EXHIBIT 10.3
AMENDED AND RESTATED
REDEMPTION AND EXCHANGE AGREEMENT
THIS AMENDED AND RESTATED REDEMPTION AND EXCHANGE AGREEMENT (this
"Agreement"), dated as of June 14, 2001, by and among MicroStrategy
Incorporated, a Delaware corporation, with headquarters located at 1861
International Drive, McLean, Virginia 22102 (the "Company"), and the investor
listed on the Schedule of Investors attached hereto (the "Investor"), amends and
restates in its entirety, subject to Section 9(d) hereof, that certain
redemption and exchange agreement, dated as of April 3, 2001, by and among the
Company and the Investor, as amended by Amendment No. 1 to Redemption and
Exchange Agreement, dated as of June 4, 2001, Amendment No. 2 to Redemption and
Exchange Agreement, dated as of June 8, 2001, and Amendment No. 3 to Redemption
and Exchange Agreement, dated as of June 12, 2001 (as amended prior to this
Agreement, the "Original Redemption and Exchange Agreement").
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
---------
(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"),
---------
and (3) the Company's Series E Convertible Preferred Stock (the "Series E
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 E 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 E Preferred
Stock, in the form attached hereto as Exhibit C (the "Series E Certificate of
---------
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 Investors;
D. Upon the terms and conditions set forth in this Agreement, the
Company wishes to redeem an aggregate of 450 of the Series A Preferred Shares,
and the Investor wishes to allow the Company to redeem such Series A Preferred
Shares, for an aggregate redemption price of $4,500,000 in cash;
E. The Company and the Investor wish to exchange, upon the terms and
conditions set forth in this Agreement, an aggregate of 1,395 of the Series A
Preferred Shares for (i) an aggregate of 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)) (the Fixed Common Shares and the
Additional Common Shares 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");
H. The Company and the Investor wish to exchange, upon the terms and
conditions set forth in this Agreement, an aggregate of 270 of the Series A
Preferred Shares for an aggregate of 270 shares of Series E Preferred Stock, as
adjusted for any stock splits, stock dividends, stock combinations or other
similar transactions (the "Series E Preferred Shares" and, collectively with the
Series B Preferred Shares and the Series C Preferred Shares, the "Preferred
Shares");
J. 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
K. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering an Amended and Restated
Registration Rights Agreement in the form attached hereto as Exhibit D (the
---------
"Amended and Restated Registration Rights Agreement") 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.
2
NOW THEREFORE, the Company and the Investor hereby agree as follows:
1. REDEMPTION AND EXCHANGE OF SERIES A PREFERRED SHARES.
----------------------------------------------------
a. Redemption of Series A Preferred Shares. Subject to
---------------------------------------
satisfaction (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 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 Investors (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 $4,500,000,
as set forth opposite the Investor's name in Column 4 on the Schedule of
Investors).
b. Exchange of Series A Preferred Shares. Subject to
-------------------------------------
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7, the
Company shall at the Closing (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 5 on the Schedule of Investors, for (A)
that number of Fixed Common Shares set forth opposite the Investor's name in
Column 6 on the Schedule of Investors 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 Investors for, that number of
Series B Preferred Shares set forth opposite the Investor's name in Column 8 on
the Schedule of Investors; (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 Investors for, that
number of Series C Preferred Shares set forth opposite the Investor's name in
Column 10 on the Schedule of Investors; and (iv) 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 11 on the Schedule of
Investors for, that number of Series E Preferred Shares set forth opposite the
Investor's name in Column 12 on the Schedule of Investors. The "Additional
Common Shares" means (A) 263,407 shares of Common Stock, plus (B) the number of
shares of Common Stock determined according to the following formula:
$1,800,000
---------------------------
(Additional Common Share Exchange Price)
where the "Additional Common Share Exchange Price" means 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 ending on and including June 8, 2001.
c. Closing Date. The date and time of the Closing (the
------------
"Closing Date") shall be 10:00 a.m. Central Time, on June 14, 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
3
Closing shall occur on the Closing Date at the offices of Katten Muchin Zavis,
525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
d. Form of Payment. On the Closing Date, (i) the Company (A)
---------------
shall pay to the Investor the 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 the Investor's
written wire instructions, and (B) shall issue and deliver to the Investor
certificates representing the Common Shares and the Preferred Shares being
issued in exchange for the Investor's Series A Preferred Shares not being
redeemed (in such denominations as the 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 Investors).
