EXHIBIT 10.2
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 investor listed on the Schedule of
Investor attached hereto (the "Investor").
WHEREAS:
A. The Company, the Investor 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
Investor 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 Investor 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 Investor, in exchange for certain shares of Series A Preferred Stock then
held by the Investor, 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");
C. The Investor is the holder of 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 Investor;
D. Upon the terms and conditions set forth in this Agreement, the
Company wishes to redeem and exchange, and the Investor wishes to allow the
Company to redeem and exchange, all of the Series B Preferred Shares held by the
Investors for (i) $869,565.22 in cash, (ii) a promissory note of the Company, in
the form attached hereto as Exhibit A (the "Promissory Note") in the aggregate
principal amount of $434,782.61, and (iii) an aggregate of 2,173,913 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) less that number of 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 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 during the period
beginning on the date hereof and ending on and including the date immediately
preceding the Closing Date (the "Common Shares"); and
E. The exchange of the Series B Preferred Shares for the Common 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 Investor hereby agree as follows:
1. REDEMPTION AND EXCHANGE OF SERIES B PREFERRED SHARES.
a. Redemption and Exchange of Series B Preferred Shares. Subject to
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7, the
Company shall redeem and exchange from the Investor and the 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 set forth opposite such
Investor's name in Column 2 on the Schedule of Investor less that number of
Series B Preferred Shares converted by the Investor after the date hereof but
prior to the Closing Date (which number of Series B Preferred Shares in the
aggregate equals 530 shares less that number of Series B Preferred Shares
converted by such Investor after the date hereof but prior to the Closing Date)
for the following (the "Closing"): (i) $869,565.22 in cash (the "Cash Amount"),
(ii) a Promissory Note in the aggregate principal amount of $434,782.61, and
(iii) an aggregate of 2,173,913 Common Shares (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) less that number
of 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 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 the Investor's Series B
Preferred Shares during the period beginning on the date hereof and ending on
and including the date immediately preceding the Closing Date.
b. Closing Date. The date and time of the Closing (the "Closing
Date") shall be 10:00 a.m. Central Time, on the second (2/nd/) 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 the Investor
receives the Closing Notice (as defined below) from the Company and (ii) the
date on which the Investor delivers Conversion Notices (as defined in each of
the Series B Certificate of Designations) resulting in the Investor continuing
to hold a number of Series B Preferred Shares which does not exceed that number
set forth opposite such Investor's name in Column 6 on the Schedule of Investor,
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 the 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 (1/st/) 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 the 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 the Investor the aggregate Cash Amount set forth opposite such Investor's
name in Column 3 on the Schedule of Investor, by wire transfer of immediately
available funds in accordance with
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such Investor's written wire instructions, (B) shall deliver to the Investor a
Promissory Note in the aggregate principal amount set forth such Investor's name
in Column 4 on the Schedule of Investor, and (C) shall issue and deliver to the
Investor that number of Common Shares set forth opposite the Investor's name in
Column 5 on the Schedule of Investor (which Common Shares shall be free from any
restrictive legend and from any stop order, 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) through The Depository Trust
Company ("DTC") Fast Automated Securities Transfer Program by crediting such
number of Common Shares to the Investor's balance account with DTC through its
Deposit Withdrawal Agent Commission system in accordance with the Investor's
written instructions, less that number of 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 the applicable date of the conversion following 4:59 p.m.,
Eastern Time, on the date of this Agreement), if any, issued to such Investor
upon conversion of the Investor's Series B Preferred Shares during the period
beginning on the date hereof and ending on and including the date immediately
preceding the Closing Date, and (ii) the Investor shall deliver to the Company
stock certificates (the "Existing Preferred Stock Certificates") representing
such number of the Series B Preferred Shares held by the Investor (as indicated
opposite the Investor's name in Column 2 on the Schedule of Investor) less that
number of Series B Preferred Shares converted by the Investor after the hereof
but prior to the Closing Date.
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The Investor represents and warrants with respect to only itself
that:
a. Reliance on Exemptions. The Investor understands that the Common
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 the Investor's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Investor set forth herein in order to determine the availability of such
exemptions and the eligibility of the Investor to acquire the Securities.
b. No Governmental Review. The 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. The 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. The 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 the Investor. The 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 the Investor
or its advisors, if any, or its representatives shall modify, amend or affect
the Investor's
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right to rely on the Company's representations and warranties contained in
Sections 3 and 9(l) below. The Investor understands that its investment in the
Securities involves a high degree of risk. The 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. The Investor understands that the certificates
representing the Securities are being issued and will be issued to the Investor
without a restrictive legend; however, the 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 the 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 the Investor
and is a valid and binding agreement of the Investor enforceable against the
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. The Investor is the sole beneficial
owner of all the Series B Preferred Shares set forth opposite the Investor's
name in Columns 2 on the Schedule of Investor, less that number of Series B
Preferred Shares converted by the 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 the
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 the 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. The Investor is a resident of that country specified
in its address on the Schedule of Investor.
i. Affiliate Status. The 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 the Investor 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 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
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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).
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 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 pursuant to this
Agreement. The execution and delivery of the Transaction Documents 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, and the issuance of the Common 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.
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 Company's Series C Preferred
Stock, the Company's Series D Preferred Stock, the Company's Series F Preferred
Stock, stock option and purchase plans and the Company's Class B common stock)
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 the Company's
Series C Preferred Stock are issued and outstanding and 1,451.1 shares of the
Company's 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
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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 will
have been duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and non-assessable, and (ii)
free from all taxes, liens and charges with respect to the issuance thereof. 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 and the consummation by the Company of the
transactions contemplated hereby and thereby 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
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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 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 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
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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 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
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 Note and the Common 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 the Investor
is acting solely in the capacity of an arm's length purchaser with respect to
the Transaction Documents 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 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
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
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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 for the Common 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, the Company's Series C Preferred Stock and the Company's 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, the Company's Series C Preferred
Stock and the Company's 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
Investor's 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 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(e)) and Section 7 of this Agreement.
b. Intentionally omitted.
c. Listing. The Company shall promptly secure the listing of all of
the Common 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 from
time to time issuable under the terms of the Transaction Documents. 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
9
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 the Investor agree in writing), then the Company
shall file on October 21, 2002 (or such later date as the Company and the
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, the Investor shall not 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, employees and agents not to, provide the 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 the 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 the Investor of the breach, in addition to any other remedy provided
herein or in the Transaction Documents, the 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. The Investor shall not 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 the Investor shall issue any press
releases or any other public statements with respect to the transactions
contemplated hereby or disclosing the name of the Investor; provided, however,
that the Company shall be entitled, without the prior approval of the 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) the 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
10
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 the Investor or a
designee appointed by the 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 the Investor an option to
purchase an amount of securities to be issued in such Future Offering up to the
greater of (x) the product of (I) the securities to be issued in such Future
Offering, multiplied by (II) the quotient of 10,600,000 (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) divided
by the aggregate number of shares of Common Stock and Class B Common Stock then
issued and outstanding (excluding any treasury shares), and (y) the lesser of
$5,300,000 of the securities to be issued in such Future Offering and such
amount as would allow the Company to allocate the portion of such Future
Offering to the Other Investors in accordance with the separate redemption and
exchange agreements being executed by the Company and the Other Investors on the
date of this Agreement, without giving any effect to any amendments to such
agreements after the date hereof, (such greater amount being referred to herein
as the "Aggregate Allocation"). The 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, the Investor's Aggregate Allocation
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, the 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 Aggregate Percentage. The Company shall have 45 days thereafter to
sell the securities of the Future Offering that the Investor 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 Investor 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)
11
the issuance by the Company of securities in exchange for the Settlement Notes.
The Investor shall not be required to participate or exercise its 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 the Investor beneficially owns
any Promissory Notes, 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 the 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 the Investor effecting a pledge of Securities shall
not be required to provide the Company with any notice thereof or otherwise make
any delivery to the Company pursuant to this Agreement or any other Transaction
Document, including without limitation, Section 2(a) of this Agreement; provided
that the 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 the
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 $4,000 to the Investor or its designee(s), by wire transfer of
immediately available funds in accordance with the 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. Intentionally omitted.
k. Rule 144. The Company shall not, directly or indirectly, dispute
or otherwise interfere with any claim by any holder of the Common Shares that
such holder's holding period of any Common Shares for purposes of Rule 144
relates back (i.e., tacks) to the holding period for the Series A Preferred
Stock and the Series B Preferred Shares, unless there is a change in the
applicable law or SEC staff interpretations relating to Rule 144 after the
Closing Date.
12
l. Limitation on Net Sales of Common Stock. So long as the Investor
holds any Common Shares, the 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 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 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 the 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, or (iii) on and
after the date which is one (1) year after the Closing Date. 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 Investor and a counsel of its choice, soliciting each
such stockholder's affirmative vote at such stockholder meeting for approval of
the Company's issuance of the Common 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.
13
5. TRANSFER AGENT INSTRUCTIONS.
No certificates representing any Common Shares shall bear any
restrictive legend. The Company warrants 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, 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 harm to the
Investor 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 Investor 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 (including the issuance of the applicable number of Common
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 the Investor with prior written notice thereof:
a. The Investor shall have executed this Agreement and delivered the
same to the Company.
b. The Investor shall have delivered to the Company the Existing
Preferred Stock Certificates representing the Series B Preferred Shares to be
redeemed or exchanged by the Company from the Investor at the Closing.
c. The representations and warranties of the 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 the 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 the Investor at or
prior to the Closing Date.
d. 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.
e. 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, the Investor shall have converted all of such
Investor's Current Preferred Shares except for a number of Series B Preferred
Shares not to exceed that number of Series B Preferred Shares set forth opposite
such
14
Investor's name on Column (6) on the Schedule of Investor.
7. CONDITIONS TO EACH INVESTOR'S OBLIGATIONS AT CLOSING.
The obligation of the Investor hereunder to tender the Series B
Preferred Shares to the Company for redemption 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 the Investor's sole
benefit and may be waived by the 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 the Investor.
b. The Company shall have delivered to the 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 the
Investor, and the Company shall have delivered the amounts set forth in Section
4(h) by wire transfer of immediately available funds to the Investor).
c. The Company shall have executed and delivered to the Investor the
Common Shares being issued in exchange for the Investor's Series B Preferred
Shares (as set forth in Section 1(a)) at the Closing in accordance with Section
1(c).
d. The Company shall have executed and delivered to the Investor the
Promissory Note on the Closing Date (as set forth in Section 1(a)).
e. 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
shall be listed upon the Principal Market.
f. 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. The 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 the
Investor, including, without limitation, an update as of the Closing Date
regarding the representation contained in Section 3(c) above.
g. The Investor shall have received the opinion of Xxxx and Xxxx
LLP, dated as of the Closing Date, in the form of Exhibit B attached hereto.
h. 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
15
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 Investor 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").
i. The Company shall have delivered to the 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.
j. The Company shall have delivered to the 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.
k. The Company shall have delivered to the 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.
l. The Company shall have delivered to the 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.
m. 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.
o. 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, the Investor shall have converted all of such
Investor's Current Preferred Shares except for a number of Series B Preferred
Shares not to exceed that number of Series B Preferred Shares set forth opposite
such Investor's name on Column (6) on the Schedule of Investor
p. The Company shall have delivered to the Investor such other
documents relating to the transactions contemplated by the Transaction Documents
as the Investor or its counsel may reasonably request.
8. INDEMNIFICATION.
In consideration of the Investor's execution and delivery of the
Transaction Documents and in addition to all of the Company's other obligations
under the Transaction Documents, the Company shall defend, protect, indemnify
and hold harmless the 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
16
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 the 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 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
17
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, and the Irrevocable Transfer
Agent Instructions (as defined in each of the Securities Purchase
Agreement and the First Redemption and Exchange Agreement), this
Agreement 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
Investor. 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 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:
18
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 the Investor, to it at the address and facsimile number set forth on
the Schedule of Investor, with copies to such Investor's representatives as set
forth on the Schedule of Investor, 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
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 Investor, including by merger or consolidation, except pursuant
to a transaction with respect to which the Company is in compliance with Section
4(f) of this Agreement. The 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 Investor shall be
entitled to pledge the Securities in connection with a bona fide margin account
or other loan secured by the Securities.
19
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 Investor 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. The 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 the 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 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 the 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. The Investor and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents 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 Note or the
Investor enforces or exercises its 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
20
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, the 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, Investor Claims
arising out of or relating to the First Redemption and Exchange
Agreement, the Amended and Restated Registration Rights Agreement
and the Series B Certificate of Designations (collectively, the
"Released Documents") other than Investor Claims arising after the
Closing.
ii. In further consideration of the Investor 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 Investor's current or former parents,
shareholders, affiliates, subsidiaries, predecessors or assigns, or
(iii) any of the Investor'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 "Investor
Released Persons"), including, without limitation, any Company
Claims arising out of or relating to the Released Documents;
provided, however, that if the Investor breaches its obligations
under Section 4(a), then the release set forth in this
21
Section 9(p)(ii) shall be null and void and of no further force or
effect.
iii. In further consideration of the Investor 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 Investor 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.
* * * * * *
22
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 HFTP INVESTMENT L.L.C.
By: Promethean Asset Management, L.L.C.
Its: Investment Manager
By: /s/ Xxxxxxx X. Xxxxxx By: /s/ Xxxxx X. X'Xxxxx, Xx.
--------------------------- --------------------------
Name: Xxxxxxx X. Xxxxxx Name: Xxxxx X. X'Xxxxx, Xx.
Title: Chairman and Chief Its: Managing Member
Executive Officer
23
SCHEDULE OF INVESTOR
(1) (2) (3) (4) (5) (6)
Total
Number of
Series B Principal Series B
Preferred Aggregate Amount of Total Preferred
Investor's Name, Address Shares Cash Promissory Common Shares Not
and Facsimile Number Held Amount Notes Shares Converted
-------------------------------------------------------------------------------------------------------------------
HFTP Investment L.L.C. 530 $869,565.22 $434,782.61 2,173,913 00
x/x Xxxxxxxxxx Xxxxx Management, L.L.C..
000 Xxxxxxxxx Xxxxxx, 00/xx/ Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxxx
Xxxx Xxxxxxx
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Residence: New York
(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 Promissory Note
Exhibit B - Form of Company Counsel Opinion
DISCLOSURE SCHEDULE
TO
SECOND REDEMPTION AND EXCHANGE AGREEMENT
BY AND AMONG
MICROSTRATEGY INCORPORATED
AND
HFTP INVESTMENT, LLC
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 HFTP Investment, LLC, 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
[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
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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
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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]
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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:
