EXHIBIT 10.1
SECOND REDEMPTION AND EXCHANGE AGREEMENT
THIS SECOND REDEMPTION AND EXCHANGE AGREEMENT (this "Agreement"), dated
as of July 30, 2002, by and among MicroStrategy Incorporated, a Delaware
corporation, with headquarters located at 0000 Xxxxxxxxxxxxx Xxxxx, XxXxxx,
Xxxxxxxx 00000 (the "Company"), and the investors listed on the Schedule of
Investors attached hereto (individually, an "Investor" and collectively, the
"Investors").
WHEREAS:
A. The Company, the Investors and certain other entities (the "Other
Investors") have entered into that certain Securities Purchase Agreement, dated
as of June 17, 2000 (the "Securities Purchase Agreement"), pursuant to which the
Investors and the Other Investors purchased from the Company shares of the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock"),
which are convertible into shares of the Company's Class A common stock, par
value $0.001 per share (the "Common Stock") (as converted, the "Series A
Conversion Shares"), in accordance with the terms of the Company's Certificate
of Designations, Preferences and Rights of the Series A Preferred Stock filed
with the Secretary of State of the State of Delaware on June 19, 2000 (the
"Series A Certificate of Designations");
B. The Company and the Investors have entered into that certain Amended
and Restated Redemption and Exchange Agreement, dated as of June 14, 2001 (the
"First Redemption and Exchange Agreement"), pursuant to which the Company issued
to the Investors, in exchange for certain shares of Series A Preferred Stock
then held by the Investors, (i) shares of the Company's Series B Convertible
Preferred Stock (the "Series B Preferred Stock"), which are convertible into
shares of Common Stock (as converted, the "Series B Conversion Shares"), in
accordance with the terms of the Company's Certificate of Designations,
Preferences and Rights of the Series B Preferred Stock filed with the Secretary
of State of the State of Delaware on June 14, 2001 (the "Series B Certificate of
Designations"), (ii) shares of the Company's Series C Convertible Preferred
Stock (the "Series C Preferred Stock"), which are convertible into shares of
Common Stock (as converted, the "Series C Conversion Shares"), in accordance
with the terms of the Company's Certificate of Designations, Preferences and
Rights of the Series C Preferred Stock filed with the Secretary of State of the
State of Delaware on June 14, 2001 (the "Series C Certificate of Designations")
and (iii) shares of the Company's Series D Convertible Preferred Stock (the
"Series D Preferred Stock"), which are convertible into shares of Common Stock
(as converted, the "Series D Conversion Shares"), in accordance with the terms
of the Company's Certificate of Designations, Preferences and Rights of the
Series D Preferred Stock filed with the Secretary of State of the State of
Delaware on June 14, 2001 (the "Series D Certificate of Designations");
C. Prior to the closing of the transactions contemplated hereby, the
Company will have authorized the following new series of its preferred stock,
par value $0.001 per share: the Company's Series F Convertible Preferred Stock
(the "Series F Preferred Stock"), which shall be convertible into shares of
Common Stock (as converted, the "Conversion Shares"), in accordance with the
terms of the Company's Certificate of Designations, Preferences and Rights of
the Series F Preferred Stock, in the form attached hereto as Exhibit A (the
"Certificate of Designations");
D. Each Investor is the holder of (i) that number of shares of Series B
Preferred Stock (each a "Series B Preferred Share" and, collectively, the
"Series B Preferred Shares") set forth opposite its name in Column 2 on the
Schedule of Investors, (ii) that number of shares of Series C Preferred Stock
(each a "Series C Preferred Share" and, collectively, the "Series C Preferred
Shares") set forth opposite its name in Column 3 on the Schedule of Investors,
and (iii) that number of shares of Series D Preferred Stock (each a "Series D
Preferred Share" and, collectively, the "Series D Preferred Shares") set forth
opposite its name in Column 4 on the Schedule of Investors;
E. Upon the terms and conditions set forth in this Agreement, the
Company wishes to redeem and exchange, and the Investors wish to allow the
Company to redeem and exchange, all of the Series B Preferred Shares, the Series
C Preferred Shares and the Series D Preferred Shares held by the Investors for
(i) $5,217,391.30 in cash (in the respective amount set forth opposite each
Investor's name in Column 5 on the Schedule of Investors), (ii) promissory notes
of the Company, in the form attached hereto as Exhibit B (each a "Promissory
Note" and collectively the "Promissory Notes") in the aggregate principal amount
of $2,608,696.65 (in the respective amount set forth opposite each Investor's
name in Column 6 on the Schedule of Investors), (iii) an aggregate of 6,503,272
shares of Common Stock (such numbers to be adjusted for any stock splits, stock
dividends, stock combinations or other similar transactions involving the Common
Stock that are effective at any time from and after 4:59 p.m., Eastern Time, on
the date of this Agreement) less that number of shares of Common Stock (such
numbers to be adjusted for any stock splits, stock dividends, stock combinations
or other similar transactions involving the Common Stock that are effective at
any time from and after the applicable date of conversion following 4:59 p.m.,
Eastern Time, on the date of this Agreement), if any, issued to such Investor
upon the conversion of such Investor's Series B Preferred Shares, Series C
Preferred Shares and Series D Preferred Shares during the period beginning on
the date hereof and ending on and including the date immediately preceding the
Closing Date (in the respective amount set forth opposite each Investor's name
in Column 7 on the Schedule of Investors) (the "Common Shares") and (iv)
1,416.3609 shares of Series F Preferred Stock (the "Preferred Shares") (in the
respective amount set forth opposite each Investor's name in Column 8 on the
Schedule of Investors); and
F. The exchange of the Series B Preferred Shares, Series C Preferred
Shares and Series D Preferred Shares for the Common Shares and the Preferred
Shares is being made in reliance upon the exemption from registration provided
by Section 3(a)(9) of the Securities Act of 1933, as amended (the "1933 Act").
NOW THEREFORE, the Company and the Investors hereby agree as follows:
1. REDEMPTION AND EXCHANGE OF SERIES B PREFERRED SHARES, SERIES C
PREFERRED SHARES AND SERIES D PREFERRED SHARES.
a. Redemption and Exchange of Series B Preferred Shares, Series C
Preferred Shares and Series D Preferred Shares. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7, the Company shall
redeem and exchange from each Investor and each Investor shall tender to the
Company for redemption on the Closing Date (as defined below) that number of
such Investor's Series B Preferred Shares, Series C Preferred Shares and Series
D Preferred Shares set forth opposite such Investor's name in Column 2, Column 3
and Column 4, respectively, on the Schedule of Investors less that number of
Series B Preferred Shares, Series C Preferred Shares and Series D Preferred
Shares converted by such
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Investor after the date hereof but prior to the Closing Date (which number of
Series B Preferred Shares, Series C Preferred Shares and Series D Preferred
Shares in the aggregate equals 4,631.1 shares less that number of Series B
Preferred Shares, Series C Preferred Shares and Series D Preferred Shares
converted by such Investor after the date hereof but prior to the Closing Date)
for the following (the "Closing"): (i) $5,217,391 in cash (in the respective
amount set forth opposite each Investor's name in Column 5 on the Schedule of
Investors) (the "Cash Amount"), (ii) Promissory Notes in the aggregate principal
amount of $2,608,696 (in the respective amount set forth opposite each
Investor's name in Column 6 on the Schedule of Investors), (iii) an aggregate of
6,503,272 Common Shares (in the respective amount set forth opposite each
Investor's name in Column 7 on the Schedule of Investors, such numbers to be
adjusted for any stock splits, stock dividends, stock combinations or other
similar transactions involving the Common Stock that are effective at any time
from and after 4:59 p.m., Eastern Time, on the date of this Agreement) less that
number of shares of Common Stock (such numbers to be adjusted for any stock
splits, stock dividends, stock combinations or other similar transactions
involving the Common Stock that are effective at any time from and after the
applicable date of conversion following 4:59 p.m., Eastern Time, on the date of
this Agreement), if any, issued to such Investor upon the conversion of such
Investor's Series B Preferred Shares, Series C Preferred Shares and Series D
Preferred Shares during the period beginning on the date hereof and ending on
and including the date immediately preceding the Closing Date, and (iv)
1,416.3609 Preferred Shares (in the respective amount set forth opposite each
Investor's name in Column 8 on the Schedule of Investors).
b. Closing Date. The date and time of the Closing (the "Closing Date")
shall be 10:00 a.m. Central Time, on the second (2nd) Business Day (as defined
in the Series B Certificate of Designations in effect on the date of this
Agreement) following the earlier of (i) the date on which each Investor receives
the Closing Notice (as defined below) from the Company and (ii) the date on
which each Investor delivers Conversion Notices (as defined in each of the
Series B Certificate of Designations, the Series C Certificate of Designations
and the Series D Certificate of Designations) resulting in such Investor
continuing to hold a number of Series C Preferred Shares which does not exceed
that number set forth opposite such Investor's name in Column 9 on the Schedule
of Investors, subject to notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 (or such other date as
is mutually agreed to by the Company and each Investor, but in no event later
than October 21, 2002). The Closing shall occur on the Closing Date at the
offices of Xxxxxx Xxxxxx Xxxxx Xxxxxxxx, 000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxxxxx 00000-0000. On or before the first (1st) Business Day
following the Company's receipt of the Shareholder Approval (as defined in
Section 4(m) or the Nasdaq Confirmation (as defined in Section 4(m)), the
Company shall deliver written notice (the "Closing Notice") to each Investor of
the receipt of such Shareholder Approval or Nasdaq Confirmation, as applicable.
c. Form of Payment. On the Closing Date, (i) the Company (A) shall pay
to each Investor the aggregate Cash Amount set forth opposite such Investor's
name in Column 5 on the Schedule of Investors, by wire transfer of immediately
available funds in accordance with such Investor's written wire instructions,
(B) shall deliver to each Investor a Promissory Note in the aggregate principal
amount set forth such Investor's name in Column 6 on the Schedule of Investors,
(C) shall issue and deliver to each Investor that number of Common Shares set
forth opposite such Investor's name in Column 7 on the Schedule of Investors
(which Common Shares shall be free from any restrictive legend and from any stop
order,
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such numbers to be adjusted for any stock splits, stock dividends, stock
combinations or other similar transactions involving the Common Stock that are
effective at any time from and after 4:59 p.m., Eastern Time, on the date of
this Agreement) through The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program by crediting such number of Common Shares to such
Investor's balance account with DTC through its Deposit Withdrawal Agent
Commission system in accordance with such Investor's written instructions, less
that number of shares of Common Stock (such numbers to be adjusted for any stock
splits, stock dividends, stock combinations or other similar transactions
involving the Common Stock that are effective at any time from and after the
applicable date of conversion following 4:59 p.m., Eastern Time, on the date of
this Agreement), if any, issued to such Investor upon the conversion of such
Investor's Series B Preferred Shares, Series C Preferred Shares and Series D
Preferred Shares during the period beginning on the date hereof and ending on
and including the date immediately preceding the Closing Date, and (D) shall
issue and deliver to each Investor a certificate representing that number of
Preferred Shares set forth opposite such Investor's name in Column 8 on the
Schedule of Investors (the "Series F Preferred Stock Certificates") which shall
be free from any restrictive legend other than pursuant to Section 2(d)(viii) of
the Certificate of Designations, and (ii) each Investor shall deliver to the
Company stock certificates (the "Existing Preferred Stock Certificates")
representing such number of the Series B Preferred Shares, Series C Preferred
Shares and Series D Preferred Shares held by such Investor (as indicated
opposite such Investor's name in Column 2, Column 3 and Column 4, respectively,
on the Schedule of Investors) less that number of Series B Preferred Shares,
Series C Preferred Shares and Series D Preferred Shares converted by such
Investor after the date hereof but prior to the Closing Date.
