Item 1.01 | Entry into a Material Definitive Agreement. |
Convertible Note Offering
On February 19, 2021, MicroStrategy Incorporated (the “Company”) completed its previously announced private offering of 0% convertible senior notes due 2027 (the “notes”). The notes were sold under a purchase agreement, dated as of February 16, 2021, entered into by and between the Company and Jefferies LLC, as representative of the several initial purchasers named therein (the “Initial Purchasers”), for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The aggregate principal amount of the notes sold in the offering was $1.05 billion, which includes $150 million aggregate principal amount of notes issued pursuant to an option to purchase, within a 13-day period beginning on, and including, the date on which the notes were first issued, granted to the Initial Purchasers under the purchase agreement, which the Initial Purchasers exercised in full on February 18, 2021 and which additional purchase was also completed on February 19, 2021.
The net proceeds from the sale of the notes were approximately $1.03 billion after deducting the Initial Purchasers’ discounts and commissions and estimated offering expenses payable by the Company.
The Company intends to use the net proceeds from the sale of the notes to acquire additional bitcoin.
Indenture and the Notes
On February 19, 2021, the Company entered into an indenture (the “Indenture”) with respect to the notes with U.S. Bank National Association, as trustee (the “Trustee”). The notes are senior unsecured obligations of the Company, do not bear regular interest, and the principal amount of the notes does not accrete. The notes will mature on February 15, 2027, unless earlier converted, redeemed or repurchased in accordance with their terms.
The notes are convertible into shares of the Company’s class A common stock at an initial conversion rate of 0.6981 shares per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $1,432.46 per share of class A common stock). The initial conversion price represents a premium of approximately 50% above the last reported sale price of $955.00 of the Company’s class A common stock on the Nasdaq Global Select Market on February 16, 2021. The conversion rate is subject to customary anti-dilution adjustments. In addition, following certain events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its notes in connection with such corporate event or notice of redemption, as the case may be, in certain circumstances as provided in the Indenture.
Prior to August 15, 2026, the notes are convertible only upon the occurrence of certain events. On or after August 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date of the notes, holders may convert the notes at any time. Upon conversion of the notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s class A common stock or a combination of cash and shares of class A common stock, at the Company’s election.
Prior to February 20, 2024, the Company may not redeem the notes. The Company may redeem for cash all or a portion of the notes, at its option, on or after February 20, 2024 if the last reported sale price of the Company’s class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date.
If the Company undergoes a “fundamental change,” as defined in the Indenture, prior to maturity, subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid special interest to, but excluding, the fundamental change repurchase date.
The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% in principal amount of the outstanding notes may declare 100% of the principal of, and accrued and unpaid special interest, if any, on, all the notes to be due and payable.
The foregoing description of the Indenture and the notes does not purport to be complete and is qualified in its entirety by reference to the full text of the Indenture (and the form of note included therein), a copy of which is filed with this Current Report on Form 8-K as Exhibit 4.1 hereto and is hereby incorporated herein by reference.