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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Citadel Computer Systems Incorporated
- --------------------------------------------------------------------------------
(Name of Issuer)
Common stock, par value $.01 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
172854-10-1
- --------------------------------------------------------------------------------
(CUSIP Number)
Peter T. Dameris, 4400 Post Oak Parkway, Suite 1100, Houston, Texas 77027
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
May 15, 1998
- --------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ]. (A fee is
not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE> 2
SCHEDULE 13D
<TABLE>
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CUSIP No. 172854-10-1 Page 2 of 6 Pages
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<S> <C> <C>
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Metamor Worldwide, Inc. (formerly CORESTAFF, Inc.)
76-0407849
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
N/A
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)
N/A
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
NUMBER OF 6,360,000
SHARES -------------------------------------------------------------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY -0-
EACH -------------------------------------------------------------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 6,360,000
WITH --------------------------------------------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,360,000
- ----------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
N/A
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
24.8
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14 TYPE OF REPORTING PERSON*
CO
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</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE> 3
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CUSIP No. 172854-10-1 Page 3 of 6 Pages
- ---------------------- ----------------------
Item 1. Security and Issuer
This statement relates to the Common Stock, par value $.01 per
share (the "Common Stock") of Citadel Computer Systems Incorporated (the
"Issuer"). The principal executive offices of the Issuer are located at 3811
Turtle Creek Boulevard, Suite 600, Dallas, Texas 75219.
Item 2. Identity and Background
This statement is being filed by Metamor Worldwide, Inc. (formerly
CORESTAFF, Inc.) (the "Reporting Person"). The Reporting Person is a Delaware
corporation, whose principal business is providing temporary staffing and
computer solutions services. The business address of the Reporting Person is
4400 Post Oak Parkway, Suite 1100, Houston, Texas 77027.
The Reporting Person has not, during the last five years, been (i)
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and, as a result of such
proceeding, was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to such
laws.
Item 3. Source and Amount of Funds or Other Consideration.
On October 6, 1997, the Reporting Person acquired (i) a total of
2,500,000 shares of Issuer Common Stock, (ii) a warrant to acquire 1,000,000
shares of Issuer Common Stock at an exercise price of $4.00 per share and (iii)
a warrant to acquire 1,000,000 shares of Issuer Common Stock at an exercise
price of $5.00 per share. The aggregate consideration paid by the Reporting
Person for the issued shares was $750,000. The source of such consideration was
the Reporting Person's corporate working capital.
On May 15, 1998, the Reporting Person acquired a total of 2,000
shares of the Issuer's Series D Convertible Redeemable Preferred Stock (the
"Preferred Stock"). The Preferred Stock is currently convertible at any time
into an aggregate of 1,860,000 shares of Issuer Common Stock, subject to certain
adjustments. The Reporting Person paid an aggregate consideration of
$2,000,000 for the Preferred Stock. The source of such consideration was the
Reporting Person's working capital.
Item 4. Purpose of Transaction
The Reporting Person has acquired the Issuer's securities for
investment. Depending on market conditions and other factors, the Reporting
Person may purchase additional shares of Issuer Common Stock, or may dispose of
all or a portion of the Issuer Common Stock which he now owns or hereafter may
acquire. Except as set forth in the next sentence, the Reporting Person as a
stockholder of the Issuer has no present plans or proposals which relate to or
would result in an extraordinary corporate transaction, such as a merger,
reorganization or liquidation involving the Issuer or any of its subsidiaries,
a sale or transfer of a material amount of the Issuer's assets, a change in the
present Board of Directors or management of the Issuer, including any plans or
proposals to change the number or term of directors or to fill any existing
vacancies on the Board, any material change in the present capitalization or
dividend policy of the Issuer, any other material change in the Issuer's
business or corporate structure, changes in the Issuer's charter or bylaws or
other actions which may impede the acquisition of control of the
<PAGE> 4
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CUSIP No. 172854-10-1 Page 4 of 6 Pages
- ---------------------- ----------------------
Issuer by any person or causing a class of securities of the Issuer to be
delisted from a national securities exchange or to cease to be authorized to be
quoted in an inter-dealer quotation system of a registered national securities
association, a class of equity securities becoming eligible for termination of
registration pursuant to Section 12 (g)(4) of the Securities Exchange Act of
1934 or any action similar to any of the foregoing. Notwithstanding the
foregoing, as part of the transaction to acquire the shares of Issuer Common
Stock on October 6, 1997, the Issuer and Steven B. Solomon, the Issuer's Chief
Executive Officer, agreed to use their best efforts to elect one person
designated by the Reporting Person to the Issuer's Board of Directors. Kenneth
R. Johnsen, an executive officer of the Reporting Person, has been elected to
the Issuer's Board of Directors pursuant to such right.
