EXHIBIT 10.12
AMENDMENT AGREEMENT
This Amendment Agreement (the "Agreement") is made and entered into as of
this 31st day of December 1997 by and among MicroStrategy Incorporated (the
"Company"), Xxxxxxx X. Xxxxxx ("Xxxxxx"), and Xxxxxx X. Xxxxx ("Stockholder").
The Company, Xxxxxx and Stockholder are sometimes collectively referred to as
the "Parties" and each separately as a "Party."
WHEREAS, Stockholder, the Company and Xxxxxxx X. Xxxxxx ("Xxxxxx") are
parties to that certain Stock Purchase Agreement and Shareholders Buy/Sell
Agreement, dated as of September 8, 1991, and that certain Amended Buy/Sell
Agreement, dated as of December 31, 1993 (collectively, the "Stockholder's
Agreements").
WHEREAS, in connection with the proposed initial public offering of the
Company's stock, each Party wishes to take the actions set forth below.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Termination of S Corporation Status.
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1.1 In connection with the IPO, the Company and Stockholder (together
with the other current stockholders of the Company) wish to revoke ("the
Revocation") the Company's S Corporation Election and to take the other
steps as more fully described in Exhibit A attached hereto.
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1.2 Stockholder hereby agrees to execute as promptly as practicable
after the date of this Agreement, the documents in substantially the form
attached hereto as Exhibit A (the "Revocation Documents"), to be filed in
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connection with the Revocation.
1.3 Stockholder further agrees to use Stockholder's best efforts to
cause Stockholder's spouse, if any, to execute the Revocation Documents
where such spouse's signature is called for by such Exhibit.
1.4 Company and Stockholder agree that the Company will not cause the
Revocation to occur unless and until the Company's Board of Directors has
determined the most appropriate date.
1.5 Company agrees that, for all periods of time with respect to which
Company is subject to taxation as an S Corporation, Company shall annually
distribute to Stockholder, for all periods of time with respect to which
Stockholder owned stock in the Company, such amounts of cash as are
necessary to approximate Stockholder's federal, state, and local tax
liability attributable to his share of the reportable, taxable earnings of
the Company as an S Corporation;
provided, however, that such distributions shall be reduced by any
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dividend or other distribution in each year paid by Company to Stockholder
prior to termination of the Company's status as an S Corporation. The
Company agrees to make such distributions prior to the time that
Stockholder is required to make tax payments relating to the Company's
earnings.
2. Termination of Stockholder's Agreements.
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Each Party hereby agrees that, effective immediately, the Stockholder's
Agreements and all rights, obligations and liabilities of any Party to any
other Party under or pursuant to such Stockholder's Agreements, terminate,
are void and of no further effect.
3. Exchange of Class A Common for Class B Common.
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3.1 The Company is in the process of creating a dual class capital
structure, pursuant to which each outstanding share of Common Stock will be
converted into one share of Class A Common. A new class of Common, Class B
Common, will be created, the terms of which are summarized below in Section
3.2. Each share of Class A Common shall have the same rights, privileges
and preferences as the existing Common Stock currently held by Stockholder.
The Class A Common is the security expected to be sold by the Company in
the IPO.
3.2 At the same time, the Company will create a new class of stock,
called, Class B Common. The Class B Common shall be identical to the Class
A Common, except as follows: (i) each share of Class B Common shall be
entitled to ten (10) votes per share; (ii) no shares of Class B may be sold
or transferred except as otherwise permitted in the Company's Certificate
of Incorporation. Any transfer by Stockholder of Class B Common, except as
otherwise permitted in the Company's Certificate of Incorporation, will
result in the automatic conversion of the Class B Common transferred into
Class A Common, without any action by the Company or Stockholder. The
Certificate of Incorporation shall permit Stockholder to transfer up to
50,000 shares of Class B Common into a qualified Subchapter S trust,
subject to and as contemplated in Section 4.2 below, without such Class B
shares being converted automatically into Class A Common.
3.3 As indicated in Section 3.1 above, creation of the Company's dual
class capital structure will entail conversion of all the Stockholder's
Common Stock into Class A Common. Contemporaneously with such conversion,
the Company hereby offers Stockholder the right, subject to the terms and
conditions hereof: (a) to exchange all shares (but only all) of Class A
Common into which Stockholder's shares of Common Stock shall have been
converted for an equivalent number of shares of Class B Common, or (b) to
retain all shares (but only all) of Class A Common into which Stockholder's
shares of Common Stock shall have been converted. Stockholder's election
under this Section 3.3 shall be irrevocable and shall be made by so
indicating below on the signature page of this Agreement.
3.4 The exchange, if so chosen by Stockholder, shall be effected as
follows. Promptly upon notice from the Company (but in no event less than
ten (10) business days after delivery of notice to the Notice Address,
Stockholder shall deliver Stockholder's stock certificate evidencing the
shares of Common Stock currently held by Stockholder to the Company and the
Company shall promptly (within ten (10) business days) deliver a
certificate evidencing the shares of Class A Common or Class B Common, as
applicable, to Stockholder at the Notice Address, unless otherwise timely
specified in writing by Stockholder.
4. Transfer Restrictions.
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4.1 Subject in all cases to the provisions of Section 8 below (and the
provisions of the Underwriters Market Standoff Agreement incorporated by
reference therein) (collectively, the "Lock Up"), and subject in all cases
to the remainder of this Section 4, Stockholder shall be entitled, after
January 1, 1999, to transfer shares of Common Stock or Class A Common (but
not Class B Common). For purposes of the preceding sentence, Class A
Common shall be deemed to include Class A Common converted automatically
from Class B Common pursuant to Section 3.2 above.
4.2 Stockholder agrees that during his lifetime he will not sell, give,
encumber, pledge or otherwise transfer, assign, or dispose of either
voluntarily or involuntarily, or by operation of law, all or any part of
the Common Stock or Class A Common to any transferee that would cause the
Company to cease to qualify for taxation as an S Corporation, and shall
follow the procedures below in Section 4.4 prior to any purported transfer.
Notwithstanding the foregoing, on or prior to January 1, 1999, Stockholder
may transfer up to an aggregate of 50,000 shares (the "Trust Shares") of
Common Stock or Class A Common or Class B Common into a qualified
Subchapter S trust described in Section 1361(d) of the Internal Revenue
Code of 1986, as amended; provided, however, that any such transferee trust
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shall be subject to all of the transfer restrictions described in this
Agreement. Regardless of whether Stockholder transfers shares of Company
stock into such trust prior to or after the creation of the Company's dual
class capital structure, the characterization of such Trust Shares (i.e.,
as to whether the Trust Shares are Class A Common or Class B Common) shall
be governed by the Stockholder's election described above in Section 3.3;
provided, however, that if Stockholder elects pursuant to Section 3.3 to
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exchange all shares of Class A Common into which Stockholder's shares of
Common Stock shall have been converted for an equivalent number of shares
of Class B Common, Company shall have the right to consent to the
trustee(s) of such qualified Subchapter S trust, such consent not to be
unreasonably withheld, conditioned or delayed.
4.3 In the event that the Lock Up expires or is terminated by the
Company or the Underwriters prior to the Company's initial public offering
and the Stockholder's shares are released from the Lock Up, Stockholder
acknowledges and agrees that all securities of the Company beneficially
owned by Stockholder shall be deemed automatically and without further
action by Stockholder to be subject to any provisions similar to the Lock
Up in any initial public offering by the Company (the "Future Lock Up"), if
and to the extent that the officers of the Company are subject to such
Future Lock Up.
4.4 For so long as the Company's status as an S Corporation remains in
effect, prior to making any transfer of Common Stock or Class A Common,
Stockholder shall obtain from the Company a written certification, not to
be unreasonably withheld, delayed, or conditioned, that neither such
transfer nor any transaction contemplated with respect to such transfer
(including, without limitation, the foreclosure of any lien or encumbrance
or, in the case of a transfer into trust, the termination of such trust or
the taking of any action by any beneficiary of such trust) will or may
result in the termination of the Company's status an S Corporation. The
Company may require, as a condition to any such certification to be
provided by the Company under this Agreement, an opinion of counsel of its
choice as to the matters to be contained in such certification,
satisfactory in form and substance to the Company, and arrangements
satisfactory to the Company to ensure that any transferee shall take any
actions necessary to maintain the Company's status as an S Corporation.
The Company agrees to respond to Stockholder's written request for such
certification (which shall include all relevant terms and copies of all
relevant documents) within ten business days of such request by providing
such certification or indicating in reasonable detail what changes or items
are necessary for the Company to provide such certification; failure of the
Company to so respond within the prescribed time period shall be a deemed
certification. Stockholder shall take no action that would result in the
termination of the Company's status as an S Corporation without the prior
written consent of the Company. Notwithstanding anything else in this
Agreement, Stockholder acknowledges and agrees that no transfer pursuant to
this Agreement shall be permitted unless the transferee agrees in writing
to be bound by the transfer restrictions contained in this Agreement
(including, but not limited to, the Lock Up and Future Lock Up provisions
of Sections 4 and 8).
4.5 In the event of any action by the Stockholder or his qualified
Subchapter S trust, or in the event of any challenge by the SEC to
Stockholder's reliance on Rule 144, the Company agrees to cooperate in good
faith to support Stockholder's position that, as of the date of this
Agreement, he is not an "affiliate" of the Company, and his shares are
available for resale (subject to the all of the transfer restrictions
described in this Agreement) without registration pursuant to Rule 144.
5. Registration Rights.
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5.1 In the event that Stockholder elects to convert up to 100,000 shares
of Class B Common into Class A Common Stock (or other class or series of
stock registered by the Company in the IPO, pursuant to Section 3.2 above),
Stockholder may demand that the Company register the number of shares so
converted into Class A Common (but in no event more than 100,000 shares)
concurrently with the Company's initial public offering; provided, however,
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that the Company shall not be obligated to effect any registration
requested by Stockholder unless such request, which shall include the
number of shares of Class A Common to be registered, is delivered by
Stockholder to the Company in writing 2 business days prior to the
Company's filing of a registration statement on Form S-1. The Company
shall notify Stockholder in writing of its intention to file a registration
statement on Form S-1 at least three, but no more than seven, business days
prior to such filing.
5.2 In the event that the Company proposes to register a subsequent
offering of its Class A Common Stock, either for its own account or for the
account of other security holders, Stockholder will be entitled, subject to
the approval of the underwriters, to include at least 100,000 shares
(subject to adjustment for stock splits, reverse stock splits, and similar
changes in capital structure) of his Class A Common Stock in the first such
registration after the Company's IPO; provided, however, that Stockholder
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must agree to the same terms and conditions of registration as apply to all
other selling shareholders (e.g. selling shareholders may be required to
pay their pro rata portion of the expenses of such registration).
Stockholder shall have no fewer or less beneficial rights with regard to
registration of his shares in the aforementioned secondary offering (if
such an offering occurs) than does any other shareholder of the Company.
6. Stock Option Grant.
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The Company shall grant to Stockholder, within fourteen (14) days of the
date first written above, an option to purchase 15,000 shares of Common
Stock, at an exercise price of $4.00/share, vesting twenty percent per
year, commencing on the anniversary of January 1, 1998, subject to all
terms and conditions of the Company's Stock Option Plan. Stockholder's
option agreement shall be substantially similar in form to the Company's
standard Stock Option Agreement, attached hereto as Exhibit D.
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7. Tax Matters.
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Stockholder hereby irrevocably agrees to be bound by all of the terms of
the tax agreement attached hereto as Exhibit B as if the terms and
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provisions of such Exhibit B were set forth in full herein. Stockholder
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agrees to deliver to Company
an executed form of Exhibit B as promptly as practicable after the date of
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the execution and delivery of this Agreement by Stockholder. The Company
represents that all other stockholders of the Company have agreed to
deliver an executed form of Exhibit B.
8. Underwriters Market Standoff Agreement.
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Stockholder hereby irrevocably agrees to be bound by all of the terms of
the Underwriters Market Standoff Agreement attached hereto as Exhibit C as
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if the terms and provisions of such Exhibit C were set forth in full
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herein. Stockholder hereby agrees to deliver to Company an executed form
of Exhibit C as promptly as practicable after the date of the execution and
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delivery of this Agreement by Stockholder.
9. Mutual Release.
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Each Party and their respective successors, assigns, and agents, hereby
remises, releases and forever quitclaims and discharges each other Party
and their respective past, present, and future parents, subsidiaries,
divisions, and affiliated persons, firms, corporations, and associations,
and all of such Parties' directors, officers, agents, employees,
representatives, attorneys, trustees, stockholders, owners, predecessors,
successors, and assigns, and all persons acting by, through, for, or in
concert with any of them from and against any and all actions, causes of
action, suits, covenants, liabilities, contracts, agreements, claims,
obligations, damages, costs, and expenses of every kind, and demands
whatsoever, in law or in equity, civil or criminal, which any Party hereto
ever had or now has or may hereafter have arising from any matter
whatsoever, whether known or unknown, from the beginning of time until the
date hereof, and from any and all actions and causes of action at any time,
whether known or unknown, arising out of the Company's initial public
offering; provided, however, that this mutual release shall not extend to
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any breach of the Parties' Settlement Agreement and Release and Consulting
and Retainer Agreement, dated as of December 29, 1995, which shall continue
in full force and effect, or any breach of this Agreement.
10. Indemnification.
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The Company shall indemnify and hold harmless Stockholder against any and
all losses and claims made by any third party against Stockholder under the
Securities Act of 1933, as amended, or other federal or state statutory law
or regulation, insofar as such losses or claims arise out of or are based
upon any untrue statement of a material fact made by the Company contained
in the preliminary prospectus, registration statement or prospectus
prepared in connection with the Company's initial public offering or the
omission to state in such document 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.
11. Miscellaneous.
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(a) Assignment.
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This Agreement may not be assigned by Stockholder without the
consent of the Company. The Company may assign its rights pursuant to
approval of the Board of Directors of the Company.
(b) Governing Law.
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This Agreement is executed by the Parties hereto in Fairfax County,
Virginia and shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia.
(c) Choice of Forum.
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All disputes under this Agreement shall be resolved in a court of
competent jurisdiction in Fairfax County, Virginia.
(d) Notices.
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All notices and other communications herein provided for shall be in
writing and sent by overnight courier (e.g., Federal Express) or postage-
prepaid, registered or certified mail, return receipt requested, or
delivered personally to the Parties at their respective addresses as set
forth below or to such other address as a Party shall give to each other
Party in the manner provided herein for giving notice. Notice by
overnight courier or mail shall be considered given on the date received.
Notice delivered personally shall be considered given at the time it is
delivered. In any case, such notice shall be addressed as follows:
If to Stockholder: Xxxxxx X. Xxxxx
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0000 Xxxxxx Xxxxxx
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Xxxxxx, XX 00000
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with a copy to: Xxxxxx X. Xxxxxxx, Esq.
Xxxxxxx Kharasch & Xxxxxxxxx, P.C.
0000 Xxxxxx-Xxxxx Xxxxxx, X.X.
Xxxxx 000
Xxxxxxxxxx, X.X. 00000-0000
If to MicroStrategy: MicroStrategy Incorporated
0000 Xxxxxx Xxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
ATTN: President and CEO
with a copy to: Legal Department
If to Xxxxxx: MicroStrategy Incorporated
0000 Xxxxxx Xxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx
(e) Waiver.
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No waiver of any provision of this Agreement shall be deemed to be a
waiver of another provision or a future waiver of the same provision.
(f) Validity; Severability.
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If any term or provision of this Agreement is deemed invalid or
unenforceable, such term or provision shall not invalidate the rest of
this Agreement, which shall nonetheless remain in full force and effect
as if such invalidated or unenforceable term or provision had not been
made a part of this Agreement.
(g) Entire Agreement.
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This Agreement constitutes the entire understanding between the
Parties with respect to the matters covered by the Agreement and
supersedes all prior agreements and understandings with respect to the
subject matter of this Agreement. This Agreement may be amended, but
only by a subsequent written agreement signed by all Parties.
(h) Voluntary Agreement; Independent Professional Advice.
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Each Party represents and acknowledges that such Party has read the
Agreement and all exhibits. Stockholder represents and acknowledges that
Stockholder has been encouraged by the Company and Xxxxxx, and the
Stockholder has had the opportunity, to seek independent legal, tax,
accounting and any other desired professional advice in connection with
the matters covered by this Agreement. Each Party represents and
acknowledges that such Party is entering into this Agreement voluntarily
and that no representations have been made, other than as stated herein,
to induce any Party to this Agreement to execute this Agreement.
IN WITNESS WHEREOF, the Parties have entered into this Agreement as of
the date first above written in Vienna, Virginia.
MICROSTRATEGY INCORPORATED
_____________________________
Xxxxxxx X. Xxxxxx
President and CEO
XXXXXX
_____________________________
(Signature)
_____________________________
(Typed or Printed Name)
STOCKHOLDER
_____________________________
(Signature)
_____________________________
(Typed or Printed Name)
Section 3
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_____ Elects to exchange Common Stock (or Class A Common, as applicable)
for shares of Class B Common
_____ Declines such exchange right and elects to retain Common Stock (or
Class A Common as applicable)
EXHIBIT A-1
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REVOCATION OF S ELECTION
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[DATE]
Internal Revenue Service Center
[Address of Center where corporation filed its S election]
Re: MicroStrategy Incorporated
0000 Xxxxxx Xxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000
FEIN: ______________
The above-referenced corporation hereby revokes its S corporation
election, made pursuant to Section 1362(a) of the Internal Revenue Code,
effective as of [DATE]. At the time of the revocation, the number of shares
(issued and outstanding) of MicroStrategy Incorporated, including nonvoting
stock, is [NUMBER].
Attached are the consents to the revocation by shareholders owning more
than one-half of the issued and outstanding shares.
Please acknowledge receipt of this notice of revocation and the attached
shareholder consents by stamping and returning the enclosed copies. An
addressed envelope is provided.
MicroStrategy Corporation
By: ___________________
[Name]
Its: ____________________
[Title]
Enclosures
EXHIBIT A-2
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CONSENT TO REVOCATION
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Re: MicroStrategy Incorporated
0000 Xxxxxx Xxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000
FEIN: ______________
I, the undersigned, being a shareholder of MicroStrategy Incorporated,
hereby consents to the revocation of the election made pursuant to Section
1362(a) of the Internal Revenue Code by MicroStrategy Incorporated, effective as
of [DATE]. The following information is provided:
1. My name, address, taxpayer identification number and taxable year end
are as follows:
[Name]
[Address]
[Social Security Number or FEIN]
[Taxable Year End]
2. The number of outstanding shares (voting and nonvoting) of
MicroStrategy that I own is [number]. The date that I acquired such
shares was [Date].
Under penalties of perjury, I declare that the facts presented in this
statement are, to the best of my knowledge and belief, true, correct, and
complete.
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Date Signature
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Date Spouse
EXHIBIT A-3
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ELECTION TO CLOSE CORPORATE BOOKS UNDER SECTION 1362(e)(3) OF
THE INTERNAL REVENUE CODE
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Re: MicroStrategy Incorporated
0000 Xxxxxx Xxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000
FEIN: ______________
The above-referenced corporation hereby elects under Section 1362(e)(3)
of the Internal Revenue Code of 1986, as amended (the "Code") to have the rules
set forth in Section 1362(e)(2) of the Code not apply to its S termination year
ending [DATE]. Termination of the corporation's S election occurred on [date]
as a result of a revocation of the corporation's S election, filed with the
Internal Revenue Service on [date].
The requisite consents to the election are attached hereto.
Date: __________ MicroStrategy Incorporated
By: ____________________
Its: ____________________
CONSENT TO ELECTION TO CLOSE BOOKS UNDER SECTION 1362(e)(3) OF
THE INTERNAL REVENUE CODE
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We, the undersigned, being all the shareholders of the Company during its
S short year and on the first day of its C short year, hereby consent to the
Company's election under Section 1362(e)(3) of the Internal Revenue Code (the
"Code") to have the rules set forth in Section 1362(e)(2) of the Code not apply
to the S termination year ending [Date].
Under penalties of perjury, the undersigned declare that the facts
presented in the accompanying statement are, to the best of our knowledge and
belief, true, correct, and complete.
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Date Signature
-------------------------------- -------------------------------------
Date Spouse
[Shareholder's Name]
[Address]
[I.D. Number]
[Taxable Year End]
-------------------------------- -------------------------------------
Date Signature
-------------------------------- -------------------------------------
Date Spouse
[Shareholder's Name]
[Address]
[I.D. Number]
[Taxable Year End]
-------------------------------- -------------------------------------
Date Signature
-------------------------------- -------------------------------------
Date Spouse
[Shareholder's Name]
[Address]
[I.D. Number]
[Taxable Year End]
Exhibit B
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TAX INDEMNIFICATION AGREEMENT
This TAX INDEMNIFICATION AGREEMENT (the "Agreement") is entered into as
of June _____, 1998 between MicroStrategy Incorporated (the "Company") and the
persons listed on Schedule A attached hereto (individually a "Stockholder" and
collectively the "Stockholders"). Capitalized terms not otherwise defined have
the meanings ascribed to them in Section 1.1.
WHEREAS, the Company and the Stockholders have entered into this
Agreement as a condition to the Public Offering;
WHEREAS, the Company has been an "S corporation" (as defined in Section
1361(a)(1) of the Code for federal tax purposes since January 1, 1992;
WHEREAS, the Company and the Stockholders plan to terminate the Company's
S corporation status prior to the completion of the Public Offering, and as a
result the Company will be a "C corporation" (as defined in Section 1361(a)(2)
of the Code) beginning on the Termination Date; and
WHEREAS, the Company and the Stockholders wish to terminate this
Agreement such that it has no effect should the Public Offering not occur;
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1.
DEFINITIONS
0.1. Definitions. The following terms, as used herein, have the
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following meanings:
"Adjustment Amount" means the net increase in taxable income of one or
more of the Stockholders or the Company based on a Final Determination and which
gives rise to a payment pursuant to Section 3.3 or 3.4 hereof.
"Affected Stockholder" means a Stockholder whose tax returns are
adjusted in a manner which gives rise to an obligation of the Company pursuant
to Section 3.3 hereof.
"Blended Rate" means a percentage which equals the sum of the maximum
marginal federal and state individual income tax rates for an individual
residing in Virginia (after giving effect to the full deductibility of state
income taxes for federal income tax purposes) in effect for the year of the
adjustment to a tax return of the Company or such Stockholder that gives rise to
a correlative adjustment to a tax return of such Stockholder or the Company,
respectively. For example, if an adjustment results in an amount due from the
Stockholders hereunder, the year of the Company's return that was adjusted shall
determine the Blended Rate to be used in computing the amount due.
"Closing Date" means the date on which the Public Offering closes.
"Code" means the Internal Revenue Code of 1986, as amended.
"C Short Year" means that portion of the S Termination Year of the
Company beginning on the Termination Date and ending on the last day of the S
Termination Year.
"C Taxable Year" means any taxable year (or portion thereof) of the
Company during which it is a C corporation, including the C Short Year.
"Final Determination" means the final resolution of any income tax
liability (including all related interest and penalties) for a taxable period.
A Final Determination shall result from the first to occur of:
(i) the expiration of 30 days after IRS acceptance of a Waiver of
Restrictions on Assessment and Collection of Deficiency in Tax and
Acceptance of Overassessment on Federal Revenue Form 870 or 870-AD (or
any successor comparable form or the expiration of a comparable period
with respect to any comparable agreement or form under the laws of
other jurisdictions), unless, within such period, the taxpayer gives
notice to the other party of the taxpayer's intention to attempt to
recover all or part of any amount paid pursuant to the Waiver by the
filing of a timely claim for refund;
(ii) a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial review
(by appeal or otherwise) and has become final;
(iii) the execution of a closing agreement under section 7121 of
the Code or the acceptance by the IRS or its counsel of an offer in
compromise under section 7122 of the Code, or comparable agreements
under the laws of other jurisdictions;
(iv) the expiration of the time for filing a claim for refund or
for instituting suit in respect of a claim for refund disallowed in
whole or part by the IRS or other relevant taxing authority;
(v) any other final disposition of the tax liability for such
period by reason of the expiration of the applicable statute of
limitations; or
(vi) any other event that the parties agree is a final and
irrevocable determination of the liability at issue.
"Public Offering" means the public offering of the Company's Common
Stock pursuant to the Registration Statement on Form S-1 expected to be
originally filed by the Company with the Securities and Exchange Commission on
December 23, 1997.
"S Short Year" means that portion of the S Termination Year beginning
on the first day of such taxable year and ending on the day immediately
preceding the Termination Date.
"S Taxable Year" means any taxable year (or portion thereof) of the
Company during which the Company was an S corporation, including the S Short
Year.
"S Termination Year" shall mean the fiscal year of the Company that
includes the Termination Date.
"Taxing Authority" means the United States Internal Revenue Service
and any comparable state or foreign taxing authority.
"Termination Date" means the date on which the S corporation status of
the Company will terminate pursuant to Section 1362(d) of the Code.
ARTICLE I.
TERMINATION OF S CORPORATION STATUS AND ALLOCATIONS OF INCOME
1.1. Termination of S Corporation Status. The Company and the
Stockholders shall cause the Company to terminate its S corporation status at
least two days prior to the Closing Date.
1.2. Allocation Election. The Company shall be required to elect to
allocate the items described in Section 1362(e)(2)(A) of the Code pursuant to
Section 1362(e)(3) of the Code under "normal tax accounting rules," and the
Stockholders agree to consent to such election and to provide the Company with
the statement of consent of all Stockholders described in Section 1.1362-6(a)(5)
and Section 1.1362-6(b) of the Treasury Regulations.
ARTICLE II.
OBLIGATIONS
2.1. Liability for Taxes Incurred by Stockholders During the S Short
Year. Each Stockholder covenants and agrees that: (i) the Stockholder will
duly include, in his own federal and state income tax returns, all items of
income, gain, loss, deduction, or credit attributable to the S Short Year in a
manner consistent with the Form 1120S and the schedules thereto (and the
corresponding state income tax forms and schedules) to be filed by the Company
with respect to such period; (ii) such returns shall be filed no later than the
date due (including extensions, if any) for filing such returns; and (iii) each
Stockholder shall pay any and all taxes required to be paid for its taxable year
that includes the S Short Year.
2.2. Liability for Taxes Incurred by the Company During the S Short
Year and the C Short Year. The Company covenants and agrees that: (i) the
Company shall be responsible for and shall effect the filing of all federal and
state income tax returns for the Company with respect to the S Short Year and
the C Short Year; (ii) such Company returns shall be accurately prepared and
timely filed; and (iii) the Company shall pay any and all taxes required to be
paid by the Company for the periods covered by such returns as required by
applicable law.
2.3. Company's Indemnification of Stockholders for Tax Liabilities.
In the event of an adjustment to one or more tax returns of the Company for an S
Taxable Year based on a Final Determination which results in a net increase in
taxable income of a Stockholder and a corresponding adjustment to one or more
tax returns of the Company for a C Taxable Year based
on a Final Determination which results in a net decrease in taxable income of
the Company, the Company shall pay to any Affected Stockholder an amount equal
to the Adjustment Amount multiplied by the Blended Rate. In addition, provided
the Affected Stockholder originally reported its distributive share of income
and other items of the Company from an S Taxable Year consistently with Schedule
K-1 provided to him by the Company, the Company shall pay to the Affected
Stockholder any penalties or interest actually paid by the Affected Stockholder
as a result of the adjustment to such items giving rise to the Company's
liability hereunder. The Company shall pay the amount due to the Affected
Stockholder within thirty (30) business days after the receipt of notice from
the Affected Stockholder that a payment is due by such party to the appropriate
Taxing Authority.
2.4. Stockholders' Indemnification of Company for Tax Liabilities.
(a) Adjustments to Company's Taxable Income. In the event of an
adjustment of one or more tax returns of the Company for a C Taxable Year based
on a Final Determination which results in a net increase in taxable income of
the Company for a C Taxable Year and a corresponding adjustment to one or more
tax returns of the Company for an S Taxable Year based on a Final Determination
which results in a net decrease in taxable income of the Company for the S
Taxable Year, each Stockholder, severally but not jointly and subject to the
limitations contained in Section 3.4(c), agrees to contribute to the capital of
the Company its pro rata share (based upon the relative amount of Company stock
held by such Stockholder during the relevant time period) of an amount equal to
the Adjustment Amount multiplied by the Blended Rate. In addition, subject to
the limitations contained in Section 3.4(c), each Stockholder shall contribute
to the capital of the Company an amount equal to its pro rata share (based upon
the relative amount of Company stock held by such Stockholder during the
relevant time period) of any penalties and interest to be paid by the Company to
any Taxing Authority as a result of such determination.
(b) Adjustments Attributable to Company's S Status. If based on a
Final Determination the Company is deemed to have been a C corporation for
federal, state or local income tax purposes during any period in which it
reported (or intends to report) its taxable income as an S corporation, each
Stockholder, severally but not jointly and subject to the limitations contained
in Section 3.4(c), agrees to contribute to the capital of the Company an amount
equal to its pro rata share (based upon the relative amount of Company stock
held by such Stockholder during the relevant time period) of the Adjustment
Amount with respect to such year multiplied by the Blended Rate. Subject to the
limitations contained in Section 3.4(c), the Stockholders, severally but not
jointly, shall hold the Company harmless from its pro rata share (based upon the
relative amount of Company stock held by such Stockholder during the relevant
time period) of any taxes, penalties and interest incurred by the Company
attributable to the period prior to the Termination Date to the extent not
included on the Company's financial statements filed with the Securities and
Exchange Commission on Form S-1 as adjusted for the passage of time through the
Termination Date in accordance with the past custom and practice of the Company
in filing its tax returns.
(c) Limit on Indemnification Amount. Notwithstanding the foregoing
provisions of this Section 3.4, the payments required to be made by any Affected
Stockholder to the Company pursuant to this Section 3.4 shall not exceed the
lesser of (A) the amount of the refund from any Taxing Authority attributable to
the reduction in such Affected Stockholder's tax liability attributable to
adjustments established pursuant to the Final Determination and (B)
the amount of the total distributions to such Stockholder made by the Company
from January 1, 1990 through and including the Termination Date. For purposes of
this Section 3.4(c), the amount of the refund shall include refunds or
abatements of taxes, interest on such refunds or abatements, and any other
amount actually received by the Affected Stockholder from the Taxing Authority
with respect to such determination.
(d) Time of Indemnification Payment. The Stockholders shall
contribute to the capital of the Company amounts set forth in this Section 3.4
within thirty (30) business days after the later of (a) the receipt of the
refund from the Taxing Authority attributable to such adjustment or (b) notice
from the Company that a payment is due by the Company to the appropriate Taxing
Authority.
ARTICLE III.
CONTESTS/COOPERATION
3.1. Contests. Whenever the Stockholders or the Company becomes aware
of an issue which it believes a Final Determination of which could give rise to
payment or indemnification from the other party under Article III, the
Stockholders or the Company (as the case may be) shall promptly give notice of
the issue to the other party. The indemnitor and its representatives, at the
indemnitor's expense, shall be entitled to participate in all conferences,
meetings, or proceedings with the IRS or other taxing authority with respect to
the issue.
The parties agree to consult and cooperate with each other in the
negotiation and settlement or litigation of any adjustment that may give rise to
any payment or an indemnification payment under this Agreement. All decisions
with respect to such negotiation and settlement or litigation shall be made by
the parties after full, good faith consultation or pursuant to the dispute
resolution provisions of Section 4.2.
3.2. Dispute Resolution. If the parties are, after negotiation in
good faith, unable to agree upon the appropriate application of this Agreement,
the controversy shall be settled by the "Big 6" (or equivalent) accounting firm
(the "Accounting Firm") agreed to by the Company and the Stockholders. The
decision of the Accounting Firm shall be final, and each of the Company and the
Stockholders agree immediately to pay to the other any amount due under this
Agreement pursuant to such decision. The expenses of the Accounting Firm shall
be borne one-half by the Company and one-half by the Stockholders unless the
Accounting Firm specifies otherwise.
Each of the Company and the Stockholders agree that (i) in the event that
any of them receives notice, whether orally or in writing, of any federal,
state, local or foreign tax examinations, claims, settlements, proposed
adjustments or related matters that may affect in any way the liability of a
party under this Agreement, it shall within ten days notify the other parties in
writing thereof (provided that any failure to give such notice shall not reduce
a party's right to indemnification under this Agreement except to the extent of
actual damage incurred by the other parties as a result of such failure), and
(ii) the party or parties (the "Indemnifying party") who would be required to
indemnify the other party or parties (the "Indemnified party") shall be entitled
at its reasonable discretion and sole expense to handle, control and compromise
or settle the defense of any matter which may give rise to a liability under
this Agreement, provided that the Indemnifying Party from time to time provides
assurances reasonably satisfactory to the Indemnified party that (1) the
Indemnifying party is
financially capable of pursuing such defense to its conclusion, and (2) such
defense is actually being pursued in a reasonable manner.
3.3. Cooperation. The parties will make available to one another, as
reasonably requested, and to any taxing authority, all information, records or
documents relating to the liability for taxes covered by this Agreement and will
preserve such information, records or documents until the expiration of any
applicable statute of limitations or extensions thereof. The party requesting
such information shall reimburse the other party for all reasonable out-of-
pocket costs incurred in producing such information.
3.4. Costs. Except to the extent otherwise provided therein, each
party shall bear its own costs in administering this Agreement.
3.5. Interest on Overdue Payments. Any payment pursuant to this
Agreement not made when due under this Agreement shall bear interest at the rate
of 10% per annum until paid.
ARTICLE IV.
MISCELLANEOUS
4.1. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute an instrument representing the
Agreement between the parties hereto.
4.2. Construction of Terms. Nothing herein expressed or implied is
intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto or their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
4.3. Governing Law. This Agreement and the legal relations between
the parties hereto shall be governed by and construed in accordance with the
substantive laws of the State of Virginia without regard to Virginia choice of
law rules.
4.4. Amendment and Modification. This Agreement may be amended,
modified or supplemented only by a written agreement executed by the parties.
4.5. Assignment. Except by operation of law or in connection with the
sale of all or substantially all the assets of a party, this Agreement shall not
be assignable, in whole or in part, directly or indirectly, by the Stockholders
without the written consent of the Company or by the Company without the written
consent of the Stockholder. Any attempt to assign any right or obligations
arising under this Agreement without such consent shall be void. However, the
provisions of this Agreement shall be binding upon inure to the benefit of, and
be enforceable by the parties and their respective successors and permitted
assigns.
4.6. Interpretation. The title, article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
4.7. Severability. In the event that any one or more of the
provisions of this Agreement shall be held to be illegal, invalid or
unenforceable in any respect, the same shall not in any respect affect the
validity, legality or enforceability of the remainder of this Agreement, and the
parties shall use their best efforts to replace such illegal, invalid or
unenforceable provisions with an enforceable provision approximating, to the
extent possible, the original intent of the parties.
4.8. Entire Agreement. This Agreement embodies the entire agreement
and understanding of the parties hereof in respect to the subject matter
contained herein. There are no representations, promises, warranties,
covenants, or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and the understandings
between the parties with respect to such subject matter.
4.9. Further Assurances. Subject to the provisions of this Agreement,
the parties shall acknowledge such other instruments and documents, and take all
other actions, as may be reasonably required in order to effectuate the purposes
of this Agreement.
4.10. Parties in Interest. Except as herein otherwise specifically
provided, nothing in this Agreement expressed or implied is intended to confer
any right or benefit upon any person, firm, or corporation other than the
parties and their respective successors and permitted assigns.
4.11. Waivers, Etc. No failure or delay on the part of the parties in
exercising any power or right under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure by the parties therefrom shall in any event be
effective unless it shall be in writing, and then such waiver or consent shall
be effective only in the specific instance and for the purpose which given.
4.12. Set-off. All payments to be made by any party under this
Agreement shall be made without set-off, counterclaim, or withholding, all of
which are expressly waived.
4.13. Change of Law. If, due to any change in applicable law or
regulations or the interpretation thereof by any court or other governing body
having jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement shall be impracticable or impossible, the parties
shall use their best efforts to find an alternative means to achieve the same or
substantially the same results as are contemplated by such provision.
4.14. Headings. Descriptive headings are for convenience only and shall
not control or affect the meaning of any provision of this Agreement.
4.15. Counterparts. For the convenience of the parties, any number of
counterparts of this Agreement may be executed by the parties and each executed
counterpart shall be an original instrument.
4.16. Notices. All notices provided for in this Agreement shall be
validly given if in writing and delivered personally or sent by registered mail,
postage prepaid
if to the Company, at:
General Counsel
MicroStrategy Incorporated
0000 Xxxxxx Xxxxxxxx Xxxxx
Xxxxxx, XX 00000
copy to:
Ropes & Xxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000-0000
if to the Stockholders, to:
Xxxxxxx X. Xxxxxx
0000 Xxxxx Xxxxx
Xxxxxx, XX 00000
Xxxxx Xxxxxx
0000 Xxxxxxx Xxx
Xxxxxx, XX 00000
Xxxxxx X. Xxxxx
0000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Xxxxx Xxxxxx
0000 Xxxxx Xxxx Xxxxxx
Xxxxxx, XX 00000
Xxxxxxx X. Xxxxx
0000 Xxxxxxx Xxxxxx, #0
Xxx Xxxxxxxxx, XX 00000
Xxxxxxx X. Xxxxxxx
00 Xxxx Xxxx Xxxx, Xxxxx
Xxxxxxxxx, XX0 0XX XX
Xxxxxxxxxx Xxxxxxxx
0000 X. Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Xxxxxx Xxxxxxxx
0000 Xxxxxxxxx Xxxxxx, Xxx. X
Xxxxxxx, XX 00000
Xxxxxxx X. Xxxxxxx
0000 Xxxxxxxxx Xxxx
Xxxxx Xxxxxx, XX 00000
Xxxxxx Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Xxxxxx Xxxxxxx
0000 Xxxxxxxxx Xxxxxx, #0000
Xxxxxxxx, XX 00000
Xxxxx X. Xxxxxxxx
0000 Xxxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
or to such other addresses as any party may, from time to time, designate in a
written notice given in a like manner. Notice given by mail shall be deemed
delivered five calendar days after the date mailed.
4.17. Termination of Agreement. This Agreement shall terminate and be
void, as if it never had been executed, if the Closing Date shall occur after
March 31, 1998.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MICROSTRATEGY INCORPORATED
By: _____________________________________
Xxxx Xxxxx
Chief Financial Officer
STOCKHOLDERS
By: _____________________________________
Xxxxxxx X. Xxxxxx
By: _____________________________________
Xxxxxx X. Xxxxx
By: _____________________________________
Xxxxx X. Xxxxxx
By: _____________________________________
Xxxxx Xxxxxx
By: _____________________________________
Xxxxxxx X. Xxxxx
By: _____________________________________
Xxxxxxx X. Xxxxxxx
By: _____________________________________
Xxxxxxxxx Xxxxxxxx
By: _____________________________________
Xxxxxx X. Xxxxxxxx
By: _____________________________________
Xxxxxxx X. Xxxxxxx
By: _____________________________________
Xxxxxx Xxxxxxxx
By: _____________________________________
Xxxxxx X. Xxxxxxx
By: _____________________________________
Xxxxx X. Xxxxxxxx
SCHEDULE A
Xxxxxxx X. Xxxxxx
Xxxxxx X. Xxxxx
Xxxxx X. Xxxxxx
Xxxxx Xxxxxx
Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxxxx
Xxxxxxxxx Xxxxxxxx
Xxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxx
Xxxxxx Xxxxxxxx
Xxxxxx X. Xxxxxxx
Xxxxx X. Xxxxxxxx
Exhibit C
---------
June ___, 1998
Xxxxxxx Xxxxx & Co.
Xxxxxxx Lynch, Pierce, Xxxxxx
& Xxxxx Incorporated
World Financial Center
North Tower, 30th Floor
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
MicroStrategy Incorporated
0000 Xxxxxx Xxxxxxxx Xxxxx
Xxxxxx, XX 00000
Ladies and Gentlemen:
The undersigned officer, director or beneficial owner of securities of
MicroStrategy Incorporated, a Delaware corporation (the "Company"), understands
that the Company is engaged in the preparation of a registration statement (the
"Registration Statement") for the public offering (the "Offering") of shares of
its Class A common stock, par value $.001 per share (the "Shares") underwritten
by Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated, Xxxxxxxxx & Xxxxx LLC
(the "Representatives") and several other underwriters (collectively with the
Representatives, the "Underwriters").
The undersigned recognizes that it is in the best financial interest of
the undersigned, as an officer, director or beneficial owner of securities of
the Company, that the Company complete the Offering, and you have requested this
agreement to facilitate the Offering.
In connection therewith, the undersigned hereby agrees that during the
period beginning on the date hereof and continuing to and including the date 180
days after the effective date of the Registration Statement, the undersigned
will not offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder any securities of the Company that are substantially similar
to the Shares, including but not limited to any securities that are convertible
into or exchangeable for, or that represent the right to receive, common stock
or any substantially similar securities.
The undersigned further represents and agrees that the undersigned has
not taken and will not take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of
the Shares, or which has otherwise constituted or will constitute any prohibited
bid for or purchase of the Shares or any related securities.
Notwithstanding the foregoing restrictions on transfer, the undersigned
shall be permitted to make the following transfers: (i) transfers made by gift,
provided the donee thereof agrees in writing to be bound by the terms hereof;
(ii) transfers to the transferor's affiliates, as such term is defined in Rule
405 promulgated under the Securities Act of 1933, as amended, provided that each
transferee agrees in writing to be bound by the terms hereof; (iii) transfers
made with the prior written consent of the Representatives; and (iv) transfers
pursuant to the Registration Statement.
The undersigned also agrees and consents to the entry of stock transfer
instructions with the Company's transfer agent against the transfer of shares of
common stock issued or issuable to the undersigned, except in accordance with
the terms hereof. This instrument shall terminate if the purchase agreement
relating to the Offering (other than the provisions thereof that survive
termination) shall terminate or be terminated prior to payment for the delivery
of the Shares thereunder.
Executed as an instrument under seal.
Sincerely yours,
By: ____________________________
(Signature)
Name: ____________________________
(Print)
Date Signed: ____________, 1998 Title: ____________________________
