EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 9, 2005,
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by and between CITADEL SECURITY SOFTWARE INC., a Delaware corporation (the
"Company"), and each of the entities whose names appear on the signature pages
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hereof. Such entities are each referred to herein as an "Investor" and,
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collectively, as the "Investors".
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The Company has agreed, on the terms and subject to the conditions set
forth in the Securities Purchase Agreement, dated as of May 9, 2005 (the
"Securities Purchase Agreement"), to issue and sell to each Investor named
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therein Series B Convertible Preferred Stock (the "Preferred Stock") and
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Warrants (the "Warrants").
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The shares of Preferred Stock are convertible into shares (the "Conversion
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Shares") of the Company's common stock, par value $0.01 per share (the "Common
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Stock"). The Warrants are exercisable into shares of Common Stock (the "Warrant
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Shares") in accordance with their terms.
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In order to induce each Investor to enter into the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended (the "Securities Act"), and under
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applicable state securities laws. Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Securities
Purchase Agreement.
In consideration of each Investor entering into the Securities Purchase
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
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For purposes of this Agreement, the following terms shall have the meanings
specified:
(a) "Commission" means the Securities and Exchange Commission;
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(b) "Filing Deadline" means each of (i) the First Filing Deadline and
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(ii) if the Put Option Closing occurs, the Second Filing Deadline;
(c) "First Effective Date" means the date on which the First
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Registration Statement is declared effective by the Commission;
(d) "First Filing Deadline" means the thirtieth (30th) calendar day
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following the Initial Closing Date;
(e) "Initial Preferred Stock" means the Preferred Stock issued at the
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Initial Closing.
(f) "First Registration Deadline" means the earlier to occur of (i)
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one hundred twentieth (120th) calendar day following the Initial Closing
Date and (ii) the third (3rd) Business Day immediately following the first
date on which the Company is notified that the Commission has no comments,
or no further comments, to the First Registration Statement;
(g) "First Registration Statement" means a registration statement
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prepared in compliance with the Securities Act and pursuant to Rule 415
under the Securities Act ("Rule 415") or any successor rule and filed by
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the Company pursuant to paragraph 2(a) hereof;
(h) "Holder" means any person owning or having the right to acquire,
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through conversion of the Preferred Stock or exercise of the Warrants or
otherwise, Registrable Securities, including initially each Investor and
thereafter any permitted assignee thereof;
(i) "Initial Effective Date" means the date on which the First
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Registration Statement is declared effective by the Commission;
(j) "Put Option Preferred Stock" means the Preferred Stock issued at
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the Put Option Closing;
(k) "Registrable Securities" means the Conversion Shares and the
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Warrant Shares and any other shares of Common Stock issuable pursuant to
the terms of the Preferred Stock or the Warrants, and any shares of capital
stock issued or issuable from time to time (with any adjustments) in
replacement of, in exchange for or otherwise in respect of the Conversion
Shares or the Warrant Shares;
(l) "Registration Deadline" means each of the (i) the First
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Registration Deadline and (ii) if the Put Option Closing occurs, the Second
Registration Deadline;
(m) "Registration Period" has the meaning set forth in paragraph 2(d)
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below;
(n) "Registration Statement" means any registration statement
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required to be filed pursuant to the terms of this Agreement;
(o) "Second Effective Date" means the date on which the Second
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Registration Statement is declared effective by the Commission;
(p) "Second Filing Deadline" means the thirtieth (30th) calendar day
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following the Put Option Closing Date;
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(q) "Second Registration Deadline" means the earlier to occur of (i)
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one hundred twentieth (120th) calendar day following the Put Option Closing
Date and (ii) the third (3rd) Business Day immediately following the first
date on which the Company is notified that the Commission has no comments,
or no further comments, to the Second Registration Statement; and
(r) "Second Registration Statement" means a registration statement
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prepared in compliance with the Securities Act and pursuant to Rule 415 or
any successor rule and filed by the Company pursuant to paragraph 2(b)
hereof.
