-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RpXolzzAg0bGgCahJbEyl+jeBUB/dIM1+d6XOarpaK+O0mLpkBsGfM3GKwYItFwE mx3EiXw4OYZ3KOXck8yocA== 0000928385-01-000477.txt : 20010223 0000928385-01-000477.hdr.sgml : 20010223 ACCESSION NUMBER: 0000928385-01-000477 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010213 ITEM INFORMATION: FILED AS OF DATE: 20010215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROSTRATEGY INC CENTRAL INDEX KEY: 0001050446 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 510323571 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-24435 FILM NUMBER: 1546653 BUSINESS ADDRESS: STREET 1: 8000 TOWERS CRESCENT DR CITY: VIENNA STATE: VA ZIP: 22182 BUSINESS PHONE: 7038488600 MAIL ADDRESS: STREET 1: 8000 TOWERS CRESCENT DR CITY: VIENNA STATE: VA ZIP: 22182 8-K 1 0001.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): February 13, 2001 ----------------------- MICROSTRATEGY INCORPORATED -------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 0-24435 51-0323571 - -------------------------------------------------------------------------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 8000 Towers Crescent Drive, Vienna, Virginia 22182 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (703) 848-8600 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed since Last Report) Item 5. Other Events. On February 13, 2001, MicroStrategy Incorporated (the "Company") and MicroStrategy Services Corporation (the "Borrower"), a wholly-owned subsidiary of the Company, entered into a $30 million credit facility with Foothill Capital Corporation ("Foothill"). The credit facility consists of a term loan and a revolving line of credit against the receivables of the Borrower and MicroStrategy Canada Incorporated. The credit facility is guaranteed by the Company and certain of its other subsidiaries (the "Guarantors") and is secured by substantially all of the Guarantors' assets. The terms of the credit facility, guaranty and security interest are more fully set forth in the Loan and Security Agreement, the General Continuing Guaranty and the Security Agreement attached hereto as Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3, respectively, and incorporated herein by reference. In addition, Foothill has been issued a Warrant to purchase 50,000 shares of the Company's Class A Common Stock at $14.825 per share, subject to adjustment as set forth therein. The Company and Foothill have entered into a Registration Rights Agreement, pursuant to which the Company has agreed to register the resale of the shares of its Class A Common Stock issued upon exercise of the Warrant under certain circumstances. Copies of the Warrant and Registration Rights Agreement have been filed with this Current Report on Form 8-K as Exhibits 10.4 and Exhibit 10.5, respectively, and are incorporated herein by reference.
EXHIBIT DESCRIPTION - ------- ----------- 10.1 Loan and Security Agreement by and among Foothill Capital Corporation, the Company and MicroStrategy Services Corporation, dated as of February 9, 2001. 10.2 General Continuing Guaranty by and among the Company, Aventine Incorporated, MicroStrategy Capital Corporation and MicroStrategy Management Corporation, dated as of February 9, 2001. 10.3 Security Agreement by and among the Company, Aventine Incorporated, MicroStrategy Capital Corporation, MicroStrategy Management Corporation and Foothill Capital Corporation, dated as of February 9, 2001. 10.4 Warrant to Purchase Class A Common Stock of the Company, dated February 9, 2001, issued to Foothill Capital Corporation. 10.5 Registration Rights Agreement by and between the Company and Foothill Capital Corporation, dated as of February 9, 2001.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MicroStrategy Incorporated (Registrant) By: /s/ Eric F. Brown ------------------------------------ Name: Eric F. Brown Title: President and Chief Financial Officer Date: February 13, 2001 EX-10.1 2 0002.txt EXHIBIT 10.1 ================================================================================ LOAN AND SECURITY AGREEMENT by and among MICROSTRATEGY INCORPORATED as Parent, and MICROSTRATEGY SERVICES CORPORATION as Borrower, and FOOTHILL CAPITAL CORPORATION as Lender Dated as of February 9, 2001 ================================================================================ TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION....................................................................... 1 1.1 Definitions.................................................................................. 1 1.2 Accounting Terms............................................................................. 25 1.3 Code......................................................................................... 25 1.4 Construction................................................................................. 26 1.5 Schedules and Exhibits....................................................................... 26 2. LOAN AND TERMS OF PAYMENT.......................................................................... 26 2.1 Revolver Advances............................................................................ 26 2.2 Term Loan.................................................................................... 27 2.3 Borrowing Procedures and Settlements......................................................... 28 2.4 Payments..................................................................................... 29 2.5 Overadvances................................................................................. 30 2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.................. 30 2.7 Cash Management.............................................................................. 32 2.8 Crediting Payments; Float Charge............................................................. 33 2.9 Designated Account........................................................................... 33 2.10 Maintenance of Loan Account; Statements of Obligations....................................... 34 2.11 Fees......................................................................................... 34 2.12 Letters of Credit............................................................................ 35 2.13 LIBOR Option................................................................................. 37 2.14 Capital Requirements......................................................................... 40 3. CONDITIONS; TERM OF AGREEMENT...................................................................... 40 3.1 Conditions Precedent to the Initial Extension of Credit...................................... 40 3.2 Conditions Subsequent to the Initial Extension of Credit..................................... 44 3.3 Conditions Precedent to all Extensions of Credit............................................. 46 3.4 Term......................................................................................... 46 3.5 Effect of Termination........................................................................ 46 3.6 Early Termination by Borrower................................................................ 47 4. CREATION OF SECURITY INTEREST...................................................................... 47 4.1 Grant of Security Interest................................................................... 47 4.2 Negotiable Collateral........................................................................ 48 4.3 Collection of Accounts, General Intangibles, License Receivables, and Negotiable Collateral.. 48 4.4 Delivery of Additional Documentation Required................................................ 48 4.5 Power of Attorney............................................................................ 49 4.6 Right to Inspect............................................................................. 49 4.7 Control Agreements........................................................................... 49
-1- 5. REPRESENTATIONS AND WARRANTIES..................................................................... 50 5.1 No Encumbrances.............................................................................. 50 5.2 Eligible Accounts............................................................................ 50 5.3 [intentionally omitted]...................................................................... 51 5.4 Equipment.................................................................................... 51 5.5 Location of Inventory and Equipment.......................................................... 51 5.6 Inventory Records............................................................................ 51 5.7 Location of Chief Executive Office; FEIN..................................................... 51 5.8 Due Organization and Qualification; Subsidiaries............................................. 51 5.9 Due Authorization; No Conflict............................................................... 52 5.10 Litigation................................................................................... 53 5.11 No Material Adverse Change................................................................... 53 5.12 Fraudulent Transfer.......................................................................... 54 5.13 Employee Benefits............................................................................ 54 5.14 Environmental Condition...................................................................... 54 5.15 Brokerage Fees............................................................................... 54 5.16 Intellectual Property........................................................................ 54 5.17 Leases....................................................................................... 55 5.18 DDAs......................................................................................... 55 5.19 Complete Disclosure.......................................................................... 55 5.20 Indebtedness................................................................................. 55 5.21 Inactive Subsidiary.......................................................................... 55 6. AFFIRMATIVE COVENANTS.............................................................................. 55 6.1 Accounting System............................................................................ 56 6.2 Collateral Reporting......................................................................... 56 6.3 Financial Statements, Reports, Certificates.................................................. 59 6.4 Guarantor Reports............................................................................ 61 6.5 [Intentionally Omitted]...................................................................... 61 6.6 Maintenance of Properties.................................................................... 61 6.7 Taxes........................................................................................ 61 6.8 Insurance.................................................................................... 61 6.9 Location of Inventory and Equipment.......................................................... 62 6.10 Compliance with Laws......................................................................... 63 6.11 Leases....................................................................................... 63 6.12 Brokerage Commissions........................................................................ 63 6.13 Existence.................................................................................... 63 6.14 Environmental................................................................................ 63 6.15 Disclosure Updates........................................................................... 64 6.16 Copyright Registrations...................................................................... 64 7. NEGATIVE COVENANTS................................................................................. 65 7.1 Indebtedness................................................................................. 65 7.2 Liens........................................................................................ 66 7.3 Restrictions on Fundamental Changes.......................................................... 66
-2- 7.4 Disposal of Assets........................................................................... 66 7.5 Change Name.................................................................................. 66 7.6 Guarantee.................................................................................... 67 7.7 Nature of Business........................................................................... 67 7.8 Prepayments and Amendments................................................................... 67 7.9 Change of Control............................................................................ 68 7.10 Consignments................................................................................. 68 7.11 Distributions................................................................................ 68 7.12 Accounting Methods........................................................................... 68 7.13 Investments.................................................................................. 68 7.14 Transactions with Affiliates................................................................. 68 7.15 Suspension................................................................................... 69 7.16 [Intentionally Omitted]...................................................................... 69 7.17 Use of Proceeds.............................................................................. 69 7.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees........... 69 7.19 Securities Accounts.......................................................................... 69 7.20 Financial Covenants.......................................................................... 69 7.21 Inactive Subsidiary.......................................................................... 70 7.22 Preferred Stock.............................................................................. 70 8. EVENTS OF DEFAULT.................................................................................. 71 9. LENDER'S RIGHTS AND REMEDIES....................................................................... 73 9.1 Rights and Remedies.......................................................................... 73 9.2 Remedies Cumulative.......................................................................... 76 10. TAXES AND EXPENSES................................................................................. 76 11. WAIVERS; INDEMNIFICATION........................................................................... 76 11.1 Demand; Protest.............................................................................. 76 11.2 Lender's Liability for Collateral............................................................ 76 11.3 Indemnification.............................................................................. 76 12. NOTICES............................................................................................ 77 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER......................................................... 78 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS......................................................... 79 14.1 Assignments and Participations............................................................... 79 14.2 Successors................................................................................... 81 15. AMENDMENTS; WAIVERS................................................................................ 81 15.1 Amendments and Waivers....................................................................... 81 15.2 No Waivers; Cumulative Remedies.............................................................. 81
-3- 16. GENERAL PROVISIONS................................................................................. 82 16.1 Effectiveness................................................................................ 82 16.2 Section Headings............................................................................. 82 16.3 Interpretation............................................................................... 82 16.4 Severability of Provisions................................................................... 82 16.5 Withholding Taxes............................................................................ 82 16.6 Amendments in Writing........................................................................ 83 16.7 Counterparts; Telefacsimile Execution........................................................ 83 16.8 Revival and Reinstatement of Obligations..................................................... 83 16.9 Integration.................................................................................. 83 16.10 Confidential Information..................................................................... 83
-4- EXHIBITS AND SCHEDULES Exhibit B-1 Form of Borrowing Base Certificate Exhibit C-1 Form of Compliance Certificate Exhibit L-1 Form of LIBOR Notice Schedule P-1 Permitted Liens Schedule 5.5 Locations of Inventory and Equipment Schedule 5.7 Chief Executive Office; FEIN Schedule 5.8(b) Capitalization of Parent Schedule 5.8(c) Capitalization of Parent's Subsidiaries Schedule 5.10 Litigation Schedule 5.14 Environmental Matters Schedule 5.16 Intellectual Property Schedule 5.18 Demand Deposit Accounts Schedule 5.20 Permitted Indebtedness -5- LOAN AND SECURITY AGREEMENT --------------------------- THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of February 9, 2001, by and among FOOTHILL CAPITAL CORPORATION, a California corporation ("Lender"), MICROSTRATEGY INCORPORATED, a Delaware corporation ------ ("Parent"), and MICROSTRATEGY SERVICES CORPORATION, a Delaware corporation - -------- ("Borrower"), and evidences Designated Senior Debt (as defined in the Indenture - ---------- Documents). The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1 Definitions. As used in this Agreement, the following terms shall have the ----------- following definitions: "$50,000,000 Note" has the meaning set forth in the definition of ---------------- Pledged Notes. "Account Debtor" means any Person who is or who may become obligated -------------- under, with respect to, or on account of, an Account, chattel paper, or a General Intangible. "Accounts" means all of Borrower's now owned or hereafter acquired -------- right, title, and interest with respect to "accounts" (as that term is defined in the Code), and any and all supporting obligations in respect thereof. "Additional Documents" has the meaning set forth in Section 4.4. -------------------- ----------- "Advances" has the meaning set forth in Section 2.1. -------- ----------- "Affiliate" means, as applied to any Person, any other Person who, --------- directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however, that, in any event: (a) any Person which owns ----------------- directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed to control such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed to be an Affiliate of such Person. "Agreement" has the meaning set forth in the preamble hereto. --------- -1- "Annualized Recurring Maintenance Revenues" means, as of the last day ----------------------------------------- of any Relevant Measuring Period, an amount equal to the result of (a) the Recurring Maintenance Revenues for such Relevant Measuring Period, times (b) four (-4-). "Applicable Prepayment Premium" means, as of any date of ----------------------------- determination, an amount equal to (a) during the period of time from and after the date of the execution and delivery of this Agreement up to the date that is the first anniversary of the Closing Date, $900,000, (b) during the period of time from and including the date that is the first anniversary of the Closing Date up to the date that is the second anniversary of the Closing Date, $600,000, and (c) during the period of time from and including the date that is the second anniversary of the Closing Date up to, but not including, the Maturity Date, $300,000. "Assignee" has the meaning set forth in Section 14.1(a). -------- --------------- "Authorized Person" means any officer or other employee of Borrower. ----------------- "Availability" means, as of any date of determination, if such date is ------------ a Business Day, and determined at the close of business on the immediately preceding Business Day, if such date of determination is not a Business Day, the amount that Borrower is entitled to borrow as Advances under Section 2.1 (after ----------- giving effect to all then outstanding Obligations and all sublimits and reserves applicable hereunder). "Aventine" means Aventine, Incorporated, a Delaware corporation. -------- "Bankruptcy Code" means the United States Bankruptcy Code, as in --------------- effect from time to time. "Base LIBOR Rate" means the rate per annum determined by Lender in --------------- accordance with its customary procedures, and utilizing such electronic or other quotation sources as it considers appropriate (rounded upwards, if necessary, to the next 1/16%), on the basis of the rates at which Dollar deposits are offered to major banks in the London interbank market on or about 11:00 a.m. (California time) 2 Business Days prior to the commencement of the applicable Interest Period, for a term and in amounts comparable to the Interest Period and amount of the LIBOR Rate Loan requested by Borrower in accordance with this Agreement, which determination shall be conclusive in the absence of manifest error. "Base Rate" means, the rate of interest announced within Wells Fargo --------- at its principal office in San Francisco as its "prime rate", with the understanding that the "prime rate" is one of Wells Fargo's base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate. "Base Rate Loan" means each portion of an Advance or the Term Loan -------------- that bears interest at a rate determined by reference to the Base Rate. -2- "Base Rate Margin" means, as of any date of determination, (a) if the ---------------- Revolver Usage as of such date is less than or equal to $10,000,000, 1.50 percentage points, and (b) if the Revolver Usage as of such date is greater than $10,000,000, 2.00 percentage points. "Base Rate Term Loan Margin" means 3.00 percentage points. -------------------------- "Benefit Plan" means a "defined benefit plan" (as defined in Section ------------ ------- 3(35) of ERISA) for which Parent or any Subsidiary or ERISA Affiliate of Parent - ----- has been an "employer" (as defined in Section 3(5) of ERISA) within the past six ------------ years. "Board of Directors" means the board of directors (or comparable ------------------ managers) of Parent or any committee thereof duly authorized to act on behalf of the board. "Books" means all of Borrower's now owned or hereafter acquired books ----- and records (including all of its Records indicating, summarizing, or evidencing its assets (including the Collateral) or liabilities, all of its Records relating to its business operations or financial condition, and all of its goods or General Intangibles related to such information). "Borrower" has the meaning set forth in the preamble to this -------- Agreement. "Borrowing" means a borrowing hereunder of an Advance. --------- "Borrowing Base" has the meaning set forth in Section 2.1. -------------- ----------- "Borrowing Base Certificate" means a certificate in the form of -------------------------- Exhibit B-1. - ----------- "Business Day" means any day that is not a Saturday, Sunday, or other ------------ day on which national banks are authorized or required to close, except that, if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term "Business Day" also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market. "Canadian Conditions" means that Lender shall have received (a) duly ------------------- executed originals of the Canadian Security Documents and satisfactory evidence that the security interests granted in favor of Lender pursuant thereto have been duly perfected and are senior in priority to all other liens, claims, security interests, or encumbrances, except for Permitted Liens, (b) such opinions of foreign counsel to Canadian Obligor, in form and substance reasonably satisfactory to Lender, as Lender may request, (c) a certificate from an authorized senior official of Canadian Obligor attesting to the incumbency and signatures of authorized officials of Canadian Obligor and to the resolutions of Canadian Obligor's board of directors (or foreign equivalent) (and, if necessary, resolutions of Canadian Obligor's shareholders) authorizing the execution and delivery of the Canadian Security Documents and the performance of the same, and authorizing specific officials of Canadian Obligor to execute and deliver the same, (d) Lender shall have completed a collateral audit with respect to the assets of Canadian Obligor and an examination of Canadian Obligor's books, (e) -3- certified copies of the policies of insurance, together with the endorsements thereto, in respect of assets owned by Canadian Obligor, as are required hereby, the form and substance of which shall be satisfactory to Lender, and (f) such evidence as Lender may require demonstrating that all conditions to the effectiveness of the Canadian Security Documents have been satisfied, including, without limitation, any actions required by any applicable Canadian financial assistance legislation. "Canadian Dollars" or "C$" each means the lawful money of Canada. ------------------------ "Canadian Guaranty" means a guaranty executed and delivered by ----------------- Canadian Obligor in favor of Lender, in form and substance reasonably satisfactory to Lender, as such agreement may be amended, supplemented or modified from time to time. "Canadian Obligor" means MicroStrategy Canada Incorporated, an Ontario ---------------- corporation. "Canadian Security Agreement" means that security agreement executed --------------------------- and delivered by Canadian Obligor in favor of Lender, in form and substance reasonably satisfactory to Lender, as such agreement may be amended, supplemented or modified from time to time. "Canadian Security Documents" means, collectively, such instruments, --------------------------- agreements, and documents governed by the laws of Canada or any political subdivision thereof, as Lender may require in order to secure the obligations of Canadian Obligor, including the Canadian Security Agreement and the Canadian Guaranty. "Capital Lease" means a lease that is required to be capitalized for ------------- financial reporting purposes in accordance with GAAP. "Capitalized Lease Obligation" means any Indebtedness represented by ---------------------------- obligations under a Capital Lease. "Cash Equivalents" means (a) marketable direct obligations issued or ---------------- unconditionally guaranteed by the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's, (c) commercial paper maturing no more than 1 year from the date of acquisition thereof and, at the time of acquisition, having a rating of A-1 or P-1, or better, from S&P or Moody's, (d) certificates of deposit or bankers' acceptances maturing within 1 year from the date of acquisition thereof either (i) issued by any bank organized under the laws of the United States or any state thereof which bank has a rating of A or A2, or better, from S&P or Moody's, or (ii) certificates of deposit less than or equal to $100,000 in the aggregate issued by any other bank insured by the Federal Deposit Insurance Corporation, (e) interests in money markets or -4- mutual funds that invest substantially all of their assets in one or more of the foregoing, and (f) overnight repurchase agreements with any bank satisfying the criteria set forth in clause (d)(i) above. ------ "Cash Management Agreements" means those certain cash management -------------------------- service agreements, in form and substance satisfactory to Lender, each of which is among Parent or Borrower, Lender, and one of the US Cash Management Banks. "Change of Control" means (a) any "person" or "group" (within the ----------------- meaning of Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 20%, or more, voting power of the Stock of Parent, or (b) a majority of the members of the Board of Directors do not constitute Continuing Directors, or (c) Parent ceases to directly own and control 100% of the outstanding capital Stock of Borrower or any other Guarantor, or (d) Parent ceases to directly own and control the number of shares of the capital Stock of Strategy.com Incorporated that Parent owns as of the Closing Date. "Chase Control Agreement" means a Control Agreement, dated on or about ----------------------- the Closing Date, between Chase H&Q and Lender, in form and substance reasonably satisfactory to Lender. "Closing Date" means the date of the making of the initial Advance (or ------------ other extension of credit) hereunder. "Closing Date Business Plan" means the set of Projections of Parent -------------------------- for the 3 year period following the Closing Date (on a year by year basis, and for the 1 year period following the Closing Date, on a quarter by quarter basis), in form and substance (including as to scope and underlying assumptions) reasonably satisfactory to Lender. "Code" means the California Uniform Commercial Code, as in effect from ---- time to time. "Collateral" means all of Borrower's now owned or hereafter acquired ---------- right, title, and interest in and to each of the following: (a) Accounts, (b) Books, (c) Equipment, (d) General Intangibles, (e) Inventory, (f) Investment Property, -5- (g) Negotiable Collateral, (h) money or other assets of Borrower that now or hereafter come into the possession, custody, or control of Lender, and (i) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing, and any and all Accounts, Books, Equipment, General Intangibles, Inventory, Investment Property, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof. "Collateral Access Agreement" means a landlord waiver, bailee letter, --------------------------- or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Equipment or Inventory, in each case, in form and substance reasonably satisfactory to Lender. "Collections" means all cash, checks, notes, instruments, and other ----------- items of payment (including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds) of Parent, Borrower, or another Guarantor, as the context requires. "Compliance Certificate" means a certificate substantially in the ---------------------- form of Exhibit C-1 delivered by the chief financial officer of Parent to ----------- Lender. "Continuing Director" means (a) any member of the Board of Directors ------------------- who was a director (or comparable manager) of Parent on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was appointed or nominated for election to the Board of Directors by a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to the Board of Directors in office at the Closing Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of Parent (as such terms are used in Rule 14a-11 under the Exchange Act) and whose initial assumption of office resulted from such contest or the settlement thereof. "Control Agreement" means a control agreement, in form and substance ----------------- satisfactory to Lender, executed and delivered by Borrower or a Guarantor, Lender, and the applicable securities intermediary with respect to a Securities Account or a bank with respect to a deposit account. "copyright" shall have the meaning ascribed to such term in the United --------- States Copyright Act of 1976, as amended, and includes unregistered copyrights. "Copyright Security Agreement" means a copyright security agreement ---------------------------- executed and delivered by Parent and Lender, the form and substance of which is reasonably satisfactory to Lender. -6- "Daily Balance" means, with respect to each day during the term of ------------- this Agreement, the amount of an Obligation owed at the end of such day. "DDA" means any checking or other demand deposit account maintained by --- Borrower or a Guarantor. "Default" means an event, condition, or default that, with the giving ------- of notice, the passage of time, or both, would be an Event of Default. "Designated Account" means account number 4122818118 of Borrower ------------------ maintained with the Designated Account Bank, or such other deposit account of Borrower (located within the United States) that has been designated as such, in writing, by Borrower to Lender. "Designated Account Bank" means Bank of America, whose office is ----------------------- located at 6610 Rockledge Drive, Bethesda, Maryland 29817 and whose ABA number is 051000017. "Deutsche Control Agreement" means a Control Agreement, dated on or -------------------------- about the Closing Date, between Deutsche Bank and Lender, in form and substance satisfactory to Lender. "Dilution" means, as of any date of determination, a percentage, based -------- upon the experience of the immediately prior 180 days, that is the result of dividing (a) the Dollar amount of bad debt write-downs, discounts from the original invoice price, advertising allowances, credits, or other dilutive items with respect to the accounts of Borrower and Canadian Obligor during such period, by (b) the Dollar amount of the Collections of Borrower and Canadian Obligor with respect to their License Receivables during such period (excluding extraordinary items) plus the Dollar amount of clause (a). "Dilution Reserve" means, as of any date of determination, an amount ---------------- sufficient to reduce the advance rate against Eligible Accounts by one percentage point for each percentage point by which Dilution is in excess of 5.0%. "Disbursement Letter" means an instructional letter executed and ------------------- delivered by Borrower to Lender regarding the extensions of credit to be made on the Closing Date, the form and substance of which is reasonably satisfactory to Lender. "Dollars" or "$" means United States dollars. ------- - "Due Diligence Letter" means the due diligence letter sent by Lender's -------------------- counsel to Parent, together with Parent's completed responses to the inquiries set forth therein, the form and substance of such responses to be reasonably satisfactory to Lender. "EBITDA" means, with respect to any fiscal period, Parent's and its ------ Subsidiaries consolidated net earnings (or loss), minus (a) the result of (i) extraordinary gains, plus (ii) deferred compensation (but solely to the extent a non-cash item), plus (iii) -7- interest income, plus (b) an amount equal to the sum of interest expense, income taxes, depreciation and amortization, in-process research and development expense write-offs, restructuring charges, preferred Stock dividend distributions and expenses on account of the conversion of the preferred Stock (but, in each case, solely to the extent a non-cash item), extraordinary losses (but solely up to an amount equal to $5,000,000 for any financial covenant reporting period), plus or minus, as applicable, (c) other non-cash non- recurring gains or expenses, plus or minus, as applicable, (d) other non-cash income or expense from minority investments or holdings, in each case, for the applicable fiscal period, as determined in accordance with GAAP. "Eligible Accounts" means those License Receivables created by ----------------- Borrower or Canadian Obligor in the ordinary course of its business that comply with each of the representations and warranties respecting Eligible Accounts made by Borrower or Canadian Obligor in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the criteria set forth below; provided, however, that such criteria may be fixed and revised from time to time - -------- ------- by Lender in Lender's Permitted Discretion to address the results of any audit performed by Lender from time to time after the Closing Date. In determining the amount to be included, Eligible Accounts shall be calculated net of customer deposits and unapplied cash remitted to Borrower or Canadian Obligor. Eligible Accounts shall not include the following: (a) License Receivables that the Account Debtor has failed to pay within 90 days of original invoice date or License Receivables with selling terms of more than 45 days, (b) License Receivables owed by an Account Debtor (or its Affiliates) where 50% or more of all License Receivables owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above, (c) License Receivables with respect to which the Account Debtor is an employee, Affiliate, or agent of Borrower or Canadian Obligor, (d) License Receivables arising in a transaction wherein the payment by the Account Debtor is conditional and each of the conditions applicable thereto have not been satisfied to the Account Debtor's satisfaction, (e) License Receivables that are not payable in Dollars or Canadian Dollars, (f) License Receivables with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States or Canada, or (ii) is not organized under the laws of the United States or any state thereof or under the laws of Canada or any province thereof, or (iii) is the government of any foreign country or sovereign state (other than Canada), or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, unless (y) the Account is supported by an irrevocable letter of credit -8- satisfactory to Lender (as to form, substance, and issuer or domestic confirming bank) that has been delivered to Lender and is directly drawable by Lender, or (z) the Account is covered by credit insurance in form, substance, and amount, and by an insurer, satisfactory to Lender, (g) License Receivables with respect to which the Account Debtor is either (i) the United States, Canada, or any department, agency, or instrumentality of the United States or Canada (exclusive, however, of License Receivables with respect to which Borrower or Canadian Obligor, as applicable, has complied, to the reasonable satisfaction of Lender, with the Assignment of Claims Act, 31 USC (S) 3727 or the Canadian equivalent thereof), or (ii) any state of the United States (exclusive, however, of (y) License Receivables owed by any state that does not have a statutory counterpart to the Assignment of Claims Act or (z) License Receivables owed by any state that does have a statutory counterpart to the Assignment of Claims Act as to which Borrower has complied to Lender's satisfaction), or (iii) any province of Canada (exclusive, however, of (y) License Receivables owed by any province that does not have a Canadian statutory counterpart to the Assignment of Claims Act or (z) License Receivables owed by any province that does have a Canadian statutory counterpart to the Assignment of Claims Act as to which Canadian Obligor has complied to Lender's satisfaction), (h) License Receivables with respect to which the Account Debtor is a creditor of Borrower or Canadian Obligor, has or has asserted a right of setoff, has disputed its liability, or has made any claim with respect to its obligation to pay the License Receivable, to the extent of such claim, right of setoff, or dispute, (i) License Receivables with respect to an Account Debtor whose total obligations owing to Borrower or Canadian Obligor, as applicable, exceed 20% of all Eligible Accounts, to the extent of the obligations owing by such Account Debtor in excess of such percentage, (j) License Receivables with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to which Borrower or Canadian Obligor has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor, (k) License Receivables with respect to which the Account Debtor is located in the states of New Jersey, Minnesota, or West Virginia (or any other state that requires a creditor to file a business activity report or similar document in order to bring suit or otherwise enforce its remedies against such Account Debtor in the courts or through any judicial process of such state), unless Borrower has qualified to do business in New Jersey, Minnesota, West Virginia, or such other states, or has filed a business activities report with the applicable division of taxation, the department of revenue, or with such other state offices, as appropriate, for the then-current year, or is exempt from such filing requirement, -9- (l) License Receivables, the collection of which, Lender, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor's financial condition, (m) License Receivables that are not subject to a valid and perfected first priority Lender's Lien, (n) License Receivables with respect to which the services giving rise to such License Receivable have not been performed and billed to the Account Debtor, or (o) License Receivables that represent the right to receive progress payments or other advance billings that are due prior to the completion of performance by Borrower or Canadian Obligor, as applicable, of the subject contract for services. "Environmental Actions" means any complaint, summons, citation, --------------------- notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other communication from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials from (a) any assets, properties, or businesses of Parent or one of its Subsidiaries or any predecessor in interest, (b) from adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by Parent or one of its Subsidiaries or any predecessor in interest. "Environmental Law" means any applicable federal, state, provincial, ----------------- foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy, or rule of common law now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, to the extent binding on Parent or one of its Subsidiaries, relating to the environment, employee health and safety, or Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC (S) 1251 et seq.; the Toxic Substances Control Act, 15 USC, (S) 2601 -- ---- et seq.; the Clean Air Act, 42 USC (S) 7401 et seq.; the Safe Drinking Water - -- ----- -- ---- Act, 42 USC. (S) 3803 et seq.; the Oil Pollution Act of 1990, 33 USC. (S) 2701 -- ---- et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 - -- ---- USC. (S) 11001 et seq.; the Hazardous Material Transportation Act, 49 USC (S) -- ---- 1801 et seq.; and the Occupational Safety and Health Act, 29 USC. (S)651 et seq. -- ---- -- ---- (to the extent it regulates occupational exposure to Hazardous Materials); any state and local or foreign counterparts or equivalents, in each case as amended from time to time. "Environmental Liabilities and Costs" means all liabilities, monetary ----------------------------------- obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand -10- by any Governmental Authority or any third party, and which relate to any Environmental Action. "Environmental Lien" means any Lien in favor of any Governmental ------------------ Authority for Environmental Liabilities and Costs. "Equipment" means all of Borrower's now owned or hereafter acquired --------- right, title, and interest with respect to equipment, machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended, and any successor statute thereto. "ERISA Affiliate" means (a) any Person subject to ERISA whose --------------- employees are treated as employed by the same employer as the employees of Parent or one of its Subsidiaries under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of Parent or one of its Subsidiaries under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which Parent or one of its Subsidiaries is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a party to an arrangement with Parent or one of its Subsidiaries and whose employees are aggregated with the employees of Parent or one of its Subsidiaries under IRC Section 414(o). "Event of Default" has the meaning set forth in Section 8. ---------------- --------- "Excess Availability" means the amount, as of the date any ------------------- determination thereof is to be made, equal to Availability minus the aggregate amount, if any, of all trade payables of Borrower and Canadian Obligor aged in excess of historical levels with respect thereto and all book overdrafts in excess of historical practices with respect thereto, in each case as determined by Lender in its Permitted Discretion. "Exchange Act" means the Securities Exchange Act of 1934, as in effect ------------ from time to time. "Existing Lender" means Bank of America, N.A. --------------- "Family Member" means, with respect to any individual, any other ------------- individual having a relationship by blood (to the second degree of consanguinity), marriage, or adoption to such individual. -11- "Family Trusts" means, with respect to any individual, bona fide ------------- trusts or other bona fide estate planning vehicles established for the benefit of such individual and/or Family Members of such individual. "Fee Letter" means that certain fee letter, dated as of even date ---------- herewith, between Borrower and Lender, in form and substance reasonably satisfactory to Lender. "FEIN" means Federal Employer Identification Number. ---- "Foreign Exchange Reserve" means, as of any date of determination, a ------------------------ reserve for foreign currency exchange rate risk with respect to the Eligible Accounts in such amount as shall be determined by Lender in its Permitted Discretion from time to time on or after the Closing Date. "Funding Date" means the date on which a Borrowing occurs. ------------ "Funding Losses" has the meaning set forth in Section 2.13(b)(ii). -------------- ------------------- "Further Advances" means any Advance or other extension of credit ---------------- hereunder other than (a) any Advance made from and after the Closing Date up to an aggregate maximum amount of $1,000,000 made pursuant to the provisions of Sections 2.6(d) and 2.12(a), or (b) the issuance of those certain Letters of - --------------- ------- Credit in favor of Existing Lender on the Closing Date, or (c) the Term Loan. "GAAP" means generally accepted accounting principles as in effect ---- from time to time in the United States, consistently applied. "General Intangibles" means all of Borrower's now owned or hereafter ------------------- acquired right, title, and interest with respect to general intangibles (including payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), and any and all supporting obligations in respect thereof, and any other personal property other than goods, Accounts, Investment Property, and Negotiable Collateral. "Governing Documents" means, with respect to any Person, the ------------------- certificate or articles of incorporation, by-laws, or other organizational documents of such Person. "Governmental Authority" means any federal, state, local, or other ---------------------- governmental or administrative body, instrumentality, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body. -12- "Guarantors" means, collectively, Parent, Canadian Obligor, Aventine, ---------- MicroStrategy Capital Corporation, a Delaware corporation, and MicroStrategy Management Corporation, a Delaware corporation, and "Guarantor" means any one of --------- them. "Guaranty" means a guaranty executed and delivered by each Guarantor -------- (other than Canadian Obligor) of the Obligations of the Borrower owing under the Loan Documents, the form and substance of which is reasonably satisfactory to Lender. "Hazardous Materials" means (a) substances that are defined or listed ------------------- in, or otherwise classified pursuant to, any applicable laws or regulations as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million. "Inactive Subsidiary" means MicroStrategy Capital Corporation, a ------------------- Delaware corporation. "Indebtedness" means, with respect to any Person, (a) all obligations ------------ of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations of such Person in respect of letters of credit, bankers acceptances, interest rate swaps, or other financial products, (c) all obligations of such Person under Capital Leases, (d) all obligations or liabilities of any other Person secured by a Lien on any asset of such Person, irrespective of whether such obligation or liability is assumed, (e) all obligations of such Person for the deferred purchase price of assets (other than trade debt incurred in the ordinary course of such Person's business and repayable in accordance with customary trade practices), and (f) any obligation of such Person guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse to such Person) any obligation of any other Person. "Indemnified Liabilities" has the meaning set forth in Section 11.3. ----------------------- ------------ "Indemnified Person" has the meaning set forth in Section 11.3. ------------------ ------------ "Indenture" means that certain Indenture, dated as of January 11, --------- 2001, between Parent and American Stock Transfer & Trust Company, as trustee. "Indenture Documents" means the Indenture and each of the Notes to be ------------------- issued pursuant to the Indenture. -13- "Insolvency Proceeding" means any proceeding commenced by or against --------------------- any Person under any provision of the Bankruptcy Code or under any other state, federal, or foreign bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "Intangible Assets" means, with respect to any Person, that portion of ----------------- the book value of all of such Person's assets that would be treated as intangibles under GAAP. "Intellectual Property" means all patents, patent applications, --------------------- trademarks, trademark applications, tradenames, tradedress, copyrights, copyright registrations, technology, know-how and processes used in or necessary for the conduct of the business of Parent and its Subsidiaries as currently conducted that are material to the condition (financial or otherwise), business, or operations of Parent and its Subsidiaries. "Intercompany Subordination Agreement" means an intercompany ------------------------------------ subordination agreement executed by Borrower, each Guarantor, and Lender, the form and substance of which is reasonably satisfactory to Lender. "Interest Period" means, with respect to each LIBOR Rate Loan, a --------------- period commencing on the date of the making of such LIBOR Rate Loan and ending 1, 2, or 3 months thereafter; provided, however, that (a) if any Interest Period -------- ------- would end on a day that is not a Business Day, such Interest Period shall be extended (subject to clauses (c)-(e) below) to the next succeeding Business Day, (b) interest shall accrue at the applicable