<PAGE>
As filed with the Securities and Exchange Commission on November 6, 1996
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------------------
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------------------------------------
CITADEL COMPUTER SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 75-2432011
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3811 TURTLE CREEK BLVD., SUITE 330
DALLAS, TEXAS 75219
(Address of principal executive offices) (Zip Code)
DIRECTORS STOCK OPTIONS
(Full title of the plans)
-------------------------------------------------------
STEVEN B. SOLOMON COPY TO:
CHIEF OPERATING OFFICER DAVID A. WOOD, ESQ.
CITADEL COMPUTER SYSTEMS INCORPORATED CITADEL COMPUTER SYSTEMS INCORPORATED
3811 TURTLE CREEK BLVD, SUITE 330 3811 TURTLE CREEK BLVD., SUITE 330
DALLAS, TEXAS 75219 DALLAS, TEXAS 75219
(214) 520-9292 (214) 520-9292
(Name, address and telephone number
including area code of agent for service)
-------------------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1)(2) PRICE(1)(2) FEE(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value
per share 5,334,461 Shares $2.00 $10,668,922 $3,678.94
======================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated pursuant to Rule 457(c) and (h) under the Securities Act of
1933, as amended. Accordingly, the price per share of the common stock offered
hereunder is calculated at a price per share of $2.00 which was the average
closing bid and ask price per share of common stock on the OTC Bulletin Board on
November 5, 1996. The share amounts and prices per share reflect a one-for two
reverse stock split effective May 1, 1996.
================================================================================
<PAGE>
PART II
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The registrant hereby incorporates by reference in this registration
statement the following documents previously filed by the registrant with the
Securities and Exchange Commission (the "Commission"):
(1) the registrant's Annual Report on Form 10-KSB filed with the
Commission for the fiscal year ended February 29, 1996;
(2) the registrant's Quarterly Reports on Form 10-QSB for the quarters
ended May 31, 1996 and August 31, 1996, filed with the Commission;
(3) the registrant's definitive Information Statement dated April 11,
1996, filed with the Commission;
(4) the registrant's Current Reports on Form 8-K dated March 13, 1996,
June 11, 1996, September 3, 1996 and November 5, 1996, each filed with
the Commission;
(5) the registrant's four reports on Form 10-C filed with the Commission
on March 25, 1996, March 25, 1996, April 22, 1996 and May 8, 1996,
respectively; and
(6) the description of the common stock, par value $0.01 per share, of the
registrant (the "Common Stock") set forth in the Registration
Statement on Form S-1 for Apollo Resources, Inc., filed with the
Commission on November 1, 1988, and declared effective January 4,
1989, including any amendment or report filed for the purpose of
updating such description.
All documents filed by the registrant with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), subsequent to the date of this registration
statement shall be deemed to be incorporated herein by reference and to be a
part hereof from the date of the filing of such documents until such time as
there shall have been filed a post-effective amendment that indicates that all
securities offered hereby have been sold or that deregisters all securities
remaining unsold at the time of such amendment.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
David A. Wood, counsel to the registrant, is an employee of the registrant
and holds options to acquire 150,000 shares of the Common Stock of the
registrant.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Registrant's Certificate of Incorporation provides that no director of the
Registrant will be personally liable to the Registrant or any of its
stockholders for monetary damages arising from the director's breach of
fiduciary duty as a director, with certain limited exceptions.
Pursuant to the provisions of Section 145 of the Delaware General
Corporation Law, every Delaware corporation has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) by reason of the fact that he or
she is or was a director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, against any and all
expenses, judgments, fines and amounts paid in settlement and reasonably
incurred in connection with such action, suit or proceeding. The power to
indemnify applies only if such person acted in good faith and in a manner he or
she reasonably believed
II-1
<PAGE>
to be in the best interest, or not opposed to the best
interest, of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication unless the court, in its discretion,
believes that in the light of all the circumstances indemnification should
apply.
To the extent any of the persons referred to in the two immediately
preceding paragraphs is successful in the defense of the actions referred to
therein, such person is entitled, pursuant to Section 145, to indemnification as
described above.
In addition, the Registrant's Certificate of Incorporation and Bylaws
provide for indemnification of officers and directors to the fullest extent
permitted by the Delaware General Corporation Law.
ITEM 8. EXHIBITS.
(a) Exhibits.
The following documents are filed as a part of this registration
statement.
Exhibit Description of Exhibit
------- ----------------------
4.1 Certificate of Incorporation (incorporated by reference to
Registration Statement on Form S-1, File No. 33-25462, for
Apollo Resources, Inc., on November 10, 1988 and declared
effective January 4, 1989).