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
Each Investor represents and warrants with respect to only itself
that:
a. Reliance on Exemptions. Such Investor understands that the Common
Shares, the Preferred Shares and the Conversion Shares (collectively, the
"Securities") are being offered to it in reliance on specific exemptions from
the registration requirements of the United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Investor's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of such
Investor to acquire the Securities.
b. No Governmental Review. Such Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
c. Transfer or Resale. Such Investor understands that: (i) the
Securities have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, or (B) sold, assigned
or transferred pursuant to Rule 144 promulgated under the 1933 Act (or a
successor rule thereto) ("Rule 144") or in compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and (ii)
neither the Company nor any other person is under any obligation to register the
Securities under the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder. Notwithstanding the foregoing,
the Securities may be pledged in connection with a bona fide margin account or
other loan secured by the Securities.
d. Information. Such Investor and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the issuance of the Securities which
have been requested by such Investor. Such Investor and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Investor
or its advisors, if any, or its representatives shall modify, amend or affect
such
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Investor's right to rely on the Company's representations and warranties
contained in Sections 3 and 9(l) below. Such Investor understands that its
investment in the Securities involves a high degree of risk. Such Investor has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.
e. Legends. Such Investor understands that the certificates
representing the Securities are being issued and will be issued to such Investor
without a restrictive legend; however, such Investor acknowledges and agrees to
sell the Securities only pursuant to (i) a registration statement under the 1933
Act or (ii) advice of counsel to such Investor that such sale is exempt from the
registration requirements of Section 5 of the 1933 Act, including, without
limitation, pursuant to Rule 144.
f. Authorization; Enforcement; Validity. This Agreement has been
duly and validly authorized, executed and delivered on behalf of such Investor
and is a valid and binding agreement of such Investor enforceable against such
Investor in accordance with its terms, subject as to enforceability to general
principles of equity and to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
g. Ownership of Preferred Stock. Such Investor is the sole
beneficial owner of all the Series B Preferred Shares, the Series C Preferred
Shares and the Series D Preferred Shares set forth opposite such Investor's name
in Columns 2, 3 and 4, respectively, on the Schedule of Investors, less that
number of Series B Preferred Shares, Series C Preferred Shares and Series D
Preferred Shares converted by such Investor after the date hereof but prior to
the Closing Date, (the "Current Preferred Shares") and, assuming that the
Company delivered good and valid title to the Current Preferred Shares to such
Investor free and clear of any and all voting agreements and arrangements,
liens, encumbrances, claims, charges, security interests and restrictions of any
nature whatsoever (other than those imposed by federal and state securities
laws) (collectively, "Encumbrances"), then as of the Closing such Investor shall
have transferred to the Company good and valid title to the Current Preferred
Shares free and clear of any and all Encumbrances.
h. Residency. Such Investor is a resident of that country specified
in its address on the Schedule of Investors.
i. Affiliate Status. Such Investor is not, and has not at any time
in the past three months been, an "affiliate" of the Company within the meaning
of paragraph (a)(1) of Rule 144.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Investors that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest which ownership entitles the Company to elect a majority of the
board of directors or similar governing body of such entity) are corporations
duly organized and validly existing in good standing under the laws of the
jurisdiction in which they are incorporated, and have the requisite corporate
power and
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authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material adverse
effect on the business, properties, assets, operations, results of operations,
or financial condition of the Company and its Subsidiaries, if any, taken as a
whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents (as defined below) or the Certificate of Designations.
b. Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Promissory Notes, the Certificate of
Designations, the Irrevocable Transfer Agent Instructions (as defined in Section
5) and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and to redeem and exchange, as may be the case, the Series B
Preferred Shares, the Series C Preferred Shares and the Series D Preferred
Shares pursuant to this Agreement. The execution and delivery of the Transaction
Documents by the Company and the execution and filing of the Certificate of
Designations by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the redemption or
exchange, as the case may be, of the Series B Preferred Shares, the Series C
Preferred Shares and the Series D Preferred Shares, the issuance of the Common
Shares and the Preferred Shares and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion of the Preferred
Shares, have been duly authorized by the Company's Board of Directors and no
further consent or authorization is required by the Company, its Board of
Directors or its stockholders. The Transaction Documents have been duly executed
and delivered by the Company. The Transaction Documents constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies. The Certificate of Designations
has been filed prior to the Closing Date with the Secretary of State of the
State of Delaware and will be in full force and effect, enforceable against the
Company in accordance with its terms and shall not have been amended unless in
compliance with its terms.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (such numbers to be adjusted for any stock
splits, stock dividends, stock combinations or other similar transactions
involving the Common Stock that are effective at any time from and after 4:59
p.m., Eastern Time, on the date of this Agreement) (i) 330,000,000 shares of
Common Stock, of which as of the date hereof 58,602,261 shares are issued and
outstanding, 30,949,589 shares are reserved for issuance pursuant to the
Company's stock option and purchase plans (including shares reserved for
issuance upon exercise of options which have already been issued, but have not
yet been exercised, under such plans), 46,431,368 shares are reserved for
issuance pursuant to conversion of the Company's Class B common stock and
1,975,314 shares are issuable and reserved for issuance pursuant to securities
(other than the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock, the Series F Preferred Stock, stock option and
purchase plans and the Company's Class B common stock)
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exercisable or exchangeable for, or convertible into, shares of Common Stock,
(ii) 165,000,000 shares of Class B common stock, of which as of the date hereof
46,431,368 shares are issued and outstanding and (iii) 5,000,000 shares of
preferred stock, of which as of the date hereof 3,312.5 shares of Series B
Preferred Stock are issued and outstanding, 2,782.5 shares of Series C Preferred
Stock are issued and outstanding and 1,451.1 shares of Series D Preferred Stock
are outstanding. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. As of the date hereof
(such numbers to be adjusted for any stock splits, stock dividends, stock
combinations or other similar transactions involving the Common Stock that are
effective at any time from and after 4:59 p.m., Eastern Time, on the date of
this Agreement), the Company has outstanding options to purchase 17,416,176
shares of Common Stock, outstanding warrants to purchase 1,975,314 shares of
Common Stock and an outstanding aggregate principal amount of $80,281,000 of the
Company's Series A Unsecured Notes (collectively with any securities issued in
exchange for such Series A Unsecured Notes, the "Settlement Notes"), which are
convertible into shares of Common Stock. Except as disclosed in Schedule 3(c)
(such numbers to be adjusted for any stock splits, stock dividends, stock
combinations or other similar transactions involving the Common Stock that are
effective at any time from and after 4:59 p.m., Eastern Time, on the date of
this Agreement), (A) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights (arising under Delaware law,
Virginia law, the Company's Certificate of Incorporation or By-laws or any
agreement or instrument to which the Company is a party) any liens or
encumbrances granted or created by the Company; (B) except for the Settlement
Notes, there are no outstanding debt securities issued by the Company; (C)
except as set forth in the third sentence of this Section 3(c), there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (D) except
for the Settlement Notes, there are no outstanding securities or instruments of
the Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (E) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement; and (F) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement. The
Company has furnished to each Investor true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as amended and
as in effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable or exchangeable for Common Stock and the
material rights of the holders thereof in respect thereto except for stock
options granted under any employee benefit plan or director stock option plan of
the Company approved by the board of directors of the Company.
d. Issuance of Securities. As of the Closing, the Common Shares and
the Preferred Shares will have been duly authorized and, upon issuance in
accordance with the terms hereof, shall be (i) validly issued, fully paid and
non-assessable, (ii) free from all taxes, liens and charges with respect to the
issuance thereof and (iii) with respect to the Preferred Shares, entitled to the
rights and preferences set forth in the Certificate of Designations. As of the
Closing, at
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least 100% of that number of shares of Common Stock issuable upon conversion of
all the Preferred Shares outstanding immediately following the Closing (without
regard to any limitations on conversions, but subject to adjustment pursuant to
the Company's covenant set forth in Section 4(b) below) will have been duly
authorized and reserved for issuance upon conversion of the such Preferred
Shares. Upon conversion or issuance in accordance with the Certificate of
Designations, the Conversion Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. The issuance by the Company of the Securities is exempt
from registration under the 1933 Act.
e. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificates of Designations and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the reservation for issuance and issuance of the Conversion Shares)
will not (i) result in a violation of the Certificate of Incorporation or the
By-laws; (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party; (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market (as
defined below)) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries is bound or
affected. Neither the Company nor its Subsidiaries is in violation of any term
of its Certificate of Incorporation or its By-laws or their organizational
charter or by-laws, respectively. Except as disclosed in Schedule 3(e), neither
the Company or any of its Subsidiaries is in violation of any term of or in
default under any contract, agreement, mortgage, indebtedness, indenture,
instrument, judgment, decree or order or any statute, rule or regulation
applicable to the Company or its Subsidiaries, except where such violations and
defaults would not result, either individually or in the aggregate, in a
Material Adverse Effect. The business of the Company and its Subsidiaries is not
being conducted, and shall not be conducted, in violation of any law, ordinance
or regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
The Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents or to perform its obligations under the Certificate of Designations in
accordance with the terms hereof or thereof. All consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
f. SEC Documents; Financial Statements. Since December 31, 2000, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). As of
the date hereof, the SEC Documents, as they may have been subsequently amended
by filings made by the Company with the SEC prior to the date hereof, complied
in all material respects
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with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents. None of the SEC
Documents, as of the date hereof and as they may have been subsequently amended
by filings made by the Company with the SEC prior to the date hereof, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Investors which is not included in the SEC Documents, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstance under
which they are or were made, not misleading. As of the Closing, the Company has
delivered to Xxxx and Xxxx LLP a list setting forth any agreement, note, lease,
mortgage, deed or other instrument entered into prior to the Closing Date and to
which the Company is a party or by which the Company is bound which the Company
is required, or will be required, to file as an exhibit to its reports under the
1934 Act but which the Company, as of the Closing, has not filed as an exhibit
to its reports filed with the SEC under the 1934 Act.
g. Absence of Certain Changes; Solvency. Except as disclosed in
Schedule 3(g) or as disclosed in the Company's Annual Report on Form 10-K for
the Year Ended December 31, 2001, in the Company's Quarterly Report on Form 10-Q
for the Three Months Ended March 31, 2002, in the Company's Current Reports on
Form 8-K dated June 19, 2002, June 24, 2002 and July 30, 2002 (filed with the
SEC prior to the execution of this Agreement) or in the Company's Definitive
Proxy Statement filed with the SEC on July 3, 2002, since December 31, 2001
there has been no change or development that has had or could reasonably be
expected to have a Material Adverse Effect as of July 30, 2002. The Company has
not taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or any of its
Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings or any actual knowledge of any
fact which would reasonably lead a creditor to do so. The Company is not as of
the date hereof, and after giving effect to the transactions contemplated hereby
and by similar agreements with the Other Investors (including, without
limitation, the payment of the Cash Amount and the issuance of the Promissory
Notes) will not be, Insolvent. For purposes of this Section 3(g), "Insolvent"
means (a) the present fair saleable value of the Company's assets is less than
the amount required to pay the Company's total indebtedness, contingent or
otherwise; (b) the Company is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; (c) the Company intends to incur or believes that it will
incur debts that would be beyond its ability to pay as such debts mature; or (d)
the Company has unreasonably small capital with which to conduct the business in
which it is engaged as such business is now conducted and is proposed to be
conducted.
h. Fair Consideration. The Company, having been fully involved in
9
developing the transactions contemplated hereby, and having been advised by the
Company's financial and legal advisors, is satisfied that the negotiations
between the Company and the Investors were conducted properly and were arm's
length in nature and in good faith, and fair consideration for the Cash Amount,
the Promissory Notes, the Common Shares and the Preferred Shares was obtained.