rate based upon the LIBOR Rate from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (c) any Interest Period that would end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (d) with respect to an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2, or 3 months after the date on which the Interest Period began, as applicable, and (e) Borrower may not elect an Interest Period which will end after the Maturity Date. "Inventory" means all Borrower's now owned or hereafter acquired --------- right, title, and interest with respect to inventory, including goods held for sale or lease or to be furnished under a contract of service, goods that are leased by Borrower as lessor, goods that are furnished by Borrower under a contract of service, and raw materials, work in process, or materials used or consumed in Borrower's business. "Investment" means, with respect to any Person, any investment by such ---------- Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, or capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b) bona fide Accounts arising from the sale of goods or rendition of services in the ordinary course of -14- business consistent with past practice), purchases or other acquisitions for consideration of Indebtedness or Stock, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Investment Property" means all of Borrower's now owned or hereafter ------------------- acquired right, title, and interest with respect to "investment property" as that term is defined in the Code, and any and all supporting obligations in respect thereof. "IRC" means the Internal Revenue Code of 1986, as in effect from time --- to time. "L/C" has the meaning set forth in Section 2.12(a). --- --------------- "L/C Disbursement" means a payment made by Lender pursuant to a Letter ---------------- of Credit. "L/C Undertaking" has the meaning set forth in Section 2.12(a). --------------- --------------- "Lender" has the meaning set forth in the preamble to this Agreement. ------ "Lender's Account" means an account at a bank designated by Lender ---------------- from time to time as the account into which Borrower shall make all payments to Lender under this Agreement and the other Loan Documents; unless and until Lender notifies Borrower to the contrary, Lender's Account shall be that certain deposit account bearing account number 323-266193 and maintained by Lender with The Chase Manhattan Bank, 4 New York Plaza, 15th Floor, New York, New York 10004, ABA #021000021. "Lender's Liens" means the Liens granted by Borrower or a Guarantor to -------------- Lender under this Agreement or the other Loan Documents. "Lender Expenses" means all (a) costs or expenses (including taxes and --------------- insurance premiums) required to be paid by Parent or any of its Subsidiaries under any of the Loan Documents that are paid or incurred by Lender, (b) fees or charges paid or incurred by Lender in connection with Lender's transactions with Parent and its Subsidiaries, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), filing, recording, publication, appraisal (including periodic appraisals or business valuations of the Collateral or other assets pledged to Lender pursuant to any of the Loan Documents to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement, real estate surveys, real estate title policies and endorsements, and environmental audits, (c) costs and expenses incurred by Lender in the disbursement of funds to or for the account of Borrower (by wire transfer or otherwise), (d) charges paid or incurred by Lender resulting from the dishonor of checks, (e) reasonable costs and expenses paid or incurred by Lender to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, -15- storing, shipping, selling, preparing for sale, or advertising to sell the Collateral or any other assets pledged to Lender pursuant to the terms of the Loan Documents, or any portion thereof, irrespective of whether a sale is consummated, (f) audit fees and expenses of Lender related to audit examinations of the Books and any records of Parent or its Subsidiaries to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement, (g) reasonable costs and expenses of third party claims or any other suit paid or incurred by Lender in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or Lender's relationship with Parent and its Subsidiaries, (h) Lender's reasonable fees and expenses (including attorneys fees) incurred in structuring, drafting, reviewing, administering, or amending the Loan Documents, and (i) Lender's reasonable fees and expenses (including attorneys fees) incurred in terminating, enforcing (including attorneys fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning Parent, Borrower, or any other Guarantor or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral or any other assets pledged to Lender pursuant to the Loan Documents. "Lender-Related Person" means Lender, Lender's Affiliates, and the --------------------- officers, directors, employees, and agents of Lender. "Letter of Credit" means an L/C or an L/C Undertaking, as the context ---------------- requires. "Letter of Credit Usage" means, as of any date of determination, the ---------------------- aggregate undrawn amount of all outstanding Letters of Credit. "LIBOR Deadline" has the meaning set forth in Section 2.13(b)(i). -------------- ------------------ "LIBOR Notice" means a written notice in the form of Exhibit L-1 ------------ ----------- attached hereto. "LIBOR Rate" means, for each Interest Period for each LIBOR Rate Loan, ---------- the rate per annum determined by Lender (rounded upwards, if necessary, to the next 1/16%) by dividing (a) the Base LIBOR Rate for such Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage. "LIBOR Rate Loan" means each portion of an Advance that bears interest --------------- at a rate determined by reference to the LIBOR Rate. "LIBOR Rate Margin" means, as of any date of determination, (a) if the ----------------- Revolver Usage as of such date is less than or equal to $10,000,000, 3.25 percentage points, and (b) if the Revolver Usage as of such date is greater than $10,000,000, 3.75 percentage points. -16- "License Receivables" means all of Borrower's and Canadian Obligor's ------------------- right, title, and interest with respect to rights to payment created by Borrower or Canadian Obligor, as applicable, in the ordinary course of its business, that arise out of Borrower's or Canadian Obligor's licensing of software or provision of consulting or educational services. "License Report" shall have the meaning set forth in Section 6.2. -------------- ----------- "Lien" means any interest in an asset securing an obligation owed to, ---- or a claim by, any Person other than the owner of the asset, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property. "Loan Account" has the meaning set forth in Section 2.10. ------------ ------------ "Loan Documents" means this Agreement, the Cash Management Agreements, -------------- the Chase Control Agreement, the Deutsche Control Agreement, any other Control Agreements, the Copyright Security Agreement, the Disbursement Letter, the Due Diligence Letter, the Fee Letter, the Guaranty, the Letters of Credit, the Stock Pledge Agreement, the Registration Rights Agreement, the Trademark Security Agreement, the Security Agreement, the Canadian Security Documents, the Intercompany Subordination Agreement, Permitted Holder Side Letter, the Patent Side Letter, the Patent Security Agreement, the Warrant, any note or notes executed by Borrower in connection with this Agreement and payable to Lender, and any other agreement entered into, now or in the future, by Borrower or any Guarantor and Lender in connection with this Agreement. "Material Adverse Change" means (a) a material adverse change in the ----------------------- business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Parent and its Subsidiaries (taken as a whole), (b) a material impairment of the ability of Parent and its Subsidiaries to perform their obligations under the Loan Documents to which each is a party or of Lender's ability to enforce the Obligations or realize upon the Collateral or any other assets pledged to Lender pursuant to the Loan Documents, or (c) a material impairment of the enforceability or priority of the Lender's Liens with respect to the Collateral or any other assets pledged to Lender pursuant to any of the Loan Documents, as a result of an action or failure to act on the part of Borrower or any Guarantor. "Maturity Date" has the meaning set forth in Section 3.4. ------------- ----------- "Maximum Revolver Amount" means $30,000,000. ----------------------- -17- "Negotiable Collateral" means all of Borrower's now owned and --------------------- hereafter acquired right, title, and interest with respect to letters of credit, letter of credit rights, instruments, promissory notes, drafts, documents, and chattel paper (including electronic chattel paper and tangible chattel paper), and any and all supporting obligations in respect thereof. "Note" and "Notes" means the 7 1/2% Series A Unsecured Notes due 5 ---- ----- years from the date of first issuance pursuant to the terms of the Indenture and Stipulation of Settlement. "Obligations" means all loans (including the Term Loan), Advances, ----------- debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), contingent reimbursement obligations with respect to outstanding Letters of Credit, premiums, liabilities (including all amounts charged to Borrower's Loan Account pursuant hereto), obligations, fees (including the fees provided for in the Fee Letter), charges, costs, Lender Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and duties of any kind and description owing by Borrower or any Guarantor to Lender pursuant to or evidenced by the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Lender Expenses that Borrower or a Guarantor is required to pay or reimburse by the Loan Documents, by law, or otherwise. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all amendments, changes, extensions, modifications, renewals replacements, substitutions, and supplements, thereto and thereof, as applicable, both prior and subsequent to any Insolvency Proceeding. "Originating Lender" has the meaning set forth in Section 14.1(d). ------------------ --------------- "Overadvance" has the meaning set forth in Section 2.5. ----------- ----------- "Parent" has the meaning set forth in the preamble to this Agreement. ------ "Participant" has the meaning set forth in Section 14.1(d). ----------- --------------- "Parent License" means a license, in form and substance satisfactory -------------- to Lender, between Parent and Borrower whereby Parent grants to Borrower an exclusive, fully paid, non-assignable, non-cancelable license to use and exploit Parent's Intellectual Property in connection with Borrower's business. "Patent Security Agreement" means a patent security agreement executed ------------------------- and delivered by Parent and Lender, the form and substance of which is reasonably satisfactory to Lender. "Patent Side Letter" means a side letter addressed by Parent to ------------------ Lender, the form and substance of which is reasonably satisfactory to Lender. -18- "Pay-Off Letter" means a letter, in form and substance reasonably -------------- satisfactory to Lender, from Existing Lender to Lender respecting the amount necessary to repay in full all of the obligations of Borrower owing to Existing Lender, to collateralize any obligations under outstanding letters of credit issued by Existing Lender for the account of Borrower, and to obtain a release of all of the Liens existing in favor of Existing Lender in and to the assets of Parent and its Subsidiaries. "Permitted Discretion" means a determination made in good faith and in -------------------- the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment. "Permitted Dispositions" means (a) sales or other dispositions by ---------------------- Parent and its Subsidiaries of equipment that is substantially worn, damaged, or obsolete in the ordinary course of business of Parent and its Subsidiaries, (b) sales by Parent and its Subsidiaries of inventory to buyers in the ordinary course of business, (c) the use or transfer of money or Cash Equivalents by Parent and its Subsidiaries in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, (d) the licensing by Parent and its Subsidiaries, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business of Parent and its Subsidiaries, (e) one or more sales by Aventine of the Stock of Exchange Applications, Inc. so long as no Event of Default shall have occurred and be continuing or would result therefrom and Aventine receives fair market value for each such sale (as determined by reference to the last recorded sale price of such Stock as reported by NASDAQ on the date of the consummation of such sale), and (f) so long as no Event of Default has occurred and is continuing or would result therefrom, any other sale, exchange, or other disposition of assets (exclusive, however, of any accounts, License Receivables, or general intangibles (including Intellectual Property)) in an amount not to exceed $500,000 in any 12 month period (the value of the assets shall be determined on the basis of the fair market value of such assets based upon the facts and circumstances as of the date of the consummation of the applicable transaction), (g) dispositions or transfers of assets (other than accounts, License Receivables, or general intangibles) of the Parent or any Subsidiary to the extent such asset is a part of a sale and leaseback transaction, the sale and lease portions of which is not prohibited hereunder, and (h) sales or other dispositions of assets by Borrower to a Guarantor, or by a Guarantor to Borrower or another Guarantor, in an aggregate amount not to exceed $200,000 in any 12 month period. "Permitted Holder Side Letter" means that certain side letter, dated ---------------------------- as of the date hereof, addressed by Parent to Lender, setting forth each holder of Parent's Series A Preferred Stock as of the Closing Date and designating each such Person as a "Permitted Holder." "Permitted Holders" means Michael Saylor, Sanju Bansal, the Family ----------------- Members and Family Trusts of each of the foregoing, or any other Person who, directly or indirectly, controls, is controlled by, or is under common control with Michael Saylor, Sanju Bansal, the Family Members and Family Trusts of each of the foregoing, and each Person -19- identified as a "Permitted Holder" in the Permitted Holder Side Letter together with the Affiliates of such Permitted Holders. "Permitted Investments" means (a) investments in Cash Equivalents, (b) --------------------- investments in negotiable instruments for collection, (c) advances made in connection with purchases of goods or services in the ordinary course of business, (d) so long as (i) no Default or Event of Default has occurred and is continuing or would result therefrom, and (ii) Parent and its Subsidiaries have Excess Availability and unrestricted cash and Cash Equivalents of not less than $20,000,000 after giving effect thereto, cash Investments by Parent and Aventine in Persons other than Parent's Subsidiaries from and after the Closing Date in an aggregate amount outstanding at any one time equal to the result of (A) $5,000,000, minus (B) the aggregate amount of guaranties that were made from and after the Closing Date and remain outstanding pursuant to Section 7.6(c), (e) -------------- Investments permitted by the proviso set forth in Section 7.11, (f) cash ------------ Investments by Borrower in any Guarantor (other than Inactive Subsidiary); provided, however, that, at no time may Borrower guaranty the Indebtedness - -------- ------- evidenced by the Notes, (g) Investments by a Guarantor in Borrower or any other Guarantor (other than Inactive Subsidiary), and (h) so long as no Event of Default has occurred and is continuing or would result therefrom, cash Investments by Parent or one of its Subsidiaries in an employee or distributor of Parent or one of its Subsidiaries made in the ordinary course of business in an aggregate amount not to exceed $500,000 at any one time outstanding. "Permitted Liens" means (a) Liens held by Lender, (b) Liens for unpaid --------------- taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event of Default hereunder and are the subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of lessors under operating leases, (e) ------------ purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness and so long as such Lien attaches only to the asset purchased or acquired and the proceeds thereof, (f) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business of Parent and its Subsidiaries and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests, (g) Liens arising from deposits made in connection with obtaining worker's compensation or other unemployment insurance, (h) Liens or deposits to secure performance of bids, tenders, or leases incurred in the ordinary course of business of Parent and its Subsidiaries and not in connection with the borrowing of money, (i) Liens granted as security for surety or appeal bonds in connection with obtaining such bonds in the ordinary course of business of Parent and its Subsidiaries, (j) Liens resulting from any judgment or award that is not an Event of Default hereunder, (k) with respect to any Real Property, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof by Parent and its Subsidiaries, (l) the interests of licensees under licenses of the Intellectual Property of Parent and its Subsidiaries to the extent constituting a Permitted Disposition under clause (d) of the definition of Permitted Disposition, and (m) ---------- Liens granted by Parent in connection with the financing by Parent of insurance premiums so long as (i) such Liens secure solely the insurance premiums owing by -20- Parent and (ii) extend solely to the unearned premiums payable by the applicable insurance carrier to Parent upon the termination of the applicable insurance policy. "Permitted Preferred Stock" means, collectively, ------------------------- (a) the Series A Preferred Stock, or (b) any preferred Stock of Parent that is mandatorily redeemable or subject to any other payment obligation (including any obligation to pay dividends, other than dividends of preferred Stock of the same class and series payable in kind or dividends of common Stock) so long as any such mandatory redemption right or other payment obligation does not arise until the date that is the 2 year anniversary of the Maturity Date, or (c) any other preferred Stock issued by Parent that is consented to in writing in advance by Lender (in its sole discretion). "Permitted Protest" means the right of Parent or one of its ----------------- Subsidiaries to protest any Lien (other than any such Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the books and records of Parent and its Subsidiaries in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by Parent or the applicable Subsidiary in good faith, and (c) Lender is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Lender's Liens. "Permitted Purchase Money Indebtedness" means, as of any date of ------------------------------------- determination, Purchase Money Indebtedness incurred after the Closing Date. "Permitted Transactions" means, so long as Parent gives Lender not ---------------------- less than 15 days prior written notice and, prior to the consummation thereof, Parent and its Subsidiaries comply with their obligations under Section 4.4 ----------- hereof and under Section 2.4 of the Security Agreement, in connection therewith, ----------- any merger, consolidation, reorganization, or recapitalization, or reclassifications of Stock between (a) Parent and any of its Subsidiaries (other than Borrower) so long as Parent is the surviving entity in such transaction, (b) Borrower and any Guarantor (other than Parent) so long as Borrower is the surviving entity in such transaction, and (d) any Guarantor (other than Parent) with any other Guarantor (other than Parent). "Person" means natural persons, corporations, limited liability ------ companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof. "Personal Property Collateral" means all Collateral other than Real ---------------------------- Property. -21- "Pledged Notes" means, collectively, that certain (a) promissory note, ------------- dated on or about the date hereof, executed by Parent in favor of Aventine, in the original principal amount of $50,000,000 (the "$50,000,000 Note"), and (b) ---------------- promissory note, dated as of July 1, 1999, executed by Parent in favor of Aventine, in the original principal amount of $118,000,000, in each case, as amended or amended and restated prior to the Closing Date. "Prepayment Amount" means, as of the occurrence of any Term Loan ----------------- Repayment Trigger, an amount equal the amount by with the aggregate principal amount outstanding of the Term Loan exceeds the relevant percentage of Annualized Recurring Maintenance Revenues for the Relevant Measuring Period. "Products" means all software products in the MicroStrategy product -------- line as of the date hereof, including any related documentation or other materials, and any and all subsequent generally available versions, upgrades, or other modifications of such software products. "Projections" means Parent's forecasted (a) balance sheets, (b) profit ----------- and loss statements, and (c) cash flow statements, all prepared on a basis consistent with Parent's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. "Purchase Money Indebtedness" means Indebtedness (other than the --------------------------- Obligations, but including Capitalized Lease Obligations), incurred at the time of, or within 90 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof. "Qualified Cash Amount" means, as of any date of determination, the --------------------- amount of cash and Cash Equivalents of Parent and its Subsidiaries that is on deposit with banks, or in Securities Accounts with securities intermediaries, or any combination thereof, and which such deposit account or Securities Account is maintained by a branch office located within the United States and is the subject of a Control Agreement. "Real Property" means any estates or interests in real property now ------------- owned or hereafter acquired by Parent or one of its Subsidiaries and the improvements thereto. "Record" means information that is inscribed on a tangible medium or ------ which is stored in an electronic or other medium and is retrievable in perceivable form. "Recurring Maintenance Revenues" means, with respect to any period, ------------------------------ the total revenues of Parent, Borrower, and Canadian Obligor (in each case, without consolidating their respective Subsidiaries) for such period that are derived from the provision of maintenance services and ongoing support as reflected on Parent's, Borrower's, and Canadian Obligor's financial statements in accordance with their historical practices. -22- "Registration Rights Agreement" means a registration rights agreement ----------------------------- executed and delivered by Parent and Lender, the form and substance of which is reasonably satisfactory to Lender. "Relevant Measuring Period" means, commencing on March 31, 2001 and as ------------------------- of the last Business Day of each calendar month thereafter, the 90 days then ended. "Remedial Action" means all actions taken to (a) clean up, remove, --------------- remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (d) conduct any other actions authorized by 42 USC (S) 9601. "Required Availability" means Excess Availability and unrestricted --------------------- cash and Cash Equivalents in an amount of not less than $40,000,000. "Required Library" means, as of any date of determination, the set or ---------------- collection of existing copyrights of Parent relating to the software of Parent that generated not less than 82.5% of the aggregate amount of current revenues arising from the licensing of Parent's software for the 3 month period immediately preceding the date of determination. "Reserve Percentage" means, on any day, for Lender, the maximum ------------------ percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor Governmental Authority) for determining the reserve requirements (including any basic, supplemental, marginal, or emergency reserves) that are in effect on such date with respect to eurocurrency funding (currently referred to as "eurocurrency liabilities") of Lender, but so long as Lender is not required or directed under applicable regulations to maintain such reserves, the Reserve Percentage shall be zero. "Revenue Report" shall have the meaning set forth in Section 6.2. -------------- ----------- "Revolver Usage" means, as of any date of determination, the sum of -------------- (a) the then extant amount of outstanding Advances, plus (b) the then extant amount of the Letter of Credit Usage. "SEC" means the United States Securities and Exchange Commission and --- any successor thereto. "Securities Account" means a "securities account" as that term is ------------------ defined in the Code. "Security Agreement" means a security agreement executed and delivered ------------------ by each Guarantor (other than Canadian Obligor) and Lender, in form and substance satisfactory to Lender. -23- "Series A Preferred Stock" means Parent's series A convertible ------------------------ preferred Stock, par value $0.001 per share. "Solvent" means, with respect to any Person on a particular date, that ------- such Person is not insolvent (as such term is defined in the Uniform Fraudulent Transfer Act). "Stipulation of Settlement" means that certain Stipulation of ------------------------- Settlement, dated as of January 11, 2001, entered into among Akiko and Atsukuni Minami and Local 144 Nursing Home Pension Fund on behalf of the Class (as such term is defined in the Stipulation of Settlement), Parent as defendant, and defendants Michael J. Saylor, Sanju K. Bansal, Mark S. Lynch, Stephen S. Trundle, Ralph S. Terkowitz, and Frank A. Ingari, by and through their respective counsel, and filed in the United States District Court for the Eastern District of Virginia (Alexandria Division) in connection with the class- action lawsuit entitled In re MicroStrategy Incorporated Securities Litigation, ------------------------------------------------------ Civil Action No. 00-473-A. "Stock" means all shares, options, warrants, interests, ----- participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act). "Stock Pledge Agreement" means a stock pledge agreement, in form and ---------------------- substance satisfactory to Lender, executed and delivered by Parent, Aventine, and Lender with respect to the pledge of the Stock owned by Parent and Aventine. "Subsidiary" of a Person means a corporation, partnership, limited ---------- liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity; provided, however, that, except with respect to Section 1.2, the financial - -------- ------- ----------- reporting set forth in Section 6.3, Section 7.2(b), and the application of the ----------- -------------- financial covenants and related definitions set forth in Sections 7.20(a)(i) and ------------------- 7.20(b), references herein to Parent and its Subsidiaries or other similar - ------- expressions shall be deemed to mean and refer solely to Parent, Borrower, and each other Guarantor. "Taxes" has the meaning set forth in Section 16.5. ----- ------------ "Term Loan" has the meaning set forth in Section 2.2. --------- ----------- "Term Loan Amount" means $10,000,000. ---------------- "Term Loan Repayment Trigger" means, as of any date of determination, --------------------------- if (a) from and after the Closing Date through and including the first anniversary of the Closing Date, the aggregate principal amount outstanding of the Term Loan exceeds 45% of the Annualized Recurring Maintenance Revenues for the Relevant Measuring Period, (b) from and after the first anniversary of the Closing Date through the second anniversary of the -24- Closing Date, the aggregate principal amount outstanding of the Term Loan exceeds 30% of the Annualized Recurring Maintenance Revenues for the Relevant Measuring Period, and (c) from and after the second anniversary of the Closing Date through the Maturity Date, the aggregate principal amount outstanding of the Term Loan exceeds 25% of the Annualized Recurring Maintenance Revenues for the Relevant Measuring Period. "Term Loan Usage" means, as of any date of determination, the --------------- outstanding principal amount of the Term Loan. "Territory" shall mean the United States of America and Canada. --------- "Trademark Security Agreement" means a trademark security agreement ---------------------------- executed and delivered by Parent and Lender, the form and substance of which is satisfactory to Lender. "Triggering Event" means either (a) the occurrence and continuation of ---------------- an Event of Default, or (b) the failure by Parent and its Subsidiaries to maintain a Qualified Cash Amount of not less than $7,500,000 at any one time. "Underlying Issuer" means a third Person which is the beneficiary of ----------------- an L/C Undertaking and which has issued a letter of credit at the request of Lender for the benefit of Borrower. "Underlying Letter of Credit" means a letter of credit that has been --------------------------- issued by an Underlying Issuer. "US Cash Management Account" has the meaning set forth in Section -------------------------- ------- 2.7(a). - ------ "US Cash Management Bank" has the meaning set forth in Section 2.7(a). ----------------------- -------------- "Voidable Transfer" has the meaning set forth in Section 16.8. ----------------- ------------ "Warrant" means a common stock warrant executed and delivered by ------- Parent to Lender, the form and substance of which is satisfactory to Lender. "Wells Fargo" means Wells Fargo Bank, National Association, a national ----------- banking association. 1.2 Accounting Terms. All accounting terms not specifically defined herein ---------------- shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Parent" is used in respect of a financial covenant or a related definition, it shall be understood to mean Parent and its Subsidiaries on a consolidated basis unless the context clearly requires otherwise. 1.3 Code. Any terms used in this Agreement that are defined in the Codes ---- shall be construed and defined as set forth in the Code unless otherwise defined herein. -25- 1.4 Construction. Unless the context of this Agreement or any other Loan ------------ Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein to any Person shall be construed to include such Person's successors and assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. 1.5 Schedules and Exhibits. All of the schedules and exhibits attached ---------------------- to this Agreement shall be deemed incorporated herein by reference. 2. LOAN AND TERMS OF PAYMENT. 2.1 Revolver Advances. ----------------- (a) Subject to the terms and conditions of this Agreement, and during the term of this Agreement, Lender agrees to make advances ("Advances") -------- to Borrower in an amount at any one time outstanding not to exceed an amount equal to the lesser of (i) the result of (a) the Maximum Revolver Amount less the sum of (y) the Letter of Credit Usage and (z) the Term Loan Usage, or (ii) the Borrowing Base less the Letter of Credit Usage. For purposes of this Agreement, "Borrowing Base," as of any date of determination, shall mean the -------------- result of: (y) the lesser of (i) 85% of the Dollar amount of Eligible Accounts, less the Dollar amount, if any, of the Dilution Reserve, and (ii) an amount equal to 66 2/3% of Borrower's and Canadian Obligor's Collections with respect to their License Receivables for the immediately preceding 90 day period, minus -26- (z) the aggregate amount of reserves, if any, established by Lender under Section 2.1(b). -------------- (b) Anything to the contrary in this Section 2.1 notwithstanding, Lender shall have the right to establish reserves in such amounts, and with respect to such matters, as Lender in its Permitted Discretion shall deem necessary or appropriate, against the Borrowing Base, including reserves with respect to (i) sums that Parent or any of its Subsidiaries is required to pay (such as taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and has failed to pay under any Section of this Agreement or any other Loan Document, (ii) amounts owing by Parent or any its Subsidiaries to any Person to the extent secured by a Lien on, or trust over, any of the Collateral (other than any existing Permitted Lien set forth on Schedule P-1 which is specifically identified thereon as entitled to have priority over the Lender's Liens), which Lien or trust, in the Permitted Discretion of Lender likely would have a priority superior to the Lender's Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes where given priority under applicable law) in and to such item of the Collateral or any other assets pledged to Lender pursuant to any of the Loan Documents, and (iii) the Foreign Exchange Reserve. (c) Lender shall have no obligation to make additional Advances hereunder to the extent such additional Advances would cause the Revolver Usage to exceed the than extant Maximum Revolver Amount. (d) Amounts borrowed pursuant to this Section may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement. 2.2 Term Loan. --------- (a) Subject to the terms and conditions of this Agreement, on the Closing Date Lender agrees to make a term loan (the "Term Loan") to Borrower in --------- an amount equal to the Term Loan Amount. The Term Loan shall be repaid on the following dates and in the following amounts: ======================================================================== Date Installment Amount ======================================================================== March 1, 2001 and on the first day of $277,778 each calendar month thereafter ------------------------------------------------------------------------ Maturity Date Balance then owing ======================================================================== The outstanding unpaid principal balance and all accrued and unpaid interest under the Term Loan shall be due and payable on the date of termination of this Agreement, whether by its terms, by prepayment, or by acceleration. All amounts outstanding under the Term Loan shall constitute Obligations. Anything contained in this Section 2.2(a) to the contrary -------------- -27- notwithstanding, if, as of the first anniversary of the Closing Date, the aggregate principal amount outstanding of the Term Loan is less than 25% of the Annualized Recurring Maintenance Revenues for the Relevant Measuring Period then most recently ended and so long as no Event of Default shall have occurred and be continuing, then Borrower shall have no further obligation to make amortization payments on the Term Loan in accordance with this Section 2.2(a); -------------- provided, however, that nothing herein shall be understood to mean that the - -------- ------- outstanding unpaid principal balance and all accrued and unpaid interest under the Term Loan shall not be due and payable on the date of termination of this Agreement, whether by its terms, by prepayment, or by acceleration. The foregoing notwithstanding, if any Revenue Report delivered to Lender pursuant to Section 6.2 hereof after the first anniversary of the Closing Date demonstrates - ----------- that the aggregate principal amount outstanding of the Term Loan exceeds 25% of the Annualized Recurring Maintenance Revenues for the Relevant Measuring Period then ended then Borrower's obligation to make amortization payments on the Term Loan in accordance with the second sentence of this Section 2.2(a) shall be -------------- reinstated effective on the first day of the first month immediately following the delivery to Lender of such Revenue Report. (b) The unpaid principal balance of the Term Loan may be prepaid, in whole or in part at any time during the term of this Agreement upon 5 days prior written notice by Borrower to Lender without premium or penalty (except as required by Section 3.6), all such prepaid amounts to be applied to the ----------- installments due on the Term Loan in the inverse order of their maturity. (c) If a Term Loan Repayment Trigger occurs then Borrower shall make a mandatory prepayment of the Term Loan in an amount equal to the Prepayment Amount. All such prepaid amounts shall be (i) made by Borrower contemporaneously with the delivery to Lender of the Revenue Report required by Section 6.2, and (ii) applied to the installments due on the Term Loan in the - ----------- inverse order of their maturity. 2.3 Borrowing Procedures and Settlements. ------------------------------------ (a) Procedure for Borrowing. Each Borrowing shall be made by a request by an Authorized Person delivered to Lender (which notice must be received by Lender no later than 10:00 a.m. (California time) on the Business Day that is the requested Funding Date specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day. At Lender's election, in lieu of delivering the above-described request in writing, any Authorized Person may give Lender telephonic notice of such request by the required time, with such telephonic notice to be confirmed in writing within 24 hours of the giving of such notice. (b) Making of Advances. If Lender has received a timely request for a Borrowing in accordance with the provisions hereof, and subject to the satisfaction of the applicable terms and conditions set forth herein, Lender shall make the proceeds of such Advance available to Borrower on the applicable Funding Date by transferring immediately available funds equal to such proceeds to Borrower's Designated Account. -28- 2.4 Payments. -------- (a) Payments by Borrower Except as otherwise expressly provided herein, all payments by Borrower shall be made to Lender's Account and shall be made in immediately available funds, no later than 11:00 a.m. (California time) on the date specified herein. Any payment received by Lender later than 11:00 a.m. (California time), shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day. (b) Application, and Reversal of Payments. (i) All payments shall be remitted to Lender and all such payments (other than payments received while no Default or Event of Default has occurred and is continuing and which relate to the payment of principal or interest of specific Obligations or which relate to the payment of specific fees), and all proceeds of Accounts, License Receivables, or other Collateral received by Lender, shall be applied as follows: (A) first, to pay any Lender Expenses then due to Lender ----- under the Loan Documents, until paid in full, (B) second, to pay any fees then due to Lender under the Loan ------ Documents until paid in full, (C) third, ratably to pay interest due in respect of the ----- Advances and the Term Loan until paid in full, (D) fourth, ratably to pay all principal amounts then due and ------ payable (other than as a result of an acceleration thereof) with respect to the Term Loan until paid in full, (E) fifth, to pay the principal of all Advances bearing ----- interest at a rate determined by reference to the Base Rate until paid in full, (F) sixth, if an Event of Default has occurred and is ----- continuing, to pay the principal of all LIBOR Rate Loans until paid in full, (G) seventh, if an Event of Default has occurred and is ------- continuing, to pay the outstanding principal balance of the Term Loan (in the inverse order of the maturity of the installments due thereunder) until the Term Loan is paid in full, (H) eighth, if an Event of Default has occurred and is ------ continuing, to be held by Lender as cash collateral in an amount up to 105% of the then extant Letter of Credit Usage until paid in full, -29- (I) ninth, to pay any other Obligations then due and payable ----- until paid in full, and (J) tenth, to Borrower (to be wired to the Designated ----- Account) or such other Person entitled thereto under applicable law. (ii) In each instance, so long as no Default or Event of Default has occurred and is continuing, Section 2.4(b) shall not be deemed to apply -------------- to any payment by Borrower specified by Borrower to be for the payment of specific Obligations then due and payable (or prepayable) under any provision of this Agreement. (iii) For purposes of the foregoing, "paid in full" means payment of all amounts owing under the Loan Documents according to the terms thereof, including loan fees, service fees, professional fees, interest (and specifically including interest accrued after the commencement of any Insolvency Proceeding), default interest, interest on interest, and expense reimbursements, whether or not the same would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding. (iv) In the event of a direct conflict between the priority provisions of this Section 2.4 and other provisions contained in any other ----------- Loan Document, it is the intention of the parties hereto that such priority provisions in such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.4 shall control and govern. ----------- 2.5 Overadvances. If, at any time or for any reason, the amount of ------------ Obligations owed by Borrower to Lender pursuant to Sections 2.1 and 2.12 is --------------------- greater than either the Dollar or percentage limitations set forth in Sections -------- 2.1 or 2.12, (an "Overadvance"), Borrower immediately shall pay to Lender, in - ----------- ----------- cash, the amount of such excess, which amount shall be used by Lender to reduce the Obligations in accordance with the priorities set forth in Section 2.4(b). -------------- In addition, if, as of any date of determination, the sum of the Revolver Usage plus the Term Loan Usage exceeds 66-2/3% of the amount of Collections of Parent and its Subsidiaries for the immediately preceding 90 consecutive day period, Borrower immediately shall pay to Lender, in cash, the amount of such excess, which amount shall be used by Lender first, to reduce the Advances and, if necessary, to make a prepayment of the Term Loan (to be applied to the installments due in respect thereof in the inverse order of their maturity). In addition, Borrower hereby promises to pay the Obligations (including principal, interest, fees, costs, and expenses) in Dollars in full to Lender as and when due and payable under the terms of this Agreement and the other Loan Documents. 2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and ------------------------------------------------------------- Calculations. - ------------ -30- (a) Interest Rates. Except as provided in clause (c) below, all Obligations (except for undrawn Letters of Credit) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof as follows (i) if the relevant Obligation is an Advance that is a LIBOR Rate Loan, at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin, (ii) if the relevant Obligation is a portion of the Term Loan, at a per annum rate equal to the Base Rate plus the Base Rate Term Loan Margin, and (iii) otherwise, at a per annum rate equal to the Base Rate plus the Base Rate Margin. (b) Letter of Credit Fee. Borrower shall pay Lender a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e)) which shall accrue at a rate equal to 1.50% per annum times ---------------- the Daily Balance of the undrawn amount of all outstanding Letters of Credit. (c) Default Rate. Upon the occurrence and during the continuation of an Event of Default, (i) all Obligations (except for undrawn Letters of Credit ) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 2 percentage points above the per annum rate otherwise applicable hereunder, and (ii) the Letter of Credit fee provided for above shall be increased to 2 percentage points above the per annum rate otherwise applicable hereunder. (d) Payment. Interest, Letter of Credit fees, and all other fees payable hereunder shall be due and payable, in arrears, on the first day of each month at any time that Obligations or obligation to extend credit hereunder are outstanding. Borrower hereby authorizes Lender, from time to time, without prior notice to Borrower, to charge such interest and fees, all Lender Expenses (as and when incurred), the charges, commissions, fees, and costs provided for in Section 2.12(e) (as and when accrued or incurred), the fees and costs provided - --------------- for in Section 2.11 (as and when accrued or incurred), and all other payments as ------------ and when due and payable under any Loan Document (including the installments due and payable with respect to the Term Loan) to Borrower's Loan Account, which amounts thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances hereunder. Any interest not paid when due shall be compounded by being charged to Borrower's Loan Account and shall thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances that are Base Rate Loans hereunder. (e) Computation. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed. In the event the Base Rate is changed from time to time hereafter, the rates of interest hereunder based upon the Base Rate automatically and immediately shall be increased or decreased by an amount equal to such change in the Base Rate. -31- (f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrower and Lender, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein -------- ------- to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrower is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess. 2.7 Cash Management. --------------- (a) From and after the date that Parent and Borrower comply with the provisions of Section 3.2(d), Parent and Borrower shall (i) continue to -------------- maintain cash management services of a type and on terms reasonably satisfactory to Lender at one or more of banks reasonably satisfactory to Lender (each a "US -- Cash Management Bank"), and shall request in writing and otherwise take such - -------------------- reasonable steps to ensure that all of its Account Debtors forward payment of the amounts owed by them directly to such US Cash Management Bank, and (ii) deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all Collections (including those sent directly by Account Debtors to a US Cash Management Bank) into a bank account in Lender's name (each a "US Cash Management Account") at one of the US -------------------------- Cash Management Banks. (b) Each US Cash Management Bank shall establish and maintain Cash Management Agreements with Lender and Borrower or Parent, in form and substance reasonably acceptable to Lender. Each such Cash Management Agreement shall provide, among other things, that (i) all items of payment deposited in such US Cash Management Account and proceeds thereof are held by such US Cash Management Bank as agent or bailee-in-possession for Lender, (ii) the US Cash Management Bank has no rights of setoff or recoupment or any other claim against the applicable US Cash Management Account, other than for payment of its service fees and other charges directly related to the administration of such US Cash Management Account and for returned checks or other items of payment, and (iii) from and after the receipt by the applicable US Cash Management Bank of a notice that a Triggering Event has occurred, it immediately will forward by daily sweep all amounts in the applicable US Cash Management Account to the Lender's Account. (c) So long as no Default or Event of Default has occurred and is continuing, Parent or Borrower may replace a US Cash Management Bank or US Cash Management Account; provided, however, that (i) such prospective US Cash -------- ------- Management Bank shall be reasonably satisfactory to Lender and Lender shall have consented in writing (not to be unreasonably withheld) in advance to the opening of such US Cash Management Account with the prospective US Cash Management Bank, and (ii) prior to the time of the opening of such US Cash Management -32- Account, Parent or Borrower, as applicable, and such prospective US Cash Management Bank shall have executed and delivered to Lender a US Cash Management Agreement. Parent or Borrower, as applicable, shall close any of their US Cash Management Accounts (and establish replacement cash management accounts in accordance with the foregoing sentence) promptly and in any event within 30 days of notice from Lender that the creditworthiness of any US Cash Management Bank is no longer acceptable in Lender's reasonable judgment, or as promptly as practicable and in any event within 60 days of notice from Lender that the operating performance, funds transfer, or availability procedures or performance of the US Cash Management Bank with respect to US Cash Management Accounts or Lender's liability under any Cash Management Agreement with such US Cash Management Bank is no longer acceptable in Lender's reasonable judgment. (d) The US Cash Management Accounts shall be cash collateral accounts, with all cash, checks and similar items of payment in such accounts securing payment of the Obligations, and in which Parent and Borrower are hereby deemed to have granted a Lien to Lender. 2.8 Crediting Payments; Float Charge. The receipt of any payment item by -------------------------------- Lender (whether from transfers to Lender by the US Cash Management Banks pursuant to the Cash Management Agreements or otherwise) shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to the Lender's Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrower shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Lender only if it is received into the Lender's Account on a Business Day on or before 11:00 a.m. (California time). If any payment item is received into the Lender's Account on a non-Business Day or after 11:00 a.m. (California time) on a Business Day, it shall be deemed to have been received by Lender as of the opening of business on the immediately following Business Day. From and after the Closing Date, Lender shall be entitled to charge Borrower for 1 Business Day of `clearance' or `float' at the rate applicable to Base Rate Loans under Section 2.6 on all Collections that are received by Parent and its ----------- Subsidiaries (regardless of whether forwarded by the US Cash Management Banks to Lender). This across-the-board 1 Business Day clearance or float charge on all Collections is acknowledged by the parties to constitute an integral aspect of the pricing of the financing of Borrower and shall apply irrespective of whether or not there are any outstanding monetary Obligations; the effect of such clearance or float charge being the equivalent of charging 1 Business Day of interest on such Collections. 2.9 Designated Account. Lender is authorized to make the Advances and the ------------------ Term Loan and Lender is authorized to issue the Letters of Credit under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person, or without instructions if pursuant to Section 2.6(d). Parent and Borrower agree to - -------------- -33- establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances requested by Borrower and made by Lender hereunder. Unless otherwise agreed by Lender and Borrower, any Advance requested by Borrower and made by Lender hereunder shall be made to the Designated Account. 2.10 Maintenance of Loan Account; Statements of Obligations. Lender shall ------------------------------------------------------ maintain an account on its books in the name of Borrower (the "Loan Account") on ------------ which Borrower will be charged with the Term Loan, all Advances made by Lender to Borrower or for Borrower's account, the Letters of Credit issued by Lender for Borrower's account, and with all other payment Obligations hereunder or under the other Loan Documents, including, accrued interest, fees and expenses, and Lender Expenses. In accordance with Section 2.8, the Loan Account will be ----------- credited with all payments received by Lender from Borrower or for Borrower's account, including all amounts received in the Lender's Account from any US Cash Management Bank. Lender shall render statements regarding the Loan Account to Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Lender Expenses owing, and such statements shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and Lender unless, within 60 days after receipt thereof by Borrower, Borrower shall deliver to Lender written objection thereto describing the error or errors contained in any such statements. 2.11 Fees. Borrower shall pay to Lender the following fees and charges, ---- which fees and charges shall be non-refundable when paid (irrespective of whether this Agreement is terminated thereafter): (a) Unused Line Fee. On the first day of each month during the term of this Agreement, an unused line fee in the amount equal to 0.375% per annum times the result of (a) the average amount of the Maximum Revolver Amount during the immediately preceding month, less (b) the sum of (i) the average Daily Balance of Advances that were outstanding during the immediately preceding month, plus (ii) the average Daily Balance of the Letter of Credit Usage during the immediately preceding month, plus (iii) the average Daily Balance of the Term Loan Usage during the immediately preceding month, (b) Fee Letter Fees. As and when due and payable under the terms of the Fee Letter, Borrower shall pay to Lender the fees set forth in the Fee Letter, and (c) Audit, Appraisal, and Valuation Charges. Audit, appraisal, and valuation fees and charges as follows, (i) a fee of $750 per day, per auditor, plus reasonable out-of-pocket expenses for each financial audit of Parent and its Subsidiaries performed by personnel employed by Lender; provided, however, -------- ------- that, so long as no Event of Default shall have occurred and be continuing, Borrower shall not be obligated to pay such fees and expenses in respect of more than 4 such audits in any calendar year, (ii) a one time charge of $3,000 plus reasonable out-of-pocket expenses for expenses for the establishment of electronic collateral reporting systems, (iii) a fee of $1,500 per day per appraiser, plus -34- reasonable out-of-pocket expenses, for each appraisal of the Collateral and any other assets pledged to Lender pursuant to any of the Loan Documents performed by personnel employed by Lender, and (iv) the actual charges paid or incurred by Lender if it elects to employ the services of one or more third Persons to perform financial audits of Parent and its Subsidiaries, to appraise the Collateral or any other assets pledged to Lender pursuant to any of the Loan Documents, or any portion thereof, or to assess Parent's business valuation. 2.12 Letters of Credit ----------------- (a) Subject to the terms and conditions of this Agreement, Lender agrees to issue letters of credit for the account of Borrower (each, an "L/C") --- or to purchase participations or execute indemnities or reimbursement obligations (each such undertaking, an "L/C Undertaking") with respect to --------------- letters of credit issued by an Underlying Issuer (as of the Closing Date, the prospective Underlying Issuer is to be Wells Fargo) for the account of Borrower. To request the issuance of an L/C or an L/C Undertaking (or the amendment, renewal, or extension of an outstanding L/C or L/C Undertaking), Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by Lender) to Lender and Lender (reasonably in advance of the requested date of issuance, amendment, renewal, or extension) a notice requesting the issuance of an L/C or L/C Undertaking, or identifying the L/C or L/C Undertaking to be amended, renewed, or extended, the date of issuance, amendment, renewal, or extension, the date on which such L/C or L/C Undertaking is to expire, the amount of such L/C or L/C Undertaking, the name and address of the beneficiary thereof (or the beneficiary of the Underlying Letter of Credit, as applicable), and such other information as shall be necessary to prepare, amend, renew, or extend such L/C or L/C Undertaking. If requested by Lender, Borrower also shall be an applicant under the application with respect to any Underlying Letter of Credit that is to be the subject of an L/C Undertaking. Lender shall have no obligation to issue a Letter of Credit if any of the following would result after giving effect to the requested Letter of Credit: (i) the Letter of Credit Usage would exceed the Borrowing Base less the amount of outstanding Advances, or (ii) the Letter of Credit Usage would exceed $15,000,000, or (iii) the Letter of Credit Usage would exceed the result of (a) the Maximum Revolver Amount less the then extant amount of outstanding Advances, less (b) the then extant Term Loan Usage. Borrower and Lender acknowledge and agree that certain Underlying Letters of Credit may be issued to support letters of credit that already are outstanding as of the Closing Date. Each Letter of Credit (and corresponding Underlying Letter of Credit) shall have an expiry date no later than 30 days prior to the Maturity Date and all such Letters of Credit (and corresponding Underlying Letter of Credit) shall be in form and substance acceptable to Lender (in the exercise of its Permitted Discretion), including the requirement that the amounts payable thereunder must be payable in Dollars. If Lender is obligated to -35- advance funds under a Letter of Credit, Borrower immediately shall reimburse such L/C Disbursement to Lender by paying to Lender an amount equal to such L/C Disbursement not later than 11:00 a.m., California time, on the date that such L/C Disbursement is made, if Borrower shall have received written or telephonic notice of such L/C Disbursement prior to 10:00 a.m., California time, on such date, or, if such notice has not been received by Borrower prior to such time on such date, then not later than 11:00 a.m., California time, on the Business Day that Borrower receives such notice, if such notice is received prior to 10:00 a.m., California time, on the date of receipt, and, in the absence of such reimbursement, the L/C Disbursement immediately and automatically shall be deemed to be an Advance hereunder and, thereafter, shall bear interest at the rate then applicable to Advances that are Base Rate Loans under Section 2.6. To ----------- the extent an L/C Disbursement is deemed to be an Advance hereunder, Borrower's obligation to reimburse such L/C Disbursement shall be discharged and replaced by the resulting Advance. (b) Borrower hereby agrees to indemnify, save, defend, and hold Lender harmless from any loss, cost, expense, or liability, and reasonable attorneys fees incurred by Lender arising out of or in connection with any Letter of Credit; provided, however, that Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability that is caused by the gross negligence or willful misconduct of Lender. Borrower agrees to be bound by the Underlying Issuer's regulations and interpretations of any Underlying Letter of Credit or by Lender's interpretations of any L/C issued by Lender to or for Borrower's account, even though this interpretation may be different from Borrower's own, and Borrower understands and agrees that Lender shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower's instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto. Borrower understands that the L/C Undertakings may require Lender to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by Borrower against such Underlying Issuer. Borrower hereby agrees to indemnify, save, defend, and hold Lender harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by Lender under any L/C Undertaking as a result of Lender's indemnification of any Underlying Issuer; provided, however, that Borrower shall not be obligated hereunder to -------- ------- indemnify for any loss, cost, expense, or liability that is caused by the gross negligence or willful misconduct of Lender. (c) Borrower hereby authorizes and directs any Underlying Issuer to deliver to Lender all instruments, documents, and other writings and property received by such Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon Lender's instructions with respect to all matters arising in connection with such Underlying Letter of Credit and the related application. (d) Any and all charges, commissions, fees, and costs incurred by Lender relating to Underlying Letters of Credit shall be Lender Expenses for purposes of this Agreement and immediately shall be reimbursable by Borrower to Lender for the account of Lender; it being acknowledged and agreed by Borrower that, as of the Closing Date, the issuance charge imposed by the prospective Underlying Issuer is .825% per annum times the -36- face amount of each Underlying Letter of Credit, that such issuance charge may be changed from time to time, and that the Underlying Issuer also imposes a schedule of charges for amendments, extensions, drawings, and renewals. (e) If by reason of (i) any change in any applicable law, treaty, rule, or regulation or any change in the interpretation or application thereof by any Governmental Authority, or (ii) compliance by the Underlying Issuer or Lender with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time to time in effect (and any successor thereto): (i) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued hereunder, or (ii) there shall be imposed on the Underlying Issuer or Lender any other condition regarding any Underlying Letter of Credit or any Letter of Credit issued pursuant hereto, and the result of the foregoing is to increase, directly or indirectly, the cost to Lender of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof by Lender, then, and in any such case, Lender may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Borrower, and Borrower shall pay on demand such amounts as Lender may specify to be necessary to compensate Lender for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Base Rate Loans hereunder. The determination by Lender of any amount due pursuant to this Section, as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto. 2.13 LIBOR Option ------------ (a) Interest and Interest Payment Dates. In lieu of having interest charged at the rate based upon the Base Rate, Borrower shall have the option (the "LIBOR Option") to have interest on all or a portion of the Advances ----- ------ be charged at a rate of interest based upon the LIBOR Rate. Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the last day of the Interest Period applicable thereto, (ii) the occurrence and continuance of an Event of Default in consequence of which Lender has elected to accelerate the maturity of the Obligations, (iii) termination of this Agreement pursuant to the terms hereof, or (iv) the first day of each month that such LIBOR Rate Loan is outstanding. On the last day of each applicable Interest Period, unless Borrower properly has exercised the LIBOR Option with respect thereto, the interest rate applicable to such LIBOR Rate Loan automatically shall convert to the rate of interest then applicable to Base Rate Loans of the same type hereunder. At any time that an Event of Default has occurred and is continuing, Borrower no longer shall have the option to request that Advances bear interest at the LIBOR -37- Rate and Lender shall have the right to convert the interest rate on all outstanding LIBOR Rate Loans to the rate then applicable to Base Rate Loans hereunder. (b) LIBOR Election. (i) Borrower may, at any time and from time to time, so long as no Event of Default has occurred and is continuing, elect to exercise the LIBOR Option by notifying Lender prior to 11:00 a.m. (California time) at least 3 Business Days prior to the commencement of the proposed Interest Period (the "LIBOR Deadline"). Notice of Borrower's election of the LIBOR Option for a permitted portion of the Advances and an Interest Period pursuant to this Section shall be made by delivery to Lender of a LIBOR Notice received by Lender before the LIBOR Deadline, or by telephonic notice received by Lender before the LIBOR Deadline (to be confirmed by delivery to Lender of a LIBOR Notice received by Lender prior to 5:00 p.m. (California time) on the same day. (ii) Each LIBOR Notice shall be irrevocable and binding on Borrower. In connection with each LIBOR Rate Loan, Borrower shall indemnify, defend, and hold Lender harmless against any loss, cost, or expense incurred by Lender as a result of (a) the payment of any principal of any LIBOR Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any LIBOR Rate Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice delivered pursuant hereto (such losses, costs, and expenses, collectively, "Funding Losses"). Funding Losses shall be deemed to equal -------------- the amount determined by Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such LIBOR Rate Loan had such event not occurred, at the LIBOR Rate that would have been applicable thereto, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert, or continue, for the period that would have been the Interest Period therefor), minus (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate which Lender would be offered were it to be offered, at the commencement of such period, Dollar deposits of a comparable amount and period in the London interbank market. A certificate of Lender delivered to Borrower setting forth any amount or amounts that Lender is entitled to receive pursuant to this Section shall be conclusive absent manifest error. (iii) Borrower shall have not more than 5 LIBOR Rate Loans in effect at any given time. Borrower only may exercise the LIBOR Option for LIBOR Rate Loans of at least $1,000,000 and integral multiples of $100,000 -38- in excess thereof. The foregoing notwithstanding, upon the written request of Borrower, Lender shall in good faith consider permitting Borrower to maintain an additional 2 LIBOR Rate Loans. (c) Prepayments. Borrower may prepay LIBOR Rate Loans at any time; provided, however, that in the event that LIBOR Rate Loans are -------- ------- prepaid on any date that is not the last day of the Interest Period applicable thereto, including as a result of any automatic prepayment through the required application by Lender of proceeds of Collections in accordance with Section 2.4(b) or for any other reason, including early -------------- termination of the term of this Agreement or acceleration of the Obligations pursuant to the terms hereof, Borrower shall indemnify, defend, and hold Lender and its Participants harmless against any and all Funding Losses in accordance with clause (b)(ii) above. (d) Special Provisions Applicable to LIBOR Rate. (i) The LIBOR Rate may be adjusted by Lender on a prospective basis to take into account any additional or increased costs to Lender of maintaining or obtaining any eurodollar deposits or increased costs due to changes in applicable law occurring subsequent to the commencement of the then applicable Interest Period, including changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any successor), excluding the Reserve Percentage, which additional or increased costs would increase the cost of funding loans bearing interest at the LIBOR Rate. In any such event, Lender shall give Borrower notice of such a determination and adjustment and, upon its receipt of the notice from Lender, Borrower may, by notice to Lender (y) require Lender to furnish to Borrower a statement setting forth the basis for adjusting such LIBOR Rate and the method for determining the amount of such adjustment, or (z) repay the LIBOR Rate Loans with respect to which such adjustment is made (together with any amounts due under clause (b)(ii) above). (ii) In the event that any change in market conditions or any law, regulation, treaty, or directive, or any change therein or in the interpretation of application thereof, shall at any time after the date hereof, in the reasonable opinion of Lender, make it unlawful or impractical for Lender to fund or maintain LIBOR Advances or to continue such funding or maintaining, or to determine or charge interest rates at the LIBOR Rate, Lender shall give notice of such changed circumstances to Borrower and (y) in the case of any LIBOR Rate Loans that are outstanding, the date specified in Lender's notice shall be deemed to be the last day of the Interest Period of such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans thereafter shall accrue interest at the rate then applicable to Base Rate Loans, and (z) Borrower shall not be entitled to elect the LIBOR Option until Lender determines that it would no longer be unlawful or impractical to do so. -39- (e) No Requirement of Matched Funding. Anything to the contrary contained herein notwithstanding, Lender is not required actually to acquire eurodollar deposits to fund or otherwise match fund any Obligation as to which interest accrues at the LIBOR Rate. The provisions of this Section shall apply as if Lender had match funded any Obligation as to which interest is accruing at the LIBOR Rate by acquiring eurodollar deposits for each Interest Period in the amount of the LIBOR Rate Loans. 2.14 Capital Requirements. If, after the date hereof, Lender, in its -------------------- reasonable opinion, determines that (i) the adoption of or change in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by Lender or its parent bank holding company with any guideline, request or directive of any such entity regarding capital adequacy (whether or not having the force of law), the effect of reducing the return on Lender's or such holding company's capital as a consequence of Lender's obligations hereunder to a level below that which Lender or such holding company could have achieved but for such adoption, change, or compliance (taking into consideration Lender's or such holding company's then existing policies with respect to capital adequacy and assuming the full utilization of such entity's capital) by any amount deemed by Lender to be material, then Lender may notify Borrower thereof. Following receipt of such notice, Borrower agrees to pay Lender on demand the amount of such reduction of return of capital as and when such reduction is determined, payable within 90 days after presentation by Lender of a statement in the amount and setting forth in reasonable detail Lender's calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error). In determining such amount, Lender may use any reasonable averaging and attribution methods. 3. CONDITIONS; TERM OF AGREEMENT. 3.1 Conditions Precedent to the Initial Extension of Credit. The obligation ------------------------------------------------------- of Lender to make the initial extensions of credit hereunder is subject to the fulfillment, to the satisfaction of Lender, of each of the conditions precedent set forth below: (a) the Closing Date shall occur on or before February 14, 2001; (b) Lender shall have received all financing statements required by Lender, duly executed by Parent or its applicable Subsidiary, and Lender shall have received searches reflecting the filing of all such financing statements; (c) Lender shall have received each of the following documents, in form and substance satisfactory to Lender, duly executed, and each such document shall be in full force and effect: (i) the Chase Control Agreement, (ii) the Copyright Security Agreement, -40- (iii) the Disbursement Letter, (iv) the Due Diligence Letter, (v) the Fee Letter, (vi) [intentionally omitted], (vii) [intentionally omitted], (viii) the Stock Pledge Agreement, together with all certificates representing the shares of Stock pledged thereunder, as well as Stock powers with respect thereto endorsed in blank, (ix) the Trademark Security Agreement, (x) the Pay-Off Letter, together with UCC termination statements and other documentation evidencing the termination by Existing Lender of its Liens in and to the properties and assets of Borrower, (xi) the Guaranty, (xii) the Warrant, (xiii) the Registration Rights Agreement, (xiv) the Patent Security Agreement, (xv) the Pledged Notes, together with endorsements thereto executed in blank; (xvi) the Patent Side Letter, (xvii) the Permitted Holder Side Letter, (xviii) the Intercompany Subordination Agreement, and (xix) the Security Agreement; (d) Lender shall have received a certificate from the Secretary of Borrower attesting to the resolutions of Borrower's Board of Directors authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which Borrower is a party and authorizing specific officers of Borrower to execute the same; (e) Lender shall have received copies of Borrower's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of Borrower; -41- (f) Lender shall have received a certificate of status with respect to Borrower, dated within 20 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of Borrower, which certificate shall indicate that Borrower is in good standing in such jurisdiction; (g) Lender shall have received certificates of status with respect to Borrower, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of Borrower) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that Borrower is in good standing in such jurisdictions; (h) Lender shall have received a certificate from the Secretary of each Guarantor attesting to the resolutions of such Guarantor's Board of Directors authorizing its execution, delivery, and performance of the Loan Documents to which such Guarantor is a party and authorizing specific officers of such Guarantor to execute the same; (i) Lender shall have received copies of each Guarantor's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of such Guarantor; (j) Lender shall have received a certificate of status with respect to each Guarantor, dated within 20 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of such Guarantor, which certificate shall indicate that Guarantor is in good standing in such jurisdiction; (k) Lender shall have received certificates of status with respect to each Guarantor, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of the applicable Guarantor) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that each Guarantor is in good standing in such jurisdictions; (l) Lender shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.8, the form and substance of which shall be satisfactory to Lender; (m) [intentionally omitted]. (n) Lender shall have received opinions of Borrower's and each Guarantor's counsel in form and substance satisfactory to Lender; (o) Lender shall have received satisfactory evidence (including a certificate of the chief financial officer of Parent) that all tax returns required to be filed by Parent and its Subsidiaries have been timely filed and all taxes upon Parent and its Subsidiaries or their properties, assets, income, and franchises (including Real Property taxes -42- and payroll taxes) have been paid prior to delinquency, except such taxes that are the subject of a Permitted Protest; (p) Parent and its Subsidiaries shall have the Required Availability after giving effect to extensions of credit hereunder; (q) Lender shall have completed its business, legal, and collateral due diligence, including (i) a collateral audit and review of Parent's and its Subsidiaries' books and records and verification of Parent's and its Subsidiaries' representations and warranties to Lender, the results of which shall be satisfactory to Lender, and (ii) an inspection of each of the locations where Inventory is located, the results of which shall be satisfactory to Lender; (r) Lender shall have received completed reference checks with respect to Parent's senior management, the results of which are satisfactory to Lender in its sole discretion; (s) Lender shall have received Parent's Closing Date Business Plan; (t) Borrower shall pay all Lender Expenses incurred in connection with the transactions evidenced by this Agreement; (u) Lender shall have received copies of each of the Indenture Documents, together with a certificate of the Secretary of Parent certifying each such document as being a true, correct, and complete copy thereof; (v) Lender shall have received copies of each of the Stipulation of Settlement, together with a certificate of the Secretary of Parent certifying each such document as being a true, correct, and complete copy thereof; (w) Lender shall have received evidence that the maturity date of the $50,000,000 Note has been extended to a date not earlier than the date that is 6 months following the Maturity Date; (x) Lender shall have received evidence that all Intellectual Property of Parent necessary for the conduct of Borrower's business has been licensed by Parent to Borrower, the form and substance of all agreements or licenses (including, without limitation, the Parent License) evidencing such licensing shall be satisfactory to Lender, and Lender shall have received copies of each such agreement or license, together with a certificate of the Secretary of Parent certifying each such agreement or license as being a true, correct, and complete copy thereof; (y) [intentionally omitted]; (z) Parent and its Subsidiaries shall have received all licenses, approvals or evidence of other actions required by any Governmental Authority in -43- connection with the execution and delivery by Parent and its Subsidiaries of this Agreement or any other Loan Document or with the consummation of the transactions contemplated hereby and thereby; and (aa) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Lender. 3.1A Conditions Precedent to the Further Extension of Credit. The ------------------------------------------------------- obligation of Lender to make Further Advances or to exchange, renew, or replace the Letter of Credit issued on the Closing Date is subject to the fulfillment, on or before the date applicable thereto (if any), of each of the following conditions set forth below: (a) Lender's regional credit manager shall have met with the senior management of Parent and the results of such meeting shall be satisfactory to Lender; (b) Lender shall have reviewed the revenue recognition procedures of Parent and its Subsidiaries and the results of such review shall be satisfactory to Lender; (c) Lender shall have received an appraisal of the Recurring Maintenance Revenues, such appraisal shall be conducted by Empire Valuations or such other Person acceptable to Lender, and the results of such appraisal shall be satisfactory to Lender; (d) Lender shall have received such evidence as Lender may require demonstrating that Borrower and Canadian Obligor have segregated the invoicing, receivables agings, and Collections in respect of Recurring Maintenance Revenues from all other Collections of Parent, Borrower, and Canadian Obligor; (e) the Canadian Conditions shall have been satisfied; and (f) Lender shall have reviewed the customer contracts of Parent and its Subsidiaries relative to the licensing of Products in the Territory or the provision of technical, maintenance and support, and professional services in the Territory and the results thereof shall be satisfactory to Lender. 3.2 Conditions Subsequent to the Initial Extension of Credit. The -------------------------------------------------------- obligation of Lender to continue to make Advances (or otherwise extend credit hereunder) from and after the date of the satisfaction of each of the conditions set forth in Section 3.1A is subject to the fulfillment, on or before the date applicable thereto, of each of the conditions subsequent set forth below (the failure by Parent and Borrower to so perform or cause to be performed constituting an Event of Default): (a) within 30 days of the Closing Date, deliver to Lender certified copies of the policies of insurance, together with the endorsements thereto, as are required by -44- Section 6.8, the form and substance of which shall be reasonably satisfactory to - ----------- Lender and its counsel; (b) within 3 Business Days of the Closing Date, Lender shall have received such evidence as Lender may require demonstrating that Parent has remitted all funds previously held by Existing Lender as cash collateral for the obligations of Parent to Existing Lender that were repaid with the proceeds of the initial extension of credit hereunder to the Chase Control Agreement; (c) [intentionally omitted]; (d) within 60 days of the Closing Date, Lender shall have received such Cash Management Agreements and additional Control Agreements as Lender may require, each such Cash Management Agreement and additional Control Agreement shall have been duly executed by each of the parties thereto and be in full force and effect; (e) within 10 days of the Closing Date, Lender shall have received the Deutsche Control Agreement and the same shall be in full force and effect; (f) within 30 days of the Closing Date, Aventine shall have delivered all of the Stock held by Aventine of Price Interactive, Inc., a Delaware corporation ("Price"), Exchange Applications, Inc., a Delaware corporation, Medical Internet Solutions, Inc., a Delaware corporation, and Cvent, Inc., a Delaware corporation, together with Stock powers with respect thereto endorsed in blank, to Lender together with such evidence as Lender may reasonably request demonstrating that the pledge of such Stock does not violate any agreements or instruments applicable to any such Stock; provided, however, -------- ------- that, in the event that iBasis, Inc., a Delaware corporation, consummates the acquisition of all of the Stock of Price prior to the date that is 30 days following the Closing Date, then Aventine shall not be required to deliver to Lender the Stock of Price or any Stock powers with respect thereto; (g) solely in the event that iBasis, Inc., a Delaware corporation ("Basis"), consummates the acquisition of all of the Stock of Price Interactive, Inc., a Delaware corporation ("Price"), within 185 days of the date of the consummation of the acquisition by Basis of all of the Stock of Price, Aventine shall have delivered all of the Stock of Basis then held by Aventine, together with Stock powers with respect thereto endorsed in blank, to Lender together with such evidence as Lender may reasonably request demonstrating that the pledge of such Stock does not violate any agreements or instruments applicable to such Stock; and (h) within 45 days of the Closing Date, Lender shall have received Collateral Access Agreements with respect to the following locations: 8000 Towers Crescent Drive, Vienna, Virginia, and 1861 International Drive, McLean, Virginia. (i) within 20 days of the Closing Date, Lender shall have received evidence that the UCC-1 financing statement filed by Citizens Bank of Virginia against Parent with the Secretary of State of Delaware has been terminated or lapsed by its terms. -45- 3.3 Conditions Precedent to all Extensions of Credit. The obligation of ------------------------------------------------ Lender to make all Advances (or to extend any other credit hereunder) shall be subject to the following conditions precedent: (a) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); (b) no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof; (c) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against Borrower, any Guarantor, Lender, or any of their Affiliates; and (d) no Material Adverse Change shall have occurred. 3.4 Term. This Agreement shall become effective upon the execution and ---- delivery hereof by Parent, Borrower, and Lender and shall continue in full force and effect for a term ending on February 9, 2004 (the "Maturity Date"). The foregoing notwithstanding, Lender shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default. 3.5 Effect of Termination. On the date of termination of this Agreement, --------------------- all Obligations (including contingent reimbursement obligations of Borrower with respect to any outstanding Letters of Credit but excluding any Obligations in respect of the Warrant or the Registration Rights Agreement) immediately shall become due and payable without notice or demand. No termination of this Agreement, however, shall relieve or discharge Parent, Borrower, or any other Guarantor of its duties, Obligations, or covenants hereunder and the Lender's Liens in the Collateral and the other assets pledged to Lender shall remain in effect until all Obligations (other than the Obligations in respect of the Warrant and the Registration Rights Agreement) have been fully and finally discharged and Lender's obligations to provide additional credit hereunder have been terminated. When this Agreement has been terminated and all of the Obligations (other than the Obligations in respect of the Warrant and the Registration Rights Agreement) have been fully and finally discharged and Lender's obligations to provide additional credit under the Loan Documents have been terminated irrevocably, Lender will, at Borrower's sole expense, execute and deliver any UCC termination statements, lien releases, mortgage releases, re-assignments of trademarks, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, the Lender's Liens and all notices of security interests and liens previously filed by Lender with respect to the Obligations. -46- 3.6 Early Termination by Borrower. Borrower has the option, at any time ----------------------------- upon 30 days prior written notice by Borrower to Lender, to terminate this Agreement by paying to Lender, in cash, the Obligations (including either (i) providing cash collateral to be held by Lender in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to Lender but excluding any Obligations in respect of the Warrant or the Registration Rights Agreement), in full, together with the Applicable Prepayment Premium. If Borrower has sent a notice of termination pursuant to the provisions of this Section, then Lender's obligations to extend credit hereunder shall terminate and Borrower shall be obligated to repay the Obligations (including either (i) providing cash collateral to be held by Lender in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to Lender but excluding any Obligations in respect of the Warrant or the Registration Rights Agreement), in full, together with the Applicable Prepayment Premium, on the date set forth as the date of termination of this Agreement in such notice. In the event of the termination of this Agreement and repayment of the Obligations at any time prior to the Maturity Date, for any other reason, including (a) termination upon the election of Lender to terminate after the occurrence of an Event of Default, (b) foreclosure and sale of Collateral, (c) sale of the Collateral in any Insolvency Proceeding, or (iv) restructure, reorganization or compromise of the Obligations by the confirmation of a plan of reorganization, or any other plan of compromise, restructure, or arrangement in any Insolvency Proceeding, then, in view of the impracticability and extreme difficulty of ascertaining the actual amount of damages to Lender or profits lost by Lender as a result of such early termination, and by mutual agreement of the parties as to a reasonable estimation and calculation of the lost profits or damages of Lender, Borrower shall pay the Applicable Prepayment Premium to Lender, measured as of the date of such termination. The foregoing to the contrary notwithstanding, in the event that any termination of this Agreement by Borrower pursuant to the first sentence of Section 3.6 occurs as a proximate result of or in proximate ----------- connection with a refinancing of the Obligations provided by a commercial banking unit of Wells Fargo, then the Applicable Prepayment Premium shall equal zero. 4. CREATION OF SECURITY INTEREST. 4.1 Grant of Security Interest. Borrower hereby grants to Lender a -------------------------- continuing security interest in all of its right, title, and interest in all currently existing and hereafter acquired or arising Personal Property Collateral in order to secure prompt repayment of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. The Lender's Liens in and to the Personal Property Collateral shall attach to all Personal Property Collateral without further act on the part of Lender or Borrower. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions, Borrower has no authority, express or implied, to dispose of any item or portion of the Collateral. Anything contained herein or in the Stock Pledge Agreement to the contrary notwithstanding, the security interest granted by Aventine herein or therein in the Stock of -47- iBasis, Inc., a Delaware corporation ("Basis"), Cvent, Inc., a Delaware corporation ("Cvent"), Medical Internet Solutions, Inc., a Delaware corporation ("MIS"), Exchange Applications, Inc., a Delaware corporation ("Exchange"), or Price Interactive, Inc., a Delaware corporation ("Price"), shall not attach to such Stock until (a) in the case of Basis, the date that is 181 days following the date of the consummation of the acquisition of Price by Basis, (b) in the case of Cvent, MIS, Exchange, or Price, the date that is the earlier of (i) the date that is 30 days immediately following the Closing Date, and (ii) the date that Aventine delivers the applicable Stock to Lender pursuant to the provisions of Section 3.2(f) hereof. -------------- 4.2 Negotiable Collateral. In the event that any Collateral, including --------------------- proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection of priority of Lender's security interest is dependent on or enhanced by possession, Borrower, immediately upon the request of Lender, shall endorse and deliver physical possession of such Negotiable Collateral to Lender. 4.3 Collection of Accounts, General Intangibles, License Receivables, and --------------------------------------------------------------------- Negotiable Collateral. At any time after the occurrence and during the - --------------------- continuation of an Event of Default, Lender or Lender's designee may (a) notify Account Debtors of Borrower that the Accounts, License Receivables, chattel paper, or General Intangibles have been assigned to Lender or that Lender has a security interest therein, or (b) collect the Accounts, License Receivables, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Borrower agrees that it will hold in trust for Lender, as Lender's trustee, any Collections that it receives and immediately will deliver said Collections to Lender or a US Cash Management Bank in their original form as received by Borrower. 4.4 Delivery of Additional Documentation Required. At any time upon the --------------------------------------------- request of Lender, Borrower shall execute and deliver to Lender, any and all financing statements, original financing statements in lieu of continuation statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, and all other documents (the "Additional Documents") that Lender may request in its Permitted Discretion, in form and substance satisfactory to Lender, to perfect and continue perfected or better perfect the Lender's Liens in the Collateral (whether now owned or hereafter arising or acquired), to create and perfect Liens in favor of Lender in any Real Property (other than any leasehold interests in any Real Property) acquired after the Closing Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by applicable law, Borrower authorizes Lender to execute any such Additional Documents in Borrower's name and authorizes Lender to file such executed Additional Documents in any appropriate filing office. In addition, on such periodic basis as Lender shall require, Parent shall (a) provide Lender with a report of all new material patentable, copyrightable, or trademarkable materials acquired or generated by Parent and its Subsidiaries during the prior period that are necessary to the conduct of the business of Parent and its -48- Subsidiaries as then conducted, (b) cause all such material patents, copyrights, and trademarks acquired or generated by Parent and its Subsidiaries that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of the ownership thereof by Parent or the applicable Subsidiary, and (c) cause to be prepared, executed, and delivered to Lender supplemental schedules to the applicable Loan Documents to identify all such patents, copyrights, and trademarks as being subject to the security interests created thereunder. 4.5 Power of Attorney. Borrower hereby irrevocably makes, constitutes, and ----------------- appoints Lender (and any of Lender's officers, employees, or agents designated by Lender) as Borrower's true and lawful attorney, with power to (a) if Borrower refuses to, or fails timely to execute and deliver any of the documents described in Section 4.4, sign the name of Borrower on any of the documents ----------- described in Section 4.4, (b) at any time that an Event of Default has occurred ----------- and is continuing, sign Borrower's name on any invoice or bill of lading relating to the Collateral, drafts against Account Debtors, or notices to Account Debtors, (c) send requests for verification of License Receivables, (d) endorse Borrower's name on any Collection item that may come into Lender's possession, (e) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts, License Receivables, chattel paper, or General Intangibles directly with Account Debtors, for amounts and upon terms that Lender determines to be reasonable, and Lender may cause to be executed and delivered any documents and releases that Lender determines to be necessary. The appointment of Lender as Borrower's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and Lender's obligations to extend credit hereunder are terminated. 4.6 Right to Inspect. Lender (through any of its respective officers, ---------------- employees, or agents) shall have the right, from time to time hereafter to inspect the Books and to check, test, and appraise the Collateral and the other assets pledged to Lender pursuant to the Loan Documents in order to verify the financial condition of Parent and its Subsidiaries or the amount, quality, value, condition of, or any other matter relating to, the Collateral or the other assets pledged to Lender pursuant to the Loan Documents. 4.7 Control Agreements. Parent and Borrower agree that neither will, nor ------------------ will permit any of their Subsidiaries to, transfer assets out of any deposit accounts or Securities Accounts other than as permitted under Section 7.19 and, ------------ if to another depositary bank or securities intermediary, unless each of Parent, Borrower, or the applicable Subsidiary, Lender, and the substitute depositary bank or securities intermediary have entered into a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any deposit accounts or Securities Accounts or other Investment Property shall be modified by Parent, Borrower, or the applicable Subsidiary without the prior written consent of Lender. Solely upon the occurrence and during the continuance of a Default or Event of Default, Lender may notify any depositary bank or securities intermediary to liquidate the -49- applicable deposit account or Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to the Lender's Account. 5. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into this Agreement, Parent and Borrower, for themselves and each of their respective Subsidiaries, makes the following representations and warranties to Lender which shall be true, correct, and complete, in all material respects, as of the date hereof, and shall be true, correct, and complete, in all material respects, as of the Closing Date, and at and as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement: 5.1 No Encumbrances. Borrower has good and indefeasible title to its --------------- Collateral and the Real Property, free and clear of Liens except for Permitted Liens. 5.2 Eligible Accounts. The Eligible Accounts are bona fide existing payment ----------------- obligations of Account Debtors created in the ordinary course of Borrower's (or Canadian Obligor's, as applicable) business, owed to Borrower (or Canadian Obligor, as applicable) without defenses, disputes, offsets, counterclaims, or rights of return or cancellation. As to each Eligible Account, such License Receivable is not: (a) owed by an employee, Affiliate, or agent of Borrower or Canadian Obligor, (b) on account of a transaction wherein the payment by the Account Debtor may be conditional, (c) payable in a currency other than Dollars or Canadian Dollars, (d) owed by an Account Debtor that has or has asserted a right of setoff, has disputed its liability, or has made any claim with respect to its obligation to pay the License Receivable, (e) owed by an Account Debtor that is subject to any Insolvency Proceeding or is not Solvent or as to which Borrower or Canadian Obligor has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor, (f) on account of a transaction as to which the services giving rise to such License Receivable have not been performed, -50- (g) a right to receive progress payments or other advance billings that are due prior to the completion of performance by Borrower or Canadian Obligor of the subject contract for services, and (h) a License Receivable that has not been billed to the customer. 5.3 [intentionally omitted] ----------------------- --------- 5.4 Equipment. All of the Equipment is used or held for use in Borrower's --------- business and is fit for such purposes. 5.5 Location of Inventory and Equipment. The Inventory and Equipment are ----------------------------------- not stored with a bailee, warehouseman, or similar party and, other than such equipment that is in-transit in the ordinary course of business of Parent and its Subsidiaries, are located only at the locations identified on Schedule 5.5. ------------ 5.6 Inventory Records. Borrower keeps correct and accurate records ----------------- itemizing and describing the type, quality, and quantity of its Inventory and the book value thereof. 5.7 Location of Chief Executive Office; FEIN. The chief executive office of ---------------------------------------- Parent and each of its Subsidiaries is located at the address indicated in Schedule 5.7. The FEIN (or foreign equivalent) of Parent and each of its - ------------ Subsidiaries is identified in Schedule 5.7. ------------ 5.8 Due Organization and Qualification; Subsidiaries ------------------------------------------------ (a) Parent and each of its Subsidiaries is duly organized and existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any state where the failure to be so qualified reasonably could be expected to have a Material Adverse Change. (b) Set forth on Schedule 5.8(b), is a complete and accurate --------------- description of the authorized capital Stock of Parent, by class, and, as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding. Other than as described on Schedule -------- 5.8(b), there are no subscriptions, options, warrants, or calls relating to ------ any shares of Parent's capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Other than as described on Schedule 5.8(b), Parent is not subject to any obligation --------------- (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock. (c) Set forth on Schedule 5.8(c), is a complete and accurate list --------------- of Parent's direct and indirect Subsidiaries, showing: (i) the jurisdiction of their organization; (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries; and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by Parent. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable. -51- (d) Except as set forth on Schedule 5.8(c), there are no --------------- subscriptions, options, warrants, or calls relating to any shares of Parent's Subsidiaries' capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Neither Parent nor any of its Subsidiaries is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of Parent's Subsidiaries' capital Stock or any security convertible into or exchangeable for any such capital Stock. 5.9 Due Authorization; No Conflict. ------------------------------ (a) The execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of Borrower. (b) The execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which it is a party do not and will not (i) violate in any material respect any provision of federal, state, or local law or regulation applicable to Borrower, the Governing Documents of Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Borrower (exclusive, however, of any conflict, breach, or default resulting from an enforceable prohibition on the attachment of the Lender's Liens to the contract or other agreement evidencing a material contractual obligation of Borrower), (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of Borrower's interestholders or any approval or consent of any Person under any material contractual obligation of Borrower (exclusive, however, of any approval or consent required in connection with the attachment of the Lender's Liens to the contract or other agreement evidencing a material contractual obligation of Borrower). (c) Other than the filing of financing statements, fixture filings, and certain of the Loan Documents with the SEC, the United States Patent and Trademark Office, and the United States Copyright Office, the execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which Borrower is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. (d) This Agreement and the other Loan Documents to which Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by Borrower will be the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. (e) The Lender's Liens are validly created, perfected, and first priority Liens, subject only to Permitted Liens. -52- (f) As to each Guarantor, the execution, delivery, and performance by such Guarantor of the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Guarantor. (g) As to each Guarantor, the execution, delivery, and performance by such Guarantor of the Loan Documents to which it is a party do not and will not (i) violate in any material respect any provision of federal, state, or local law or regulation applicable to such Guarantor, the Governing Documents of such Guarantor, or any order, judgment, or decree of any court or other Governmental Authority binding on such Guarantor, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of such Guarantor (exclusive, however, of any conflict, breach, or default resulting from an enforceable prohibition on the attachment of the Lender's Liens to the contract or other agreement evidencing a material contractual obligation of such Guarantor), (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of such Guarantor, other than Permitted Liens, or (iv) require any approval of such Guarantor's interestholders or any approval or consent of any Person under any material contractual obligation of such Guarantor (exclusive, however, of any approval or consent required in connection with the attachment of the Lender's Liens to the contract or other agreement evidencing a material contractual obligation of such Guarantor). (h) As to each Guarantor, other than the filing of financing statements, PPSA filings, fixture filings, and certain of the Loan Documents with the SEC, the United States Patent and Trademark Office, and the United States Copyright Office, the execution, delivery, and performance by such Guarantor of the Loan Documents to which such Guarantor is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. (i) As to each Guarantor, the Loan Documents to which such Guarantor is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Guarantor will be legally valid and binding obligations of such Guarantor, enforceable against such Guarantor in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. 5.10 Litigation. Other than those matters disclosed on Schedule 5.10, there ---------- ------------- are no material actions, suits, or proceedings pending or, to the best knowledge of Parent, threatened against Parent, or any of its Subsidiaries, as applicable, except for (a) matters that are fully covered by insurance (subject to customary deductibles), and (b) matters arising after the Closing Date that, if decided adversely to Parent, or any of its Subsidiaries, as applicable, reasonably could not be expected to result in a Material Adverse Change. 5.11 No Material Adverse Change. All financial statements relating to -------------------------- Parent and its Subsidiaries that have been delivered by Parent to Lender have been prepared in -53- accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, Parent's and each of its Subsidiary's financial condition as of the date thereof and results of operations for the period then ended. There has not been a Material Adverse Change with respect to Parent or any of its Subsidiaries since the date of the latest financial statements submitted to Lender on or before the Closing Date. 5.12 Fraudulent Transfer. ------------------- (a) Borrower and each of the Guarantors (other than Inactive Subsidiary) is Solvent. (b) No transfer of property is being made by Borrower or any Guarantor and no obligation is being incurred by Borrower or any Guarantor in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Borrower or any Guarantor. 5.13 Employee Benefits. None of Parent, any of its Subsidiaries, or any of ----------------- their ERISA Affiliates maintains or contributes to any Benefit Plan. 5.14 Environmental Condition. Except as set forth on Schedule 5.14, (a) to ----------------------- ------------- Parent's knowledge, none of the properties or assets or Borrower or any Guarantor has ever been used by Borrower or any Guarantor or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such production, storage, handling, treatment, release or transport was in violation, in any material respect, of applicable Environmental Law, (b) to Parent's knowledge, none of the properties or assets of Borrower or any Guarantor has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) Parent has not received notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated by Borrower or any Guarantor, and (d) Parent has not received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by Borrower or any Guarantor resulting in the releasing or disposing of Hazardous Materials into the environment. 5.15 Brokerage Fees. Neither Parent nor Borrower has not utilized the -------------- services of any broker or finder in connection with Borrower's obtaining financing from Lender under this Agreement and no brokerage commission or finders fee is payable by Parent or Borrower in connection herewith. 5.16 Intellectual Property. Parent and each of its Subsidiaries owns, or --------------------- holds licenses in, all Intellectual Property that is necessary to the conduct of its business as currently conducted. Attached hereto as Schedule 5.16 is a true, ------------- correct, and complete listing of all material Intellectual Property as to which Parent or one of its Subsidiaries is the owner -54- or is an exclusive licensee and that is necessary to the conduct of its business as currently conducted. 5.17 Leases. Borrower and each Guarantor enjoy peaceful and undisturbed ------ possession under all leases material to the business of Borrower and each such Guarantor and to which Borrower or a Guarantor is a party or under which Borrower or a Guarantor is operating. All of such leases are valid and subsisting and no material default by Borrower or any Guarantor, as applicable, exists under any of them. ---- 5.18 DDAs. Set forth on Schedule 5.18 are all of the DDAs of Parent and its ---- ------------- Subsidiaries, including, with respect to each depository (i) the name and address of such depository, and (ii) the account numbers of the accounts maintained with such depository. 5.19 Complete Disclosure. All factual information (taken as a whole) ------------------- furnished by or on behalf of Parent in writing to Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement, the other Loan Documents or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of Parent in writing to Lender will be, true and accurate, in all material respects, on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. On the Closing Date, the Closing Date Business Plan represents, and as of the date on which any other Projections are delivered to Lender, such additional Projections represent Parent's good faith best estimate of its future performance for the periods covered thereby. 5.20 Indebtedness. Set forth on Schedule 5.20 is a true and complete list ------------ of all Indebtedness of Parent and its Subsidiaries outstanding immediately prior to the Closing Date that is to remain outstanding after the Closing Date and such Schedule accurately reflects the aggregate principal amount of such Indebtedness and the principal terms thereof. 5.21 Inactive Subsidiary. The Inactive Subsidiary does not own any material ------------------- assets and does not engage in any business activity whatsoever. 5.22 Customer Contracting. Subject to the proviso set forth in Section -------------------- ------- 6.17, all new customer contracts relative to the licensing of Products in the - ---- Territory or provision of technical, maintenance or support, and professional services in the Territory executed since the Closing Date have been executed solely by Borrower and the applicable third Person(s) party thereto. 6. AFFIRMATIVE COVENANTS. Parent and Borrower, for themselves and each of their respective Subsidiaries, covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations (other than any Obligations in respect of the Warrant -55- and the Registration Rights Agreement), Parent and Borrower shall and shall cause each of their respective Subsidiaries to do all of the following: 6.1 Accounting System. Maintain a system of accounting that enables Parent ----------------- and each of its Subsidiaries to produce financial statements in accordance with GAAP and maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Lender. Parent and its Subsidiaries also shall keep an inventory reporting system that shows all additions, sales, claims, returns, and allowances with respect to the Inventory. 6.2 Collateral Reporting. Provide Lender with the following documents at -------------------- the following times in form satisfactory to Lender: - ------------------------------------------------------------------------------ If, as of any (a) a sales journal, collection journal, and credit date of register since the last such schedule and a determination, calculation of the Borrowing Base as of such date, Excess and Availability and (b) notice of all returns, disputes, or claims. unrestricted cash and Cash Equivalents of Parent and its Subsidiaries is less than or equal to $10,000,000, then daily for so ----- long as Parent and its Subsidiaries satisfy the foregoing - ------------------------------------------------------------------------------ If, as of any date of (c) a detailed report calculating the Qualified Cash determination, Excess Amount and the amount of unrestricted cash and Cash Availability and Equivalents of Parent and its Subsidiaries for the unrestricted cash and immediately preceding day, together with such Cash Equivalents of supporting documentation as Lender may require. Parent and its Subsidiaries is less than or equal to $20,000,000, then daily for so long ----- as Parent and its Subsidiaries satisfy the foregoing - ------------------------------------------------------------------------------ If, as of any date of (d) a sales journal, collection journal, and credit determination, Excess register since the last such schedule and a Availability and calculation of the Borrowing Base as of such date, and unrestricted cash and (e) notice of all returns, disputes, or claims. - ------------------------------------------------------------------------------ -56- - ------------------------------------------------------------------------------ Cash Equivalents of Parent and its Subsidiaries is greater than $10,000,000 but less than or equal to $20,000,000, then weekly (but not ------ later than the Tuesday following the reporting period) for so long as Parent and its Subsidiaries satisfy the foregoing - ------------------------------------------------------------------------------ If, as of any date of (f) a detailed report calculating the Qualified Cash determination, Excess Amount and the amount of unrestricted cash and Cash Availability and Equivalents of Parent and its Subsidiaries for each unrestricted cash and day of the immediately preceding week, together with Cash Equivalents of such supporting documentation as Lender may require. Parent and its Subsidiaries is greater than $20,000,000, then weekly (but not ------ later than the Tuesday following the reporting period) for so long as Parent and its Subsidiaries satisfy the foregoing - ------------------------------------------------------------------------------ If, as of any date of (g) a sales journal, collection journal, and credit determination, Excess register since the last such schedule and a Availability and calculation of the Borrowing Base as of such date, and unrestricted cash and (h) notice of all returns, disputes, or claims. Cash Equivalents of Parent and its Subsidiaries is greater than $20,000,000, then monthly (but not ------- later than the 10th day of each month) for so long as Parent and its Subsidiaries satisfy the foregoing - ------------------------------------------------------------------------------ -57- - ------------------------------------------------------------------------------ Monthly (but not later (i) a detailed calculation of the Borrowing Base - ------- (including detail regarding those License than the 10th day of Receivables that are not Eligible Accounts), each month) (j) a detailed aging, by total, of the License Receivables of Borrower and Canadian Obligor, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Lender, (k) a summary aging, by vendor, of Borrower's and Canadian Obligor's accounts payable and any book overdraft, (l) a calculation of Dilution for the prior month, (m) a separate detailed calculation of deferred revenue on account of the licensing of software, revenues from the provision of maintenance services, revenues from the provision of education services, and revenues from the provision of consulting services, and (n) a detailed calculation of Recurring Maintenance Revenues for the Relevant Measuring Period most recently ended (a "Revenue Report"). -------------- - ------------------------------------------------------------------------------ Quarterly (but not later (o) a detailed list of Borrower's and Canadian - --------- Obligor's customers, than the 20th day (p) a report regarding Borrower's and Canadian following the end of Obligor's accrued, but unpaid, ad valorem taxes, and each quarter) (q) a detailed report of revenues and sales by commencing with the Product of Parent and its Subsidiaries demonstrating quarter ending March compliance with Section 6.16 (a "License Report"). 31, 2001 ------------ -------------- - ------------------------------------------------------------------------------ Upon request by Lender (r) Inventory reports specifying Borrower's cost and the wholesale market value of its Inventory, by category, with additional detail showing additions to and deletions from the Inventory, (s) copies of invoices in connection with the License Receivables, credit memos, remittance advices, deposit slips, shipping and delivery documents in connection with the License Receivables and, for inventory and equipment acquired by Borrower or Canadian Obligor, purchase orders and invoices, and (t) such other reports as to the Collateral or any other assets pledged to Lender pursuant to any of the Loan Documents, or the financial condition of Parent or any of its Subsidiaries as Lender may request. - ------------------------------------------------------------------------------ -58- In addition, Parent and Borrower agree to cooperate fully with Lender to facilitate and implement a system of electronic collateral reporting in order to provide electronic reporting of each of the items set forth above. 6.3 Financial Statements, Reports, Certificates. Deliver to Lender: ------------------------------------------- (a) as soon as available, but in any event within 45 days after the end of each fiscal quarter during each of Parent's fiscal years, (i) a company prepared consolidated balance sheet, income statement, and statement of cash flow covering Parent's and its Subsidiaries' operations during such period, (ii) a certificate signed by the chief financial officer of Parent to the effect that: (A) the financial statements delivered hereunder have been prepared in accordance with GAAP (except for the lack of footnotes and being subject to year-end audit adjustments) and fairly present in all material respects the financial condition of Parent and its Subsidiaries, (B) the representations and warranties of Parent and its Subsidiaries contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), and (C) there does not exist any condition or event that constitutes a Default or Event of Default (or, to the extent of any non-compliance, describing such non-compliance as to which he or she may have knowledge and what action Parent or Borrower has taken, is taking, or proposes to take with respect thereto), and (iii) for each quarter that is the date on which a financial covenant in Section 7.20 is to be tested, a Compliance Certificate ------------ demonstrating, in reasonable detail, compliance at the end of such period with the applicable financial covenants contained in Section 7.20, and ------------ (b) as soon as available, but in any event within 90 days after the end of each of Parent's fiscal years, (i) financial statements of Parent and its Subsidiaries for each such fiscal year, audited by independent certified public accountants reasonably acceptable to Lender and certified, without any qualifications, by such -59- accountants to have been prepared in accordance with GAAP (such audited financial statements to include a balance sheet, income statement, and statement of cash flow and, if prepared, such accountants' letter to management), (ii) a certificate of such accountants addressed to Lender stating that such accountants do not have knowledge of the existence of any Default or Event of Default under Section 7.20, ------------ (c) as soon as available, but in any event within 30 days prior to the start of each of Parent's fiscal years, (i) copies of Parent's Projections, in form and substance (including as to scope and underlying assumptions) satisfactory to Lender, in its sole discretion, for the forthcoming 3 years, year by year, and for the forthcoming fiscal year, quarter by quarter, certified by the chief financial officer of Parent as being such officer's good faith best estimate of the financial performance of Parent and its Subsidiaries during the period covered thereby, (d) as soon as available, but in any event within 30 days after the end of each of the first and second months of any fiscal quarter of Parent, such Parent prepared financial statements covering Parent's and its Subsidiaries' operations as Lender and Parent shall agree (such agreement to be a condition precedent to Lender's obligation to make any Further Advances), the form and substance of such financial statements shall be satisfactory to Lender, (e) if and when filed by Parent, (i) Form 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current reports, (ii) any other filings made by Parent with the SEC, (iii) copies of Parent's federal income tax returns, and any amendments thereto, filed with the Internal Revenue Service, and (iv) any other information that is provided by Parent to its shareholders generally, (f) if and when filed by Parent or one of its Subsidiaries and as requested by Lender, satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which (i) Parent or one of its Subsidiaries conducts business or is required to pay any such excise tax, (ii) where the failure by Parent and its Subsidiaries to pay any such applicable excise tax would result in a Lien on the properties or assets of Parent or one of its Subsidiaries, or (iii) the failure by Parent and its Subsidiaries to pay any such applicable excise tax reasonably could be expected to result in a Material Adverse Change, -60- (g) as soon as Parent or Borrower has knowledge of any event or condition that constitutes a Default or an Event of Default, notice thereof and a statement of the curative action that Parent or Borrower proposes to take with respect thereto, and (h) upon the request of Lender, any other report reasonably requested relating to the financial condition of Parent and its Subsidiaries. In addition to the financial statements referred to above, Parent agrees to deliver financial statements prepared on both a consolidated and consolidating basis and that no Subsidiary of Parent will have a fiscal year different from that of Parent. Parent agrees that its independent certified public accountants are authorized to communicate with Lender and to release to Lender whatever financial information concerning Parent that Lender reasonably may request. Solely with respect to Lender and any information that Lender may request, Parent waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by Lender pursuant to or in accordance with this Agreement, and agrees that Lender may contact directly any such accounting firm or service bureau in order to obtain such information. 6.4 Guarantor Reports. Cause each Guarantor to deliver its annual financial ----------------- statements at the time when Parent provides its audited financial statements to Lender and copies of all foreign or federal income tax returns as soon as the same are available and in any event no later than 30 days after the same are required to be filed by law. 6.5 [Intentionally Omitted]. ----------------------- 6.6 Maintenance of Properties. Maintain and preserve all of its properties ------------------------- which are necessary or useful in the proper conduct to its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to the extent necessary to properly conduct its business to which it is a party as lessee, so as to prevent any loss or forfeiture thereof or thereunder. 6.7 Taxes. Cause all assessments and taxes, whether real, personal, or ----- otherwise, due or payable by, or imposed, levied, or assessed against Parent or any of its Subsidiaries or any of their respective assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Parent will, and shall cause each of its Subsidiaries to, make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, federal, and foreign income taxes, and will, upon request, furnish Lender with proof satisfactory to Lender indicating that Parent or the applicable Subsidiary has made such payments or deposits. Promptly upon request by Lender, Parent shall deliver satisfactory evidence of payment of applicable excise taxes in each jurisdiction in which Parent or any of its Subsidiaries is required to pay any such excise tax. 6.8 Insurance. --------- -61- (a) At Parent's expense, maintain insurance respecting its property and assets wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Parent also shall, and shall cause each of its Subsidiaries to, maintain business interruption, public liability, and product liability insurance, as well as insurance against larceny, embezzlement, and criminal misappropriation. All such policies of insurance shall be in such amounts and with such insurance companies as are reasonably satisfactory to Lender. Parent shall deliver copies of all such policies to Lender with a satisfactory lender's loss payable endorsement naming Lender as sole loss payee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Lender in the event of cancellation of the policy for any reason whatsoever. (b) Parent shall give Lender prompt notice of any loss in excess of $150,000 covered by such insurance. Lender shall have the exclusive right to adjust any losses payable under any such insurance policies in excess of $250,000, without any liability to Parent or any of its Subsidiaries whatsoever in respect of such adjustments. Any monies in excess of $250,000 received as payment for any loss under any insurance policy mentioned above (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid over to Lender to be applied at the option of Lender either to the prepayment of the Obligations or shall be disbursed to Borrower under staged payment terms reasonably satisfactory to Lender for application to the cost of repairs, replacements, or restorations. Any such repairs, replacements, or restorations shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed prior to such damage or destruction. (c) Parent shall not, and shall cause each of its Subsidiaries not to, take out separate casualty insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 6.8, ----------- unless Lender is included thereon as named insured with the loss payable to Lender under a lender's loss payable endorsement or its equivalent. Parent immediately shall notify Lender whenever such separate insurance is taken out, specifying the insurer thereunder and full particulars as to the policies evidencing the same, and copies of such policies promptly shall be provided to Lender. 6.9 Location of Inventory and Equipment. Keep the inventory and equipment ----------------------------------- of Borrower and each Guarantor, other than the equipment of Borrower or a Guarantor that is in transit in the ordinary course of business of Borrower or such Guarantor, only at the locations identified on Schedule 5.5; provided, ------------ -------- however, that Parent may amend Schedule 5.5 so long as such amendment occurs by - ------- ------------ written notice to Lender not less than 15 days prior to the date on which such inventory or equipment is moved to such new location, so long as such new location is within the continental United States or Canada, and so long as, not later than the date on which such inventory or equipment is moved to such new location, Borrower or the applicable Guarantor provides any financing statements, fixture filings, or PPSA filings -62- necessary to perfect and continue perfected the Lender's Liens and also uses reasonable efforts to provide to Lender a Collateral Access Agreement. 6.10 Compliance with Laws. Comply with the requirements of all applicable -------------------- laws, rules, regulations, and orders of any Governmental Authority, including the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not result in and reasonably could not be expected to result in a Material Adverse Change. 6.11 Leases. Pay when due all rents and other amounts payable under any ------ leases to which Borrower or a Guarantor is a party or by which any properties and assets of Borrower or a Guarantor is bound, unless such payments are the subject of a Permitted Protest or relate to any properties or assets of Borrower or a Guarantor that are no longer necessary to the operations of Borrower or a Guarantor, as applicable. 6.12 Brokerage Commissions. Pay any and all brokerage commission or finders --------------------- fees incurred in connection with or as a result of Borrower's obtaining financing from Lender under this Agreement. Parent and Borrower agree and acknowledge that payment of all such brokerage commissions or finders fees shall be the sole responsibility of Parent and Borrower, and Parent and Borrower agree to indemnify, defend, and hold Lender harmless from and against any claim of any broker or finder arising out of Borrower's obtaining financing from Lender under this Agreement. 6.13 Existence. At all times preserve and keep in full force and effect --------- Borrower's and each Guarantor's valid existence and good standing and any rights and franchises material to Borrower's and each Guarantor's businesses. 6.14 Environmental. ------------- (a) Keep any property either owned or operated by Borrower or a Guarantor free of any Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens (except those subject to Permitted Protests), (b) comply, in all material respects, with Environmental Laws and provide to Lender documentation of such compliance which Lender reasonably requests, (c) promptly notify Lender of any release of a Hazardous Material of any reportable quantity from or onto property owned or operated by Borrower or a Guarantor and take any Remedial Actions required to abate said release or otherwise to come into compliance with applicable Environmental Law, and (d) promptly provide Lender with written notice within 10 days of the receipt of any of the following: (i) notice that an Environmental Lien has been filed against any of the real or personal property of Borrower or a Guarantor, (ii) commencement of any Environmental Action or notice that an Environmental Action will be filed against Borrower or a Guarantor, and (iii) notice of a violation, citation, or other administrative order which reasonably could be expected to result in a Material Adverse Change. -63- 6.15 Disclosure Updates. Promptly and in no event later than 5 Business ------------------ Days after obtaining knowledge thereof, (a) notify Lender if any written information, exhibit, or report furnished to Lender contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and (b) correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgement, filing, or recordation thereof. 6.16 Copyright Registrations. Maintain in accordance with this Section, ----------------------- valid registered, or applied for, copyrights with the United States Copyright Office constituting the Required Library. If either (a) any License Report delivered to Lender pursuant to Section 6.2 hereof demonstrates that less than ----------- the Required Library is registered with the United States Copyright Office, unless Lender shall otherwise agree in writing, within 60 days of the end of the relevant fiscal quarter to which the applicable License Report relates, or (b) Parent develops a completed product, version, upgrade, add-on, or modification which results in a change in software version number to the left of the left most decimal point (a "New Version"), unless Lender shall otherwise agree in ----------- writing, within 60 days of the date that such New Version is released generally for commercial distribution, Parent shall (i) cause additional copyrights, or, if applicable, the New Version, generated by Parent that are not already the subject of a registration with the United States Copyright Office (or an application therefor diligently prosecuted) to be registered with the United States Copyright Office in a manner sufficient to impart constructive notice of Parent's ownership thereof, such that, after giving effect to the registration with the United Stated Copyright Office, valid registered, or applied for, copyrights constituting the Required Library, or, if applicable, the New Version, have been registered with the United States Copyright Office, and (ii) cause to be prepared, executed, and delivered to Lender, with sufficient time to permit Lender to record no later than the last Business Day within 10 days following the date that such copyrights, or, if applicable, the New Version, have been registered or an application for registration has been filed, a Copyright Security Agreement or supplemental schedules to the Copyright Security Agreement reflecting the security interest of Lender in such additional copyrights or the New Version, as applicable, which supplemental schedules shall be in form and content suitable for registration with the United States Copyright Office so as to give constructive notice, when so registered, of the transfer by Parent to Lender of a security interest in such copyrights or the New Version, as applicable. Parent also shall maintain copies of all source and object code for the Required Library at safe and secure offsite locations reasonably acceptable to Lender and shall, at the request of Lender, advise the operators of such locations of Lender's security interest in such software, shall keep Lender fully informed of each such location, and shall maintain the currency of all such software stored offsite. 6.17 Customer Contracting. Except with respect to any purchases after the -------------------- date hereof from Parent by entities covered by the General Services Administration purchasing schedule with Parent (as the same may be amended from time to time), in an amount not to exceed $7,500,000 in the aggregate, cause all new customer contracts relative to the licensing of Products in the Territory or provision of technical, maintenance and support, or -64- professional services in the Territory to be executed by Borrower and the applicable third Person(s) party thereto. Parent and its Subsidiaries shall also cause all renewals or extensions of the any of their existing customer contracts relative to the licensing of Products or provision of technical, maintenance and support, and professional services to be amended to reflect Borrower as the named party thereunder; provided, however, that, if, in Borrower's reasonable -------- ------- ---- business judgment, it is necessary to continue to provide that Parent shall be the named party under an existing customer contract or the renewal or extension thereof, then, promptly upon the execution thereof, Borrower shall notify Lender of the execution of any renewal or extension thereof by Parent. Parent hereby further agrees to use its best efforts to cause a novation of the General Services Administration purchasing schedule to reflect Borrower as the non- governmental party thereto. 7. NEGATIVE COVENANTS. Parent and Borrower, for themselves and each of their respective Subsidiaries, covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations (other than any Obligations in respect of the Warrant and the Registration Rights Agreement), Parent and Borrower will not and will not permit any of their respective Subsidiaries to do any of the following: 7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise ------------ become or remain, directly or indirectly, liable with respect to any Indebtedness, except: (a) Indebtedness evidenced by this Agreement and the other Loan Documents, together with Indebtedness owed to Underlying Issuers with respect to Underlying Letters of Credit; (b) Indebtedness set forth on Schedule 5.20; ------------- (c) Permitted Purchase Money Indebtedness; (d) refinancings, renewals, or extensions of Indebtedness permitted under clauses (b), (c), and (f) of this Section 7.1 (and continuance ----------- or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not, in Lender's judgment, materially impair the prospects of repayment of the Obligations by Borrower or materially impair Borrower's creditworthiness, (ii) such refinancings, renewals, or extensions do not result in an increase in the principal amount of, or interest rate with respect to, the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions, that, taken as a whole, are materially more burdensome or restrictive to Parent and its Subsidiaries, and (iv) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include subordination terms and conditions that are at least as favorable to Lender as those that were applicable to the refinanced, renewed, or extended Indebtedness; -65- (e) Indebtedness composing Permitted Investments; (f) Indebtedness to be evidenced by the Notes in an aggregate original principal amount not to exceed the sum of $80,500,000 plus an amount equal to such additional principal Indebtedness as is contemplated by Section ------- 2.01(b) of the Indenture together with accrued interest and other expenses - ------- incurred in connection therewith; (g) guarantees permitted by Section 7.6 hereof; ----------- (h) Indebtedness incurred in connection with the financing of insurance premiums by Parent and its Subsidiaries; and (i) Indebtedness of Borrower to any Guarantor or of any Guarantor to any other Guarantor or Borrower, incurred in the ordinary course of business. 7.2 Liens. ----- (a) Create, incur, assume, or permit to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 7.1(d) and so long as the replacement Liens only encumber -------------- those assets that secured the refinanced, renewed, or extended Indebtedness); or (b) Create, incur, assume, or permit to exist, directly or indirectly, any Lien (except for Permitted Liens) on or with respect to any of the Stock or assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, of any Subsidiary of Parent that is not a party to a Loan Document. 7.3 Restrictions on Fundamental Changes ----------------------------------- (a) Except for Permitted Transactions, enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its Stock. (b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution). (c) Convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its assets. 7.4 Disposal of Assets. Other than Permitted Dispositions and Permitted ------------------ Transactions, convey, sell, lease, license, assign, transfer, or otherwise dispose of any of the assets of Parent or any of its Subsidiaries. 7.5 Change Name. Except as permitted by Section 7.3(a), change the name, ----------- -------------- FEIN, corporate structure, or identity, or add any new fictitious name of Parent or any of its -66- Subsidiaries; provided, however, that Parent or the applicable Subsidiary may -------- ------- change its name upon at least 15 days prior written notice by Parent to Lender of such change and so long as not later than the date on which such change of name is consummated, Parent or the applicable Subsidiary provides any financing statements, fixture filings, or PPSA filings necessary to perfect and continue perfected Lender's Liens. 7.6 Guarantee. Guarantee or otherwise become in any way liable with respect --------- to the obligations of any third Person other than: (a) endorsement of instruments or items of payment for deposit to the account of Parent or which are transmitted or turned over to Lender, (b) the Canadian Guaranty and the Guaranty, (c) so long as (i) no Default or Event of Default has occurred and is continuing or would result therefrom, and (ii) Parent and its Subsidiaries has Excess Availability and unrestricted cash and Cash Equivalents of not less than $20,000,000 after giving effect thereto, guaranties by Parent in Persons other than its Subsidiaries and made from and after the Closing Date in an aggregate amount outstanding at any one time not to exceed the result of (A) $5,000,000 minus (B) the aggregate amount of Permitted Investments that were made from and after the Closing Date pursuant to clause (d) of the definition of Permitted Investment, and (d) guaranties executed by Parent with respect to obligations of its Subsidiaries that are permitted by the terms hereof. 7.7 Nature of Business. Make any change in the principal nature of Parent's ------------------ or any of its Subsidiaries' business. 7.8 Prepayments and Amendments. -------------------------- (a) Except in connection with a refinancing permitted by Section ------- 7.1(d) or in connection with the conversion of Indebtedness into Stock of - ------ Parent, prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of Parent or any of its Subsidiaries, other than the Obligations in accordance with this Agreement, (b) Except in connection with a refinancing permitted by Section ------- 7.1(d), directly or indirectly, amend, modify, alter, increase, or change any of - ------ the material terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Sections 7.1(b) or (c), and --------------- --- (c) Directly or indirectly, amend, modify, alter, increase, or change any of the terms and conditions of the Indenture Documents, the Series A Preferred Stock, or the Parent License. -67- 7.9 Change of Control. Cause, permit, or suffer, directly or indirectly, ----------------- any Change of Control. 7.10 Consignments. Consign any Inventory or sell any Inventory on bill and ------------ hold, sale or return, sale on approval, or other conditional terms of sale. 7.11 Distributions. Other than distributions or declaration and payment of ------------- dividends by a Subsidiary of Parent to Parent, make any distribution or declare or pay any dividends (in cash or other property, other than common Stock) on, or purchase, acquire, redeem, or retire any Stock of Parent, of any class, whether now or hereafter outstanding; provided, however, that so long as no Event of -------- ------- Default shall have occurred and be continuing, Parent may purchase or acquire any Stock of Parent held by an employee of Parent in an aggregate amount not to exceed $250,000 in any 12 month period. The foregoing notwithstanding, the Parent may, and shall not be precluded hereunder from acquiring, accepting, redeeming, or retiring up to an aggregate of $10,000,000 in Stock from Michael Saylor, Sanju Bansal, and Mark Lynch, and distributing, conveying, re-issuing, or otherwise transferring such shares in connection with the settlement of the derivative action disclosed on Schedule 5.10 hereto, provided, that no cash or ------------- other property and no Indebtedness of the Parent or its Subsidiaries is transferred or incurred by the Parent or any other Subsidiary to such individuals in exchange for such Stock of Parent. 7.12 Accounting Methods. Modify or change its method of accounting (other ------------------ than as may be required to conform to GAAP) or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of Parent's accounting records without said accounting firm or service bureau agreeing to provide Lender information regarding the Collateral, any other assets pledged to Lender pursuant to the Loan Documents, or the financial condition of Parent or any Subsidiary of Parent. 7.13 Investments. Except for Permitted Investments, directly or indirectly, ----------- make or acquire any Investment, or incur any liabilities (including contingent obligations) for or in connection with any Investment; provided, however, that, -------- ------- from and after the earlier of (a) the date that Parent and its Subsidiaries comply with the provisions set forth in Section 3.2(d) or (b) the date that is -------------- 60 days following the Closing Date, neither Parent nor any of its Subsidiaries shall have Permitted Investments deposited in any bank account or Securities Account (other than in the US Cash Management Accounts, the Chase Control Agreement, the Deutsche Control Agreement, and other than an aggregate amount of up to $1,000,000 at any one time) unless Parent or the applicable Subsidiary and the applicable securities intermediary or bank have entered into Control Agreements governing such Permitted Investments, as Lender shall determine in its Permitted Discretion, to perfect (and further establish) the Lender's Liens in such Permitted Investments. 7.14 Transactions with Affiliates. Directly or indirectly enter into or ---------------------------- permit to exist any transaction with any Affiliate of Parent except for transactions that are in the ordinary course of Parent's or the applicable Subsidiary's business, upon fair and reasonable -68- terms, that are fully disclosed to Lender, and that are no less favorable to Parent or the applicable Subsidiary than would be obtained in an arm's length transaction with a non-Affiliate. 7.15 Suspension. Suspend or go out of a substantial portion of its ---------- business. 7.16 [Intentionally Omitted]. ----------------------- 7.17 Use of Proceeds. Use the proceeds of the Advances and the Term Loan --------------- for any purpose other than (a) on the Closing Date, (i) to repay in full the outstanding principal, accrued interest, and accrued fees and expenses owing to Existing Lender, and (ii) to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, and (b) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted purposes. 7.18 Change in Location of Chief Executive Office; Inventory and Equipment --------------------------------------------------------------------- with Bailees. Relocate its chief executive office to a new location without - ------------ Parent Parent providing 15 days prior written notification thereof to Lender and so long as, not later than the date on which such relocation is consummated, Parent or the applicable Subsidiary provides any financing statements, fixture filings, or PPSA filings necessary to perfect and continue perfected the Lender's Liens or the Liens granted in favor of Lender by the applicable Subsidiary, and also uses reasonable efforts to provide to Lender a Collateral Access Agreement with respect to such new location. The inventory and equipment of Parent and each Subsidiary shall not at any time now or hereafter be stored with a bailee, warehouseman, or similar party without Lender's prior written consent. 7.19 Securities Accounts. Establish or maintain any Securities Account ------------------- unless Lender shall have received a Control Agreement in respect of such Securities Account. Neither Borrower nor any Guarantor shall transfer assets out of any Securities Account; provided, however, that, so long as no Event of Default has occurred and is continuing or would result therefrom, Borrower and each Guarantor may use such assets (and the proceeds thereof) to the extent not prohibited by this Agreement. 7.20 Financial Covenants ------------------- (a) Fail to maintain: (i) Minimum EBITDA. EBITDA of Parent (on a consolidated basis), measured on a fiscal quarter-end basis, of not less than the required amount set forth in the following table for the applicable period set forth opposite thereto; ------------------------------------------------------ Applicable Amount Applicable Period ------------------------------------------------------ <$28,650,000> For the 3 month period ------------------------------------------------------ -69- ------------------------------------------------------ ending March 31, 2001 ------------------------------------------------------ <$42,950,000> For the 6 month period ending June 30, 2001 ------------------------------------------------------ <$46,900,000> For the 9 month period ending September 30, 2001 ------------------------------------------------------ <$37,700,000> For the 12 month period ending December 31, 2001 ------------------------------------------------------ <$32,900,000> For the 12 month period ending March 31, 2002 ------------------------------------------------------ <$5,000,000> For the 12 month period ending June 30, 2002 ------------------------------------------------------ <$5,000,000> For the 12 month period ending September 30, 2002 ------------------------------------------------------ <$5,000,000> For the 12 month period ending December 31, 2002 ------------------------------------------------------ $ 10,000,000 For the 12 month period ending each fiscal quarter thereafter (ii) Qualified Cash Amount. a Qualified Cash Amount of not less than $5,000,000. (b) Make: (i) Capital Expenditures. Capital expenditures (on a consolidated basis) in any fiscal year in excess of the amount set forth in the following table for the applicable period: --------------------------------------------------------------------- Fiscal Year 2001 Fiscal Year 2002 Fiscal Year 2003 --------------------------------------------------------------------- $11,250,000 $14,400,000 $21,000,000 --------------------------------------------------------------------- 7.21 Inactive Subsidiary. Permit Inactive Subsidiary to (a) own any ------------------- material assets, or (b) engage in any business activity. 7.22 Preferred Stock. Issue any preferred Stock other than the Permitted --------------- Preferred Stock. -70- 7.23 Customer Contracting. Except with respect to any purchases after the -------------------- date hereof from Parent by entities covered by the General Services Administration purchasing schedule with Parent (as the same may be amended from time to time), in an amount not to exceed $7,500,000 in the aggregate, permit Parent or any of its Subsidiaries (other than Borrower) to become a party to any customer contract that provides for the licensing of Products in the Territory or the provision of technical, maintenance and support, or professional services in the Territory; provided, however, that, if, in Borrower's reasonable business -------- ------- ---- judgment, it is necessary to continue to provide that Parent shall be the named party under an existing customer contract that is to be renewed or extended, then, promptly upon the execution thereof, Borrower shall notify Lender of the execution of any renewal or extension thereof by Parent. 8. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: ---------------- 8.1 If Borrower fails to pay when due and payable or when declared due and payable, all or any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due Lender, reimbursement of Lender Expenses, or other amounts constituting Obligations)); provided, -------- however, that in the case of Overadvances that are caused by the charging of - ------- interest, fees, or Lender Expenses to the Loan Account, such event shall not constitute an Event of Default if, within 3 Business Days of Borrower's receipt of telephonic or other notice of such Overadvance, Borrower eliminates such Overadvance; 8.2 If Parent or any of its Subsidiaries fails or neglects to (a) perform, keep, or observe any covenant or other provision contained in Sections 6.2, 6.3, ------------------ 6.7, 6.9, 6.10, and 6.11 hereof and such failure or neglect continues for a - ------------------------ period of 5 days after the date on which such failure or neglect first occurs, or (b) perform, keep, or observe any covenant or other provision contained in any Section of this Agreement (other than a Section that is expressly dealt with elsewhere in this Section 8), including failure to satisfy a condition --------- subsequent set forth in Section 3.2 within the time period stated, or the other ----------- Loan Documents (other than a Section of such other Loan Documents dealt with elsewhere in this Section 8) and such failure or neglect is not cured within 15 --------- days after the date on which such failure or neglect first occurs, or (c) perform, keep, or observe any covenant or other provision contained in Section 6 --------- (other than a subsection of Section 6 that is dealt with elsewhere in this --------- Section 8), or Section 7 of this Agreement or any comparable provision contained - --------- --------- in any of the other Loan Documents; 8.3 If any portion of Parent's or any of its Subsidiaries' property or assets with a value greater than $1,000,000 individually or in the aggregate, is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any third Person and the same is not discharged before the earlier of 30 days after the date it first arises or 5 -71- days prior to the date on which such property or asset is subject to forfeiture by Parent or the applicable Subsidiary; 8.4 If an Insolvency Proceeding is commenced by Parent or any of its Subsidiaries; 8.5 If an Insolvency Proceeding is commenced against Parent, or any of its Subsidiaries, and any of the following events occur: (a) Parent or the Subsidiary consents to the institution of the Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within 45 calendar days of the date of the filing thereof; provided, -------- however, that, during the pendency of such period, Lender shall be relieved of - ------- its obligation to extend credit hereunder, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, Parent or any of its Subsidiaries, or (e) an order for relief shall have been entered therein; 8.6 If Parent or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; 8.7 If (a) a notice of Lien, levy, or assessment is filed of record with respect to the properties or assets or Parent or any of its Subsidiaries by the United States Government, or any department, agency, or instrumentality thereof, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any properties or assets of Parent or any of its Subsidiaries and the same is not paid on the payment date thereof, or (b) notices of Lien, levy, or assessment in an aggregate amount in excess of $1,000,000 are filed of record with respect to the properties or assets of Parent or any of its Subsidiaries by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien exceeding the foregoing aggregate limitation, whether choate or otherwise, upon the properties or assets of Parent or any of its Subsidiaries and the same is not paid on the payment date thereof; 8.8 If one or more judgments or other claims involving an aggregate amount of $1,000,000, or more, in excess of the amount covered by insurance, becomes a Lien or encumbrance upon any material portion of the properties or assets of Parent or any of its Subsidiaries and the same is not released, discharged, bonded against, or stayed pending appeal before the earlier of 30 days after the date it first arises or 5 days prior to the date on which such asset is subject to being forfeited by Parent or the applicable Subsidiary; provided, however, -------- ------- that the entry of the judgement against Parent substantially in accordance with the terms of the Stipulation of Settlement shall not result in the occurrence of an Event of Default; 8.9 If (a) there is a default in any agreement to which Parent or any of its Subsidiaries is a party under which Indebtedness of Parent or the applicable Subsidiary involving not less than $1,000,000 is owing and such default (i) occurs at the final maturity of the obligations thereunder, or (ii) results in a right of the holder of such Indebtedness, irrespective of -72- whether exercised, to accelerate the maturity of the obligations of Parent or the applicable Subsidiary thereunder, and such default is not cured or waived prior to the date that is the earlier of (y) the date that is 15 days after the date on which such default first occurred, and (z) the date on which the obligations of Parent or the applicable Subsidiary thereunder are accelerated or (iii) results in the termination of such agreement; or (b) If there is a default by Parent or any Subsidiary with respect to any other material agreement which default reasonably likely could result (i) in a Material Adverse Change, or (ii) in an award of damages in an amount of $1,000,000, or greater; 8.10 If Parent or any of its Subsidiaries makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the Obligations, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Indebtedness; 8.11 If any material misstatement or misrepresentation exists now or hereafter in any warranty, representation, or Record made to Lender by Parent, its Subsidiaries, or any officer, employee, agent, or director of Parent or any of its Subsidiaries; 8.12 If the obligation of any Guarantor under its guaranty is limited or terminated by operation of law or by such Guarantor thereunder; 8.13 If this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered hereby or thereby; 8.14 Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by Borrower or any Guarantor, or a proceeding shall be commenced by Borrower or any Guarantor, or by any Governmental Authority having jurisdiction over Borrower or any Guarantor, seeking to establish the invalidity or unenforceability thereof, or Borrower or a Guarantor shall deny that Borrower or such Guarantor has any liability or obligation purported to be created under any Loan Document; or 8.15 If either an event of default occurs under the Indenture Documents or a "Triggering Event", as defined in the documents evidencing the rights and preferences of the Series A Preferred Stock, occurs. 