As filed with the Securities and Exchange Commission on July 31, 2001
Registration Statement No. 333-64104
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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MICROSTRATEGY INCORPORATED
(Exact name of registrant as specified in its charter)
----------------
Delaware 51-0323571
(State or other (I.R.S. Employer Identification No.)
jurisdiction 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
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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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated July 31, 2001
PROSPECTUS
MICROSTRATEGY INCORPORATED
25,563,896 Shares of Class A Common Stock
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The shares of class A common stock described in this prospectus consist of
shares of class A common stock issued to the selling stockholders upon exchange
of their series A convertible preferred stock and shares of class A common
stock that are issuable upon conversion of shares of series B convertible
preferred stock, series C convertible preferred stock, series D convertible
preferred stock and series E convertible preferred stock issued to the selling
stockholders upon exchange of shares of series A convertible preferred stock
held by the selling stockholders and as dividends on series B convertible
preferred stock and series C convertible preferred stock in lieu of cash. These
shares of class A common stock, when issued to the selling stockholders, will
be offered by the selling stockholders named in this prospectus, which will
receive all of the proceeds from any sales. If all shares of series B
convertible preferred stock, series C convertible preferred stock, series D
convertible preferred stock and series E convertible preferred stock issued to
the selling stockholders in connection with the exchange of the series A
convertible preferred stock were converted into shares of class A common stock
and all dividends on the series B convertible preferred stock and series C
convertible preferred stock were paid in shares of class A common stock in lieu
of cash, assuming a dividend conversion price of $3.14 per share, which was the
closing sale price of the class A common stock on July 5, 2001, and assuming a
series E convertible preferred stock conversion price of $3.50 per share in
accordance with the terms of the redemption and exchange agreements relating to
the issuance of the series E convertible preferred stock, a total of 11,850 of
the shares of series A convertible preferred stock held by the selling
stockholders would have been exchanged for or converted into an aggregate of
22,139,727 shares of class A common stock, which includes 5,568,466 shares of
class A common stock issued upon exchange of shares of series A convertible
preferred stock.
The selling stockholders may sell the shares of common stock at various times
and in various types of transactions, including sales in the open market, sales
in negotiated transactions and sales by a combination of these methods. Shares
may be sold at the market price of the common stock at the time of a sale, at
prices relating to the market price over a period of time, or at prices
negotiated with the buyers of shares. More detailed information concerning the
distribution of the shares is contained in the section of this prospectus
entitled "Plan of Distribution" which begins on page 20.
The selling stockholders will pay all brokerage fees and commissions and
similar sale-related expenses. We are paying expenses relating to the
registration of the shares with the Securities and Exchange Commission. We have
also agreed to indemnify the selling stockholders against various liabilities.
We will not receive any of the proceeds from the sale of the shares.
The selling stockholders, or their pledgees, donees, transferees or other
successors in interest, may offer the shares through public or private
transactions at prevailing market prices, at prices related to prevailing
market prices or at privately negotiated prices. 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.
-----------
Investing in our class A common stock involves a high degree of risk. See
"Risk Factors" beginning on page 5.
-----------
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
Selling Stockholders...................................................... 17
Plan of Distribution...................................................... 20
Terms of the Series A Convertible Preferred Stock Refinancing and of the
Series B Convertible
Preferred Stock, Series C Convertible Preferred Stock, Series D
Convertible Preferred Stock and Series E Convertible Preferred Stock..... 23
Legal Matters............................................................. 28
Experts................................................................... 28
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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.ecom.
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,
2000, 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.
5
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.
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 products 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
6
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 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,
7
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
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 further 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 or upon
future conversions of or as dividends on the series B 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.
8
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.
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;
9
. 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
provide 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.
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.
10
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
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
11
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.
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.
12
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 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,
13
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 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.
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.
14
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.
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;
15
. 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
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
We will not receive any proceeds from the sale of the shares by the selling
stockholders.
We will bear all costs, fees and expenses (excluding any underwriting
discounts and commissions and expenses incurred by the selling stockholders
for brokerage, accounting, tax or legal services or any other expenses
incurred by the selling stockholders in disposing of the shares) 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.
SELLING STOCKHOLDERS
The shares of class A common stock being offered by the selling stockholders
include:
. shares of class A common stock issued to the selling stockholders upon
exchange of their series A convertible preferred stock;
. shares of class A common stock issuable upon conversion of the series B
convertible preferred stock, series C convertible preferred stock,
series D convertible preferred stock and series E convertible preferred
stock issued to the selling stockholders upon exchange of their series A
convertible preferred stock; and
. shares of class A common stock issuable as dividends on the series B
convertible preferred stock and the series C convertible preferred stock
in lieu of cash.
We are registering the shares of class A common stock in order to permit the
selling stockholders to offer these shares for resale from time to time.
Except for the ownership of class A common stock and our convertible preferred
stock, the selling stockholders have not had any material relationship with us
within the past three years.