The Company has not entered into this Agreement with the actual intent to
hinder, delay or defraud any entity to which either it or any of its
Subsidiaries was or is indebted.
i. Acknowledgment Regarding Redemption and Exchange of Investor's
Current Preferred Shares. The Company acknowledges and agrees that each of the
Investors is acting solely in the capacity of an arm's length purchaser with
respect to the Transaction Documents and the Certificate of Designations and the
transactions contemplated hereby and thereby. The Company further acknowledges
that each Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the Certificate of Designations and the transactions contemplated hereby and
thereby and any advice given by any of the Investors or any of their respective
representatives or agents in connection with the Transaction Documents and the
Certificate of Designations and the transactions contemplated hereby and thereby
is merely incidental to such Investor's entering into this Agreement. The
Company further represents to each Investor that the Company's decision to enter
into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
j. No Solicitation. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has paid or given, either directly
or indirectly, any commission or other remuneration to any person for soliciting
the exchange of the Series B Preferred Shares, Series C Preferred Shares and
Series D Preferred Shares for the Common Shares or the Preferred Shares or for
any other transaction contemplated by this Agreement.
k. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated (except for
the issuance of securities on the Closing Date to holders of the Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock), nor
will the Company or any of its Subsidiaries take any action or steps that would
cause the offering of the Securities to be integrated with other offerings
(except for the issuance of securities on the Closing Date to holders of the
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock).
l. Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the laws of
the state of its incorporation which is or could become applicable to the
Investors as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Securities and the
Investors' ownership of the Securities.
m. Rights Agreement. The Company has not adopted a shareholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock
10
or a change in control of the Company.
n. Information. Neither the Company nor any of its Subsidiaries nor
any of their officers, directors, employees or agents have provided the
Investors with any material, nonpublic information.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts to timely
satisfy each of the conditions to be satisfied by it as provided in Section 6
(other than Section 6(f)) and Section 7 of this Agreement.
b. Reservation of Shares. The Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, no
less than 100% of the number of shares of Common Stock needed to provide for the
issuance of the shares of Common Stock upon conversion of all outstanding
Preferred Shares (without regard to any limitations on conversions).
c. Listing. The Company shall promptly secure the listing of all of
the Common Shares and the Conversion Shares upon each national securities
exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all such Common Shares and Conversion Shares from time to time
issuable under the terms of the Transaction Documents and the Certificates of
Designations. The Company shall use its best efforts to maintain the Common
Stock's authorization for quotation on the Nasdaq National Market ("NASDAQ") or
listing on The New York Stock Exchange, Inc. ("NYSE") (as applicable, the
"Principal Market"). Neither the Company nor any of its Subsidiaries shall take
any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock from the Principal Market. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(c).
d. Disclosure of Transactions and Other Material Information. Before
or at the earlier of the Company's first public disclosure of the transactions
contemplated by this Agreement (or if such public disclosure occurs after 4:00
p.m. (Eastern Time) then prior to 8:30 a.m. on the Business Day following such
disclosure) and 8:30 a.m. (Eastern Time) on the second (2nd) Business Day after
the date of this Agreement, the Company shall file a Current Report on Form 8-K
(the "Announcing Form 8-K") with the SEC describing the terms of the
transactions contemplated by the Transaction Documents and by documents relating
to the issuance on the Closing Date of securities to other holders of Series B
Preferred Stock and Series C Preferred Stock (the "Other Holder Documents") and
including as exhibits to such Current Report on Form 8-K this Agreement
(including the Disclosure Schedules to this Agreement), the Certificate of
Designations and the Other Holder Documents, in the form required by the 1934
Act. If the Closing does not occur on or prior to October 21, 2002 (or such
later date as the Company and each Investor agree in writing), then the Company
shall file on October 21, 2002 (or such later date as the Company and each
Investor agree in writing), a Current Report on Form 8-K with the SEC disclosing
that the Closing did not occur. From and after the filing of the Announcing Form
8-K with the SEC, no Investor shall be in possession of any material nonpublic
information received from the Company, any of its Subsidiaries or any of its
respective officers, directors, employees or agents, that is not disclosed in
the Announcing Form 8-K. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors,
11
employees and agents not to, provide any Investor with any material nonpublic
information regarding the Company or any of its Subsidiaries from and after the
filing of the Announcing Form 8-K with the SEC without the express written
consent of such Investor. In the event of a breach of the foregoing covenant by
the Company, any of its Subsidiaries, or any of its or their respective
officers, directors, employees and agents, and if the Company has not publicly
disclosed the material nonpublic information within 12 hours of written notice
from such Investor of the breach, in addition to any other remedy provided
herein or in the Transaction Documents, an Investor shall have the right to make
a public disclosure, in the form of a press release, public advertisement or
otherwise, of such material nonpublic information without the prior approval by
the Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Investor shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, shareholders or agents for any such disclosure. Subject to
the foregoing, neither the Company nor any Investor shall issue any press
releases or any other public statements with respect to the transactions
contemplated hereby or disclosing the name of any Investor; provided, however,
that the Company shall be entitled, without the prior approval of any Investor,
to make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the Announcing Form 8-K and
contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Investor shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release).
e. Right of Participation. Subject to the exceptions described
below, the Company and its Subsidiaries shall not negotiate or contract with any
party for any equity financing (including any debt financing with an equity
component) or issue any equity securities of the Company or any Subsidiary or
securities convertible or exchangeable into or for equity securities of the
Company or any Subsidiary (including debt securities with an equity component)
in any form ("Future Offerings") during the period beginning on the date hereof
and ending on, and including, the date which is two (2) years after the Closing
Date, unless it shall have first delivered to each Investor or a designee
appointed by such Investor written notice (which written notice shall not
contain any material nonpublic information) of its intent to seek a Future
Offering (the "Future Offering Notice") and providing each Investor an option to
purchase up to its Aggregate Percentage (as defined below) of the securities to
be issued in such Future Offering. For purposes of this Section 4(e), "Aggregate
Percentage" at any time with respect to any Investor shall mean the percentage
obtained by dividing (x) the aggregate number of Common Shares and Conversion
Shares (assuming conversion of all outstanding Preferred Shares then held by
such Investor without giving effect to any limitations on conversions) then held
by such Investor by (y) the aggregate number of shares of Common Stock and Class
B Common Stock then issued and outstanding (excluding any treasury shares). An
Investor can exercise its option to participate in a Future Offering by
delivering written notice to the Company of such Investor's interest in
participating within three (3) business days after receipt of a Future Offering
Notice. The Company shall then have three (3) business days to provide each
Investor electing to participate in a Future Offering with a written notice
describing in detail the aggregate amount of dollars to be raised in the Future
Offering, such Investor's Aggregate Percentage of the Future Offering, the time
frame to completion of the Future Offering and a detailed description of the
securities to be issued in the Future Offering. After receipt of such notice
from the Company, a Investor shall have three business days to provide the
Company with a notice confirming its participation in the Future Offering, which
notice shall state the quantity of securities being offered in the Future
Offering that such Investor will purchase, up to its Aggregate Percentage, and
that number of securities it is willing to purchase in excess of its
12
Aggregate Percentage. The Company shall have 45 days thereafter to sell the
securities of the Future Offering that the Investors did not elect to purchase,
upon terms and conditions no more favorable to the purchasers thereof than
specified in the Future Offering Notice. In the event the Company has not sold
such securities of the Future Offering within such 45-day period, the Company
shall not thereafter issue or sell such securities without first offering such
securities to the Investors in the manner provided in this Section 4(e). The
right of first offer set forth in this Section 4(e) shall not apply to (i) a
loan from a commercial bank which does not have any equity feature other than
the issuance of warrants to purchase, individually or in the aggregate, up to
250,000 shares of Common Stock (such number to be adjusted for any stock splits,
stock dividends, stock combinations or other similar transactions involving the
Common Stock that are effective at any time from and after 4:59 p.m., Eastern
Time, on the date of this Agreement) at a fixed exercise price which is not less
than the market price of the Common Stock at the time of issuance of such
warrants, (ii) any transaction involving the Company's issuances of securities
(A) as consideration in a merger or consolidation, (B) in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital) or (C) as consideration for the acquisition of a business,
product, license or other assets by the Company, (iii) the issuance of Common
Stock in an underwritten public offering by a nationally recognized investment
bank, (iv) the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities described in
Schedule 3(c), (v) the grant of additional options or warrants, or the issuance
of additional securities, under any Company stock option plan, restricted stock
plan or stock purchase plan for the benefit of the Company's employees,
consultants or directors and (vi) the issuance by the Company of securities in
exchange for the Settlement Notes. The Investors shall not be required to
participate or exercise their right of first offer with respect to a particular
Future Offering in order to exercise their right of first offer with respect to
later Future Offerings.
f. Corporate Existence. So long as an Investor beneficially owns any
Preferred Stock, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is quoted on or listed for trading on Nasdaq,
NYSE or The American Stock Exchange, Inc.
g. Pledge of Securities. The Company acknowledges and agrees that
the Securities may be pledged by an Investor in connection with a bona fide
margin agreement or other loan secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement, any other Transaction
Document or the Certificate of Designations, including without limitation,
Section 2(a) of this Agreement; provided that an Investor and its pledgee shall
be required to comply with the provisions of Section 2(a) hereof in order to
effect a sale, transfer or assignment of Securities to such pledgee. The Company
hereby agrees to execute and deliver such documentation as a pledgee of the
Securities may reasonably request in connection with a pledge of the Securities
to such pledgee by an Investor.
h. Expenses. On or before the third (3/rd/) Business Day following
the date of this Agreement, the Company shall pay a nonaccountable expense
allowance of $17,000 to
13
Xxxxxx Capital Ltd. (an Investor) or its designee(s) and $8,000 to Xxxxxxx
Capital Ltd. (an Investor) or its designee(s), by wire transfer of immediately
available funds in accordance with each such Investor's written wire
instructions.
i. Limitation on Dealings with Class B Common Stock. The Company
shall not make any dividend or other distribution, offer any consideration with
respect to, make any other offer regarding, or redeem any share of Class B
Common Stock unless the same dividend, distribution, consideration, offer or
redemption is also simultaneously made to each holder of Common Stock, except
that in any transaction in which shares of capital stock are distributed to the
holder's of Common Stock and Class B Common Stock, the shares of capital stock
distributed to holders of Common Stock and Class B Common Stock may differ to
the extent, but only to the extent, that the Common Stock and Class B Common
Stock differ in the Certificate of Incorporation in effect as of the date of
this Agreement with respect to voting rights and the convertibility of the Class
B Common Stock into the Common Stock (or any security issued in exchange for the
Common Stock or Class B Common Stock).
j. Restrictions on Issuances of Preferred Shares. The Company shall
not issue any shares of Series F Preferred Stock to anyone other than the
Investors, except on the Closing Date concurrent with the Closing to holders of
the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock.
k. Rule 144. The Company shall not, directly or indirectly, dispute
or otherwise interfere with any claim by any holder of the Common Shares, the
Preferred Shares or the Conversion Shares that such holder's holding period of
any Common Shares, Preferred Shares or Conversion Shares for purposes of Rule
144 relates back (i.e., tacks) to the holding period for the Series A Preferred
Stock, the Series B Preferred Shares, the Series C Preferred Shares and the
Series D Preferred Shares, unless there is a change in the applicable law or SEC
staff interpretations relating to Rule 144 after the Closing Date.
l. Limitation on Net Sales of Common Stock. So long as an Investor
holds any Preferred Shares or Common Shares, such Investor agrees that it will
not enter into, directly or indirectly, any net sales Common Stock (including by
means of any sale, contract to sell, grant of any option to purchase, making of
any short sale or other disposition of any shares of Common Stock of the
Company, or any options or warrants to purchase any shares of Common Stock of
the Company, or any securities convertible into, exchangeable for or that
represent the right to receive shares of Common Stock of the Company, or
engaging in any hedging or other transaction which is designed to or which
reasonably could be expected to lead to or result in a sale or disposition of
the Common Shares even if such Common Shares would be disposed of by someone
other than such Investor, including any hedging or other transactions that
include any short sale or any purchase, sale or grant of any right or any put or
call option or with respect to any security that includes, relates to, or
derives any significant part of its value from the Common Stock) (collectively,
"Net Sales") on any single day (each such day is referred to as a "Limited Sales
Day") in excess of that number of shares of Common Stock equal to the sum of (i)
the product of (A) the quotient of the number of Series B Preferred Shares and
Series C Preferred Shares set forth opposite such Investor's name in Columns 2
and 3, respectively, on the Schedule of Investors, divided by 6,095, multiplied
by (B) 15% of the daily trading volume for the Common Stock (as reported by
Bloomberg Financial Markets (or any successor thereto "Bloomberg")) for that
trading day (such amount, with respect to such Limited Sales Day, is referred to
as the Investor's "Daily Sales Amount"), plus (ii) the aggregate amount of all
the Investor's Daily Sales Amounts during the period beginning on and including
the date
14
immediately following the Closing Date and ending on and including the Limited
Sales Day with respect to which this determination is being made, less any Net
Sales made by such Investor on each of the days during such period; provided,
however, that the restrictions on Net Sales set forth above shall not apply (i)
on and after the first date on which there has been an Event of Default (as
defined in the Promissory Note), (ii) on and after any date on which the Company
issues or sells or is deemed to have issued or sold any securities with a
Variable Price (as defined in the Series B Certificate of Designations as in
effect on the date of this Agreement), except for the issuance by the Company of
a convertible security or option which is convertible into or exchangeable or
exercisable for Common Stock at a fixed price which may vary with the market
price of the Common Stock only after the date which is two (2) years after the
Closing Date, (iii) if the Company is in default under the Certificates of
Designations for failing to effect any requested conversion of any Preferred
Shares pursuant to the Certificates of Designations, (iv) on and after the date
which is one (1) year after the Closing Date, or (v) any Net Sale which may be
deemed to occur upon the sale, transfer, assignment, pledge or other disposition
of the Preferred Shares and any such Net Sale shall be ignored for all purposes
of this Section 4(l) provided any such transferee, assignee or pledgee agrees to
be bound by the terms of this Section 4(l). As of and after the Closing, this
Section 4(l) shall amend and replace in its entirety Section 4(k) of the First
Redemption and Exchange Agreement.
m. Proxy Statement; Nasdaq Confirmation. Unless the Company
previously has received Nasdaq Confirmation (as defined below), the Company
shall provide each stockholder entitled to vote at the next meeting of
stockholders of the Company, which meeting shall occur on or before October 16,
2002 (the "Stockholder Meeting Deadline"), a proxy statement, which has been
previously reviewed by the Investors and a counsel of their choice, soliciting
each such stockholder's affirmative vote at such stockholder meeting for
approval of the Company's issuance of the Common Shares and the Preferred Shares
pursuant to this Agreement in accordance with applicable law and the rules and
regulations of the Principal Market (such affirmative approval being referred to
herein as the "Stockholder Approval"), and the Company shall use its best
efforts to solicit its stockholders' approval of such issuance of the Common
Shares and the Preferred Shares and to cause the Board of Directors of the
Company to recommend to the stockholders that they approve such proposal.