2. REGISTRATION.
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(a) First Registration Statement. On or before the First Filing
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Deadline, the Company shall prepare and file with the Commission the First
Registration Statement on Form S-3 as a "shelf" registration statement under
Rule 415 covering the resale of a number of shares of Registrable Securities
equal to one hundred percent (100%) of the number of shares of Common Stock
issuable on the Initial Closing Date pursuant to the conversion of the Initial
Preferred Stock and the exercise of the Initial Warrants (such number to be
determined using the Conversion Price or Exercise Price, as applicable, in
effect on such dates and without regard to any restriction on the ability of any
Holder to convert such Holder's Initial Preferred Stock or exercise such
Holder's Initial Warrant as of such date). The Registration Statement shall
state, to the extent permitted by Rule 416 under the Securities Act, that it
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon the conversion of the Initial Preferred Stock and
exercise of the Initial Warrants in order to prevent dilution resulting from
stock splits, stock dividends or similar events.
(b) Second Registration Statement. If the Put Option Closing occurs,
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on or before the Second Filing Deadline, the Company shall prepare and file with
the Commission a Registration Statement on Form S-3 as a "shelf" registration
statement under Rule 415 covering the resale of a number of shares of
Registrable Securities equal to one hundred fifty percent (150%) of the number
of shares of Common Stock issuable on the Put Option Closing Date pursuant to
the conversion of all then outstanding Preferred Shares and the exercise of all
then outstanding Warrants (such number to be determined using the Conversion
Price or Exercise Price, as applicable, in effect on such dates and without
regard to any restriction on the ability of any Holder to convert such Holder's
Preferred Shares or exercise such Holder's Warrant as of such date). The
Registration Statement shall state, to the extent permitted by Rule 416 under
the Securities Act, that it also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon the conversion of the
Preferred Shares and exercise of the Warrants in order to prevent dilution
resulting from stock splits, stock dividends or similar events.
(c) Conversion to Form S-3. If the Company is not eligible to use
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Form S-3, then the Company shall prepare and file a Registration Statement on
such form as it is eligible to use (as a "shelf" registration statement under
Rule 415); provided that the Company shall use its
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best efforts as soon as practicable following the date on which it becomes
eligible to use Form S-3 (but in no event later than ten (10) Business Days
after such date) to convert the Registration Statement to a Form S-3, or file a
new registration statement on such form, covering at least one hundred fifty
percent (150%) of the number of shares of Common Stock issuable on the date of
such conversion or filing pursuant to the conversion of the Preferred Stock and
the exercise of the Warrants (such number to be determined using the Conversion
Price or Exercise Price, as applicable, in effect on such dates and without
regard to any restriction on the ability of any Holder to convert such Holder's
Preferred Stock or exercise such Holder's Warrant as of such date).
(d) Effectiveness. The Company shall use its best efforts to cause
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each Registration Statement to become effective as soon as practicable following
the filing thereof, but in no event later than the applicable Registration
Deadline. The Company shall respond promptly to any and all comments made by the
staff of the Commission on a Registration Statement, and shall submit to the
Commission, within one (1) Business Day after the Company learns that no review
of such Registration Statement will be made by the staff of the Commission or
that the staff of the Commission has no further comments on such Registration
Statement, as the case may be, a request for acceleration of the effectiveness
of such Registration Statement to a time and date not later than two (2)
Business Days after the submission of such request; provided that at any time
prior to the end of the applicable Registration Deadline, the Company may delay
its request for effectiveness for a period of up to ten days if the Company is
required to file an Exchange Act report within such ten (10) day period that
would require an amendment to such Registration Statement or a supplement to the
Prospectus to be used in connection with such Registration Statement. The
Company will maintain the effectiveness of each Registration Statement until the
earlier to occur of (i) the date on which all of the Registrable Securities
eligible for resale thereunder have been publicly sold pursuant to either the
Registration Statement or Rule 144 and (ii) the date on which all of the
Registrable Securities remaining to be sold under such Registration Statement
(in the reasonable opinion of counsel to the Holder) may be immediately sold to
the public under Rule 144(k) or any successor provision, assuming that all
Warrant Shares are issued by means of a cashless exercise of the Warrants (the
period beginning on the Initial Closing Date and ending on the earlier to occur
of (i) or (ii) above being referred to herein as the "Registration Period").