4.2 Certificate of Amendment to Certificate of Incorporation
filed with Delaware Secretary of State on June 4, 1990
(incorporated by reference to Form 10-K for year ended
February 29, 1996).
4.3 Bylaws (incorporated by reference to Registration Statement
on Form S-1, File No. 33-25462, filed with the Commission on
November 10, 1988).
4.4 Certificate of Amendment to Certificate of Incorporation
filed with Delaware Secretary of State on October 15, 1991
(incorporated by reference to Form 10-K for year ended
December 31, 1991).
4.5 Certificate of Amendment to Certificate of Incorporation
filed with Delaware Secretary of State on July 20, 1994
(incorporated by reference to Form 10-QSB for quarter ended
June 30, 1994).
4.6 Certificate of Amendment to Certificate of Incorporation
filed with Delaware Secretary of State on December 11, 1995
(incorporated by reference to Form S-8, File No. 33-65189,
filed with the Commission on December 20, 1995).
4.7 Certificate of Amendment to Certificate of Incorporation
filed with Delaware Secretary of State on May 1, 1996
(incorporated by reference to Form S-8, File No. 333-03291,
filed with the Commission on May 8, 1996).
4.8 Certificate of Designations of Series A Convertible Preferred
Stock filed with Delaware Secretary of State on July 16, 1996
(incorporated by reference to Form 10-Q for the quarter ended
May 31, 1996).
4.9* Certificate of Designations of Series B Convertible Preferred
Stock filed with Delaware Secretary of State on September 27,
1996.
II-2
<PAGE>
4.10* Form of Directors' Option Agreement
5* Opinion of David A. Wood, counsel to registrant.
23.1* Consent of Grant Thornton LLP, independent certified public
accountants.
23.2* Consent of David A. Wood (included as part of Exhibit 5).
24* Power of Attorney is found on page II-5 hereof.
____________________
* Filed herewith.
ITEM 9. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
THE REGISTRANT. Pursuant to the requirements of the Securities Act of
--------------
1933, the registrant certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas, on November 6, 1996:
CITADEL COMPUTER SYSTEMS INCORPORATED
By: /s/ George Sharp
------------------------------------------
George Sharp
Chief Executive Officer and President
(Principal Executive Officer)
By: /s/ Steven Solomon
------------------------------------------
Steven Solomon
Chief Operating Officer (Principal Financial
and Accounting Officer)
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George Sharp and Steven B. Solomon, or either of
them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same with all
exhibits, thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------- --------------------------------- ----------------
<S> <C> <C>
/s/ GILBERT GERTNER Chairman of the Board of October 15, 1996
- --------------------------- Directors
Gilbert Gertner
/s/ GEORGE SHARP Chief Executive Officer, October 22, 1996
- --------------------------- President & Director (Principal
George Sharp Executive Officer)
/s/ STEVEN SOLOMON Chief Operating Officer, October 22, 1996
- --------------------------- Secretary & Director (Principal
Steven Solomon Financial and Accounting Officer)
/s/ CHRIS ECONOMOU
- --------------------------- Director October 22, 1996
Chris Economou
- --------------------------- Director October __, 1996
Victor K. Kiam II
/s/ JESSE MARION
- --------------------------- Director October 15, 1996
Jesse Marion
- --------------------------- Director October __, 1996
Mark Rogers
- --------------------------- Director October __, 1996
Axel Sawallich
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Page
Number Document Description Number
- ------- -------------------- ----------
4.1 Certificate of Incorporation (incorporated by reference to
Registration Statement on Form S-1, File No. 33-25462, for
Apollo Resources, Inc., on November 10, 1988 and declared
effective January 4, 1989).
4.2 Certificate of Amendment to Certificate of Incorporation
filed with Delaware Secretary of State on June 4, 1990
(incorporated by reference to Form 10-K for year ended
February 29, 1996).
4.3 Bylaws (incorporated by reference to Registration Statement on
Form S-1, File No. 33-25462, filed with the Commission on
November 10, 1988).
4.4 Certificate of Amendment to Certificate of Incorporation filed
with Delaware Secretary of State on October 15, 1991
(incorporated by reference to Form 10-K for year ended
December 31, 1991).
4.5 Certificate of Amendment to Certificate of Incorporation filed
with Delaware Secretary of State on July 20, 1994 (incorporated
by reference to Form 10-QSB for quarter ended June 30, 1994).