Item 5. Interest in Securities of the Issuer
As of May 15, 1998, the Reporting Person was the beneficial owner
of an aggregate of 4,500,000 shares of Issuer Common Stock, which represents
approximately 21.7% of the 20,763,998 shares of Issuer Common Stock outstanding
as of that date (assuming exercise of both warrants held by the Reporting
Person). The Reporting Person has sole power to vote (or to direct the vote)
and sole power to dispose (or to direct the disposition) of the entire number of
shares reported as beneficially owned by it.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer
On October 6, 1997, the Issuer and the Reporting Person entered
into a purchase agreement (the "Purchase Agreement") pursuant to which the
Reporting Person acquired 2,500,000 shares of newly issued Common Stock of the
Issuer for an aggregate purchase price of $750,000. In addition, the Issuer
also issued two warrants to the Reporting Person for the purchase of an
aggregate of 2,000,000 shares of Issuer Common Stock . The first warrant is
for the purchase of 1,000,000 shares of Issuer Common Stock at an exercise of
$4.00 per share and the second warrant is for the purchase of 1,000,000 shares
of Issuer Common Stock at an exercise price of $5.00 per share. Both warrants
are exercisable immediately and expire on the tenth anniversary of the date of
issuance (October 6, 2007).
On May 15, 1998, the Issuer and the Reporting Person entered into a
subscription agreement (the "Subscription Agreement") pursuant to which the
Reporting Person acquired 2,000 shares of Preferred Stock for an aggregate
purchase price of $2,000,000 ($1,000 per share). The Preferred Stock is
currently convertible at any time into an aggregate of 1,860,000 shares of
Issuer Common Stock, subject to certain adjustments.
Pursuant to the Purchase Agreement, the Issuer and Steven B.
Solomon, the Issuer's Chief Executive Officer, agreed to use their best efforts
to elect one person designated by the Reporting Person to the Issuer's Board of
Directors. Kenneth R. Johnsen, an executive officer of the Reporting Person,
has been elected to the Issuer's Board of Directors pursuant to such right. In
addition, so long as the Reporting Person owns more than 5% of the Issuer's
Common Stock, the Reporting Person has the right to approve, which approval can
not be unreasonably withheld, certain fundamental transactions involving the
Issuer, including dividends, sales or redemptions of stock in excess of certain
thresholds, mergers and acquisitions, affiliated transactions, sales of
substantial assets, changes in the nature of the business, incurrence of
additional funded indebtedness and liquidation.
<PAGE> 5
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CUSIP No. 172854-10-1 Page 5 of 6 Pages
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Pursuant to the Purchase Agreement, the Issuer and the Reporting
Person also entered into a registration rights agreement (the "Registration
Agreement") for the Issuer's Common Stock acquired by or acquirable by the
Reporting Person. The Registration Agreement provides that the Reporting Person
has the right to require the Issuer to register the Reporting Person's shares of
Common Stock (including Common Stock issuable upon conversion of the Preferred
Stock), for resale with the Securities and Exchange Commission at the election
of the Reporting Person at any time after October 6, 1998. In addition, the
Registration Agreement also provides the Reporting Person with the right to
participate in any public offering of equity securities effected by the Issuer.
All costs of such registrations (other than selling expenses or underwriting
discounts) are at the Issuer's expense.
Except as described in this statement, there are no other
contracts, arrangements, understandings or relationships (legal or otherwise)
between the Reporting Person and any person with respect to any securities of
the Issuer.
Item 7. Materials to be Filed as Exhibits
(a) Purchase Agreement dated October 6, 1997 between the Reporting
Person and the Issuer.(1)
(b) Warrant No. 1 for the purchase of 1,000,000 shares of Issuer
Common Stock at an exercise price of $4.00 per share.(1)
(c) Warrant No. 2 for the purchase of 1,000,000 shares of Issuer
Common Stock at an exercise price of $5.00 per share.(1)
(d) Registration Rights Agreement dated October 6, 1997 between
the Reporting Person and the Issuer.(1)
(e) Purchase Agreement dated May 15, 1998 between the Reporting
Person and the Issuer.
(1) - Previously filed as an Exhibit to the Reporting Person's original
Schedule 13-D filed with the Securities and Exchange Commission on
October 15, 1997.
<PAGE> 6
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CUSIP No. 172854-10-1 Page 6 of 6 Pages
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
METAMOR WORLDWIDE, INC.
May 22, 1998 /s/ Edward L. Pierce
- --------------------------- ---------------------------------
Date By: Edward L. Pierce
Its: Senior Vice President
<PAGE> 7
Exhibit No. Index to Exhibits
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(e) Purchase Agreement dated May 15, 1998 between the Reporting
Person and the Issuer.
<PAGE> 1
EXHIBIT 99.e
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
between
METAMOR WORLDWIDE, INC.
and
CITADEL TECHNOLOGY, INC.