2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
-----------------------------------------
The Investor represents and warrants that:
a. Reliance on Exemptions. The Investor understands that the
----------------------
Common Shares, the Preferred Shares, the Conversion Shares and the Dividend
Shares (as defined in each of the Series B Certificate of Designations, the
Series C Certificate of Designations and the Series E 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 States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
c. Transfer or Resale. The Investor understands that except as
------------------
provided in the Amended and Restated 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
4
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 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 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 Amended and Restated 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 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
5
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 Amended and Restated 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 in its address on the Schedule of Investors.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to the Investor that:
a. Organization and Qualification. The Company and its
------------------------------
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest which ownership entitles the Company to elect a majority of the
board of directors or similar governing body of such entity) are corporations
duly organized and validly existing in good standing under the laws of the
jurisdiction in which they are incorporated, and have the requisite corporate
power and authorization to own their properties and to carry on their business
as now being conducted. Each of the Company and its Subsidiaries is duly
qualified as a foreign corporation to do 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).
-------------
6
b. Authorization; Enforcement; Validity. The Company has the
------------------------------------
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Amended and Restated Registration Rights
Agreement, the Certificates of Designations, the Irrevocable Transfer Agent
Instructions (as defined in Section 5) and each of the other agreements entered
into by the parties hereto in connection with the transactions contemplated by
this Agreement (collectively, the "Transaction Documents"), and to issue the
Securities in accordance with the terms hereof and thereof and to redeem the 600
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 stock of the Company consists of (i) 330,000,000 shares of Class A
common stock, of which as of the date hereof 31,230,461 shares are issued and
outstanding, 29,016,777 shares are reserved for issuance pursuant to the
Company's stock option and purchase plans (including shares reserved for
issuance upon exercise of options which have already been issued, but have not
yet been exercised, under such plans), 50,973,527 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 50,973,527 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 21,288,229 shares of Common
Stock and outstanding warrants to purchase 128,334 shares of Common Stock.
Except as disclosed in
7
Schedule 3(c), (A) no shares of the Company's capital stock are subject to
- -------------
preemptive rights or any other similar rights (arising under Delaware law,
Virginia law, the Company's Certificate of Incorporation or By-laws or any
agreement or instrument to which the Company is a party) any liens or
encumbrances granted or created by the Company; (B) 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. For purposes of the Nasdaq 19.99% Rule, both the shares of
Common Stock and the shares of the Company's Class B common stock, par value
$0.001, are included in the number of outstanding shares for purposes of
determining what percentage of the Company's outstanding shares may be issued
without violating the Nasdaq 19.99% Rule.
d. Issuance of Securities. As of the Closing, the Common
----------------------
Shares and the Preferred Shares will have been duly authorized and, upon
issuance in accordance with the terms hereof, shall be (i) validly issued, fully
paid and non-assessable, (ii) free from all taxes, liens and charges with
respect to the issuance thereof and (iii) with respect to the Preferred Shares,
entitled to the rights and preferences set forth in the respective Certificates
of Designations. As of the Closing, (A) at least 125% of that number of shares
of Common Stock issuable upon conversion of all the Series B Preferred Shares
and the Series C 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 such
Preferred Shares and (B) at least 1,157,143 of shares of Common Stock will have
been duly authorized and reserved for issuance upon conversion of the Series E
Preferred Shares, subject to adjustment pursuant to the Company's covenant set
forth in Section 4(d) below). Upon conversion or issuance in accordance with the
applicable Certificates of Designations, the Conversion Shares and the
8
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 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) except as disclosed in Schedule 3(e), conflict with, or constitute
-------------
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its Subsidiaries is a party; (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and regulations
of the Principal Market (as defined below)) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Neither the Company nor its Subsidiaries is
in violation of any term of its Certificate of Incorporation or its By-laws or
their organizational charter or by-laws, respectively. Except as disclosed in
Schedule 3(e), neither the Company or any of its Subsidiaries is in violation of
- -------------
any term of or in default under any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except where such
violations and defaults would not result, either individually or in the
aggregate, in a Material Adverse Effect. The business of the Company and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, ordinance or regulation of any governmental entity, except where such
violations would not result, either individually or in the aggregate, in a
Material Adverse Effect. 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
-------------
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
f. SEC Documents; Financial Statements. Since December 31,
-----------------------------------
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
9
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, 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,
-------------
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
-------------
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 Amended and Restated 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, in the Company's Quarterly Report on Form 10-Q for the
Three Months Ended March 31, 2001 or in the Company's Current Report on Form 8-K
dated April 30, 2001, 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 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, the Company's
Quarterly Report on Form 10-Q for the Three Months Ended March 31, 2001 or the
Company's Current Report on Form 8-K dated April 30, 2001, since December 31,
2000, the Company has not declared or paid any dividends, sold any assets,
individually or in the
10
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 any of 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 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.
