Exhibit 10.3
REDEMPTION AND EXCHANGE AGREEMENT
REDEMPTION AND EXCHANGE AGREEMENT (the "Agreement"), dated as of April 3,
2001, by and among MicroStrategy Incorporated, a Delaware corporation, with
headquarters located at 8000 Towers Crescent Drive, Vienna, Virginia 22182 (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. Prior to the closing of the transactions contemplated hereby, the
Company will have authorized the following new series of its preferred stock,
par value $0.001 per share: (1) the Company's Series B Convertible Preferred
Stock (the "Series B Preferred Stock"), which shall be 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, in the form attached hereto as Exhibit A
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(the "Series B Certificate of Designations"), (2) the Company's Series C
Convertible Preferred Stock (the "Series C Preferred Stock"), which shall be
convertible into shares of Common Stock (as converted, the "Series C Conversion
Shares"), in accordance with the terms of the Company's Certificate of
Designations, Preferences and Rights of the Series C Preferred Stock, in the
form attached hereto as Exhibit B (the "Series C Certificate of Designations"),
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and (3) the Company's Series D Convertible Preferred Stock (the "Series D
Preferred Stock" and, collectively with the Series B Preferred Stock and the
Series C Preferred Stock, the "Preferred Stock"), which shall be convertible
into shares of Common Stock (as converted, the "Series D Conversion Shares" and,
collectively with the Series B Conversion Shares and the Series C Conversion
Shares, the "Conversion Shares"), in accordance with the terms of the Company's
Certificate of Designations, Preferences and Rights of the Series D Preferred
Stock, in the form attached hereto as Exhibit C (the "Series D Certificate of
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Designations" and, collectively with the Series B Certificate of Designations
and the Series C Certificate of Designations, the "Certificates of
Designations");
C. The Investor is the holder of that number of shares of Series A
Preferred Stock (each a "Series A Preferred Share" and, collectively, the
"Series A 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 900 of the Series A Preferred Shares, and the Investor wishes
to allow the Company to redeem such Series A Preferred Shares, for a redemption
price of $9,000,000 in cash;
E. The Company and the Investor wish to exchange, upon the terms and
conditions set forth in this Agreement, 1,215 of the Series A Preferred Shares
for a number of shares of Common Stock equal to the sum of (i) 2,430,000 shares
of Common Stock, as adjusted for any stock splits, stock dividends, stock
combinations or other similar transactions (the "Fixed Common Shares"), plus
(ii) the Additional Common Shares (as defined in Section 1(b)), subject to
reduction as provided in Section 1(c) (the Fixed Common Shares and the
Additional Common Shares issued pursuant to this Agreement, whether issued
pursuant to Section 1(b) or Section 1(c), are collectively referred to as the
"Common Shares");
F. The Company and the Investor wish to exchange, upon the terms and
conditions set forth in this Agreement, an aggregate of 1,192.5 of the Series A
Preferred Shares for an aggregate of 1,192.5 shares of Series B Preferred Stock,
as adjusted for any stock splits, stock dividends, stock combinations or other
similar transactions (the "Series B Preferred Shares");
G. The Company and the Investor wish to exchange, upon the terms and
conditions set forth in this Agreement, an aggregate of 1,192.5 of the Series A
Preferred Shares for an aggregate of 1,192.5 shares of Series C Preferred Stock,
as adjusted for any stock splits, stock dividends, stock combinations or other
similar transactions (the "Series C Preferred Shares")(if any shares of Series D
Preferred Stock are issued pursuant to this Agreement, then the term "Preferred
Shares" shall mean the Series B Preferred Shares, the Series C Preferred Shares
and the Shares of Series D Preferred Stock issued pursuant to this Agreement;
alternatively, if no shares of Series D Preferred Stock are issued pursuant to
this Agreement, then the term "Preferred Shares" shall mean the Series B
Preferred Shares and the Series C Preferred Shares);
H. The exchange of the Series A Preferred Shares for the Common Shares
and the Preferred Shares is being made in reliance upon the exemption from
registration provided by Section 3(a)(9) of the Securities Act of 1933, as
amended (the "1933 Act"); and
I. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit D (the "Registration Rights Agreement")
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pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW THEREFORE, the Company and the Investor hereby agree as follows:
1. REDEMPTION AND EXCHANGE OF SERIES A PREFERRED SHARES.
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a. Redemption of Series A Preferred Shares. Subject to satisfaction
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(or waiver) of the conditions set forth in Sections 6 and 7, the Company shall
redeem from the Investor and the Investor shall tender to the Company for
redemption on the Closing Date (as
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defined below) that number of the Investor's Series A Preferred Shares set forth
opposite the Investor's name in Column 3 on the Schedule of Investor (the
"Closing"). The redemption price (the "Redemption Price") to be paid by the
Company for each Series A Preferred Share being redeemed at the Closing shall be
$10,000 in cash (such that the aggregate Redemption Price for all Series A
Preferred Shares being redeemed is $9,000,000).