4.6 Certificate of Amendment to Certificate of Incorporation filed
with Delaware Secretary of State on December 11, 1995
(incorporated by reference to Form S-8, File No. 33-65189,
filed with the Commission on December 20, 1995).
4.7 Certificate of Amendment to Certificate of Incorporation filed
with Delaware Secretary of State on May 1, 1996 (incorporated
by reference to Form S-8, File No. 333-03291, filed with the
Commission on May 8, 1996).
4.8 Certificate of Designations of Series A Convertible Preferred
Stock filed with Delaware Secretary of State on July 16, 1996
(incorporated by reference to Form 10-Q for the quarter ended
May 31, 1996).
4.9* Certificate of Designations of Series B Convertible Preferred
Stock filed with Delaware Secretary of State on
September 27, 1996. 8
4.10* Form of Directors' Option Agreements 14
5* Opinion of David A. Wood, counsel to registrant. 17
23.1* Consent of Grant Thornton LLP, independent certified public
accountants. 19
23.2* Consent of David A. Wood (included as part of Exhibit 5).
24* Power of Attorney is found on page II-5 hereof.
____________________
* Filed herewith.
<PAGE>
EXHIBIT 4.9
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF SERIES B CONVERTIBLE PREFERRED STOCK OF
CITADEL COMPUTER SYSTEMS INCORPORATED
(Pursuant to Section 151(g) of the
Delaware General Corporation Law)
The undersigned does hereby certify:
(a) that he is, and at all times mentioned herein was, the duly elected and
acting Chief Operating Officer and Secretary of Citadel Computer Systems
Incorporated, a Delaware corporation (the "Company");
(b) that the Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), authorizes the Company's board of directors
(the "Board of Directors") to adopt resolutions fixing the voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions of any series of Preferred Stock, and the Board of Directors has
delegated such authority to its executive committee (the "Executive Committee");
and
(c) the Executive Committee adopted the following resolutions at a meeting held
on September 24, 1996:
WHEREAS, the Certificate of Incorporation authorizes a class of stock
designated Preferred Stock (the "Preferred Stock"), comprising 1,000,000 shares,
par value $0.01 per share, provides that such Preferred Stock may be issued from
time to time in one or more series, and vests authority in the Board of
Directors of the Company to fix or alter the voting powers, designations,
preferences and relative, participating, optional or other special rights,
rights and terms of redemption, the redemption price or prices and the
liquidation preferences of any wholly unissued series of Preferred Stock within
the limitations set forth in the Delaware General Corporation Law, and the Board
of Directors has delegated such authority to the Executive Committee;
WHEREAS, the Company has no outstanding shares of the Company's authorized
Preferred Stock;
WHEREAS, there remains 1,000,000 shares of the Company's authorized but
unissued Preferred Stock eligible for designation by the Company with respect to
new series thereof;
WHEREAS, the Company proposes to make an offering of up to 1,620 shares of
a new series of Preferred Stock (the "Offering"); and
WHEREAS, it is the desire of the Company to designate a series of
Preferred Stock and to fix the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof in connection with the
Offering;
NOW, THEREFORE, BE IT RESOLVED, that the Company, does hereby designate
1,620 shares of authorized but unissued Preferred Stock as Series B Convertible
Preferred Stock (the "Series B Preferred Stock"), and does hereby fix the voting
powers, preferences, and relative, participating, optional, or other special
rights and qualifications, limitations, or restrictions thereof as follows:
Part 1. General.
-------
All shares of Series B Preferred Stock will be identical with each other in
all respects. All of the shares of Series B Preferred Stock will be of such
rank as to any other outstanding series of Preferred Stock of the Company as to
dividends and distributions upon liquidation, dissolution or winding up, as
shall be provided in the resolutions of the Board of Directors or the Executive
Committee of the Company creating such other series, subject in each case to the
conditions contained herein.
-1-
<PAGE>
Part 2. Dividends.
---------
The holder of each issued and outstanding share of Series B Preferred Stock
shall be entitled to receive dividends at a rate of $50.00 per share per annum,
when and as declared by the Board of Directors of the Company. No dividends
(other than those payable solely in shares of Common Stock of the Company) shall
be paid on or declared and set apart for any Common Stock or series of Preferred
Stock that is subordinate to the Series B Preferred Stock so long as any shares
of Series B Preferred Stock are outstanding, unless, at the same time, an
equivalent or greater dividend or distribution is declared or paid or set apart,
as the case may be, on the Series B Preferred Stock, payable on the same day as
if fully converted into Common Stock pursuant to Part 4. At the sole option of
the Company, dividends on each share of Series B Preferred Stock may be paid in
either (a) cash out of the assets at the time legally available for such
purposes, or (b) shares of Common Stock in an amount determined by dividing (x)
the amount of the dividend payable thereon, by (y) the Conversion Price (as
defined in Part 4 hereof) in effect on the dividend declaration date. No
dividends shall be paid on the Series B Preferred Stock at such time as such
payment would violate the laws of the State of Delaware.