9. LENDER'S RIGHTS AND REMEDIES. 9.1 Rights and Remedies. Upon the occurrence, and during the continuation, of an Event of Default, Lender (at its election but without notice of its election and without demand) may do any one or more of the following, all of which are authorized by Borrower: -73- (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any of the Loan Documents, or under any other agreement between Borrower and Lender; (c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of Lender, but without affecting any of the Lender's Liens in the Collateral and without affecting the Obligations; (d) Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Lender considers advisable, and in such cases, Lender will credit Borrower's Loan Account with only the net amounts received by Lender in payment of such disputed License Receivables after deducting all Lender Expenses incurred or expended in connection therewith; (e) Cause Borrower to hold all returned Inventory in trust for Lender, segregate all returned Inventory from all other assets of Borrower or in Borrower's possession and conspicuously label said returned Inventory as the property of Lender; (f) Without notice to or demand upon Borrower or any Guarantor, make such payments and do such acts as Lender considers necessary or reasonable to protect its security interests in the Collateral. Borrower agrees to assemble the Personal Property Collateral if Lender so requires, and to make the Personal Property Collateral available to Lender at a place that Lender may designate which is reasonably convenient to both parties. Borrower authorizes Lender to enter the premises where the Personal Property Collateral is located, to take and maintain possession of the Personal Property Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien that in Lender's determination appears to conflict with the Lender's Liens and to pay all expenses incurred in connection therewith and to charge Borrower's Loan Account therefor. With respect to any of Borrower's owned or leased premises, Borrower hereby grants Lender a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Lender's rights or remedies provided herein, at law, in equity, or otherwise; (g) Without notice to Borrower (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of the Code), set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Lender (including any amounts received in the US Cash Management Accounts), or (ii) Indebtedness at any time owing to or for the credit or the account of Borrower held by Lender; (h) Hold, as cash collateral, any and all balances and deposits of Borrower held by Lender, and any amounts received in the US Cash Management Accounts, to secure the full and final repayment of all of the Obligations; -74- (i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Personal Property Collateral. Each of Parent and Borrower hereby grants to Lender a license or other right to use, without charge, Parent's or Borrower's labels, patents, copyrights, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Personal Property Collateral, in completing production of, advertising for sale, and selling any Personal Property Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Lender's benefit; (j) Sell the Personal Property Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Lender determines is commercially reasonable. It is not necessary that the Personal Property Collateral be present at any such sale; (k) Lender shall give notice of the disposition of the Personal Property Collateral as follows: (i) Lender shall give Borrower a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Personal Property Collateral, then the time on or after which the private sale or other disposition is to be made; and (ii) The notice shall be personally delivered or mailed, postage prepaid, to Borrower as provided in Section 12, at least 10 days before the ---------- earliest time of disposition set forth in the notice; no notice needs to be given prior to the disposition of any portion of the Personal Property Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market; (l) Lender may credit bid and purchase at any public sale; (m) Lender may seek the appointment of a receiver or keeper to take possession of all or any portion of the Collateral or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing; (n) Lender shall have all other rights and remedies available to it at law or in equity pursuant to any other Loan Documents; and (o) Any deficiency that exists after disposition of the Personal Property Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third Persons, by Lender to Borrower. -75- 9.2 Remedies Cumulative. The rights and remedies of Lender under this ------------------- Agreement, the other Loan Documents, and all other agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or acquiescence by it. 10. TAXES AND EXPENSES. If Parent or any of its Subsidiaries fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, Lender, in its sole discretion and without prior notice to Parent or any Subsidiary, may do any or all of the following: (a) make payment of the same or any part thereof, (b) set up such reserves in Borrower's Loan Account as Lender deems necessary to protect Lender from the exposure created by such failure, or (c) in the case of the failure to comply with Section 6.8 hereof, obtain and maintain insurance ----------- policies of the type described in Section 6.8 and take any action with respect ----------- to such policies as Lender deems prudent in its Permitted Discretion. Any such amounts paid by Lender shall constitute Lender Expenses and any such payments shall not constitute an agreement by Lender to make similar payments in the future or a waiver by Lender of any Event of Default under this Agreement. Lender need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. 11. WAIVERS; INDEMNIFICATION. 11.1 Demand; Protest. Borrower waives demand, protest, notice of protest, --------------- notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by Lender on which Borrower may in any way be liable. 11.2 Lender's Liability for Collateral. Borrower hereby agrees that: (a) so --------------------------------- long as Lender complies with its obligations, if any, under the Code, Lender shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person (other than its own agents), and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Borrower. 11.3 Indemnification. Parent and Borrower shall, jointly and severally, --------------- pay, indemnify, defend, and hold the Lender-Related Persons (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and ------------------ against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other reasonable costs and expenses actually incurred -76- in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby, and (b) with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities"). The foregoing to the contrary notwithstanding, ----------------------- neither Parent nor Borrower shall have any obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that a court ------------ of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Parent and Borrower were required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Parent and Borrower with respect thereto. 12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by Parent and Borrower, on the one hand, or Lender, on the other hand, to the other relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such email addresses as Parent and Borrower, on the one hand, or Lender, on the other hand, may designate to each other in accordance herewith), or telefacsimile to Parent and Borrower or to Lender, as the case may be, at its address set forth below: If to Parent: MICROSTRATEGY INCORPORATED 8000 Towers Crescent Drive Vienna, Virginia 22182 Attn: Mr. Eric F. Brown Fax No. (703) 744-6050 with copies to: HALE AND DORR LLP 60 State Street Boston, Massachusetts 02109 Attn: Mitchel Appelbaum, Esq. Fax No. (617) 526-5000 If to Borrower: MICROSTRATEGY SERVICES CORPORATION 8000 Towers Crescent Drive -77- Vienna, Virginia 22182 Attn: Mr. Eric F. Brown Fax No. (703) 744-6050 with copies to: HALE AND DORR LLP 60 State Street Boston, Massachusetts 02109 Attn: Mitchel Appelbaum, Esq. Fax No. (617) 526-5000 If to Lender: FOOTHILL CAPITAL CORPORATION 2450 Colorado Avenue Suite 3000 West Santa Monica, California 90404 Attn: Business Finance Division Manager Fax No. 310.453.7413 with copies to: BROBECK, PHLEGER & HARRISON LLP 550 South Hope Street, Suite 2100 Los Angeles, CA 90071 Attn: John Francis Hilson, Esq. Fax No. 213.745.3345 Lender, Parent, and Borrower may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party. All notices or demands sent in accordance with this Section ------- 12, other than notices by Lender in connection with enforcement rights against - -- the Collateral under the provisions of the Code, shall be deemed received on the earlier of the date of actual receipt or 3 Business Days after the deposit thereof in the mail. Borrower acknowledges and agrees that notices sent by Lender in connection with the exercise of enforcement rights against Collateral under the provisions of the Code shall be deemed sent when deposited in the mail (postage prepaid) or personally delivered, or, where permitted by law, transmitted by telefacsimile or any other method set forth above. 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. (a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND -78- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING -------- ------- ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. PARENT, BORROWER, AND LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT ----- --- ---------- TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION ------- 13(b). - ----- (c) PARENT, BORROWER, AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. PARENT, BORROWER, AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT (WITHOUT ANY SCHEDULES) MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. 14.1 Assignments and Participations. ------------------------------ (a) With the written consent of Parent, Lender may assign and delegate to one or more assignees (each an "Assignee") all, or any ratable part -------- of all, of the Obligations and the other rights and obligations of Lender hereunder and under the other Loan Documents; provided, however, that Parent and -------- ------- its Subsidiaries may continue to deal solely and directly with Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, have been given to Parent and Borrower by Lender and the Assignee, and (ii) Lender and its Assignee have delivered to Parent and Borrower an appropriate assignment and acceptance agreement; provided, further, however, that the consent of Parent and Borrower to any - -------- ------- ------- assignment shall not be required if (a) an -79- Event of Default has occurred and is continuing, or (ii) the proposed assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion or the business or loan portfolio of Lender. (b) From and after the date that Lender provides Parent and Borrower with such written notice and executed assignment and acceptance agreement, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such assignment and acceptance agreement, shall have the assigned and delegated rights and obligations of Lender under the Loan Documents, and (ii) Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned and delegated by it pursuant to such assignment and acceptance agreement, relinquish its rights (except with respect to Section 11.3 hereof) and be released from its obligations under this ------------ Agreement (and in the case of an assignment and acceptance agreement covering all or the remaining portion of Lender's rights and obligations under this Agreement and the other Loan Documents, Lender shall cease to be a party hereto and thereto), and such assignment shall affect a novation between Parent and Borrower, on the one hand, and the Assignee, on the other hand. (c) Immediately upon Parent's receipt of such fully executed assignment and acceptance agreement, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the rights and duties of Lender arising therefrom. (d) Lender may at any time sell to one or more commercial banks, financial institutions, or other Persons not Affiliates of such Lender (a "Participant") participating interests in the Obligations and the other rights ----------- and interests of Lender hereunder and under the other Loan Documents; provided, -------- however, that (i) Lender shall remain the "Lender" for all purposes of this - ------- Agreement and the other Loan Documents and the Participant receiving the participating interest in the Obligations and the other rights and interests of Lender hereunder shall not constitute a "Lender" hereunder or under the other Loan Documents and Lender's obligations under this Agreement shall remain unchanged, (ii) Lender shall remain solely responsible for the performance of such obligations, (iii) Parent, Borrower and Lender shall continue to deal solely and directly with each other in connection with Lender's rights and obligations under this Agreement and the other Loan Documents, (iv) Lender shall not transfer or grant any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating, (C) release all or a material portion of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through Lender, or (E) change the amount or due dates of scheduled principal repayments or -80- prepayments or premiums, and (v) all amounts payable by Borrower hereunder shall be determined as if Lender had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. The rights of any Participant only shall be derivative through Lender and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to Parent, Borrower, the Collections, the Collateral, or otherwise in respect of the Obligations. No Participant shall have the right to participate directly in the making of decisions by Lender. (e) Subject to the provisions of Section 16.10, in connection with ------------- any such assignment or participation or proposed assignment or participation, a Lender may disclose all documents and information which it now or hereafter may have relating to Parent and its Subsidiaries or the businesses of Parent and its Subsidiaries. (f) Any other provision in this Agreement notwithstanding, Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 14.2 Successors. This Agreement shall bind and inure to the benefit of the ---------- respective successors and assigns of each of the parties; provided, however, -------- ------- that Parent and Borrower may not assign this Agreement or any rights or duties hereunder without Lender's prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by Lender shall release Borrower from its Obligations. Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 14.1 hereof and, except as expressly required pursuant to Section ------------ ------- 14.1 hereof, no consent or approval by Parent or Borrower is required in - ---- connection with any such assignment. 15. AMENDMENTS; WAIVERS. 15.1 Amendments and Waivers. No amendment or waiver of any provision of ---------------------- this Agreement or any other Loan Document, and no consent with respect to any departure by Parent or Borrower therefrom, shall be effective unless the same shall be in writing and signed by Lender, Parent, and Borrower and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 15.2 No Waivers; Cumulative Remedies. No failure by Lender to exercise any ------------------------------- right, remedy, or option under this Agreement or, any other Loan Document, or delay by Lender in exercising the same, will operate as a waiver thereof. No waiver by Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by -81- Lender on any occasion shall affect or diminish Lender's rights thereafter to require strict performance by Parent and Borrower of any provision of this Agreement. Lender's rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy that Lender may have. 16. GENERAL PROVISIONS. 16.1 Effectiveness. This Agreement shall be binding and deemed effective ------------- when executed by Parent, Borrower, and Lender. 16.2 Section Headings. Headings and numbers have been set forth herein for ---------------- convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement. 16.3 Interpretation. Neither this Agreement nor any uncertainty or -------------- ambiguity herein shall be construed against Lender, Parent, or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto. 16.4 Severability of Provisions. Each provision of this Agreement shall be -------------------------- severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 16.5 Withholding Taxes. All payments made by Borrower hereunder or under ----------------- any note will be made without setoff, counterclaim, or other defense, except as required by applicable law other than for Taxes (as defined below). All such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction (other than the United States) or by any political subdivision or taxing authority thereof or therein (other than of the United States) with respect to such payments (but excluding, any tax imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein (i) measured by or based on the net income or net profits of Lender, or (ii) to the extent that such tax results from a change in the circumstances of Lender, including a change in the residence, place of organization, or principal place of business of Lender, or a change in the branch or lending office of Lender participating in the transactions set forth herein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, Borrower agrees to pay the full ----- amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any note, including any amount paid pursuant to this Section 16.5 after withholding or ------------ deduction for or on account of any Taxes, will not be less than the amount provided for herein; provided, however, that Borrower shall not be required to -------- ------- increase any such amounts payable to Lender if the increase in such amount payable results from Lender's own willful misconduct or gross negligence. Borrower will furnish to Lender as promptly as possible -82- after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by Borrower. 16.6 Amendments in Writing. This Agreement only can be amended by a writing --------------------- signed by Lender, Parent, and Borrower. 16.7 Counterparts; Telefacsimile Execution. This Agreement may be executed ------------------------------------- in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis. 16.8 Revival and Reinstatement of Obligations. If the incurrence or payment ---------------------------------------- of the Obligations by Borrower or any Guarantor or the transfer to Lender of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Lender is required to ----------------- repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of Lender related thereto, the liability of Borrower or any Guarantor automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 16.9 Integration. This Agreement, together with the other Loan Documents, ----------- reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. 16.10 Confidential Information. Lender agrees that material, non-public ------------------------ information regarding Parent and its Subsidiaries, their operations, assets, and existing and contemplated business plans shall be treated by Lender in a confidential manner, and shall not be disclosed by it to Persons who are not parties to this Agreement, except that Lender may disclose such information (a) to counsel for and other advisors, accountants, and auditors to Lender, (b) as may be required by statute, decision, or judicial or administrative order, rule, or regulation, (c) as may be agreed to in advance by Parent, (d) as to any such information that is or becomes generally available to the public (other than as a result of prohibited disclosure by Lender), (e) to its Affiliates, and (f) in connection with any assignment, prospective assignment, sale, prospective sale, participation or prospective -83- participation, or pledge or prospective pledge of Lender's interests under this Agreement; provided that any such counsel, advisors, accountants, auditors and any such assignee, prospective assignee, purchaser, prospective purchaser, participant, prospective participant, pledgee, or prospective pledgee shall have agreed in writing to take its interest hereunder subject to the terms hereof. [Signature page to follow.] -84- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. MICROSTRATEGY INCORPORATED, a Delaware corporation By:/s/ Eric F. Brown ----------------------------------------- Title: President and Chief Executive Officer MICROSTRATEGY SERVICES CORPORATION, a Delaware corporation By: /s/ Eric F. Brown ----------------------------------------- Title: Treasurer FOOTHILL CAPITAL CORPORATION, a California corporation By: /s/ Brian Duffy ----------------------------------------- Title: Senior Vice President -85- EX-10.2 3 0003.txt EXHIBIT 10.2 Exhibit 10.2 GENERAL CONTINUING GUARANTY --------------------------- THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of February 9, -------- 2001, is executed and delivered by each of the Guarantors (as defined below), in favor of Foothill Capital Corporation, a California corporation ("Guarantied ---------- Party"), with reference to the following: - ----- WHEREAS, MicroStrategy Incorporated, a Delaware corporation ("Parent") ------ and MicroStrategy Services Corporation, a Delaware corporation ("Borrower"), and -------- Guarantied Party are, contemporaneously herewith, entering into that certain Loan and Security Agreement (the "Loan Agreement"); -------------- WHEREAS, Parent, Aventine, Incorporated, a Delaware corporation, MicroStrategy Capital Corporation, a Delaware corporation, and MicroStrategy Management Corporation, a Delaware corporation (each a "Guarantor" and --------- collectively, the "Guarantors"), are all Affiliates of Borrower, and each ---------- Guarantor will benefit from Guarantied Party's agreement to make financial accommodations to Borrower; and WHEREAS, in order to induce Guarantied Party to extend financial accommodations to Borrower pursuant to the Loan Agreement, and in consideration thereof, and in consideration of any loans or other financial accommodations heretofore or hereafter extended by Guarantied Party to Borrower, whether pursuant to the Loan Agreement or otherwise, each Guarantor has agreed to guaranty the Guarantied Obligations. NOW, THEREFORE, in consideration of the foregoing, each Guarantor hereby agrees, in favor of Guarantied Party, as follows: 1. Definitions and Construction. (a) Definitions. Capitalized terms used herein and not otherwise ----------- defined herein shall have the meanings ascribed to them in the Loan Agreement. The following terms, as used in this Guaranty, shall have the following meanings: "Borrower" shall have the meaning set forth in the recitals to -------- this Guaranty. "Guarantied Obligations" shall mean: the due and punctual payment ---------------------- of the principal of, and interest (including, any and all interest which, but for the application of the provisions of the Bankruptcy Code, would have accrued on such amounts) on, any and all premium on, and any and all fees, costs, and expenses (including, any and all fees, costs, and expenses which, but for the application of the provisions of the Bankruptcy Code, would have accrued on such amounts) incurred in connection with or on the Indebtedness owed by Borrower to Guarantied Party pursuant to the terms of the Loan Documents. 1 "Guarantied Party" shall have the meaning set forth in the ---------------- preamble to this Guaranty. "Guarantor" or "Guarantors" shall have the respective meaning set --------- ---------- forth in the preamble to this Guaranty. "Guaranty" shall have the meaning set forth in the preamble to -------- this Guaranty. "Indebtedness" shall mean any and all obligations, indebtedness, ------------ or liabilities of any kind or character owed by Borrower to Guarantied Party and arising directly or indirectly out of or in connection with the Loan Agreement or the other Loan Documents, including all such obligations, indebtedness, or liabilities, whether for principal, interest (including any and all interest which, but for the application of the provisions of the Bankruptcy Code, would have accrued on such amounts), premium, reimbursement obligations, fees, costs, expenses (including attorneys fees), or indemnity obligations, whether heretofore, now, or hereafter made, incurred, or created, whether voluntarily or involuntarily made, incurred, or created, whether secured or unsecured (and if secured, regardless of the nature or extent of the security), whether absolute or contingent, liquidated or unliquidated, or determined or indeterminate, whether Borrower is liable individually or jointly with others, and whether recovery is or hereafter becomes barred by any statute of limitations or otherwise becomes unenforceable for any reason whatsoever, including any act or failure to act by Guarantied Party. "Loan Agreement" shall have meaning set forth in the recitals to -------------- this Guaranty. "Parent" shall have meaning set forth in the recitals to this ------ Guaranty. (b) Construction. Unless the context of this Guaranty clearly ------------ requires otherwise, references to the plural include the singular, references to the singular include the plural, the part includes the whole, the terms "include" and "including" are not limiting, and the term "or" has the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and other similar terms refer to this Guaranty as a whole and not to any particular provision of this Guaranty. Any reference in this Guaranty to any of the following documents includes any and all alterations, amendments, restatements, extensions, modifications, renewals, or supplements thereto or thereof, as applicable: the Loan Agreement; this Guaranty; and the other Loan Documents. Neither this Guaranty nor any uncertainty or ambiguity herein shall be construed or resolved against Guarantied Party or a Guarantor, whether under any rule of construction or otherwise. On the contrary, this Guaranty has been reviewed by each Guarantor, Guarantied Party, and their respective counsel, and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of Guarantied Party and each Guarantor. 2 2. Guarantied Obligations. Each Guarantor, individually and ---------------------- collectively, jointly and severally, hereby irrevocably and unconditionally guaranties to Guarantied Party, as and for its own debt, until final and indefeasible payment thereof has been made, (a) the payment of the Guarantied Obligations, in each case when and as the same shall become due and payable, whether at maturity, pursuant to a mandatory prepayment requirement, by acceleration, or otherwise; it being the intent of such Guarantor that the guaranty set forth herein shall be a guaranty of payment and not a guaranty of collection; and (b) the punctual and faithful performance, keeping, observance, and fulfillment by Borrower of all of the agreements, conditions, covenants, and obligations of Borrower contained in the Loan Agreement and under each of the other Loan Documents. 3. Continuing Guaranty. This Guaranty includes Guarantied Obligations ------------------- arising under successive transactions continuing, compromising, extending, increasing, modifying, releasing, or renewing the Guarantied Obligations, changing the interest rate, payment terms, or other terms and conditions thereof, or creating new or additional Guarantied Obligations after prior Guarantied Obligations have been satisfied in whole or in part. To the maximum extent permitted by law, each Guarantor hereby waives any right to revoke this Guaranty as to future Indebtedness. If such a revocation is effective notwithstanding the foregoing waiver, each Guarantor acknowledges and agrees that (a) no such revocation shall be effective until written notice thereof has been received by Guarantied Party, (b) no such revocation shall apply to any Guarantied Obligations in existence on such date (including any subsequent continuation, extension, or renewal thereof, or change in the interest rate, payment terms, or other terms and conditions thereof), (c) no such revocation shall apply to any Guarantied Obligations made or created after such date to the extent made or created pursuant to a legally binding commitment of Guarantied Party in existence on the date of such revocation, (d) no payment by any Guarantor, Borrower, or from any other source, prior to the date of such revocation shall reduce the maximum obligation of such Guarantor hereunder, and (e) any payment by Borrower or from any source other than such Guarantor subsequent to the date of such revocation shall first be applied to that portion of the Guarantied Obligations as to which the revocation is effective and which are not, therefore, guarantied hereunder, and to the extent so applied shall not reduce the maximum obligation of such Guarantor hereunder. 4. Performance Under this Guaranty. In the event that Borrower fails to ------------------------------- make any payment of any Guarantied Obligations, on or before the due date thereof, or if Borrower shall fail to perform, keep, observe, or fulfill any other obligation referred to in clause (b) of Section 2 hereof in the manner ----------------------- provided in the Loan Agreement or the other Loan Documents, as applicable, each Guarantor immediately shall cause such payment to be made or each of such obligations to be performed, kept, observed, or fulfilled. 5. Primary Obligations. This Guaranty is a primary and original ------------------- obligation of each Guarantor, is not merely the creation of a surety relationship, and is an absolute, unconditional, and continuing guaranty of payment and performance which shall remain in full force and effect without respect to future changes in conditions. Each Guarantor agrees that it is directly, jointly and severally with any other guarantor of the Guarantied 3 Obligations, liable to Guarantied Party, that the obligations of such Guarantor hereunder are independent of the obligations of Borrower or any other guarantor, and that a separate action may be brought against such Guarantor, whether such action is brought against Borrower or any other guarantor or whether Borrower or any other guarantor is joined in such action. Each Guarantor agrees that its liability hereunder shall be immediate and shall not be contingent upon the exercise or enforcement by Guarantied Party of whatever remedies it may have against Borrower or any other guarantor, or the enforcement of any lien or realization upon any security Guarantied Party may at any time possess. Each Guarantor agrees that any release which may be given by Guarantied Party to Borrower or any other guarantor shall not release such Guarantor. Each Guarantor consents and agrees that Guarantied Party shall be under no obligation to marshal any property or assets of Borrower or any other guarantor in favor of such Guarantor, or against or in payment of any or all of the Guarantied Obligations. 6. Waivers. ------- (a) To the fullest extent permitted by applicable law, each Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any loans or other financial accommodations made or extended under the Loan Agreement, or the creation or existence of any Guarantied Obligations; (iii) notice of the amount of the Guarantied Obligations, subject, however, to such Guarantor's right to make inquiry of Guarantied Party to ascertain the amount of the Guarantied Obligations at any reasonable time; (iv) notice of any adverse change in the financial condition of Borrower or of any other fact that might increase such Guarantor's risk hereunder; (v) notice of presentment for payment, demand, protest, and notice thereof as to any instrument among the Loan Documents; (vi) notice of any Default or Event of Default under the Loan Agreement; and (vii) all other notices (except if such notice is specifically required to be given to such Guarantor under this Guaranty or any other Loan Documents to which such Guarantor is a party) and demands to which such Guarantor might otherwise be entitled. (b) To the fullest extent permitted by applicable law, each Guarantor waives the right by statute or otherwise to require Guarantied Party to institute suit against Borrower or to exhaust any rights and remedies which Guarantied Party has or may have against Borrower. In this regard, each Guarantor agrees that it is bound to the payment of each and all Guarantied Obligations, whether now existing or hereafter arising, as fully as if such Guarantied Obligations were directly owing to Guarantied Party by such Guarantor. Each Guarantor further waives any defense arising by reason of any disability or other defense (other than the defense that the Guarantied Obligations shall have been fully and finally performed and indefeasibly paid in full in cash) of Borrower or by reason of the cessation from any cause whatsoever of the liability of Borrower in respect thereof. (c) To the fullest extent permitted by applicable law, each Guarantor hereby waives: (i) any rights to assert against Guarantied Party any defense (legal or equitable), set-off, counterclaim, or claim which such Guarantor may now or at any time hereafter have against Borrower or any other party liable to Guarantied Party; (ii) any defense, set-off, 4 counterclaim, or claim, of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Guarantied Obligations or any security therefor; (iii) any defense arising by reason of any claim or defense based upon an election of remedies by Guarantied Party including any defense based upon an election of remedies by Guarantied Party under the provisions of (S)(S) 580d and 726 of the California Code of Civil Procedure, or any similar law of California or any other jurisdiction; (iv) the benefit of any statute of limitations affecting such Guarantor's liability hereunder or the enforcement thereof, and any act which shall defer or delay the operation of any statute of limitations applicable to the Guarantied Obligations shall similarly operate to defer or delay the operation of such statute of limitations applicable to such Guarantor's liability hereunder. (d) Until such time as all of the Guarantied Obligations (excluding any Guarantied Obligations with respect to the Warrant and the Registration Rights Agreement) have been fully, finally, and indefeasibly paid in full in cash: (i) each Guarantor hereby postpones any right of subrogation such Guarantor has or may have as against Borrower with respect to the Guarantied Obligations; (ii) in addition, each Guarantor hereby postpones any right to proceed against Borrower or any other Person, now or hereafter, for contribution, indemnity, reimbursement, or any other suretyship rights and claims (irrespective of whether direct or indirect, liquidated or contingent), with respect to the Guarantied Obligations; and (iii) in addition, each Guarantor also hereby postpones any right to proceed or to seek recourse against or with respect to any property or asset of Borrower. (e) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS GUARANTY, EACH GUARANTOR HEREBY WAIVES, TO THE MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE (S)(S) 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2847, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 580a, 580b, 580c, 580d, AND 726, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE. (f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS GUARANTY, EACH GUARANTOR WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY THE GUARANTIED PARTY, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY FOR A GUARANTIED OBLIGATION, HAS DESTROYED SUCH GUARANTOR'S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST BORROWER BY THE OPERATION OF SECTION 580d OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR OTHERWISE. 7. Releases. Each Guarantor consents and agrees that, without notice -------- to or by such Guarantor and without affecting or impairing the obligations of such Guarantor hereunder, Guarantied Party may, by action or inaction, compromise or settle, extend the period of 5 duration or the time for the payment, or discharge the performance of, or may refuse to, or otherwise not enforce, or may, by action or inaction, release all or any one or more parties to, any one or more of the terms and provisions of the Loan Agreement or any of the other Loan Documents or may grant other indulgences to Borrower in respect thereof, or may amend or modify in any manner and at any time (or from time to time) any one or more of the Loan Agreement or any of the other Loan Documents, or may, by action or inaction, release or substitute any other guarantor, if any, of the Guarantied Obligations, or may enforce, exchange, release, or waive, by action or inaction, any security for the Guarantied Obligations or any other guaranty of the Guarantied Obligations, or any portion thereof. 8. No Election. Guarantied Party shall have the right to seek recourse ----------- against each Guarantor to the fullest extent provided for herein and no election by Guarantied Party to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Guarantied Party's right to proceed in any other form of action or proceeding or against other parties unless Guarantied Party has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by Guarantied Party under any document or instrument evidencing the Guarantied Obligations shall serve to diminish the liability of a Guarantor under this Guaranty except to the extent that Guarantied Party finally and unconditionally shall have realized indefeasible payment by such action or proceeding. 9. Indefeasible Payment. The Guarantied Obligations shall not be -------------------- considered indefeasibly paid for purposes of this Guaranty unless and until all payments to Guarantied Party are no longer subject to any right on the part of any person whomsoever, including Borrower, Borrower as a debtor in possession, or any trustee (whether appointed under the Bankruptcy Code or otherwise) of any Borrower's assets to invalidate or set aside such payments or to seek to recoup the amount of such payments or any portion thereof, or to declare same to be fraudulent or preferential. In the event that, for any reason, all or any portion of such payments to Guarantied Party is set aside or restored, whether voluntarily or involuntarily, after the making thereof, the obligation or part thereof intended to be satisfied thereby shall be revived and continued in full force and effect as if said payment or payments had not been made and each Guarantor shall be liable for the full amount Guarantied Party is required to repay plus any and all costs and expenses (including reasonable attorneys fees) paid by Guarantied Party in connection therewith. 10. Financial Condition of Borrower. Each Guarantor represents and ------------------------------- warrants to Guarantied Party that it is currently informed of the financial condition of Borrower and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Guarantied Obligations. Each Guarantor further represents and warrants to Guarantied Party that it has read and understands the terms and conditions of the Loan Agreement and the other Loan Documents. Each Guarantor hereby covenants that it will continue to keep itself informed of Borrower's financial condition, the financial condition of other guarantors, if any, and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Guarantied Obligations. 6 11. Payments; Application. All payments to be made hereunder by a --------------------- Guarantor shall be made in lawful money of the United States of America at the time of payment, shall be made in immediately available funds, and shall be made without deduction (whether for taxes or otherwise) or offset. All payments made by a Guarantor hereunder shall be applied as follows: first, to all reasonable costs and expenses (including reasonable attorneys fees) incurred by Guarantied Party in enforcing this Guaranty or in collecting the Guarantied Obligations; second, to all accrued and unpaid interest, premium, if any, and fees owing to Guarantied Party constituting Guarantied Obligations; and third, to the balance of the Guarantied Obligations. 12. Attorneys Fees and Costs. Each Guarantor agrees to pay, on demand, ------------------------ all reasonable attorneys fees and all other reasonable costs and expenses which may be incurred by Guarantied Party in the enforcement of this Guaranty or in any way arising out of, or consequential to the protection, assertion, or enforcement of the Guarantied Obligations (or any security therefor), irrespective of whether suit is brought. 13. Notices. Unless otherwise specifically provided in this Guaranty, any ------- notice or other communication relating to this Guaranty shall be made in accordance with the terms of the Loan Agreement. 14. Cumulative Remedies. No remedy under this Guaranty, under the Loan ------------------- Agreement, or any other Loan Document is intended to be exclusive of any other remedy, but each and every remedy shall be cumulative and in addition to any and every other remedy given under this Guaranty, under the Loan Agreement, or any other Loan Document, and those provided by law. No delay or omission by Guarantied Party to exercise any right under this Guaranty shall impair any such right nor be construed to be a waiver thereof. No failure on the part of Guarantied Party to exercise, and no delay in exercising, any right under this Guaranty shall operate as a waiver thereof; nor shall any single or partial exercise of any right under this Guaranty preclude any other or further exercise thereof or the exercise of any other right. 15. Severability of Provisions. Any provision of this Guaranty which is -------------------------- prohibited or unenforceable under applicable law shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. 16. Entire Agreement; Amendments. This Guaranty constitutes the entire ---------------------------- agreement between the Guarantors and Guarantied Party pertaining to the subject matter contained herein. This Guaranty may not be altered, amended, or modified, nor may any provision hereof be waived or noncompliance therewith consented to, except by means of a writing executed by each Guarantor and Guarantied Party. Any such alteration, amendment, modification, waiver, or consent shall be effective only to the extent specified therein and for the specific purpose for which given. No course of dealing and no delay or waiver of any right or default under this Guaranty shall be deemed a waiver of any other, similar or dissimilar, right or default or otherwise prejudice the rights and remedies hereunder. 7 17. Successors and Assigns. This Guaranty shall be binding upon Guarantor ---------------------- and its successors and assigns and shall inure to the benefit of the successors and assigns of Guarantied Party; provided, however, Guarantor shall not assign -------- ------- this Guaranty or delegate any of its duties hereunder without Guarantied Party's prior written consent and any unconsented to assignment shall be absolutely void. In the event of any assignment or other transfer of rights by Guarantied Party, the rights and benefits herein conferred upon Guarantied Party shall automatically extend to and be vested in such assignee or other transferee. 18. No Third Party Beneficiary. This Guaranty is solely for the benefit -------------------------- of Guarantied Party and its successors and assigns and may not be relied on by any other Person. 19. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER ------------------------------------------ THE VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS GUARANTY SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA. EACH GUARANTOR AND GUARANTIED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 19. ---------- EACH GUARANTOR AND GUARANTIED PARTY HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH GUARANTOR AND GUARANTIED PARTY REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. [signature page follows] 8 IN WITNESS WHEREOF, the undersigned has executed and delivered this Guaranty as of the date first written above. MICROSTRATEGY INCORPORATED, a Delaware corporation By: /s/ Eric F. Brown ------------------------------------ Name: Eric F. Brown Title: President and Chief Financial Officer AVENTINE, INCORPORATED, a Delaware corporation By: /s/ William J. Chatterton, Jr. ------------------------------------ Name: William J. Chatterton, Jr. Title: President MICROSTRATEGY CAPITAL CORPORATION, a Delaware corporation By: /s/ Eric F. Brown ------------------------------------ Name: Eric F. Brown Title: Treasurer MICROSTRATEGY MANAGEMENT CORPORATION, a Delaware corporation By: /s/ Eric F. Brown ------------------------------------ Name: Eric F. Brown Title: Treasurer 9 EX-10.3 4 0004.txt EXHIBIT 10.3 Exhibit 10.3 SECURITY AGREEMENT (Guarantors) This SECURITY AGREEMENT (this "Agreement"), is entered into as of --------- February 9, 2001, is executed and delivered by MICROSTRATEGY INCORPORATED, a Delaware corporation ("Parent"), certain of Parent's Subsidiaries, (Parent and ------ such Subsidiaries, are referred to hereinafter each individually as a "Debtor," ------ and individually and collectively, jointly and severally, as the "Debtors"), in ------- favor of FOOTHILL CAPITAL CORPORATION, a California corporation (together with its successors, if any, "Secured Party"). ------------- WHEREAS, Parent, MicroStrategy Services Corporation, a Delaware corporation ("Borrower") and Secured Party are, contemporaneously herewith, -------- entering into that certain Loan and Security Agreement of even date herewith (as amended, restated, modified, renewed or extended from time to time, the "Loan ---- Agreement"); - --------- WHEREAS, each Debtor has executed that certain General Continuing Guaranty, of even date herewith, in favor of Secured Party (the "Guaranty"), -------- respecting certain obligations of Borrower owing to Secured Party under the Loan Agreement; WHEREAS, each Debtor desires to secure its obligations under the Loan Documents to which it is party (including the Guaranty) by granting to Secured Party security interests in the Collateral as set forth herein; and WHEREAS, each Debtor will benefit by virtue of the loans from the Secured Party to Borrower. NOW THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and each intending to be bound hereby, Secured Party and each Debtor agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1. Definitions. All capitalized terms used herein and not ----------- otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement. As used in this Agreement, the following terms shall have the following definitions: "Accounts" means all of a Debtor's now owned or hereafter acquired -------- right, title, and interest with respect to "accounts" (as that term is defined in the Code), and any and all supporting obligations in respect thereof. "Agreement" means this Security Agreement and any extensions, riders, --------- supplements, notes, amendments, or modifications to or in connection with this Security Agreement. "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. --------------- (S) 101 et seq.), as amended, and any successor statute. ------ "Borrower" has the meaning set forth in the recitals to this -------- Agreement. "Code" means the California Uniform Commercial Code as in effect from ---- time to time. "Collateral" means each of the following: the Accounts; Debtor's ---------- Books; the Equipment; the General Intangibles; the Inventory; the Investment Property; the Negotiable Collateral; any money, or other assets of a Debtor which now or hereafter come into the possession, custody, or control of Secured Party; and the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the Collateral, and any and all Accounts, Debtor's Books, Equipment, General Intangibles, Inventory, Investment Property, Negotiable Collateral, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof. "Control Agreement" means a control agreement, in form and substance ----------------- satisfactory to Secured Party, executed and delivered by the applicable Debtor, Secured Party, and the applicable securities intermediary with respect to a Securities Account or bank with respect to a deposit account. "Debtor's Books" means a Debtor's now owned or hereafter acquired -------------- books and records (including all of its Records indicating, summarizing, or evidencing its assets (including the Collateral) or liabilities, all of its Records relating to its business operations or financial condition, and all of its goods or General Intangibles related to such information). "Debtor" and "Debtors" has the meaning ascribed thereto in the ------ ------- preamble to this Agreement. "Equipment" means all of a Debtor's now owned or hereafter acquired --------- right, title, and interest with respect to equipment, machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing. "Event of Default" has the meaning ascribed to it in Section 6. ---------------- --------- -2- "General Intangibles" means all of a Debtor's now owned or hereafter ------------------- acquired right, title, and interest with respect to general intangibles (including payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), and any and all supporting obligations in respect thereof, and any other personal property other than goods, Accounts, Investment Property, and Negotiable Collateral. "Guaranty" has the meaning set forth in the recitals to this -------- Agreement. "Indebtedness" means (a) all obligations of a Debtor for borrowed ------------ money, (b) all obligations of a Debtor evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations of a Debtor in respect of letters of credit, bankers acceptances, interest rate swaps, or other financial products, (c) all obligations of a Debtor under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of a Debtor, irrespective of whether such obligation or liability is assumed, (e) all obligations of a Debtor for the deferred purchase price of assets (other than trade debt incurred in the ordinary course of a Debtor's business and repayable in accordance with customary trade practices), and (f) any obligation of a Debtor guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse to a Debtor) any obligation of any other Person. "Inventory" means all of a Debtor's now owned or hereafter acquired --------- right, title, and interest with respect to inventory, including goods held for sale or lease or to be furnished under a contract of service, goods that are leased by such a Debtor as lessor, goods that are furnished by such a Debtor under a contract of service, and raw materials, work in process, or materials used or consumed in such a Debtor's business. "Investment Property" means all of a Debtor's now owned or hereafter ------------------- acquired right, title, and interest with respect to "investment property" as that term is defined in the Code, and any and all supporting obligations in respect thereof. "Loan Agreement" has the meaning set forth in the recitals to this -------------- Agreement. "Material Adverse Change" means (a) a material adverse change in the ----------------------- business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrower or its Subsidiaries taken as a whole, (b) a material impairment of the Borrower's ability to perform its obligations under the Loan Documents or of Secured Party's ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability or priority of the Secured Party's Liens with respect to the Collateral as a result of an action or failure to act on the part of a Debtor. -3- "Negotiable Collateral" means all of a Debtor's now owned and --------------------- hereafter acquired right, title, and interest with respect to letters of credit, letter of credit rights, instruments, promissory notes, drafts, documents, and chattel paper (including electronic chattel paper and tangible chattel paper), and any and all supporting obligations in respect thereof. "Parent" has the meaning set forth in the recitals to this Agreement. ------ "Permitted Protest" means the right of a Debtor to protest any Lien ----------------- (other than any such Lien that secures the Secured Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the applicable Debtor's Books in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by the applicable Debtor in good faith, and (c) Secured Party is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Secured Party's Liens. "Secured Obligations" shall mean, with respect to each Debtor, all ------------------- liabilities, Obligations, or undertakings owing by such Debtor to Secured Party of any kind or description arising out of or outstanding under, advanced or issued pursuant to, or evidenced by the Guaranty, the other Loan Documents to which such Debtor is a party, or this Agreement, irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, voluntary or involuntary, whether now existing or hereafter arising, and including all interest (including interest that accrues after the filing of a case under the Bankruptcy Code) and any and all costs, fees (including attorneys fees), and expenses which such Debtor is required to pay pursuant to any of the foregoing, by law, or otherwise. "Secured Party" has the meaning set forth in the recitals to this ------------- Agreement. "Secured Party's Liens" means the Liens granted by each Debtor to --------------------- Secured Party under this Agreement or the other Loan Documents to which such Debtor is a party. "Voidable Transfer" has the meaning ascribed to it in Section 13.8. ----------------- ------------ 1.2. Code. Any terms used in this Agreement which are defined ---- in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein. 1.3. Construction. Unless the context of this Agreement clearly ------------ requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, subsection, clause, schedule, and exhibit references are to this Agreement unless otherwise -4- specified. Any reference in this Agreement or in any of the other Loan Documents to this Agreement or any of the other Loan Documents shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, and supplements, thereto and thereof, as applicable. In the event of a direct conflict between the terms and provisions of this Agreement and the Loan Agreement, it is the intention of the parties hereto that both such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of the Loan Agreement shall control and govern; provided, -------- however, that the inclusion herein of additional obligations on the part of each - ------- Debtor and supplemental rights and remedies in favor of Secured Party, in each case in respect of the Collateral, shall not be deemed a conflict with the Loan Agreement. 1.4. Schedules and Exhibits. All of the schedules and exhibits ---------------------- attached to this Agreement shall be deemed incorporated herein by reference. 2. CREATION OF SECURITY INTEREST. 2.1. Grant of Security Interest. Each Debtor hereby grants to -------------------------- Secured Party a continuing security interest in all currently existing and hereafter acquired or arising Collateral in order to secure the Secured Obligations. Secured Party's security interests in the Collateral shall attach to all Collateral without further act on the part of Secured Party or any Debtor. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions, no Debtor has authority, express or implied, to dispose of any item or portion of the Collateral. 2.2. Negotiable Collateral. In the event that any Collateral, --------------------- including proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection or priority of Secured Party's security interest is dependent on or enhanced by possession, the applicable Debtor, immediately upon the request of Secured Party, shall endorse and deliver physical possession of such Negotiable Collateral to Secured Party. 2.3. Collection of Accounts, General Intangibles, Negotiable ------------------------------------------------------- Collateral. At any time after the occurrence and during the continuation of an - ---------- Event of Default, (x) Secured Party or Secured Party's designee may (a) notify Account Debtors of any Debtor that the Accounts, chattel paper, or General Intangibles have been assigned to Secured Party or that Secured Party has a security interest therein, or (b) collect the Accounts, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account; and (y) each Debtor agrees that it will hold in trust for Secured Party, as Secured Party's trustee, any Collections that it receives and immediately will deliver said Collections to Secured Party or a Cash Management Bank in their original form as received by the applicable Debtor. 2.4. Delivery of Additional Documentation Required. At any --------------------------------------------- time upon the request of Secured Party, each Debtor shall execute and deliver to Secured -5- Party, any and all financing statements, original financing statements in lieu of continuation statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, and all other documents (the "Additional Documents") that Secured Party may request in its Permitted -------------------- Discretion, in form and substance satisfactory to Secured Party, to perfect and continue perfected or better perfect the Secured Party's Liens in the Collateral (whether now owned or hereafter arising or acquired), to create and perfect the Liens in favor of Secured Party in any Real Property acquired after the date hereof, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by applicable law, each Debtor authorizes Secured Party to execute any such Additional Documents in such Debtor's name and authorizes Secured Party to file such executed Additional Documents in any appropriate filing office. In addition, on such periodic basis as Secured Party shall require, each Debtor shall (a) provide Secured Party with a report of all new material patentable, copyrightable, or trademarkable materials acquired or generated by such Debtor during the prior period that are necessary to the conduct of the business of Parent and its Subsidiaries as then conducted, (b) cause all such material patents, copyrights, and trademarks acquired or generated by such Debtor that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of such Debtor's ownership thereof, and (c) cause to be prepared, executed, and delivered to Secured Party supplemental schedules to the applicable Loan Documents to identify such patents, copyrights, and trademarks as being subject to the security interests created thereunder. 2.5. Power of Attorney. Each Debtor hereby irrevocably makes, ----------------- constitutes, and appoints Secured Party (and any of Secured Party's officers, employees, or agents designated by Secured Party) as such Debtor's true and lawful attorney, with power to: (a) if such Debtor refuses to, or fails timely to execute and deliver any of the documents described in Section 2.4, sign the ----------- name of such Debtor on any of the documents described in Section 2.4; (b) at any ----------- time that an Event of Default has occurred and is continuing, sign such Debtor's name on any invoice or bill of lading relating to the Collateral, drafts against Account Debtors, or notices to Account Debtors; (c) send requests for verification of Accounts; (d) endorse such Debtor's name on any Collection item that may come into Secured Party's possession; (e) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under such Debtor's policies of insurance and make all determinations and decisions with respect to such policies of insurance; and (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts, chattel paper, or General Intangibles directly with Account Debtors, for amounts and upon terms which Secured Party determines to be reasonable, and Secured Party may cause to be executed and delivered any documents and releases which Secured Party determines to be necessary. The appointment of Secured Party as each Debtor's attorney, and each and every one of Secured Party's rights and powers, being coupled with an interest, is irrevocable until all of the Secured Obligations have been fully and finally repaid and performed and Secured Party's obligation to extend credit under the Loan Agreement is terminated. -6- 2.6. Right to Inspect. Secured Party (through any of its ---------------- officers, employees, or agents) shall have the right, from time to time hereafter to inspect each Debtor's Books and to check, test, and appraise the Collateral and the other assets pledged to Lender pursuant to the Loan Documents in order to verify such Debtor's financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral or the other assets pledged to Lender pursuant to the Loan Documents. 2.7. Control Agreement. Each Debtor agrees that it will not ----------------- transfer assets out of any deposit accounts or Securities Accounts other than as permitted under Section 5.10 and, if to another depositary bank or securities ------------ intermediary, unless each of the applicable Debtor, Secured Party, and the substitute depositary bank or securities intermediary have entered into a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any deposit accounts or Securities Accounts or other Investment Property shall be modified by any Debtor without the prior written consent of Secured Party. Solely upon the occurrence and during the continuance of a Default or Event of Default, Secured Party may notify any depositary bank or securities intermediary to liquidate the applicable deposit account or Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to the Lender's Account. 3. REPRESENTATIONS AND WARRANTIES. Each Debtor represents and warrants as follows: 3.1. No Prior Encumbrances. Each Debtor has good and --------------------- indefeasible title to the Collateral, free and clear of Liens except for Permitted Liens. 3.2. Place of Business/Chief Executive Office; FEIN. The chief ---------------------------------------------- executive office of each Debtor and all other locations at which such Debtor has a place of business are set forth on Schedule 3.2. Each Debtor's FEIN is set ------------ forth on Schedule 3.2. ------------ 3.3. Equipment. All of the Equipment is used or held for use --------- in each Debtor's business and is fit for such purposes. 3.4. Location of Inventory and Equipment. The Inventory and ----------------------------------- Equipment are not stored with a bailee, warehouseman, or similar party and, other than the equipment of any Debtor that is in transit in the ordinary course of business of such Debtor, are located only at the locations identified on Schedule 3.4. - ------------ 3.5. Inventory Records. Each Debtor keeps correct and accurate ----------------- records itemizing and describing the type, quality, and quantity of its Inventory, and the book value thereof. 3.6. Due Organization and Qualification; Subsidiaries. Each ------------------------------------------------ Debtor is duly organized and is existing and in good standing under the laws of the jurisdiction of its organization and is qualified and licensed to do business in, and is in good -7- standing in, any state where the failure to be so licensed or qualified could reasonably be expected to have a Material Adverse Change. 3.7. Due Authorization; No Conflict. The execution, delivery, ------------------------------ and performance of this Agreement, the Guaranty, and any other Loan Document to which a Debtor is a party are within such Debtor's powers, have been duly authorized, and are not in conflict with nor, constitute a breach of any provision contained in the applicable Debtor's Governing Documents, or any partnership or trust agreement pertaining to such Debtor, nor will they constitute an event of default under any material agreement to which such Debtor is now or may hereafter become a party. 3.8. Litigation. Other than those matters disclosed on ---------- Schedule 5.10 to the Loan Agreement, there are no material actions, suits, or proceedings pending or, to the best knowledge of each Debtor, threatened against any Debtor, or any of its Subsidiaries, as applicable, except for: (a) matters that are fully covered by insurance (subject to customary deductibles), and (b) matters arising after the date hereof that, if decided adversely to Parent, or any of its Subsidiaries, as applicable, reasonably could not be expected to result in a Material Adverse Change. 3.9. Fraudulent Transfer. ------------------- (a) Each Debtor is Solvent. (b) No transfer of property is being made by a Debtor and no obligation is being incurred by a Debtor in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of any Debtor. 3.10. Reliance by Secured Party; Cumulative. The warranties, ------------------------------------- representations, and agreements set forth herein shall be conclusively presumed to have been relied upon by Secured Party and shall be cumulative and in addition to any and all other warranties, representations, and agreements which any Debtor shall now or hereinafter give, or cause to be given, to Secured Party. 4. AFFIRMATIVE COVENANTS. Each Debtor covenants and agrees that, until payment full and final payment of the Secured Obligations (other than any Secured Obligations in respect of the Warrant and the Registration Rights Agreement), and unless Secured Party shall otherwise consent in writing, such Debtor shall do all of the following: 4.1. Schedules of Accounts. With such regularity as Secured --------------------- Party shall reasonably request, provide Secured Party with schedules describing all Accounts. Secured Party's failure to request such schedules or any Debtor's failure to execute and deliver such schedules shall not affect or limit Secured Party's security interests or other rights in and to the Accounts. -8- 4.2. Inventory Reporting. With such regularity as Secured ------------------- Party shall reasonably request, execute and deliver to Secured Party a report regarding such Debtor's Inventory specifying such Debtor's cost therefor and further specifying such other information as Secured Party may reasonably request. 4.3. Title to Equipment. Upon Secured Party's request, deliver ------------------ to Secured Party, properly endorsed, any and all evidences of ownership of, certificates of title, or applications for title to any items of Equipment. 4.4. Maintenance of Properties. Maintain and preserve all of ------------------------- its properties which are necessary or useful in the proper conduct to its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to the extent necessary to the proper conduct of its business to which it is a party as lessee so as to prevent any loss or forfeiture thereof or thereunder. 4.5. Taxes. Cause all assessments and taxes, whether real, ----- personal, or otherwise, due or payable by, or imposed, levied, or assessed against a Debtor or any of its assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Each Debtor will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Secured Party with proof satisfactory to Secured Party indicating that the applicable Debtor has made such payments or deposits. Promptly upon request by Secured Party, each Debtor shall deliver satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which such Debtor is required to pay any such excise tax. 4.6. Insurance. --------- (a) At its expense, keep the Collateral insured against loss or damage by fire, theft, explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Each Debtor also shall maintain business interruption, public liability, product liability insurance, as well as insurance against larceny, embezzlement, and criminal misappropriation. (b) All such policies of insurance shall be in such amounts and with such insurance companies as are reasonably satisfactory to Secured Party. Each Debtor shall deliver copies of all such policies to Secured Party with a satisfactory lender's loss payable endorsement naming the Secured Party as sole loss payee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Secured Party in the event of cancellation of the policy for any reason whatsoever. All proceeds payable under any such policy shall be payable to Secured Party to be applied on account of the Secured Obligations. 4.7. Location of Inventory and Equipment. Keep the Inventory ----------------------------------- and Equipment, other than the Equipment that is in transit in the ordinary course of business -9- of such Debtor, only at the locations identified on Schedule 3.4; provided, ------------ -------- however, that any Debtor may amend Schedule 3.4 so long as such amendment occurs - ------- ------------ by written notice to Secured Party not less than 30 days prior to the date on which Inventory or Equipment is moved to such new location, so long as such new location is within the continental United States, and so long as, not later than the date on which such inventory or equipment is moved to such new location, such Debtor provides any financing statements or fixture filings necessary to perfect and continue perfected the Secured Party's Liens on such assets and also uses reasonable efforts to provide to Secured Party a Collateral Access Agreement. 4.8. Secured Party Expenses. Each Debtor shall immediately and ---------------------- without demand reimburse Secured Party for all sums expended by Secured Party which constitute Lender Expenses and each Debtor hereby authorizes and approves all advances and payments by Secured Party for items constituting Lender Expenses. 5. NEGATIVE COVENANTS. Each Debtor covenants and agrees that until full and final payment of the Secured Obligations (other than any Secured Obligations in respect of the Warrant and the Registration Rights Agreement), it will not do any of the following without Secured Party's prior written consent: 5.1. Liens. Create, incur, assume, or permit to exist, ----- directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 7.1(d) of the Loan Agreement and so long as -------------- the replacement Liens only encumber those assets that secured the refinanced, renewed, or extended Indebtedness). 5.2. Restrictions on Fundamental Changes. ----------------------------------- (a) Except for Permitted Transactions, enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its capital Stock. (b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution). (c) Convey, sell, assign, lease, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its assets. 5.3. Disposal of Assets. Other than Permitted Dispositions and ------------------ Permitted Transactions, convey, sell, lease, license, assign, transfer or otherwise dispose of any of the assets of any Debtor. 5.4. Change Name. Except as permitted in Section 5.2(a) ----------- -------------- hereof, change a Debtor's name, FEIN, business structure, or identity, or add any new fictitious -10- name; provided, however, that a Debtor may change its name upon at least 30 days -------- ------- prior written notice to Secured Party of such change and so long as, not later than the date on which such change of name is consummated, such Debtor provides any financing statements, fixture filings necessary to perfect or continue perfected the Secured Party's Liens. 5.5. Guarantee. Except (i) for the guarantee of the payment --------- and performance of the Secured Obligations, (ii) guaranties executed by Parent with respect to the obligations of its subsidiaries which are otherwise permitted under the Loan Agreement, and (iii) by endorsement of instruments or items of payment for deposit to the account of a Debtor or which are transmitted or turned over to Secured Party, guarantee or otherwise become in any way liable with respect to the obligations of any third Person. 5.6. Nature of Business. Make any change in the principal ------------------ nature of any Debtor's business. 5.7. Transactions with Affiliates. Each Debtor will not ---------------------------- directly or indirectly enter into or permit to exist any transaction with any Affiliate of a Debtor except for transactions which are in the ordinary course of a Debtor's business, upon fair and reasonable terms and which are fully disclosed to Secured Party and, no less favorable to the applicable Debtor than would be obtained in arm's length transaction with a non-Affiliate. 5.8. Suspension. Suspend or go out of a substantial portion of ---------- its business. 5.9. Change in Location of Chief Executive Office; Inventory ------------------------------------------------------- and Equipment with Bailees. Relocate its chief executive office to a new - -------------------------- location without providing 15 days prior written notification thereof to Secured Party and so long as, at the time of such written notification, the applicable Debtor provides any financing statements or fixture filings necessary to perfect and continue perfected Secured Party's Liens and also uses reasonable efforts to provide to Secured Party a Collateral Access Agreement with respect to such new location. The Inventory and Equipment shall not at any time now or hereafter be stored with a bailee, warehouseman, or similar party without Secured Party's prior written consent. 5.10. Securities Accounts. Establish or maintain any Securities ------------------- Account unless Secured Party shall have received a Control Agreement in respect of such Securities Account. No Debtor shall transfer assets out of any Securities Account; provided, however, that, so long as no Event of Default has -------- ------- occurred and is continuing or would result therefrom, each Debtor may use such assets (and the proceeds thereof) to the extent not prohibited by this Agreement or any other Loan Documents. 6. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: ---------------- -11- (a) The occurrence of an Event of Default (as defined in the Loan Agreement); (b) If a Debtor fails or neglects to (a) perform, keep, or observe any covenant or other provision contained in Sections 4.1, 4.2, 4.5, ----------------------- and 4.7 hereof and such failure or neglect continues for a period of 5 days - ------- after the date on which such failure or neglect first occurs, or (b) perform, keep, or observe any covenant or other provision contained in any Section of this Agreement, any other Loan Document, or in any other present or future agreement between a Debtor and Secured Party (other than a Section that is expressly dealt with elsewhere in this Section 6), and such failure or neglect --------- is not cured within 15 days after the date on which such failure or neglect first occurs, or (c) perform, keep, or observe any covenant or other provision contained in Section 4 (other than a subsection of Section 6 that is dealt with --------- --------- elsewhere in this Section 6), or Section 5 of this Agreement or any comparable --------- --------- provision contained in any of the other Loan Documents, or in any other present or future agreement between a Debtor and Secured Party; (c) If any portion of a Debtor's property or assets with a value greater than $1,000,000 individually or in the aggregate, is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any third Person and the same is not discharged before the earlier of 30 days after the date it first arises or 5 days prior to the date on which such property or asset is subject to forfeiture by such Debtor; (d) If (a) a notice of Lien, levy, or assessment is filed of record with respect to the properties or assets of a Debtor by the United States Government, or any department, agency, or instrumentality thereof, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any properties or assets of a Debtor and the same is not paid on the payment date thereof, or (b) notices of Lien, levy, or assessment in an aggregate amount in excess of $1,000,000 are filed of record with respect to the properties or assets of a Debtor by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien exceeding the foregoing aggregate limitation, whether choate or otherwise, upon the properties or assets of a Debtor and the same is not paid on the payment date thereof; (e) If one or more judgments or other claims involving an aggregate amount of $1,000,000, or more, in excess of the amount covered by insurance, becomes a Lien or encumbrance upon any material portion of the properties or assets of a Debtor and the same is not released, discharged, bonded against, or stayed pending appeal before the earlier of 30 days after the date it first arises or 5 days prior to the date on which such asset is subject to being forfeited by a Debtor; (f) If (x) there is a default in any agreement to which a Debtor is a party under which Indebtedness of a Debtor involving not less than $1,000,000 is owing and such default (i) occurs at the final maturity of the obligations thereunder, or (ii) results in a right of the holder of such Indebtedness, irrespective of whether exercised, to accelerate the -12- maturity of the obligations of the applicable Debtor thereunder, and such default is not cured or waived prior to the date that is the earlier of (A) the date that is 15 days after the date on which such default first occurred, and (B) the date on which the obligations of the applicable Debtor thereunder are accelerated or (iii) results in the termination of such agreement; or (y) If there is a default by a Debtor with respect to any other material agreement which default reasonably likely could result (i) in a Material Adverse Change, or (ii) in an award of damages in an amount of $1,000,000, or greater; (g) If a Debtor makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the Secured Obligations, except to the extent such payment is permitted by the terms hereof and by the subordination provisions applicable to such Indebtedness; (h) If the obligation of any Debtor under its guaranty is limited or terminated by operation of law or by such Debtor thereunder; (i) If any material misstatement or misrepresentation exists now or hereafter in any warranty, representation or Record made to Secured Party by a Debtor or any officer, employee, agent, or director of a Debtor, or if any such warranty or representation is withdrawn; or (j) If this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered hereby or thereby. 7. SECURED PARTY'S RIGHTS AND REMEDIES. 7.1. Rights and Remedies. Upon the occurrence of an Event of ------------------- Default, the security hereby constituted shall become enforceable and, in addition to all other rights and remedies available to Secured Party as provided hereafter, Secured Party may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by each Debtor: (a) Proceed directly and at once, without notice, against any Debtor to collect and recover the full amount or any portion of the Secured Obligations, without first proceeding against any Borrower, or against any security or collateral for the Secured Obligations; (b) Without notice to any Debtor and regardless of the acceptance of any security or collateral for the payment hereof, appropriate and apply toward the payment of the Secured Obligations (i) any indebtedness due or to become due from Secured Party to any Debtor and (ii) any moneys, credits or other property belonging to a Debtor at any time held by or coming into the possession of Secured Party; -13- (c) May exercise in respect of the Collateral, in addition to other rights and remedies provided for herein and the Guaranty or otherwise available to it, all the rights and remedies available to it at law (including those of a secured party under the Code) or in equity; (d) Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Secured Party considers advisable, and in such cases, Secured Party will credit the Loan Account with only the net amounts received by Secured Party in payment of such disputed Accounts after deducting all Lender Expenses incurred or expended in connection therewith; (e) Cause each Debtor to hold all returned Inventory in trust for Secured Party, segregate all returned Inventory from all other property of such Debtor or in such Debtor's possession and conspicuously label said returned Inventory as the property of Secured Party for the benefit thereof; (f) Without notice or demand upon any Debtor, make such payments and do such acts as Secured Party considers necessary or reasonable to protect its security interest in the Collateral. Each Debtor agrees to assemble the Collateral if Secured Party so requires, and to make the Collateral available to Secured Party as Secured Party may designate. Each Debtor authorizes Secured Party to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Secured Party's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of the Debtors' owned premises, each Debtor hereby grants Secured Party a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Secured Party's rights or remedies provided herein, at law, in equity, or otherwise; (g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Each Debtor hereby grants to Secured Party a license or other right to use, without charge, such Debtor's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of advertising for sale and selling any Collateral, and each Debtor's rights under all licenses and all franchise agreements shall inure to Secured Party's benefit; (h) Sell all or any part of the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including a Debtor's premises) as Secured Party determines is commercially reasonable. It is not necessary that the Collateral be present at any such sale; -14- (i) Secured Party shall give notice of the disposition of the Collateral as follows: (i) Secured Party shall give the applicable Debtor a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Collateral, then the time on or after which the private sale or other disposition is to be made; and (ii) The notice shall be personally delivered or mailed, postage prepaid, to the applicable Debtor as provided in Section ------- 10, at least 10 days before the earliest time of disposition set -- forth in the notice; no notice needs to be given prior to the disposition of any portion of the Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market; (j) Secured Party may credit bid and purchase at any public sale; (k) Secured Party may seek the appointment of a receiver or keeper to take possession of all or any portion of the Collateral or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing; (l) Secured Party shall have all other rights and remedies available at law or in equity or pursuant to any other Loan Document; and (m) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by the Debtors. Any excess will be returned, without interest and subject to the rights of third Persons, by Secured Party to the applicable Debtor. 7.2. Remedies Cumulative. Secured Party's rights and remedies ------------------- under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Secured Party shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Secured Party of one right or remedy shall be deemed an election, and no waiver by Secured Party on behalf thereof, of any Event of Default on a Debtor's part shall be deemed a continuing waiver. No delay by Secured Party on behalf thereof shall constitute a waiver, election, or acquiescence by it. 8. TAXES AND EXPENSES REGARDING THE COLLATERAL. If any Debtor fails to pay any monies (whether taxes, rents, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, Secured Party, in -15- its sole discretion and without prior notice to any Debtor, may do any or all of the following: (a) make payment of the same or any part thereof; (b) set up such reserves in the Loan Account as Secured Party deems necessary to protect Secured Party from the exposure created by such failure; or (c) in the case of the failure to comply with Section 4.6 obtain and maintain insurance policies ----------- insuring each Debtor's ownership and use of the Collateral, and take any action with respect to such policies as Secured Party deems prudent in its Permitted Discretion. Any amounts paid or deposited by Secured Party shall constitute Lender Expenses, shall immediately become additional Secured Obligations, shall bear interest at the applicable rate described in the Loan Document, and shall be secured by the Collateral. Any payments made by Secured Party shall not constitute an agreement by Secured Party to make similar payments in the future or a waiver by Secured Party of any Event of Default under this Agreement. Secured Party need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance, or lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. Secured Party shall use its best efforts to provide notice to the applicable Debtor of any action taken by it under this Section 8. - --------- 9. WAIVERS; INDEMNIFICATION. 9.1. Demand; Protest; etc. To the extent permitted by law, -------------------- each Debtor waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Secured Party on which such Debtor may in any way be liable. 9.2. Secured Party's Liability for Collateral. So long as ---------------------------------------- Secured Party complies with its obligations, if any, under Section 9207 of the Code, Secured Party shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person (other than its own agents). All risk of loss, damage, or destruction of the Collateral shall be borne by the Debtors. 9.3. Indemnification. Each Debtor agrees, jointly and --------------- severally, to defend, indemnify, save, and hold the Lender-Related Persons, the Lender-Related Persons with respect to Lender harmless against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other Person, and (b) all losses (including attorneys fees and disbursements) in any way suffered, incurred, or paid by Secured Party as a result of or in any way arising out of, following, or consequential to transactions with the Borrower or the Debtors, whether under this Agreement, the other Loan Documents or otherwise. This provision shall survive the termination of this Agreement. 10. NOTICES. All notices and other communications hereunder to Secured Party shall be in writing and shall be mailed, sent or delivered in accordance with -16- the Loan Agreement and all notices and other communications hereunder to a Debtor shall be in writing and shall be mailed, sent or delivered in care of Borrower in accordance with the Loan Agreement. 11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA PROVIDED, HOWEVER, THAT ANY SUIT SEEKING -------- ------- ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT SECURED PARTY'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH DEBTOR AND SECURED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 11. - ---------- EACH DEBTOR AND SECURED PARTY HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH DEBTOR AND SECURED PARTY REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 12. DESTRUCTION OF DEBTORS' DOCUMENTS. All documents, schedules, agings, or other papers delivered to Secured Party may be destroyed or otherwise disposed of by Secured Party four (4) months after they are delivered to or received by Secured Party, unless the applicable Debtor requests, in writing, the return of said documents, schedules or other papers and makes arrangements, at such Debtor's expense, for their return. -17- 13. GENERAL PROVISIONS. 13.1. Effectiveness. This Agreement shall be binding and deemed ------------- effective when executed by each Debtor and accepted and executed by Secured Party. 13.2. Successors and Assigns. This Agreement shall bind and ---------------------- inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that no Debtor may assign this Agreement or any -------- ------- rights or duties hereunder without Secured Party's prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Secured Party shall release the applicable Debtor from its Secured Obligations. Secured Party may assign this Agreement and its rights and duties hereunder and no consent or approval by any Debtor is required in connection with any such assignment. Secured Party reserves the right to sell, assign, transfer, negotiate, or grant participations in all or any part of, or any interest in the applicable member's rights and benefits hereunder. In connection therewith, Secured Party may disclose all documents and information which Secured Party now or hereafter may have relating to any Debtor or any Debtor's business. To the extent that Secured Party assigns its rights and obligations to a third Person, Secured Party thereafter shall be released from such assigned obligations to each of the Debtors and such assignment shall effect a novation between each of the Debtors and such third Person. 13.3. Section Headings. Headings and numbers have been set ---------------- forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each section applies equally to this entire Agreement. 13.4. Interpretation. Neither this Agreement nor any -------------- uncertainty or ambiguity herein shall be construed or resolved against Secured Party or any Debtor, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. 13.5. Severability of Provisions. Each provision of this -------------------------- Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 13.6. Amendments in Writing. This Agreement can only be amended --------------------- by a writing signed by Secured Party and each Debtor. 13.7. Counterparts; Telefacsimile Execution. This Agreement may ------------------------------------- be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. -18- 13.8. Revival and Reinstatement of Obligations. If the ---------------------------------------- incurrence or payment of the Secured Obligations by a Debtor or the transfer by a Debtor to Secured Party of any property of a Debtor should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, and other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Secured Party is required to repay or restore, in ----------------- whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Secured Party is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of Secured Party related thereto, the liability of each of the Debtors automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. [signature page follows] -19- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. MICROSTRATEGY INCORPORATED, a Delaware corporation By: /s/ Eric F. Brown -------------------------------------- Name: Eric F. Brown -------------------------------------- Title: President and Chief Financial Officer -------------------------------------- AVENTINE INCORPORATED, a Delaware corporation By: /s/ William J. Chatterton Jr. -------------------------------------- Name: William J. Chatterton Jr. -------------------------------------- Title: President -------------------------------------- MICROSTRATEGY CAPITAL CORPORATION, a Delaware corporation By: /s/ Eric F. Brown -------------------------------------- Name: Eric F. Brown -------------------------------------- Title: Treasurer -------------------------------------- MICROSTRATEGY MANAGEMENT CORPORATION, a Delaware corporation By: /s/ Eric F. Brown -------------------------------------- Name: Eric F. Brown -------------------------------------- Title: Treasurer -------------------------------------- FOOTHILL CAPITAL CORPORATION, a California corporation By: /s/ Brian Duffy -------------------------------------- Name: Brian Duffy -------------------------------------- Title: Senior Vice President -------------------------------------- S-1 EX-10.4 5 0005.txt EXHIBIT 10.4 Exhibit 10.4 WARRANT AGREEMENT WARRANT AGREEMENT (this "Agreement"), dated as of February 9, 2001, by --------- and between MICROSTRATEGY INCORPORATED, a Delaware corporation (the "Company"), ------- and FOOTHILL CAPITAL CORPORATION, a California corporation ("Lender"). ------ W I T N E S S E T H: -------------------- WHEREAS, the Company and Lender are parties to that certain Loan and Security Agreement, dated as of February 9, 2001 (as the same may from time to time be amended, restated, supplemented or otherwise modified, the "Loan ---- Agreement") pursuant to which Lender has agreed to make certain financial - --------- accommodations to the Company; WHEREAS, pursuant to the Loan Agreement and as a condition to the effectiveness thereof, it is a requirement that the Company execute and deliver this Agreement and issue to the Warrant Holder, in accordance with the terms and conditions hereof, a warrant (the "Warrant") to purchase up to an aggregate of ------- 50,000 shares of the Company's class A common stock, par value $0.001 per share ("Common Stock"), at the exercise price per share provided for herein, which ------------ warrant shall be evidenced in substantially the same form as the Form of Warrant Certificate (the "Warrant Certificate") attached hereto as Exhibit A; and ------------------- --------- WHEREAS, Lender desires to acquire from the Company, and the Company desires to issue to Lender, the Warrant. NOW, THEREFORE, in consideration of these premises, and the respective promises and covenants contained herein, the parties hereto hereby agree as follows: SECTION 1. Definitions. The following terms as used in this ------------------------------------------------- Agreement shall have the meanings set forth below: - -------------------------------------------------- "Business Day" means a day other than a Saturday, Sunday or other day on which banks in the State of California are authorized by law to remain closed; "Common Stock" shall mean the meaning set forth in the Recitals to this Agreement; "Company" shall have the meaning set forth in the introductory paragraph hereof, or any successor thereof; "Convertible Securities" shall have the meaning set forth in Section 4(c); - ------------ "Exempt Securities" shall have the meaning set forth in Section 4(o); ------------ "Exercise Date" shall mean any date on which the Company shall have received both (i) a Warrant Certificate representing a Warrant, with the exercise form thereon duly executed by the Warrant Holder, or his attorney-in- fact duly authorized in writing, and (ii) payment of the Underlying Share Purchase Price pursuant to Section 2(b) or Section 2(c), as determined by the Warrant Holder in its sole discretion; "Lender" shall have the meaning set forth in the preamble hereto; "Nasdaq" means the Nasdaq National Market; "Notice Event" shall mean (i) any authorization by the Company of the issuance to all holders of shares of Common Stock of rights, options or warrants to subscribe for or purchase shares of Common Stock or of any other subscription rights or warrants, (ii) any authorization by the Company of the distribution to all holders of shares of Common Stock of evidences of its indebtedness or assets (other than cash dividends or distributions payable out of consolidated earnings or earned surplus or dividends payable in shares of Common Stock), (iii) any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the conveyance or transfer of the properties and assets of the Company substantially as an entirety, or of any reclassification or change of Common Stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or a tender offer or exchange offer for shares of Common Stock, (iv) any voluntary or involuntary dissolution, liquidation or winding up of the Company, or (v) any proposal by the Company to take any other action that would require an adjustment of the Underlying Share Purchase Price or the number of Underlying Shares pursuant to Section 4; "Option Issuance" shall have the meaning set forth in Section 4 (c); ------------- "Options" shall have the meaning set forth in Section 4(c); ------------ "Registrable Securities" shall have the meaning set forth in the Registration Rights Agreement; "Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of the date hereof, by and between the Company and Lender; "SEC" means the Securities and Exchange Commission; "SEC Reports" shall have the meaning set forth in Section 3(d); ------------ "Stock Option Plan" shall have the meaning set forth in Section 4(o); ------------ "Transfer Agent" means American Stock Transfer & Trust Company, or such other firm as may then be acting as the transfer agent of the Company; "Underlying Share Expiration Date" means the last date on which the Warrants to purchase the Underlying Shares may be exercised, which shall be 5:00 p.m., California time, on the day before the date which is 5 years from the date hereof (or as may be extended pursuant to Section 3(c)), or if such expiration date is not a Business Day, at or before 5:00 p.m. California time on the next following Business Day; -2- "Underlying Share Purchase Price" shall mean the average of the high and low sales prices of the Company's Common Stock as reported by Nasdaq for the five consecutive business days prior to the closing date of the Loan Agreement subject to adjustment from time to time pursuant to the provisions of Section 4; --------- "Underlying Shares" means the 50,000 shares of Common Stock that are the subject of the Warrants, subject to adjustment from time to time as provided herein; "Warrants" shall mean the right to purchase the Underlying Shares pursuant to this Agreement, together with any divisions thereof; "Warrant Certificate" shall have the meaning set forth in the recitals hereto; "Warrant Holder" means a person or entity in whose name the Warrants shall be either initially or subsequently registered upon the books to be maintained by the Company for such purpose. SECTION 2. Duration and Exercise --------------------- (a) Duration. Subject to the provisions of Section 4 hereof, -------- the Warrants may be exercised from time to time, upon the terms and subject to the conditions set forth herein, at any time before the Underlying Share Expiration Date. If the Warrants are not exercised before the Underlying Share Expiration Date, the Warrant Holder shall no longer be entitled to purchase the Underlying Shares and all rights hereunder to purchase such Underlying Shares shall thereupon cease. (b) Exercise. -------- (i) A Warrant Holder may exercise the Warrants, in whole or in part, to purchase the Underlying Shares in such amounts as may be elected upon surrender of the Warrant Certificates therefor with the subscription form thereon duly executed, to the Company at its corporate office at 8000 Towers Crescent Drive, Suite 1400, Vienna, Virginia 22182, together with the full Underlying Share Purchase Price for each Underlying Share to be purchased, (i) in lawful money of the United States, or by certified check or bank draft payable in United States dollars to the order of the Company or (ii) cancellation of all or any part of the unpaid principal amount of indebtedness outstanding under the Loan Agreement in an amount equal to the Underlying Share Purchase Price and upon compliance with and subject to the conditions set forth herein and in the Warrant Certificate. (ii) Upon receipt of such Warrant Certificates together with the Subscription Form attached hereto as Exhibit D (or a reasonable --------- facsimile thereof) thereon duly executed and accompanied by payment of the Underlying Share Purchase Price for the number of Underlying Shares for which such Warrants are then being exercised, the Company shall, subject to Section ------- 5(b) hereof, cause to be issued and delivered promptly, but in all events within - ---- three (3) Business Days of receipt by the Company of the Underlying Share Purchase Price, to the Warrant Holder certificates for such shares of Common Stock in such denominations as are requested by the Warrant Holder. -3- (iii) In case a Warrant Holder shall exercise Warrants with respect to less than all of the Underlying Shares, the Company will execute a new Warrant Certificate, as represented by a warrant certificate substantially in the form attached hereto as Exhibit A, exercisable for the balance of the Underlying Shares that may be purchased upon exercise of such Warrants and deliver such new Warrant Certificate to the Warrant Holder. Warrant Certificates shall be executed on behalf of the Company by the Company's Chairman of the Board, President or any Vice President and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary. (iv) Warrants shall be deemed to have been exercised immediately prior to the close of business on the Exercise Date, and the person entitled to receive the Underlying Shares and any Warrant Certificate representing the unexercised portion of the Warrants deliverable upon such exercise shall be treated for all purposes as the holder of such Underlying Shares and unexercised Warrants, respectively, upon such exercise as of the close of business on the Exercise Date. (v) The Company covenants and agrees that it will pay when due and payable any and all taxes that may be payable in respect of the issue of the Warrants or the issue of any Underlying Shares. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer by the Warrant Holder of the Warrants or any Underlying Shares to any person or entity at the time of surrender. Until the payment of the tax referred to in the previous sentence and the presentation to the Company by the Warrant Holder of reasonable proof of such payment, the Company shall not be required to issue such Underlying Shares or new Warrant Certificates representing unexercised Warrants to any transferee. (c) Cashless Exercise. In lieu of a cash payment of the ----------------- Underlying Share Purchase Price, a Warrant Holder may exercise the Warrants, in whole or in part, by presentation and surrender of the Warrants to the Company, together with a Cashless Exercise Form attached hereto as Exhibit B (or a --------- reasonable facsimile thereof) duly executed (a "Cashless Exercise"). Acceptance ----------------- by the Company of such presentation and surrender shall be deemed a waiver of the Warrant Holder's obligation to pay all or any portion of the Underlying Share Purchase Price, as the case may be. In the event of a Cashless Exercise, the Warrant Holder shall exchange the Warrants for that number of shares of Common Stock determined by multiplying the number of shares of Common Stock for which the Warrants are being exercised by a fraction, the numerator of which shall be the difference between the then current market price per share of the Common Stock and the Underlying Share Purchase Price, and the denominator of which shall be the then current market price per share of Common Stock. For purposes of any computation under this Section 2(c), the then current market ------------ price per share of Common Stock at any date shall be deemed to be the average for the ten (10) consecutive business days immediately prior to the Cashless Exercise of the daily closing prices of the Common Stock on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on any such exchange, the last reported sales prices as included for quotation on Nasdaq, or if not included for quotation on Nasdaq, the average of the highest reported bid and lowest reported asked prices as reported by the National Association of Securities Dealers, Inc. Automated Quotations System, or if not then publicly traded, the fair market price of the Common Stock as determined by the Board of Directors of the Company. -4- SECTION 3. Covenants --------- (a) Issuance and Sale of Underlying Shares. The Company -------------------------------------- covenants that it will at all times reserve and keep available, free from preemptive rights, out of its authorized Common Stock, solely for the purpose of issuance upon exercise of the Warrants, such number of shares of Common Stock as shall equal the aggregate number of the Underlying Shares. The Company covenants that all shares of Common Stock that shall be issuable upon exercise of the Warrants shall, at the time of delivery and, subject to Section 2(c) hereof, upon receipt by the Company of the Underlying Share Purchase Price, be duly and validly issued, fully paid, nonassessable and free from all taxes, liens and charges with respect to the issue thereof (other than those which the Company shall promptly pay or discharge). The Company hereby authorizes and directs the Transfer Agent for the Common Stock at all times to reserve such number of authorized shares of Common Stock as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent. The Company will supply such Transfer Agent with duly executed certificates for such purposes and will provide or otherwise make available any cash which may be payable as provided in Section 5(b) hereof. The Company will furnish such Transfer Agent with a copy of all notices of adjustments and certificates related thereto transmitted to the Warrant Holder pursuant to Section 4(p) hereof. (b) Registration Rights Agreement. Lender, any transferee of ----------------------------- Lender's interests hereunder and any subsequent transferee thereof shall be entitled to the benefits of that certain Registration Rights Agreement between Lender and the Company of even date herewith, to the extent provided for in the Registration Rights Agreement. (c) SEC Reports. So long as the Warrants remain outstanding, ----------- the Company shall cause copies of all financial reports, documents, and other reports (or copies of such portions of any of the foregoing) which the Company provides to its stockholders (whether pursuant to Section 13 or 15(d) of the Exchange Act or otherwise) to be mailed to the Warrant Holder at his, her or its address appearing in the register of warrant holders maintained by the Company, in each case, within 15 days of filing with the SEC. If the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall nevertheless continue to cause quarterly and annual reports comparable to those which it would be required to file on Form 10-Q and Form 10- K, respectively, pursuant to Section 13 or 15(d) of the Exchange Act as if it were subject to the requirements of either such section, to be so filed with the SEC (but only if the SEC permits such filings) and mailed to the Warrant Holder, in each case, within the same time periods as would have applied (including under the preceding sentence) had the Company been subject to the requirements of Section 13 or 15(d) of the Exchange Act. (d) Restrictive Legend. Each Warrant Certificate and ------------------ certificate evidencing shares of Common Stock issued to the Warrant Holder following the exercise of Warrants shall bear the following restrictive legend until such time as the transfer of such security is not restricted under the federal securities laws: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES -5- ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (II) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.. SECTION 4. Adjustment of Underlying Share Purchase Price and Number -------------------------------------------------------- of Underlying Shares. The number of Underlying Shares purchasable upon the - -------------------- exercise of the Warrants and the payment of the Underlying Share Purchase Price shall be subject to adjustment from time to time as follows: (a) Stock Splits, Combinations, etc. In case the Company shall ------------------------------- hereafter, but prior to 5:00 p.m. (California time) on the Underlying Share Expiration Date: (i) pay a dividend or make a distribution on its Common Stock in shares of its capital stock (whether such distribution consists of shares of Common Stock or of capital stock of any other class); (ii) subdivide its outstanding shares of Common Stock; (iii) combine its outstanding shares of Common Stock into a smaller number of shares; or (iv) issue by reclassification of its shares of Common Stock any shares of capital stock of the Company, the Underlying Share Purchase Price in effect and the number of Underlying Shares issuable upon exercise of the Warrants immediately prior to such action shall be adjusted so that the Warrant Holder shall be entitled to receive that number of shares of Common Stock of the Company at the same aggregate Underlying Share Purchase Price that the Warrant Holder would have owned immediately following such action had the Warrants been exercised immediately prior thereto. An adjustment made pursuant to this paragraph shall become effective on the day which is immediately after the record date in the case of a dividend and shall become effective on the day which is immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this paragraph, the Warrant Holder shall become entitled to receive shares of two or more classes of capital stock of the Company, the Board of Directors of the Company (whose determination shall be conclusive) shall determine the allocation of the adjusted Underlying Share Purchase Price between or among shares of such classes of capital stock. (b) Reclassification, Combination, Mergers, etc. In case of any -------------------------------------------- reclassification or change of outstanding shares of Common Stock issuable upon exercise of the Warrants (other than as set forth in paragraph (a) above and other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation or entity (other than a merger in which the Company is the continuing corporation and which does not result in any reclassification or change of the then outstanding shares of Common Stock or other capital stock issuable upon exercise of the Warrants), or in the case of any sale or conveyance of all or substantially all of the assets of the Company followed by a related distribution to holders of shares of Common Stock or cash, securities or other property, then as a condition of such reclassification, change, consolidation, merger, or sale of assets, the Company or such successor corporation or entity, as the case may be, shall forthwith make lawful and adequate -6- provision whereby the Warrant Holder shall have the right thereafter to receive on exercise of the Warrants (provided such exercise occurs prior to 5:00 p.m. (California time) on the Underlying Share Expiration Date) the kind and amount of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, or sale of assets, by a holder of shares of Common Stock immediately prior to such reclassification, change, consolidation, merger, or sale of assets, and the Company or such successor corporation or entity shall enter into a supplemental warrant agreement with the Warrant Holder so providing. Such provisions shall include provision for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4. If the issuer of securities --------- deliverable upon exercise of the Warrants under the supplemental warrant agreement is an affiliate of the formed or surviving corporation or other entity, that issuer shall join in the supplemental warrant agreement. The above provisions of this paragraph (b) shall similarly apply to successive reclassification and changes of shares of Common Stock and to successive consolidations or mergers. (c) Issuance of Options or Convertible Securities. In the event --------------------------------------------- the Company shall, at any time or from time to time after the date hereof, but prior to 5:00 p.m. (California time) on the Underlying Share Expiration Date, issue, sell, distribute or otherwise grant in any manner (including by assumption) any rights to subscribe for or to purchase, or any warrants or options for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (any such rights, warrants or options being herein called "Options" and any such convertible or exchangeable stock or ------- securities being herein called "Convertible Securities"), whether or not such ---------------------- Options or rights to convert or exchange such Convertible Securities are immediately exercisable, and the price per share at which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (1) the aggregate amount, if any, received or receivable by the Company as consideration for the issuance, sale, distribution or granting of such Options or such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such Options or upon conversion or exchange of all such Convertible Securities, plus, in the case of Options to acquire Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the conversion or exchange of all such Convertible Securities, by (2) the total maximum number of shares of Common Stock issuable upon the exercise of all such Options or upon the conversion or exchange of all such Convertible Securities or upon the conversion or exchange of all Convertible Securities issuable upon the exercise of all such Options) shall be less than the current market price per share of the Common Stock on the record date that the Company becomes obligated to make such issuance, sale, distribution or granting of such Options or Convertible Securities except in connection with the issuance or sale of any Exempt Securities (as defined in paragraph (n) below) (any such event being herein called an "Option Issuance"), --------------- then, effective upon such Option Issuance: (i) the Underlying Share Purchase Price shall be reduced to the price (calculated to the nearest one tenth of one cent ($0.001)) determined by multiplying the Underlying Share Purchase Price in effect immediately prior to such Option Issuance by a fraction, the numerator of which shall be the sum of (X) the number of shares of Common Stock outstanding (exclusive of any treasury shares) immediately prior to such Option Issuance multiplied by the current market price per share of Common Stock on the date of such Option Issuance, plus (Y) the consideration, if any, received by the Company upon such Option Issuance, and the denominator of which shall be the product of (A) the total number of shares of Common Stock outstanding -7- (exclusive of any treasury shares) immediately after such Option Issuance, multiplied by (B) the current market price per share of Common Stock on the record date for such Option Issuance; and (ii) (2) the number of Underlying Shares purchasable upon the exercise of the Warrants shall be increased to a number determined by multiplying the number of Underlying Shares so purchasable immediately prior to the record date for such Option Issuance by a fraction, the numerator of which shall be the Underlying Share Purchase Price in effect immediately prior to the adjustment required by clause (1) of this Section 4(c) and the denominator of which shall be the Underlying Share Purchase Price in effect immediately after such adjustment. For purposes of the foregoing, the total maximum number of shares of Common Stock issuable upon exercise of all such Options or upon conversion or exchange of all such Convertible Securities or upon the conversion or exchange of the total maximum amount of the Convertible Securities issuable upon the exercise of all such Options shall be deemed to have been issued as of the date of such Option Issuance and thereafter shall be deemed to be outstanding and the Company shall be deemed to have received as consideration therefor such price per share, determined as provided above. Except as provided in paragraphs (j) and (k) below, no additional adjustment of the Underlying Share Purchase Price shall be made upon the actual exercise of such Options or upon conversion or exchange of the Convertible Securities or upon the conversion or exchange of the Convertible Securities issuable upon the exercise of such Options. (d) Dividends and Distributions. In the event the Company --------------------------- shall, at any time or from time to time after the date hereof, but prior to 5:00 p.m. (California time) on the Underlying Share Expiration Date, distribute to all the holders of Common Stock any dividend or other distribution of cash, evidences of its indebtedness, other securities or other properties or assets (in each case other than (1) dividends payable in Common Stock, Options or Convertible Securities and (2) any cash dividend that, when added to all other cash dividends paid in the one year prior to the declaration date of such dividend, does not exceed 5% of the current market price per share of Common Stock on such declaration date), or any options, warrants or other rights to subscribe for or purchase any of the foregoing, then: (i) the Underlying Share Purchase Price shall be decreased to a price determined by multiplying the Underlying Share Purchase Price then in effect by a fraction, the numerator of which shall be the current market price per share of Common Stock on the record date for such distribution less the sum of (X) the cash portion per share, if any, of such distribution of Common Stock outstanding (exclusive of any treasury shares) on the record date for such distribution plus (Y) the then fair market value per share of Common Stock outstanding (exclusive of any treasury shares) on the record date for such distribution of that portion, if any, of such distribution consisting of evidences of indebtedness, other securities, properties assets, options, warrants or subscription of purchase rights, and the denominator of which shall be such current market price per share of the Common Stock on the record date for such distribution; and (ii) the number of Underlying Shares purchasable upon the exercise of the Warrants shall be increased to a number determined by multiplying the number of Underlying Shares so purchasable immediately prior to the record date for such distribution by a fraction, the numerator of which shall be the Underlying Share Purchase Price in effect immediately -8- prior to the adjustment required by clause (1) of this Section 4(d) and the ------------ denominator of which shall be the Underlying Share Purchase Price in effect immediately after such adjustment. The adjustments required by this paragraph (d) shall be made whenever ------------- any such distribution occurs retroactive to the record date for the determination of stockholders entitled to receive such distribution. (e) Sale of Common Stock Below its Current Market Price. Except --------------------------------------------------- in connection with the issuance or sale of any Exempt Securities (as defined in paragraph (n) below), if the Company shall at any time or from time to time after the date hereof, issue or sell any shares of Common Stock and the price per share at which such shares were issued or sold shall be less than the current market price per share of the Common Stock on the date the Company becomes obligated to make such issuance or sale, then, effective upon such issuance or sale: (i) the Underlying Share Purchase Price shall be reduced to the price (calculated to the nearest one tenth of one cent ($0.001)) determined by multiplying the Underlying Share Purchase Price in effect immediately prior to such issuance or sale by a fraction, the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding (exclusive of any treasury shares) immediately prior to such issuance or sale multiplied by the current market price per share of Common Stock on the date of such issuance or sale, plus (B) the consideration received by the Company upon such issuance or sale, and the denominator of which shall be the product of (X) the total number of shares of Common Stock outstanding (exclusive of any treasury shares) immediately after such issuance or sale, multiplied by (Y) the current market price per share of Common Stock on the date of such issuance or sale; and (ii) the number of Underlying Shares purchasable upon the exercise of the Warrants shall be increased to a number determined by multiplying the number of Underlying Shares so purchasable immediately prior to the date of such issuance or sale by a fraction, the numerator of which shall be the Underlying Share Purchase Price in effect immediately prior to the adjustment required by clause (i) of this sentence and the denominator of which shall be the Underlying Share Purchase Price in effect immediately after such adjustment. (f) Current Market Price. For the purpose of any computation of -------------------- current market price under this Section 4 and Section 5(b) hereof, the current --------- ------------ market price per share of the Common Stock at any date shall be (x) for purposes of Section 5(b), the closing price on the Business Day immediately prior to the exercise of the Warrants and (y) in all other cases, the average of the daily closing prices for the 5 consecutive trading days immediately preceding the date in question. The closing price for any day shall be the last reported sale price or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices for such day, in each case (1) on the principal national securities exchange on which the shares of Common Stock are listed or to which such shares are admitted to trading or (2) if the Common Stock is not listed or admitted to trading on a national securities exchange, in the over- the-counter market as included for quotation on Nasdaq or any comparable system or (3) if the Common Stock is not included for quotation on Nasdaq or a comparable system, as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time in good faith by the Board of Directors of the Company for that purpose. In the absence of all of the foregoing, or if for any reason the current market price per share cannot be determined pursuant to the foregoing provisions -9- of this paragraph (f), the current market price per share shall be the fair market value thereof as determined in good faith by the Board of Directors of the Company. (g) Consideration Received. If any shares of Common Stock, ---------------------- Options or Convertible Securities shall be issued, sold or distributed for consideration other than cash, the amount of the consideration other than cash received by the Company in respect thereof shall be deemed to be the then fair market value of such consideration (as determined in good faith by the Board of Directors of the Company). If any Options shall be issued in connection with the issuance and sale of other securities of the Company, together comprising one transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued without consideration. If the Company shall pay a dividend or make any other distribution payable in Options or Convertible Securities, then such Options or Convertible Securities shall be deemed to have been issued or sold without consideration. In the case of an underwritten public offering, the amount of any underwriting discount shall be deemed to be additional consideration received by the Company as part of the issuance of the applicable securities. (h) Deferral of Certain Adjustments. No adjustment to the ------------------------------- Underlying Share Purchase Price (including the related adjustment to the number of Underlying Shares) shall be required hereunder unless such adjustment, together with other adjustments carried forward as provided below, would result in an increase or decrease of at least one percent (1%) of the Underlying Share Purchase Price; provided that any adjustments which by reason of this paragraph (i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. No adjustment need be made for a change in the par value of the Common Stock. All calculations under this Section 4 shall be made to the nearest one tenth of one cent ($0.001) or to the nearest whole share, as the case may be. (i) Changes in Options and Convertible Securities. If the --------------------------------------------- exercise price provided for in any Options referred to in paragraph (c) above, ------------- the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in paragraph (c) above, or the rate at which any Convertible Securities referred to in paragraph (c) above are ------------- convertible into or exchangeable for Common Stock shall change at any time (other than under or by reason of provisions designed to protect against dilution upon an event which results in a related adjustment pursuant to this Section 4), the Underlying Share Purchase Price then in effect and the number of - --------- Underlying Shares purchasable upon the exercise of the Warrants shall forthwith be readjusted (effective only with respect to any exercise of the Warrants after such readjustment) to the Underlying Share Purchase Price and number of Underlying Shares so purchasable that would then be in effect had the adjustment made upon the issuance, sale, distribution or granting of such Options or Convertible Securities been made based upon such changed purchase price, additional consideration or conversion rate, as the case may be, but only with respect to such Options and Convertible Securities as then remain outstanding. (j) Expiration of Options and Convertible Securities. If, at ------------------------------------------------ any time after any adjustment to the number of Underlying Shares purchasable upon the exercise of the Warrants shall have been made pursuant to paragraph (c) ------------- or (j) above or this paragraph (k), any Options or Convertible Securities shall --- ------------- have expired unexercised, the number of Underlying Shares so purchasable with respect to any then outstanding Warrants shall, upon such expiration, be readjusted and shall thereafter be such as they would have been had the Warrants outstanding at the time of the -10- original adjustment been adjusted (or had the original adjustment not been required, as the case may be) as if (i) the only shares of Common Stock deemed to have been issued in connection with such Options or Convertible Securities were the shares of Common Stock, if any, actually issued or sold upon the exercise of such Options or Convertible Securities and (ii) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale, distribution or granting of all such Options or Convertible Securities, whether or not exercised; provided that no such readjustment shall have the effect of decreasing the number of such Underlying Shares so purchasable by an amount (calculated by adjusting such decrease to account for all other adjustments made pursuant to this Section 4 following the date of the original adjustment referred to above) in excess of the amount of the adjustment initially made in respect of the issuance, sale, distribution or granting of such Options or Convertible Securities. (k) Other Adjustments. In the event that at any time, as a ----------------- result of an adjustment made pursuant to this Section 4, the Warrant Holder --------- shall become entitled to receive any securities of the Company other than Underlying Shares, thereafter the number of such other securities so receivable upon exercise of the Warrants and the Underlying Share Purchase Price applicable to such exercise shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in this Section 4. (l) Common Stock. As used in this Section 4, the term "Common ------------ --------- ------ Stock" shall mean and include the Common Stock issued and outstanding on the - ----- date hereof and shall also include any capital stock of any class of the Company thereafter authorized for issuance that is not limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends and in the distribution of assets upon the voluntary liquidation, dissolution or winding up of the Company; provided, however, that the Underlying -------- ------- Shares shall include only shares of such class designated in the Company's Certificate of Incorporation as Class A common stock or (i) in the case of any reclassification, change, consolidation, merger, or sale of assets of the character referred to in Section 4(b) hereof, the stock, securities or property ------------ provided for in such section or (ii) in the case of any reclassification or change in the number of Underlying Shares as a result of a subdivision or combination or consisting of a change in par value, or from par value to no par value, or from no par value to par value, such Underlying Shares as so reclassified or changed. (m) Determination of Net Sales Price. In case of the sale for -------------------------------- cash of any shares of Common Stock, Options, or Convertible Securities, the consideration received by the Company therefor shall be deemed to be the net sales price therefor (after deducting therefrom any expense paid or incurred by the Company or any underwriting discounts or commissions or concessions paid or allowed by the Company in connection therewith). (n) Events Resulting in no Adjustments. No adjustment to the ---------------------------------- Underlying Share Purchase Price or to the number of Underlying Shares, however, will be made upon (i) the issuance or exercise of any stock options under any stock option plan or employee stock purchase plan of the Company that has been approved by the Board of Directors of the Company; (ii) the issuance of shares of Common Stock upon conversion of any shares of the Company's Series A Preferred Stock outstanding on the date hereof; (iii) the issuance of any securities in connection with the settlement or other resolution of the class action lawsuit filed in the United States District -11- Court for the Eastern District of Virginia, captioned In re MicroStrategy Inc. Securities Litigation, Civ. No. 00-473-A and the issuance of any shares of Common Stock upon the exercise or conversion of any such securities; (iv) the issuance of securities as consideration for mergers or consolidations or the acquisition of businesses or their assets and the issuance of any shares of Common Stock upon the exercise or conversion of any such securities; (v) the issuance of Common Stock upon conversion of shares of the Company's Class B Common Stock, provided such shares of Class B Common Stock were issued and outstanding on the date hereof; (vi) the issuance of Common Stock upon the exercise of warrants which are outstanding on the date hereof; (vii) the issuance of Common Stock or warrants to purchase Common Stock in connection with any strategic investor, vendor, lease or similar arrangement (the primary purpose of which is not to raise equity capital), provided that the aggregate number of shares of Common Stock subject to warrants and shares of Common Stock which the Company may issue pursuant to this subclause (vii) shall not exceed 250,000 (subject to adjustment for stock splits, stock dividends, stock combinations and other similar transactions); and (viii) the issuance of Common Stock in a private placement to institutional investors at a price not less than 95% of the current market price per share of Common Stock on the date the Company becomes obligated to make such issuance or sale (collectively, the "Exempt Securities"). In the event the Company issues or sells Common Stock in a ----------------- private placement at a price less than 95% of the current market price per share of Common Stock on the date the Company becomes obligated to make such issuance or sale, Warrant Holder shall be entitled to an adjustment in the Underlying Share Purchase Price and the Underlying Shares as provided in Section 4 herein. (o) Notice of Change in Underlying, Share Purchase Price. Upon ---------------------------------------------------- any adjustment pursuant to this Section 4, the Company shall promptly thereafter (i) cause to be prepared a certificate of the Chief Financial Officer of the Company setting forth the Underlying Share Purchase Price after such adjustment and setting forth in reasonable detail the method of calculation and the facts upon which such calculations are based and setting forth the number of Underlying Shares (or portion thereof) issuable after such adjustment in the Underlying Share Purchase Price, upon exercise of the Warrants and payment of the adjusted Underlying Share Purchase Price, which certificate shall be conclusive evidence of the correctness of the matters set forth therein absent manifest error, and (ii) send to the Warrant Holder at the address appearing on the registry books maintained by the Company written notice of such adjustments by first-class mail, postage prepaid. (p) Notice of Certain Events. With respect to any Notice Event, ------------------------ the Company shall cause to be given to the Warrant Holder at such Warrant Holder's address on the registry books maintained by the Company, at least 20 days prior to the applicable record date hereinafter specified, or in the case of events for which there is no record date, at least fifteen (15) days prior to the taking of such proposed action, by certified mail, return receipt requested, postage prepaid, a written notice stating (i) the date as of which the holders of record of shares of Common Stock entitled to receive any such rights, options, warrants or distribution is to be determined, (iii) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock, or (iii) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up is expected to become effective or consummated and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange such shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up. The failure to give the notice required by this Section 4(q) or any defect therein shall not affect the legality or validity of - ------------ any distribution, right, option, warrant, consolidation, merger, conveyance, transfer, dissolution, or -12- liquidation or winding up, or the vote upon any action, provided that the Warrant Holder shall retain any right to damages from the Company with respect to such failure. SECTION 5. Other Provisions Relating to Rights of the Warrant Holder --------------------------------------------------------- (a) Warrant Holder not a Stockholder. The Warrant Holder, as -------------------------------- such, shall not be entitled to vote or receive dividends or be deemed holders of Common Stock for any purpose whatsoever, nor shall anything contained in this Agreement be construed to confer upon the Warrant Holder, as such, any of the rights of a stockholder of the Company including, but not limited to, the right to vote for the election of directors or on any other matter, give or withhold consent to any action by the Company (whether upon any recapitalization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings or other action affecting stockholders (except for notices provided for in this Agreement), receive dividends or subscription rights, or otherwise until Warrants shall have been exercised to purchase Underlying Shares, at which time the person or persons in whose name or names the certificate or certificates for the shares of Common Stock are registered shall be deemed the holder or holders of record of such shares of Common Stock for all purposes. (b) Fractional Shares. Anything contained herein to the ----------------- contrary notwithstanding, the Company shall not be required to issue any fractional shares of Common Stock in connection with the exercise of the Warrants. In any case where the Warrant Holder would, except for the provisions of this Section 5(b), be entitled under the terms of this Agreement to receive a ------------ fraction of a share of Common Stock upon the exercise of the Warrants, the Company shall, upon the exercise of the Warrants and receipt of the Underlying Share Purchase Price, issue the largest number of whole shares of Common Stock purchasable upon exercise of the Warrants. The Warrant Holder expressly waives his or her right to receive a certificate of any fraction of a share of Common Stock upon the exercise hereof. However, with respect to any fraction of a share of Common Stock called for upon any exercise hereof, the Company shall pay to the Warrant Holder an amount in cash equal to such fraction multiplied by the current market price per share of Common Stock determined pursuant to Section 4(f) hereof. (c) Absolute Owner. Prior to due presentment for registration -------------- of transfer of the Warrant Certificates, the Company may deem and treat the Warrant Holder as the absolute owner of the Warrants for the purpose of any exercise thereof and for all other purposes and the Company shall not be affected by any notice to the contrary. SECTION 6. Division, Split-Up, Combination, Exchange and Transfer of --------------------------------------------------------- Warrants - -------- (a) Request. The Warrants may be divided, split up, combined or ------- exchanged for other Warrants of like tenor to purchase a like aggregate number of Underlying Shares. If the Warrant Holder desires to divide, split up, combine or exchange the Warrants, he or she shall make such request in writing delivered to the Company at its office in 8000 Towers Crescent Drive, Vienna, Virginia 22182, or as otherwise directed by the Company in writing, and shall surrender such Warrant Certificates to be so divided, split up, combined or exchanged at said office. Upon any such surrender for a division, split-up, combination or exchange, the Company shall execute and deliver to the person entitled thereto a new Warrant Certificate(s) as so requested -13- to the extent permitted by law. The Company may require the Warrant Holder to pay a sum sufficient to cover any tax, governmental or other charge that may be imposed in connection with any division, split-up, combination or exchange of the Warrants. (b) Initial Issuance to Lender. The Company shall issue the right to purchase 50,000 Underlying Shares to Lender, subject to adjustment as provided herein, as represented by a Warrant Certificate issued to Lender in the form attached hereto as Exhibit A or to Lender's designee or such officers of Lender as Lender may direct. (c) Assignment; Replacement of Warrant Certificates. The ----------------------------------------------- Warrants may be sold, transferred, assigned or hypothecated by Lender at any time, in whole or in part, subject to compliance with federal and state securities laws. Any division or assignment permitted of the Warrants shall be made by surrender of the Warrant Certificates to the Company at its principal office with the Form of Assignment attached as Exhibit C hereto duly executed. --------- In such event, the Company shall, without charge, execute and deliver a new Warrant Certificate in the name of the assignee named in such instrument of assignment and the surrendered Warrant Certificates shall promptly be canceled. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of the Warrant Certificates and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of such Warrant Certificates, the Company will execute and deliver a new Warrant Certificate of like tenor and date and any such lost, stolen or destroyed Warrant Certificates shall thereupon become void. SECTION 7. Other Matters ------------- (a) Taxes and Charges. The Company will from time to time ----------------- promptly pay, subject to the provisions of paragraph (5) of Section 2(b), all ------------- ------------ taxes and charges that may be imposed upon the Company in respect of the issuance or delivery of the Warrants or the Underlying Shares. (b) Notices. Notice or demand pursuant to this Agreement to be ------- given or made by the Warrant Holder to or on the Company shall be sufficiently given or made if delivered or sent by registered or certified mail, postage prepaid, return receipt requested, and addressed, until another address is designated in writing by the Company, or by facsimile transmission, as follows: MICROSTRATEGY INCORPORATED 8000 Towers Crescent Drive Suite 1400 Vienna, Virginia 22182 Attention: Mr. Mark Lynch Facsimile No.: 703.847.4837 with a copy to: Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Attention: Mitchel Appelbaum, Esq. Facsimile No.: 617.526.5000 -14- Notices to the Warrant Holder provided for in this Agreement shall be deemed given or made by the Company if delivered or sent by mail, certified or registered, return receipt requested, postage prepaid, or overnight courier or facsimile transmission addressed to the Warrant Holder at his or her last known address or facsimile number as shall appear on the registry books of the Company and at the following address for Lender: FOOTHILL CAPITAL CORPORATION 2450 Colorado Boulevard Suite 3000 West Santa Monica, California 90404 Attention: Business Finance Division, Manager Facsimile No.: (310) 453-7413 With a copy to: Brobeck, Phleger & Harrison, LLP 550 South Hope Street Los Angeles, California 90071-2604 Attention: John F. Hilson, Esq. Facsimile No.: (213) 745-3345 (c) Governing Law. The validity, interpretation and performance ------------- of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws and principles thereof. (d) WAIVER OF JURY TRIAL. THE COMPANY WAIVES (A) THE RIGHT TO -------------------- TRIAL BY JURY (WHICH THE WARRANT HOLDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE WARRANT, THE WARRANT CERTIFICATE OR THE REGISTRATION RIGHTS AGREEMENT. THE COMPANY WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVER WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. (e) Exclusive Benefit. Nothing in this Agreement expressed or ----------------- nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the Company, Lender and the Warrant Holder any right, remedy or claim hereunder, and all covenants, conditions, stipulations, promises and agreements contained in this Agreement shall be for the sole and exclusive benefit of such persons -15- and their successors, survivors and permitted assigns hereunder. This Agreement is for the benefit of and is enforceable by any subsequent Warrant Holder. (f) Headings. The article headings herein are for convenience --------- only and are not part of this Agreement and shall not affect the interpretation hereof. [Remainder of page left intentionally blank.] -16- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. MICROSTRATEGY INCORPORATED By: /s/ Eric F. Brown --------------------------------------- Name: Eric F. Brown Title: President and Chief Financial Officer FOOTHILL CAPITAL CORPORATION By: /s/ Brian Duffy --------------------------------------- Name: Brian Duffy Title: Senior Vice President S-1 EXHIBIT A --------- THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (II) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. No. FCC - 1 Warrant Certificate MICROSTRATEGY INCORPORATED This warrant certificate certifies that FOOTHILL CAPITAL CORPORATION, or its registered assigns, is the registered holder of Warrants representing the right to purchase 50,000 shares (the "Underlying Shares") of the Class A common stock, par value $0.001 per share (the "Common Stock") of MICROSTRATEGY INCORPORATED (the "Company") in accordance with the terms of that certain Warrant Agreement dated February 9, 2001 between the Company and Foothill Capital Corporation (the "Warrant Agreement"). The Warrants with respect to the Underlying Shares expire on February 8, 2006 (the "Underlying Share Expiration Date"), or on such expiration dates as may be extended pursuant to the terms of the Warrant Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Warrant Agreement. The Warrants entitle the registered holder, upon exercise from time to time from 9:00 a.m. California City time on or after February 9, 2001 until 5:00 p.m. California time on the Underlying Share Expiration Date to purchase the Underlying Shares at an exercise price per Underlying Share equal to $14.825 (the "Underlying Share Purchase Price") in lawful money of the United States of America upon surrender of this certificate and payment of the Underlying Share Purchase Price in accordance with the terms of the Warrant Agreement. The Underlying Share Purchase Price, the number of Underlying Shares issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events set of in the Warrant Agreement. The Warrants with respect to the Underlying Shares may not be exercised after 5:00 p.m. (California time) on the Underlying Share Expiration Date, and to the extent not exercised by such time such Warrants shall become void. A-1 This warrant certificate shall be governed by and construed in accordance with the laws of the State of Delaware without regard to conflicts of laws and principles thereof. IN WITNESS WHEREOF, MicroStrategy Incorporated has caused this warrant certificate to be signed by its duly authorized officers. Dated: February 9, 2001 ---------------- MICROSTRATEGY INCORPORATED By: -------------------------------------- Name: Title: A-2 EXHIBIT B --------- CASHLESS EXERCISE FORM To be executed upon exercise of Warrants pursuant to Section 2(c) of the Warrant Agreement. The undersigned hereby irrevocably elects to surrender ___________ shares purchasable under the Warrants for such shares of Common Stock issuable in exchange therefor pursuant to the Cashless Exercise provisions of the within Warrants, as provided for in Section 2(c) of such Warrant Agreement. Please issue a certificate or certificates for such Common Stock in the name of, and pay cash for fractional shares in the name of: ______________________________________________________________________________ (Please print name, address, and social security number/ tax identification number:) ______________________________________________________________________________ and, if said number of shares of Common Stock shall not be all the shares of Common Stock purchasable thereunder, then a new Warrant Certificate for the balance remaining of the shares of Common Stock purchasable under the within Warrants shall be registered in the name of the undersigned Warrant Holder or its transferee as below indicated and delivered to the address stated below. Dated: _________________ Name of Warrant Holder or transferee:_________________________________________________________________ (Please print) Address: ______________________________________________________________________ Signature: ____________________________________________________________________ NOTE: Signature must conform to the name of Warrant Holder as specified on the face of the Warrants or with the name of the transferee appearing in the form of assignment attached as Exhibit C to the Warrant Agreement. B-1 EXHIBIT C --------- FORM OF ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto ________________, whose address is _____________________________ _____________________________________________ and whose social security or other identifying number is ________________, the right to purchase ________________ Underlying Shares evidenced by the within Warrants, and hereby irrevocably constitutes and appoints the Secretary of MicroStrategy Incorporated (the "Company") as his, her or its attorney-in-fact to transfer the same on the books of the Company with full power of substitution and re-substitution. If said number of Underlying Shares is less than all of the Underlying Shares purchasable hereunder, the undersigned requests that a new warrant certificate representing the right to purchase the balance of such Underlying Shares be registered in the name of _________________, whose address is __________________ _________________________________________, whose social security or other identifying number is ______________, and that such warrant certificate be delivered to ________________, whose address is ________________________________ ____________________________________________. Date: _____________ [Transferor Name] By: __________________________________ Name: ________________________________ Title: _______________________________ C-1 EXHIBIT D --------- SUBSCRIPTION FORM The undersigned hereby irrevocably elects to exercise the right, represented by this warrant certificate, to purchase _________________ Underlying Shares and [tenders payment herewith in the amount $_____________] [or] [makes payment therefor by application pursuant to Section 2(b)(ii) of the Warrant of $_________ aggregate principal amount of the outstanding indebtedness under the Loan and Security Agreement] [or] [makes payment therefor by delivery of the following Common Stock Certificates of the Company (properly endorsed for transfer in blank) for cancellation by the Company pursuant to Section 2(b)(iii) of the Warrant, certificates of which are attached hereto for cancellation [list certificates by number and amount]. The undersigned requests that a certificate for such Underlying Shares be registered in the name of _______________, whose address is ______________________________________________ _______________________________________________, and whose social security or other identifying number is ____________, and that such Underlying Shares be delivered to ___________________, whose address is _____________________________ __________________________________________. If said number of Underlying Shares is less than all of the Underlying Shares purchasable hereunder, the undersigned requests that a new warrant certificate representing the right to purchase the balance of such Underlying Shares be registered in the name of _______________, whose address is ______________________________________________ and whose social security or other identifying number is ________________, and that such warrant certificate be delivered to ______________, whose address is ___________________ _____________________________________________. Date: [Warrant Holder] By: ___________________________________ Name: _________________________________ Title: ________________________________ D-1 EX-10.5 6 0006.txt EXHIBIT 10.5 Exhibit 10.5 REGISTRATION RIGHTS AGREEMENT by and between MICROSTRATEGY INCORPORATED and FOOTHILL CAPITAL CORPORATION Dated as of February 9, 2001 1 REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of February --------- 9, 2001, by and between MicroStrategy Incorporated, a Delaware corporation (the "Company"), and Foothill Capital Corporation, a California corporation (the ------- "Lender"). - ------- W I T N E S S E T H : ------------------- WHEREAS, simultaneously herewith, the Company and Lender have entered into a Loan and Security Agreement, dated as of the date hereof (the "Loan and -------- Security Agreement"). - ------------------ WHEREAS, in order to induce Lender to enter into the Loan and Security Agreement, the Company is issuing and delivering to Lender (the "Initial Holder") a warrant (the "Warrant") to purchase Class A Common Shares (the Class ------- A Common Shares issued or issuable upon exercise of the Warrant are hereinafter referred to as the "Warrant Shares"), and the Company has further agreed to -------------- provide certain registration rights in respect of the Registrable Securities (as defined below) on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual agreements contained herein and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Company hereby agrees with the Initial Holder as follows: 1. DEFINITIONS. As used in this Agreement, the following terms ----------- shall have the following meanings: "Affiliate" shall mean (i) with respect to any Person, any other --------- Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person, and (ii) with respect to any individual, shall also mean the spouse, sibling, child, step-child, grandchild, niece, nephew or parent of such Person, or the spouse thereof. "Common Shares" shall mean shares of Class A common stock, par value ------------- $0.001 per share, of the Company. "Company" shall have the meaning set forth in the preamble. ------- "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended from time to time, and the rules and regulations thereunder, or any successor statute. "Holder" shall mean the Initial Holder for so long as it is the ------ registered owner of any Registrable Securities and its heirs, successors and permitted assigns (including any permitted transferees of Registrable Securities) who acquire or are otherwise the transferee of Registrable Securities, directly or indirectly, from such Initial Holder (or any subsequent Holders), for so long as such heirs, successors and permitted assigns are the registered owner of any Registrable Securities. For purposes of this Agreement, a Person will be deemed to be a Holder whenever such Person holds an option to purchase, or a security convertible into or exercisable or exchangeable for, Registrable Securities, whether or not such purchase, conversion, exercise or exchange has actually been effected and disregarding any legal restrictions upon the exercise of such rights. Registrable Securities issuable upon exercise of an 2 option or upon conversion, exchange or exercise of another security shall be deemed outstanding for the purposes of this Agreement. "Holders' Counsel" shall mean one firm of counsel (per registration) ---------------- to the Holders of Registrable Securities participating in such registration, which counsel shall be selected by the Majority Holders of the Registration. "Initial Holder" shall mean the Lender. -------------- "Majority Holders" shall mean one or more Holders of Registrable ---------------- Securities who would hold a majority of the Registrable Securities then outstanding. "Majority Holders of the Registration" shall mean, with respect to a ------------------------------------ particular registration, one or more Holders of Registrable Securities who would hold a majority of the Registrable Securities to be included in such registration. "NASD" shall mean the National Association of Securities Dealers, Inc. ---- "Loan and Security Agreement" shall have the meaning set forth in the --------------------------- preamble. "Person" shall mean any individual, firm, partnership, corporation, ------ trust, joint venture, association, joint stock company, limited liability company, unincorporated organization or any other entity or organization, including a government or agency or political subdivision thereof, and shall include any successor (by merger or otherwise) of such entity. "Piggyback Registration" shall mean a registration required to be ---------------------- effected by the Company pursuant to Section 2.1. "Piggyback Registration Statement" shall mean a registration statement -------------------------------- of the Company, which covers the Registrable Securities requested to be included therein pursuant to the provisions of Section 2.1 and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference (or deemed to be incorporated by reference) therein. "Prospectus" shall mean the prospectus included in a Registration ---------- Statement (including, without limitation, any preliminary prospectus and any prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act) and any such Prospectus as amended or supplemented by any prospectus supplement, and all other amendments and supplements to such Prospectus, including post-effective amendments, and in each case including all material incorporated by reference (or deemed to be incorporated by reference) therein. "Registrable Securities" shall mean (i) any Warrant Shares issued upon ---------------------- exercise of the Warrant and (ii) any other securities of the Company (or any successor or assign of the Company, whether by merger, consolidation, sale of assets or otherwise) which may be issued with respect to, in exchange for, or in substitution of, Warrant Shares by reason of any dividend 3 or stock split, combination of shares, merger, consolidation, recapitalization, reclassification, reorganization, sale of assets or similar transaction. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (A) a registration statement with respect to the sale of such securities shall have been declared effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (B) such securities are sold pursuant to Rule 144 (or any similar provisions then in force) under the Securities Act, (C) such securities have been otherwise transferred, a new certificate or other evidence of ownership for them not bearing the legend restricting further transfer shall have been delivered by the Company and subsequent public distribution of them shall not require registration under the Securities Act, (D) such securities shall have ceased to be outstanding, or (E) such securities are sold or otherwise transferred to a Person which, by virtue of Section 6.6 of this Agreement, is not entitled to the rights provided by this Agreement. "Registration Expenses" shall mean any and all reasonable out of --------------------- pocket expenses incident to performance of or compliance with this Agreement by the Company and its subsidiaries, including, without limitation (i) all SEC, stock exchange, NASD and other registration, listing and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of any stock exchange (including fees and disbursements of counsel for the Company in connection with such compliance and the preparation of any required blue sky memorandum or legal investment survey), (iii) all printers' fees and costs incurred in printing, distributing, mailing and delivering any Registration Statement, any Prospectus and any other document relating to the performance of or compliance with this Agreement, (iv) the fees and disbursements of counsel for the Company, (v) the fees and disbursements of all independent public accountants retained by the Company (including the expenses of any audit and/or "cold comfort" letters) and the fees and expenses of other Persons, including experts, retained by the Company, (vi) the expenses incurred by the Company in connection with making road show presentations and holding meetings with potential investors to facilitate the distribution and sale of Registrable Securities, (vii) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, (viii) premiums and other costs of policies of insurance required by the underwriters against liabilities arising out of the public offering of the Registrable Securities being registered, and (ix) all internal expenses of the Company (including all salaries and expenses of officers and employees performing legal or accounting duties); provided, however, Registration Expenses -------- ------- shall not include discounts and commissions payable to underwriters, selling brokers, dealer managers or other similar Persons engaged in the distribution of any of the Registrable Securities; and provided further, that in any case where -------- ------- Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses of the Company, auditing fees, premiums or other expenses relating to liability insurance required by underwriters of the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event. "Registration Statement" shall mean any registration statement of the ---------------------- Company which covers any Registrable Securities and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference (or deemed to be incorporated by reference) therein. 4 "SEC" shall mean the Securities and Exchange Commission, or any --- successor agency having jurisdiction to enforce the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended -------------- from time to time, and the rules and regulations thereunder, or any successor statute. "Underwriters" shall mean the underwriters, if any, of the offering ------------ being registered under the Securities Act. "Underwritten Offering" shall mean a sale of securities of the Company --------------------- to an Underwriter or Underwriters for reoffering to the public. "Warrant Shares" shall mean the Common Shares or other securities -------------- issued or issuable upon the exercise of the Warrant. "Warrant" shall mean the warrant issued to the Initial Holder pursuant ------- to the Loan and Security Agreement, together with any additional warrants issued in accordance with the terms thereof. 2. REGISTRATION UNDER THE SECURITIES ACT. ------------------------------------- 2.1 Piggyback Registration. ---------------------- (a) Right to Include Registrable Securities. If the Company at any --------------------------------------- time or from time to time during the one year period commencing on the date of this Agreement (the "Piggyback Period") proposes to register any of its ---------------- securities under the Securities Act (other than in a registration on Form S-4 or S-8 or any successor form to such forms) whether or not pursuant to registration rights granted to other holders of its securities and whether or not for sale for its own account, the Company shall deliver prompt written notice (which notice shall be given at least 20 days prior to such proposed registration) to all Holders of Registrable Securities of its intention to undertake such registration, describing in reasonable detail the proposed registration and distribution and of such Holders' right to participate in such registration under this Section 2.1 as hereinafter provided. Subject to the other provisions of this paragraph (a) and Section 2.1(b), upon the written request of any Holder made within 15 days after the receipt of such written notice (which request shall specify the amount of Registrable Securities to be registered and the intended method of disposition thereof), the Company shall effect the registration under the Securities Act of all Registrable Securities requested by Holders to be so registered (a "Piggyback Registration"), to the extent required to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the Registration Statement which covers the securities which the Company proposes to register and shall cause such Registration Statement to become and remain effective with respect to such Registrable Securities in accordance with the registration procedures set forth in Section 4. If a Piggyback Registration involves an Underwritten Offering, immediately upon notification to the Company from the Underwriter of the price at which such securities are to be sold, the Company shall so advise each participating Holder. The Holders requesting inclusion in a Piggyback Registration may, at any time prior to the effective date of the Piggyback Registration Statement (and for any reason), 5 revoke such request by delivering written notice to the Company revoking such requested inclusion. If at any time after giving written notice of its intention to register any securities and prior to the effective date of the Piggyback Registration Statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder of Registrable Securities and, thereupon, (A) in the case of a determination not to register, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses incurred in connection therewith) and (B) in the case of a determination to delay such registration, the Company shall be permitted to delay the registration of such Registrable Securities for the same period as the delay in registering such other securities; provided, however, that if such delay shall -------- ------- extend beyond 120 days from the date the Company received a request to include Registrable Securities in such Piggyback Registration, then the Company shall again give all Holders the opportunity to participate therein and shall follow the notification procedures set forth in the preceding paragraph. No delay or a series of delays of a registration beyond the Piggyback Period shall prejudice the Holders' rights under this Section 2.1. Accordingly, Holders who requested inclusion in a Piggyback Registration delayed by the Company beyond the Piggyback Period may, at the election of such Holder, continue to include such Holder's Registrable Securities in such registration. There is no limitation on the number of such Piggyback Registrations pursuant to this Section 2.1 which the Company is obligated to effect during the Piggyback Period. (b) Priority in Piggyback Registration. If a Piggyback Registration ---------------------------------- involves an Underwritten Offering (on a firm commitment basis), and the sole or the lead managing Underwriter, as the case may be, of such Underwritten Offering shall advise the Company that, in its opinion, the amount of securities (including Registrable Securities) requested to be included in such registration exceeds the amount which can be sold in such offering without materially interfering with the successful marketing of the securities being offered, the Company shall deliver prompt notice to each holder of such determination by the sole or lead managing Underwriter and shall include in such registration, to the extent of the number which the Company is so advised may be included in such offering without such effect, (i) in the case of a registration initiated by the Company, (A) first, the securities that the Company proposes to register for its own account (but solely to the extent that the proceeds thereof shall not be used to purchase shares of common stock of the Company or other securities of the Company), (B) second, the Registrable Securities requested to be included in such registration by the Holders and any other Persons holding registration rights pari passu with rights of the Holders hereunder (not including Affiliates of the Company), allocated pro rata in proportion to the number of Registrable --- ---- Securities requested to be included in such registration by each of them, and (C) third, other securities of the Company to be registered on behalf of any other Person, and (ii) in the case of a registration initiated by a Person other than the Company, (A) first, the Registrable Securities requested to be included in such registration by any Persons initiating such registration requested to be included in such registration by any Persons initiating such registration, (B) second, the Registrable Securities requested to be included in such registration by the Holders and any other Persons holding registration rights pari passu with rights of the Holders hereunder (not including Affiliates of the Company), allocated pro rata in proportion to --- ---- 6 the number of securities requested to be included in such registration by each of them, and (C) third, the securities that the Company proposes to register for the account of it and its Affiliates, provided, however, that in the event the ----------------- Company will not, by virtue of this Section 2.1(b), include in any such registration all of the Registrable Securities of any Holder requested to be included in such registration, such Holder may, upon written notice to the Company given within three days of the time such Holder first is notified of such matter, reduce the amount of Registrable Securities it desires to have included in such registration, whereupon only the Registrable Securities, if any, it desires to have included will be so included and the Holders not so reducing shall be entitled to a corresponding pro rata increase in the amount of Registrable Securities to be included in such registration. (c) Limitations on Piggyback Registration. The Company shall not be ------------------------------------- required to effect any registration of Registrable Securities hereunder in connection with (i) the Company's registration of securities issuable in connection with the settlement or other resolution of the class action lawsuit filed in the United States District Court for the Eastern District of Virginia, captioned In re MicroStrategy Inc. Securities Litigation, Civ. No. 00-473-A and (ii) the exercise of certain registration rights held by the holders of the Company's Series A Convertible Preferred Stock (or any Common Shares issued with respect thereto). 2.2 Underwritten Offering. Notwithstanding anything herein to the --------------------- contrary, no Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (i) agrees to enter into an underwriting agreement in customary form with the Underwriter or Underwriters selected for the underwriting by the Company and (ii) accurately completes and executes in a timely manner all questionnaires, powers of attorney, indemnities, custody agreements, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 2.3 Expenses. The Company shall pay all Registration Expenses in -------- connection with any Piggyback Registration whether or not such registration shall become effective and whether or not all Registrable Securities originally requested to be included in such registration are withdrawn or otherwise ultimately not included in such registration. 2.4 Conversions; Exercises. Notwithstanding anything to the contrary ----------------------- herein, in order for any Registrable Securities that are issuable upon the exercise of conversion rights, options or warrants to be included in any registration pursuant to Section 2 hereof, the exercise of such conversion rights, options or warrants must be effected no later than immediately prior to the closing of any sales under the Registration Statement pursuant to which such Registrable Securities are to be sold. 2.5 "Stand-Off" Agreement. Each Holder, if requested by the Company, --------------------- shall not sell or otherwise transfer or dispose of any Registrable Securities for a period of 90 days following the effective date of any registration statement of the Company (other than a registration statement on Form S-8), provided, that the officers and directors of the Company also agree to such restrictions and, except to the extent, and only to the extent, that such Registrable Securities are covered by such registration statement. The Company may impose stop-transfer instructions with respect to any Registrable Securities subject to the foregoing restrictions until the end of such 90 day period. 7 2.6 Confidentiality of Notices. Any Holder receiving any notice from -------------------------- the Company regarding the Company's plans to file a registration statement shall treat such notice confidentially and shall not disclose such information to any person other than as necessary to exercise its rights under this Agreement except (i) as required by law or (ii) if such information is or becomes generally available to the public other than as a result of a disclosure by the a Holder. 3. [INTENTIONALLY OMITTED]. 4. REGISTRATION PROCEDURES. ----------------------- 4.1 Obligations of the Company. Whenever the Company is required to -------------------------- effect the registration of Registrable Securities under the Securities Act pursuant to Section 2 of this Agreement, the Company shall promptly: (a) prepare and file with the SEC the requisite Registration Statement to effect such registration, which Registration Statement shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith, and the Company shall use its commercially reasonable efforts to cause such Registration Statement to become effective (provided, that the Company may -------- discontinue any registration of its securities that are not Registrable Securities, and, under the circumstances specified in Section 2.1(a), its securities that are Registrable Securities); (b) prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary (i) to keep such Registration Statement effective, and (ii) to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Registration Statement, in each case until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller(s) thereof set forth in such Registration Statement; provided, that the Company shall not be required to keep any Registration Statement effective for a period exceeding 60 days; (c) furnish, without charge, to each selling Holder of such Registrable Securities, such reasonable number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits), and the Prospectus included in such Registration Statement (including each preliminary Prospectus) in conformity with the requirements of the Securities Act, and other documents, as such selling Holder and Underwriter may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such selling Holder (the Company hereby consenting to the use in accordance with applicable law of each such Registration Statement (or amendment or post-effective amendment thereto) and each such Prospectus (or preliminary prospectus or supplement thereto) by each such selling Holder of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by such Registration Statement or Prospectus); (d) prior to any public offering of Registrable Securities, use its commercially reasonable efforts to register or qualify all Registrable Securities and other securities covered by such Registration Statement under such other securities or blue sky laws of such U.S. jurisdictions as any selling Holder of Registrable Securities covered by such Registration 8 Statement may reasonably request to enable such selling Holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such selling Holder and to continue such registration or qualification in effect in each such jurisdiction for as long as such Registration Statement remains in effect (including through new filings or amendments or renewals), and do any and all other reasonable acts and things which may be necessary or advisable to enable any such selling Holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such selling Holder; (e) use its commercially reasonable efforts to obtain all other approvals, consents, exemptions or authorizations from such governmental agencies or authorities as may be necessary to enable the selling Holders of such Registrable Securities to consummate the disposition of such Registrable Securities; (f) notify Holders' Counsel and each Holder of Registrable Securities covered by such Registration Statement: (i) when the Registration Statement has been filed and when the same has become effective, (ii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation or threat of any proceedings for that purpose, (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose, (iv) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate or that there exists circumstances not yet disclosed to the public which make further sales under such Registration Statement inadvisable pending such disclosure and post- effective amendment; and, if the notification relates to an event described in any of clauses (ii) through (iv) of this Section 4.1(f) or in the event of the existence of any fact of which the Company becomes aware or the happening of any event which results in (A) the Registration Statement containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statements therein not misleading, or (B) the Prospectus included in such Registration Statement containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statements therein, in the light of the circumstances under which they were made, not misleading, the Company shall promptly prepare a supplement or post-effective amendment to such Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that (1) such Registration Statement shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (2) as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in the light of the circumstances under which they were made not misleading (and shall furnish to each such Holder a reasonable number of copies of such Prospectus so supplemented or amended); and if the notification relates to an event described in clause (ii) of this Section 4.1(f), the Company shall use all commercially reasonable efforts to prevent the entry of such stop order or to remove it if entered; (i) provide a CUSIP number for all Registrable Securities and provide and cause to be maintained a transfer agent and registrar for all such Registrable Securities covered by such Registration Statement not later than the effectiveness of such Registration Statement; 9 (j) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC and any other governmental agency or authority having jurisdiction over the offering; (k) use its best efforts to cause all such Registrable Securities to be duly included for quotation on the Nasdaq Stock Market's National Market or listed on the principal national securities exchange on which the Company's similar securities are then listed, if applicable; (l) enter into and perform customary agreements (including, if applicable, an underwriting agreement in customary form) and provide officers' certificates and other customary closing documents; (m) cooperate with each selling Holder of Registrable Securities and each Underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD; (n) cooperate with the selling Holders of Registrable Securities and the sole or lead managing Underwriter, if any, to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing the Registrable Securities to be sold, and cause such Registrable Securities to be issued in such denominations and registered in such names in accordance with the underwriting agreement prior to any sale of Registrable Securities to the Underwriters or, if not an Underwritten Offering, in accordance with the instructions of the selling Holders of Registrable Securities which shall be given at least five business days prior to any sale of Registrable Securities; (o) if requested by any selling Holder of Registrable Securities, furnish to such Holder participating in the offering, without charge, at least one manually-signed copy of the Registration Statement and any post-effective amendments thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those deemed to be incorporated by reference); (p) if requested by any selling Holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such information concerning such Holder of Registrable Securities as the selling Holder of Registrable Securities reasonably requests to be included therein and as is appropriate in the reasonable judgment of the Company and its counsel; make all required filings of such Prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; and supplement or make amendments to any Registration Statement if requested by the sole or lead managing Underwriter of such Registrable Securities; and (q) use commercially reasonable efforts to take all other steps necessary to expedite or facilitate the registration and disposition of the Registrable Securities contemplated hereby. 4.2 Seller Information. The Company may require each selling Holder ------------------ of Registrable Securities as to which any registration is being effected to furnish to the Company 10 such information regarding such seller and the disposition of such securities as the Company may from time to time reasonably request in writing; provided, --------- however, that such information shall be used only in connection with such - ------- Registration. If any Registration Statement or comparable statement under "blue sky" laws refers to any Holder by name or otherwise as the Holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Holder and the Company, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, and (ii) in the event that such reference to such Holder by name or otherwise is not in the judgment of the Company, as advised by counsel, required by the Securities Act or any similar federal statute or any state "blue sky" or securities law then in force, the deletion of the reference to such Holder. 4.3 Notice to Discontinue. --------------------- (a) Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.1(f)(ii) through 4.1(f)(iv), such Holder shall forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 4.1(f) and, if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Registrable Securities which is current at the time of receipt of such notice. (b) In the event that, in the reasonable judgment of the Company, it is advisable to suspend use of a Prospectus included in a Registration Statement due to pending material developments or other events that have not been publicly disclosed and as to which the Company reasonably believes public disclosure would be detrimental to the Company, the Company shall notify all Holders of Registrable Securities covered by such Registration Statement to such effect, and, upon receipt of such notice, each such Holder shall forthwith discontinue disposition of Registrable Securities pursuant to such Registration Statement until such Holder has received copies of a supplemented or amended Prospectus or until such Holder is advised in writing by the Company that the then current Prospectus may be used and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. (c) If the Company shall give any notice provided for under Section 4.3(a) or 4.3(b), the Company shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement (including, without limitation, the period referred to in Section 4.1(b)) by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holder shall have received the copies of the supplemented or amended prospectus contemplated by and meeting the requirements of Section 4.1(f). 11 5. INDEMNIFICATION; CONTRIBUTION. ----------------------------- 5.1 Indemnification by the Company. The Company agrees to indemnify ------------------------------ and hold harmless, to the fullest extent permitted by law, each Holder of Registrable Securities, its officers, directors, partners, members, stockholders, employees, Affiliates, advisers, attorneys and agents (collectively, "Agents") and each Person who controls such Holder (within the meaning of the Securities Act) and its Agents with respect to each registration which has been effected pursuant to this Agreement, against any and all losses, claims, damages or liabilities, joint or several, actions or proceedings (whether commenced or threatened) in respect thereof, and expenses (as incurred or suffered and including, but not limited to, any and all expenses incurred in investigating, preparing or defending any litigation or proceeding, whether commenced or threatened, and the reasonable fees, disbursements and other charges of legal counsel) in respect thereof (collectively, "Claims"), insofar as such Claims arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (including any preliminary, final or summary prospectus and any amendment or supplement thereto) related to any such registration or any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, or any qualification or compliance incident thereto; provided, however, that the Company will not be -------- ------- liable in any such case to the extent that any such Claims arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact so made in reliance upon and in conformity with written information furnished to the Company by a Holder, Underwriter or other indemnified person hereunder expressly for use therein. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Person who may be entitled to indemnification pursuant to this Section 5 and shall survive the transfer of securities by such Holder. 5.2 Indemnification by Holders. Each Holder, if Registrable -------------------------- Securities held by it are included in the securities as to which a registration is being effected, agrees to, severally and not jointly, indemnify and hold harmless, to the fullest extent permitted by law, the Company, and its Agents, each other Person who participates as an Underwriter or selling stockholder in the offering or sale of such securities and its Agents and each Person who controls the Company and its Agents against any and all Claims, insofar as such Claims arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (including any preliminary, final or summary prospectus and any amendment or supplement thereto) related to any such registration, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for use therein; provided, however, that the aggregate amount which any such Holder shall be - -------- ------- required to pay pursuant to this Section 5.2 shall in no event be greater than the amount of the net proceeds received by such Holder upon the sale of the Registrable Securities pursuant to the Registration Statement giving rise to such Claims less all amounts previously paid by such Holder with respect to any such Claims. Such indemnity shall remain in full force and effect 12 regardless of any investigation made by or on behalf of any Person who may be entitled to indemnification pursuant to this Section 5 and shall survive the transfer of securities by such Holder. 5.3 Conduct of Indemnification Proceedings. Promptly after receipt -------------------------------------- by an indemnified party of notice of any Claim or the commencement of any action or proceeding involving a Claim under this Section 5, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 5, (i) notify the indemnifying party in writing of the Claim or the commencement of such action or proceeding; provided, that the -------- failure of any indemnified party to provide such notice shall not relieve the indemnifying party of its obligations under this Section 5, except to the extent the indemnifying party is materially and actually prejudiced thereby and shall not relieve the indemnifying party from any liability which it may have to any indemnified party otherwise than under this Section 5, and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any indemnified -------- ------- party shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (A) the indemnifying party has agreed in writing to pay such fees and expenses, (B) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such indemnified party within 20 days after receiving notice from such indemnified party that the indemnified party believes it has failed to do so, or (C) in the reasonable judgment of any such indemnified party, based upon advice of counsel, a conflict of interest shall exist between such indemnified party and the indemnifying party with respect to such claims; it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to no more than one firm of local counsel) at any time for all such indemnified parties. No indemnifying party shall be liable for any settlement of any such claim or action effected without its written consent, which consent shall not be unreasonably withheld. No indemnifying party shall, without the consent of the indemnified party, which consent shall not be unreasonably withheld, consent to entry of any judgment or enter into any settlement of any claim or action in respect of which indemnification or contribution may be sought hereunder, unless such settlement, (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim, (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party, and (3) does not provide for any action on the part of any party other than the payment of money damages which is to be paid in full by the indemnifying party. 5.4 Contribution. If the indemnification provided for in Section 5.1 ------------ or 5.2 from the indemnifying party for any reason is unavailable to (other than by reason of exceptions provided therein), or is insufficient to hold harmless an indemnified party hereunder in respect of any Claim, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Claim in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and the indemnified party, on the other hand, in connection with the actions which resulted in such Claim, as well as any other relevant equitable considerations. The relative fault of such 13 indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. If, however, the foregoing allocation is not permitted by applicable law, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative faults but also the relative benefits of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. 5.5. Other Indemnification. Indemnification similar to that --------------------- specified in the preceding Sections 5.1 and 5.2 (with appropriate modifications) shall be given by the Company and each selling Holder of Registrable Securities with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority, other than the Securities Act. The indemnity agreements contained herein shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract. 5.6 Indemnification Payments. The indemnification and contribution ------------------------ required by this Section 5 shall be made by periodic payments of the amount thereof during the course of any investigation or defense, as and when bills are received or any expense, loss, damage or liability is incurred. 6. GENERAL. ------- 6.1 Adjustments Affecting Registrable Securities. The Company agrees -------------------------------------------- that it shall not effect or permit to occur any combination or subdivision of shares which would adversely affect the ability of the Holder of any Registrable Securities to include such Registrable Securities in any registration contemplated by this Agreement. 6.2 Registration Rights to Others. Other than as set forth on ----------------------------- Schedule A attached hereto, the Company represents and warrants that it is not currently a party to any agreement with respect to its securities granting registration rights to Persons. Except for the registration rights set forth in Section 2.3(c), if the Company shall at any time hereafter provide to any holder of any securities of the Company rights with respect to the registration of such securities under the Securities Act (not including any such rights which have been previously granted), such rights shall not be more favorable than the rights provided in this Agreement to the Holders unless the Company shall provide (by way of amendment to this Agreement or otherwise) such more favorable terms or conditions to the Holders. 6.3 Availability of Information; Rule 144; Rule 144A; Other ------------------------------------------------------- Exemptions. The Company covenants that it shall timely file any reports required - ---------- to be filed by it under the Securities Act or the Exchange Act (including, but not limited to, the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 under the Securities Act), and that it shall take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell 14 Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 and Rule 144A under the Securities Act, as such rules may be amended from time to time, or (ii) any other rule or regulation now existing or hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. 6.4 Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified, supplemented or terminated, and waivers or consents to departures from the provisions hereof may not be given, without the written consent of the Company and the Majority Holders; provided, however, that no such amendment, -------- ------- modification, supplement, waiver or consent to departure shall reduce the aforesaid percentage of Registrable Securities without the written consent of all of the Holders of Registrable Securities; and provided further, that nothing -------- ------- herein shall prohibit any amendment, modification, supplement, termination, waiver or consent to departure the effect of which is limited only to those Holders who have agreed to such amendment, modification, supplement, termination, waiver or consent to departure. 6.5 Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand delivery, telecopier, any courier guaranteeing overnight delivery or first class registered or certified mail, return receipt requested, postage prepaid, addressed to the applicable party at the address set forth below or such other address as may hereafter be designated in writing by such party to the other parties in accordance with the provisions of this Section: If to the Company: MicroStrategy Incorporated 8000 Towers Crescent Drive Suite 1400 Vienna, Virginia 22182 Attn: General Counsel Fax No.(703) 847-4837 with copies to: Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Attn: Mitchel Appelbaum, Esq. Thomas S. Ward, Esq. Fax No.(617) 526-5000 if to Initial Holder: Foothill Capital Corporation 2450 Colorado Avenue Suite 3000 West Santa Monica, California 90404 Attn: Business Finance Division Manager Fax No.(310) 453-7413 15 with copies to: Brobeck, Phleger & Harrison LLP 550 South Hope Street Los Angeles, California 90071-2604 Attn: John F. Hilson, Esq. Fax No: (213) 745-3345 All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; when receipt is acknowledged, if telecopied; on the next business day, if timely delivered to a courier guaranteeing overnight delivery; and five days after being deposited in the mail, if sent first class or certified mail, return receipt requested, postage prepaid. 6.6 Successors and Assigns. This Agreement shall inure to the ---------------------- benefit of and be binding upon the parties hereto and their respective heirs, successors and permitted assigns (including any permitted transferee of the Warrant or Registrable Securities). Any Holder may assign to any permitted (as determined under the Warrant) transferee of its Warrant or Registrable Securities (other than a transferee that acquires such Registrable Securities in a registered public offering or pursuant to a sale under Rule 144 of the Securities Act (or any successor rule)), its rights and obligations under this Agreement; provided, however, if any permitted transferee shall take and hold -------- ------- Warrant or Registrable Securities, such transferee shall promptly notify the Company and by taking and holding such Registrable Securities such permitted transferee shall automatically be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement as if it were a party hereto (and shall, for all purposes, be deemed a Holder under this Agreement). If the Company shall so request any heir, successor or permitted assign (including any permitted transferee) wishing to avail itself of the benefits of this Agreement shall agree in writing to acquire and hold the Registrable Securities subject to all of the terms hereof. For purposes of this Agreement, "successor" for any entity other than a natural person shall mean a successor to such entity as a result of such entity's merger, consolidation, sale of substantially all of its assets, or similar transaction. Except as provided above or otherwise permitted by this Agreement, neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by any Holder or by the Company without the consent of the other parties hereto. 6.7 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which, when so executed and delivered, shall be deemed to be an original, but all of which counterparts, taken together, shall constitute one and the same instrument. 6.8 Descriptive Headings, Etc. The headings in this Agreement are -------------------------- for convenience of reference only and shall not limit or otherwise affect the meaning of terms contained herein. Unless the context of this Agreement otherwise requires: (1) words of any gender shall be deemed to include each other gender; (2) words using the singular or plural number shall also include the plural or singular number, respectively; (3) the words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and paragraph references are to the Sections and paragraphs of this Agreement unless otherwise 16 specified; (4) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless otherwise specified; (5) "or" is not exclusive; and (6) provisions apply to successive events and transactions. 6.9 Severability. In the event that any one or more of the ------------ provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the other remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 6.10 CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF ------------------------------------------ THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA. THE COMPANY AND THE INITIAL HOLDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON ----- --- CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN - ---------- ACCORDANCE WITH THIS SECTION 6.10. ------------ THE COMPANY AND THE INITIAL HOLDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. THE COMPANY AND THE INITIAL HOLDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 6.11 Remedies; Specific Performance. The parties hereto acknowledge ------------------------------ that money damages would not be an adequate remedy at law if any party fails to perform in any material respect any of its obligations hereunder, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to seek to compel specific performance of the obligations of any other party under this Agreement, without the posting of any bond, in accordance with the terms and conditions of this Agreement 17 in any court specified in Section 6.10 hereof, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. Except as otherwise provided by law, a delay or omission by a party hereto in exercising any right or remedy accruing upon any such breach shall not impair the right or remedy or constitute a waiver of or acquiescence in any such breach. No remedy shall be exclusive of any other remedy. All available remedies shall be cumulative. 6.12 Entire Agreement. This Agreement and the other document ---------------- delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 6.13 Further Assurances. Each party hereto 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 any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 6.14 Construction. The Company and the Initial Holder acknowledge ------------ that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by the Company and the Holders. 6.15 No Inconsistent Agreement. The Company will not hereafter enter ------------------------- into any agreement which is inconsistent with the rights granted to the Holders in this Agreement. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 18 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. THE COMPANY:. INITIAL HOLDER: MICROSTRATEGY INCORPORATED FOOTHILL CAPITAL CORPORATION By: /s/ Eric F. Brown By: /s/ Brian Duffy _____________________________________ _____________________ Name: Eric F. Brown Name: Brian Duffy _____________________________________ _____________________ Title: President and Chief Financial Officer Title: Senior Vice President _____________________________________ _____________________ [SIGNATURE PAGE TO THE REGISTRATION RIGHTS AGREEMENT] 19 TABLE OF CONTENTS -----------------
Page ---- 1. DEFINITIONS................................................................. 2 2. REGISTRATION UNDER THE SECURITIES ACT....................................... 5 2.1 Demand Registration................................................. 5 2.2 Incidental Registration............................................. 5 2.5 Expenses............................................................ 7 2.6 Conversions; Exercises.............................................. 7 3. HOLDBACK ARRANGEMENTS....................................................... 8 4. REGISTRATION PROCEDURES..................................................... 8 4.1 Obligations of the Company.......................................... 8 4.2 Seller Information.................................................. 11 4.3 Notice to Discontinue............................................... 11 5. INDEMNIFICATION; CONTRIBUTION............................................... 12 5.1 Indemnification by the Company...................................... 12 5.2 Indemnification by Holders.......................................... 13 5.3 Conduct of Indemnification Proceedings.............................. 13 5.4 Contribution........................................................ 14 5.5. Other Indemnification.............................................. 14 5.6 Indemnification Payments............................................ 14 6. GENERAL..................................................................... 15 6.1 Adjustments Affecting Registrable Securities........................ 15 6.2 Registration Rights to Others....................................... 15 6.3 Availability of Information; Rule 144; Rule 144A; Other Exemptions.. 15 6.4 Amendments and Waivers.............................................. 15 6.5 Notices............................................................. 15 6.6 Successors and Assigns.............................................. 16 6.7 Counterparts........................................................ 17 6.8 Descriptive Headings, Etc........................................... 17 6.9 Severability........................................................ 17 6.10 Choice of Law and Venue; Jury Trial Waiver......................... 17 6.11 Remedies; Specific Performance..................................... 18 6.12 Entire Agreement................................................... 18 6.13 Further Assurances................................................. 18 6.14 Construction....................................................... 19 6.15 No Inconsistent Agreement.......................................... 19
-----END PRIVACY-ENHANCED MESSAGE-----