The table below lists the selling stockholders and other information
regarding the beneficial ownership of the class A common stock by each of the
selling stockholders as of July 5, 2001. The second column lists, for each
selling stockholder, the number of shares of class A common stock held, plus
the number of shares of class A common stock, based on its ownership of series
A convertible preferred stock, series B convertible preferred stock, series C
convertible preferred stock and series D convertible preferred stock, issuable
to the selling stockholders upon conversion of the series A convertible
preferred stock, series B convertible preferred stock, series C convertible
preferred stock and series D convertible preferred stock, without regard to
any limitations on conversions or exercise. The number of shares issuable may
fluctuate from time to time, but the number of shares offered by this
prospectus may not exceed 25,563,896. The third column lists each selling
stockholder's portion of the 25,563,896 shares of class A common stock being
offered by this prospectus.
We determined the number of shares of class A common stock to be offered for
resale by this prospectus pursuant to agreements with the selling stockholders
and in order to adequately cover a reasonable increase in the number of shares
required. Our calculation of the number of shares to be offered for resale is
based on:
. an aggregate of 5,095,466 shares of class A common stock issued in
exchange for series A convertible preferred stock;
. the conversion price of $12.50 per share of series B convertible
preferred stock;
. the conversion price of $17.50 per share of series C convertible
preferred stock;
. an aggregate of 3,252,200 shares issuable upon conversion of shares of
series D convertible preferred stock; and
. an aggregate of 2,700,000 shares issuable upon conversion of shares of
series E convertible preferred stock, representing 150% of the shares
issuable upon conversion of the series E convertible preferred
17
stock at an assumed conversion price of $3.50, as set forth in the
redemption and exchange agreements relating to the issuance of the
series E convertible preferred stock.
In accordance with the terms of the registration rights agreements with the
holders of the preferred shares, this prospectus covers:
. the resale of 5,095,466 of the shares of class A common stock issued in
exchange for series A convertible preferred stock,
. the resale of 125% of the number of shares of class A common stock
issuable upon conversion of the series B convertible preferred stock,
determined as if the series B convertible preferred stock were converted
in full at the assumed conversion price of $12.50, plus 125% of the
number of shares of class A common stock issuable in lieu of cash
dividends payable on the series B convertible preferred stock;
. the resale of 125% of the number of shares of class A common stock
issuable upon conversion of the series C convertible preferred stock,
determined as if the series C convertible preferred stock were converted
in full at the assumed conversion price of $17.50, plus 125% of the
number of shares of class A common stock issuable in lieu of cash
dividends payable on the series C convertible preferred stock;
. the resale of the number of shares of class A common stock issuable upon
conversion of the series D convertible preferred stock; and
. the resale of 2,700,000 shares of class A common stock issuable upon
conversion of the series E convertible preferred stock, representing
150% of the shares issuable upon conversion of the series E convertible
preferred stock at an assumed conversion price of $3.50, as set forth in
the redemption and exchange agreements relating to the issuance of the
series E convertible preferred stock.
Because the number of shares of class A common stock may be adjusted upon
the occurrence of certain events and based on the market price of our class A
common stock, the number of shares that will actually be issued upon
conversion or in respect of dividends may be more than the 25,563,896 shares
being offered by this prospectus. The fourth and fifth columns assume the sale
of all of the shares offered by each selling stockholder.
Under the certificate of designation for the series A convertible preferred
stock, series B convertible preferred stock, series C convertible preferred
stock, series D convertible preferred stock and series E convertible preferred
stock, no selling stockholder may convert preferred shares to the extent such
conversion or exercise would cause such selling stockholder, together with its
affiliates, to 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 the preferred shares which have not been
converted. The number of shares in the second column does not reflect this
limitation. The selling stockholders may sell all, some or none of their
shares in this offering. See "Plan of Distribution."
Number of Shares Number of Shares
Percentage of
of Class A of Class A
Shares of Class A
Common Stock Number of Shares Common Stock
Owned Common Stock
Beneficially of Class A Common Beneficially
Beneficially Owned
Name of Selling Owned Prior to Stock Owned After
After Offering
Stockholder Offering(1)(2) Offered Hereby(3) Offering (1)(4)
(1)(4)(5)
--------------- ---------------- ----------------- ----------------
------------------
HFTP Investment
L.L.C.(6).............. 2,577,909 2,237,752 2,150,860
5.44%
Leonardo, L.P.(7)....... 3,189,125 9,996,904 0
0
Fisher Capital Ltd.(8).. 4,408,652 9,063,787 23,800
*
Wingate Capital
Ltd.(8)................ 2,074,801 4,265,453 11,200
*
--------
* Less than 1%.
18
(1) Except as otherwise indicated, the number of shares beneficially owned is
determined under rules promulgated by the SEC, and the information is not
necessarily indicative of beneficial ownership for any other purpose.
