Item 1.01. Entry into a Material Definitive Agreement.
Credit and Security Agreement
On March 23, 2022 (the "Closing Date"), MacroStrategy LLC (the "Borrower" or
"MacroStrategy"), a wholly-owned subsidiary of MicroStrategy Incorporated (the
"Company" or "MicroStrategy"), entered into a Credit and Security Agreement (the
"Agreement") with Silvergate Bank (the "Lender") pursuant to which the Lender
issued a $205.0 million term loan (the "Loan") to the Borrower.
The net proceeds from the Loan were approximately $204.7 million after deducting
closing fees and expenses payable by MacroStrategy. Under the terms of the
Agreement, MacroStrategy will use the Loan proceeds (i) to purchase bitcoins,
(ii) to pay fees, interest, and expenses related to the Loan transaction, or
(iii) for MacroStrategy's or the Company's general corporate purposes.
The Loan matures on March 23, 2025, and bears interest at a floating rate equal
to the Secured Overnight Financing Rate 30 Day Average as published by the
Federal Reserve Bank of New York's website (0.099% as of the Closing Date) plus
3.70%, with a floor of 3.75%. The Borrower is required to pay interest on the
Loan monthly in arrears, with the full principal balance due at maturity. The
Loan may be prepaid at any time, subject to prepayment premiums of 0.50% and
0.25% of the Loan amount prepaid for prepayments during years one and two of the
Loan term, respectively.
In accordance with the terms of the Agreement, the Loan was collateralized at
closing by bitcoin with a value of approximately $820.0 million placed in a
collateral account with a custodian mutually authorized by the Lender and the
Borrower (the "Bitcoin Account"). While the Loan is outstanding, the Borrower is
required to maintain a Loan to collateral value ratio ("LTV Ratio") of 50% or
less, which would amount to at least $410.0 million worth of bitcoin being
required to be held in such account assuming the full $205.0 million of Loan
principal remains outstanding. If the price of bitcoin drops such that the LTV
Ratio exceeds 50%, the Borrower is required to either deposit additional bitcoin
in the Bitcoin Account or prepay a portion of the Loan such that the LTV Ratio
is reduced to 25% or less (or 35% or less, provided that in such case the
interest rate on the Loan will be increased by 25 basis points until such time
as the LTV Ratio is reduced to 25% or less). If at any time the LTV Ratio is
less than 25% as a result of excess collateral in the Bitcoin Account, the
Borrower is entitled to a return of such excess collateral so long as the LTV
Ratio would not exceed 25% after giving effect to such return. Separate and
apart from the requirements associated with the LTV Ratio, the Borrower
established a $5.0 million cash reserve account (the "Reserve Account") with the
Lender to serve as additional collateral for the Loan. The Borrower is required
to maintain at least $5.0 million in the Reserve Account until the last six
months of the Loan term, at which time funds in the Reserve Account may be used
to make interest payments on the Loan at the Borrower's request, with the amount
required to be held in the Reserve Account correspondingly reduced to the extent
such payments are made. The collateral for the Loan does not extend beyond
assets in the Bitcoin Account and the Reserve Account.
The Loan is not guaranteed by any party. The Agreement contains customary
affirmative and negative covenants for credit facilities of this type,
including, among others, limitations on the Borrower with respect to the sale of
collateral and the incurrence of liens on the collateral. The Agreement does not
restrict the Borrower from incurring additional debt, permits additional liens
so long as such liens are not on the assets serving as collateral for the Loan,
and permits the Borrower to sell assets so long as they are not serving as
collateral for the Loan. There are no restrictions in the Agreement on utilizing
bitcoin that is not in the Bitcoin Account. The Agreement has customary
change-of-control provisions, providing the Lender with a right to accelerate
the Loan in full in connection with a change of control of the Company,
including the sale of all or substantially all of the Company's or the
Borrower's assets. The Agreement also contains customary events of default with
customary grace periods, as applicable. Upon an event of default, the Lender has
the right to accelerate the Loan in full and liquidate the collateral to pay the
Loan.
The foregoing description of the Agreement and related matters is qualified in
its entirety by reference to the Agreement, which is filed as Exhibit 4.1 hereto
and incorporated herein by reference.
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Item 2.03. Creation of a Direct Financial Obligation or an Obligation Under an
Off-Balance Sheet Arrangement of a Registrant.
The information set forth in Item 1.01 of this Current Report on Form 8-K is
incorporated herein by reference.
Item 8.01. Other Events.
On March 29, 2022, MicroStrategy and the Lender issued a joint press release
announcing the closing of the Loan. A copy of the press release is filed as
Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by
reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit
No. Description
4.1†* Credit and Security Agreement, dated as of March 23, 2022, by and
among MacroStrategy LLC, as borrower, and Silvergate Bank, as lender.
99.1 Press Release, dated March 29, 2022, announcing the closing of the
Loan.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document)
† Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of
Regulation S-K.
* Certain portions of this exhibit have been omitted because they are not
material and are the type of information that the registrant treats as private
or confidential.
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