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(e) Registration Default. If (A) a Registration Statement is not
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filed on or before the applicable Filing Deadline or declared effective by the
Commission on or before the applicable Registration Deadline, (B) after a
Registration Statement has been declared effective by the Commission and during
a period in which an Allowed Delay (as hereinafter defined) is not in effect,
sales of Registrable Securities cannot be made by a Holder under such
Registration Statement for any reason not within the exclusive control of such
Holder (other than such Registrable Securities as are then freely saleable
pursuant to Rule 144(k)), or (C) an amendment to a Registration Statement, or a
new registration statement, required to be filed pursuant to the terms of
paragraph 4(k) below is not filed on or before the date required by such
paragraph, (each of (A), (B) and (C) being referred to herein as a "Registration
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Default"), the Company shall make cash payments to each Holder equal to one
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percent (1.0%) of the Liquidation Preference of the Preferred Stock then held by
such Holder for each thirty (30) day period in
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which a Registration Default occurs (prorated for any period of less than thirty
days). Each such payment shall be made within five (5) Business Days following
the last day of the calendar month in which a Registration Default occurs. Any
such payment shall be in addition to any other remedies available to each Holder
at law or in equity, whether pursuant to the terms hereof, the Securities
Purchase Agreement, the Certificate of Designation, or otherwise.
(f) Allowed Delay. The Company may delay the disclosure of material
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non-public information, and suspend the availability of a Registration
Statement, for no more than (i) five (5) consecutive Business Days or (ii)
twenty (20) calendar days in any twelve (12) month period, in the event of a
proposed merger, reorganization or similar transaction involving the Company, as
long as its board of directors (A) has determined, upon the advice of counsel,
that such information would be required to be disclosed in an offering
registered under the Securities Act and (B) reasonably deems it in the Company's
best interests not to disclose such information publicly (an "Allowed Delay").
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In addition, unless the Company is eligible to file a registration statement on
Form S-3, each time the Company files a post-effective amendment to a
Registration Statement for the purpose of updating such Registration Statement
in connection with the public filing by the Company of any report or other
document with the Commission (such post-effective amendment, an "Updating
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Amendment"), the Company may also suspend the availability of such Registration
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Statement until such Updating Amendment is declared effective and any such
suspension shall also be deemed an Allowed Delay for all purposes under this
Agreement as long as such Updating Amendment is filed within five (5) Business
Days following the event or circumstance requiring such amendment and the
Company promptly responds to any comments made thereon by the staff of the
Commission. The Company shall promptly (i) notify each Holder in writing of the
existence of material non-public information giving rise to an Allowed Delay
(but in no event, without the prior written consent of such Holder, shall the
Company disclose to such Holder any of the facts or circumstances regarding any
material non-public information), (ii) advise each Holder in writing to cease
all sales under each available Registration Statement until the termination of
the Allowed Delay and (iii) notify each Holder in writing immediately upon the
termination or expiration of an Allowed Delay.
(g) Allocation of Conversion Shares and Warrant Shares. The initial
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number of Conversion Shares and Warrant Shares included in any Registration
Statement and each increase in the number thereof included therein shall be
allocated pro rata among the Holders based on the aggregate number of
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Registrable Securities issuable to each Holder at the time the Registration
Statement covering such initial number of Registrable Securities or increase
thereof is declared effective by the Commission (such number to be determined
using the Conversion Price or Exercise Price, as applicable, in effect at such
time and without regard to any restriction on the ability of a Holder to convert
such Holder's Preferred Stock or exercise such Holder's Warrant as of such
date). In the event that a Holder sells or otherwise transfers any of such
Holder's Registrable Securities, each transferee shall be allocated the portion
of the then remaining number of Registrable Securities included in such
Registration Statement allocable to the transferor.
(h) Registration of Other Securities. During the period beginning on
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the date hereof and ending on the later to occur of (i) the First Effective Date
and (ii) if the Put Option
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Closing occurs, the Second Effective Date, the Company shall refrain from filing
any new registration statement (other than (x) the Registration Statement or (y)
a registration statement on Form S-8 with respect to stock option plans and
agreements and stock plans currently in effect and disclosed pursuant to the
terms of the Securities Purchase Agreement).
