EXHIBIT 4.3
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (this "Agreement") is made and entered into as of
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May __, 2005, by and among CITADEL SECURITY SOFTWARE INC., a Delaware
corporation (the "Company"), and SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC
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(the "Holder").
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RECITALS
WHEREAS, pursuant to a Securities Purchase Agreement dated February 10,
2004 (the "Series A Purchase Agreement"), the Company issued a warrant (the
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"Series A Warrant") and preferred stock (the "Series A Preferred Stock") to the
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Holder;
WHEREAS, the Company has entered into a Securities Purchase Agreement,
dated as of the date hereof, with the Holder and the other investors named
therein (the "Series B Purchase Agreement") (capitalized terms used herein and
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not otherwise defined have the respective meanings specified in the Series B
Purchase Agreement); and
WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, the Company wishes to exchange the Series A Warrant for a new warrant
in the form attached hereto as Exhibit A (the "Series C Warrant") and, effective
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upon such exchange, to cancel the Series A Warrant, and the Holder wishes to
accept such exchange, pursuant to the exemption from registration provided by
Section 3(a)(9) ("Section 3(a)(9)") under the Securities Act of 1933, as amended
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(the "Securities Act").
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AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises hereunder and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged by all parties, the parties hereto hereby agree as follows:
1. Exchange. Subject to the terms and conditions of this Agreement, the
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Holder shall exchange and deliver to the Company the Series A Warrant against
delivery by the Company of the Series C Warrant (the "Exchange"). The Series C
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Warrant will be exercisable into up to one million two hundred thousand
(1,200,000) shares of Common Stock (subject to adjustment as provided therein),
will have an exercise price of $1.75 (subject to adjustment as provided therein)
and will expire on the ten (10) year anniversary of the Exchange Date (as
defined below).
2. Closing. The Exchange shall take place at the offices of Xxxxx &
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Stachenfeld LLP, 000 Xxxx 00xx Xxxxxx, Xxxxx Xxxxx, Xxx Xxxx, XX 00000 at 10:00
a.m. on May 9, 2005 (the "Exchange Date"), or at such other time and place as
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the Company and the Holder mutually agree upon, orally or in writing (the
"Closing").
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3. Representations and Warranties of the Company. The Company hereby
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represents and warrants to the Holder that:
(a) Representations and Warranties. All of the representations and
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warranties made by it in Article III of the Series B Purchase Agreement are true
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and correct as of the Exchange Date as though made on and as of such date;
(b) Authorization; Enforceability. All corporate action on the part
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of the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Series C Warrant has been taken or will be taken prior to the
Closing, and this Agreement, when executed and delivered by the Company, shall
constitute the valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, or other laws of general application relating to or affecting the
enforcement of creditors' rights generally, or (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies. The Series C Warrant, when issued to the Holder in
accordance with this Agreement, shall be duly and validly issued, fully-paid and
nonassessable, free and clear of any Liens imposed by or through the Company.
This Agreement and the transactions contemplated hereby will not conflict with
any term or provision of any of the Company's organizational documents, or of
agreement, order or decree to which it is party or may be subject. The issuance
of the Series C Warrant hereunder will not be subject to or trigger any
preemptive, "poison pill", anti-dilution, "reset" or similar rights on the part
of its security holders or third parties.
(c) No Conflict. The terms of this Agreement, and the consummation
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of the transactions contemplated hereby, do not violate, contravene, conflict
with or constitute a default or create a lien, charge or encumbrance under any
organizational documents of the Company, any agreements to which the Company is
a party or to which its assets are bound, or any order or decree of any court or
regulatory body.
4. Representations and Warranties of the Holder. The Holder hereby
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represents and warrants that:
(a) Due Organization. The Holder is duly organized, validly existing
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and in good standing under the laws of its jurisdiction of organization.
(b) Authorization; Enforceability. All action on the part of the
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Holder, its officers, directors, members and partners necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Holder hereunder has been taken or will be taken prior to the
Closing, and this Agreement, when executed and delivered by the Holder, shall
constitute the valid and legally binding obligation of the Holder, enforceable
against the Holder in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, or other laws of general application relating to or affecting the
enforcement of creditors' rights generally, or (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
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(c) Investment Intent. The Holder is entering into this Agreement
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for its own account and not with a view to the distribution of the Series C
Warrant, and has no present arrangement to sell the Series C Warrant to or
through any person or entity; provided, however, that by making such
representations, the Holder does not agree to hold the Series C Warrant for any
minimum or other specific term and reserves the right to dispose of the Series C
Warrant, and to enter into other transactions with respect to the Series C
Warrant, at any time in accordance with the federal and state securities laws
applicable to such disposition or transaction.
(d) Ownership of Warrants. As of the date hereof , the Holder owns
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the Series A Warrant beneficially and of record, free and clear of any liens,
claims or encumbrances created by or through the Holder.
5. Conditions to Exchange. (a) The obligation of the Company to deliver
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the Series C Warrant to the Holder pursuant to the Exchange is subject to the
satisfaction, as of the Exchange Date, of each of the following conditions,
provided that such conditions are for the Company's sole benefit and may be
waived by the Company in its sole discretion:
(i) the representations and warranties of the Holder in this
Agreement shall be true and correct as of the date when made and as of the
Exchange Date as though made at that time (except for representations and
warranties that speak as of a specific date);
(ii) the Holder shall have performed, satisfied and complied with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Holder at or prior to the
Exchange Date; and
(iii) the Holder shall have tendered the Series A Warrant to the
Company in the form required by this Agreement.
(b) The obligation of the Holder hereunder to deliver the Series A Warrant
to the Company pursuant to the Exchange is subject to the satisfaction, as of
the Exchange Date, of each of the following conditions, provided that such
conditions are for the Holder's sole benefit and may be waived by the Holder in
its sole discretion:
(i) the Common Stock into which the Series C Warrant are exercisable
shall be authorized for quotation on the Nasdaq SmallCap Market, trading in
the Common Stock shall not have been suspended by the Nasdaq SmallCap
Market, and the Company shall not have received notice of any pending or
threatened proceeding or other action to delist or suspend trading in the
Common Stock;
(ii) the representations and warranties of the Company in this
Agreement and in the Series B Purchase Agreement shall be true and correct
as of the date when made and as of the Exchange Date as though made at that
time (except for representations and warranties that speak as of a specific
date), and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by this Agreement and the
Series B Purchase Agreement to be performed, satisfied or complied with by
the Company on or prior to the Exchange Date;
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(iii) the Holder shall have received the opinion of the Company's
counsel dated as of the Exchange Date, in form, scope and substance
reasonably satisfactory to the Holder;
(iv) the Company shall have delivered to the Holder the Series C
Warrant in the form required by this Agreement;
(v) the Company's Board of Directors shall have adopted resolutions
approving this Agreement and the transactions contemplated hereby (the
"Resolutions"), and the Resolutions shall be in full force and effect and
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shall not have been amended or revised in any respect from the forms
attached to the certificate delivered pursuant to clause (vi) below; and
(vi) the Company shall have delivered to the Holder a certificate,
executed by the Company's Secretary or Assistant Secretary, dated the
Exchange Date, and attached to which shall be a certified copy of its
Certificate of Incorporation, a copy of it Bylaws as currently in effect,
and the Resolutions, such certificate to state that the Resolutions and the
Company's Certificate of Incorporation and Bylaws are each in full force
and effect on the Exchange Date, and have not been amended or revised in
any respect from the forms attached thereto.
6. Agreements. The parties agree as follows:
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(a) Issuance of Shares. The issuance of the Series C Warrant
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pursuant to the Exchange shall be made in compliance with the provisions and
requirements of Section 3(a)(9) and any applicable state securities law.
(b) Delivery of Series A Warrant. On the Exchange Date, the Holder
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shall deliver its Series A Warrant to the Company, and shall execute such
documents and take such further action as may be reasonably necessary in order
to transfer to the Company all right, title and interest to the Series A
Warrant. Upon delivery to the Company, the Series A Warrant shall terminate and
be cancelled and shall have no further force or effect.
(c) Delivery of Series C Warrant. On the Exchange Date, the Company
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shall deliver a warrant in the form of the Series C Warrant, dated the Exchange
Date, to the Holder.
(d) Registration Rights. The Company and the Holder agree that the
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shares of common stock issuable under the Series C Warrant shall be deemed
"Registrable Securities" and "Warrant Shares", as those terms are used in the
Registration Rights Agreement, and the Registration Rights Agreement shall be
deemed amended to include such shares.
(e) Amendment of Series A Preferred Stock Terms. On or before the
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Business Day immediately following receipt by the Company of Stockholder
Approval, the Company will file an amendment (the "Series A Amendment") to the
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certificate of designation relating to the Series A Preferred Stock (the "Series
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A Certificate") solely for the purpose of (i) eliminating the accrual of
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dividends from and after the Exchange Date and (ii) lowering the Conversion
Price (as defined therein) to $3.00 (subject to adjustment as provided therein).
The Holder acknowledges and agrees
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that, until Stockholder Approval is obtained, the Conversion Price (as defined
in the Series A Certificate) shall not be subject to adjustment pursuant to the
anti-dilution provisions of the Series A Certificate to an amount that is lower
than the Floor Price (as such price may be adjusted in the event of stock
splits, stock dividends and similar events).
(f) Waiver of Dividends. The Holder agrees to waive the receipt of
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all dividends that have accrued and remain unpaid as of the Exchange Date, or
that will accrue from the Exchange Date through September 9, 2005, on the Series
A Preferred Stock; provided, however, that if the Company does not obtain
Stockholder Approval or file the Series A Amendment as required hereby on or
before September 9, 2005, such waiver will expire and all such accrued but
unpaid dividends will become immediately due and payable in cash.
(g) Transaction Documents. This Agreement shall be deemed to
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constitute a "Transaction Document" for the purposes of the Series B Purchase
Agreement as though it were specifically included in the definition thereof.
7. Miscellaneous.
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(a) Severability. In the event that any provision of this Agreement
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becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that in such case the parties shall negotiate
in good faith to replace such provision.
(b) Successors and Assigns. The terms and conditions of this
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Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. Neither party may assign its
rights or obligations under this Agreement.
(c) Governing Law; Jurisdiction. This Agreement shall be governed by
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and construed under the laws of the State of New York applicable to contracts
made and to be performed entirely within the State of New York. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of the state and
federal courts sitting in City and County of New York, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. In any claim or action commenced in
connection with a dispute hereunder, the prevailing party shall be entitled to
reimbursement of all reasonable legal fees and expenses.
(d) Counterparts. This Agreement may be executed in any number of
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counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(e) Headings. The headings used in this Agreement are used for
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convenience only and are not to be considered in construing or interpreting this
Agreement.
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(f) Other Definitional Provisions. All definitions contained in this
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Agreement are applicable equally to the singular and plural forms of the terms
defined. The words "hereof", "herein" and "hereunder" and words of similar
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import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement.
(g) Notices. Any notice, demand or request required or permitted to
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be given by the Company or the Investors pursuant to the terms of this Agreement
shall be in writing and shall be deemed delivered (i) when delivered personally
or by verifiable facsimile transmission (immediately followed by written
confirmation delivered according to another mechanism provided by this section),
unless such delivery is made on a day that is not a Business Day, in which case
such delivery will be deemed to be made on the next succeeding Business Day,
(ii) on the next Business Day after timely delivery to an overnight courier and
(iii) on the Business Day actually received if deposited in the U.S. mail
(certified or registered mail, return receipt requested, postage prepaid),
addressed as follows:
If to the Company:
Citadel Security Software Inc.
Two Lincoln Centre, Suite 1600
0000 XXX Xxxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Wood & Xxxxxxx, LLP
00000 Xxxxx Xxxxxxx Xxxxxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
and if to the Holder, to such address for the Holder as shall appear on the
signature page hereof executed by the Holder, or as shall be designated by the
Holder in writing to the Company in accordance with this Section 7(g).
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(h) Entire Agreement; Amendments. This Agreement constitutes the
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entire agreement between the parties with regard to the subject matter hereof,
superseding all prior agreements or understandings, whether written or oral,
between or among the parties. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended except pursuant to a written
instrument executed by all the parties hereto, and no provision hereof may be
waived other than by a written instrument signed by the party against whom
enforcement of any such waiver is sought.
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(i) No Strict Construction. The language used in this Agreement is
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and will be deemed to be the language chosen by the parties to express their
mutual intent, and no rules of strict construction will be applied against any
party.
(j) Authorization. The parties hereby represent and warrant to each
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other that the signatories hereto have full power and authority to sign this
Agreement for and on behalf of the entities for which they purport to be signing
and that their signatures hereto shall be binding and enforceable upon the
purported parties hereto.
[Signature Pages to Follow]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
CITADEL SECURITY SOFTWARE INC.
By: __________________________
Name:
Title:
SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC
By: Satellite Asset Management, L.P., its Manager
By: __________________________
Name:
Title:
ADDRESS:
c/o Satellite Asset Management, L.P.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Tel: 000-000-0000
Fax: 000-000-0000
With a copy to:
Xxxxx & Stachenfeld LLP
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Tel: 000-000-0000
Fax: 000-000-0000
Number of Warrant Shares Issuable
Upon Exercise of Series C Warrant: _______________