Dated May 15, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
AUTHORIZATION AND CLOSING
1.1 Authorization of the Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase and Sale of the Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 The Closing . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 1
ARTICLE II
CONDITIONS OF METAMOR WORLDWIDE'S OBLIGATION
AT THE CLOSING
2.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Certificate of Designations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Closing Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Compliance with Applicable Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
TRANSFER OF RESTRICTED SECURITIES
3.1 Transfer of Restricted Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization and Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.2 Capital Stock and Related Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.3 Authorization; No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.4 Governmental Consent, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.5 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V
DEFINITIONS
5.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI
MISCELLANEOUS
6.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 METAMOR WORLDWIDE's Investment Representations . . . . . . . . . . . . . . . . . . . . 7
6.4 Consent to Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.5 Survival of Representation and Warranties . . . . . . . . . .. . . . . . . . . . . . . 8
6.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.7 Generally Accepted Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . 8
6.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.10 Descriptive Headings; Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.11 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.12 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.13 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
LIST OF EXHIBITS
Exhibit A Certificate of Designations, Preferences and Rights of Series D
Convertible Redeemable Preferred Stock
<PAGE> 4
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
CITADEL TECHNOLOGY, INC.
THIS AGREEMENT is made as of May 15, 1998, between CITADEL TECHNOLOGY,
INC., a Delaware corporation (the "Company"), and METAMOR WORLDWIDE, INC., a
Delaware corporation ("METAMOR WORLDWIDE"). Except as otherwise indicated
herein, capitalized terms used herein are defined in SECTION 6 hereof.
The parties hereto agree as follows:
ARTICLE I
AUTHORIZATION AND CLOSING
1.1 AUTHORIZATION OF THE PREFERRED STOCK. The Company shall
authorize the issuance and sale to METAMOR WORLDWIDE of two thousand (2,000)
shares (the "Shares") of its Series D Convertible Redeemable Preferred Stock,
par value $.01 per share (the "Preferred Stock").
1.2 PURCHASE AND SALE OF THE PREFERRED STOCK. At the Closing (as
defined in SECTION 1.3 below), the Company shall sell to METAMOR WORLDWIDE and,
subject to the terms and conditions set forth in the Certificate of
Designations, Preferences and Rights of Series D Convertible Redeemable
Preferred Stock (the "Certificate of Designations") attached hereto as Exhibit
A and the terms and conditions set forth herein, METAMOR WORLDWIDE shall
purchase from the Company, 2,000 shares of Preferred Stock at a price of
$1,000.00 per share; provided, however, that the terms and conditions on which
the shares of Preferred Stock sold to METAMOR WORLDWIDE pursuant to this
Agreement shall be at least as favorable as the most favorable terms and
conditions made available with respect to the shares of Preferred Stock sold to
investors in the private placement conducted by Hoak Breedlove Wesneski & Co.,
and the Company shall reissue the Preferred Stock to METAMOR WORLDWIDE on such
more favorable terms in the event more favorable terms are made available to
such other investors.
1.3 THE CLOSING. The closing of the purchase and sale of the
Preferred Stock to be purchased pursuant to SECTION 1.2 (the "Closing") shall
take place at the offices of METAMOR WORLDWIDE, Inc., 4400 Post Oak Boulevard,
Suite 1100, Houston, Texas 77027 at 10:00 a.m. on May 15, 1998 or at such other
place or on such other date as may be mutually agreeable to the Company and
METAMOR WORLDWIDE. At the Closing, the Company shall deliver to METAMOR
WORLDWIDE stock certificates evidencing the Preferred Stock to be purchased by
METAMOR WORLDWIDE, registered in METAMOR WORLDWIDE's name, upon
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<PAGE> 5
payment of the purchase price thereof by a cashier's or certified check, or by
wire transfer of immediately available funds to such account as designated by
the Company in the amount of two million dollars ($2,000,000.00).
ARTICLE II
CONDITIONS OF METAMOR WORLDWIDE'S
OBLIGATION AT THE CLOSING
The obligation of METAMOR WORLDWIDE to purchase and pay for the
Preferred Stock at the Closing is subject to the satisfaction as of the Closing
of the following conditions:
2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in SECTION 4 hereof shall be true and correct at and as of
the Closing as though then made, except to the extent of changes caused by the
transactions expressly contemplated herein.
2.2 CERTIFICATE OF DESIGNATIONS. The Certificate of Designations
shall be in the form set forth as EXHIBIT A hereto, shall be in full force and
effect under the laws of Delaware as of the Closing and shall not have been
amended or modified.
2.3 CLOSING DOCUMENTS. The Company shall have delivered to METAMOR
WORLDWIDE all of the following documents;
(i) an Officer's Certificate, dated the date of the
Closing, stating that the conditions specified in SECTION 1 and
SECTIONS 2.1 and 2.2 have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by
the Board of Directors of the Company or a committee thereof
authorizing the execution, delivery and performance of this Agreement
and each of the other agreements contemplated hereby (collectively,
the "DOCUMENTS"), the filing of the Certificate of Designations
referred to in SECTION 2.2, the issuance and sale of the Preferred
Stock and the consummation of all other transactions contemplated by
this Agreement;
(iii) such other documents relating to the transactions
contemplated by this Agreement as METAMOR WORLDWIDE or its counsel may
reasonably request.
2.4 COMPLIANCE WITH APPLICABLE LAWS. The purchase of Preferred
Stock by METAMOR WORLDWIDE hereunder shall not be prohibited by any applicable
law or governmental regulation, shall not subject METAMOR WORLDWIDE
2
<PAGE> 6
to any penalty, liability or, in METAMOR WORLDWIDE's sole judgment, other
onerous conditions under or pursuant to any applicable law or governmental
regulation, and shall be permitted by laws and regulations of the jurisdictions
to which METAMOR WORLDWIDE is subject.
2.5 WAIVER. Any condition specified in this SECTION 2 may be
waived only if such waiver is set forth in a writing executed by METAMOR
WORLDWIDE.
ARTICLE III
TRANSFER OF RESTRICTED SECURITIES
3.1 TRANSFER OF RESTRICTED SECURITIES.
(a) Restricted Securities are transferable only pursuant to (i)
public offerings registered under the Securities Act, (ii) Rule 144 or Rule
144A of the Securities and Exchange Commission (or any similar rule or rules
then in force) if such rule or rules are available and (iii) subject to the
conditions specified in PARAGRAPH (b) below, any other legally available means
of transfer.
(b) In connection with the transfer of any Restricted Securities
(other than a transfer described in subparagraph 3(i)(a) or (b) above), the
holder thereof shall deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, together with an opinion
of Hogan & Hartson, LLP or other counsel which (to the Company's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that
such transfer of Restricted Securities may be effected without registration of
such Restricted Securities under the Securities Act. In addition, if the holder
of the Restricted Securities delivers to the Company an opinion of Hogan &
Hartson, LLP or such other counsel that no subsequent transfer of such
Restricted Securities shall require registration under the Securities Act, the
Company shall promptly upon such contemplated transfer deliver new certificates
for such Restricted Securities which do not bear the Securities Act legend set
forth in SECTION 6.3. If the Company is not required to deliver new
certificates for such Restricted Securities not bearing such legend, the holder
thereof shall not transfer the same until the prospective transferee has
confirmed to the Company in writing its agreement to be bound by the conditions
contained in this paragraph and SECTION 6.3.
(c) Upon the request of METAMOR WORLDWIDE, the Company shall
promptly supply to METAMOR WORLDWIDE or its prospective transferees all
information regarding the Company required to be delivered in connection with a
transfer pursuant to Rule 144A of the Securities and Exchange Commission.
3
<PAGE> 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to METAMOR WORLDWIDE to enter into this
Agreement and purchase the Preferred Stock, the Company hereby represents and
warrants to METAMOR WORLDWIDE that:
4.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware and is qualified to do business in every jurisdiction in which the
failure to so qualify might reasonably be expected to have a material adverse
effect on the financial condition, operating results, assets, operations or
business prospects of the Company and its Subsidiaries taken as a whole. The
Company has all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement. The copies of the Company's Certificate of Incorporation and bylaws
which have been furnished to METAMOR WORLDWIDE's counsel reflect all amendments
made thereto at any time prior to the date of this Agreement and are correct
and complete.
4.2 CAPITAL STOCK AND RELATED MATTERS.
(a) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of (1) 60,000,000 shares of Common
Stock, of which (i) 21,774,388 shares are issued and outstanding as of May 6,
1998, (ii) 2,000,000 of which are reserved for issuance to METAMOR WORLDWIDE
pursuant to the Option Agreement previously issued to METAMOR WORLDWIDE, and
(iii) 15,800,000 shares of which are reserved for issuance pursuant to
outstanding warrants, options or convertible securities (the "Outstanding
Options"); and (2) 1,000,000 shares of Preferred Stock, of which 50 shares of
Series A Preferred Stock, 425 shares of Series C Preferred Stock and 5,000
shares of Series E Preferred Stock are outstanding. As of the Closing, the
Company shall not have outstanding any stock or securities convertible or
exchangeable for any shares of its capital stock or containing any profit
participation features, nor shall it have outstanding any rights or options to
subscribe for or to purchase its capital stock or any stock or securities
convertible into or exchangeable for its capital stock or any stock
appreciation rights or phantom stock plans other as disclosed in the Company's
filings with the Securities and Exchange Commission and pursuant to and as
contemplated by this Agreement, the Option Agreement and the Outstanding
Options. As of the Closing, the Company shall not be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any warrants, options or other rights to acquire
its capital stock, except pursuant to this Agreement, the Option Agreement, the
Outstanding Options, and the Series E Preferred Stock to be redeemed from the
proceeds of this offering. As of the Closing, all of the
4
<PAGE> 8
outstanding shares of the Company's capital stock shall be validly issued,
fully paid and nonassessable.
(b) There are no statutory or, to the best of the Company's
knowledge, contractual stockholders preemptive rights or rights of refusal with
respect to the issuance of the Preferred Stock hereunder, except as expressly
provided herein. Based in part on the investment representations of METAMOR
WORLDWIDE in SECTION 6.3 hereof, the Company has not violated any applicable
federal or state securities laws in connection with the offer, sale or issuance
of any of its capital stock, and the offer, sale and issuance of the Preferred
Stock hereunder do not and will not require registration under the Securities
Act or any applicable state securities laws. To the best of the Company's
knowledge, there are no agreements between the Company's stockholders with
respect to the voting or transfer of the Company's capital stock or with
respect to any other aspect of the Company's affairs, except for this Agreement
and the prior Purchase Agreement with METAMOR WORLDWIDE.
4.3 AUTHORIZATION; NO BREACH. The execution, delivery and
performance of this Agreement, the Documents and all other agreements
contemplated hereby to which the Company is a party and the filing of the
Certificate of Designations have been duly authorized by the Company. This
Agreement, the Documents, the Certificate of Designations and all other
agreements contemplated hereby each constitutes a valid and binding obligation
of the Company, enforceable in accordance with its terms. The execution and
delivery by the Company of this Agreement, the Documents and all other
agreements contemplated hereby to which the Company is a party, the offering,
sale and issuance of the Preferred Stock hereunder, the Certificate of
Designations and the fulfillment of and compliance with the respective terms
hereof and thereof by the Company do not and will not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's capital stock or assets pursuant to.
(iv) give any third party the right to modify, terminate or accelerate any
obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice to any
court or administrative or governmental body pursuant to, the Certificate of
Incorporation or bylaws of the Company, or any law, statute, rule or regulation
to which the Company is subject, or any agreement, instrument, order, judgment
or decree to which the Company is a party or by which it is bound.
4.4 GOVERNMENTAL CONSENT, ETC. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby.
4.5 CLOSING DATE. The representations and warranties of the
Company contained in this SECTION 4 and elsewhere in this Agreement and all
information
5
<PAGE> 9
contained in any exhibit, schedule or attachment hereto or in any writing
delivered by, or on behalf of, the Company to METAMOR WORLDWIDE shall be true
and correct in all material respects on the date of the Closing as though then
made, except as affected by the transactions expressly contemplated by this
Agreement.
ARTICLE V
DEFINITIONS
5.1 For the purposes of this Agreement, the following terms have
the meanings set forth below:
"COMMON STOCK" means the Company's common stock, par value $.01 per
share.
"OFFICER'S CERTIFICATE" means a certificate signed by the Company's
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate and (ii) to the best of such officer's knowledge,
such certificate does not misstate any material fact and does not omit to state
any fact necessary to make the certificate not misleading.
"PERSON" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"RESTRICTED SECURITIES" means (i) the Preferred Stock issued hereunder
and (ii) any securities issued with respect to the securities referred to in
clause (i) above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (A) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (B) become eligible for sale pursuant to
Rule 144(k) (or any similar provision then in force) under the Securities Act
or (C) been otherwise transferred and new certificates for them not bearing the
Securities Act legend set forth in SECTION 6.3 have been delivered by the
Company in accordance with SECTION 3.1(b). Whenever any particular securities
cease to be Restricted Securities, the holder thereof shall be entitled to
receive from the Company, without expense, new securities of like tenor not
bearing a Securities Act legend of the character set forth in SECTION 6.3.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
6
<PAGE> 10
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934.
as amended, or any similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" includes any governmental body or
agency succeeding to the functions thereof.
"SUBSIDIARY" means any corporation of which the securities having a
majority of the ordinary voting power in electing the board of directors are,
at the time as of which any determination is being made, owned by the Company
either directly or through one or more Subsidiaries.
ARTICLE VI
MISCELLANEOUS
6.1 EXPENSES. Each party agrees to bear its own expenses
associated with the transactions contemplated hereby.
6.2 REMEDIES. Each holder of Investor Stock shall have all rights
and remedies set forth in this Agreement and the Certificate of Designations
and all rights and remedies which such holders have been granted at any time
under any other agreement or contract and all of the rights which such holders
have under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach
of any provision of this Agreement and to exercise all other rights granted by
law.
6.3 METAMOR WORLDWIDE'S INVESTMENT REPRESENTATIONS. METAMOR
WORLDWIDE hereby represents that it is acquiring the Restricted Securities
purchased hereunder or acquired pursuant hereto for its own account with the
present intention of holding such securities for purposes of investment, and
that it has no intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws; provided that nothing contained herein shall prevent METAMOR WORLDWIDE
and subsequent holders of Restricted Securities from transferring such
securities in compliance with the provisions of ARTICLE III hereof. Each
certificate for Restricted Securities shall be imprinted with a legend in
substantially the following form:
"The securities represented by this certificate were
originally issued on May 15, 1998 and have not been registered under
the Securities Act of 1933, as amended. The transfer of the securities
represented by this certificate is subject to the conditions specified
in the Purchase Agreement, dated as of May 15, 1998, between the
issuer (the "Company") and a certain investor, and the Company
reserves the right to refuse the transfer of such securities until
such conditions have been fulfilled with respect to such transfer. A
copy of such conditions shall
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<PAGE> 11
be furnished by the Company to the holder hereof upon written request
and without charge."
6.4 CONSENT TO AMENDMENTS. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and the Company may
take any action herein prohibited, or omit to perform any act herein required
to be performed by it, only if the Company has obtained the written consent of
the holders of a majority of the Investor Stock. No other course of dealing
between the Company and the holder of any Preferred Stock or any delay in
exercising any fights hereunder or under the Certificate of Incorporation shall
operate as a waiver of any rights of any such holders. For purposes of this
Agreement, shares of Preferred Stock held by the Company or any Subsidiaries
shall not be deemed to be outstanding.