3. PIGGYBACK REGISTRATION.
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If at any time prior to the expiration of the Registration Period, (i) the
Company proposes to register shares of Common Stock under the Securities Act in
connection with the public offering of such shares for cash (a "Proposed
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Registration") other than a registration statement on Form S-8 or Form S-4 or
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any successor or other forms promulgated for similar purposes and (ii) a
Registration Statement covering the sale of all of the Registrable Securities is
not then effective and available for sales thereof by the Holders, the Company
shall, at such time, promptly give each Holder written notice of such Proposed
Registration. Each Holder shall have ten (10) Business Days from its receipt of
such notice to deliver to the Company a written request specifying the amount of
Registrable Securities that such Holder intends to sell and such Holder's
intended method of distribution. Upon receipt of such request, the Company
shall use its best efforts to cause all Registrable Securities which the Company
has been requested to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such Holder;
provided, however, that the Company shall have the right to postpone or withdraw
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any registration effected pursuant to this Section 3 without obligation to the
Holder. If, in connection with any underwritten public offering for the account
of the Company or for stockholders of the Company that have contractual rights
to require the Company to register shares of Common Stock, the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in a registration statement because, in the
judgment of such underwriter(s), marketing or other factors dictate such
limitation is necessary to facilitate such offering, then the Company shall be
obligated to include in the registration statement only such limited portion of
the Registrable Securities with respect to which each Holder has requested
inclusion hereunder as such underwriter(s) shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Holders seeking to
include Registrable Securities in a registration statement, in proportion to the
number of Registrable Securities sought to be included by such Holders;
provided, however, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities, the holders of
which are not entitled to inclusion of such securities in the registration
statement or are not entitled to pro rata inclusion with the Registrable
Securities; and provided, further, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in the registration statement. In no event shall the Company include
any securities other than the Registrable Securities on the Registration
Statement or on any registration statement filed by the Company on behalf of the
Holders pursuant to the terms hereof (other than in connection with the exercise
of currently outstanding piggyback registration rights as disclosed in the
Securities Purchase Agreement).
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4. OBLIGATIONS OF THE COMPANY.
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In addition to performing its obligations hereunder, including without
limitation those pursuant to paragraphs 2(a), (b) and (c) above, the Company
shall:
(a) prepare and file with the Commission such amendments and
supplements to each Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Securities Act or to maintain the effectiveness of such
Registration Statement during the Registration Period (subject to any Allowed
Delays), or as may be reasonably requested by a Holder in order to incorporate
information concerning such Holder or such Holder's intended method of
distribution;
(b) after the Common Stock has been listed on the Nasdaq National
Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or any other
market or exchange, secure the listing of all Registrable Securities on such
market of exchange, and provide each Holder with reasonable evidence thereof;
(c) upon the effectiveness of a Registration Statement, furnish to
each Holder such number of copies of the prospectus included in such
Registration Statement, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as such Holder
may reasonably request in order to facilitate the disposition of such Holder's
Registrable Securities;
(d) use all commercially reasonable efforts to register or qualify
the Registrable Securities under the securities or "blue sky" laws of such
jurisdictions within the United States as shall be reasonably requested in
writing from time to time by a Holder, and do any and all other acts or things
which may be necessary or advisable to enable such Holder to consummate the
public sale or other disposition of the Registrable Securities in such
jurisdictions; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction;
(e) in the event of an underwritten public offering of the
Registrable Securities, enter into (together with all Holders proposing to
distribute Registrable Securities through such underwriting) and perform its
obligations under an underwriting agreement, in usual and customary form
reasonably acceptable to the Company, with the managing underwriter of such
offering;
(f) notify each Holder immediately after becoming aware of the
occurrence of any event (but shall not, without the prior written consent of
such Holder, disclose to such Holder any facts or circumstances constituting
material non-public information) as a result of which the prospectus included in
a Registration Statement, as then in effect, contains an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and (except during an Allowed Delay) as promptly as
practicable prepare, and file with
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the Commission and furnish to each Holder a reasonable number of copies of a
supplement or an amendment to such prospectus as may be necessary so that such
prospectus does not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(g) use all commercially reasonable efforts to prevent the issuance
of any stop order or other order suspending the effectiveness of each