Promptly following the date of this Agreement, the Company shall seek to obtain
from NASDAQ written confirmation (the "Nasdaq Confirmation") that the
Stockholder Approval is not required for the Company's issuance of the Common
Shares and the Preferred Shares.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent in the form attached hereto as Exhibit C (the "Irrevocable Transfer Agent
Instructions"), and any subsequent transfer agent, to issue certificates,
registered in the name of each Investor or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to time by each
Investor to the Company upon conversion of the Preferred Shares. No such
certificates shall bear any restrictive legend. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5 will be given by the Company to its transfer agent and that
the Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement. The Company
shall permit the transfer, and, in the case of the Common Shares and the
Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by any Investor
and without any restrictive legend. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable
15
harm to the Investors by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 5 will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5, that the Investors shall be entitled, in addition
to all other available remedies, to an order and/or injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligation of the Company to redeem and exchange the Series B
Preferred Shares, the Series C Preferred Shares and the Series D Preferred
Shares (including the issuance of the applicable number of Common Shares and
Preferred Shares) at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Investor with prior written
notice thereof:
a. Such Investor shall have executed this Agreement and delivered
the same to the Company.
b. The Certificate of Designations shall have been filed with the
Secretary of State of the State of Delaware;
c. Such Investor shall have delivered to the Company the Existing
Preferred Stock Certificates representing the Series B Preferred Shares, the
Series C Preferred Shares and the Series D Preferred Shares to be redeemed or
exchanged by the Company from such Investor at the Closing.
d. The representations and warranties of such Investor shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date), and such Investor shall have performed, satisfied and complied
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Investor at or
prior to the Closing Date.
e. The Company shall have entered into separate redemption and
exchange agreements relating to the Series B Preferred Stock and Series C
Preferred Stock with each of the other holders thereof.
f. Either, (i) the Company shall have received the Stockholder
Approval or the Nasdaq Confirmation or (ii) during the period beginning on the
date of this Agreement and ending on and including the date immediately
preceding the Closing Date, such Investor shall have converted all of such
Investor's Current Preferred Shares except for a number of Series C Preferred
Shares not to exceed that number of Series C Preferred Shares set forth opposite
such Investor's name on Column (9) on the Schedule of Investors.
7. CONDITIONS TO EACH INVESTOR'S OBLIGATIONS AT CLOSING.
The obligation of each Investor hereunder to tender the Series B
Preferred Shares, the Series C Preferred Shares and the Series D Preferred
Shares to the Company for redemption
16
and exchange at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Investor's sole benefit and may be waived by such
Investor at any time in its sole discretion by providing the Company with prior
written notice thereof:
a. The Company shall have executed each of the Transaction Documents
and delivered the same to such Investor.
b. The Certificate of Designations shall have been filed with the
Secretary of State of the State of Delaware, and a copy of each certified by the
Secretary of State of the State of Delaware shall have been delivered to such
Investor.
c. The Company shall have delivered to such Investor the Cash Amount
(as set forth in Section 1(a)) on the Closing Date, by wire transfer of
immediately available funds pursuant to the wire instructions provided by such
Investor (and, with respect to Xxxxxx Capital Ltd. and Xxxxxxx Capital Ltd., the
Company shall have delivered the amounts set forth in Section 4(h) by wire
transfer of immediately available funds to such Investor).
d. The Company shall have executed and delivered to such Investor
(i) the Common Shares being issued in exchange for such Investor's Series B
Preferred Shares, Series C Preferred Shares and the Series D Preferred Shares
(as set forth in Section 1(a)) at the Closing in accordance with Section 1(c),
and (ii) the stock certificates (in such denominations as such Investor shall
request) for the Preferred Shares being issued in exchange for such Investor's
Series B Preferred Shares, Series C Preferred Shares and the Series D Preferred
Shares (as set forth in Section 1(a)) at the Closing.
e. The Company shall have executed and delivered to such Investor
the Promissory Note on the Closing Date (as set forth in Section 1(a)).
f. The Common Stock (x) shall be designated for quotation or listed
on the Principal Market and (y) shall not have been suspended by the SEC or the
Principal Market from trading on the Principal Market; and the Common Shares and
the Conversion Shares issuable upon conversion of the Preferred Shares shall be
listed upon the Principal Market.
g. The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date other than the representation contained in Section 3(c) which
shall be updated as of the Closing Date), other than the representation made in
the second sentence of Section 3(c), which representation shall be true and
correct in all material respects as of the Closing Date as though made at that
time, and the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. Such Investor shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such
Investor, including, without limitation, an update as of the Closing Date
regarding the representation contained in Section 3(c) above.
h. Such Investor shall have received the opinion of Xxxx and Xxxx
LLP, dated as of the Closing Date, in the form of Exhibit D attached hereto.
17
i. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b) above and in a form reasonably
acceptable to such Investor, including, without limitation, containing a
determination by the Board of Directors of the Company that immediately prior to
the Closing the capital of the Company is not impaired (as determined in
accordance with Section 160(a)(1) of the Delaware General Corporation Law) and
that immediately following the Closing and after giving effect to the redemption
of all the shares of the Company's Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock which the Company redeemed at the Closing,
whether from the Investors or from the Other Investors, the capital of the
Company would not be impaired (as determined in accordance with Section
160(a)(1) of the Delaware General Corporation Law) (the "Resolutions").
j. As of the Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, at least 100% of that number of shares
of Common Stock issuable upon conversion of all the Series F Preferred Shares
(without regard to any limitations on conversions, but subject to adjustment
pursuant to the Company's covenant set forth in Section 4(b)) for issuance upon
conversion of the such Preferred Shares.
k. The Irrevocable Transfer Agent Instructions, in the form of
Exhibit C attached hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
l. The Company shall have delivered to such Investor a certificate
evidencing the incorporation and good standing of (i) the Company in Delaware
issued by the Secretary of State of the State of Delaware, and (ii) the Company
in Virginia issued by the Secretary of State of Virginia, each as of a date
within ten days of the Closing Date.
m. The Company shall have delivered to such Investor a certified
copy of the Certificate of Incorporation as certified by the Secretary of State
of the State of Delaware as of a date within ten days of the Closing Date.
n. The Company shall have delivered to such Investor a secretary's
certificate, dated as of the Closing Date, certifying as to (A) the Resolutions,
(B) the Certificate of Incorporation and (C) the By-laws, each as in effect at
the Closing.
o. The Company shall have delivered to such Investor a letter from
the Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days of the Closing Date.
p. The Company shall have approved, consummated and publicly
announced a reverse stock split of the Common Stock and Class B Common Stock
approved at the meeting of its Stockholders on July 23, 2002 at an exchange
ratio which results in one (1) new share of Common Stock being exchanged for not
less than 10 existing shares of Common Stock.
q. Either, (i) the Company shall have received the Stockholder
Approval or the Nasdaq Confirmation or (ii) during the period beginning on the
date of this Agreement and ending on and including the date immediately
preceding the Closing Date, such Investor shall have converted all of such
Investor's Current Preferred Shares except for a number of Series C Preferred
Shares not to exceed that number of Series C Preferred Shares set forth opposite
such Investor's name on Column (9) on the Schedule of Investors.
18
r. The Company shall have delivered to the Investor such other
documents relating to the transactions contemplated by the Transaction Documents
as the Investors or their counsel may reasonably request.
8. INDEMNIFICATION.
In consideration of each Investor's execution and delivery of the
Transaction Documents and in addition to all of the Company's other obligations
under the Transaction Documents and the Certificate of Designations, the Company
shall defend, protect, indemnify and hold harmless each Investor and each other
holder of the Securities and all of their stockholders, officers, directors,
employees and direct or indirect investors and any of the foregoing persons'
agents or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought
or made against such Indemnitee (other than a cause of action, suit or claim
which is (x) brought or made by the Company and (y) is not a shareholder
derivative suit) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, or (ii) the
status of such Investor or holder of the Securities as an investor in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this
Section 8 shall be the same as those set forth in Sections 6(a) and (d) of the
Amended and Restated Registration Rights Agreement, including, without
limitation, those procedures with respect to the settlement of claims and the
Company's rights to assume the defense of claims.
9. MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, 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
19
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Effect on Prior Agreements; Amendments.
i. Except for the Securities Purchase Agreement, the
Registration Rights Agreement dated as of June 17, 2000 by and
among the Company, the Investors and the Other Investors (the
"Series A Registration Rights Agreement"), the Series A
Certificate of Designations, the Waiver Agreements, each executed
as of January 3, 2001, among the Company and each of the
Investors, the First Redemption and Exchange Agreement, the
Amended and Restated Registration Rights Agreement (as defined in
the First Redemption and Exchange Agreement), the Series B
Certificate of Designations, the Series C Certificate of
Designations, the Series D Certificate of Designations and the
Irrevocable Transfer Agent Instructions (as defined in each of the
Securities Purchase Agreement and the First Redemption and
Exchange Agreement), this Agreement, the Certificate of
Designations and each of the other Transaction Documents supersede
all other prior oral or written agreements between each Investor,
the Company, their affiliates and persons acting on their behalf
with respect to the matters discussed herein, and this Agreement
and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Investor makes any
representation, warranty, covenant or undertaking with respect to
such matters.
ii. No provision of this Agreement may be amended or waived
other than by an instrument in writing signed by the Company and
the holders of at least two-thirds (2/3) of the Common Shares and
Conversion Shares (assuming conversion
20
of all outstanding Preferred Shares without giving effect to any
limitations on conversion) or, if prior to the Closing Date, the
Investors holding at least two-thirds (2/3) of the Series B
Preferred Shares, Series C Preferred Shares and Series D Preferred
Shares then outstanding and held by the Investors. No such
amendment shall be effective to the extent that it applies to less
than all of the holders of the Securities then outstanding. No
consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designations unless
the same consideration also is offered to all of the parties to
the Transaction Documents or holders of Securities, as the case
may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
MicroStrategy Incorporated
0000 Xxxxxxxxxxxxx Xxxxx
XxXxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxxx, Chief Financial Officer
With a copy to:
Xxxx and Xxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxx, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Co.
