STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is dated effective as of September 11, 2002
between Citadel Security Software Inc., a Delaware corporation ("Company"), and
each of ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇ (the
"Purchasers" and individually a "Purchaser"). Except as otherwise indicated
herein, capitalized terms used herein are defined in Section 5 of this
Agreement.
WHEREAS, the Company desires to issue and sell the Shares (as defined in Section
1.1 below) to the Purchaser upon acceptance by the Company of Purchaser's
subscription, and the Purchaser desires to purchase the Shares from the Company,
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of good and valuable consideration, the receipt
and adequacy of which are acknowledged, the parties agree as follows:
ARTICLE I -- AUTHORIZATION AND CLOSING
1.1 AUTHORIZATION. The Company authorizes the issuance and sale to ▇▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇ of 186,000 shares of its Common Stock, par value $.01 per share
(the "Shares"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ of 10,000 Shares, and ▇▇▇ ▇▇▇▇▇▇ of 4,000
Shares, upon Company's satisfaction that the Purchasers may purchase the Shares
in compliance with applicable laws.
1.2 PURCHASE AND SALE OF THE SHARES. At the Closing (as defined in Section
1.3 below), the Company shall sell to the Purchasers and, subject to the terms
and conditions set forth herein, Purchasers shall purchase from the Company, the
Shares at a price of one cent ($0.01) per share for an aggregate purchase price
of Two Thousand Dollars ($2,000) (the "Purchase Price").
1.3 THE CLOSING. The closing of the purchase and sale of the Shares to be
purchased pursuant to Section 1.2 (the "Closing") shall take place at the
offices of the Company, at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇ at 12:00 p.m. on or before September 13, 2002, or at such other
place or on such other date as may be mutually agreeable to the Company and
Purchasers. Payment of the purchase price shall be by check, cashier's or
certified check, or wire transfer of immediately available funds to the account
designated by the Company in the amount of the Purchase Price. At or within 10
days of payment of the purchase price to the Company, the Company shall instruct
its transfer agent to deliver to Purchasers stock certificates evidencing the
Shares to be purchased by Purchasers, registered in Purchasers' names.
ARTICLE II -- CONDITIONS OF OBLIGATIONS AT THE CLOSING
The obligations of Purchasers to purchase and pay for the Shares and of the
Company to issue and deliver the Shares at 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 shall be true and correct at and as of the Closing as
though then made.
2.2 COMPLIANCE WITH APPLICABLE LAWS. The purchase of the Shares by
Purchasers hereunder shall not be prohibited by any applicable law or
governmental regulation, shall not subject Purchasers to any penalty, liability
or, in Purchasers' 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 Purchasers are subject.
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2.3 WAIVER. Any condition specified in this Section 2 may be waived only if
such waiver is set forth in writing.
ARTICLE III -- TRANSFER OF RESTRICTED SECURITIES AND REGISTRATION RIGHTS
3.1 TRANSFER OF RESTRICTED SECURITIES. 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 below, any other legally available means of
transfer. In connection with the transfer of any Restricted Securities (other
than a transfer described 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 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 such 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.
3.2 REGISTRATION RIGHTS. If any of the Shares purchased under this Agreement
by the Purchasers are outstanding and held by a Purchaser, the Company shall use
its best efforts to include the Shares in any registration statement filed by
the Company with the Securities and Exchange Commission (other than a
registration statement on Form S-8 or Form S-4) to the extent requisite to
permit the public offering and sale of the Shares and will use their respective
best efforts to cause such registration statement to become effective as
promptly as practicable. Notwithstanding the foregoing, the Company or the
managing underwriter, if any, of such offering may elect to exclude all or a
portion of the Shares if the offering of such Shares would adversely affect the
market for the Company's securities or the Company's business plans. As used
herein, the "Shares" shall mean the Shares that have not been previously sold or
that may not be resold pursuant to Rule 144 promulgated under the Act or other
available exemption. Notwithstanding the foregoing, the Company shall not in
any event be required to keep any such registration or qualification in effect
for a period in excess of two years from the date on which the Purchaser is
first free to sell such Shares.