Registration Statement and, if such an order is issued, to obtain the withdrawal
thereof at the earliest possible time and to notify each Holder of the issuance
of such order and the resolution thereof;
(h) furnish to each Holder, on the date that any Registration
Statement, or any successor registration statement, becomes effective, (x) a
letter, dated such date, from the Company addressed to such Holder, confirming
such effectiveness and, to the knowledge of the Company, the absence of any stop
order, and (y) in the case of an underwriting, (A) a copy of an opinion, dated
such date, of such outside counsel, in such form and substance as is required to
be given to the underwriters, and (B) a copy of a letter, dated such date, from
the Company's independent certified public accountants, in such form and
substance as is required to be given by the Company's independent certified
public accountants to such underwriters;
(i) provide to each Holder and its representatives, upon reasonable
prior notice and execution of a reasonable non-disclosure agreement by Holder,
the opportunity to conduct a reasonable inquiry of the Company's financial and
other records during normal business hours and make available its officers for
questions regarding information which such Holder may reasonably request in
order to fulfill any due diligence obligation on its part;
(j) permit counsel for each Holder to review each Registration
Statement and all amendments and supplements thereto, and any comments made by
the staff of the Commission concerning such Holder and/or the transactions
contemplated by the Transaction Documents and the Company's responses thereto,
within a reasonable period of time (but in no event less than three (3) Business
Days after such Holder has received such documents) prior to the filing thereof
with the Commission (or, in the case of comments made by the staff of the
Commission, within a reasonable period of time following the receipt thereof by
the Company); and
(k) in the event that, at any time after the Approval Date (as such
term is defined in the Securities Purchase Agreement), the aggregate number of
shares of Common Stock available under the Registration Statements then covering
such shares is insufficient to cover one hundred twenty five percent (125%) of
the Registrable Securities issuable under all then outstanding Preferred Stock
and Warrants (such number to be determined using the Conversion Price or
Exercise Price, as applicable, in effect at such time and without regard to any
restriction on the ability of any Holder to convert such Holder's Preferred
Stock or exercise such Holder's Warrant) the Company shall promptly amend such
Registration Statements or file a new registration statement, in any event as
soon as practicable, but not later than the tenth (10th) day following notice
from a Holder of the occurrence of such event, so that the
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Registration Statements or such new registration statement, or both, covers no
less than one hundred fifty percent (150%) of the Registrable Securities
eligible for resale thereunder and issuable under all then outstanding Preferred
Stock and Warrants (such number to be determined using the Conversion Price or
Exercise Price, as applicable, in effect at the time of such amendment or filing
and without regard to any restriction on the ability of any Holder to convert
such Holder's Preferred Stock or exercise such Holder's Warrant). The Company
shall use its best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. Any Registration Statement filed pursuant to this paragraph 4(k) shall
state that, to the extent permitted by Rule 416 under the Securities Act, such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Preferred
Stock and exercise of the Warrants in order to prevent dilution resulting from
stock splits, stock dividends or similar events. Unless and until such amendment
or new Registration Statement becomes effective, each Holder shall have the
rights described in Section 2(c) above.
5. OBLIGATIONS OF EACH HOLDER.
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In connection with the registration of Registrable Securities pursuant to a
Registration Statement, each Holder shall:
(a) timely furnish to the Company in writing such information
regarding itself and the intended method of disposition of such Registrable
Securities as the Company shall reasonably request in order to effect the
registration thereof;
(b) upon receipt of any notice from the Company of the happening of
any event of the kind described in paragraphs 4(f) or 4(g), immediately
discontinue any sale or other disposition of such Registrable Securities
pursuant to such Registration Statement until the filing of an amendment or
supplement as described in paragraph 4(f) or withdrawal of the stop order
referred to in paragraph 4(g), and use commercially reasonable efforts to
maintain the confidentiality of such notice and its contents;
(c) in the event of an underwritten offering of such Registrable
Securities in which such Holder participates, enter into a customary and
reasonable underwriting agreement and execute such other documents as the
Company and the managing underwriter for such offering may reasonably request;
(d) to the extent required by applicable law, deliver a prospectus to
the Investor of such Registrable Securities;
(e) notify the Company when it has sold all of the Registrable
Securities held by it; and
(f) notify the Company in the event that any information supplied by
such Holder in writing for inclusion in such Registration Statement or related
prospectus is untrue or omits to state a material fact required to be stated
therein or necessary to make such information not
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misleading in light of the circumstances then existing; immediately discontinue
any sale or other disposition of such Registrable Securities pursuant to such
Registration Statement until the filing of an amendment or supplement to such
prospectus as may be necessary so that such prospectus does not contain an
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and use commercially reasonable
efforts to assist the Company as may be appropriate to make such amendment or
supplement effective for such purpose.
6. INDEMNIFICATION.
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In the event that any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) To the extent permitted by law, the Company shall indemnify and
hold harmless each Holder, the officers, directors, employees, agents and
representatives of such Holder, and each person, if any, who controls such
Holder within the meaning of the Securities Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), against any losses, claims, damages,
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liabilities or reasonable out-of-pocket expenses (whether joint or several)
(collectively, including legal or other expenses reasonably incurred in
connection with investigating or defending same, "Losses"), insofar as any such
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Losses arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Subject to the provisions of paragraph 6(c) below, the
Company will reimburse such Holder, and each such officer, director, employee,
agent, representative or controlling person, for any legal or other
out-of-pocket expenses as reasonably incurred by any such entity or person in
connection with investigating or defending any Loss; provided, however, that the
foregoing indemnity shall not apply to amounts paid in settlement of any Loss if
such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be obligated to
indemnify any person for any Loss to the extent that such Loss is (i) based upon
and is in conformity with written information furnished by such person expressly
for use in such Registration Statement or (ii) based on a failure of such person
to deliver or cause to be delivered the final prospectus contained in the
Registration Statement and made available by the Company, if such delivery is
required by applicable law.
(b) To the extent permitted by law, each Holder who is named in such
Registration Statement as a selling stockholder, acting severally and not
jointly, shall indemnify and hold harmless the Company, the officers, directors,
employees, agents and representatives of the Company, and each person, if any,
who controls the Company within the meaning of the Securities Act or the
Exchange Act, against any Losses to the extent (and only to the extent) that any
such Losses are based upon and in conformity with written information furnished
by such Holder expressly for use in such Registration Statement. Subject to the
provisions of paragraph 6(c) below, such Holder will reimburse any legal or
other expenses as reasonably incurred by the Company and any such officer,
director, employee, agent, representative, or controlling person,
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in connection with investigating or defending any such Loss; provided, however,
that the foregoing indemnity shall not apply to amounts paid in settlement of
any such Loss if such settlement is effected without the consent of such Holder
(which consent shall not be unreasonably withheld); and provided, further, that,
in no event shall any indemnity under this subsection 6(b) exceed the net
proceeds resulting from the sale of the Registrable Securities sold by such
Holder under such Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in and to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of one such counsel for
all indemnified parties to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate under applicable standards of professional conduct due to
actual or potential conflicting interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, to the extent prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 6 with respect to such action, but the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Section 6 or with respect to any other action unless the indemnifying
party is materially prejudiced as a result of not receiving such notice.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 6 is unavailable or insufficient to hold harmless an indemnified
party for any reason, the Company and each Holder agree, severally and not
jointly, to contribute to the aggregate Losses to which the Company or such
Holder may be subject in such proportion as is appropriate to reflect the
relative fault of the Company and such Holder in connection with the statements
or omissions which resulted in such Losses; provided, however, that in no case
shall such Holder be responsible for any amount in excess of the net proceeds
resulting from the sale of the Registrable Securities sold by it under the
Registration Statement. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the Company or by such Holder. The Company and each Holder agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 6, each person who controls a
Holder within the meaning of either the Securities Act or the Exchange Act and
each officer, director, employee, agent or representative of such Holder shall
have the same rights to contribution as such Holder, and each person who
controls the Company within the meaning of either the Securities Act or the
11
Exchange Act and each officer, director, employee, agent or representative of
the Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (d).
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in an underwriting agreement
entered into in connection with an underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) Unless otherwise superceded by an underwriting agreement entered
into in connection with an underwritten public offering, the obligations of the
Company and each Holder under this Section 6 shall survive the conversion of the
Preferred Stock and exercise of the Warrants in full, the completion of any
offering or sale of Registrable Securities pursuant to a Registration Statement
under this Agreement, or otherwise.
7. REPORTS.
-------
With a view to making available to each Holder the benefits of Rule
144 under the Securities Act ("Rule 144") and any other similar rule or
---------
regulation of the Commission that may at any time permit such Holder to sell
securities of the Company to the public without registration, the Company agrees
to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to such Holder, so long as such Holder owns any
Registrable Securities, promptly upon written request (i) a written statement by
the Company, if true, that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) to the extent not
publicly available through the Commission's XXXXX database, a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested by such Holder in connection with such Holder's compliance
with any rule or regulation of the Commission which permits the selling of any
such securities without registration.
8. MISCELLANEOUS.
-------------
(a) Expenses of Registration. Except as otherwise provided in the
--------------------------
Securities Purchase Agreement, all reasonable expenses, other than underwriting
discounts and commissions and fees and expenses of counsel and other advisors to
each Holder, incurred in connection with the registrations, filings or
qualifications described herein, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, the
fees
12
and disbursements of counsel for the Company, and the fees and disbursements
incurred in connection with the opinion and letter described in paragraph 4(h)
hereof, shall be borne by the Company.
(b) Amendment; Waiver. Except as expressly provided herein, neither
------------------
this Agreement nor any term hereof may be amended or waived except pursuant to a
written instrument executed by the Company and the Holders of at least
two-thirds (2/3) of the Registrable Securities into which all of the Preferred
Stock and Warrants then outstanding are convertible or exercisable (without
regard to any limitation on such conversion or exercise). Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
Holder, each future Holder and the Company. The failure of any party to
exercise any right or remedy under this Agreement or otherwise, or the delay by
any party in exercising such right or remedy, shall not operate as a waiver
thereof.
(c) Notices. Any notice, demand or request required or permitted to
-------
be given by the Company or an Investor 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, 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 a Holder, to such address as shall be designated by such Holder in
writing to the Company.
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(d) Assignment. Upon the transfer of any Preferred Stock, Warrants
----------
or Registrable Securities by a Holder, the rights of such Holder hereunder with
respect to such securities so transferred shall be assigned automatically to the
transferee thereof, and such transferee shall thereupon be deemed to be a
"Holder" for purposes of this Agreement, as long as: (i) the Company is, within
a reasonable period of time following such transfer, furnished with written
notice of the name and address of such transferee, (ii) the transferee agrees in
writing with the Company to be bound by all of the provisions hereof, and (iii)
such transfer is made in accordance with the applicable requirements of the
Securities Purchase Agreement; provided, however, that the registration rights
-------- -------
granted in this Agreement shall not be transferred to any person or entity that
receives any Preferred Stock, Warrants or Registrable Securities in a public
transaction pursuant to an effective registration statement under the Securities
Act or pursuant to Rule 144.
(e) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, and all of which together shall be
deemed one and the same instrument. This Agreement, once executed by a party,
may be delivered to any other party hereto by facsimile transmission.
(f) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York applicable to contracts
made and to be performed entirely within the State of New York.
(g) Holder of Record. A person is deemed to be a Holder whenever
------------------
such person owns or is deemed to own of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from the record
owner of such Registrable Securities.
(h) Entire Agreement. This Agreement, the Securities Purchase
-----------------
Agreement, the Certificate of Designation, the Warrants, and the other
Transaction Documents constitute the entire agreement among the parties hereto
with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement, the Securities Purchase
Agreement, the Certificate of Designation, the Warrants, and the other
Transaction Documents supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.
(i) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(j) Third Party Beneficiaries. This Agreement is intended for the
---------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
[Signature Pages to Follow]
14
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:
SATELLITE STRATEGIC FINANCE PARTNERS, LTD.
By: Satellite Asset Management, L.P., its Manager
By: __________________________
Name:
Title:
___________________________________________
Investor Name
By: __________________________, its Manager
By: __________________________
Name:
Title:
