As filed with the Securities and Exchange Commission on July 31, 2001
Registration Statement No. 333-58136
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
AMENDMENT NO. 2
TO
FORM S-3
______________________
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
______________________
MICROSTRATEGY INCORPORATED
(Exact name of registrant as specified in its charter)
______________________
Delaware 51-0323571
(State or other jurisdiction (I.R.S. Employer
Identification No.)
of incorporation or organization)
1861 International Drive
McLean, Virginia 22102
(703) 848-8600
(Address, including zip code, and
telephone number, including area code,
of registrant's principal
executive offices)
______________________
Mr. Michael J. Saylor
Chief Executive Officer
MicroStrategy Incorporated
1861 International Drive
McLean, Virginia 22102
(703) 848-8600
Copy to:
Thomas S. Ward, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
(617) 526-6000
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] 333-_______.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] 333-__________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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The information in this prospectus is not complete and may be changed. We may
not sell these securities or accept an offer to buy these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
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Subject to completion, dated July 31, 2001
PROSPECTUS
MICROSTRATEGY INCORPORATED
1,900,000 SHARES OF CLASS A COMMON STOCK
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The shares of class A common stock described in this prospectus are
issuable upon exercise of warrants to be issued to class members pursuant to a
settlement agreement among us, some of our officers and directors and
plaintiffs' counsel, approved by the United States District Court for the
Eastern District of Virginia on April 2, 2001, relating to a consolidated class
action lawsuit filed against us, some of our officers and directors and our
independent accountants. We will sell the shares to the class members upon
exercise of the warrants at an exercise price of $40.00 per share. If all of the
warrants were exercised for cash, we would receive aggregate gross cash proceeds
of $76,000,000. However, holders of the warrants may not exercise some or all of
the warrants. In addition, the warrants may be exercised by the surrender of
notes issued by us to the class members pursuant to the settlement agreement as
payment of the exercise price, valued for this purpose at 133% of the principal
amount and all accrued and unpaid interest on the notes so surrendered.
Therefore, the amount of any cash proceeds that we may receive upon exercise of
the warrants is uncertain.
We have filed a registration statement for the resale of 25,563,896 shares
of class A common stock by various selling stockholders, which have been issued
in exchange for our series A convertible preferred stock or are issuable upon
conversion of or as dividends on our series B convertible preferred stock,
series C convertible preferred stock, series D convertible preferred stock and
series E convertible preferred stock. These 25,563,896 shares are not offered by
means of this prospectus. These shares may be sold by the selling stockholders
from time to time, including concurrently with the offering made pursuant to
this prospectus.
Our class A common stock is traded on the Nasdaq National Market under the
symbol "MSTR." On July 30, 2001, the closing sale price of our Class A common
stock on Nasdaq was $2.88 per share.
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Investing in our class A common stock involves a high degree of risk. See "Risk
Factors" beginning on page 5.
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The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities or determined whether this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is __________, 2001.
TABLE OF CONTENTS
Page
----
Where to Find More Information...................... 3
Incorporation of Certain Documents By Reference..... 3
Special Note Regarding Forward-Looking Information.. 4
Business............................................ 4
Risk Factors........................................ 5
Use of Proceeds..................................... 17
Plan of Distribution................................ 17
Legal Matters....................................... 17
Experts............................................. 17
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We have not authorized anyone to provide you with information different
from that contained or incorporated by reference in this prospectus. The
selling stockholder is offering to sell, and seeking offers to buy, shares of
our common stock only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of any
sale of the shares.
-2-
WHERE TO FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and other
documents with the Securities and Exchange Commission (the "SEC"). You may read
and copy any document we file at the SEC's public reference room at Judiciary
Plaza Building, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You
should call 1-800-SEC-0330 for more information on the public reference room.
Our SEC filings are also available to you on the SEC's Internet site at
http://www.sec.gov. Our common stock is quoted on Nasdaq. Reports, proxy
statements and other information concerning MicroStrategy may be inspected at
the offices of The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington,
D.C. 20006.
This prospectus is part of a registration statement that we filed with the
SEC. The registration statement contains more information than this prospectus
regarding MicroStrategy and the common stock, including certain exhibits and
schedules. You can obtain a copy of the registration statement from the SEC at
the address listed above or from its Internet site.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate" into this prospectus information we file
with the SEC in other documents. This means that we can disclose important
information to you by referring to other documents that contain that
information. The information incorporated by reference is considered to be part
of this prospectus, and information that we file with the SEC in the future and
incorporate by reference will automatically update and may supersede the
information contained in this prospectus. We incorporate by reference the
documents listed below and any future filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), prior to the sale of all the shares covered by
this prospectus.
The following documents that we have filed with the SEC are incorporated
herein by reference:
(1) Our Annual Report on Form 10-K for the year ended December 31,
2000, as amended;
(2) Our Current Report on Form 8-K filed February 7, 2001;
(3) Our Current Report on Form 8-K filed February 15, 2001;
(4) Our Current Report on Form 8-K filed March 9, 2001;
(5) Our Current Report on Form 8-K filed April 4, 2001;
(6) Our Current Report on Form 8-K filed May 2, 2001;
(7) Our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2001;
(8) Our Current Report on Form 8-K filed June 18, 2001;
(9) Our Current Report on Form 8-K filed June 20, 2001;
(10) Our definitive proxy statement on Schedule 14A, relating to our
2001 Annual Meeting of Stockholders, filed June 28, 2001;
(11) Our Current Report on Form 8-K filed July 6, 2001;
(12) All of our filings pursuant to the Exchange Act after the date of
filing the initial registration statement and prior to
effectiveness of the registration statement; and
(13) The description of our class A common stock contained in our
Registration Statement on Form 8-A, including any amendments or
reports filed for the purpose of updating such description.
You may request a copy of these documents, at no cost, by writing to:
MicroStrategy Incorporated
1861 International Drive
McLean, Virginia 22102
Attention: Investor Relations
Telephone: (703) 848-8600
-3-
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus contains or incorporates forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Exchange Act. You can identify these
forward-looking statements by our use of the words "believes," "anticipates,"
"plans," "expects," "may," "will," "intends," "estimates" and similar
expressions, whether in the negative or affirmative. Although we believe that
these forward-looking statements reasonably reflect our plans, intentions and
expectations, we cannot guarantee that we actually will achieve these plans,
intentions or expectations. Our actual results could differ materially from the
plans, intentions and expectations disclosed in the forward-looking statements
we make. We have included important factors in the cautionary statements below
(particularly under the heading "Risk Factors") that we believe could cause our
actual results to differ materially from the forward-looking statements that we
make. We do not intend to update information contained in any forward-looking
statement we make.
BUSINESS
We are a leading worldwide provider of business intelligence software and
related services that enable the transaction of one-to-one electronic business
through web, wireless and voice communication channels. Our product line enables
both proactive and interactive delivery of information from large-scale
databases. Our objective is to provide businesses with a software platform to
develop solutions that deliver insight and intelligence to their enterprises,
customers and supply-chain partners.
Our software platform enables users to query and analyze the most detailed,
transaction-level databases, turning data into business intelligence. In
addition to supporting internal enterprise users, the platform delivers critical
business information beyond corporate boundaries to customers, partners and
supply-chain constituencies through a broad range of communication channels such
as the Internet, e-mail, telephone and wireless communication devices. Our
platform is designed for developing business intelligence solutions that are
personalized and proactive and that reach millions of users. We offer a
comprehensive set of consulting, education and technical support services for
our customers and partners.
Our principal corporate offices are located in McLean, Virginia. We also
maintain domestic sales offices throughout the United States and international
sales offices throughout Europe, South America and the Asia-Pacific region.
International sales accounted for 24.9%, 24.0% and 26.1% of our total revenues
in 2000, 1999 and 1998, respectively. In April 2001, we implemented a corporate
restructuring which included a reduction in our worldwide workforce of
approximately one-third.
In July 1999, we launched a new business unit called Strategy.com.
Strategy.com delivers to subscribers highly personalized, timely information
services on a scheduled or event-driven basis through a wide variety of delivery
methods, including e-mail and wireless devices. As of June 20, 2001, syndicated
programming hosted by Strategy.com included Finance, News, Weather and Traffic
"channels." Strategy.com syndicates its channels through companies it refers to
as Strategy.com affiliates, such as Earthlink and Ameritrade. Strategy.com's
hosted messaging applications can be used by these affiliates to increase mind
share, facilitate transactions, and augment customer profile data warehouses
with information that the user has provided and given permission to use.
Strategy.com also provides application maintenance, development, hosting and
support services. MicroStrategy owns approximately 84% of the economic interest
in the outstanding equity of Strategy.com on an as converted, diluted basis. In
April and May 2001, Strategy.com adopted restructuring plans in which it has
reduced its workforce to approximately 40 employees and will explore
strategic alternatives for the Strategy.com business, including the potential
sale of its operations.
MicroStrategy's executive offices are located at 1861 International Drive,
McLean, Virginia 22102, its telephone number is (703) 848-8600 and its website
is located at http://www.microstrategy.com. MicroStrategy(R) is a registered
trademark of MicroStrategy.
-4-
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our class A common stock could decline and you
may lose all or part of your investment.
We have experienced losses in the past and expect future losses through at least
the end of 2001
We have not achieved profitability and have incurred significant operating
losses in each of the last five years. We incurred net losses since becoming a
public company of $20.6 million in the three months ended March 31, 2001 and
$261.3 million, $33.7 million and $2.3 million in the years ended December 31,
2001, 1999 and 1998, respectively. As of March 31, 2001, our accumulated deficit
was $319.8 million. We expect our gross revenue to decline for the year ended
December 31, 2000 as compared to the year ended December 31, 2001. In connection
with our April 2001 corporate restructuring and the additional Strategy.com
restructurings in April and May 2001, we expect to incur a restructuring charge
and related asset impairment charges in the second quarter of 2001 of
approximately $35-45 million.
We expect that we will not achieve sufficient revenue to become profitable
through at least the end of 2001. Even if we do achieve profitability, we cannot
assure you that we can sustain or increase profitability on a quarterly or
annual basis in the future. If revenue grows more slowly than we anticipate, or
if operating expenses exceed our expectations or cannot be adjusted accordingly,
our business, results of operations and financial condition will be materially
and adversely affected.
Our quarterly operating results, revenues and expenses may fluctuate
significantly, which could have an adverse effect on the market price of our
stock
For a number of reasons, including those described below, our operating
results, revenues and expenses may vary significantly from quarter to quarter.
These fluctuations could have an adverse effect on the market price of our class
A common stock.
Fluctuations in Quarterly Operating Results. Our quarterly operating results
may fluctuate as a result of:
. the size, timing and execution of significant orders and shipments;
. the mix of products and services of customer orders, which can affect whether
we recognize revenue upon the signing and delivery of our software products
or whether revenue must be recognized as work progresses or over the entire
contract period;
. the timing of new product announcements;
. changes in our pricing policies or those of our competitors;
. market acceptance of business intelligence software generally and of new and
enhanced versions of our products in particular;
. the length of our sales cycles;
. changes in our operating expenses;
. personnel changes;
. our success in adding to our indirect distribution channels;
. utilization of our consulting personnel, which can be affected by delays or
deferrals of customer implementation of our software products and consulting,
education and support services;
. changes in foreign currency exchange rates; and
. seasonal factors, such as our traditionally lower pace of new sales in the
summer.
Limited Ability to Adjust Expenses. We base our operating expense budgets on
expected revenue trends. Many of our expenses, particularly personnel costs and
rent, are relatively fixed. We may be unable to adjust spending quickly enough
to offset any unexpected revenue shortfall. Accordingly, any shortfall in
revenue may cause significant variation in operating results in any quarter.
Based on the above factors, we believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance. It
is possible that in one or more future quarters, our operating results may be
below the expectations of public market analysts and investors. In that event,
the trading price of our class A common stock may fall.
-5-
We may lose sales, or sales may be delayed, due to the long sales and
implementation cycles for our products, which would reduce our revenues.
To date, our customers have typically invested substantial time, money and
other resources and involved many people in the decision to license our software
products and purchase our consulting and other services. As a result, we may
wait nine months or more after the first contact with a customer for that
customer to place an order while they seek internal approval for the purchase of
our products and/or services. During this long sales cycle, events may occur
that affect the size or timing of the order or even cause it to be canceled. For
example, our competitors may introduce new products, or the customer's own
budget and purchasing priorities may change.
Even after an order is placed, the time it takes to deploy our products and
complete consulting engagements varies widely from one customer to the next.
Implementing our product can sometimes last several months, depending on the
customer's needs and may begin only with a pilot program. It may be difficult to
deploy our products if the customer has complicated deployment requirements,
which typically involve integrating databases, hardware and software from
different vendors. If a customer hires a third party to deploy our products, we
cannot be sure that our products will be deployed successfully.
Our employees, investors, customers, vendors and lenders may react adversely to
the revision of our 1999, 1998 and 1997 revenues and operating results
Our future success depends in large part on the support of our key
employees, investors, customers, vendors and lenders, who may react adversely to
the revision of our 1999, 1998 and 1997 revenues and operating results. The
revision of our 1999, 1998 and 1997 revenues and operating results has resulted
in substantial amounts of negative publicity about us and we believe that this
publicity has caused some of our potential customers to defer purchases of our
software or to do business with other vendors. We may not be able to retain key
employees and customers if they lose confidence in us, and our vendors and
lenders may reexamine their willingness to do business with us. In addition,
investors may lose confidence, which may cause the trading price of our Class A
common stock to decrease. If we lose the services of our key employees or are
unable to retain and attract our existing and new customers, vendors and
lenders, our business, operating results and financial condition could be
materially and adversely affected.
Our recognition of deferred revenue is subject to future performance obligations
and may not be representative of actual revenues for succeeding periods
Our deferred revenue was approximately $75.4 million as of March 31, 2001.
The timing and ultimate recognition of our deferred revenue depend on our
performance of various service obligations. Because of the possibility of
customer changes in development schedules, delays in implementation and
development efforts and the need to satisfactorily perform product support
services, deferred revenue at any particular date may not be representative of
actual revenue for any succeeding period.
We may need additional financing which could be difficult to obtain
We may require additional external financing through credit facilities, sale
of additional debt or equity securities in MicroStrategy or by obtaining other
financing facilities to support our operations, as we expect to incur operating
losses through at least the third quarter of 2001 and possibly longer. Obtaining
additional financing will be subject to a number of factors, including:
. market conditions;
. our operating performance; and
. investor sentiment.
These factors may make the timing, amount, terms and conditions of
additional financing unattractive to us. If we are unable to raise capital
needed to fund our operations, our business, operating results and financial
condition may be materially and adversely affected.
We face litigation that could have a material adverse effect on our business,
financial condition and results of
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operations
We and certain of our directors and executive officers are named as
defendants in a private securities class action lawsuit and a shareholder
derivative lawsuit relating to the restatement of our 1999, 1998 and 1997
financial results. Although we have entered into agreements to settle such
lawsuits and the securities class action settlement has received district court
approval, the shareholder derivative lawsuit is subject to court approval and
both settlements are subject to various closing conditions. If the agreed upon
settlements are not consummated, it is possible that we may be required to pay
substantial damages or settlement costs which could have a material adverse
effect on our financial condition or results of operation. Regardless of the
outcome of these matters, it is likely that we will incur substantial defense
costs and that these actions may cause a diversion of management time and
attention.
The issuance of class A common stock as part of the proposed settlement of class
action litigation and the exercise of warrants or conversion of notes issued as
part of the litigation settlement could result in a substantial number of
additional shares of class A common stock being issued
The agreements we entered into to settle the private securities class
action lawsuit and the derivative suit relating to the restatement of our 1999,
1998 and 1997 financial results require us to issue to members of the class
2,777,778 shares of class A common stock. At the time of that issuance, some of
our officers will tender to us for no consideration 1,683,502 shares of class A
common stock for cancellation, resulting in a net issuance of 1,094,276 shares
of class A common stock. In addition, the settlement agreements require the
issuance of warrants to purchase 1,900,000 shares of class A common stock and
five-year unsecured subordinated promissory notes having an aggregate principal
amount of $80.5 million. We would have the option at any time prior to the
expiration of the five-year term of the notes to convert the notes into a number
of shares of class A common stock equal to the principal amount of the notes
being converted divided by 80% of the dollar volume-weighted average trading
price of the class A common stock over a ten-day period preceding our delivery
of a notice of conversion, which could result in a substantial number of shares
of class A common stock being issued. For example, if the conversion price of
the notes were based on the dollar volume-weighted average trading price of the
Class A common stock during the 10 trading days ending July 5, 2001, we would be
obligated to issue 32,589,615 shares of class A common stock if we elected to
convert the notes. The issuance of a substantial number of shares of class A
common stock as part of the litigation settlement and future exercises or
conversions of securities issued in the litigation settlement may result in
substantial dilution to the interests of holders of class A common stock and may
result in downward pressure on the price of our class A common stock.
The conversion of the shares of our preferred stock could result in substantial
numbers of additional shares of class A common stock being issued if our market
price declines during periods in which the conversion price of the preferred
stock may adjust
On June 14, 2001, holders of our series A convertible preferred stock
exchanged 11,850 shares of series A convertible preferred stock for cash and
shares of our class A common stock, series B convertible preferred stock, series
C convertible preferred stock, series D convertible preferred stock and series E
convertible preferred stock. The series B convertible preferred stock, series C
convertible preferred stock and series D convertible preferred stock are
convertible into shares of our class A common stock at conversion prices
currently equal to $12.50, $17.50 and $5.00 per share, respectively. The series
E convertible preferred stock is convertible beginning on December 12, 2001 into
shares of our class A common stock at a conversion price equal to the average of
the dollar volume-weighted average prices of the class A common stock during the
ten consecutive trading days immediately preceding December 11, 2001. The
outstanding shares of series B convertible preferred stock, series C convertible
preferred stock and series D convertible preferred stock would currently convert
into 7,492,200 shares of class A common stock, plus a number of shares
reflecting accrued but unpaid dividends as of the conversion date. However, if
the holders of the series B convertible preferred stock and series C convertible
preferred stock do not convert their shares into shares of class A common stock
prior to their maturity three years from the date of issuance, and if we do not
redeem their outstanding shares of series B convertible preferred stock and
series C convertible preferred stock at maturity, the conversion price for such
shares will be reset to a price equal to 95% of the dollar volume-weighted
average price of our class A common stock for the 30 trading days prior to the
maturity date. If the market price at maturity of our class A common stock is
less than the applicable conversion price, the number of shares of class A
common stock that we could be required to issue upon conversion of the series B
convertible preferred stock and series C convertible preferred stock would
increase. For instance, if the market price of our class A common stock on the
maturity date of our series B convertible preferred stock and series C
convertible preferred stock were $3.14, the closing sale price of our class A
common stock as of July 5, 2001, the holders of the series B convertible
preferred stock and series C convertible preferred stock did not elect to
convert any of their shares prior to the maturity date and we did not redeem
such shares on the maturity date, we would be required to issue a total of
19,410,828 shares of our class A common stock upon conversion of such shares at
maturity.
After the exchange of shares of our series A convertible preferred stock
for shares of our class A common stock, series B convertible preferred stock,
series C convertible preferred stock, series D convertible preferred stock and
-7-
series E convertible preferred stock as described above, 650 shares of our
series A convertible preferred stock remain outstanding. We have the right to
redeem 120 of such shares through December 11, 2001. As of July 5, 2001, shares
of series A convertible preferred stock are convertible into class A common
stock at a conversion price equal to $3.08313 per share. If any shares of series
A convertible preferred stock remain outstanding on June 19, 2002, the
conversion price may be adjusted based on the average of the dollar volume-
weighted average price of our class A common stock during the ten trading days
after that date and on each subsequent anniversary of that date, if such
adjustment would result in a lower conversion price. The conversion price of the
series A convertible preferred stock may also be adjusted upon the occurrence of
various events, including the failure to maintain the effectiveness of the
registration statement to which these shares relate and the issuance of certain
equity securities. As a result, the lower the price of our class A common stock
at these intervals, the greater the number of shares the holder will receive
upon conversion after any such adjustment.
If our series E convertible preferred stock remains outstanding on December
12, 2001 and the average dollar volume-weighted average price of our class A
common stock was low during the ten trading days immediately preceding December
11, 2001, the series E convertible preferred stock could become convertible into
a significant number of shares of class A common stock, which could decrease the
price of our class A common stock. In addition, to the extent the shares of our
preferred stock are converted or dividends on these shares are paid in shares of
class A common stock rather than cash, a significant number of shares of class A
common stock may be sold into the market, which could decrease the price of our
class A common stock and encourage short sales. Short sales could place further
downward pressure on the price of our class A common stock. In that case, we
could be required to issue an increasingly greater number of shares of our class
A common stock upon future conversions of the series A convertible preferred
stock and series C convertible preferred stock as a result of the annual and
other adjustments described above, sales of which could further depress the
price of our class A common stock.
The conversion of and the payment of dividends in shares of class A common
stock in lieu of cash on the preferred stock may result in substantial dilution
to the interests of other holders of our class A common stock. No selling
stockholder may convert its preferred stock if upon such conversion the selling
stockholder together with its affiliates would have acquired a number of shares
of class A common stock during the 60-day period ending on the date of
conversion which, when added to the number of shares of class A common stock
held at the beginning of such 60-day period, would exceed 9.99% of our then
outstanding class A common stock, excluding for purposes of such determination
shares of class A common stock issuable upon conversion of shares of preferred
stock which have not been converted. Nevertheless, a selling stockholder may
still sell a substantial number of shares in the market. By periodically selling
shares into the market, an individual selling stockholder could eventually sell
more than 9.99% of our outstanding class A common stock while never holding more
than 9.99% at any specific time.
We may be required to pay substantial penalties to the holders of the preferred
shares if specific events occur
In accordance with the terms of the agreements relating to the issuance of
our convertible preferred stock, we are required to pay substantial penalties to
a holder of preferred stock under specified circumstances, including, among
others:
. nonpayment of dividends on the series A convertible preferred stock, series B
convertible preferred stock, series C convertible preferred stock and series
E convertible preferred stock in a timely manner;
. failure to deliver shares of our class A common stock upon conversion of the
preferred shares after a proper request;
. nonpayment of the redemption price at maturity of any remaining series A
convertible preferred stock, series B convertible preferred stock, series C
convertible preferred stock and series E convertible preferred stock; or
. the unavailability of the registration statement relating to the shares of
class A common stock issuable upon conversion of and in lieu of cash
dividends on the preferred stock to cover the resale of such shares for more
than brief intervals.
These penalties are generally paid in the form of interest payments,
subject to any restrictions imposed by applicable law. In the third quarter of
2000, we incurred $578,000 in penalties as a result of a 14-day delay in the
filing of a registration statement registering the shares of class A common
stock issuable upon conversion of and in lieu of dividends on the series A
convertible preferred stock.
-8-
We are currently unable to borrow additional amounts under our master equipment
lease agreement
We signed a three-year master lease agreement to lease up to $40.0 million
of computer equipment in November 1999, of which we have leased approximately
$17.8 million as of March 31, 2001. Future drawdowns and interest rates under
the lease agreement are subject to our credit worthiness. Currently, we are not
able to draw down additional amounts under the lease agreement.
We face intense competition, which may lead to lower prices for our products,
reduced gross margins, loss of market share and reduced revenue
The markets for business intelligence software, customer relationship
management applications, portals and narrowcast messaging technologies are
intensely competitive and subject to rapidly changing technology. In addition,
many of our competitors in these markets are offering, or may soon offer,
products and services that may compete with MicroStrategy products and those of
Strategy.com.
MicroStrategy's most direct competitors provide:
. business intelligence software;
. online analytical processing, or OLAP, tools;
. query and reporting tools;
. web-based static reporting tools;
. information delivery and proactive reporting;
. analytical customer relationship management products;
. web traffic analysis applications; and
. marketing automation.
Each of these markets are discussed more fully below.
Business Intelligence Software. Makers of business intelligence software
provides business intelligence capabilities designed for integration,
customization and application development. Leading industry analysts classify
companies such as Microsoft, Oracle, Hyperion, SAP and SAS to be leading
providers of business intelligence software.
OLAP Tools. Companies that build software to perform OLAP provide offerings
competitive with the core MicroStrategy 7 platform. Whether web-based or
client-server, these tools give end users the ability to query underlying data
sources without having to hand code structured query language queries. Most
OLAP tools allow users to build their own calculations and specify report
layouts and other options. Additionally, OLAP tools provide users the ability
to navigate throughout the underlying data in an easy, graphical mode, often
referred to as drilling. Providers of OLAP tools include Cognos, Hyperion, Brio,
IBM, Seagate and Microsoft.
Query and Reporting Tools. Query and reporting tools allow large numbers of
end users to gain access to pre-defined reports for simple analysis. Often the
end users are able to specify some sort of run-time criteria that customizes the
result set for that particular person. Some limited `drilling' is also
provided. Companies that produce query and reporting tools include Business
Objects, Cognos, Oracle, Seagate and Brio.
Web-based Static Reporting Tools. Companies that offer software to deliver
pre-built reports for end-user viewing and consumption can also compete with
MicroStrategy. These applications often lack the sophistication, robustness and
scalability of MicroStrategy, but can be attractive for small, departmental
applications. Vendors in this category include Actuate, Business Objects,
Seagate, Microsoft, Computer Associates and SAS.
Information Delivery and Proactive Reporting. Companies that focus on the
proactive delivery of information, via e-mail, website, or other medium can
compete with MicroStrategy's offerings. Typically these tools serve to push out
compiled reports on a scheduled basis to sets of users based on job type.
MicroStrategy software has this technology integrated into its core platforms.
Vendors of such technology include Actuate, nQuire, Information Builders and
Business Objects.
-9-
Analytical Customer Relationship Management Products. Companies that deliver
customer relationship management products alone or in conjunction with e-
commerce applications, such as Broadbase, BroadVision, E.piphany and Vignette,
compete with our analytical customer relationship management applications. In
contrast with providers of operational customer relationship management vendors,
such as Vantive and Oracle, analytical customer relationship management deals
more with customer segmentation, analysis and interaction as opposed to
infrastructure and call centers.
Web Traffic Analysis Applications. Reporting and analysis tools can be
specialized to analyze visitors to a company's website. Typically this involves
extracting data from a web-log file and importing it into a usable format, often
in a relational database. A set of analysis, sometimes customer-centric in
nature, is performed, and limited ad-hoc reporting is permitted. Advanced
applications in this space merge data from the web-logs with other customer
centric attributes to help provide a complete view of the customer base. Vendors
in this space include Accrue, Net.Genesis and WebTrends.
Marketing Automation. Applications focused on the automation and execution
of marketing tasks, such as campaign management and delivery, compete with our
customer relationship management products and our Narrowcast Server
platform. Leading vendors in this space include E.piphany, Xchange, Chordiant
and Broadbase.
Strategy.com's most direct competitors provide:
. web portal and information networks;
. vertical internet portals and information networks; and
. wireless communications and wireless access protocol enabled products.
Each of these market segments are discussed more fully below.
Web Portals and Information Networks. Web portals and information networks,
such as Microsoft Network, Yahoo, Lycos, Excite, America Online and
InfoSpace.com, offer an array of information that is similar to information
provided by Strategy.com.
Vertical Internet Portals and Information Networks. Expedia, Weather.com,
CNBC.com, ABC.com, ESPN.com, Microsoft Investor, StockBoss, Microsoft CarPoint,
InfoBeat, Internet Travel Network and others have developed custom applications
and products to commercialize, analyze and deliver specific information over the
Internet. These systems are usually tailored to one application, such as
providing news, sports or weather, but in the aggregate, they offer applications
similar to those provided by Strategy.com. Any one of these companies could
expand their offerings to more closely compete with Strategy.com.
Wireless Communications and Wireless Access Protocol Enabled Products.
Wireless communications providers, such as AT&T, Sprint, MCI WorldCom, Nextel
Communications, British Telecom, Deutsche Telekom, PageNet, Nokia, Ericsson,
3COM and Palm offer a variety of mobile phones and wireless devices over which
Strategy.com delivers information. These companies may develop in-house
information services or partner with other companies to deliver information that
is competitive to that offered by Strategy.com.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources, and greater name
recognition than we do. In addition, many of our competitors have strong
relationships with current and potential customers and extensive knowledge of
the business intelligence industry. As a result, they may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and sale
of their products than we can. Increased competition may lead to price cuts,
reduced gross margins and loss of market share. We cannot be sure that we will
be able to compete successfully against current and future competitors or that
the competitive pressures we face will not have a material adverse effect on our
business, operating results and financial condition.
Current and future competitors may also make strategic acquisitions or
establish cooperative relationships among themselves or with others. By doing
so, they may increase their ability to meet the needs of our potential
customers. Our current or prospective indirect channel partners may establish
cooperative relationships with our current or future competitors. These
relationships may limit our ability to sell our products through specific
-10-
distribution channels. Accordingly, new competitors or alliances among current
and future competitors may emerge and rapidly gain significant market share.
These developments could harm our ability to obtain maintenance revenues for new
and existing product licenses on favorable terms.
If we are unable to recruit or retain skilled personnel, or if we lose the
services of any of our key management personnel, our business, operating results
and financial condition would be materially adversely affected
Our future success depends on our continuing ability to attract, train,
assimilate and retain highly skilled personnel. Competition for these employees
is intense. We may not be able to retain our current key employees or attract,
train, assimilate or retain other highly skilled personnel in the future. In
April 2001, we implemented a corporate restructuring which included a reduction
in our worldwide workforce of approximately one-third. In April and May 2001,
Strategy.com adopted restructuring plans in which it has reduced its workforce
to approximately 40 employees. These reductions in force could adversely impact
our employee morale and our ability to attract and retain employees. Our future
success also depends in large part on the continued service of key management
personnel, particularly Michael J. Saylor, our Chairman and Chief Executive
Officer, and Sanju K. Bansal, our Vice Chairman, Executive Vice President and
Chief Operating Officer. If we lose the services of one or both of these
individuals or other key personnel, or if we are unable to attract, train,
assimilate and retain the highly skilled personnel we need, our business,
operating results and financial condition could be materially adversely
affected.
Our inability to develop and release product enhancements and new products to
respond to rapid technological change in a timely and cost-effective manner
would have a material adverse effect on our business, operating results and
financial condition
The market for our products is characterized by rapid technological change,
frequent new product introductions and enhancements, changing customer demands
and evolving industry standards. The introduction of products embodying new
technologies can quickly make existing products obsolete and unmarketable. We
believe that our future success depends largely on three factors:
. our ability to continue to support a number of popular operating systems and
databases;
. our ability to maintain and improve our current product line; and
. our ability to rapidly develop new products that achieve market acceptance,
maintain technological competitiveness and meet an expanding range of
customer requirements.
Business intelligence applications are inherently complex, and it can take a
long time to develop and test major new products and product enhancements. In
addition, customers may delay their purchasing decisions because they anticipate
that new or enhanced versions of our products will soon become available. We
cannot be sure that we will succeed in developing and marketing, on a timely and
cost-effective basis, product enhancements or new products that respond to
technological change, introductions of new competitive products or customer
requirements, nor can we be sure that our new products and product enhancements
will achieve market acceptance.
-11-
The emergence of new industry standards may adversely affect our ability to
market our existing products
The emergence of new industry standards in related fields may adversely
affect the demand for our existing products. This could happen, for example, if
new web standards and technologies emerged that were incompatible with customer
deployments of our MicroStrategy products. Although the core database
component of our business intelligence solutions is compatible with nearly all
enterprise server hardware and operating system combinations, such as OS/390,
AS/400, Unix and Windows, our application server component runs only on the
Windows NT operating system. Therefore, our ability to increase sales currently
depends on the continued acceptance of the Windows NT operating system. We
cannot market many of our current business intelligence products to
potential customers who use Unix operating systems as their application server.
We would have to invest substantial resources to develop a Unix product and we
cannot be sure that we could introduce such a product on a timely or cost-
effective basis, if at all.
The legal environment regarding collection and use of personal information is
uncertain and new laws or government regulations could have a material adverse
effect on our business, operating results and financial condition
Although some existing laws govern the collection and use of personal
information obtained through the Internet or other public data networks, it is
unclear whether they apply to our products and us. Most of these laws were
adopted before the widespread use and commercialization of the Internet and
other public data networks. As a result, the laws do not address the unique
issues presented by these media.
Due to increasing use of the Internet and the dramatically increased access
to personal information made possible by technologies like ours, the U.S.
federal and various state and foreign governments have recently proposed
limitations on the collection and use of personal information of users of the
Internet and other public data networks.
Although we attempt to obtain permission from users prior to collecting or
processing their personal data, new laws or regulations governing personal
privacy may change the ways in which we and our customers and affiliates may
gather this personal information. There may be significant costs and delays
involved with adapting our products to any change in regulations.
Our business, and in particular the Strategy.com network, depends upon our
receiving detailed personal information about subscribers in order to provide
them with the services they select. Privacy concerns may cause some potential
subscribers to forego subscribing to our service. If new laws or regulations
prohibit us from using information in the ways that we currently do or plan to
do, or if users opt out of making their personal preferences and information
available to us and Strategy.com affiliates, the utility of our products will
decrease, which could have a material adverse effect on our business, operating
results and financial condition. If our customers, our network or Strategy.com
affiliates misuse personal information, our legal liability may be increased and
our growth may be limited.
The Federal Trade Commission has recently launched investigations of the
data collection practices of various Internet companies. In addition, numerous
individuals and privacy groups have filed lawsuits or administrative complaints
against other companies asserting that they were harmed by the misuse of their
personal information. If comparable legal proceedings were commenced against us,
regardless of the merits of the claim, we could be required to spend significant
amounts on legal defense and our senior management's time and attention could be
diverted from our business. In addition, demand for our products could be
reduced if companies are not permitted to use clickstream data derived from
their websites. This could materially and adversely affect our business,
operating results and financial condition.
In Europe, the European Union Directive on Data Protection requires member
countries to implement legislation that prohibits any European entity from
sharing personal data collected from EU persons with entities in any country
that is not deemed to have adequate data protection laws. Currently, the United
States' data protection laws are not deemed to be adequate, and some data
transfers from European entities to us may be prohibited unless explicit consent
is obtained from EU data subjects, we agree to specified contractual privacy
safeguards that are approved by EU authorities, or we comply with the
requirements of the so-called Safe Harbor program between the United States and
the EU. It may not be feasible for us to obtain the required consent or to make
the necessary contractual commitments. Currently, we have not sought to be
certified under the Safe Harbor program, and our
-12-
data collection and handling practices may not qualify under this program.
Although enforcement of EU data protection laws against U.S. companies is
currently subject to a standstill, this standstill will be in effect until late
2001, and some countries, including France, are currently attempting to enforce
data protection laws with respect to data exports to the United States,
notwithstanding the existence of the standstill.
If the market for business intelligence software fails to grow as we expect, or
if businesses fail to adopt our products, our business, operating results and
financial condition would be materially adversely affected
Nearly all of our revenues to date have come from sales of business
intelligence software and related technical support, consulting and education
services. We expect these sales to account for a large portion of our revenues
for the foreseeable future. Although demand for business intelligence software
has grown in recent years, the market for business intelligence software
applications is still emerging. Resistance from consumer and privacy groups to
increased commercial collection and use of data on spending patterns and other
personal behavior may impair the further growth of this market, as may other
developments. We cannot be sure that this market will continue to grow or, even
if it does grow, that businesses will adopt our solutions. We have spent, and
intend to keep spending, considerable resources to educate potential customers
about business intelligence software in general and our solutions in particular.
However, we cannot be sure that these expenditures will help our products
achieve any additional market acceptance. If the market fails to grow or grows
more slowly than we currently expect, our business, operating results and
financial condition would be materially adversely affected.
Our relationship with Strategy.com could create the potential for conflicts of
interest
We hold an approximately 84% economic interest in the equity of
Strategy.com. Conflicts may arise between us and other investors in
Strategy.com, including: the allocation of business opportunities, the sharing
of rights, technologies, facilities, personnel and other resources, and the
fiduciary duties owed by officers, directors and other personnel who provide
services to both us and Strategy.com.
Strategy.com is expected to incur significant losses for the foreseeable future
and we are exploring strategic alternatives for this business
Strategy.com is expected to incur significant losses for the foreseeable future.
In April and May 2001, Strategy.com adopted restructuring plans in which it has
reduced its workforce to approximately 40 employees and will explore strategic
alternatives for the Strategy.com business, including the potential sale of the
Strategy.com business. It may not be possible to sell the Strategy.com business
on acceptable terms.
Because of the rights of our two classes of common stock, and because we are
controlled by our existing stockholders, these stockholders could transfer
control of MicroStrategy to a third party without anyone else's approval or
prevent a third party from acquiring MicroStrategy
We have two classes of common stock: class A common stock and class B common
stock. Holders of our class A common stock generally have the same rights as
holders of our class B common stock, except that holders of class A common stock
have one vote per share while holders of class B common stock have ten votes per
share. As of June 30, 2001, holders of our class B common stock owned or
controlled 50,940,101 shares of class B common stock, or 93.3% of the total
voting power. Michael J. Saylor, our Chairman and Chief Executive Officer,
controlled 2,470,155 shares of class A common stock and 39,431,587 shares of
class B common stock, or 72.6% of total voting power, as of June 30, 2001.
Accordingly, Mr. Saylor is able to control MicroStrategy through his ability to
determine the outcome of elections of our directors, amend our certificate of
incorporation and bylaws and take other actions requiring the vote or consent of
stockholders, including mergers, going private transactions and other
extraordinary transactions and their terms.
Our certificate of incorporation allows holders of class B common stock,
almost all of whom are current employees or former employees of our company or
related parties, to transfer shares of class B common stock, subject to the
approval of stockholders possessing a majority of the outstanding class B common
stock. Mr. Saylor or a group of stockholders possessing a majority of the
outstanding class B common stock could, without seeking anyone else's approval,
transfer voting control of MicroStrategy to a third party. Such a transfer of
control could have a material adverse effect on our business, operating results
and financial condition. Mr. Saylor will also be able to prevent a change of
control of MicroStrategy, regardless of whether holders of class A common stock
might otherwise receive a premium for their shares over the then current market
price.
-13-
We rely on our strategic channel partners and if we are unable to develop or
maintain successful relationships with them, our business, operating results and
financial condition will suffer
In addition to our direct sales force, we rely on strategic channel
partners, such as original equipment manufacturers, system integrators and
value-added resellers, to license and support our products in the United States
and internationally. In particular, for the three months ended March 31, 2001
and the years ended December 31, 2000, 1999 and 1998, channel partners accounted
for, directly or indirectly, approximately 34.0%, 44.4%, 39.2% and 33.6% of our
total product license revenues, respectively. Our channel partners generally
offer customers the products of several different companies, including some
products that compete with ours. Although we believe that direct sales will
continue to account for a majority of product license revenues, we intend to
increase the level of indirect sales activities through our strategic channel
partners. However, we may not be successful in our efforts to continue to expand
indirect sales in this manner. We may not be able to attract strategic partners
who will market our products effectively and who will be qualified to provide
timely and cost-effective customer support and service. Our ability to achieve
revenue growth in the future will depend in part on our success in developing
and maintaining successful relationships with those strategic partners. If we
are unable to develop or maintain our relationships with these strategic
partners, our business, operating results and financial condition will suffer.
Strategy.com affiliates will rely on Strategy.com to maintain the infrastructure
of the network and any problems with that infrastructure could expose
Strategy.com to liability from its Strategy.com affiliates and their customers
Strategy.com affiliates depend on Strategy.com to maintain the software and
hardware infrastructure of the Strategy.com network. If this infrastructure
fails or Strategy.com affiliates or their customers otherwise experience
difficulties or delays in accessing the network, Strategy.com could face
liability claims from them. Strategy.com expects to include contractual
provisions limiting its liability to its Strategy.com affiliates for system
failures and delays, but these limits may not be enforceable and may not be
sufficient to shield Strategy.com from liability. Strategy.com will seek to
obtain liability insurance to cover problems of this sort, but insurance may not
be available and the amounts of its coverage may not be sufficient to cover all
potential claims.
We have only limited protection for our proprietary rights in our software,
which makes it difficult to prevent third parties from infringing upon our
rights
We rely primarily on a combination of copyright, patent, trademark and trade
secret laws, customer licensing agreements, employee and third-party
nondisclosure agreements and other methods to protect our proprietary rights.
However, these laws and contractual provisions provide only limited protection.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology. Policing
such unauthorized use is difficult, and we cannot be certain that we can prevent
it, particularly in countries where the laws may not protect our proprietary
rights as fully as in the United States.
Our products may be susceptible to claims by other companies that our products
infringe upon their proprietary rights, which could adversely affect our
business, operating results and financial condition
As the number of software products in our target markets increases and the
functionality of these products further overlaps, we may become increasingly
subject to claims by a third party that our technology infringes such party's
proprietary rights. Regardless of their merit, any such claims could be time
consuming and expensive to defend, may divert management's attention and
resources, could cause product shipment delays and could require us to enter
into costly royalty or licensing agreements. If successful, a claim of
infringement against us and our inability to license the infringed or similar
technology could have a material adverse effect on our business, operating
results and financial condition.
-14-
Managing our international operations is complex and our failure to do so
successfully or in a cost-effective manner would have a material adverse effect
on our business, operating results and financial condition
International sales accounted for 32.7%, 24.9%, 24.0% and 26.1% of our total
revenues for the three months ended March 31, 2001 and the years ended December
31, 2000, 1999 and 1998, respectively. Our international operations require
significant management attention and financial resources.
There are certain risks inherent in our international business activities
including:
. changes in foreign currency exchange rates;
. unexpected changes in regulatory requirements;
. tariffs and other trade barriers;
. costs of localizing products for foreign countries;
. lack of acceptance of localized products in foreign countries;
. longer accounts receivable payment cycles;
. difficulties in managing international operations;
. tax issues, including restrictions on repatriating earnings;
. weaker intellectual property protection in other countries; and
. the burden of complying with a wide variety of foreign laws.
These factors may have a material adverse effect on our future
international sales and, consequently, our business, operating results and
financial condition.
The nature of our products makes them particularly vulnerable to undetected
errors, or bugs, which could cause problems with how the products perform and
which could in turn reduce demand for our products, reduce our revenue and lead
to product liability claims against us
-15-
Software products as complex as ours may contain errors or defects,
especially when first or subsequent versions are released. Although we test our
products extensively, we have in the past discovered software errors in new
products after their introduction. Despite testing by us and by our current and
potential customers, errors may be found in new products or releases after
commercial shipments begin. This could result in lost revenue or delays in
market acceptance, which could have a material adverse effect upon our business,
operating results and financial condition.
Our license agreements with customers typically contain provisions designed
to limit our exposure to product liability claims. It is possible, however, that
these provisions may not be effective under the laws of certain domestic or
international jurisdictions. Although there have been no product liability
claims against us to date, our license and support of products may involve the
risk of these claims. A successful product liability claim against us could have
a material adverse effect on our business, operating results and financial
condition.
The price of our stock may be extremely volatile
The market price for our class A common stock has historically been volatile
and could fluctuate significantly for any of the following reasons:
. quarter-to-quarter variations in our operating results;
. developments or disputes concerning proprietary rights;
. technological innovations or new products;
. governmental regulatory action;
. general conditions in the software industry;
. increased price competition;
. changes in revenue or earnings estimates by analysts;
. any change in the actual or expected amount of dilution attributable to
issuances of additional shares of class A common stock upon conversion of
our preferred stock or as a result of the litigation settlement; or
. other events or factors.