11
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.
o. Other Information. Schedule 3(o) includes certain
----------------- -------------
information about the Company.
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 14, 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.
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 (i) 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 Series B Preferred Shares and Series C Preferred Shares (without
regard to any limitations on conversions) and (ii) 150% of the number of shares
12
of Common Stock needed to provide for the issuance of the shares of Common Stock
upon conversion of all outstanding Series E Preferred Shares (without regard to
any limitations on conversions), assuming for purposes of this determination
that the Conversion Price (as defined in the Series E Certificate of
Designations) for the Series E Preferred Shares is $3.50 (subject to adjustment
for stock splits, stock dividends, stock combinations and other similar
transactions after the Closing Date) during the period beginning on the Closing
Date and ending on and including the date which is 180 days after the Closing
Date).
e. Listing. The Company shall promptly secure the listing of
-------
all of the Registrable Securities (as defined in the Amended and Restated
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.
---------------------------------------------------------
Before 9:00 a.m. (Eastern Time) on June 18, 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 (including the
Disclosure Schedules to this Agreement), each of the Certificates of
Designations, the Amended and Restated Registration Rights Agreement and the
Other Holder Documents, in the form required by the 1934 Act. If the Closing
does not occur on June 14, 2001 (or such later date as the Company and the
Investor agree in writing), then the Company shall file on June 15, 2001 (or
such later date as the Company and the Investor agree in writing), a Current
Report on Form 8-K with the SEC disclosing that the Closing did not occur. From
and after the filing of the Announcing Form 8-K with the SEC, the Investor shall
not be in possession of any material nonpublic information received from the
Company, any of its Subsidiaries or any of its respective officers, directors,
employees or agents, that is not disclosed in the Announcing Form 8-K. The
Company shall not, and shall cause each of its Subsidiaries and its and each of
their respective officers, directors, employees and agents not to, provide the
Investor with any material nonpublic information regarding the Company or any of
its Subsidiaries from and after the filing of the Announcing Form 8-K with the
SEC without the express written consent of the Investor. In the event of a
breach of the foregoing covenant by the Company, any of its Subsidiaries, or any
of its or their respective officers, directors, employees and agents, or in the
event the Investor receives notice of a Loan Default (as defined in Section 1 of
the Series E Certificate of Designations) from Foothill Capital Corporation
pursuant to Section 1 of the Series E Certificate of
13
Designations, and if the Company has not publicly disclosed the material
nonpublic information within 12 hours of written notice from the Investor of the
breach or the Loan Default notice, in addition to any other remedy provided
herein or in the Transaction Documents, the Investor shall have the right to
make a public disclosure, in the form of a press release, public advertisement
or otherwise, of such material nonpublic information without the prior approval
by the Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. The Investor shall have no 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 their 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 if the Investor effects a pledge of Securities, the
Investor shall not be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement, any other
Transaction Document or the 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
14
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.
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) the product of (A) the quotient of (x) the number of Series A
Preferred Shares held by the Investor on the date of this Agreement, divided by
(y) 4,500, multiplied by (B) 2.4% 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 30/th/ 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(j).
k. Restrictions on Issuances of Preferred Shares. The Company
---------------------------------------------
shall not issue any shares of Series B Preferred Stock, Series C Preferred Stock
or Series E 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. Notice of Loan Default. If the Company or the lender under
----------------------
the Loan and Security Agreement (as defined in the Series E Certificate of
Designations) delivers notice of a Loan Default (as defined in Section 1 of the
Series E Certificate of Designations) to an Investor pursuant to Section 1 of
the Certificate of Designations or the Company delivers an Elective Default
Notice (as defined in Section 6 of the Series E Certificate of Designations)
pursuant to Section 6 of the Series E Certificate of Designations or the Company
delivers a Proceeds Default
15
Notice (as defined in Section 7 of the Series E Certificate of Designations)
pursuant to Section 7 of the Series E Certificate of Designations, and in any
such case there no longer exists a Loan Default, then in each such case the
Company shall deliver written notice ("Loan Default Cure Notice") to each
Investor within one (1) Business Day of such Loan Default no longer being in
existence; provided that prior to or current with the Company's delivery of a
Loan Default Cure Notice to an Investor, the Company shall publicly disclose
that such Loan Default no longer exists.
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 Amended and Restated 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 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, 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) 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 amended and
restated 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 Preferred 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.
d. The Company shall have executed and delivered to the
Investor (i) the stock certificates (in such denominations as the Investor shall
request) for the Common Shares being issued in exchange for the Investor's
Series A Preferred Shares (as set forth in Section 1(b)) at the Closing, and
(ii) the stock certificates (in such denominations as the Investor shall
request) for 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 following the Closing and after giving effect to the redemption
of all the shares of the Company's Series A Preferred Stock which the Company
redeemed at the Closing, whether
18
from the Investor or from the Other Investors, the capital of the Company would
not be impaired (as determined in accordance with Section 160(a)(1) of the
Delaware General Corporation Law) (the "Resolutions").
i. As of the Closing Date, the Company shall have reserved out
of its authorized and unissued Common Stock, (A) at least 125% of that number of
shares of Common Stock issuable upon conversion of all the Series B Preferred
Shares and the Series C 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)
for issuance upon conversion of the such Preferred Shares and (B) at least
1,157,143 of shares of Common Stock for issuance upon conversion of the Series E
Preferred Shares (subject to adjustment pursuant to the Company's covenant set
forth in Section 4(d) below).
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. The Company shall have delivered to the Investor a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Closing Date.
o. The Company shall have delivered to the Investor such other
documents relating to the transactions contemplated by the Transaction Documents
as the Investors or their counsel may reasonably request.
19
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 "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
Amended and Restated Registration Rights Agreement, including, without
limitation, those procedures with respect to the settlement of claims and the
Company's rights to assume the defense of claims.
9. MISCELLANEOUS.
-------------
a. Governing Law; Jurisdiction; Jury Trial. All questions
---------------------------------------
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of
the state and federal courts sitting in the City of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit,
20
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or
------------
more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon 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;
provided, however, that if Section 9(p) shall be invalid or unenforceable in any
jurisdiction, then, notwithstanding that this Agreement otherwise amends and
restates the Original Redemption and Exchange Agreement, Section 9(p) of the
Original Redemption and Exchange Agreement shall remain in full force and
effect.
21
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 of 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 14, 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 14, 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 14, 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.
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 (2/3) 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.
22
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
1861 International Drive
McLean, Virginia 22102
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
If to the Investor, to it at the address and facsimile number set forth on
the Schedule of Investors, with copies to the Investor's representatives as set
forth on the Schedule of Investors, or at such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five days prior to the
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
23
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 and
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. Except with respect to Section
-----------------------------
9(p), this Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section 9(k),
--------
the representations and warranties of the Company and the Investor contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing. The Investor shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Further Assurances. Each party shall do and perform, or cause to
------------------
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
k. Termination. In the event that the Closing shall not have
-----------
occurred with respect to the Investor on or before June 14, 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.
l. Placement Agent. The Company acknowledges that it has not engaged
---------------
a placement agent in connection with the transactions contemplated by this
Agreement. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory
24
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 Amended and Restated
Registration Rights Agreement or 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
25
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.
* * * * * *
26
IN WITNESS WHEREOF, the Investor and the Company have caused this
Amended and Restated Redemption and Exchange Agreement to be duly executed as of
the date first written above.
COMPANY: INVESTOR:
MICROSTRATEGY INCORPORATED LEONARDO, L.P.
By: Angelo, Gordon & Co., L.P.
By: /s/ Eric F. Brown By: /s/ Michael L. Gordon
------------------------------ ---------------------------
Name: Eric F. Brown Name: Michael L. Gordon
------------------------ -------------------------
Title: President and CFO Title: Authorized Signatory
----------------------- ------------------------
27
SCHEDULE OF INVESTORS
(Page 1 of 2)
(1) (2) (3) (4) (5) (6) (7) (8)
Total Number Series A Aggregate Series A Fixed Series A Total
Investor's Name, Address of Series A Preferred Redemption Preferred Common Preferred Series B
and Facsimile Number Preferred Shares Price Shares Being Shares Shares Being Preferred
Shares Being Exchanged for Exchanged Shares
Redeemed Common Shares for Series B
- ------------------------------------------------------------------------------------------------------------------------------------
Leonardo, L.P. 4,500 450 $4,500,000 1,395 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
28
SCHEDULE OF INVESTORS
(Page 2 of 2)
(1) (9) (10) (11) (12) (13) (14)
Series A Total Series A Total Additional Additional
Investor's Name, Address Preferred Series C Preferred Series E Common Shares Common
and Facsimile Number Shares Being Preferred Shares Being Preferred Being Issued in Shares
Exchanged for Shares Exchanged for Shares Exchange for Being
Series C Series E Series A Issued in
Preferred Shares Respect of
Dividends
- ------------------------------------------------------------------------------------------------------------------------------------
Leonardo, L.P. 1,192.5 1,192.5 270 270 495,718 263,407
%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
29
(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
30
SCHEDULES
---------
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(f) - SEC Documents
Schedule 3(g) - Material Changes
Schedule 3(o) - Other Information
EXHIBITS
--------
Exhibit A - Form of Series B Certificate of Designations
Exhibit B - Form of Series C Certificate of Designations
Exhibit C - Form of Series E Certificate of Designations
Exhibit E - Form of Amended and Restated Registration Rights Agreement
Exhibit E - Form of Irrevocable Transfer Agent Instructions
Exhibit F - Form of Company Counsel Opinion
31
DISCLOSURE SCHEDULE
TO
AMENDED AND RESTATED REDEMPTION AND EXCHANGE AGREEMENT
BY AND AMONG
MICROSTRATEGY INCORPORATED
AND
LEONARDO, L.P.
JUNE 14, 2001
General Information
-------------------
This General Information section and the following sections, together
with all attachments referred to therein, all of which are incorporated herein
by reference, comprise the Disclosure Schedule referred to in the Amended and
Restated Redemption and Exchange Agreement, dated as of June 14, 2001, by and
among MicroStrategy Incorporated, on the one hand, and Leonardo, L.P., on the
other hand (which Agreement, together with all exhibits and schedules thereto,
including this Disclosure Schedule, is hereafter collectively referred to as the
"Agreement"). All capitalized terms used but not otherwise defined herein shall
have the respective meanings ascribed to them in the Agreement.
The representations and warranties of the Company contained in Section
3 of the Agreement and certain of the covenants of the Company contained in
Section 3 of the Agreement are made and given subject to the disclosures in this
Disclosure Schedule. Any disclosures contained in this Disclosure Schedule shall
be deemed to qualify the corresponding section of Section 3 of this Agreement.
Certain matters set forth in this Disclosure Schedule are included
solely for informational purposes for the convenience of the parties to the
Agreement. The inclusion of any information in the Disclosure Schedule shall not
be deemed to be an admission or acknowledgement, in and of itself, that such
information (i) is required by the terms of the Agreement to be disclosed, (ii)
is material to the Company, (iii) has had or would reasonably be expected to
have a material adverse effect on the Company or (iv) is outside the ordinary
course of business for the Company. Such information shall not be used as a
basis for interpreting the terms "material," "materially," "materiality,"
"Material," "Materiality," or words of similar meaning in the Agreement.
This Disclosure Schedule is qualified in its entirety by reference to
the specific provisions of the Agreement and is not intended to constitute, and
shall not be construed as constituting, any representation, warranty or covenant
of the Company, except as and to the extent expressly provided in this
Disclosure Schedule or the Agreement.