Part 3. Liquidation Preference (a) In the event of any liquidation,
----------------------
dissolution or winding up of the Company, either voluntary or involuntary, the
holders of the Series B Preferred Stock then issued and outstanding shall be
entitled to receive out of the assets of the Company available for distribution
to its stockholders, whether from capital, surplus or earnings, prior and in
preference to any payment or distribution and setting apart for payment or
distribution of any of the net assets or surplus funds of the Company to the
holders of the Common Stock or any series of Preferred Stock with a liquidation
preference subordinate to the Series B Preferred Stock, an amount (the
"Liquidation Preference") for each share of Series B Preferred Stock then held
by them equal to $1,000 per share (the "Stated Value") plus accrued dividends.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Series B Preferred Stock shall be insufficient to
permit the payment to such holders of the full Liquidation Preference, then the
entire assets and funds of the Company legally available for distribution shall
be distributed among the holders of the Series B Preferred Stock and the holders
of any other series of Preferred Stock with a liquidation preference equal to
that of the Series B Preferred Stock, in proportion to the shares of Series B
Preferred Stock or other such series of Preferred Stock then held by them.
(b) If the assets and funds of the Company available for distribution to
the Company's stockholders exceed the aggregate Liquidation Preferences payable
to the holders of Series B Preferred Stock pursuant to paragraph 3(a) above,
then after the payments required by paragraph 3(a) shall have been made or
irrevocably set apart for payment, such assets or funds shall be distributed
among the holders of Common Stock and subordinate Preferred Stock.
(c) (i) A consolidation or merger (within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended) of the Company with or into one
or more other corporations or other business organizations, (ii) the sale, lease
or transfer of all or substantially all of the assets of the Company, or (iii)
any other form of corporate reorganization in which outstanding shares of the
Company are exchanged for or converted into cash, securities of another
corporation or business organization or other property, which in any such case
shall not in fact result in a liquidation (in whole or in part) of the Company
and the distribution of its assets to its stockholders shall not be deemed or
treated as a liquidation, dissolution or winding up of the Company within the
meaning of Part 3.
Part 4. Conversion. The holders of Series B Preferred Stock will have the
----------
following conversion rights:
(a) Right to Convert. Each share of Series B Preferred Stock shall be
----------------
convertible, on and after the Conversion Dates and at the Conversion Ratio set
forth below, into fully paid and non-assessable shares of Common Stock.
(b) Method of Conversion. Subject to paragraph (c) below, each holder of
--------------------
Series B Preferred Stock who desires to convert the same into shares of Common
Stock shall provide notice to the Company by the execution and delivery to it of
a Notice of Conversion in substantially the form attached as Annex A hereto.
Notice may be given by telecopy to the Company at 512.520.9293. The date on
which a Notice of Conversion is received by the Company shall be a "Notice
Date". The Company shall use its reasonable best efforts to issue
-2-
<PAGE>
and deliver within five business days after receipt of the Notice of Conversion
and the certificate or certificates for the shares of Series B Preferred Stock,
with proper endorsement if necessary, from the holder electing conversion, a
certificate or certificates representing the number of shares of Common Stock to
which the holder shall be entitled to upon the conversion.
(c) Conversion Date. The Series B Preferred Stock shall become convertible
---------------
into shares of Common Stock at any time commencing forty (40) days after the
closing date for the original issuance of the Series B Preferred Stock (the
"Conversion Date").
(d) Conversion Ratio. In addition to such shares of Common Stock as may be
----------------
issued upon the election of the Company pursuant to Part 2 above as dividends,
each share of Series B Preferred Stock shall be convertible into the number of
shares of Common Stock according to the following formula:
N x 1,000
----------------------
Conversion Price
where:
N = the number of shares of Series B Preferred Stock for which conversion is
elected.
Conversion Price = the product of (x) the average closing bid price as reported
on the Nasdaq system (or on such other national securities exchange or automated
quotation system on which the Common Stock is then primarily traded) of the
Common Stock for the five consecutive trading days immediately preceding the
Notice Date and (y) .83.