Each selling stockholder has sole voting power and investment power with
respect to all shares listed as owned by that selling stockholder. No
selling stockholder owns any shares of the class B common stock of
MicroStrategy.
(2) Includes 5,095,466 shares of our class A common stock issued to the
selling stockholders in exchange for shares of series A convertible
preferred stock held by the selling stockholders and shares of class A
common stock issuable to the selling stockholders (i) upon conversion of
the series A convertible preferred stock held by the selling
stockholders, (ii) upon conversion of the series B convertible preferred
stock, series C convertible preferred stock and series D convertible
preferred stock issued to the selling stockholders upon exchange of their
series A convertible preferred stock, and (iii) as dividends on such
series B convertible preferred stock and series C convertible preferred
stock in lieu of cash. Shares of our class A common stock issuable to the
selling stockholders upon conversion of the series E convertible
preferred stock are not included because such shares are not currently
convertible or convertible within 60 days. Under the certificates of
designations for the series A convertible preferred stock, series B
convertible preferred stock, series C convertible preferred stock, series
D convertible preferred stock and series E convertible preferred stock,
no selling stockholder may convert preferred shares to the extent such
conversion or exercise would cause such selling stockholder, together
with its affiliates, to 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
the preferred shares which have not been converted. The number of shares
in the second column does not reflect this limitation.
(3) Includes 5,095,466 shares of our class A common stock issued to the
selling stockholders upon exchange of series A convertible preferred
stock and 20,468,430 shares of class A common stock issuable to the
selling stockholders upon conversion of the series B convertible
preferred stock, series C convertible preferred stock, series D
convertible preferred stock and series E convertible preferred stock
issued to the selling stockholders upon exchange of their series A
convertible preferred stock; and as dividends on such series B
convertible preferred stock and series C convertible preferred stock in
lieu of cash. The actual number of shares of our class A common stock
offered hereby and included in the registration statement of which this
prospectus is a part includes, as provided by Rule 416 under the
Securities Act, such additional number of shares of common stock as may
be issued or issuable upon conversion of our series B convertible
preferred stock, series C convertible preferred stock, series D
convertible preferred stock and series E convertible preferred stock and
as dividends on the series B convertible preferred stock and series C
convertible preferred stock to prevent dilution resulting from any stock
split, stock dividend or similar transaction.
(4) We do not know when or in what amounts the selling stockholders will
offer shares for sale, if at all. The selling stockholders may sell any
or all of the shares offered by this prospectus. Because the selling
stockholders may offer all or some of the shares pursuant to this
offering, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the shares that will be
held by the selling stockholders after completion of the offering, we
cannot estimate the number of the shares that will be held by the selling
stockholders after completion of the offering. However, for purposes of
this table, we have assumed that, after completion of the offering, none
of the shares covered by this prospectus will be held by the selling
stockholders.
(5) Calculated based on 36,951,427 shares of class A common stock outstanding
as of July 5, 2001.
(6) Promethean Asset Management, LLC, a New York limited liability company,
serves as investment manager to HFTP Investment L.L.C. and may be deemed
to share beneficial ownership of the shares beneficially owned by HFTP by
reason of shared power to vote and to dispose of the shares beneficially
owned by HFTP. Promethean disclaims beneficial ownership of the shares
beneficially owned by HFTP. Mr. James F. O'Brien, Jr. indirectly controls
Promethean. Mr. O'Brien disclaims beneficial ownership of the shares
beneficially owned by Promethean and HFTP. HFTP is not a registered
broker-dealer. HFTP, however, is under common control with, and therefore
an affiliate of, a registered broker-dealer.
19
(7) Angelo, Gordon & Co., L.P. is a general partner of Leonardo, L.P. and
consequently has voting control and investment discretion over securities
held by Leonardo, L.P. Angelo Gordon disclaims beneficial ownership of
the shares held by Leonardo, L.P. Mr. John M. Angelo, the Chief Executive
Officer of Angelo Gordon, and Mr. Michael L. Gordon, the Chief Operating
Officer of Angelo Gordon, are the sole general partners of AG Partners,
L.P., the sole general partner of Angelo Gordon. As a result, Mr. Angelo
and Mr. Gordon may be considered beneficial owners of any shares deemed
to be beneficially owned by Angelo Gordon. Leonardo, L.P. is not a
registered broker-dealer. Leonardo, L.P., however, is under common
control with, and therefore an affiliate of, a registered broker-dealer.
(8) Citadel Limited Partnership is the trading manager of each of Fisher
Capital Ltd. and Wingate Capital Ltd. and consequently has voting control
and investment discretion over securities held by them. Kenneth C.
Griffin indirectly controls Citadel Limited Partnership. The ownership
information for Fisher Capital does not include ownership information for
Wingate Capital and the ownership information for Wingate Capital does
not include ownership information for Fisher Capital. Citadel Limited
Partnership, Kenneth C. Griffin and Wingate Capital each disclaim
ownership of the shares held by Fisher Capital. Citadel Limited
Partnership, Kenneth C. Griffin and Fisher Capital each disclaim
ownership of the shares held by Wingate Capital. Neither Fisher Capital
nor Wingate Capital is a registered broker-dealer. Each of Fisher Capital
and Wingate Capital, however, is under common control with, and therefore
an affiliate of, a registered broker-dealer.