32
Schedule 3(a)
-------------
Organization and Qualification
------------------------------
Aventine, Incorporated* (Delaware)
MicroStrategy Capital Corporation* (Delaware)
MicroStrategy Management Corporation* (Delaware)
MicroStrategy Services Corporation* (Delaware)
Strategy.com Incorporated* (Delaware)
MicroStrategy Australia Pty. Ltd. (Australia)
MicroStrategy Benelux B.V. (Netherlands)
MicroStrategy Brasil Ltda. (Brazil)
MicroStrategy Brasil Ltda. Sucursal Argentina (Argentina)
MicroStrategy Canada Incorporated* (Canada)
MicroStrategy Deutschland GmbH (Germany)
MicroStrategy France SARL (France)
MicroStrategy-FSC, Inc. (Barbados)
MicroStrategy GmbH (Austria)
MicroStrategy Iberica, S.A. (Spain)
MicroStrategy International Limited (Bermuda)
MicroStrategy International II Limited (Bermuda)
MicroStrategy Italy S.r.l. (Italy)
MicroStrategy Korea Co., Ltd. (Korea)
MicroStrategy Limited (United Kingdom)
MicroStrategy Mexico, S. de R.L. de C.V. (Mexico)
MicroStrategy Schweiz AG (Switzerland)
Strategy.com International Limited (Bermuda)
33
iBasis, Inc.* (minority interest)
Medical Internet Solutions Inc.* (minority interest)
Xchange, Inc.* (minority interest)
CVent, Inc.* (minority interest)
World Investment Partners S.A. (minority interest)
*The interest owned or otherwise held directly or indirectly by MicroStrategy
Incorporated in these entities is subject to a pledge (or obligation to pledge)
in favor of Foothill Capital Corporation.
34
Schedule 3(c)
-------------
Capitalization
--------------
(A) None.
(B) In connection with the Stipulation of Settlement, dated January 11, 2001,
entered into among the Company and Lead Plaintiffs Akiko Minami, Atsukuni
Minami and Local 144 Nursing Home Pension Fund relating to the Company's
class action securities litigation (the "Settlement Agreement"), the
Company will issue five-year 7 1/2% Senior Unsecured Notes having an
aggregate principal amount of $80.5 million.
(C) (1) Under a Management Services Agreement, dated June 7, 2000,
MicroStrategy Management Corporation ("MMC"), a wholly-owned subsidiary of
the Company, has the right to purchase from the Company, in three
installments, approximately 143,000 shares of Class A Common Stock at a
purchase price equal to the par value of these shares ($.001 per share)
over a two year period expiring in September 2002. The specific number of
shares subject to the purchase right will depend on certain multipliers
relating to future revenues and employee-attrition rates of MicroStrategy
Brazil Ltda. Sucursal Argentina ("Argentinean Operations") over the two
year period and the operation of a collar on the aggregate market value of
the shares, which shall not exceed $5 million. In exchange for these share
purchase rights, MMC renders to the Company certain management services
with respect to the Argentinean Operations. MMC has subcontracted the
performance of such management services to Claudio Remon, to whom MMC
delivers the shares purchased from the Company.
(2) The Series A Convertible Preferred Stock of the Company is convertible
into Class A Common Stock at an initial conversion rate equal to the
average of the daily volume weighted average prices of the Class A Common
Stock for the 17 trading days following June 19, 2000 ("Closing Date")
(i.e., $33.3854). The Company, at its option, can require that the
preferred stock convert into Class A Common Stock on the second anniversary
of the Closing Date or may extend the term of the Series A Preferred Shares
for up to an additional two years. The conversion rate may adjust, subject
to certain limits and conditions, on the first anniversary of the Closing
Date and, if the Company elects to extend the maturity of the Series A
Preferred Shares, on each subsequent anniversary. The Series A Preferred
Shares carry a 7% dividend yield, payable in cash or Class A Common Stock,
at the Company's option.
(3) Each share of Series A Preferred Stock of Strategy.com Incorporated
("Strategy.com") is convertible into such number of fully paid and
nonassessable shares of Class A Common Stock of Strategy.com as is
determined by dividing $3.19 by the conversion price in effect at the time
of conversion (currently $3.19 per share), which may be adjusted from time
to time. Upon the closing of a public offering of Strategy.com's Class A
Common Stock at a price to the public of at least $10.00 share and
resulting in at least $30,000,000 of net proceeds to Strategy.com, all
outstanding shares of Series A Preferred Stock will automatically convert
into shares of Class A Common Stock.
(4) The Company will issue (i) 2,777,778 shares of Class A Common Stock
and (ii) warrants to purchase 1,900,000 shares of Class A Common Stock at
an exercise price of $40 per share, pursuant to the terms of the Settlement
Agreement.