In connection with registration of securities, the Company shall bear all
expenses incurred in connection with such registration statement, except that
the Purchaser shall pay the following expenses with respect to its Shares:
broker/dealer commissions, underwriting discounts, fees and disbursements of
counsel of such Purchaser, and any stock transfer taxes incurred with respect of
the Shares of such Purchaser.
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES
4.1 PURCHASERS' REPRESENTATIONS - ACCREDITED INVESTOR STATUS. Each
Purchaser, severally and not jointly, hereby represents and warrants to the
Company that the Purchaser is an Accredited Investor as defined in Regulation D
under the Securities Act by virtue of having a net worth in excess of one
million dollars, that it has sufficient knowledge and experience in business and
finance matters to be capable of evaluating the merits and risks of an
investment in the Common Stock of the Company, that it is acquiring the Shares
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
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violation of the federal securities laws or any applicable state securities
laws. Each Purchaser either (i) had individual income (not including spouse's
income, if any) during each of the previous two calendar years in excess of or
$200,000, or joint income with such Purchaser's spouse's income for such years
in excess of $300,000, and Purchaser expects to meet such income levels in the
current calendar year, or (ii) Purchaser's net worth (or joint net worth with
Purchaser's spouse) is in excess of $1,000,000. Each Purchaser represents that
Purchaser could afford to hold the Shares for an indefinite period and could
afford a complete loss. Purchaser has read and understands the risk factors
contained in the Company's filings with the Securities and Exchange Commission.
Each Purchaser has had the opportunity to ask questions and obtain information
from the Company's management regarding the business and financial condition of
the Company and all such questions have been answered and requested information
provided to the Purchaser's full satisfaction.
4.2 COMPANY'S REPRESENTATIONS. The Company hereby represents and warrants
to each Purchaser that:
A. 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. 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.
B. CAPITAL STOCK AND RELATED MATTERS.
(1) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of 50,000,000 shares of Common Stock,
and 1,000,000 shares of preferred stock. As of the Closing, the Shares shall be
validly issued, fully paid and nonassessable.
(2) 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 Shares hereunder.
C. AUTHORIZATION; NO BREACH. The execution, delivery and performance of this
Agreement and all other agreements contemplated hereby to which the Company is a
party have been duly authorized by the Company. This Agreement 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 and all other agreements contemplated
hereby to which the Company is a party, the offering, sale and issuance of the
Shares hereunder 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.
D. CLOSING DATE. The representations and warranties of the Company
contained in this Section 4 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
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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.
"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 Shares 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 (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.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar federal law then in force.
"COMMISSION" means the Securities and Exchange Commission and includes any
governmental body or agency succeeding to the functions thereof.
ARTICLE VI -- MISCELLANEOUS
6.1 EXPENSES. Each party agrees to bear its own expenses associated with the
transactions contemplated hereby.
6.2 REMEDIES. Each Purchaser shall have all rights and remedies set forth
in this Agreement and all of the rights which such holders have under any law.
6.3 LEGEND. Each certificate for Restricted Securities shall be imprinted
with a legend in substantially the following form:
"The securities represented by this certificate 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 Stock Purchase Agreement 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 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
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of the Purchasers holding a majority of the Shares purchased hereunder. No other
course of dealing between the Company and the holder of any Shares or any delay
in exercising any rights hereunder or under the Certificate of Incorporation of
the Company shall operate as a waiver of any rights of any such holders.
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 Purchasers or on their 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 Purchasers' benefit as purchasers or
holders of Shares are also for the benefit of, and enforceable by, any
subsequent holder of such Shares.
6.7 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Where any accounting
determination or calculation is required to be made under this Agreement, 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 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 Purchaser and to the Company at the
address indicated below:
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IF TO THE COMPANY:
Citadel Security Software Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
IF TO PURCHASER:
At the address set forth on the signature page 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 SHALL BE CONDUCTED UNDER THE PROCEDURES OF THE
AMERICAN ARBITRATION ASSOCIATION (AAA). EITHER PARTY MAY INVOKE ARBITRATION
PROCEDURES 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 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 DALLAS, 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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first written above.
Citadel Security Software Inc.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
Chief Executive Officer
PURCHASERS
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
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