b. Exchange of Series A Preferred Shares. Subject to satisfaction
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(or waiver) of the conditions set forth in Sections 6 and 7, the Company shall
at the Closing (i) except as provided in Section 1(c), issue to the Investor,
and the Investor agrees to exchange that number of such Investor's Series A
Preferred Shares set forth opposite such Investor's name in Column 5 on the
Schedule of Investors for, that number of Common Shares equal to the sum of (A)
the number of Fixed Common Shares set forth opposite the Investor's name in
Column 6 on the Schedule of Investor, plus (B) the Additional Common Shares (as
defined below); (ii) issue to the Investor, and the Investor agrees to exchange
that number of the Investor's Series A Preferred Shares set forth opposite the
Investor's name in Column 7 on the Schedule of Investor for, that number of
Series B Preferred Shares set forth opposite the Investor's name in Column 8 on
the Schedule of Investor; and (iii) issue to the Investor, and the Investor
agrees to exchange that number of the Investor's Series A Preferred Shares set
forth opposite the Investor's name in Column 9 on the Schedule of Investor for,
that number of Series C Preferred Shares set forth opposite the Investor's name
in Column 10 on the Schedule of Investor. The "Additional Common Shares" means
the number of shares of Common Stock determined according to the following
formula:
(0.07)(64/365)($45,000,000)
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(Additional Common Share Dividend Price)
where the "Additional Common Share Dividend Price" means the product of (A) 95%
multiplied by (B) the arithmetic average of the Weighted Average Price (as
defined in the Series A Certificate of Designations) of the Common Stock on each
of the five (5) consecutive trading days beginning on and including the third
trading day after the date on which the Announcing Form 8-K (as defined in
Section 4(f)) is filed with the Securities and Exchange Commission.
c. Alternative Issuance of Series D Preferred Stock. If the
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Investor has not received from the Company the written representation described
in Section 4(m) on or prior to the Closing Date, then, subject to satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7, the Company shall
at the Closing (in lieu of issuing the full amount of the Common Shares which
would otherwise have been issuable pursuant to Section 1(b)(i)) issue to the
Investor, and the Investor agrees to exchange that number of the Investor's
Series A Preferred Shares set forth opposite the Investor's name in Column 6 on
the Schedule of Investor for, both:
i. that reduced number of the Common Shares equal to difference
of (A) 1,768,757 minus (B) the number of Dividend Shares (as
defined in the Series A Certificate of Designations)
received by the Investor on or prior to April 3, 2001, and
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ii. that number of shares of Series D Preferred Stock equal to
the quotient of (A) the difference of (x) the number of
Common Shares which would have been issuable pursuant to
clause (i) of Section 1(b) but for the fact that the
Investor has not received the written representation
referred to in Section 4(m), minus (y) the number of Common
Shares to be issued at the Closing pursuant to clause (i) of
this Section 1(c), divided by (B) 2,000 (the "Series D
Preferred Shares").
d. Closing Date. The date and time of the Closing (the "Closing
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Date") shall be 10:00 a.m. Central Time, on June 4, 2001, 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 June 15, 2001). The Closing
shall occur on the Closing Date at the offices of Katten Muchin Zavis, 525 West
Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
e. Form of Payment. On the Closing Date, (i) the Company (A) shall
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pay to the Investor the aggregate Redemption Price for the Series A Preferred
Shares held by the Investor which the Company is redeeming at the Closing, by
wire transfer of immediately available funds in accordance with such Investor's
written wire instructions, and (B) shall issue and deliver to the Investor
certificates representing the Common Shares and Preferred Shares being issued in
exchange for such Investor's Series A Preferred Shares not being redeemed (in
such denominations as such Investor shall request), and (ii) the Investor shall
deliver to the Company stock certificates (the "Series A Preferred Stock
Certificates") representing such number of the Series A Preferred Shares held by
the Investor (as indicated opposite the Investor's name on the Schedule of
Investor).
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
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The Investor represents and warrants that:
a. Reliance on Exemptions. The Investor understands that the Common
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Shares, the Preferred Shares, the Conversion Shares and the Dividend Shares (as
defined in the Series B Certificate of Designations and the Series C Certificate
of Designations) (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
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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
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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 except as
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provided in the Registration Rights Agreement: (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, (B) the Investor shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) the
Investor provides the Company with reasonable assurance that such Securities can
be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of the Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) 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
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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 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 or other
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instruments representing the Preferred Shares and, until such time as the sale
of the Common Shares and the Conversion Shares have been registered under the
1933 Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Common Shares and the Conversion Shares, except as
set forth below, shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE
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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 SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel
reasonably satisfactory to the Company, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of the Securities may be made
without registration under the 1933 Act, or (iii) such holder provides the
Company with reasonable assurances (including, if requested by the Company,
delivering such reasonable assurances to the Company's counsel in connection
with such counsel rendering an opinion on the validity of a sale by the Investor
pursuant to Rule 144) that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold.
f. Authorization; Enforcement; Validity. This Agreement and the
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Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Investor and are valid and binding agreements of
the Investor enforceable against the Investor in accordance with their 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. Residency. The Investor is a resident of that country specified
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in its address on the Schedule of Investor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to the Investor that:
a. Organization and Qualification. The Company and its
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"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
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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 business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations, or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below) or any of the
Certificates of Designations. A complete list of entities in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest is set forth on Schedule 3(a).
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b. Authorization; Enforcement; Validity. The Company has the
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requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, 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
thereof and to redeem the 900 Series A Preferred Shares being redeemed pursuant
to this Agreement. The execution and delivery of the Transaction Documents by
the Company and the execution and filing of each of the Certificates of
Designations by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the redemption and
exchange of the Series A Preferred Shares, the issuance of the Common Shares and
the Preferred Shares and the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion of the Preferred Shares, have been
duly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders (except to the extent that stockholder approval may be required
pursuant to the rules of the Nasdaq National Market for the issuance of a number
of shares of Common Stock greater than that number of shares of Common Stock
that the Company may issue without breaching the Company's obligations under the
rules or regulations of the Nasdaq National Market (the "Nasdaq 19.99% Rule")).
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. Each of the Certificates of Designations has been filed
prior to the Closing Date with the Secretary of State of the State of Delaware
and will be in full force and effect, enforceable against the Company in
accordance with its terms and shall not have been amended unless in compliance
with its terms.
c. Capitalization. As of the date hereof, the authorized capital
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stock of the Company consists of (i) 330,000,000 shares of Class A common stock,
of which as of the date
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hereof 30,654,653 shares are issued and outstanding, 6,842,861 shares are
reserved for issuance pursuant to the Company's stock option and purchase
plans, 50,975,624 shares are reserved for issuance pursuant to conversion of the
Company's Class B common stock and 128,334 shares are issuable and reserved for
issuance pursuant to securities (other than the Series A Preferred Stock, the
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 50,975,624 shares are issued and outstanding and (iii) 5,000,000
shares of preferred stock, of which as of the date hereof 12,500 shares of
Series A Preferred Stock are issued and 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, the Company has outstanding options to
purchase 16,052,215 shares of Common Stock and outstanding warrants to purchase
128,334 shares of Common Stock. Except as disclosed in Schedule 3(c), (A) no
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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) 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) 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 the
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
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and the Preferred Shares will be duly authorized and, upon issuance in
accordance with the terms hereof, shall be (i) validly issued, fully paid and
non-assessable, (ii) free from all taxes, liens and charges with respect to the
issuance thereof and (iii) with respect to the Preferred Shares, entitled to the
rights and preferences set forth in the respective Certificates of Designations.