(e) Automatic Conversion. Each share of Series B Preferred Stock
--------------------
outstanding on September 24, 1998 automatically shall be converted into Common
Stock on such date at the Conversion Ratio then in effect, and September 24,
1998 shall be deemed to be the Notice Date with respect to such conversion;
provided however, if September 24, 1998 is not a day on which the Nasdaq system
is open for trading or quotation, the deemed Notice Date shall be the next
succeeding day on which the Nasdaq system is open for trading or quotation.
(f) Fractional Shares. No fractional share will be issued upon the
-----------------
conversion of any shares of Series B Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable on conversion of Series B Preferred
Stock by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share.
If, after the aggregation, the conversion would result in the issuance of a
fractional share, the Company shall, in lieu of issuing any fractional share,
round up or down any fractional share to the nearest whole share of Common
Stock.
(g) Adjustment to Conversion Price.
------------------------------
(i) If, prior to the conversion of all shares of Series B Preferred
Stock, the number of shares of Common Stock or Series B Preferred Stock is
increased by a stock split, stock dividend, or similar event, or if the number
of shares of Common Stock or Series B Preferred Stock is decreased by a
combination, reclassification, reverse stock split, or similar event, the Board
of Directors of the Company shall make an equitable adjustment in the Conversion
Ratio, if necessary, to reflect such event in order to preserve substantially
the initial Conversion Ratio. The Company will send to each holder of Series B
Preferred Stock written notice of each change in the Conversion Ratio.
(ii) If, prior to conversion of all shares of Series B Preferred Stock,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization or similar event, as a result of which shares of Common Stock
will be changed into the same or a different number of shares of the same or
different class or classes of stock or other securities of the Company or
another entity, then holders of Series B Preferred Stock will thereafter have
the right to purchase and receive upon conversion of shares of Series B
Preferred Stock, on the basis and on the terms and conditions specified herein,
and in lieu of shares of Common Stock immediately theretofore issuable upon
conversion, such shares of stock or securities as may be issued or payable with
respect
-3-
<PAGE>
to or in exchange for the number of shares of Common Stock immediately
theretofore purchasable and receivable upon conversion of shares of Series B
Preferred Stock had such event not taken place. In any case subject hereto,
appropriate provision shall be made with respect to the rights and interests of
the holders of Series B Preferred Stock to the end that the provisions hereof
(including without limitation provisions for adjustment of the Conversion Price
and the number or type of shares issuable upon conversion of the Series B
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any shares of stock or securities thereafter deliverable upon the
exercise hereof. The Company shall not effect any transaction described in this
subsection (ii) unless the successor or acquiring entity (if not the Company)
assumes by written instrument the obligation to deliver to the holders of Series
B Preferred Stock shares of stock or securities, as in accordance with the
foregoing, the holders of the Series B Preferred Stock may be entitled to
purchase upon conversion.
(h) Reservation of Stock Issuable Upon Conversion. The Company shall at all
---------------------------------------------
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of Series B Preferred Stock, such number of shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all then outstanding
shares of Series B Preferred Stock. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series B Preferred Stock, the Company will
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
(i) Status of Converted Stock. Upon the Company receiving a Notice of
-------------------------
Conversion for any shares of Series B Preferred Stock pursuant to this section,
the shares covered by such Notice of Conversion shall no longer be deemed
outstanding and all rights with respect to such shares shall cease and be
canceled and such shares shall be returned to the status of authorized but
unissued Preferred Stock of no designated class or series and shall not be
issuable by the Company as Series B Preferred Stock.
Part 5. Voting Rights.
-------------
Except as otherwise expressly required by the Delaware General Corporation
Law or as to any repeal, modification, or amendment to this Certificate of
Designation, which repeal, modification, or amendment shall require the
affirmative vote of the holders of at least a majority of the shares of Series B
Preferred Stock outstanding, voting separately as a class, the holders of Series
B Preferred Stock shall have no voting power whatsoever, and no holder of Series
B Preferred Stock shall vote or otherwise participate in any proceeding in which
actions shall be taken by the Company or the stockholders thereof, or be
entitled to notification of any meeting of the Board of Directors or the
stockholders.
Part 6. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Company (an
affidavit of the registered holder with indemnification provisions will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing shares of Series B Preferred Stock, and in the case
of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Company or, in the case of any mutilation, upon surrender of
such certificate, the Company will (at the holder's expense) execute and deliver
in lieu of such certificate a new certificate of like kind representing the
number of shares of Series B Preferred Stock represented by such lost, stolen,
destroyed or mutilated certificate, and dividends will accrue on the shares of
Series B Preferred Stock represented by such new certificate from the date to
which dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the Series B Preferred Stock and fixing the
number, powers, preferences and relative, optional, participating and other
special rights and the qualifications, limitations, restrictions, and other
distinguishing characteristics thereof shall, upon the effective date of such
series, be deemed to be included in the Certificate of Incorporation of the
Company pursuant to Sections 104 and 151 of the Delaware General Corporation
Law.
-4-
<PAGE>
The undersigned further certifies that the authorized number of shares of
Preferred Stock is 1,000,000 and that the number of shares of this series of
Preferred Stock, the Series B Convertible Preferred Stock, none of which has
been issued, is 1,620.
IN WITNESS WHEREOF, Citadel Computer Systems Incorporated has caused this
Certificate to be executed by its duly authorized representative as of September
24, 1996.
CITADEL COMPUTER SYSTEMS INCORPORATED
By: /s/ Steven B. Solomon
Steven B. Solomon, Chief Operating Officer
-5-
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder to
Convert Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert $____________ or
____________ shares of Series B Preferred Stock into shares of Common Stock of
Citadel Computer Systems Incorporated (the "Company") according to the
conditions hereof, as of the date written below. The undersigned represents and
warrants that (i) all of the requirements of Regulation S promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), applicable to the
undersigned have been complied with by the undersigned and (ii) the undersigned
has not engaged in any transaction or series of transactions that is a part of
or a plan or scheme to evade the registration requirements of the Securities
Act.
------------------------------------
Date of Conversion*
------------------------------------
Applicable Conversion Price
------------------------------------
Dollar amount or Shares
------------------------------------
Signature
Name and Address:
-------------------------------------
-------------------------------------
-------------------------------------
*The original certificate representing shares of Series B Preferred Stock and
this Notice of Conversion must be received by the Company by the fifth business
day following the Date of Conversion.
-6-
<PAGE>
EXHIBIT 4.10
CITADEL COMPUTER SYSTEMS INCORPORATED
STOCK OPTION AGREEMENT
THIS AGREEMENT is made and entered into as of the ___/th/ day of ____,
199 , between Citadel Computer Systems Incorporated, a Delaware corporation (the
"Corporation"), and ___________-(the "Holder") in connection with the grant of
an option to purchase common stock of the Corporation.
W I T N E S S E T H:
WHEREAS, the Holder is an officer and director of the Corporation;
WHEREAS, in connection with the services Holder has provided to the
Corporation as an officer and director, the Corporation desires to grant the
Holder an option to purchase shares of common stock ("Stock") of the Corporation
under terms and conditions set forth herein.
NOW, THEREFORE, in consideration of these premises, the parties agree that
the following shall constitute the Agreement between the Corporation and the
Holder:
1. DEFINITIONS. For purposes of this Agreement, defined terms shall have
-----------
the meanings specified below:
1.1 "AGREEMENT" shall mean this document as executed by the Corporation
and the Holder, and as it may be subsequently amended.
1.2 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar or superseding statute or statutes.
1.2 "OPTION" shall mean the stock option granted pursuant to this
Agreement; such Option is a "nonstatutory option" and does not satisfy the
requirements of section 422 of the Internal Revenue Code (the "Code").
1.3 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar or superseding statute or statutes.
1.4 "STOCK" shall mean the common stock of the Corporation, par value
$.01.
2. GRANT OF OPTION. Subject to the terms and conditions set forth in this
---------------
Agreement, the Corporation grants to the Holder an Option to purchase from the
Corporation during the period ending July __, ______, _________shares of Stock
at a price of $.____ per share, taking into account the 4.5 shares issued per
share in connection with the Corporation's merger with LoneStar Hospitality
Corporation and the one-for-two reverse stock split effective May 1, 1996, and
subject to further adjustment, if any, as provided in this Agreement. This
Option is exercisable with respect to the shares of Stock as of the date hereof.
3. NOTICE OF EXERCISE. This Option may be exercised in whole or in part,
------------------
from time to time, during the period specified in PARAGRAPH 2, by written notice
to the Corporation at the address provided in this Agreement. Such notice shall
(a) specify the number of shares of Stock to be purchased and the exercise price
to be paid for such shares; (b) if the person exercising this Option is not the
Holder himself, contain or be accompanied by evidence satisfactory to the
Corporation of such person's right to exercise this Option; and (c) be
accompanied by payment in full of the purchase price in the form of cash or a
certified cashier's check to the order of the Corporation or pursuant to a
cashless exercise through a broker/dealer.
4. INVESTMENT INTENT. The Holder agrees that, until the shares of stock
------------------
acquired upon exercise of this Option have been registered under the Securities
Act, the shares shall be acquired for his own account for investment only and
not with a view to, or for resale in connection with, any distribution or public
offering
-1-
<PAGE>
thereof within the meaning of the Securities Act or other applicable securities
laws. If the shares are not registered and Board of Directors so determines,
any Stock certificates issued upon exercise of this Option shall bear a legend
to the effect that the shares have been so acquired. The Corporation shall bear
any expenses of complying with the Securities Act, other applicable securities
laws or the rules and regulations of any national securities exchange or other
regulatory authority in connection with the registration, qualification, or
transfer, as the case may be, of this Option or any shares of Stock acquired
upon the exercise of this Option. The foregoing restrictions on the transfer of
the shares of Stock shall be inoperative if (a) the Corporation previously shall
have been furnished with an opinion of counsel, satisfactory to it, to the
effect that such transfer will not involve any violation of the Securities Act
or other applicable securities laws, or (b) the shares of Stock shall have been
duly registered in compliance with the Securities Act and other applicable
securities laws.
5. TRANSFER AND EXERCISE OF OPTION. This Option shall not be transferable
--------------------------------
except by will or by the laws of descent and distribution. No assignment or
transfer of this Option, whether voluntary or involuntary, by operation of law
or otherwise, except a transfer by will or by the laws of descent or
distribution, shall vest in the assignee or transferee any interest or right
whatsoever in this Option. During the Holder's lifetime, this Option may be
exercised only by him, his guardian or his legal representative.
Notwithstanding the foregoing, the shares underlying this Option may be
transferred upon registration or exemption from registration under the Act.
6. STATUS OF HOLDER. The Holder shall not be deemed a stockholder of the
----------------
Corporation with respect to any of the shares of Stock subject to this Option,
except to the extent that such shares shall have been purchased and transferred
to him. The Corporation shall not be required to issue or transfer any
certificates for shares of Stock purchased upon exercise of this Option until
all applicable requirements of law have been satisfied and such shares shall
have been duly listed on any securities exchange on which the Stock may then be
listed or approved for quotation.
7. NO EFFECT ON CAPITAL STRUCTURE. This Option shall not affect the right
------------------------------
of the Corporation or any Affiliate to reclassify, recapitalize or otherwise
change its capital or debt structure or to merge, consolidate, convey any or all
of its assets, dissolve, liquidate, windup, or otherwise reorganize.
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER, ETC.
--------------------------------------------------------
Notwithstanding any other provision of this Agreement, in the event of any
change in the number of outstanding shares of Stock
(a) effected without receipt of consideration by the Corporation, by
reason of a stock dividend, split, combination, exchange or other
recapitalization, merger, or otherwise, in which the Corporation is
the surviving corporation, or
(b) by reason of a spin-off of a part of the Corporation into a separate
entity, or assumptions and conversions of outstanding grants due to an
acquisition by the Corporation of a separate entity,
(1) the aggregate number and class of shares subject to this Option and (2) the
exercise price of this Option shall be automatically adjusted to accurately and
equitably reflect the effect of such changes. In the event of a dispute
concerning such adjustment, the Committee shall have full discretion to resolve
the dispute. The number of shares subject to this Option shall be automatically
reduced by any fraction which results from any adjustment made pursuant to this
Paragraph.
10. AUTHORITY OF BOARD OF DIRECTORS. Any question concerning the
--------------------------------
interpretation of this Agreement, any adjustments required to be made under this
Agreement, and any controversy which may arise under this Agreement shall be
determined by the Board of Directors in its sole discretion.
11. NOTICE. Whenever any notice is required or permitted under this
------
Agreement, such notice must be in writing and delivered (personally or by
courier), telecopied (if confirmed) or sent by mail. Any notice required or
permitted to be delivered under this Agreement shall be deemed to be delivered
on the date which it is personally delivered, or, whether actually received or
not, on the third business day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address which such person has previously specified by written
notice delivered in accordance with this
-2-
<PAGE>
Agreement. The Corporation or Holder may change, at any time and from time to
time, by written notice to the other, the address previously specified for
receiving notices. Until changed in accordance with this Agreement, the
Corporation and the Holder specify their respective addresses as set forth
below:
Corporation: Citadel Computer Systems Incorporated
3811 Turtle Creek Boulevard, Suite 330
Dallas, Texas 75219
Holder:
12. MODIFICATION, EXTENSION AND RENEWAL OF OPTION. The Board of Directors
may modify, extend or renew this Option or accept the surrender of this Option,
(to the extent not previously exercised), and authorize the granting of a
substitute Option (to the extent not previously exercised). The Board of
Directors may not, without the consent of the Holder, modify this Option so as
to specify a higher or lower exercise price or number of shares. In addition,
no modification of this Option shall, without the consent of the Holder, alter
or impair any rights or obligations under this Option to Holder.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed and the Holder has executed this Agreement on the day and year first
above written.
CORPORATION
CITADEL COMPUTER SYSTEMS INCORPORATED
By: ___________________________________________
HOLDER
_____________________________________
-3-
<PAGE>
EXHIBIT 5
November 6, 1996
Citadel Computer Systems Incorporated
3811 Turtle Creek Boulevard
Suite 330
Dallas, Texas 75219
Re: Registration Statement on Form S-8
Gentlemen:
The undersigned has acted as counsel to Citadel Computer Systems
Incorporated, a Delaware corporation (the "Company"), in connection with the
preparation of the Registration Statement on Form S-8 (the "Registration
Statement") to be filed with the Securities and Exchange Commission on November
6, 1996, under the Securities Act of 1933, as amended (the "Securities Act"),
relating to 5,334,461 shares of the $.01 par value common stock (the "Common
Stock") of the Company that may be issued upon exercise of stock options granted
to certain directors of the Company.
You have requested the opinion of the undersigned with respect to certain
legal aspects of the proposed offering. In connection therewith, the
undersigned has examined and relied upon the original, or copies identified to
my satisfaction, of (1) the Certificate of Incorporation and the Bylaws of the
Company, each as amended; (2) minutes and records of the corporate proceedings
of the Company with respect to the approval of the Options to which the
Registration Statement relates; (3) the Registration Statement and exhibits
thereto; and (4) such other documents and instruments as I have deemed necessary
for the expression of the opinions herein contained. In making the foregoing
examinations, I have assumed the genuineness of all signatures and the
authenticity of all documents submitted as originals, and the conformity to
original documents of all documents submitted as certified or photostatic
copies. As to various questions of fact material to this opinion, and as to the
content and form of the Certificate of Incorporation, the Bylaws, minutes,
records, resolutions and other documents or writings of the Company, I have
relied, to the extent I deem reasonably appropriate, upon representations or
certificates of officers or directors of the Company and upon documents, records
and instruments furnished to me by the Company, without independent confirmation
or verification of their accuracy.
Based upon my examination and consideration of, and reliance on, the
documents and other matters described above, and subject to the comments and
exceptions noted below, the undersigned is of the opinion that the Company
presently has available sufficient shares of authorized but unissued shares of
Common Stock from which the shares of Common Stock subject to the exercise of
options may be issued. Furthermore, assuming that (i) the outstanding options
were duly granted, the shares of Common Stock to be issued pursuant to the
exercise of options are duly issued in accordance with the terms of the
applicable agreement, (ii) the Company maintains an adequate number of
authorized but unissued shares and/or treasury shares of Common Stock available
for issuance to those persons who exercise options, and (iii) the consideration
for shares of Common Stock issued pursuant to the exercise of options is
actually received by the Company in accordance with the terms of the applicable
Agreement and exceeds the par value of such shares, then the undersigned is of
the opinion that the shares of Common Stock issued pursuant to the exercise of
options and in accordance with the terms of the applicable agreement, will be
duly and validly issued, fully paid and nonassessable.
-1-
<PAGE>
The undersigned hereby consents to the filing of this opinion as an exhibit to
the Registration Statement and to references to the undersigned included in or
made a part of the Registration Statement. In giving this consent, the
undersigned does not admit that he comes within the category of person whose
consent is required under Section 7 of the Securities Act or the Rules and
Regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
CITADEL COMPUTER SYSTEMS INCORPORATED
/s/ David A. Wood
--------------------------------------------
David A. Wood
General Counsel
-2-
<PAGE>
EXHIBIT 23.1
CONSENT OF GRANT THORNTON LLP,
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 12, 1996 accompanying the consolidated
financial statements of Citadel Computer Systems Incorporated and Subsidiary
appearing in the annual report on Form 10-KSB for the year ended February 29,
1996, which is incorporated by reference in this Registration Statement. We
consent to the incorporation by reference in the Registration Statement of the
aforementioned report.
Grant Thornton LLP
GRANT THORNTON LLP
Dallas, Texas
October 17, 1996