Many of the above factors are beyond our control.
The stock market has recently experienced extreme price and volume
fluctuations. These fluctuations have particularly affected the market price of
many software companies, often without regard to their operating performance.
-16-
USE OF PROCEEDS
If all of the warrants were exercised for cash, we would receive aggregate
gross cash proceeds from the sale of 1,900,000 shares of Class A Common Stock of
approximately $76,000,000. However, the warrants may be exercised by the
surrender of notes issued by us to the class members pursuant to the settlement
agreement as payment of the exercise price, valued for this purpose at 133% of
the principal amount and all accrued and unpaid interest on the notes so
surrendered. Therefore, the amount of any cash proceeds that we may receive upon
the exercise of the warrants is uncertain.
We intend to use the proceeds received upon any exercise of the warrants
for working capital and other general corporate proposals.
We will bear all costs, fees and expenses incurred in effecting the
registration of the shares covered by this prospectus, including, without
limitation, all registration and filing fees, Nasdaq listing fees, fees and
expenses of our counsel, fees and expenses of our accountants, and blue sky fees
and expenses.
PLAN OF DISTRIBUTION
We are registering the shares of class A common stock issuable upon exercise
of warrants to be issued to class members pursuant to a settlement agreement
among us, some of our officers and directors and plaintiffs' counsel, approved
by the United States District Court for the Eastern District of Virginia on
April 2, 2001, relating to a consolidated class action lawsuit filed against us,
some of our officers and directors and our independent accountants. We will
issue the shares directly to the holders of the warrants, upon exercise of such
warrants, from time to time after the date of this prospectus. The warrants
expire five years from the date of issue.
We will pay all expenses of the registration of the shares of class A common
stock pursuant to the settlement agreement, estimated to be $100,000 in total,
including, without limitation, SEC filing fees and expenses of compliance with
state securities or "blue sky" laws.
LEGAL MATTERS
The validity of the shares of class A common stock offered by this
prospectus has been passed upon by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The financial statements incorporated in this Registration Statement by
reference to the Annual Report on Form 10-K for the year ended December 31,
2000, as amended, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
-17-
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses to be incurred in
connection with the sale and distribution of the securities being registered
hereby, all of which will be borne by MicroStrategy Incorporated. All amounts
shown are estimates except the Securities and Exchange Commission registration
fee.
Filing Fee - Securities and Exchange Commission................... $ 19,000
Legal fees and expenses........................................... $ 50,000
Accounting fees and expenses...................................... $ 20,000
Miscellaneous expenses............................................ $ 11,000
--------
Total Expenses............................................... $100,000
--------
Item 15. Indemnification of Directors and Officers.
Section 102 of the Delaware General Corporation Law allows a corporation to
eliminate the personal liability of directors of a corporation to the
corporation or its stockholders for monetary damages for a breach of fiduciary
duty as a director, except where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or knowingly
violated a law, authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an improper
personal benefit. MicroStrategy has included such a provision in its
Certificate of Incorporation.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
MicroStrategy's certificate of incorporation provides that an officer or
director of MicroStrategy will not be personally liable to MicroStrategy or its
stockholders for monetary damages for any breach of his fiduciary duty as an
officer or director, except in certain cases where liability is mandated by the
Delaware General Corporation Law. The provision has no effect on any non-
monetary remedies that may be available to MicroStrategy or its stockholders,
nor does it relieve MicroStrategy or its officers or directors from compliance
with federal or state securities laws. MicroStrategy's certificate of
incorporation also generally provides that MicroStrategy shall indemnify, to the
fullest extent permitted by law, any person who was or is a party or is
threatened to be made a
II-1
party to any threatened, pending or completed action, suit, investigation,
administrative hearing or any other proceeding by reason of the fact that he is
or was a director or officer of MicroStrategy, or is or was serving at the
request of MicroStrategy as a director, officer, employee or agent of another
entity, against expenses incurred by him in connection with such proceeding. An
officer or director shall not be entitled to indemnification by MicroStrategy if
the officer or director did not act in good faith and in a manner reasonably
believed to be in, or not opposed to, the best interests of the MicroStrategy,
or with respect to any criminal action or proceeding, the officer or director
had reasonable cause to believe his conduct was unlawful.
MicroStrategy has purchased directors' and officers' liability insurance
which would indemnify its directors and officers against damages arising out of
certain kinds of claims which might be made against them based on their
negligent acts or omissions while acting in their capacity as such.
Item 16. Exhibits
Exhibit
Number Description
--------- ------------
3.1+ Form of Warrant.
5.1 Opinion of Hale and Dorr LLP.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1 filed
herewith).
24.1+ Power of Attorney (see the signature page to this Registration
Statement).
____________________
+ previously filed
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included is a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that are incorporated by reference in this
Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
II-2
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vienna, Commonwealth of Virginia, on
July 31, 2001.
MICROSTRATEGY INCORPORATED
By: /s/ Michael J. Saylor
-------------------------------
Michael J. Saylor
Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title
Date
--------- -----
----
/s/ Michael J. Saylor Chairman of the Board of Directors and
July 31, 2001
----------------------------
-----------------
Michael J. Saylor Chief Executive Officer
(Principal Executive Officer)
/s/ Eric F. Brown President and Chief Financial Officer
July 31, 2001
----------------------------
-----------------
Eric F. Brown (Principal Financial and Accounting
Officer)
*
---------------------------- Director
July 31, 2001
Sanju K. Bansal
-----------------
* Director
July 31, 2001
----------------------------
-----------------
F. David Fowler
II-4
---------------------------- Director
Jonathan J. Ledecky
------------------
* Director
July 31, 2001
---------------------------
------------------
Stuart B. Ross
*
____________________________ Director
July 31, 2001
John W. Sidgmore
------------------
*
____________________________ Director
July 31, 2001
Ralph S. Terkowitz
------------------
*By: /s/ Eric F. Brown
---------------------
Eric F. Brown
Attorney-in-fact
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EXHIBIT INDEX
Exhibit
Number Description
--------- ------------
3.1+ Form of Warrant.
5.1 Opinion of Hale and Dorr LLP.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1 filed
herewith).
24.1+ Power of Attorney (see the signature page to this Registration
Statement).
---------------
+ previously filed
II-6