As of the Closing,
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at least 125% of that number of shares of Common Stock issuable upon conversion
of all the Preferred Shares outstanding immediately following the Closing
(without regard to any limitations on conversions, but subject to adjustment
pursuant to the Company's covenant set forth in Section 4(d) below) will have
been duly authorized and reserved for issuance upon conversion of the Preferred
Shares. Upon conversion or issuance in accordance with the applicable
Certificates of Designations, the Conversion Shares and the Dividend Shares, as
the case may be, will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. The
issuance by the Company of the Securities is exempt from registration under the
1933 Act.
e. No Conflicts. The execution, delivery and performance of the
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Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificates of Designations and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the reservation for issuance and issuance of the Conversion Shares)
will not (i) result in a violation of the Certificate of Incorporation or the
By-laws; (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party; (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market (as
defined below)) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries is bound or
affected. Neither the Company nor its Subsidiaries is in violation of any term
of its Certificate of Incorporation or its By-laws or their organizational
charter or by-laws, respectively. Except as disclosed in Schedule 3(e), neither
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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. Except as specifically contemplated by this Agreement, as required
under the 1933 Act, as required by Blue Sky filings or as required by the Nasdaq
19.99% Rule, the Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by the
Transaction Documents or to perform its obligations under the Certificates of
Designations in accordance with the terms hereof or thereof. Except as
disclosed in Schedule 3(e), all consents, authorizations, orders, filings and
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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. The Company is not in violation of the
listing
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requirements of the Principal Market, including, without limitation, the
requirements set forth in Rule 4310(c)(25)(H)(i) of The Nasdaq Stock Market's
Marketplace Rules.
f. SEC Documents; Financial Statements. Since December 31, 1999,
-----------------------------------
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"). A complete list of the Company's SEC Documents is set forth on
Schedule 3(f). Except as disclosed on Schedule 3(f), as of the date hereof,
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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. Except as disclosed on Schedule 3(f), as of their respective dates,
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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. Except as
disclosed on Schedule 3(f), such financial statements have been prepared in
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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 Investor 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 date hereof, the Company meets the requirements for use
of Form S-3 for registration of the resale of Registrable Securities (as defined
in the Registration Rights Agreement). The Company is not required to file and
will not be required to file any agreement, note, lease, mortgage, deed or other
instrument entered into prior to the date hereof and to which the Company is a
party or by which the Company is bound which has not been previously filed as an
exhibit to its reports filed with the SEC under the 1934 Act.
g. Absence of Certain Changes. 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, 2000, since December 31, 2000, there has been no change or
development that has had or could reasonably be expected to have a Material
Adverse Effect. 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
10
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. 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, 2000, since
December 31, 2000, the Company has not declared or paid any dividends, sold any
assets, individually or in the aggregate, in excess of $500,000 outside of the
ordinary course of business or had capital expenditures, individually or in the
aggregate, in excess of $1,000,000.
h. Acknowledgment Regarding Redemption and Exchange of Investor's
--------------------------------------------------------------
Series A 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 Certificates of Designations and
the transactions contemplated hereby and thereby. The Company further
acknowledges that the 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 Certificates of Designations and the transactions contemplated
hereby and thereby and any advice given by the Investor or any of its
representatives or agents in connection with the Transaction Documents and the
Certificates of Designations and the transactions contemplated hereby and
thereby is merely incidental to the Investor's entering into this Agreement. The
Company further represents to the 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.
i. No Solicitation. Neither the Company, nor any of its
---------------
affiliates, nor any person acting on its or their behalf, has paid or given,
either directly or indirectly, any commission or other remuneration to any
person for soliciting the exchange of the Series A Preferred Shares for the
Common Shares or the Preferred Shares or for any other transaction contemplated
by this Agreement.
j. 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 A
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 A Preferred Stock).
k. 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 Investor
as a
11
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.
l. 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.
m. No Other Agreements. The Company has not, directly or
-------------------
indirectly, made any agreements with the Investor relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
n. Information. Neither the Company nor any of its Subsidiaries
-----------
nor any of their officers, directors, employees or agents have provided the
Investor 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 Sections 6
and 7 of this Agreement. Without limiting the generality of the foregoing, the
Company shall use its best efforts to obtain the consent of Foothill Capital
Corporation to the transactions contemplated by the Transaction Documents by
June 4, 2001.
b. Reporting Status. Until the later of (i) the date which is one
----------------
year after the date as of which the Investor may sell all of the Common Shares
and the Conversion Shares without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) and (ii) the date which is
one (1) year after the Maturity Date (as defined in each of the Certificates of
Designations) (the "Reporting Period"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
c. Financial Information. The Company agrees to send the following
---------------------
to the Investor during the Reporting Period: (i) within two (2) days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, provided that if any such report is not filed with the SEC through
EDGAR then the Company shall deliver a copy of such report to the Investor by
facsimile on the same day it is filed with the SEC; (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries; and (iii) copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
12
d. Reservation of Shares. The Company shall take all action necessary to
---------------------
at all times have authorized, and reserved for the purpose of issuance, no less
than 125% of the number of shares of Common Stock needed to provide for the
issuance of the shares of Common Stock upon conversion of all outstanding
Preferred Shares (without regard to any limitations on conversions).