Except for ownership of class A common stock and our convertible preferred
stock, no selling stockholder has had a material relationship with
MicroStrategy or any of its subsidiaries within the past three years.
PLAN OF DISTRIBUTION
We are registering shares of class A common stock:
. issued to the selling stockholders upon exchange of series A convertible
preferred stock held by the selling stockholders;
. issuable to the selling stockholders upon conversion of the series B
convertible preferred stock, series C convertible preferred stock,
series D convertible preferred stock and series E convertible preferred
stock issued to the selling stockholders in exchange for their series A
convertible preferred stock; and
. issuable to the selling stockholders as dividends on the series B
convertible preferred stock and series C convertible preferred stock in
lieu of cash,
to permit the resale of the shares of class A common stock by the selling
stockholders from time to time after the date of this prospectus. We will not
receive any of the proceeds from the sale by the selling stockholders of the
shares of class A common stock. We will bear all fees and expenses incident to
our obligation to register the shares of class A common stock. Each of the
selling stockholders purchased the series A convertible preferred stock, which
was exchanged for 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, in the ordinary course of its business
and at the time the selling stockholder purchased the series A convertible
preferred stock it was not a party to any agreement or other understanding,
directly or indirectly, to distribute the series A convertible preferred stock
or the underlying class A common stock.
The selling stockholders may sell all or a portion of the class A common
stock beneficially owned by them and offered hereby from time to time directly
through one or more underwriters, broker-dealers or agents. If the class A
common stock is sold through underwriters or broker-dealers, the selling
stockholder will be responsible for underwriting discounts or commissions or
agent's commissions. The class A common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated
prices. These sales may be effected in transactions, which may involve crosses
or block transactions,
. on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale,
20
. in the over-the-counter market,
. in transactions otherwise than on these exchanges or services or in the
over-the-counter market,
. through the writing of options, whether such options are listed on an
options exchange or otherwise, or
. through the settlement of short sales.
In connection with sales of the class A common stock or otherwise, the
selling stockholders may enter into hedging transactions with broker-dealers,
which may in turn engage in short sales of the class A common stock in the
course of hedging in positions they assume. The selling stockholders may also
sell shares of class A common stock short and deliver shares of class A common
stock covered by this prospectus to close out short positions, provided that
the short sale is made after the registration statement is declared effective
and a copy of this prospectus is delivered in connection with the short sale.
The selling stockholder may also loan or pledge shares of class A common stock
to broker-dealers that in turn may sell such shares. If the selling
stockholders effect such transactions by selling shares of class A common
stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of class A common stock for whom they may act as
agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved).
The selling stockholders may pledge or grant a security interest in some or
all of the shares of class A common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of class A common stock from time to
time pursuant to the prospectus.
The selling stockholders also may transfer and donate the shares of class A
common stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of the prospectus.
The selling stockholders and any broker-dealer participating in the
distribution of the shares of class A common stock may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
paid, or any discounts or concessions allowed to any such broker-dealer may be
deemed to be underwriting commissions or discounts under the Securities Act.
At the time a particular offering of the shares of class A common stock is
made, a prospectus supplement, if required, will be distributed which will set
forth the aggregate amount of shares of class A common stock being offered and
the terms of the offering, including the name or names of any broker-dealers
or agents, any discounts, commissions and other terms constituting
compensation from the selling stockholders and any discounts, commissions or
concessions allowed or reallowed or paid to broker-dealers. In addition, upon
our being notified by a named selling shareholder that a donee or a pledgee
intends to sell more than 500 shares, a supplement to this prospectus will be
filed.
Under the securities laws of some states, the shares of class A common stock
may be sold in such states only through registered or licensed brokers or
dealers. In addition, in some states the shares of class A common stock may
not be sold unless such shares have been registered or qualified for sale in
such state or an exemption from registration or qualification is available and
is complied with.
There can be no assurance that any selling stockholder will sell any or all
of the shares of class A common stock registered pursuant to the shelf
registration statement, of which this prospectus forms a part.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation,
Regulation M of the Exchange Act, which may limit the timing of purchases and
sales of any of the shares of class A common stock by the selling stockholders
and any other participating person. Regulation M may also restrict the ability
of any person engaged in the distribution of the shares of class A common
stock to engage in
21
market-making activities with respect to the shares of class A common stock.
All of the foregoing may affect the marketability of the shares of class A
common stock and the ability of any person or entity to engage in market-
making activities with respect to the shares of class A common stock.