6.5 SURVIVAL OF REPRESENTATION AND WARRANTIES. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by METAMOR WORLDWIDE or on its behalf.
6.6 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for METAMOR WORLDWIDE's benefit as a
purchaser or holder of Preferred Stock are also for the benefit of, and
enforceable by, any subsequent holder of such Preferred Stock. The rights and
obligations of METAMOR WORLDWIDE under this Agreement and the agreements
contemplated hereby may be assigned by METAMOR WORLDWIDE at any time, in whole
or in part, to any Subsidiary of METAMOR WORLDWIDE, or any successor thereto.
6.7 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Where any
accounting determination or calculation is required to be made under this
Agreement or the exhibits hereto, such determination or calculation (unless
otherwise provided) shall be made in accordance with generally accepted
accounting principles, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in
compliance with generally accepted accounting principles, such determination or
calculation shall continue to be made in accordance with the Company's previous
accounting methods and policies.
6.8 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable
8
<PAGE> 12
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of this Agreement.
6.9 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
6.10 DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings
of this Agreement are inserted for convenience only and do not constitute a
Section of this Agreement. The use of the word "including" in this Agreement
shall be by way of example rather than by limitation.
6.11 GOVERNING LAW. The corporate law of Delaware shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity and interpretation of
this Agreement and the exhibits and schedules hereto shall he governed by and
construed in accordance with the internal laws of the State of Texas, without
giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Texas.
6.12 NOTICES. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable express courier service
(charges prepaid), 48 hours after being deposited to the recipient by United
States mail, first class, postage prepaid, or sent by facsimile. Such notices,
demands and other communications shall be sent to METAMOR WORLDWIDE and to the
Company at the address indicated below:
IF TO THE COMPANY:
Citadel Technology, Inc.
3811 Turtle Creek Boulevard, Suite 600
Dallas, TX 75219
Attention: Steven B. Solomon
Tel No.: (214) 520-9292
Fax No.: (214) 520-0034
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<PAGE> 13
with a copy to:
David A. Wood
Wood, Exall & Bonnet, L.L.P.
12222 Merit Drive, Suite 880
Dallas, TX 75251
Tel No.: (972) 991-8510
Fax No.: (972) 991-9261
IF TO METAMOR WORLDWIDE:
METAMOR WORLDWIDE, Inc.
4400 Post Oak Parkway, Suite 2000
Houston, TX 77027
Attention: Kenneth R. Johnsen
Tel No.: (713) 548-3485
Fax No.: (713) 548-3430
with a copy to:
Peter T. Dameris, Esq.
METAMOR WORLDWIDE, Inc.
4400 Post Oak Parkway, Suite 1100
Houston, TX 77027
Tel No.: (713) 548-3400
Fax No.: (713) 627-1059
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
6.13. ARBITRATION. THE PARTIES AGREE TO SUBMIT TO ARBITRATION, IN
ACCORDANCE WITH THESE PROVISIONS, ANY DISPUTED CLAIM OR CONTROVERSY ARISING
FROM OR RELATED TO THE ALLEGED BREACH OF THIS AGREEMENT. THE PARTIES FURTHER
AGREE THAT THE ARBITRATION PROCESS AGREED UPON HEREIN SHALL BE THE EXCLUSIVE
MEANS FOR RESOLVING ALL DISPUTES MADE SUBJECT TO ARBITRATION HEREIN, BUT THAT
NO ARBITRATOR SHALL HAVE AUTHORITY TO EXPAND THE SCOPE OF THESE ARBITRATION
PROVISIONS. ANY ARBITRATION HEREUNDER SHALL BE CONDUCTED UNDER THE PROCEDURES
OF THE AMERICAN ARBITRATION ASSOCIATION (AAA). EITHER PARTY MAY INVOKE
ARBITRATION PROCEDURES HEREIN BY WRITTEN NOTICE FOR ARBITRATION CONTAINING A
STATEMENT OF THE MATTER TO BE ARBITRATED. THE PARTIES SHALL THEN HAVE FOURTEEN
(14) DAYS IN WHICH THEY MAY IDENTIFY A MUTUALLY AGREEABLE, NEUTRAL ARBITRATOR.
AFTER THE FOURTEEN (14) DAY PERIOD HAS EXPIRED, THE
10
<PAGE> 14
PARTIES SHALL PREPARE AND SUBMIT TO THE AAA A JOINT SUBMISSION, WITH EACH PARTY
TO CONTRIBUTE HALF OF THE APPROPRIATE ADMINISTRATIVE FEE. IN THE EVENT THE
PARTIES CANNOT AGREE UPON A NEUTRAL ARBITRATOR WITHIN FOURTEEN (14) DAYS AFTER
WRITTEN NOTICE FOR ARBITRATION IS RECEIVED, THEIR JOINT SUBMISSION TO THE AAA
SHALL REQUEST A PANEL OF THREE ARBITRATORS WHO ARE PRACTICING ATTORNEYS WITH
PROFESSIONAL EXPERIENCE IN THE FIELD OF CORPORATE LAW, AND THE PARTIES SHALL
ATTEMPT TO SELECT AN ARBITRATOR FROM THE PANEL ACCORDING TO AAA PROCEDURES.
UNLESS OTHERWISE AGREED BY THE PARTIES, THE ARBITRATION HEARING SHALL TAKE
PLACE IN HOUSTON, TEXAS, AT A PLACE DESIGNATED BY THE AAA. ALL ARBITRATION
PROCEDURES HEREUNDER SHALL BE CONFIDENTIAL. EACH PARTY SHALL BE RESPONSIBLE
FOR ITS COSTS INCURRED IN ANY ARBITRATION, AND THE ARBITRATOR SHALL NOT HAVE
AUTHORITY TO INCLUDE ALL OR ANY PORTION OF SAID COSTS IN AN AWARD, REGARDLESS
OF WHICH PARTY PREVAILS. THE ARBITRATOR MAY INCLUDE EQUITABLE RELIEF. ANY
ARBITRATION AWARDED SHALL BE ACCOMPANIED BY A WRITTEN STATEMENT CONTAINING A
SUMMARY OF THE ISSUES IN CONTROVERSY, A DESCRIPTION OF THE AWARD, AND AN
EXPLANATION OF THE REASONS FOR THE AWARD.
11
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first written above.
CITADEL TECHNOLOGY, INC.
By: /s/ STEVEN B. SOLOMON
---------------------------
Steven B. Solomon
President
METAMOR WORLDWIDE, INC.
By: /s/ PETER T. DAMERIS
---------------------------
NAME: Peter T. Dameris
-------------------------
Title: Senior Vice President
------------------------
12
<PAGE> 16
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES D CONVERTIBLE REDEEMABLE PREFERRED STOCK OF
CITADEL TECHNOLOGY, INC.
(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 Executive Officer and Assistant Secretary of Citadel
Technology, Inc., 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 May __, 1998:
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, there remain 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 7,500
shares of a new series of Preferred Stock prior to June 30, 1998 (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 7,500 shares of authorized but unissued Preferred Stock as Series D
1
<PAGE> 17
Convertible Redeemable Preferred Stock (the "Series D 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 D Preferred Stock will be identical with each
other in all respects. All of the shares of Series D Preferred Stock will be
junior to any security specifically ranking by its terms senior to the Series D
Preferred Stock, prior to the Company's Common Stock as set forth herein, and
senior to any class or series of capital stock hereafter created not
specifically ranking by its terms senior to or on a parity with the Series D
Preferred Stock, and senior to or pari passu with 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.
Part 2. Dividends.
The holder of each issued and outstanding share of Series D Preferred
Stock shall be entitled to receive cumulative dividends at a rate of 11.0% per
share per annum, when, as and if declared by the Board of Directors of the
Company out of funds legally available therefor. Dividends shall be paid
semi-annually on the last day of the Company's fiscal quarters ending August 31
and February 28 or 29. 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
D Preferred Stock so long as any shares of Series D 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 D 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 D 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 D 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 D
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
2
<PAGE> 18
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 D Preferred Stock, an amount (the "Liquidation
Preference") for each share of Series D Preferred Stock then held by them equal
to $1,000 per share (the "Stated Value") plus accrued and unpaid dividends. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series D 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 D Preferred Stock and the holders
of any other series of Preferred Stock with a liquidation preference equal to
that of the Series D Preferred Stock, in proportion to the shares of Series D
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 D 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) In the event of (i) a merger, consolidation, change of control
or reorganization in which the holders of the Company's Common Shares would
hold less than 50% of the voting power of the surviving entity, or (ii) the
sale of all or substantially all of the assets of the Company, the holders of
the Preferred Shares would have the right to receive either (x) the Liquidation
Preference, or (y) the right to convert into Common Shares on the terms and
conditions set forth herein and participate in the transaction on the same
terms as other holders of Common Shares.
Part 4. Conversion and Redemption.
The holders of Series D Preferred Stock will have the following
conversion and redemption rights:
(a) Right to Convert. Each outstanding share of Series D
Preferred Stock shall be convertible at any time, 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 D 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 mail to the Company at 3811 Turtle Creek
Boulevard, Suite 600, Dallas, Texas 75219, attention: Steven B. Solomon, CEO,
or by telecopy to the Company at 512.520.9293, attention Steven B. Solomon,
CEO. The date on which a Notice of Conversion is received by the Company shall
be a "Notice Date". The Company shall use its
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<PAGE> 19
reasonable best efforts to issue and deliver within five business days after
receipt of the Notice of Conversion and the certificate or certificates for the
shares of Series D 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 D Preferred Stock is convertible
into shares of Common Stock at any time after the closing date for the original
issuance of the Series D Preferred Stock upon notice to the Company as set
forth herein (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 D Preferred Stock shall be convertible into the
number of shares of Common Stock according to the following formula:
N x 1000
--------
Conversion Price
where:
N = the number of shares of Series D Preferred Stock for which conversion is
elected.