e. Listing. The Company shall promptly secure the listing of all of the
-------
Registrable Securities (as defined in the Registration Rights Agreement) 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 Registrable Securities from time to time
issuable under the terms of the Transaction Documents and the Certificates of
Designations. The Company shall use its best efforts to maintain the Common
Stock's authorization for quotation on the Nasdaq National Market ("NASDAQ") or
listing on The New York Stock Exchange, Inc. ("NYSE") (as applicable, the
"Principal Market"). Neither the Company nor any of its Subsidiaries shall take
any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock from the Principal Market. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(e).
f. Disclosure of Transactions and Other Material Information. On or
---------------------------------------------------------
before April 4, 2001, 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 A
Preferred Stock (the "Other Holder Documents") and including as exhibits to such
Current Report on Form 8-K this Agreement, each of the Certificates of
Designations, the Registration Rights Agreement and the Other Holder Documents,
in the form required by the 1934 Act. If the Closing does not occur on June 4,
2001 (or such later date as the Company and each Investor agree in writing),
then the Company shall file on June 4, 2001 (or such later date as the Company
and each Investor agree in writing), a Current Report on Form 8-K with the SEC
disclosing that the Closing did not occur. The Company has furnished to the
Investor a true and correct copy of the Company's Annual Report on Form 10-K for
the year ended December 31, 2000 as such Form 10-K has been or will be filed
with the SEC on or prior to the date the Announcing Form 8-K is filed with the
SEC. 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 of the breach from the
Investor, in addition to any other remedy provided herein or in the Transaction
Documents,
13
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).
g. Proxy Statement. The Company shall provide each stockholder entitled
---------------
to vote at the next annual meeting of stockholders of the Company, which meeting
shall occur on or before July 31, 2001 (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 annual stockholder meeting for approval of the Company's issuance of all of
the Securities as described in 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 Securities and to cause the Board of Directors of the Company to recommend
to the stockholders that they approve such proposal.
h. Corporate Existence. So long as the Investor beneficially owns any
-------------------
Preferred Stock, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is quoted on or listed for trading on Nasdaq or
NYSE.
i. 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 shall not be required to provide the Company with
any notice of the Investor's effecting a pledge of Securities thereof or
otherwise make any delivery to the Company pursuant to this Agreement, any other
Transaction Document or the Certificates of Designations, 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.
14
j. Limitation on Net Sales of Common Stock. So long as the Investor
---------------------------------------
holds any Preferred Shares, Conversion Shares or Common Shares, the Investor
agrees that it will not enter into, directly or indirectly, any net sales of
Common Stock 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)1.8% of the daily trading volume for the Common Stock (as reported by
Bloomberg Financial Markets ("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 date immediately
preceding the Limited Sales Day with respect to which this determination is
being made, less the net sales of Common Stock 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 any Change of Control (as defined in Section 4(b) of the Series B
Certificate of Designations) or an announcement of any pending, proposed or
intended Change of Control, (ii) on and after the first date on which there has
occurred a Triggering Event (as defined in Section 3(b) of the applicable
Certificates of Designations) or an event that with the passage of time and
without being cured would constitute a Triggering Event, (iii) if the Company is
in default under any of the Certificates of Designations for failing to effect
any requested conversion or redemption of any Preferred Shares pursuant to the
applicable Certificates of Designations, (iv) 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),
except for the Settlement Notes (as defined in Section 2(f)(i) of the Series B
Certificate of Designations), (v) on and after the Stockholder Meeting Deadline,
if the Company fails to receive the Stockholder Approval on or before the
Stockholder Meeting Deadline, (vi) on and after the 30th trading day prior to
the date which is three (3) years after the Closing Date, or (vii) with respect
to any sale of Common Stock at a price equal to or greater than $17.50 (as
adjusted for any stock splits, stock dividends, stock combinations or other
similar transactions) and any such sale shall be ignored for all purposes of
this Section 4(k).
k. Restrictions on Issuances of Preferred Shares. The Company shall
---------------------------------------------
not issue any shares of Series B Preferred Stock or Series D Preferred Stock to
anyone other than the Investor, except on the Closing Date concurrent with the
Closing to holders of the Series A Preferred Stock.
l. Supplemental Representation Regarding the Nasdaq 19.99% Rule. If
------------------------------------------------------------
the Company receives written confirmation from NASDAQ that both the Common Stock
and the Company's Class B common stock, par value $0.001 per share, are included
for purposes of the Nasdaq 19.99% Rule (the "Nasdaq Confirmation"), then the
Company shall provide to the Investor a letter or other written document
containing the following representation:
Under the Nasdaq 19.99% Rule, both the Common Stock and the
Company's Class B common stock, par value $0.001 per share, are
included when making a determination regarding the number of
shares of common stock outstanding
15
immediately prior to June 19, 2000, or at any other time a determination of
the number of shares outstanding is made for purposes of the Nasdaq 19.99%
Rule or determining the Exchange Cap (as defined in Section 12 of the
Series B Certificate of Designations and in Section 11 of the Series D
Certificate of Designations).
5. TRANSFER AGENT INSTRUCTIONS.
---------------------------
The Company shall issue irrevocable instructions to its transfer agent
in the form attached hereto as Exhibit D (the "Irrevocable Transfer Agent
---------
Instructions"), and any subsequent transfer agent, to issue certificates,
registered in the name of the Investor or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to time by the Investor
to the Company upon conversion of the Preferred Shares. Prior to registration of
the Common Shares and the Conversion Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(b) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 2(b) hereof (in the case of the Common
Shares and the Conversion Shares, prior to registration of the Common Shares and
the Conversion Shares under the 1933 Act) will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. If the Investor provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of Securities may be made
without registration under the 1933 Act or the Investor provides the Company
with reasonable assurances (including, if requested by the Company, delivering
such reasonable assurances to the Company's counsel in connection with such
counsel rendering an opinion on the validity of a sale by such Investor pursuant
to Rule 144) that the Securities can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold, the Company shall permit the transfer, and, in the
case of the Common Shares and the Conversion Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by the 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.
16
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.
--------------------------------------------------
The obligation of the Company to redeem and exchange the Series A
Preferred Shares (including the issuance of the applicable number of Common
Shares and Preferred Shares to the Investor) 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 each of the Transaction Documents
to which it is a party and delivered the same to the Company.
b. Each of the Certificates of Designations shall have been filed with
the Secretary of State of the State of Delaware;
c. The Investor shall have delivered to the Company the Series A
Preferred Stock Certificates representing the Series A Preferred Shares to be
redeemed or exchanged by the Company from the Investor at the Closing.
d. 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.
e. The Company shall have obtained the consent of Foothill Capital
Corporation to the transactions contemplated by the Transaction Documents.
f. The Company shall have entered into separate redemption and
exchange agreements relating to the Series A Preferred Stock with each of the
Other Investors and all conditions to the closings contemplated by such
agreements shall have been satisfied or waived.
7. CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING.
---------------------------------------------------
The obligation of the Investor hereunder to tender the Series A
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.
17
b. Each of the Certificates of Designations shall have been filed with the
Secretary of State of the State of Delaware, and a copy of each certified by the
Secretary of State of the State of Delaware shall have been delivered to the
Investor.
c. The Company shall have delivered to the Investor the Redemption Price
for the number of Series A Redemption Shares being redeemed by the Company from
the Investor (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(j) by wire transfer of immediately available funds to the
Investor or its designee(s)).
d. The Company shall have executed and delivered to the Investor the stock
certificates (in such denominations as the Investor shall request) for the
Common Shares and the Preferred Shares being issued in exchange for the
Investor's Series A Preferred Shares (as set forth in Section 1(b)) at the
Closing.
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 nor shall suspension by
the SEC have been threatened in writing by the SEC; and the Common Shares and
the Conversion Shares issuable upon conversion of the Preferred 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 Hale and Dorr LLP,
dated as of the Closing Date, in the form of Exhibit F 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 the
Investor, including, without limitation, containing a determination by the Board
of Directors of the Company that immediately prior to the Closing the capital of
the Company is not impaired (as determined in accordance with Section 160(a)(1)
of the Delaware General Corporation Law) and that immediately follwoing the
Closing and after giving effect to the redemption of all the shares
18
of the Company's Series A Preferred Stock which the Company redeemed at the
Clsoing, 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) (as (the "Resolutions").
i. As of the Closing Date, the Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, at least 125% of that number of shares of
Common Stock issuable upon conversion of all the Preferred Shares outstanding
immediately following the Closing (without regard to any limitations on
conversions).
j. The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged in
- ---------
writing by the Company's transfer agent.
k. The Company shall have delivered to the Investor a certificate
evidencing the incorporation and good standing of (i) the Company and each
Subsidiary in such entity's state of incorporation or organization issued by the
Secretary of State of such state of incorporation or organization, 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.
l. 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.
m. 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.
n. certifying the number of shares of Common Stock outstanding as of
a date within five days of the Closing Date.
o. The Company shall have delivered to the Investor such other
documents relating to the transactions contemplated by the Transaction Documents
as the Investor or their 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 and the Certificates of Designations, 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
19
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(c) any cause of action, suit or claim brought or made against such Indemnitee
(other than a cause of action, suit or claim which is (x) brought or made by the
Company and (y) is not a shareholder derivative suit) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, or (ii) the status of 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 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
20
HEREBY.
b. Counterparts. This Agreement may be executed in two or more identical
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
c. Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Effect on Prior Agreements; Amendments.
--------------------------------------------------------
i. Except for the Securities Purchase Agreement, the Registration
Rights Agreement dated as of June 17, 2000 by and among the Company, the
Investor 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, between the Company and the Investor, and the Irrevocable
Transfer Agent Instructions (as defined in the Securities Purchase Agreement),
this Agreement, the Certificates of Designations and each of the other
Transaction Documents supersede all other prior oral or written agreements
between the 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 the Investor
makes any representation, warranty, covenant or undertaking with respect to such
matters.
ii. If the Closing occurs on or prior to June 4, 2001 (or such later
date as the Company and the Investor agree in writing), then effective as of the
Closing, the Investor permanently waives the Company's compliance with its
obligations under the Securities Purchase Agreement, except for Sections 8 and 9
of the Securities Purchase Agreement. If the Closing occurs on or prior to June
4, 2001 (or such later date as the Company and the Investor agree in writing),
then effective as of the Closing, the Investor permanently waives the Company's
compliance with its obligations under the Series A Registration Rights
Agreement, except for Sections 5, 6 and 7 of the Series A Registration Rights
Agreement. If the Closing occurs on or prior to June 4, 2001 (or such later date
as the Company and the Investor agree in writing), then effective as of the
Closing, the Company permanently waives the Investor's compliance with its
obligations under the Series A Registration Rights Agreement, except for
Sections 6 and 7 of the Series A Registration Rights Agreement.
21
iii. No provision of this Agreement may be amended or waived
other than by an instrument in writing signed by the Company and the holders of
at least two-thirds ([]) of the Common Shares and Conversion Shares (assuming
conversion of all outstanding Preferred Shares without giving effect to any
limitations on conversion) or, if prior to the Closing Date, 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 or the Certificates of
Designations unless the same consideration also is offered to all of the parties
to the Transaction Documents or holders of Securities, as the case may be.
f. Notices. Any notices, consents, waivers or other communications
-------
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
MicroStrategy Incorporated
8000 Towers Crescent Drive
Vienna, Virginia 22182
Telephone: (703) 848-8600
Facsimile: (703) 744-6050
Attention: Eric F. Brown, Chief Financial Officer
With a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Telephone: (617) 526-6000
Facsimile: (617) 526-5000
Attention: Thomas S. Ward, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Co.
40 Wall Street, 46/th/ Floor
New York, NY 10005
Telephone: (718) 921-8360
Facsimile: (718) 921-8310
Attention: Karen Lazar
22
If to the Investor, to it at the address and facsimile number set forth on
the Schedule of Investor, with copies to the 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 holders of at least two-thirds ([]) of the Common Shares and
Conversion Shares (assuming conversion of all outstanding Preferred Shares
without giving effect to any limitations on conversion), including by merger or
consolidation, except pursuant to a Change of Control (as defined in Section
4(b) of the Series B Certificate of Designations) with respect to which the
Company is in compliance with Section 4 of each of the Certificates of
Designations and Section 4(h) 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.
h. No Third Party Beneficiaries. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
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.
23
k. Termination. In the event that the Closing shall not have
-----------
occurred with respect to the Investor on or before June 4, 2001 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 the nonbreaching Investor
for the expenses described in Section 4(j) above.
l. Placement Agent. The Company acknowledges that it has not engaged
---------------
a placement agent in connection with the transactions contemplated by this
Agreement; however, the Company has engaged Friedman, Billings & Ramsey, Inc. as
a financial advisor in connection with the transactions contemplated by this
Agreement. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions relating to or
arising out of the transactions contemplated hereby. The Company shall pay, and
hold each Buyer 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 the
Certificates of Designations and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
o. Payment Set Aside. To the extent that the Company makes a payment
-----------------
or payments to the Investor hereunder or pursuant to the Registration Rights
Agreement, any of the Certificates of Designations 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 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, 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 Securities Purchase Agreement, the Series A Registration Rights
Agreement and the Series A 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
Investor, (ii) any of the Investor's respective 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 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 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
or Sections 5, 6 or 7 of the Series A Registration Rights Agreement.
* * * * * *
IN WITNESS WHEREOF, the Investor and the Company have caused this
Redemption and Exchange Agreement to be duly executed as of the date first
written above.
COMPANY: INVESTOR:
MICROSTRATEGY INCORPORATED LEONARDO, L.P.
By: /s/ Michael J. Saylor By: Angelo, Gordon & Co., L.P.
- --------------------------------------------
Name: Michael J. Saylor
- --------------------------------------------
Its: Chairman and Chief Executive Officer
- --------------------------------------------
By: /s/ John M. Angelo
---------------------------
Name: John M. Angelo
-------------------------
Its: Chief Executive Officer
--------------------------
SCHEDULE OF INVESTOR
(Page 1 of 2)
(1) (2) (3) (4) (5) (6) (7) (8)
Total Number Series A Aggregate Series A Total Fixed Series A Total
Investor's Name, Address of Series A Preferred Redemption Preferred Shares Common Preferred Series B
and Facsimile Number Preferred Shares Being Price Being Exchanged Shares Shares Being Preferred
Shares Redeemed for Common Exchanged Shares
Shares for Series B
- -----------------------------------------------------------------------------------------------------------------------------------
Leonardo, L.P. 4,500 900 $9,000,000 1,215 2,430,000 1,192.5 1,192.5
%Angelo, Gordon & Co., L.P.
245 Park Avenue - 26/th/ Floor
New York, New York 10167
Attention: Ari Storch
Adam J. Chill
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
(Representatives)
Angelo, Gordon & Co., L.P.
245 Park Avenue - 26/th/ Floor
New York, New York 10167
Attention: Ari Storch
Adam J. Chill
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
(1) (9) (10)
Series A Preferred Total Series C
Investor's Name, Address Shares Being Preferred
and Facsimile Number Exchanged for Shares
Series C
- ------------------------------------------------------------------------------------------------------
Leonardo, L.P. 1,192.5 1,192.5
%Angelo, Gordon & Co., L.P.
245 Park Avenue - 26/th/ Floor
New York, New York 10167
Attention: Ari Storch
Adam J. Chill
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
(Representatives)
Angelo, Gordon & Co., L.P.
245 Park Avenue - 26/th/ Floor
New York, New York 10167
Attention: Ari Storch
Adam J. Chill
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
SCHEDULES
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(f) - SEC Documents
Schedule 3(g) - Material Changes
EXHIBITS
- --------
Exhibit A - Form of Series B Certificate of Designations
Exhibit B - Form of Series C Certificate of Designations
Exhibit C - Form of Series D Certificate of Designations
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Irrevocable Transfer Agent Instructions
Exhibit F - Form of Company Counsel Opinion
EXHIBIT A
Form of Series B Certificate of Designations
[Filed as Exhibit 10.4 to Current Report on Form
8-K of MicroStrategy Incorporated dated April 3, 2001]
EXHIBIT B
Form of Series C Certificate of Designations
[Filed as Exhibit 10.5 to Current Report on Form
8-K of MicroStrategy Incorporated dated April 3, 2001]
EXHIBIT C
Form of Series D Certificate of Designations
[Filed as Exhibit 10.6 to Current Report on Form
8-K of MicroStrategy Incorporated dated April 3, 2001]
EXHIBIT D
Form of Registration Rights Agreement
[Filed as Exhibit 10.9 to Current Report on Form
8-K of MicroStrategy Incorporated dated April 3, 2001]