We will pay all expenses of the registration of the shares of class A common
stock pursuant to the registration rights agreement estimated to be $140,000
in total, including, without limitation, SEC filing fees and expenses of
compliance with state securities or "blue sky" laws; provided, however, that
the selling stockholders will pay all underwriting discounts and selling
commissions, if any. We will indemnify the selling stockholders against
liabilities, including some liabilities under the Securities Act, in
accordance with the registration rights agreement or the selling stockholders
will be entitled to contribution. We will be indemnified by the selling
stockholders against civil liabilities, including liabilities under the
Securities Act that may arise from any written information furnished to us by
the selling stockholders for use in this prospectus, in accordance with the
related registration rights agreement or will be entitled to contribution.
Once sold under the shelf registration statement, of which this prospectus
forms a part, the shares of class A common stock will be freely tradable in
the hands of persons other than our affiliates.
22
TERMS OF THE SERIES A CONVERTIBLE PREFERRED STOCK REFINANCING AND OF
THE SERIES B CONVERTIBLE PREFERRED STOCK, SERIES C CONVERTIBLE
PREFERRED STOCK, SERIES D CONVERTIBLE PREFERRED STOCK AND SERIES E CONVERTIBLE
PREFERRED STOCK
On June 19, 2000, we issued 12,500 shares of series A convertible preferred
stock, $10,000 stated value per share, in a private placement to institutional
investors. The net proceeds of the offering, after expenses, were
approximately $119.5 million.
On June 14, 2001, we agreed with the holders of the series A convertible
preferred stock to a refinancing of 11,850 shares of series A convertible
preferred stock, leaving 650 shares of series A convertible preferred stock
outstanding. We redeemed or exchanged these 11,850 shares of series A
convertible preferred stock as follows:
. $12.5 million stated value of the series A convertible preferred stock,
or 1,250 shares, were redeemed for $12.5 million in cash;
. $38.75 million stated value of the series A convertible preferred stock,
or 3,875 shares, and accrued dividends on all series A convertible
preferred stock redeemed or exchanged were exchanged for 5,568,466
shares of class A common stock and $16.261 million stated value of
series D convertible preferred stock with a fixed conversion price of
$5.00 per share;
. $33.125 million stated value of the series A convertible preferred
stock, or 3,312.5 shares, were exchanged for an equivalent stated value
of series B convertible preferred stock with a conversion price of
$12.50 per share, subject to adjustment at maturity if we elect to
mandatorily convert these shares into class A common stock;
. $27.825 million stated value of the series A convertible preferred
stock, or 2,782.5 shares, were exchanged for an equivalent stated value
of series C convertible preferred stock, with a conversion price of
$17.50 per share, subject to adjustment at maturity if we elect to
mandatorily convert these shares into class A common stock; and
. $6.3 million stated value of the series A convertible preferred stock,
or 630 shares, were exchanged for an equivalent stated value of series E
convertible preferred stock, which is not currently convertible into
class A common stock, but will become convertible into class A common
stock on December 12, 2001 with a conversion price per share 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.
As part of the refinancing, we have the option to redeem for cash $1.2
million stated value of the outstanding series A convertible preferred stock,
or 120 shares, until December 11, 2001, if such shares have not been converted
into class A common stock. If we do not exercise our option to redeem such 120
shares, an aggregate of 650 shares of series A convertible preferred stock
will remain outstanding, assuming none of such shares are converted.
Dividends
The series B convertible preferred stock and series C convertible preferred
stock carry a dividend rate of 12.5% per annum, payable beginning on the
earlier of (a) October 1, 2001 and (b) the later of July 1, 2001 and the date
that this registration statement is declared effective by the SEC and
quarterly thereafter or upon conversion or redemption of the series B
convertible preferred stock or series C convertible preferred stock. The
series E convertible preferred stock carries a dividend rate of 12.5% per
annum until September 12, 2001, 15% per annum from September 13, 2001 until
December 11, 2001 and 17.5% per annum thereafter, accruing daily and payable
in cash on a quarterly basis. At the Company's option, the dividends on the
series B convertible preferred stock and series C convertible preferred stock
may be paid in cash or shares of class A common stock, subject to satisfaction
of certain conditions. If the Company chooses to pay dividends in shares of
class A
23
common stock, the number of shares to be issued will be equal to the accrued
dividends divided by the dividend conversion price.
For purposes of such calculation, the dividend conversion price will be
equal to 95% of the average of the dollar volume-weighted average prices of a
share of class A common stock during the five consecutive trading days
immediately preceding the dividend date.
For example, if the dividend date were July 5, 2001 and we elected to pay
the dividend on our series B convertible preferred stock or series C
convertible preferred stock in shares of our class A common stock, assuming
that 95% of the average of the dollar volume-weighted average prices of our
class A common stock during the five consecutive trading days ending on July
5, 2001 was $3.14 per share, we would have been required to issue 98 shares of
class A common stock per share of series B convertible preferred stock and
series C convertible preferred stock in lieu of a cash dividend, calculated as
follows, where N represents the number of days since the date of the last
dividend payment (assuming N is 90 days):
(0.125) (N/365) ($10,000) = 98
_________________________
$3.14
For example, assuming we paid all dividends on all shares of series B
convertible preferred stock and series C convertible preferred stock that may
be issued to the selling stockholders over the three-year term of the
securities and assuming the conversion rate of $3.14 indicated in the
illustration above remained constant, we would issue approximately 7,279,061
shares of class A common stock as dividends.
We will not have the right to pay dividends in shares of our class A common
stock if a triggering event, as described below, has occurred and is
continuing or if this registration statement is not effective and available on
the dividend date or 10 days prior to the dividend date. Triggering events
include the following:
. the failure of a registration statement covering the resale of the
shares of class A common stock underlying the series B convertible
preferred stock, series C convertible preferred stock, series D
convertible preferred stock and series E convertible preferred stock to
be declared effective by the SEC on or prior to 335 days after the
issuance date of the series B convertible preferred stock, series C
convertible preferred stock, series D convertible preferred stock and
series E convertible preferred stock;
. the suspension or delisting from trading of our class A common stock on
the Nasdaq National Market, the Nasdaq SmallCap Market or the New York
Stock Exchange for a period of five consecutive trading days or for more
than 10 trading days in any 365-day period;
. our notice to any holder of series B convertible preferred stock, series
C convertible preferred stock series D convertible preferred stock or
series E convertible preferred stock of our intent not to comply with a
request for conversion tendered in accordance with the terms of the
certificates of designations relating to the series B convertible
preferred stock, series C convertible preferred stock, series D
convertible preferred stock and series E convertible preferred stock;
. our failure to issue shares of class A common stock upon conversion
prior to the 10th business day after the required date of delivery;
. if our stockholders do not approve of the issuance of the class A common
stock upon conversion of series B convertible preferred stock, series C
convertible preferred stock, series D convertible preferred stock and
series E convertible preferred stock in connection with the refinancing
of the series A convertible preferred stock, our failure to issue shares
of class A common stock after a proper request from a selling
stockholder due to the limitation on the number of shares we may issue
to comply with Nasdaq Rule 4350; or
. our breach of any representation, warranty, covenant or other term or
condition of the documents governing the redemption and exchange of the
series A convertible preferred stock unless the breach would not have a
material adverse effect or is cured within 10 business days after it
occurs.
24
Maturity Date
The series B convertible preferred stock, series C convertible preferred
stock, series D convertible preferred stock and series E convertible preferred
stock mature on June 14, 2004, subject to extension in some circumstances. At
maturity, the series B convertible preferred stock and series C convertible
preferred stock must be redeemed or converted at our option. If we elect to
redeem any series B convertible preferred stock and series C convertible
preferred stock outstanding at the maturity date, the amount required to be
paid will be equal to $10,000 per share plus accrued and unpaid dividends. If
we elect to convert any series B convertible preferred stock and series C
convertible preferred stock outstanding at the maturity date, we will be
required to issue shares in an amount determined as described below under
"Conversion." At maturity, any series D convertible preferred stock
outstanding must be converted into shares of class A common stock at a fixed
conversion price of $5.00 per share and any series E convertible preferred
stock outstanding must be redeemed for $10,000 per share, plus accrued and
unpaid dividends.
Conversion
We may require the selling stockholders to convert their series B
convertible preferred stock and series C convertible preferred stock into
shares of our class A common stock at maturity, which date may be extended
under some circumstances. If we do not require the selling stockholders to
convert their series B convertible preferred stock or series C convertible
preferred stock, then we must redeem them. Prior to maturity, the selling
stockholders have the right to convert their series B convertible preferred
stock and series C convertible preferred stock into shares of our class A
common stock at any time and from time to time, subject to the limitations on
their percentage ownership of outstanding shares of our class A common stock
described below. The number of shares of class A common stock issuable on
conversion of a share of series B convertible preferred stock or a share of
series C convertible preferred stock is determined by dividing the sum of
$10,000 plus accrued and unpaid dividends by the applicable conversion price
as described below. If conversion occurs at the election of the holder of
series B convertible preferred stock or series C convertible preferred stock,
then the applicable conversion price will be the fixed conversion price of
$12.50 and $17.50 per share, respectively, subject to certain adjustments. If
we require conversion of the series B convertible preferred stock or series C
convertible preferred stock at the maturity date, pursuant to the terms of the
certificates of designation, the applicable conversion price will be the lower
of the fixed conversion price or 95% of the average of the dollar volume-
weighted average prices of the class A common stock during the 30 consecutive
trading days immediately prior to the date we require such conversion.
We are required to convert any shares of series D convertible preferred
stock outstanding at maturity. In addition, the selling stockholders have the
right to convert their series D convertible preferred stock into shares of
class A common stock at any time and from time to time, subject to certain
limitations on their percentage ownership of outstanding shares of class A
common stock. We are required to issue 2,000 shares of class A common stock
upon conversion of a share of series D convertible preferred stock.
The selling stockholders have the right to convert their series E
convertible preferred stock into shares of class A common stock at any time
beginning on December 12, 2001, based on 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 following table illustrates the number of shares of class A common stock
we would be required to issue upon conversion of all shares of series B
convertible preferred stock, series C convertible preferred stock and series E
convertible preferred stock issued in connection with the refinancing of the
series A convertible preferred stock at (1) the conversion prices of the
series B convertible preferred stock and series C convertible preferred stock
applicable prior to maturity and at an assumed conversion price of $3.14 per
share for the series E convertible preferred stock (the closing price of the
class A common stock on July 5, 2001) and (2) at the assumed conversion prices
of the series B convertible preferred stock and series C convertible preferred
stock at maturity and at the assumed conversion price of $3.14 per share for
the series E convertible preferred stock and
25
assuming increases of 25%, 50% and 75% in such assumed conversion prices and
assuming decreases of 25%, 50% and 75% in such assumed conversion prices, and
the resulting percentage of our total shares of class A common stock and class
B common stock outstanding after such conversion. The table also illustrates
the resulting percentage of our total shares of class A common stock
outstanding after our exchange of 3,875 shares of series A convertible
preferred stock for an aggregate of 5,568,466 shares of class A common stock
and 3,252,200 shares of class A common stock issuable upon conversion of the
series D convertible preferred stock.
Conversion Number of Shares Percentage of
Price Per of Class A Common Stock
Share of Class Common Stock after
Series of Preferred Stock A Common Stock Issuable(1) Conversion(2)
------------------------- -------------- ---------------- -------------
Conversion of Series B
Convertible Preferred Stock by
holders prior to maturity....... $12.50 2,650,000 2.93%
Conversion of Series B
Convertible Preferred Stock by
the Company at maturity(3)...... $5.50 (+75%) 6,028,207 6.42%
$4.71 (+50%) 7,032,909 7.41%
$3.93 (+25%) 8,439,490 8.76%
$3.14 (0%) 10,549,363 10.72%
$2.36 (-25%) 14,065,817 13.80%
$1.57 (-50%) 21,098,726 19.36%
$0.79 (-75%) 42,197,452 32.44%
Conversion of Series C
Convertible Preferred Stock by
holders prior to maturity....... $17.50 1,590,000 1.78%
Conversion of Series C
Convertible Preferred Stock by
the company at maturity(3)...... $5.50 (+75%) 5,063,694 5.45%
$4.71 (+50%) 5,907,643 6.30%
$3.93 (+25%) 7,089,172 7.46%
$3.14 (0%) 8,861,465 9.16%
$2.36 (-25%) 11,815,287 11.85%
$1.57 (-50%) 17,722,930 16.78%
$0.79 (-75%) 35,445,860 28.74%
Conversion of Series D
Convertible Preferred Stock..... $5.00 3,252,200 3.57%
Conversion of Series E
Convertible Preferred Stock(3).. $5.50 (+75%) 1,146,497 1.29%
$4.71 (+50%) 1,337,580 1.50%
$3.93 (+25%) 1,605,096 1.79%
$3.14 (0%) 2,006,369 2.23%
$2.36 (-25%) 2,675,159 2.95%
$1.57 (-50%) 4,012,739 4.37%
$0.79 (-75%) 8,025,478 8.37%
Class A Common Stock............. Not Applicable 5,568,466 5.96%
--------
(1) The number of shares of class A common stock issuable upon conversion as
set forth in the table above does not include any shares of class A
common stock that may be issuable as dividends on the series B
convertible preferred stock or the series C convertible preferred stock.
If we were to pay dividends on the series B convertible preferred stock
and series C convertible preferred stock over the three-year term thereof
in shares of class A common stock, assuming a constant dividend
conversion price of $3.14, which was the closing sale price of the class
A common stock on July 5, 2001, and assuming all shares of series B
convertible preferred stock and series C convertible preferred stock
remain outstanding for the entire three-year term, we would be required
to issue an additional 7,279,061 shares of class A common stock in
respect of such dividends.
26
(2) Calculated based on 36,951,427 shares of class A common stock and
50,941,421 shares of class B common stock (which is convertible into
class A common stock on a one for one basis) issued and outstanding as of
July 5, 2001. No holder may convert any series A convertible preferred
stock, series B convertible preferred stock, series C convertible
preferred stock, series D convertible preferred stock or series E
convertible preferred stock exceeding the number of shares which, upon
giving effect to such conversion, would cause the holder, together with
the holder's affiliates, to 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 any shares of class A common stock issuable upon conversion
of the preferred shares that have not been converted.
(3) Based upon an assumed conversion price of $3.14, which was the closing
sale price of the class A common stock on July 5, 2001.
The fixed conversion rate for the series B convertible preferred stock and
series C convertible preferred stock are subject to adjustment, according to a
weighted-average antidilution formula, in the event that we issue additional
shares of common stock or securities convertible into common stock, subject to
certain exceptions, at a dilutive purchase price.
Redemption
To the extent that we do not convert the series B convertible preferred
stock and series C convertible preferred stock outstanding at maturity, and do
not extend such date pursuant to the terms of the certificates of designation,
we must redeem such series B convertible preferred stock and series C
convertible preferred stock for cash equal to $10,000 per share plus accrued
dividends.
We can redeem the series E convertible preferred stock at any time through
December 11, 2001, for 105% of the stated value plus accrued and unpaid
dividends until October 27, 2001 and for 110% of the stated value plus accrued
and unpaid dividends from October 28, 2001 through December 11, 2001. In
addition, the holders may require us to redeem the series E convertible
preferred stock beginning on July 14, 2002 for 120% of the stated value plus
accrued and unpaid dividends and may require redemption of the series E
convertible preferred stock prior to that date upon specified financing
transactions or other events. We are required to redeem any series E
convertible preferred stock outstanding at maturity for $10,000 per share,
plus accrued dividends.
If a triggering event as described under the heading "Dividends" above
occurs, the holders of the series B convertible preferred stock, series C
convertible preferred stock, series D convertible preferred stock and series E
convertible preferred stock will have the right to require us to redeem all or
a portion of any outstanding preferred shares for cash. The redemption price
in such a case, with respect to each series of preferred stock, is the greater
of:
. 125% of the applicable stated value for the series B convertible
preferred stock plus accrued dividends in the case of series B
convertible preferred stock; or
125% of the applicable stated value for the series C convertible
preferred stock plus accrued dividends in the case of series C
convertible preferred stock; or
125% of the applicable stated value for the series E convertible
preferred stock plus accrued dividends in the case of the series E
convertible preferred stock; or
the stated value of the series D convertible preferred stock in the case
of the series D convertible preferred stock; or
. the product of the number of shares of class A common stock into which
the series B convertible preferred stock, series C convertible preferred
stock, series D convertible preferred stock and series E convertible
preferred stock are convertible multiplied by the closing sale price of
our class A common stock on the day immediately before the triggering
event occurs.
27
In the event of a merger, consolidation, a sale of all or substantially all
of our assets or related transaction, each holder of the series B convertible
preferred stock, series C convertible preferred stock and series E convertible
preferred stock at its option has the right to require us to redeem all or a
portion of such holder's preferred shares at a price equal to 125% of the
stated value for such shares plus accrued dividends.
Liquidation Preference
In the event of our liquidation, the holders of the series B convertible
preferred stock, series C convertible preferred stock, series D convertible
preferred stock and series E convertible preferred stock will be entitled to a
liquidation preference before any amounts are paid to the holders of our class
A common stock. The liquidation preference is equal to $10,000 per share, plus
accrued and unpaid dividends on any outstanding series B convertible preferred
stock, series C convertible preferred stock and series E convertible preferred
stock and $10,000 per share on any outstanding series D convertible preferred
stock.
Voting Rights
Other than as required by law, the holders of the series B convertible
preferred stock, series C convertible preferred stock, series D convertible
preferred stock and series E convertible preferred stock have no voting rights
except that the consent of holders of at least two-thirds of the outstanding
shares of the applicable series of preferred stock would be required to effect
any change in either our amended and restated certificate of incorporation or
certificates of designation that would change any of the rights of the
applicable series of preferred stock or to issue any other additional shares
of such series of preferred stock.
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.
28
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................ $ 18,054.50
Legal fees and expenses....................................... $100,000.00
Accounting fees and expenses.................................. $ 20,000.00
Miscellaneous expenses........................................ $ 1,945.50
-----------
Total Expenses.............................................. $140,000.00
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 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.
29
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
------- -----------
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 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
30
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.
31
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 McLean, Commonwealth of Virginia, on
July 31, 2001.
MicroStrategy Incorporated
/s/ Michael J. Saylor
By: _________________________________
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 July 31,
2001
______________________________________ Directors and Chief
Michael J. Saylor Executive Officer
(Principal Executive
Officer)
/s/ Eric F. Brown President and Chief July 31,
2001
______________________________________ Financial Officer
Eric F. Brown (Principal Financial and
Accounting Officer)
* Director July 31,
2001
______________________________________
Sanju K. Bansal
* Director July 31,
2001
______________________________________
F. David Fowler
Director
______________________________________
Jonathan J. Ledecky
* Director July 31,
2001
______________________________________
Frank A. Ingari
Signature Title Date
--------- ----- ----
* Director July 31,
2001
______________________________________
Stuart B. Ross
* Director July 31,
2001
______________________________________
John W. Sidgmore
* Director July 31,
2001
______________________________________
Ralph S. Terkowitz
/s/ Eric F. Brown
*By: _________________________________
Eric F. Brown
Attorney-in-fact
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
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).
Power of Attorney (see the signature page to this Registration
24.1+ Statement).
--------
+ previously filed