35
(5) Strategy.com Incorporated has granted options, currently outstanding,
to purchase 5,203,918 shares of its Class A Common Stock under its 2000
Stock Option Plan.
(D) (1) The terms of the Company's Series A Preferred Stock contain mandatory
redemption provisions.
(2) One of the Company's subsidiaries, Strategy.com Incorporated, has
issued 16,536,049 shares of its Series A Preferred Stock. These shares are
mandatorily redeemable for $3.19 per share plus any dividends accrued or
declared but unpaid thereon at mandatory redemption dates of October 17,
2005, 2006 and 2007, with the maximum redemption portions at each date
being 33%, 50% and 100%, respectively.
(E) The Company has issued a warrant to purchase 50,000 shares of Class A
Common Stock to Foothill Capital Corporation ("Foothill"), which warrant
contains anti-dilution provisions.
(F) None.
36
Schedule 3(e)
-------------
No Conflicts
------------
The Company's compliance with its obligations under the Certificates of
Designations to redeem the Preferred Shares upon a Triggering Event (as defined
in the Certificates of Designations) or a Change of Control (as defined in
Section 4(b) of the Series B Certificate of Designations, Section 4(b) of the
Series C Certificate of Designations or Section 4(b) of the Series E Certificate
of Designations) currently would result in a default under the Company's Amended
and Restated Loan and Security Agreement, dated as of June 14, 2001, with
Foothill Capital Corporation unless the Company were to obtain the consent of
Foothill.
37
Schedule 3(f)
-------------
SEC Documents
-------------
Form Type Form Description Date Filed
--------- ---------------- ----------
10-Q Quarterly Report 5/15/01
PRE 14A Preliminary Proxy Statement 5/4/01
8-K Current Report 5/2/01
8-K Current Report 4/4/01
10-K Annual Report 4/2/2001
8-K Current Report 3/9/2001
10-Q/A Amended Quarterly Report 2/20/2001
8-K Current Report 2/15/2001
8-K Current Report 2/7/2001
10-Q/A Amended Quarterly Report 11/22/2000
10-Q Quarterly Report 11/14/2000
8-K Current Report 11/6/2000
10-Q Quarterly Report 8/15/2000
8-K Current Report 8/3/2000
8-K Current Report 6/19/2000
DEFR14A Revised Proxy Statement 5/30/2000
10-Q/A Amended Quarterly Report 5/30/2000
10-Q/A Amended Quarterly Report 5/30/2000
PRER14A Preliminary Proxy Statement 5/16/2000
10-Q Quarterly Report 5/15/2000
38
DEF14A Definitive Proxy Statement 5/1/2000
10-K Annual Report 4/13/2000
NT 10-K Notification of Late Filing 3/31/2000
8-K Current Report 3/23/2000
PRE 14A Preliminary Proxy Statement 3/14/2000
8-K Current Report 1/7/2000
39
Schedule 3(g)
-------------
Absence of Certain Changes
--------------------------
1. The Company has had capital expenditures of approximately $4.2 million in
the aggregate since December 31, 2000.
40
Schedule 3(o)
-------------
Other Information
-----------------
1. The Company has taken steps to reduce its workforce by approximately 600
persons and will incur related severance and restructuring charges. On May
4, 2001, the Strategy.com Board approved a further restructuring which will
reduce the operations of the Strategy.com down to approximately 35
employees by early July. These remaining employees will be utilized for,
among other things, the carrying out of Strategy.com's existing contracts.
Strategy.com is currently analyzing the impact that the various actions
taken as part of the restructuring will have on its results of operations
for Q2 and the remainder of 2001. The Company anticipates that severance
and certain other termination benefit payments associated with the April
and May restructuring plans will be accrued and classified as
restructuring. Additionally, certain other costs associated with the
restructuring are expected to be included in the restructuring charge,
including costs associated with exiting and consolidating certain office
space, a provision for idle computers, software, printers, copiers, and/or
telecommunications equipment (cell phones, office phones, wireless
equipment, etc.), as well as professional fees and certain other costs.
2. The Company's earnings for the first quarter of 2001 were below consensus
estimates, as disclosed in the Company's Quarterly Report on Form 10-Q for
the Three Months ended March 31, 2001.
41