Conversion Price = The Conversion Price would be set at 50.0% over the average
closing bid price for the twenty trading days immediately prior to closing of
the offering of the Series D Preferred Stock. In no event, however, would the
Conversion Price be set at a price less than $0.75 or greater than $2.00 per
Common Share.
(e) Optional Redemption. At its sole option and discretion, the Company
shall have the right, but not the obligation, to redeem all or any portion of
the shares of Series D Preferred Stock not converted into Common Stock prior to
the actual redemption date, in Stated Value amounts of $1,000 or any integral
multiple of $1,000, at any time on or after one year from the date of closing
of the offering of the Series D Preferred Stock. The Company shall provide not
less than 30 nor more than 60 days' prior notice of any redemption. The
Company shall redeem the shares of Series D Preferred Stock at the Redemption
Prices (expressed as percentages of the Stated Value) set forth below, plus
accrued and unpaid dividends to the redemption date, if redeemed during the
12-month period beginning one year from the closing date for the time periods
from the closing date indicated below.
<TABLE>
<CAPTION>
Time Period Redemption Price
----------- ----------------
<S> <C>
less than 2 years 120.00%
less than 3 years 115.00%
more than 3 years 100.00%.
</TABLE>
4
<PAGE> 20
Upon written notice to the holders of Series D Preferred Stock setting
forth the number of shares of Series D Preferred Stock to be redeemed and
surrender by such holders of the certificates representing such shares, the
Company shall within thirty (30) days of the receipt of such certificates (the
"Redemption Date"), redeem the shares specified in such notice which have not
been converted by paying in cash therefor a sum per share equal to the
Redemption Price of the Series D Preferred Stock to be redeemed. Any redemption
effected pursuant to this section may be made, in the Company's discretion,
either (i) on a pro rata basis among the holders of the Series D Preferred
Stock in proportion to the number of shares of Series D Preferred Stock then
held by such holders or (ii) from one or more holders of Series D Preferred
Stock.
After redemption of shares of Series D Preferred Stock, all rights of
the holders of shares of Series D Preferred Stock (except the right to receive
the Redemption Price upon surrender of the certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Company or be deemed to be outstanding for any purpose
whatsoever. The shares of Series D Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein.
(f) Fractional Shares. No fractional share will be issued upon
the conversion of any shares of Series D Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable on conversion of Series D
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 D
Preferred Stock, the number of shares of Common Stock or Series D
Preferred Stock is increased by a stock split, stock dividend, or
similar event, or if the Company declares and pays a dividend on the
shares of the Company's Common Stock that is not paid on the Series D
Preferred Stock, or if the number of shares of Common Stock or Series
D 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 D Preferred Stock written notice of each change in the
Conversion Ratio.
(ii) If, prior to conversion of all shares of Series D
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
5
<PAGE> 21
class or classes of stock or other securities of the Company or
another entity, then holders of Series D Preferred Stock will
thereafter have the right to purchase and receive upon conversion of
shares of Series D 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 to or in
exchange for the number of shares of Common Stock immediately
theretofore purchasable and receivable upon conversion of shares of
Series D 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 D 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 D 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 D Preferred Stock
shares of stock or securities, as in accordance with the foregoing,
the holders of the Series D 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 D 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 D 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 D
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 D 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 D Preferred Stock.
(j) Automatic Conversion. All shares of the Series D Preferred
Stock shall be automatically converted into Common Shares at the Conversion
Price set forth above upon (i) the closing of an underwritten public offering
pursuant to a registration statement under the Securities Act of 1933, as
amended, of Common Shares of the Company at a public offering price per share
(prior to underwriting commissions, discounts and expenses) that values the
Company at a minimum equity value of $20 million in an
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<PAGE> 22
offering with aggregate gross proceeds to the Company in excess of $10 million,
before deducting underwriting discounts and registration expenses (a "Qualified
Public Offering"), or (ii) the Common Shares maintain a closing bid price that
is at least 100.0% greater than the Conversion Price for any twenty trading
days in a thirty day period.
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 D Preferred Stock outstanding, voting separately as a class,
the holders of Series D Preferred Stock shall have no voting power whatsoever,
and no holder of Series D 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 D 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 D Preferred Stock represented by
such lost, stolen, destroyed or mutilated certificate, and dividends will
accrue on the shares of Series D 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 D 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.
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 D Convertible Redeemable Preferred Stock, none of
which has been issued, is 7,500.
7
<PAGE> 23
IN WITNESS WHEREOF, Citadel Technology, Inc. has caused this
Certificate to be executed by its duly authorized representative as of May __,
1998.
CITADEL TECHNOLOGY, INC.
By:
----------------------------------
Steven B. Solomon,
Chief Executive Officer
8
<PAGE> 24
ANNEX A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder to Convert Series D Preferred Stock)
The undersigned hereby irrevocably elects to convert $____________ or
____________ shares of Series D Preferred Stock into shares of Common Stock of
Citadel Technology, Inc. (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 D 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 D Preferred Stock and
this Notice of Conversion must be received by the Company by the fifth business
day following the Date of Conversion.
9