00 Xxxx Xxxxxx, 00/xx/ Xxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxx
If to an Investor, to it at the address and facsimile number set forth on
the Schedule of Investors, with copies to such Investor's representatives as set
forth on the Schedule of Investors, or at such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five days prior to the
21
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Securities. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of at least two-thirds (2/3) of the Common Shares
and Conversion Shares (assuming conversion of all outstanding Preferred Shares
and without giving effect to any limitations on conversion), including by merger
or consolidation, except pursuant to a transaction with respect to which the
Company is in compliance with Section 4 of the Certificate of Designations and
Section 4(f) of this Agreement. An Investor may assign some or all of its rights
hereunder without the consent of the Company, provided, however, that the
transferee has agreed in writing to be bound by the applicable provisions of
this Agreement and the Company has consented to such assignment and assumption,
which consent shall not be unreasonably withheld. Notwithstanding anything to
the contrary contained in the Transaction Documents, the Investors shall be
entitled to pledge the Securities in connection with a bona fide margin account
or other loan secured by the Securities.
h. No Third Party Beneficiaries. Except with respect to
Section 9(p), 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.
i. Survival. Unless this Agreement is terminated under
Section 9(k), the representations and warranties of the Company and the
Investors contained in Sections 2 and 3, the agreements and covenants set forth
in Sections 4, 5 and 9, and the indemnification provisions set forth in Section
8, shall survive the Closing. Each Investor shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.
j. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
k. Termination. In the event that the Closing shall not have
occurred with respect to an Investor on or before October 21, 2002 due to the
Company's or such Investor's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this Section
9(k), the Company shall remain obligated to reimburse any nonbreaching Investor
for the expenses described in Section 4(h) above.
l. Placement Agent. The Company acknowledges that it has not
engaged a
22
placement agent in connection with the transactions contemplated by this
Agreement. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions relating to or
arising out of the transactions contemplated hereby. The Company shall pay, and
hold each Investor harmless against, any liability, loss or expense (including,
without limitation, attorney's fees and out-of-pocket expenses) arising in
connection with any such claim.
m. No Strict Construction. The language used in this Agreement
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.
n. Remedies. Each Investor and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
the Certificate of Designations and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under any law. Any person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
o. Payment Set Aside. To the extent that the Company makes a
payment or payments to any Investor hereunder or pursuant to the Promissory
Notes or the Certificate of Designations or the Investors enforce or exercise
their rights hereunder or thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
p. Mutual General Release.
i. In consideration of the releases set forth in Sections
9(p)(ii) and 9(p)(iii), effective as of the Closing, each
Investor, severally and not jointly, on behalf of itself and, to
the extent permitted by law, its heirs, executors, administrators,
devisees, trustees, partners, directors, officers, shareholders,
employees, consultants, representatives, predecessors, principals,
agents, parents, associates, affiliates, subsidiaries, attorneys,
accountants, successors, successors-in-interest and assignees
(collectively, the "Investor Releasing Persons"), hereby waives
and releases, to the fullest extent permitted by law, but subject
to Section 9(p)(iv) below, any and all claims, rights and causes
of action, whether known or unknown (collectively, the "Investor
Claims"), that any of the Investor Releasing Persons had,
currently has or then has against (i) the Company, (ii) any of the
Company's current or former parents, shareholders, affiliates,
subsidiaries, predecessors or assigns, or (iii) any of the
Company's or such other persons' or entities' current or former
officers, directors, employees, agents, principals, investors,
signatories, advisors, consultants, spouses, heirs, estates,
executors, attorneys, auditors and associates and members of their
immediate families (collectively, the "Company Released Persons"),
including, without limitation,
23
Investor Claims arising out of or relating to the First Redemption
and Exchange Agreement, the Amended and Restated Registration
Rights Agreement, the Series B Certificate of Designations, the
Series C Certificate of Designations and the Series D Certificate
of Designations (collectively, the "Released Documents") other
than Investor Claims arising after the Closing.
ii. In further consideration of the Investors entering into
this Agreement, effective as of the date of this Agreement, the
Company on behalf of itself and, to the extent permitted by law,
its heirs, executors, administrators, devisees, trustees,
partners, directors, officers, shareholders, employees,
consultants, representatives, predecessors, principals, agents,
parents, associates, affiliates, subsidiaries, attorneys,
accountants, successors, successors-in-interest and assignees
(collectively, the "Company Releasing Persons"), hereby waives and
releases, to the fullest extent permitted by law, but subject to
Section 9(p)(iv) below, any and all claims, rights and causes of
action, whether known or unknown (collectively, the "Company
Claims"), that any of the Company Releasing Persons had or
currently has against (i) the Investors, (ii) any of the
Investors' respective current or former parents, shareholders,
affiliates, subsidiaries, predecessors or assigns, or (iii) any of
the Investors' or such other persons' or entities' current or
former officers, directors, employees, agents, principals,
investors, signatories, advisors, consultants, spouses, heirs,
estates, executors, attorneys, auditors and associates and members
of their immediate families (collectively, the "Investor Released
Persons"), including, without limitation, any Company Claims
arising out of or relating to the Released Documents; provided,
however, that if such Investor breaches its obligations under
Section 4(a), then the release set forth in this Section 9(p)(ii)
shall be null and void and of no further force or effect.
iii. In further consideration of the Investors entering into
this Agreement, effective as of the Closing, the Company on behalf
of itself and, to the extent permitted by law, the other Company
Releasing Persons, hereby waives and releases, to the fullest
extent permitted by law, but subject to Section 9(p)(iv) below,
any and all Company Claims, that any of the Company Releasing
Persons had, currently has or then has against any of the Investor
Released Persons, including, without limitation, any Company
Claims arising out of or relating to the Released Documents.
iv. The Company and each of the Investors acknowledge that the
releases set forth in Sections 9(p)(i), 9(p)(ii) and 9(p)(iii)
above do not affect any claim which any Company Releasing Person
or Investor Releasing Person may have under this Agreement,
Section 8 or Section 9(m) of the Securities Purchase Agreement,
Section 8 or Section 9(l) of the First Redemption and Exchange
Agreement or Sections 5, 6 or 7 of the Series A Registration
Rights Agreement or Sections 5, 6 or 7 of the Amended and Restated
Registration Rights Agreement.
* * * * * *
24
IN WITNESS WHEREOF, the Investors and the Company have caused this Second
Redemption and Exchange Agreement to be duly executed as of the date first
written above.
COMPANY: INVESTORS:
MICROSTRATEGY INCORPORATED XXXXXX CAPITAL LTD.
By: /s/ Xxxxxxx X. Xxxxxx By: /s/ Xxxxxxx X. Simpler
-------------------------------- ----------------------------------
Name: Xxxxxxx X. Xxxxxx Name: Xxxxxxx X. Simpler
Title: Chairman and Chief Its: Vice President
Executive Officer
XXXXXXX CAPITAL LTD.
By: /s/ Xxxxxxx X. Simpler
----------------------------------
Name: Xxxxxxx X. Simpler
Its: Vice President
SCHEDULE OF INVESTORS
(1) (2) (3) (4) (5) (6) (7) (8)
Total
Number
Total of Series Total Total
Number of C Number of Principal Number of
Series B Preferred Series D Amount of Total Series F
Investor's Name, Address Preferred Shares Preferred Aggregate Promissory Common Preferred
and Facsimile Number Shares Held Held Shares Held Cash Amount Notes Shares Stock
------------------------------------------------------------------------------------------------------------------------------------
Xxxxxx Capital Ltd. 1,081.2 1,081.2 986.7 $3,547,826.09 $1,773,913.04 4,422,225 963.1111
c/o Citadel Investment Group, L.L.C.
000 Xxxx Xxxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Simpler
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Residence: Cayman Islands
(Representatives)
Xxxxxx Xxxxxx Xxxxx Xxxxxxxx
000 X. Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Xxxxxxx Capital Ltd. 508.8 508.8 464.4 $1,669,565.22 $834,782.61 2,081,047 453.2499
c/o Citadel Investment Group, L.L.C.
000 Xxxx Xxxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Simpler
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Residence: Cayman Islands
(Representatives)
Xxxxxx Xxxxxx Xxxxx Xxxxxxxx
000 X. Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
(1) (9)
Series C
Preferred
Investor's Name, Address Shares Not
and Facsimile Number Converted
----------------------------------------------------
Xxxxxx Capital Ltd. 136
c/o Citadel Investment Group, L.L.C.
000 Xxxx Xxxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Simpler
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Residence: Cayman Islands
(Representatives)
Xxxxxx Xxxxxx Xxxxx Xxxxxxxx
000 X. Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Xxxxxxx Capital Ltd. 64
c/o Citadel Investment Group, L.L.C.
000 Xxxx Xxxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Simpler
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Residence: Cayman Islands
(Representatives)
Xxxxxx Xxxxxx Xxxxx Xxxxxxxx
000 X. Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
SCHEDULES
Schedule 3(c) - Capitalization
Schedule 3(e) - No Conflicts
Schedule 3(g) - Certain Changes
EXHIBITS
Exhibit A - Form of Series F Certificate of Designations
Exhibit B - Form of Promissory Note
Exhibit C - Form of Irrevocable Transfer Agent Instructions
Exhibit D - Form of Company Counsel Opinion
DISCLOSURE SCHEDULE
TO
SECOND REDEMPTION AND EXCHANGE AGREEMENT
BY AND AMONG
MICROSTRATEGY INCORPORATED
AND
XXXXXX CAPITAL LTD. AND XXXXXXX CAPITAL LTD
JULY 30, 2002
General Information
This General Information section and the following sections, together
with all attachments referred to therein, all of which are incorporated herein
by reference, comprise the Disclosure Schedule referred to in the Second
Redemption and Exchange Agreement, dated as of July 30, 2002, by and among
MicroStrategy Incorporated, on the one hand, and Xxxxxx Capital Ltd. and Xxxxxxx
Capital Ltd., on the other hand (which Agreement, together all exhibits and
schedules thereto, including this Disclosure Schedule, is hereafter collectively
referred to as the "Agreement"). All capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed to them in the
Agreement.
The representations and warranties of the Company contained in Section
3 of the Agreement and certain of the covenants of the Company contained in
Section 3 of the Agreement are made and given subject to the disclosures in this
Disclosure Schedule. Any disclosures contained in this Disclosure Schedule shall
be deemed to qualify the corresponding section of Section 3 of this Agreement.
Certain matters set forth in this Disclosure Schedule are included
solely for informational purposes for the convenience of the parties to the
Agreement. The inclusion of any information in the Disclosure Schedule shall not
be deemed to be an admission or acknowledgement, in and of itself, that such
information (i) is required by the terms of the Agreement to be disclosed, (ii)
is material to the Company, (iii) has had or would reasonably be expected to
have a material adverse effect on the Company or (iv) is outside the ordinary
course of business for the Company. Such information shall not be used as a
basis for interpreting the terms "material," "materially," "materiality,"
"Material," "Materiality," or words of similar meaning in the Agreement.
This Disclosure Schedule is qualified in its entirety by reference to
the specific provisions of the Agreement and is not intended to constitute, and
shall not be construed as constituting, any representation, warranty or covenant
of the Company, except as and to the extent expressly provided in this
Disclosure Schedule or the Agreement.
Schedule 3(c)
Capitalization
(C) (1) Under a Management Services Agreement, dated June 7, 2000,
MicroStrategy Management Corporation ("MMC"), a wholly-owned subsidiary
of the Company, has the right to purchase from the Company, in three
installments occurring over a two-year period expiring in September
2002, shares of Class A Common Stock at a purchase price equal to the
par value of these shares ($0.001 per share). The number of shares
subject to the purchase right, which is determined based on certain
multipliers relating to future revenues and employee attrition rates of
MicroStrategy Brazil Ltda. Sucursal Argentina ("Argentinean
Operations") over the two-year period and a maximum aggregate market
value of the shares of $5 million, is approximately 353,604. In
exchange for these share purchase rights, MMC renders to the Company
certain management services with respect to the Argentinean Operations.
MMC has subcontracted the performance of such management services to
Xxxxxxx Xxxxx, to whom MMC delivers the shares purchased from the
Company.
(2) The Series B Convertible Preferred Stock of the Company ("Series B
Preferred") is convertible into Class A Common Stock at a conversion
price of $12.50 per share, subject to adjustment at maturity if the
Company elects to mandatorily convert these shares into Class A Common
Stock. The maturity date is three years from the date of issuance,
which date may be extended under some circumstances. The Series B
Preferred carries a 12.5 % dividend yield, payable in cash or Class A
Common Stock, at the Company's option.
(3) The Series C Convertible Preferred Stock of the Company ("Series C
Preferred") is convertible into Class A Common Stock at a conversion
price of $17.50 per share, subject to adjustment at maturity if the
Company elects to mandatorily convert these shares into Class A Common
Stock. The maturity date is three years from the date of issuance,
which date may be extended under some circumstances. The Series C
Preferred carries a 12.5 % dividend yield, payable in cash or Class A
Common Stock, at the Company's option.
(4) The Series D Convertible Preferred Stock of the Company ("Series D
Preferred") is convertible into Class A Common Stock at a fixed
conversion price of $5.00 per share. The Company is required to convert
any shares of Series D Preferred outstanding at the maturity date of
three years from the date of issuance.
(5) Each share of Series A Preferred Stock of Xxxxxxxx.xxx Incorporated
("Xxxxxxxx.xxx") is convertible into such number of fully paid and
nonassessable shares of Class A Common Stock of Xxxxxxxx.xxx as is
determined by dividing $3.19 by the conversion price in effect at the
time of conversion (currently $3.19 per share), which may be adjusted
from time to time. Upon the closing of a public offering of
Xxxxxxxx.xxx's Class A Common Stock at a price to the public of at
least $10.00 share and resulting in at least $30,000,000 of net
proceeds to Xxxxxxxx.xxx, all outstanding shares of Series A Preferred
Stock will automatically convert into shares of Class A Common Stock.
All 16,536,049 outstanding shares of such Series A Preferred Stock are
held by the Company. (Note: Xxxxxxxx.xxx has been shut down and treated
as a discontinued operation as of the end of 2001.)
(6) Xxxxxxxx.xxx has granted options to purchase 6,098,570 shares of
its Class A Common Stock under its 2000 Stock Option Plan.
(D) (1) Under certain circumstances set forth in the Series B Certificate
of Designations, the Company may be obligated to redeem all or a
portion of the Series B Preferred.
(2) Under certain circumstances set forth in the Series C Certificate
of Designations, the Company may be obligated to redeem all or a
portion of the Series C Preferred.
(3) Under certain circumstances set forth in the Series D Certificate
of Designations, the Company may be obligated to redeem all or a
portion of the Series D Preferred.
(4) The 16,536,049 shares of Series A Preferred Stock of Xxxxxxxx.xxx
owned by the Company are mandatorily redeemable for $3.19 per share
plus any dividends accrued or declared but unpaid thereon at mandatory
redemption dates of October 17, 2005, 2006 and 2007, with the maximum
redemption portions at each date being 33%, 50% and 100%, respectively.
(Note: Xxxxxxxx.xxx has been shut down and treated as a discontinued
operation as of the end of 2001.)
Schedule 3(e)
No Conflicts
None.
Schedule 3(g)
Absence of Certain Changes
None.
EXHIBIT A
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF THE SERIES F CONVERTIBLE PREFERRED STOCK
OF
MICROSTRATEGY INCORPORATED
MicroStrategy Incorporated (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, par value $0.001 per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of Two Thousand
Ninety-Six (2,096) shares of Series F Convertible Preferred Stock of the
Company, as follows:
RESOLVED, that the Company is authorized to issue 2,096 shares of
Series F Convertible Preferred Stock (the "Preferred Shares"), par
value $0.001 per share, which shall have the following powers,
designations, preferences and other special rights:
(1) Dividends. The Preferred Shares shall not bear any dividends.
(2) Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Company's Class A Common Stock, par value $0.001
per share (the "Common Stock"), on the terms and conditions set forth in this
Section 2.
(a) Certain Defined Terms. For purposes of this Certificate of
Designations, the following terms shall have the following meanings:
(i) "Amended and Restated Redemption and Exchange
Agreement" means that amended and restated certain redemption and exchange
agreement, dated as of June 14, 2001, between the Company and investors named
therein.
(ii) "Business Day" means any day other than
Saturday, Sunday or other day on which commercial banks in The City of New York
are authorized or required by law to remain closed.
(iii) "Closing Sale Price" means, for any security
as of any date, the last closing trade price for such security on the Principal
Market as reported by Bloomberg, or if the Principal Market begins to operate on
an extended hours basis, and does not designate the closing trade price, then
the last trade price at 4:00 p.m., Eastern Time, as reported by Bloomberg, or if
the foregoing do not apply, the last closing trade price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the last closing ask price of such security as reported
by Bloomberg, or, if no last closing ask price is reported for such security by
Bloomberg, the average of the highest bid price and the lowest ask price of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Sale Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Sale Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of Preferred Shares. If the Company and the
holders of Preferred Shares are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved pursuant to Section
2(d)(iii) below. All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period.
(iv) "Conversion Amount" means the Stated Value.
(v) "Conversion Price" means $1.50, subject to
adjustment as provided herein.
(vi) "Convertible Securities" means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable or exercisable for Common Stock.
(vii) "Issuance Date" means, with respect to each
Preferred Share, the first date on which any Preferred Shares are issued by the
Company.
(viii) "Maturity Date" means, with respect to each
Preferred Share, the date which is two (2) years after the Closing Date (as
defined in the Second Redemption and Exchange Agreement), unless extended
pursuant to Section 2(d)(vii).
(ix) "Options" means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.
(x) "Person" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust,
an unincorporated organization and a government or any department or agency
thereof.
(xi) "Principal Market" means the Nasdaq National
Market, or if the Common Stock is not traded on the Nasdaq National Market,
then the principal securities exchange or trading market for the Common Stock.
(xii) "Second Redemption and Exchange Agreement"
means, with respect to any Preferred Share, that certain redemption and
exchange agreement, dated on or about July 30, 2002, between the Company and the
initial holder of such Preferred Share, as such agreement may be amended from
time to time as provided in such agreement.
(xiii) "Series B Preferred Shares" means the shares
of the Company's Series B Convertible Preferred Stock issued pursuant to an
Amended and Restated Redemption and Exchange Agreement in accordance with
the terms of the Company's Certificate of
-2-
Designations, Preferences and Rights of the Series B Convertible Preferred Stock
filed with the Secretary of State of the State of Delaware on June 14, 2001.
(xiv) "Series C Preferred Shares" means the shares
of the Company's Series C Convertible Preferred Stock issued pursuant to an
Amended and Restated Redemption and Exchange Agreement in accordance with the
terms of the Company's Certificate of Designations, Preferences and Rights of
the Series C Convertible Preferred Stock filed with the Secretary of State of
the State of Delaware on June 14, 2001.
(xv) "Stated Value" means $10,000.
(b) Holder's Conversion Right; Mandatory Conversion. Subject
to the provisions of Section 4, at any time or times on or after the Issuance
Date, any holder of Preferred Shares shall be entitled to convert any whole or
fractional number of Preferred Shares into fully paid and nonassessable shares
of Common Stock in accordance with Section 2(d) at the Conversion Rate (as
defined below). If any Preferred Shares remain outstanding on the Maturity Date,
then, pursuant and subject to Section 2(d)(vii), all such Preferred Shares shall
be converted at the Conversion Rate as of such date in accordance with Section
2(d)(vii). The Company shall not issue any fraction of a share of Common Stock
upon any conversion. All shares of Common Stock (including fractions thereof)
issuable upon conversion of more than one Preferred Share by a holder thereof
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round such fraction of a
share of Common Stock up or down to the nearest whole share.
(c) Conversion. The number of shares of Common Stock issuable
upon conversion of each Preferred Share pursuant to Section 2(b) shall be
determined according to the following formula (the "Conversion Rate"):
Conversion Amount
-----------------
Conversion Price
(d) Mechanics of Conversion. The conversion of Preferred
Shares shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert
Preferred Shares into shares of Common Stock on any date (the "Conversion
Date"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., Eastern Time, on such date, a
copy of an executed notice of conversion in the form attached hereto as Exhibit
I (the "Conversion Notice") to the Company and the Company's designated transfer
agent (the "Transfer Agent") and (B) if required by Section 2(d)(viii),
surrender to a common carrier for delivery to the Company as soon as practicable
following such date the original certificates representing the Preferred Shares
being converted (or an indemnification undertaking with respect to such shares
in the case of their loss, theft or destruction) (the "Preferred Stock
Certificates").
(ii) Company's Response. Upon receipt by the
Company of a copy of a Conversion Notice, the Company shall (I) as soon as
practicable, but in no event later than within one (1) Business Day, send, via
facsimile, a confirmation of receipt of such Conversion
-3-
Notice to such holder and the Transfer Agent, which confirmation shall
constitute an instruction to the Transfer Agent to process such Conversion
Notice in accordance with the terms herein and (II) on or before the second
(2nd) Business Day following the date of receipt by the Company of such
Conversion Notice (the "Share Delivery Date"), (A) issue and deliver to the
address as specified in the Conversion Notice, a certificate, registered in the
name of the holder or its designee, for the number of shares of Common Stock to
which the holder shall be entitled, or (B) provided the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program, upon the request of the holder, credit such aggregate number
of shares of Common Stock to which the holder shall be entitled to the holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system. If the number of Preferred Shares represented by the
Preferred Stock Certificate(s) submitted for conversion, as may be required
pursuant to Section 2(d)(viii), is greater than the number of Preferred Shares
being converted, then the Company shall, as soon as practicable and in no event
later than three Business Days after receipt of the Preferred Stock
Certificate(s) (the "Preferred Stock Delivery Date") and at its own expense,
issue and deliver to the holder a new Preferred Stock Certificate representing
the number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute
as to the determination of the Closing Sale Price or the arithmetic calculation
of the Conversion Rate, the Company shall instruct the Transfer Agent to issue
to the holder the number of shares of Common Stock that is not disputed and
shall transmit an explanation of the disputed determinations or arithmetic
calculations to the holder via facsimile within one (1) Business Day of receipt
of such holder's Conversion Notice or other date of determination. If such
holder and the Company are unable to agree upon the determination of the Closing
Sale Price or arithmetic calculation of the Conversion Rate within two (2)
Business Days of such disputed determination or arithmetic calculation being
transmitted to the holder, then the Company shall within one (1) Business Day
submit via facsimile (A) the disputed determination of the Closing Sale Price to
an independent, reputable investment bank selected by the Company and approved
by the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding or (B) the disputed arithmetic calculation of the Conversion Rate to
the Company's independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than two (2) Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent error.
(iv) Record Holder. The person or persons entitled
to receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
(A) Cash Damages. If (I) within five (5)
Business Days after the Company's receipt of the facsimile copy of a Conversion
Notice the Company shall fail to issue and deliver a certificate to a holder or
credit such holder's balance account with DTC for the number of shares of Common
Stock to which such holder is entitled upon such holder's conversion of
Preferred Shares or (II) within five (5) Business Days of the Company's receipt
of a Preferred Stock Certificate the Company shall fail to issue and deliver a
new Preferred Stock Certificate representing the number of Preferred Shares to
which such holder is entitled pursuant
-4-
to Section 2(d)(ii), then in addition to all other available remedies which such
holder may pursue hereunder and under the Second Redemption and Exchange
Agreement (including indemnification pursuant to Section 8 thereof), the Company
shall pay additional damages to such holder for each day after the Share
Delivery Date such conversion is not timely effected and/or each day after the
Preferred Stock Delivery Date such Preferred Stock Certificate is not delivered
in an amount equal to 0.5% of the product of (I) the sum of the number of shares
of Common Stock not issued to the holder on or prior to the Share Delivery Date
and to which such holder is entitled as set forth in the applicable Conversion
Notice and, in the event the Company has failed to deliver a Preferred Stock
Certificate to the holder on or prior to the Preferred Stock Delivery Date, the
number of shares of Common Stock issuable upon conversion of the Preferred
Shares represented by such Preferred Stock Certificate as of the Preferred Stock
Delivery Date and (II) the Closing Sale Price of the Common Stock on the Share
Delivery Date, in the case of the failure to deliver Common Stock, or the
Preferred Stock Delivery Date, in the case of failure to deliver a Preferred
Stock Certificate.
(B) Void Conversion Notice. If for any
reason a holder has not received all of the shares of Common Stock prior to the
tenth (10th) Business Day after the Share Delivery Date with respect to a
conversion of Preferred Shares, then the holder, upon written notice to the
Company, with a copy to the Transfer Agent, may void its Conversion Notice with
respect to, and retain or have returned, as the case may be, any Preferred
Shares that have not been converted pursuant to such holder's Conversion Notice;
provided that the voiding of a holder's Conversion Notice shall not effect the
Company's obligations to make any payments which have accrued prior to the date
of such notice pursuant to Section 2(d)(v)(A) or otherwise.
(vi) Pro Rata Conversion. In the event the Company
receives a Conversion Notice from more than one holder of Preferred Shares for
the same Conversion Date and the Company can convert some, but not all, of such
Preferred Shares, the Company shall convert from each holder of Preferred Shares
electing to have Preferred Shares converted at such time a pro rata amount of
such holder's Preferred Shares submitted for conversion based on the number of
Preferred Shares submitted for conversion on such date by such holder relative
to the number of Preferred Shares submitted for conversion on such date.
(vii) Mandatory Conversion at Maturity. If any
Preferred Share remains outstanding on the Maturity Date the Company shall
convert such Preferred Share at the Conversion Rate as of the Maturity Date for
such Preferred Share without the holder of such Preferred Share being required
to give a Conversion Notice on such Maturity Date (a "Maturity Date Mandatory
Conversion"). All Preferred Shares which remain outstanding on the Maturity Date
shall be converted at the Conversion Rate on such Maturity Date as if such
holder of such Preferred Shares had delivered a Conversion Notice with respect
to such Preferred Shares on the Maturity Date. Promptly following the Maturity
Date, all holders of Preferred Shares shall surrender all Preferred Stock
Certificates representing such Preferred Shares, duly endorsed for cancellation,
to the Company or the Transfer Agent. The Maturity Date shall be extended for
any Preferred Shares for as long as the conversion of such Preferred Shares
would violate the provisions of Section 4.
(viii) Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion of Preferred Shares in accordance
with the terms hereof, the holder thereof shall not be required to physically
surrender the certificate representing the Preferred Shares to the Company
unless the full number of Preferred Shares represented by the certificate are
being converted. The holder and the Company shall maintain records showing the
number of
-5-
Preferred Shares so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the holder and the Company, so as
not to require physical surrender of the certificate representing the Preferred
Shares upon each such conversion. In the event of any dispute or discrepancy,
such records of the Company establishing the number of Preferred Shares to which
the record holder is entitled shall be controlling and determinative in the
absence of manifest error. Notwithstanding the foregoing, if Preferred Shares
represented by a certificate are converted as aforesaid, the holder may not
transfer the certificate representing the Preferred Shares unless the holder
first physically surrenders the certificate representing the Preferred Shares to
the Company, whereupon the Company will forthwith issue and deliver upon the
order of the holder a new certificate of like tenor, registered as the holder
may request, representing in the aggregate the remaining number of Preferred
Shares represented by such certificate. The holder and any assignee, by
acceptance of a certificate, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of any Preferred Shares, the
number of Preferred Shares represented by such certificate may be less than the
number of Preferred Shares stated on the face thereof. Each certificate for
Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE
TERMS OF THE COMPANY'S CERTIFICATE OF DESIGNATIONS RELATING TO
THE PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE,
INCLUDING SECTION 2(d)(viii) THEREOF. THE NUMBER OF PREFERRED
SHARES REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE
NUMBER OF PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT
TO SECTION 2(d)(viii) OF THE CERTIFICATE OF DESIGNATIONS
RELATING TO THE PREFERRED SHARES REPRESENTED BY THIS
CERTIFICATE.
(e) Taxes. The Company shall pay any and all documentary,
stamp, transfer and other similar taxes that may be payable with respect to the
issuance and delivery of Common Stock upon the conversion of Preferred Shares.
(f) Adjustment of Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.
(iv) Notices.
(A) Immediately upon any adjustment of the
Conversion Price pursuant to this Section 2(f), the Company will give written
notice thereof to each holder of Preferred Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment.
(B) The Company will give written notice to
each holder of Preferred Shares at least ten (10) Business Days prior to the
date on which the Company closes
-6-
its books or takes a record (I) with respect to any dividend or distribution
upon the Common Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock or (III) for determining rights to vote with respect to
any Sale Transaction (as defined in Section 3(a)), Organic Change (as defined in
Section 3(b)), dissolution or liquidation, provided that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to such holder.
(C) The Company will also give written
notice to each holder of Preferred Shares at least ten (10) Business Days prior
to the date on which any Sale Transaction, Organic Change, dissolution or
liquidation will take place, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to such
holder.
(3) Other Rights of Holders.
(a) Sale Transaction. Any consolidation, merger, sale of all
or substantially all of the Company's assets to another Person or other
transaction which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock (other than
(x) any transaction in which holders of the Company's voting power immediately
prior to the transaction continue after the transaction to hold, directly or
indirectly, the voting power of the surviving entity or entities necessary to
elect a majority of the members of the board of directors (or their equivalent
if other than a corporation) of such entity or entities or (y) any transaction
in connection with any bankruptcy or insolvency proceeding) is referred to
herein as "Sale Transaction." The Company may effect a Sale Transaction without
the vote or consent of the holders of the Preferred Shares, provided that
concurrent with the consummation of any Sale Transaction, at the election of the
Company, either (i) each Preferred Share shall be automatically converted into
the kind and amount of stock, securities or assets which a holder of the number
of shares of Common Stock of the Corporation issuable upon conversion of one
Preferred Share immediately prior to such Sale Transaction would have been
entitled to receive pursuant to such transaction (without taking into account
any limitations or restrictions on the convertibility of the Preferred Shares)
or (ii) the Company shall have made appropriate provision (in form and substance
reasonably satisfactory to the holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding) to ensure that each of the holders of the
Preferred Shares will thereafter have the right to acquire and receive in lieu
of or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Preferred Shares such shares of stock, securities or assets that would have been
issued or payable in such Sale Transaction with respect to or in exchange for
the number of shares of Common Stock which would have been acquirable and
receivable upon the conversion of such holder's Preferred Shares as of the date
of such Sale Transaction (without taking into account any limitations or
restrictions on the convertibility of the Preferred Shares). No later than 10
Business Days prior to the consummation of a Sale Transaction, but not prior to
the public announcement of such Sale Transaction, the Company shall deliver
written notice thereof via facsimile and overnight courier (a "Notice of Sale
Transaction") to each holder of Preferred Shares. The Notice of Sale Transaction
shall set forth the Company's election pursuant to this Section 3(a), which
election shall be irrevocable.
(b) Reorganization, Reclassification. Any recapitalization,
reorganization, reclassification or other transaction that does not constitute a
Sale Transaction which is effected in such a way that holders of Common Stock
are entitled to receive (either directly or upon
-7-
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any Organic Change following which the Company is not a
surviving entity, the Company will secure from the successor resulting from such
Organic Change (in each case, the "Successor Entity") a written agreement (in
form and substance reasonably satisfactory to the holders of at least two-thirds
(2/3) of the Preferred Shares then outstanding) to deliver to each holder of
Preferred Shares in exchange for such shares, a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to
the Preferred Shares, including, without limitation, having a stated value and
liquidation preference equal to the Stated Value and the Liquidation Preference
of the Preferred Shares held by such holder, and reasonably satisfactory to the
holders of at least two-thirds (2/3) of the Preferred Shares then outstanding.
Prior to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance reasonably satisfactory to the
holders of at least two-thirds (2/3) of the Preferred Shares then outstanding)
to insure that each of the holders of the Preferred Shares will thereafter have
the right to acquire and receive in lieu of or in addition to (as the case may
be) the shares of Common Stock immediately theretofore acquirable and receivable
upon the conversion of such holder's Preferred Shares such shares of stock,
securities or assets that would have been issued or payable in such Organic
Change with respect to or in exchange for the number of shares of Common Stock
which would have been acquirable and receivable upon the conversion of such
holder's Preferred Shares as of the date of such Organic Change (without taking
into account any limitations or restrictions on the convertibility of the
Preferred Shares).
(c) Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the holders of Preferred
Shares will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Preferred Shares (without taking into account any
limitations or restrictions on the convertibility of the Preferred Shares)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(4) Limitation on Beneficial Ownership. The Company shall not effect
and shall have no obligation to effect any conversion of Preferred Shares, and
no holder of Preferred Shares shall have the right to convert any Preferred
Shares, in excess of a number of Preferred Shares which, after giving effect to
such conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by such Person (together with such Person's affiliates) to
exceed 9.99% of the number of shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by a Person and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of the Preferred Shares with respect to which the determination of
such sentence is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) conversion of the remaining, nonconverted
Preferred Shares beneficially owned by such Person or any of its affiliates and
(B) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company (including, without limitation, any warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by such Person or any of its affiliates.
Except as set forth in the preceding sentence, for purposes of this Section 4,
beneficial
-8-
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Section 4, in determining
the number of outstanding shares of Common Stock a holder may rely on the number
of outstanding shares of Common Stock as reflected in (1) the Company's most
recent Form 10-Q, Form 10-K or other public filing with the Securities and
Exchange Commission, as the case may be, (2) a more recent public announcement
by the Company, or (3) any other notice by the Company or its transfer agent
setting forth the number of shares of Common Stock outstanding. Upon the written
request of any holder, the Company shall promptly, but in no event later than
one (1) Business Day following the receipt of such notice, confirm in writing to
any such holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to conversions of Preferred Shares by such holder and its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.
(5) Reservation of Shares. The Company shall, so long as any of the
Preferred Shares are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversions of the Preferred Shares, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding; provided that the
number of shares of Common Stock so reserved shall at no time be less than the
number of shares of Common Stock for which the Preferred Shares are at any time
convertible (without regard to any limitations on conversions). The initial
number of shares of Common Stock reserved for conversions of the Preferred
Shares and each increase in the number of shares so reserved shall be allocated
pro rata among the holders of the Preferred Shares based on the number of
Preferred Shares held by each holder at the time of issuance of the Preferred
Shares or increase in the number of reserved shares, as the case may be. In the
event a holder shall sell or otherwise transfer any of such holder's Preferred
Shares, each transferee shall be allocated a pro rata portion of the number of
reserved shares of Common Stock reserved for such transferor. Any shares of
Common Stock reserved and allocated to any Person which ceases to hold any
Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holders.
(6) Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the Delaware
General Corporation Law, and as expressly provided in this Certificate of
Designations.
(7) Liquidation, Dissolution, Winding-Up. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "Liquidation Funds"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
distributions and payments on the liquidation, dissolution and winding up of the
Company, an amount per Preferred Share equal to the Stated Value; provided that,
if the Liquidation Funds are insufficient to pay the full amount due to the
holders of Preferred Shares and holders of shares of other classes or series of
preferred stock of the Company that are of equal rank with the Preferred Shares
(including the Series B Preferred Shares and Series C Preferred Shares
outstanding on the Issuance Date) as to payments of Liquidation Funds (the "Pari
Passu Shares"), then each holder of Preferred Shares and Pari Passu Shares shall
receive a percentage of the Liquidation Funds equal to the full amount of
Liquidation Funds payable to such holder as a liquidation preference,
-9-
in accordance with their respective Certificate of Designations, Preferences and
Rights, as a percentage of the full amount of Liquidation Funds payable to all
holders of Preferred Shares and Pari Passu Shares. The purchase or redemption by
the Company of stock of any class, in any manner permitted by law, shall not,
for the purposes hereof, be regarded as a liquidation, dissolution or winding up
of the Company. Neither the consolidation or merger of the Company with or into
any other Person, nor the sale or transfer by the Company of less than
substantially all of its assets, shall, for the purposes hereof, be deemed to be
a liquidation, dissolution or winding up of the Company.
(8) Preferred Rank. All shares of Common Stock shall be of junior rank
to all Preferred Shares with respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company. The
rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. The Preferred Shares shall rank pari
passu with the Series B Preferred Shares and Series C Preferred Shares
outstanding on the Issuance Date in respect the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of the Company.
Without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares, the Company shall not
hereafter authorize or issue additional or other capital stock that is of senior
rank to the Preferred Shares in respect of the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of the Company.
Without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares, the Company shall not
hereafter authorize or make any amendment to the Company's Certificate of
Incorporation or bylaws, or file any resolution of the board of directors of the
Company with the Secretary of State of the State of Delaware or enter into any
agreement containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Preferred Shares
relative to the holders of the Common Stock or the holders of any other class of
capital stock.
(9) Restriction on Redemption and Dividends. On any date after the
Issuance Date, unless all of the Preferred Shares have been converted as
provided herein, the Company shall not, directly or indirectly, redeem, or
declare or pay any dividend or distribution on, its Common Stock or its Class B
Common Stock, par value $0.001 per share (or any capital stock issued in
replacement thereof) (other than (a) the redemption or repurchase by the Company
of shares of Common Stock which is not made pursuant to an offer made to all of
the Company's stockholders or (b) pursuant to a stock split, stock dividend,
stock combination or other similar transaction described in Section 2(f)),
without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares.
(10) Vote to Change the Terms of or Issue Additional Preferred Shares;
Waiver. The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares, shall be required for (a) any
change to this Certificate of Designations or the Company's Certificate of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Preferred Shares or (b) the issuance
of Preferred Shares other than on the Issuance Date pursuant to a Second
Redemption and Exchange Agreement which has substantially the same terms as the
Second Redemption and Exchange Agreement pursuant to which the other Preferred
Shares were issued on the Issuance Date (as determined in the sole discretion of
the holders of the Preferred Shares representing at least two-thirds (2/3) of
the other Preferred Shares issued on the Issuance Date). Any of the terms,
conditions, requirements or obligations set forth in this Certificate of
Designations may be
-10-
waived by the affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares.
(11) Lost or Stolen Certificates. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(12) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief). No remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy.
Nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(13) Specific Shall Not Limit General; Construction. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and all Buyers and shall
not be construed against any person as the drafter hereof.
(14) Failure or Indulgence Not Waiver. No failure or delay on the part
of a holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
(15) Notice. Whenever notice is required to be given under this
Certificate of Designations, unless otherwise provided herein, such notice shall
be given in accordance with Section 9(f) of the applicable Second Redemption and
Exchange Agreement.
(16) Transfer of Preferred Shares. A holder of Preferred Shares may
assign some or all of its rights hereunder or the Preferred Shares held by such
holder without the consent of the Company.
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* * * * *
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by ___________________, its President, as of the ____
day of _______, 2002.
MICROSTRATEGY INCORPORATED
By:
-----------------------------------------
Name:
---------------------------------------
Its: President
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EXHIBIT I
MICROSTRATEGY INCORPORATED
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
the Series F Convertible Preferred Stock of MicroStrategy Incorporated (the
"Certificate of Designations"). In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to convert the number
of shares of Series F Convertible Preferred Stock, par value $0.001 per share
(the "Preferred Shares"), of MicroStrategy Incorporated, a Delaware corporation
(the "Company"), indicated below into shares of Class A Common Stock, par value
$0.001 per share (the "Common Stock"), of the Company, as of the date specified
below.
Date of Conversion:
----------------------------------------------------
Number of Preferred Shares to be converted:
----------------------------
Stock certificate no(s). of Preferred Shares to be converted:
----------
Please confirm the following information:
Conversion Price:
------------------------------------------------------
Number of shares of Common Stock to be issued:
------------------------
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
--------------------------------------------------------------
Facsimile Number:
------------------------------------------------------
Authorization:
--------------------------------------------------------
By:
------------------------------------------------
Title:
---------------------------------------------
Dated:
-----------------------------------------------------------------
Account Number (if electronic book entry transfer):
-------------------
Transaction Code Number (if electronic book entry transfer):
----------
[NOTE TO HOLDER -- THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]
-13-
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated _________ __,
2002 from the Company and acknowledged and agreed to by [TRANSFER AGENT].
MICROSTRATEGY INCORPORATED
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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EXHIBIT B
[FORM OF PROMISSORY NOTE]
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THIS NOTE.
MICROSTRATEGY INCORPORATED
SENIOR PROMISSORY NOTE
DUE JULY 31, 2003
No. [___] __________, 2002
$[ ]
-------------------
FOR VALUE RECEIVED, MICROSTRATEGY INCORPORATED, a Delaware corporation
(the "Company"), hereby promises to pay to the order of [ ] or
-------------
registered assigns ("Holder") the amount set out above (as reduced pursuant to
the terms hereof pursuant to repayment, prepayment or otherwise, the
"Principal") when due, whether upon acceleration, repayment, prepayment or
otherwise (in each case in accordance with the terms hereof) and to pay interest
("Interest") on any outstanding Principal at the rate of 7.5% per annum, subject
to adjustment pursuant to Section 3(b)(i) (the "Interest Rate"), from the date
set out above (the "Issuance Date") until the same is paid, whether upon
acceleration, repayment, prepayment or otherwise (in each case in accordance
with the terms hereof). This Note is one of the Promissory Notes issued pursuant
to the Second Redemption and Exchange Agreement dated July 30, 2002 among the
Company, the Holder and the other Investor set forth therein (the "Second
Exchange Agreement").
(1) PAYMENT OF PRINCIPAL. The Company will pay the Principal, together
with all accrued but unpaid interest, by wire transfer of immediately available
funds to the Holder on July 31, 2003 (the "Maturity Date"). The obligations of
the Company under this Note are absolute and shall not be subject to any set-off
or counterclaim by the Company against the Holder, whether pursuant to the
Second Exchange Agreement or otherwise.
(2) INTEREST; INTEREST RATE. Interest on this Note shall accrue daily
at the Interest Rate on the Principal outstanding hereunder. Interest shall be
due and payable semi-annually by the Company on January 31 and July 31 of each
year, commencing on January 31, 2003.
(3) EVENTS OF DEFAULT.
(a) Definition. For purposes of this Note, the occurrence of
any one or more of the following events shall constitute an "Event of Default"
under this Note:
(i) the Company fails to pay when due the
Principal;
(ii) the Company fails to pay within three (3) days
of when due accrued but unpaid Interest due under this Note;
(iii) the Company makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Company bankrupt or insolvent; or any order for relief with
respect to the Company is entered under the Federal Bankruptcy Code; or the
Company petitions or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Company, or of any substantial part of
the assets of the Company, or commences any proceeding relating to the Company
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction; or any such petition
or application is filed, or any such proceeding is commenced, against the
Company and either (A) the Company by any act indicates its approval thereof,
consent thereto or acquiescence therein or (B) such petition, application or
proceeding is not dismissed within sixty (60) days;
(iv) any acceleration prior to maturity of any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness of at least $1,000,000 for
money borrowed which is borrowed or guaranteed by the Company, whether such
indebtedness or guarantee now exists or shall be created hereafter;
(v) the sale, merger, consolidation, dissolution
or liquidation of the Company;
(vi) the Company fails to comply with the
provisions of Section 4(m) of the Second Exchange Agreement;
(vii) the Company fails to perform or observe any
other provision contained in this Note, the Second Exchange Agreement or the
Company's Certificate of Designations, Preferences and Rights of its Series F
Convertible Preferred Stock, except, in the case of a failure to perform or
observe a provision which can be cured, only if such failure continues for a
period of at least ten (10) days after the Company receives notice of or
otherwise becomes aware of such failure; or
(viii) any representation or warranty contained in
the Second Exchange Agreement was false or misleading in any material respect on
the date made.
-2-
(b) Consequences of Events of Default.
(i) If an Event of Default has occurred, the
Interest Rate on this Note will increase immediately to an annual rate equal to
15% per annum.
(ii) If an Event of Default has occurred, the holder
of this Note may demand (by written notice delivered to the Company) immediate
payment of all of the Principal (plus accrued but unpaid Interest thereon).
(iii) The Holder will also have any other rights
which such holder may have been afforded under any contract or agreement at any
time or any other rights which the Holder may have pursuant to applicable law.
(4) PREPAYMENT. Notwithstanding anything herein to the contrary, The
Company may pay without penalty the Principal, together with all accrued but
unpaid Interest, at any time prior to the Maturity Date.
(5) SENIORITY. Payments of Principal, Interest and other payments under
this Note shall rank senior to the indebtedness of the Company under the
Company's 7 1/2% Series A Unsecured Notes, and pari passu with (i) the Company's
indebtedness for borrowed money, equipment leases or other capitalized lease
obligations existing as of the Issuance Date ("Existing Debt") and (ii) all of
the Company's indebtedness other than for borrowed money. So long as any
Principal is outstanding, the Company shall not issue or incur any indebtedness
for borrowed money, equipment leases or other capitalized lease obligations and
shall not permit any of its subsidiaries to issue or incur any indebtedness for
borrowed money, except for (A) refinancings of Existing Debt in an amount not to
exceed the principal amount of the debt refinanced as of the date it is
refinanced, (B) indebtedness under the Amended and Restated Loan and Security
Agreement among Foothill Capital Corporation, the Company and MicroStrategy
Services Corporation dated as of June 14, 2001, as amended prior to the Issuance
Date (the "Foothill Facility"), (C) from and after the termination and
satisfaction in full of the Foothill Facility, any indebtedness and any other
obligations, in an aggregate principal amount not to exceed $10,000,000,
outstanding from time to time (I) under one or more secured credit facilities
between the Company and/or its subsidiaries and an unaffiliated lender pursuant
to which advances or other extensions of credit are made based on a borrowing
base or other asset-based formula or (II) to Bank of America with respect to
letters of credit issued for the benefit of the Company, secured by a
corresponding amount of cash or cash equivalents and (D) indebtedness that ranks
junior in right of payment and priority to this Note.
(6) AMENDMENT AND WAIVER. The written consent of the Company and the
Holder shall be required for any change or amendment to this Note. 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 prior
written consent of the Holder.
(7) TRANSFER. This Note may be offered, sold, assigned or transferred
by the
-3-
Holder without the consent of the Company. This Note applies, inures to the
benefit of, and binds the successors and assigns of the parties hereto.
Notwithstanding the foregoing sentence, the Company shall not assign its
obligations hereunder without the prior written consent of the Holder.
(8) REISSUANCE OF THIS NOTE.
(a) Transfer. If this Note is to be transferred, the Holder
shall surrender this Note to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Note (in accordance with
Section 8(d)), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in accordance
with Section 8(d)) to the Holder representing the outstanding Principal not
being transferred.
(b) Lost, Stolen or Mutilated Note. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 8(d)) representing the outstanding Principal.
(c) Note Exchangeable for Different Denominations. This Note
is exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Note or Notes (in accordance with Section 8(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.
(d) Issuance of New Notes. Whenever the Company is required to
issue a new Note pursuant to the terms of this Note, such new Note (i) shall be
of like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 8(a) or Section 8(c), the Principal designated
by the Holder which, when added to the principal represented by the other new
Notes issued in connection with such issuance, does not exceed the Principal
remaining outstanding under this Note immediately prior to such issuance of new
Notes), (iii) shall have an issuance date, as indicated on the face of such new
Note which is the same as the Issuance Date of this Note, (iv) shall have the
same rights and conditions as this Note, and (v) shall represent accrued but
unpaid Interest on the Principal of this Note from the Issuance Date, as
provided in Section 2.
(9) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note and the Second Exchange
Agreement at law or in equity (including a decree of specific performance and/or
other injunctive relief), and nothing herein shall limit the Holder's right to
pursue actual and consequential damages for any
-4-
failure by the Company to comply with the terms of this Note. Amounts set forth
or provided for herein with respect to payments (and the computation thereof)
shall be the amounts to be received by the Holder and shall not, except as
expressly provided herein, be subject to any other obligation of the Company (or
the performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
(10) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including but
not limited to attorneys' fees and disbursements.
(11) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and the Holder and shall not be construed against any
person as the drafter hereof. The headings of this Note are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Note.
(12) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
(13) NOTICES; PAYMENTS.
(a) Notices. Whenever notice is required to be given under
this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Second Exchange Agreement. The Company shall
provide the Holder with prompt written notice of all actions taken pursuant to
this Note, including in reasonable detail a description of such action and the
reason therefore.
(b) Payments. All payments of Principal and Interest shall be
made by wire transfer of immediately available funds in accordance with the
Holder's written wire transfer instructions. Whenever any amount expressed to be
due by the terms of this Note is due on any day which is not a business day, the
same shall instead be due on the next succeeding day which is a business day.
(14) CANCELLATION. After all Principal, accrued Interest and other
amounts at any
-5-
time owed on this Note has been paid in full, this Note shall automatically be
deemed canceled, shall be surrendered to the Company for cancellation and shall
not be reissued.
(15) WAIVER OF NOTICE. To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note and the Second Exchange Agreement.
(16) GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the state of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.
[Signature Page Follows]
-6-
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Issuance Date set out above.
MICROSTRATEGY INCORPORATED
By:
-----------------------------------------
Name:
Title:
