect and shall not be affected by such
illegal, invalid or unenforceable provision or by its severance from this
Agreement; and (c) there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and still be legal, valid and
enforceable.
(f) FURTHER COOPERATION. The parties agree that they will, at any time
and from time to time after the Closing, promptly upon request by the other
and without further consideration, do, perform, execute, acknowledge and
deliver all such further acts, deeds, assignments, assumptions, transfers,
conveyances, powers of attorney, certificates and assurances as may be
reasonably required in order to fully consummate the transactions
contemplated hereby in accordance with this Agreement or to carry out and
perform any undertaking made by the parties hereunder.
(g) EXHIBITS. The exhibits to this Agreement referred to in this
Agreement and attached hereto are and shall be incorporated herein and made
a part hereof for all purposes as though set forth herein verbatim.
(h) APPLICABLE LAW. This Agreement and the rights and obligations of
the parties hereunder shall be governed by and construed in accordance with
the internal laws of the State of Texas, exclusive of its choice of law or
conflict of law rules.
(i) WAIVER. Any of the terms or conditions of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, by
action taken by the President or a Vice-President, or by the Board of
Directors of LoneStar or MSUSA, respectively. Such action shall be
evidenced by a signed written notice given in the manner provided in
Section 11(a) hereof. No party to this Agreement shall by any act (except
by a written instrument given pursuant to Section 11(a) hereof) be deemed
to have waived any right or remedy hereunder or to have acquiesced in any
breach of any of the terms and conditions thereof. No failure to exercise,
nor any delay in exercising any right, power or privilege hereunder by any
party hereto shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver of any party of any right or remedy on any one
occasion shall not be construed as a bar to any right or remedy that such
party would otherwise have on any future occasion or to any right or remedy
that any other party may have hereunder.
(k) ATTORNEYS FEES. If any suit or action is brought to enforce any of
the terms of this Agreement or to enforce any of the obligations set forth
herein, the prevailing party in such suit or action, and in any appeal
therefrom, shall be entitled to recover reasonable attorneys fees and
costs. This paragraph shall survive the Closing.
(l) PRESS RELEASES. Neither party shall issue any press releases
concerning the transaction without the consent of the other, except as may
be required by law.
(m) TIME OF ESSENCE. Time is of the essence in this Agreement and
every provision contained herein.
11
<PAGE>
This Agreement is effective upon execution of all parties hereto as of the date
first above written.
MIAMI SUBS USA, INC., a LoneStar Hospitality Corporation, a
Florida corporation Delaware corporation
By /s/ Jerry W. Woda By: /s/ Steven B. Solomon
--------------------------------- -------------------------------------
Jerry W. Woda, Vice President Steven B. Solomon, President
LS Holding Corp., a Delaware corporation
By: /s/ Steven B. Solomon
-------------------------------------
Steven B. Solomon, President
12
<PAGE>
EXHIBIT 2.3
TECHNOLOGY TRANSFER AGREEMENT
-----------------------------
This Technology Transfer Agreement (the "Agreement") is made and entered
into as of the 29th day of February, 1996 (the "Effective Date"), by and between
the following Parties:
LONESTAR HOSPITALITY CORPORATION (to be renamed Citadel Computer Systems
Incorporated), a Delaware corporation, having a principal place of business
at 2950 North Loop West, Suite 1800, Houston, Texas 77092 (hereinafter
"LoneStar" or "Buyer"); and
CIRCUIT MASTER SOFTWARE, INC., a Texas corporation, having a principal
place of business at 22503 Katy Freeway No. 7, Katy, Texas 77450
(hereinafter "Seller").
In consideration of the mutual covenants contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto agree as follows:
ARTICLE I -- GENERAL
1.1 Seller owns an undivided whole interest in and to the software listed on
Schedule 1.1 (the "Software"), all source code, customer lists, marketing
materials and other documentation relating thereto (the "System"), and all
copyrights and intellectual property rights therein (the "Intellectual
Property").
1.2 Seller is in the business of marketing and selling the Software (the
"Business") and owns certain "Assets" related thereto as defined below.
1.3 Seller desires to sell or transfer its interest in and to the Assets to
Buyer, and Buyer desires to purchase Seller's interest in and to the
Assets.
ARTICLE II -- DEFINITIONS
2.1 "Party" means LoneStar and Seller, individually; "Parties" means LoneStar
and Seller. Reference to the Parties include their respective permitted
assignees and successors in interest.
2.2 "Technology" means any and all compositions, articles of manufacture,
processes, apparatus, data, writings and works of authorship (including,
without limitation,
<PAGE>
software, protocols, program codes, audio-visual effects created by program
code, and documentation relating thereto), drawings, mask works and other
tangible items (including, without limitation, materials, samples,
components, tools, and operating devices, e.g., board assemblies,
prototypes, and engineering models) relating to the Business, including
without limitation the Software.
2.3 "Technical Information" means any material in human or machine readable
form which embodies or describes the Technology including, without
limitation, the System.
2.4 "Business Information" means any material in human or machine readable form
used, compiled or produced by or for the Business such as, for example,
component supply and cost information, marketing plans, customer lists,
sales leads, competitor analyses, transaction files, financial data,
business plans, business contacts, books, records, papers and instruments.
2.5 "Trade Secrets" means any Technical Information and Business Information
that generally facilitates the sale of products, increases revenues, or
provides an advantage over the competition and is not generally known.
2.6 "Know-How" means all factual knowledge and information relating to the
Business not capable of precise, separate description but which, in an
accumulated form, after being acquired as a result of trial and error,
gives to the one acquiring it the ability to produce and market something
which one otherwise would not have known how to produce and market with the
same accuracy or precision necessary for commercial success, provided
however, that such knowledge and information is not in the public domain or
readily available to any third party other than a limited number of persons
who have agreed to keep that information secret.
2.7 "Copyright(s)" means all forms of proprietary rights granted by a
government with respect to an original work of authorship and fixed in any
tangible medium of oppression from which it can be perceived, reproduced,
or otherwise communicated relating to the Business.
2.8 "Trademark(s)" means all forms of proprietary rights granted by a
government with respect to any word, name, symbol or device, or any
combination thereof, used to identify and distinguish goods of the
Business.
2.9 "Trade Name(s)" means any name used by the Seller to identify the Business.
2.10 "Patent(s)" means all forms of proprietary rights granted by a government
with respect to a design or an invention of the Business, including patents
and certificates of addition, utility models, and enforceable patent
applications, i.e., those under which injunctive relief is available, as
well as, any continuation, division, extension, renewal, revival, or
reissue thereof or substitution therefor, as well as those unfiled
invention disclosures relating to the Business.
2
<PAGE>
2.11 "Intellectual Property"means intellectual property rights including
Patents, Copyrights, Trade Secrets, Know-How, Trademarks or Trade Names
which the Seller owns.
2.12 "Assets" means the inventory ("Inventory"), accounts receivable ("Accounts
Receivable") and contracts relating to the Business, as well as the items
listed on Schedule 2.12, the Technology, Technical Information, Business
Information, Intellectual Property and all other intangible assets
associated with the Business.
ARTICLE III -- AGREEMENT OF PURCHASE AND SALE
---------------------------------------------
3.1 PURCHASE AND SALE OF ASSETS. Buyer hereby agrees to purchase and Seller
---------------------------
hereby agrees to sell and to transfer, assign and deliver to Buyer good and
indefeasible title, free and clear of any and all liens and encumbrances,
in and to the Assets.
3.2 DISCLOSURE OF INFORMATION AND NONCOMPETITION AGREEMENT. Within fifteen
------------------------------------------------------
(15) days after the Effective Date, Seller shall provide the Technical
Information and Business Information to Buyer. For a period of one year
following the Effective Date of this Agreement (hereinafter the "Disclosure
Period"), Seller shall make available to Buyer by telephone or facsimile a
competent representative to respond to requests from Buyer for Technical
Information and Business Information. Seller will use its best efforts to
fully disclose and describe the Technology to the Buyer.
(a) During the Disclosure Period, Seller shall, upon prior written
request of Buyer, permit a reasonable number of visits by designated
representatives of Buyer to the facilities of Seller to assure the complete
transfer of the Assets, and in particular the Technology, Technical
Information and Business Information.
(b) During the Disclosure Period, Seller shall provide the services of
certain employees who Seller represents as being familiar with the
Technology, Technical Information and Business Information for consultation
and advice concerning the Technology, Technical Information and Business
Information and Buyer's utilization of the Technology, Technical
Information and Business Information.
(c) Seller has disclosed to Buyer all information regarding the
inventions covered by invention disclosures and applications for Patent.
Promptly after the Effective Date, Seller shall prepare and file all
documents necessary for the assignment of Patents relating to such
inventions and vigorously assist Buyer in the prosecution thereof at the
Seller's own expense. Seller further agrees to have executed by its
appropriate staff such documents as may be tendered to it by Buyer to
obtain, maintain, or perfect Buyer's title to such Patents.
(d) During the Disclosure Period, neither Seller nor any of its
shareholders will compete with Buyer with respect to products and in the
geographic area set forth in the Noncompetition Agreement, which is
attached hereto as Exhibit A.
3
<PAGE>
3.3 CONSIDERATION. In consideration for the transfer of the Assets to Buyer,
-------------
Buyer will issue to Seller stock of Buyer with a fair market value of
$2,000,000.00. For this purpose, fair market value means the price for the
average of the closing bid and ask price (or the average closing price if
the stock is listed on NASDAQ) for the 30 trading days immediately
following February 29, 1996, adjusting for any stock split (forward or
reverse) that becomes effective during such 30-day period.
3.4 LIMITATION OF LIABILITY. Buyer does not and will not assume or be
-----------------------
responsible for payment of any liability or obligation of Seller of any
kind whatsoever, including any liability or obligation for transfer or
excise taxes or other charges or expenses arising out of or in connection
with the transfer of the Assets, except for those obligations of Seller
listed on Schedule 3.4, which Buyer agrees to assume, pay and hold Seller
harmless from such liabilities listed on Schedule 3.4. Seller agrees to
remain solely liable for all liabilities to Seller, except those listed in
Schedule 3.4, and shall indemnify and hold Buyer harmless from any and all
claims, demands or losses incurred as a result of such liabilities.
3.5 DELIVERY OF DOCUMENTS; FURTHER ASSURANCES:
-----------------------------------------
(a) Contemporaneously herewith, Seller will deliver to Buyer the
following documents and instruments:
(1) Noncompetition Agreement executed by Seller and its
shareholders substantially in the form attached hereto as Exhibit A;
(2) A Bill of Sale, substantially in the form attached hereto as
Exhibit B;
(3) An Assignment Agreement, substantially in the form attached
hereto as Exhibit C;
(4) All of Seller's contracts, commitments, account records,
files and other business records relating to the Assets;
(5) A materially complete and accurate list, including contact
names and addresses of all customers of Seller as of the Effective
Date;
(b) Contemporaneously herewith, Buyer will deliver to Seller the
following documents and instruments:
(1) A Bill of Sale, substantially in the form attached hereto as
Exhibit B; and
(2) An Assignment Agreement, substantially in the form attached
hereto as Exhibit C;
4
<PAGE>
(c) Contemporaneously herewith, and at all times hereafter as may be
necessary, Seller shall execute and deliver to Buyer such other instruments
of transfer as shall be reasonably necessary or appropriate to vest in
Buyer good and indefeasible title to the Assets and to comply with the
purposes and intent of this Agreement.
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SELLER
------------------------------------------------------
4.1 DUE ORGANIZATION AND AUTHORITY. Seller represents and warrants to Buyer
------------------------------
that Seller is a corporation organized, existing and in good standing under
the laws of its state of incorporation, and has all requisite power and
authority to own and operate the Business and the Assets and to enter into
this Agreement and comply with the terms hereof.
4.2 AUTHORITY FOR AGREEMENT. Seller represents and warrants to Buyer that all
-----------------------
necessary action has been taken to authorize and approve the execution of
this Agreement and the performance hereof by Seller. This Agreement has
been duly executed by Seller and constitutes the valid and binding
obligation of Seller and is enforceable in accordance with its terms.
4.3 TITLE. Seller represents and warrants to Buyer that Seller has good and
-----
indefeasible title to the Assets, free and clear of any mortgages, pledges,
liens, security interests, or other encumbrances of any character. Seller
further represents and warrants to Buyer that the Technology was developed
internally by Seller or acquired by Seller, and was not misappropriated
from another.
4.4 CONDITION OF ASSETS. Seller represents and warrants to Buyer that all of
-------------------
the Inventory and other tangible Assets are being sold "as is/ where is".
To the best knowledge of Seller, there are no defenses to the collection of
the Accounts Receivable (in excess of any allowance for bad debts) in the
ordinary course of business.
4.5 LEGAL COMPLIANCE. Seller represents and warrants to Buyer that except
----------------
where the noncompliance will not materially and adversely affect the
Business and Assets, to the knowledge of Seller, Seller in compliance with
all applicable laws relating to the Assets of the Business, and the
execution and performance of this Agreement will not result in a breach of,
or constitute a default or violation under, (a) any law, rule, governmental
regulation or any order or decree of any court; or (b) any of the terms or
provisions of any agreement, contract, instrument, lease, or other document
to which Seller is a party or by which Seller is bound or to which any of
the Assets are subject.
4.6 LITIGATION. Seller represents and warrants to Buyer that to the knowledge
----------
of Seller, there are no actions, suits, investigations or proceedings
pending or threatened against or affecting Seller or the Assets at law or
in equity, or by or before any federal, state, municipal and other
governmental department, commission, board, agency or instrumentality,
domestic or foreign. Seller is not subject to any judgment, order or
decree entered in any lawsuit or proceeding that has had, or that can be
reasonably be
5
<PAGE>
expected to have, an adverse effect on the Business, the Assets or on its
ability to enter into this Agreement.
4.7 FINANCIAL STATEMENTS.
--------------------
(a) Seller has furnished Buyer copies of unaudited financial
statements consisting of the balance sheets of Seller as of September 30
and January 31, 1995 and December 31, 1994, and the related statements of
income for the one month and the nine month ended September 30, 1995, the
one month ended January 31, 1995 and the one month and year ended December
31, 1994. Such financial statements (collectively, the "Financial
Statements") have been prepared in accordance with generally accepted
accounting principles consistently applied and fairly present the financial
position of the Company as of such dates and the results of its operation
for such periods.
(b) Since September 30, 1995, there has been no material adverse
change in the condition, financial or otherwise, or the prospects of Seller
as reflected in the Financial Statements.
(c) Except as set forth in the Financial Statements, Seller has no
obligations or liabilities (fixed or contingent), other than obligations
and liabilities incurred in the ordinary course of business since the date
of such Financial Statements.
4.8 DISCLOSURE. Seller represents and warrants to Buyer that no representation
----------
or warranty made by Seller in this Agreement contains any untrue statements
or a material fact or omits to state any material fact necessary to make
the statements herein not misleading.
4.9 INTELLECTUAL PROPERTY.
---------------------
(a) Seller represents and warrants to Buyer that Seller is unaware of
information that the Intellectual Property is invalid and not subsisting,
or has been canceled, abandoned or otherwise terminated.
(b) Seller represents and warrants to Buyer that Seller has no
knowledge of any claim that, or inquiry as to whether, any product,
activity or operation of Seller relating to the Business infringes upon or
involves, or has resulted in the infringement of, any proprietary right of
any other person, corporation or other entity, and no proceedings have been
instituted, are pending, or are threatened which challenge the rights of
Seller with respect thereto.
(c) Seller represents and warrants to Buyer that Seller has, where
permitted and appropriate, acquired common law rights in the Intellectual
Property.
6
<PAGE>
4.10 OTHER ASSETS. Seller represents and warrants that it has no interest in
------------
the assets that are being transferred to Buyer pursuant to the Technology
Transfer Agreement, dated February 29, 1996, by and between Citadel and
Bill Mulvany, and the Technology Transfer Agreement, dated February 29,
1996, by and between Citadel and Kim Marie Newman (collectively, the "Other
Assets"); however, if Seller does have an interest in the Other Assets, it
is of deminimus value to Seller, and Seller disclaims such value and
assigns such interest to Buyer without further consideration.
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF BUYER
----------------------------------------------------
5.1 DUE ORGANIZATION AND AUTHORITY. Buyer represents and warrants to Seller
------------------------------
that Buyer is a corporation organized, existing and in good standing under
the laws of the State of Delaware, and has all requisite power and
authority to acquire the Assets and to enter into this Agreement and comply
with the terms hereof.
5.2 AUTHORITY FOR AGREEMENT. Buyer represents and warrants to Seller that all
-----------------------
necessary action has been taken to authorize and approve the execution of
this Agreement and the performance hereof of Buyer. This Agreement has
been duly executed by Buyer and constitutes the valid and binding
obligation of Buyer and is enforceable in accordance with its terms.
5.3 LEGAL COMPLIANCE. Buyer represents and warrants to Seller that to the
----------------
knowledge of Buyer, the execution and performance of this Agreement will
not result in a breach of, or constitute a default or violation under, (a)
any law, rule, governmental regulation or any order or decree of any court;
or (b) any of the terms or provisions of any agreement, contract,
instrument, lease, or other document to which Buyer is a party or by which
Buyer is bound.
5.4 LITIGATION. Buyer represents and warrants to Seller that Buyer is not
----------
subject to any judgment, order or decree entered in any lawsuit or
proceeding that has had, or that can reasonably be expected to have, an
adverse effect on its ability to enter into this Agreement.
5.5 DISCLOSURE. Buyer represents and warrants to Seller that no representation
----------
or warranty made by Buyer in this Agreement contains an untrue statement of
material fact or omits to state any material fact necessary to make the
statements not misleading.
ARTICLE VI-- MISCELLANEOUS
--------------------------
6.1 NOTICES. Any notice or communication must be in writing and given by (a)
-------
deposit in the United States mail, addressed to the party to be notified,
postage prepaid and registered or certified with return receipt requested,
(b) delivery in person or by Federal Express or similar courier service
providing evidence of delivery or (c) transmission by telegram, telecopy or
telex. Each notice or communication that is mailed, delivered, or
transmitted in the manner described above shall be deemed sufficiently
given, served,
7
<PAGE>
sent and received, in the case of mail notices, on the third business day
following the date on which it is mailed and, in the case of notices
delivered by hand, courier service, telegram, telecopy or telex, at such
time as it is delivered to the addressee (with the delivery receipt, the
affidavit of messenger or, with respect to a telecopy or telex, the
confirmation of transmission or answer back being deemed conclusive
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation. For purposes of this notice, the addresses of
the Parties shall be:
SELLER: CIRCUIT MASTER SOFTWARE, INC.
22503 Katy Freeway, No. 7
Katy, Texas 77450
Attention: Bill Mulvany
BUYER: LoneStar Hospitality Corporation
2950 North Loop West, Suite 1800
Houston, Texas 77092
Attention: George Sharp
6.2 SURVIVAL. All covenants, agreements, undertakings, representations and
--------
warranties made in this Agreement will survive the Effective Date and,
except as otherwise indicated, will not be affected by any investigation
made by any party.
6.3 GOVERNING LAW. THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD
-------------
TO ITS CHOICE OF LAW PRINCIPLES) WILL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE DOCUMENTS,
INSTRUMENTS OR AGREEMENTS EXECUTED AND DELIVERED PURSUANT TO THE TERMS
HEREOF, UNLESS OTHERWISE SPECIFIED HEREIN.
6.4 INVALID PROVISIONS. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision will be fully severable; this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provisions had never comprised a part thereof. Furthermore,
in lieu of such illegal, invalid or unenforceable provision there will be
added automatically as a part of this Agreement a provision as similar in
terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
6.5 ENTIRETY AND AMENDMENTS. This Agreement, including the agreements attached
-----------------------
as exhibits hereto, embodies the entire agreement between the parties,
supersedes all prior agreements and understandings, if any, relating to the
subject matter hereof, and may be amended only by an instrument in writing
executed jointly by an authorized officer or agent of each of the parties
hereto, and supplemented only by documents delivered or to be delivered in
accordance with the express terms thereof.
8
<PAGE>
6.6 EXPENSES. Whether or not the transactions contemplated by this Agreement
--------
are consummated, Seller agrees to bear all costs and expenses incurred by
it in connection with the negotiation, execution and performance of this
Agreement, and Buyer agrees to bear all costs and expenses incurred by it
in connection with the negotiation, execution and performance of this
Agreement.
6.7 INDEMNIFICATION OF BUYER. Seller covenants and agrees to indemnify Buyer
------------------------
from and against, and to hold Buyer harmless from and against, any and all
losses, damages, costs and expenses, including court costs and attorneys'
fees, that Buyer may ever suffer or incur as the result of (a) the material
breach or inaccuracy of any material representation or warranty made herein
by Seller, (b) the failure or refusal of Seller to comply with any of its
obligations hereunder, or (c) any claim based upon or arising out of any
liability or obligation, contracted or otherwise, of Seller in connection
with the Assets.
6.8 INDEMNIFICATION OF SELLER. Buyer covenants and agrees to indemnify Seller
-------------------------
from and against, and to hold Seller harmless from and against, any and all
losses, damages, costs and expenses, including court costs and attorneys'
fees, that Seller may ever suffer or incur as the result of (a) the
material breach or inaccuracy of any material representation or warranty
made herein by Buyer, or (b) the failure or refusal of Buyer to comply with
any of its obligations hereunder.
6.9 CONFIDENTIALITY. Unless required by law or regulatory authority, Buyer and
---------------
Seller agree not to disclose to third parties (other than the parties'
financial and legal advisors) the terms or existence of this Agreement, the
Noncompetition Agreement, the Bill of Sale and/or the Assignment Agreement,
except as agreed by the parties.
9
<PAGE>
IN WITNESS WHEREOF, the Parties have caused their respective corporate
names to be affixed hereto and this instrument to be signed by their duly
authorized officers, all as of the day and year first above written.
CIRCUIT MASTER SOFTWARE, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
LONESTAR HOSPITALITY CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
10
<PAGE>
EXHIBIT 2.4
TECHNOLOGY TRANSFER AGREEMENT
-----------------------------
This Technology Transfer Agreement (the "Agreement") is made and entered
into as of the 29th day of February, 1996 (the "Effective Date"), by and between
the following Parties:
CITADEL COMPUTER SYSTEMS INCORPORATED, a Delaware corporation, having a
principal place of business at 2950 North Loop West, Suite 1800, Houston,
Texas 77092 (hereinafter "Citadel" or "Buyer"); and
BILL MULVANY, an individual, whose address is 14235 Bissonnet Street, #H77,
Houston, Harris County, Texas 77083-6337 (hereinafter "Seller").
In consideration of the mutual covenants contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto agree as follows:
ARTICLE I -- GENERAL
1.1 Seller owns an undivided whole interest in and to the following: certain
software named "UPGRADE EXPRESS" (the "Software"), all source code,
customer lists, marketing materials and other documentation relating
thereto (the "System"), and all copyrights and intellectual property rights
therein (the "Intellectual Property").
1.2 Seller desires to sell or transfer its interest in and to the Assets to
Buyer, and Buyer desires to purchase Seller's interest in and to the
Assets.
ARTICLE II -- DEFINITIONS
2.1 "Party" means Citadel and Seller, individually; "Parties" means Citadel and
Seller. Reference to the Parties include their respective permitted
assignees and successors in interest.
2.2 "Technology" means any and all compositions, articles of manufacture,
processes, apparatus, data, writings and works of authorship (including,
without limitation, software, protocols, program codes, audio-visual
effects created by program code, and documentation relating thereto),
drawings, mask works and other tangible items (including, without
limitation, materials, samples, components, tools, and operating
<PAGE>
devices, e.g., board assemblies, prototypes, and engineering models)
relating to the Business, including without limitation the Software.
2.3 "Technical Information" means any material in human or machine readable
form which embodies or describes the Technology including, without
limitation, the System.
2.4 "Business Information" means any material in human or machine readable form
used, compiled or produced by or for the Business such as, for example,
component supply and cost information, marketing plans, customer lists,
sales leads, competitor analyses, transaction files, financial data,
business plans, business contacts, books, records, papers and instruments.
2.5 "Trade Secrets" means any Technical Information and Business Information
that generally facilitates the sale of products, increases revenues, or
provides an advantage over the competition and is not generally known.
2.6 "Know-How" means all factual knowledge and information relating to the
Business not capable of precise, separate description but which, in an
accumulated form, after being acquired as a result of trial and error,
gives to the one acquiring it the ability to produce and market something
which one otherwise would not have known how to produce and market with the
same accuracy or precision necessary for commercial success, provided
however, that such knowledge and information is not in the public domain or
readily available to any third party other than a limited number of persons
who have agreed to keep that information secret.
2.7 "Copyright(s)" means all forms of proprietary rights granted by a
government with respect to an original work of authorship and fixed in any
tangible medium of oppression from which it can be perceived, reproduced,
or otherwise communicated relating to the Business.
2.8 "Trademark(s)" means all forms of proprietary rights granted by a
government with respect to any word, name, symbol or device, or any
combination thereof, used to identify and distinguish goods of the
Business.
2.9 "Trade Name(s)" means any name used by the Seller to identify the Business.
2.10 "Patent(s)" means all forms of proprietary rights granted by a government
with respect to a design or an invention of the Business, including patents
and certificates of addition, utility models, and enforceable patent
applications, i.e., those under which injunctive relief is available, as
well as, any continuation, division, extension, renewal, revival, or
reissue thereof or substitution therefor, as well as those unfiled
invention disclosures relating to the Business.
2
<PAGE>
2.11 "Intellectual Property"means intellectual property rights including
Patents, Copyrights, Trade Secrets, Know-How, Trademarks or Trade Names
which the Seller owns.
2.12 "Assets" means the inventory ("Inventory"), accounts receivable ("Accounts
Receivable") and contracts relating to the Business, as well as the
Technology, Technical Information, Business Information, Intellectual
Property and all other intangible assets associated with the Business.
2.13 "Business" means the marketing and selling of the Software.
ARTICLE III -- AGREEMENT OF PURCHASE AND SALE
---------------------------------------------
3.1 PURCHASE AND SALE OF ASSETS. Citadel hereby agrees to purchase and Seller
---------------------------
hereby agrees to sell and to transfer, assign and deliver to Citadel good
and indefeasible title, free and clear of any and all liens and
encumbrances, in and to the Assets.
3.2 DISCLOSURE OF INFORMATION AND NONCOMPETITION AGREEMENT. Within fifteen
------------------------------------------------------
(15) days after Effective Date, Seller shall provide the Technical
Information and Business Information to Buyer. For a period of one year
following the Effective Date of this Agreement (hereinafter the "Disclosure
Period"), Seller shall make available to Buyer by telephone or facsimile a
competent representative to respond to requests from Buyer for Technical
Information and Business Information. Seller will use its best efforts to
fully disclose and describe the Technology to the Buyer.
(a) During the Disclosure Period, Seller shall, upon prior written
request of Buyer, permit a reasonable number of visits by designated
representatives of Buyer to the facilities of Seller to assure the complete
transfer of the Assets, and in particular the Technology, Technical
Information and Business Information.
(b) During the Disclosure Period, Seller shall provide the services of
certain employees who Seller represents as being familiar with the
Technology, Technical Information and Business Information for consultation
and advice concerning the Technology, Technical Information and Business
Information and Buyer's utilization of the Technology, Technical
Information and Business Information.
(c) Seller has disclosed to Buyer all information regarding the
inventions covered by invention disclosures and applications for Patent.
Promptly after the Effective Date, Seller shall prepare and file all
documents necessary for the assignment of Patents relating to such
inventions and vigorously assist Buyer in the prosecution thereof at the
Seller's own expense. Seller further agrees to have executed by its
appropriate staff such documents as may be tendered to it by Buyer to
obtain, maintain, or perfect Buyer's title to such Patents.
3
<PAGE>
(d) During the Disclosure Period, Seller will not compete with Buyer
with respect to products and in the geographic area set forth in the
Noncompetition Agreement, which is attached hereto as Exhibit A.
3.3 CONSIDERATION. Citadel will pay to Seller, in consideration for the
-------------
transfer of the Assets to Citadel a total of $200,000.00, of which
$50,000.00 was paid prior to December 31, 1995, $50,000.00 will be paid on
or before February 29, 1996, and the remaining $100,000.00 will be paid
pursuant to the note attached hereto as Exhibit B (the "Note").
3.4 LIMITATION OF LIABILITY. Buyer does not and will not assume or be
-----------------------
responsible for payment of any liability or obligation of Seller of any
kind whatsoever, including any liability or obligation for transfer or
excise taxes or other charges or expenses arising out of or in connection
with the transfer of the Assets. Seller agrees to remain solely liable for
all liabilities to Seller and shall indemnify and hold Buyer harmless from
any and all claims, demands or losses incurred as a result of such
liabilities.
3.5 DELIVERY OF DOCUMENTS; FURTHER ASSURANCES:
-----------------------------------------
(a) Contemporaneously herewith, Seller will deliver to Buyer the
following documents and instruments:
(1) Noncompetition Agreement executed by Seller in substantially
the form attached hereto as Exhibit A;
(2) A Bill of Sale substantially in the form attached hereto as
Exhibit C;
(3) All of Seller's contracts, commitments, account records,
files and other business records relating to the Assets;
(4) A materially complete and accurate list, including contact
names and addresses of all customers of Seller as of the Effective
Date; and
(5) An Assignment Agreement substantially in the form attached
hereto as Exhibit D.
(b) Contemporaneously herewith, Buyer will deliver to Seller the
following documents and instruments:
(1) A Bill of Sale substantially in the form attached hereto as
Exhibit C; and
(2) An Assignment Agreement substantially in the form attached
hereto as Exhibit D.
4
<PAGE>
(c) Contemporaneously herewith, and at all times thereafter as may be
necessary, Seller shall execute and deliver to Buyer such other instruments
of transfer as shall be reasonably necessary or appropriate to vest in
Buyer good and indefeasible title to the Assets and to comply with the
purposes and intent of this Agreement.
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SELLER
------------------------------------------------------
4.1 AUTHORITY FOR AGREEMENT. This Agreement has been duly executed by Seller
-----------------------
and constitutes the valid and binding obligation of Seller and is
enforceable in accordance with its terms.
4.2 TITLE. Seller represents and warrants to Buyer that Seller has, good and
-----
indefeasible title to the Assets, free and clear of any mortgages, pledges,
liens, security interests, or other encumbrances of any character. Seller
further represents and warrants to Buyer that the Technology was developed
by Seller or acquired by Seller, and was not misappropriated from another.
4.3 DISCLOSURE. Seller represents and warrants to Buyer that no representation
----------
or warranty made by Seller in this Agreement contains any untrue statements
or a material fact or omits to state any material fact necessary to make
the statements herein not misleading.
4.4 INTELLECTUAL PROPERTY.
---------------------
(a) Seller represents and warrants to Buyer that Seller is unaware of
information that the Intellectual Property is invalid and not subsisting,
or has been canceled, abandoned or otherwise terminated.
(b) Seller represents and warrants to Buyer that Seller has no
knowledge of any claim that, or inquiry as to whether, any product,
activity or operation of Seller relating to the Business infringes upon or
involves, or has resulted in the infringement of, any proprietary right of
any other person, corporation or other entity, and no proceedings have been
instituted, are pending, or are threatened which challenge the rights of
Seller with respect thereto.
(c) Seller represents and warrants to Buyer that Seller has, where
permitted and appropriate, acquired common law rights in the Intellectual
Property.
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF BUYER
----------------------------------------------------
5.1 DUE ORGANIZATION AND AUTHORITY. Buyer represents and warrants to Seller
------------------------------
that Buyer is a corporation organized, existing and in good standing under
the laws of the State of Delaware, and has all requisite power and
authority to acquire the Assets and to enter into this Agreement and comply
with the terms hereof.
5
<PAGE>
5.2 AUTHORITY FOR AGREEMENT. Buyer represents and warrants to Seller that all
-----------------------
necessary action has been taken to authorize and approve the execution of
this Agreement and the performance hereof of such Buyer. This Agreement
has been duly executed by Buyer and constitutes the valid and binding
obligation of Buyer and is enforceable in accordance with its terms.
5.3 LEGAL COMPLIANCE. Buyer represents and warrants to Seller that to the
----------------
knowledge of Buyer, the execution and performance of this Agreement will
not result in a breach of, or constitute a default or violation under, (a)
any law, rule, governmental regulation or any order or decree of any court;
or (b) any of the terms or provisions of any agreement, contract,
instrument, lease, or other document to which Buyer is a party or by which
Buyer is bound.
5.4 LITIGATION. Buyer represents and warrants to Seller that Buyer is not
----------
subject to any judgment, order or decree entered in any lawsuit or
proceeding that has had, or that can reasonably be expected to have, an
adverse effect on its ability to enter into this Agreement.
5.5 DISCLOSURE. Buyer represents and warrants to Seller that no representation
----------
or warranty made by Buyer in this Agreement contains an untrue statement of
material fact or omits to state any material fact necessary to make the
statements not misleading.
ARTICLE VI -- MISCELLANEOUS
---------------------------
6.1 NOTICES. Any notice or communication must be in writing and given by (a)
-------
deposit in the United States mail, addressed to the party to be notified,
postage prepaid and registered or certified with return receipt requested,
(b) delivery in person or by Federal Express or similar courier service
providing evidence of delivery or (c) transmission by telegram, telecopy or
telex. Each notice or communication that is mailed, delivered, or
transmitted in the manner described above shall be deemed sufficiently
given, served, sent and received, in the case of mail notices, on the third
business day following the date on which it is mailed and, in the case of
notices delivered by hand, courier service, telegram, telecopy or telex, at
such time as it is delivered to the addressee (with the delivery receipt,
the affidavit of messenger or, with respect to a telecopy or telex, the
confirmation of transmission or answer back being deemed conclusive
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation. For purposes of this notice, the addresses of
the Parties shall be:
SELLER: Bill Mulvany
14235 Bissonnet Street, #H77
Houston, Texas 77083-6337
6
<PAGE>
BUYER: CITADEL COMPUTER SYSTEMS INCORPORATED
2950 North Loop West, Suite 1800
Houston, Texas 77092
Attention: George Sharp
6.2 SURVIVAL. All covenants, agreements, undertakings, representations and
--------
warranties made in this Agreement will survive the Effective Date hereunder
and, except as otherwise indicated, will not be affected by any
investigation made by any party.
6.3 GOVERNING LAW. THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD
-------------
TO ITS CHOICE OF LAW PRINCIPLES) WILL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE DOCUMENTS,
INSTRUMENTS OR AGREEMENTS EXECUTED AND DELIVERED PURSUANT TO THE TERMS
HEREOF, UNLESS OTHERWISE SPECIFIED HEREIN.
6.4 INVALID PROVISIONS. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision will be fully severable; this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provisions had never comprised a part thereof. Furthermore,
in lieu of such illegal, invalid or unenforceable provision there will be
added automatically as a part of this Agreement a provision as similar in
terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
6.5 ENTIRETY AND AMENDMENTS. This Agreement, including the agreements attached
-----------------------
as exhibits hereto, embodies the entire agreement between the parties,
supersedes all prior agreements and understandings, if any, relating to the
subject matter hereof, and may be amended only by an instrument in writing
executed jointly by an authorized officer or agent of each of the parties
hereto, and supplemented only by documents delivered or to be delivered in
accordance with the express terms thereof.
6.6 EXPENSES. Whether or not the transactions contemplated by this Agreement
--------
are consummated, Seller agrees to bear all costs and expenses incurred by
it in connection with the negotiation, execution and performance of this
Agreement, and Buyer agrees to bear all costs and expenses incurred by it
in connection with the negotiation, execution and performance of this
Agreement.
6.7 INDEMNIFICATION OF BUYER. Seller covenants and agrees to indemnify Buyer
------------------------
from and against, and to hold Buyer harmless from and against, any and all
losses, damages, costs and expenses, including court costs and attorneys'
fees, that Buyer may ever suffer or incur as the result of (a) the material
breach or inaccuracy of any material representation or warranty made herein
by Seller, (b) the failure or refusal of Seller to comply with any
7
<PAGE>
of its obligations hereunder, or (c) any claim based upon or arising out of
any liability or obligation, contracted or otherwise, of Seller in
connection with the Assets.
6.8 INDEMNIFICATION OF SELLER. Buyer covenants and agrees to indemnify Seller
-------------------------
from and against, and to hold Seller harmless from and against, any and all
losses, damages, costs and expenses, including court costs and attorneys'
fees, that Seller may ever suffer or incur as the result of (a) the
material breach or inaccuracy of any material representation or warranty
made herein by Buyer, or (b) the failure or refusal of Buyer to comply with
any of its obligations hereunder.
6.9 CONFIDENTIALITY. Unless required by law or regulatory authority, Buyer and
---------------
Seller agree not to disclose to third parties (other than the parties'
financial and legal advisors) the terms or existence of this Agreement, the
Note, the Bill of Sale and/or the Assignment Agreement, except as agreed by
the parties.
8
<PAGE>
IN WITNESS WHEREOF, the Parties have caused their respective corporate
names to be affixed hereto and this instrument to be signed by their duly
authorized officers, all as of the day and year first above written.
______________________________________
Bill Mulvany
CITADEL COMPUTER SYSTEMS INCORPORATED
By:___________________________________
Name:_________________________________
Title:________________________________
9
<PAGE>
EXHIBIT 2.5
TECHNOLOGY TRANSFER AGREEMENT
-----------------------------
This Technology Transfer Agreement (the "Agreement") is made and entered
into as of the 29th day of February, 1996 (the "Effective Date"), by and between
the following Parties:
CITADEL COMPUTER SYSTEMS INCORPORATED, a Delaware corporation, having a
principal place of business at 2950 North Loop West, Suite 1800, Houston,
Texas 77092 (hereinafter "Citadel" or "Buyer"); and
KIM MARIE NEWMAN, an individual, having a residence at ___________________
(hereinafter "Seller").
In consideration of the mutual covenants contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto agree as follows:
ARTICLE I -- GENERAL
1.1 Seller owns an undivided whole interest in and to the following: certain
software named "VOLUME SENTRY" (the "Software"), all source code, customer
lists, marketing materials and other documentation relating thereto (the
"System"), and all copyrights and intellectual property rights therein (the
"Intellectual Property").
1.2 Seller desires to sell or transfer its interest in and to the Assets to
Buyer, and Buyer desires to purchase Seller's interest in and to the
Assets.
ARTICLE II -- DEFINITIONS
2.1 "Party" means Citadel and Seller, individually; "Parties" means Citadel and
Seller. Reference to the Parties include their respective permitted
assignees and successors in interest.
2.2 "Technology" means any and all compositions, articles of manufacture,
processes, apparatus, data, writings and works of authorship (including,
without limitation, software, protocols, program codes, audio-visual
effects created by program code, and documentation relating thereto),
drawings, mask works and other tangible items (including, without
limitation, materials, samples, components, tools, and operating
<PAGE>
devices, e.g., board assemblies, prototypes, and engineering models)
relating to the Business, including without limitation the Software.
2.3 "Technical Information" means any material in human or machine readable
form which embodies or describes the Technology including, without
limitation, the System.
2.4 "Business Information" means any material in human or machine readable form
used, compiled or produced by or for the Business such as, for example,
component supply and cost information, marketing plans, customer lists,
sales leads, competitor analyses, transaction files, financial data,
business plans, business contacts, books, records, papers and instruments.
2.5 "Trade Secrets" means any Technical Information and Business Information
that generally facilitates the sale of products, increases revenues, or
provides an advantage over the competition and is not generally known.
2.6 "Know-How" means all factual knowledge and information relating to the
Business not capable of precise, separate description but which, in an
accumulated form, after being acquired as a result of trial and error,
gives to the one acquiring it the ability to produce and market something
which one otherwise would not have known how to produce and market with the
same accuracy or precision necessary for commercial success, provided
however, that such knowledge and information is not in the public domain or
readily available to any third party other than a limited number of persons
who have agreed to keep that information secret.
2.7 "Copyright(s)" means all forms of proprietary rights granted by a
government with respect to an original work of authorship and fixed in any
tangible medium of oppression from which it can be perceived, reproduced,
or otherwise communicated relating to the Business.
2.8 "Trademark(s)" means all forms of proprietary rights granted by a
government with respect to any word, name, symbol or device, or any
combination thereof, used to identify and distinguish goods of the
Business.
2.9 "Trade Name(s)" means any name used by the Seller to identify the Business.
2.10 "Patent(s)" means all forms of proprietary rights granted by a government
with respect to a design or an invention of the Business, including patents
and certificates of addition, utility models, and enforceable patent
applications, i.e., those under which injunctive relief is available, as
well as, any continuation, division, extension, renewal, revival, or
reissue thereof or substitution therefor, as well as those unfiled
invention disclosures relating to the Business.
2.11 "Intellectual Property"means intellectual property rights including
Patents, Copyrights, Trade Secrets, Know-How, Trademarks or Trade Names
which the Seller owns.
2
<PAGE>
2.12 "Assets" means the inventory ("Inventory"), accounts receivable ("Accounts
Receivable") and contracts relating to the Business, as well as the
Technology, Technical Information, Business Information, Intellectual
Property and all other intangible assets associated with the Business.
2.13 "Business" means the marketing and selling of the Software.
ARTICLE III -- AGREEMENT OF PURCHASE AND SALE
---------------------------------------------
3.1 PURCHASE AND SALE OF ASSETS. Citadel hereby agrees to purchase and Seller
---------------------------
hereby agrees to sell and to transfer, assign and deliver to Citadel good
and indefeasible title, free and clear of any and all liens and
encumbrances, in and to the Assets.
3.2 DISCLOSURE OF INFORMATION. Within fifteen (15) days after the Effective
-------------------------
Date, Seller shall provide the Technical Information and Business
Information to Buyer. For a period of one year following the Effective
Date of this Agreement (hereinafter the "Disclosure Period"), Seller shall
make available to Buyer by telephone or facsimile a competent
representative to respond to requests from Buyer for Technical Information
and Business Information. Seller will use its best efforts to fully
disclose and describe the Technology to the Buyer.
(a) During the Disclosure Period, Seller shall, upon prior written
request of Buyer, permit a reasonable number of visits by designated
representatives of Buyer to the facilities of Seller to assure the complete
transfer of the Assets, and in particular the Technology, Technical
Information and Business Information.
(b) During the Disclosure Period, Seller shall provide the services of
certain employees who Seller represents as being familiar with the
Technology, Technical Information and Business Information for consultation
and advice concerning the Technology, Technical Information and Business
Information and Buyer's utilization of the Technology, Technical
Information and Business Information.
(c) Seller has disclosed to Buyer all information regarding the
inventions covered by invention disclosures and applications for Patent.
Promptly after the Effective Date, Seller shall prepare and file all
documents necessary for the assignment of Patents relating to such
inventions and vigorously assist Buyer in the prosecution thereof at the
Seller's own expense. Seller further agrees to have executed by its
appropriate staff such documents as may be tendered to it by Buyer to
obtain, maintain, or perfect Buyer's title to such Patents.
(d) During the Disclosure Period, Seller will not compete with Buyer
with respect to products and in the geographic area set forth in the
Noncompetition Agreement, which is attached hereto as Exhibit A.
3
<PAGE>
3.3 CONSIDERATION. Citadel will pay to Seller, in consideration for the
-------------
transfer of the Assets to Citadel, a total of $39,500.00, of which
$5,000.00 was paid prior to December 31, 1995, and the remaining amount is
to be paid pursuant to the note attached hereto as Exhibit B (the "Note").
3.4 LIMITATION OF LIABILITY. Buyer does not and will not assume or be
-----------------------
responsible for payment of any liability or obligation of Seller of any
kind whatsoever, including any liability or obligation for transfer or
excise taxes or other charges or expenses arising out of or in connection
with the transfer of the Assets. Seller agrees to remain solely liable for
all liabilities to Seller, and shall indemnify and hold Buyer harmless from
any and all claims, demands or losses incurred as a result of such
liabilities.
3.5 DELIVERY OF DOCUMENTS; FURTHER ASSURANCES:
-----------------------------------------
(a) Contemporaneously herewith, Seller will deliver to Buyer the
following documents and instruments:
(1) Noncompetition Agreement substantially in the form attached
hereto as Exhibit A;
(2) A Bill of Sale substantially in the form attached hereto as
Exhibit C;
(3) All of Seller's contracts, commitments, account records,
files and other business records relating to the Assets;
(4) An Assignment Agreement substantially in the form attached
hereto as Exhibit D; and
(5) A materially complete and accurate list, including contact
names and addresses of all customers of Seller as of the Effective
Date;
(b) Contemporaneously herewith, Buyer will deliver to Seller the
following documents and instruments:
(1) A Bill of Sale substantially in the form attached hereto as
Exhibit C; and
(2) An Assignment Agreement in the form attached hereto as
Exhibit D.
(c) Contemporaneously herewith, and at all times hereafter as may be
necessary, Seller shall execute and deliver to Buyer such other instruments
of transfer as shall be reasonably necessary or appropriate to vest in
Buyer good and indefeasible title to the Assets and to comply with the
purposes and intent of this Agreement.
4
<PAGE>
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SELLER
------------------------------------------------------
4.1 AUTHORITY FOR AGREEMENT. This Agreement has been duly executed by Seller
-----------------------
and constitutes the valid and binding obligation of Seller and is
enforceable in accordance with its terms.
4.2 TITLE. Seller represents and warrants to Buyer that Seller has good and
-----
indefeasible title to the Assets, free and clear of any mortgages, pledges,
liens, security interests, or other encumbrances of any character. Seller
further represents and warrants to Buyer that the Technology was developed
by Seller or acquired by Seller, and was not misappropriated from another.
4.3 DISCLOSURE. Seller represents and warrants to Buyer that no representation
----------
or warranty made by Seller in this Agreement contains any untrue statements
or a material fact or omits to state any material fact necessary to make
the statements herein not misleading.
4.4 INTELLECTUAL PROPERTY.
---------------------
(a) Seller represents and warrants to Buyer that Seller is unaware of
information that the Intellectual Property is invalid and not subsisting,
or has been canceled, abandoned or otherwise terminated.
(b) Seller represents and warrants to Buyer that Seller has no
knowledge of any claim that, or inquiry as to whether, any product,
activity or operation of Seller relating to the Business infringes upon or
involves, or has resulted in the infringement of, any proprietary right of
any other person, corporation or other entity, and no proceedings have been
instituted, are pending, or are threatened which challenge the rights of
Seller with respect thereto.
(c) Seller represents and warrants to Buyer that Seller has, where
permitted and appropriate, acquired common law rights in the Intellectual
Property.
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF BUYER
----------------------------------------------------
5.1 DUE ORGANIZATION AND AUTHORITY. Buyer represents and warrants to Seller
------------------------------
that Buyer is a corporation organized, existing and in good standing under
the laws of the State of Delaware, and has all requisite power and
authority to acquire the Assets and to enter into this Agreement and comply
with the terms hereof.
5.2 AUTHORITY FOR AGREEMENT. Buyer represents and warrants to Seller that all
-----------------------
necessary action has been taken to authorize and approve the execution of
this Agreement and the performance hereof of Buyer. This Agreement has
been duly executed by Buyer and constitutes the valid and binding
obligation of Buyer and is enforceable in accordance with its terms.
5
<PAGE>
5.3 LEGAL COMPLIANCE. Buyer represents and warrants to Seller that to the
----------------
knowledge of Buyer, the execution and performance of this Agreement will
not result in a breach of, or constitute a default or violation under, (a)
any law, rule, governmental regulation or any order or decree of any court;
or (b) any of the terms or provisions of any agreement, contract,
instrument, lease, or other document to which Buyer is a party or by which
Buyer is bound.
5.4 LITIGATION. Buyer represents and warrants to Seller that Buyer is not
----------
subject to any judgment, order or decree entered in any lawsuit or
proceeding that has had, or that can reasonably be expected to have, an
adverse effect on its ability to enter into this Agreement.
5.5 DISCLOSURE. Buyer represents and warrants to Seller that no representation
----------
or warranty made by Buyer in this Agreement contains an untrue statement of
material fact or omits to state any material fact necessary to make the
statements not misleading.
ARTICLE VI -- MISCELLANEOUS
---------------------------
6.1 NOTICES. Any notice or communication must be in writing and given by (a)
-------
deposit in the United States mail, addressed to the party to be notified,
postage prepaid and registered or certified with return receipt requested,
(b) delivery in person or by Federal Express or similar courier service
providing evidence of delivery or (c) transmission by telegram, telecopy or
telex. Each notice or communication that is mailed, delivered, or
transmitted in the manner described above shall be deemed sufficiently
given, served, sent and received, in the case of mail notices, on the third
business day following the date on which it is mailed and, in the case of
notices delivered by hand, courier service, telegram, telecopy or telex, at
such time as it is delivered to the addressee (with the delivery receipt,
the affidavit of messenger or, with respect to a telecopy or telex, the
confirmation of transmission or answer back being deemed conclusive
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation. For purposes of this notice, the addresses of
the Parties shall be:
SELLER: Kim Marie Newman
---------------------------
---------------------------
---------------------------
BUYER: CITADEL COMPUTER SYSTEMS INCORPORATED
2950 North Loop West, Suite 1800
Houston, Texas 77092
Attention: George Sharp
6.2 SURVIVAL. All covenants, agreements, undertakings, representations and
--------
warranties made in this Agreement will survive the Effective Date and,
except as otherwise indicated, will not be affected by any investigation
made by any party.
6
<PAGE>
6.3 GOVERNING LAW. THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD
-------------
TO ITS CHOICE OF LAW PRINCIPLES) WILL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE DOCUMENTS,
INSTRUMENTS OR AGREEMENTS EXECUTED AND DELIVERED PURSUANT TO THE TERMS
HEREOF, UNLESS OTHERWISE SPECIFIED HEREIN.
6.4 INVALID PROVISIONS. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision will be fully severable; this
Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provisions had never comprised a part thereof. Furthermore,
in lieu of such illegal, invalid or unenforceable provision there will be
added automatically as a part of this Agreement a provision as similar in
terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
6.5 ENTIRETY AND AMENDMENTS. This Agreement, including the agreements attached
-----------------------
as exhibits hereto, embodies the entire agreement between the parties,
supersedes all prior agreements and understandings, if any, relating to the
subject matter hereof, and may be amended only by an instrument in writing
executed jointly by an authorized officer or agent of each of the parties
hereto, and supplemented only by documents delivered or to be delivered in
accordance with the express terms thereof.
6.6 EXPENSES. Whether or not the transactions contemplated by this Agreement
--------
are consummated, Seller agrees to bear all costs and expenses incurred by
it in connection with the negotiation, execution and performance of this
Agreement, and Buyer agrees to bear all costs and expenses incurred by it
in connection with the negotiation, execution and performance of this
Agreement.
6.7 INDEMNIFICATION OF BUYER. Seller covenants and agrees to indemnify Buyer
------------------------
from and against, and to hold Buyer harmless from and against, any and all
losses, damages, costs and expenses, including court costs and attorneys'
fees, that Buyer may ever suffer or incur as the result of (a) the material
breach or inaccuracy of any material representation or warranty made herein
by Seller, (b) the failure or refusal of Seller to comply with any of its
obligations hereunder, or (c) any claim based upon or arising out of any
liability or obligation, contracted or otherwise, of Seller in connection
with the Assets.
6.8 INDEMNIFICATION OF SELLER. Buyer covenants and agrees to indemnify Seller
-------------------------
from and against, and to hold Seller harmless from and against, any and all
losses, damages, costs and expenses, including court costs and attorneys'
fees, that Seller may ever suffer or incur as the result of (a) the
material breach or inaccuracy of any material representation or warranty
made herein by Buyer, or (b) the failure or refusal of Buyer to comply with
any of its obligations hereunder.
7
<PAGE>
6.9 CONFIDENTIALITY. Unless required by law or regulatory authority, Buyer and
---------------
Seller agree not to disclose to third parties (other than the parties'
financial and legal advisors) the term of this Agreement, the Note, the
Bill of Sale and/or the Assignment Agreement, except as agreed by the
parties.
8
<PAGE>
IN WITNESS WHEREOF, the Parties have caused their respective corporate
names to be affixed hereto and this instrument to be signed by their duly
authorized officers, all as of the day and year first above written.
________________________________
Kim Marie Newman
CITADEL COMPUTER SYSTEMS INCORPORATED
By:_____________________________
Name:___________________________
Title:__________________________
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF CITADEL COMPUTER SYSTEMS, INC. AND IS
QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> SEP-30-1995 DEC-31-1994
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 1,232,166 235,605
<ALLOWANCES> 109,147 80,000
<INVENTORY> 7,000 0
<CURRENT-ASSETS> 1,141,750 159,938
<PP&E> 61,469 31,352
<DEPRECIATION> 7,350 4,078
<TOTAL-ASSETS> 1,845,655 756,062
<CURRENT-LIABILITIES> 1,345,179 562,279
<BONDS> 0 0
0 0
0 0
<COMMON> 29 29
<OTHER-SE> 314,997 119,924
<TOTAL-LIABILITY-AND-EQUITY> 1,845,655 756,062
<SALES> 1,304,048 726,461
<TOTAL-REVENUES> 1,304,048 726,461
<CGS> 93,388 168,075
<TOTAL-COSTS> 1,019,780 705,462
<OTHER-EXPENSES> 172,790 39,925
<LOSS-PROVISION> 50,000 80,000
<INTEREST-EXPENSE> 46,874 20,797
<INCOME-PRETAX> 180,087 (287,798)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 180,087 (287,798)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 110,062
<CHANGES> 0 0
<NET-INCOME> 180,087 (177,736)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
