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As filed with the Securities and Exchange Commission on August 3, 2000
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MICROSTRATEGY INCORPORATED
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 51-0323571
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
8000 Towers Crescent Drive
Vienna, Virginia 22182
(703) 848-8600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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MR. MICHAEL J. SAYLOR
President and Chief Executive Officer
MicroStrategy Incorporated
8000 Towers Crescent Drive
Vienna, Virginia 22182
(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. [_]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Maximum Proposed Maximum
Amount to be Offering Price Aggregate Amount of
Title of Shares to be Registered Registered(1) Per Share(2) Offering Price(2) Registration Fee
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<S> <C> <C> <C> <C>
Class A Common Stock,
$.001 par value per
share................ 5,412,975 $20.97 $113,510,059 $29,967
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</TABLE>
(1) Shares of Class A Common Stock that may be offered pursuant to this
registration statement consist of 5,412,975 shares of Class A Common Stock
issuable upon conversion of or as dividends on the Series A Convertible
Preferred Stock. For purposes of estimating the number of shares of Class
A Common Stock to be included in this registration statement, we included
(i) 4,680,190 shares, representing 125% of the number of shares of Class A
Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock, determined as if the Series A Convertible Preferred Stock
were converted in full at the conversion price of $33.3854 as of August 1,
2000, excluding accrued dividends; plus (ii) 732,785 shares, representing
125% of the number of shares of Class A Common Stock issuable in lieu of
cash dividends payable on the Series A Convertible Preferred Stock,
assuming a dividend conversion price of $23.88148; plus (iii) an
indeterminate number of shares that may be issued as the result of any
stock split, stock dividend, recapitalization, exchange or similar
transaction pursuant to Rule 416 of the Securities Act.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act and based upon the average of the
high and low prices on the Nasdaq National Market on August 1, 2000.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), shall determine.
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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 AUGUST 3, 2000
PROSPECTUS
MICROSTRATEGY INCORPORATED
5,412,975 Shares of Class A Common Stock
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The shares of class A common stock described in this prospectus are issuable
upon conversion of our series A convertible preferred stock that we sold to the
selling stockholders in a private placement. 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. We will not receive any of the proceeds from the sale of these
shares. If all of the shares of the series A convertible preferred stock held
by the selling stockholders were converted into shares of class A common stock
on August 1, 2000, these shares would have converted into 3,744,152 shares of
our class A common 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 23.
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 August 1,
2000, the closing sale price of the common stock on Nasdaq was $21.75 per
share.
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Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 8.
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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Page
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Where to Find More Information.......................................... 3
Incorporation of Certain Documents By Reference......................... 3
Special Note Regarding Forward-Looking Information...................... 4
Business................................................................ 5
Risk Factors............................................................ 8
Use of Proceeds......................................................... 21
Selling Stockholders.................................................... 21
Plan of Distribution.................................................... 23
Legal Matters........................................................... 28
Experts................................................................. 28
</TABLE>
We have not authorized anyone to provide you with information different from
that contained or incorporated by reference in this prospectus. The selling
stockholders are 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.
<PAGE>
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, 1999;
(2) Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2000;
(3) Our Current Report on Form 8-K dated March 20, 2000;
(4) Our Current Report on Form 8-K dated June 19, 2000;
(5) Our Current Report on Form 8-K dated August 3, 2000;
(6) 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
(7) 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
8000 Towers Crescent Drive
Vienna, VA 22128
Attention: Investor Relations
Telephone: (703) 848-8600
3
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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.
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BUSINESS
We are a leading worldwide provider of intelligent e-business software and
related services. Our product line enables both active and interactive delivery
of information from large-scale databases, providing large enterprises a
platform for developing solutions that deliver insight and intelligence to
their enterprise, supply-chain and customers.
Our 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, our platform delivers
critical business information beyond corporate boundaries to customers,
partners and suppliers through a broad range of two-way technology such as the
Internet, e- mail, telephones, pagers and other wireless communications
devices. Our platform is used in the development of e-business solutions that
are personalized and proactive, and that reach millions of users. We also offer
a comprehensive set of consulting, education and support services for our
customers and partners.
In July 1999, we launched a new business unit called Strategy.com.
Strategy.com is MicroStrategy's personal intelligence network, which actively
delivers highly personalized, relevant and timely information to individuals
through a wide variety of delivery methods, including e-mail, telephone and
wireless devices. The Strategy.com network leverages the MicroStrategy software
platform and is organized around a suite of information channels. Strategy.com
syndicates its channels through other companies that serve as network
affiliates and network associates, which we refer to collectively as network
affiliates. Strategy.com affiliates offer the Strategy.com channels and
services on a co- branded basis directly to their customers and in turn share
with Strategy.com a percentage of the revenues they generate. Strategy.com also
provides application maintenance, development, customer billing and support
services for these channels.
MicroStrategy's executive offices are located at 8000 Towers Crescent Drive,
Vienna, Virginia 22182, its telephone number is (703) 848-8600 and its Website
is located at http://www.microstrategy.com. MicroStrategy(R), DSS Agent(R) and
QuickStrike(R) are registered trademarks of MicroStrategy.
Recent Developments
Our operations and prospects have been and are significantly affected by the
recent developments described below.
Restatement of Financial Results
We have revised our 1999, 1998 and 1997 financial statements. The principal
reason for these revisions to revenues and operating results was to conform
with the accounting principles articulated in Statement of Position 97-2
"Software Revenue Recognition." These revisions primarily addressed the
recognition of revenue for certain software arrangements which should be
accounted for under the subscription method or the percentage of completion
method, which spread the recognition of revenue over the entire contract
period. For example, when fees are received in a transaction in which we are
licensing software and also performing significant development, customization
or consulting services, the fees should be recognized using the percentage of
completion method and, therefore, product license and product support and other
services revenue are recognized as work progresses. Revenue from arrangements
where we provide hosting services is generally recognized over the hosting
term, which is generally two to three years. The effect of these revisions is
to defer the time in which revenue is recognized for large, complex contracts
that combine both products and services. These revisions also resulted in a
substantial increase in the amount of deferred revenue reflected on our balance
sheets at the end of 1999 and 1998. Additionally, these revisions include the
effects of changes in the reporting periods when revenue from certain contracts
are recognized. In the course of reviewing our revenue recognition on various
transactions, we became aware that, in certain instances, we had recorded
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revenue on certain contracts in one reporting period where customer signature
and delivery had been completed, but where the contract may not have been fully
executed by us in that reporting period. We subsequently reviewed license
agreements executed near the end of the years 1999, 1998 and 1997 and
determined that revisions were necessary to ensure that all agreements for
which we were recognizing revenue in a reporting period were executed by both
parties no later than the end of the reporting period in which the revenue is
recognized.
With the concurrence of our auditors, we reduced our reported revenue for
1999 from $205.3 million to $151.3 million and our results of operations from
diluted net income per share of $0.15 to a diluted net loss per share of
$(0.44). Correspondingly, deferred revenue at December 31, 1999 increased from
$16.8 million to $71.3 million. We also reduced our reported revenue for 1998
from $106.4 million to $95.5 million and our results of operations from diluted
net income per share of $0.08 to diluted net loss per share of $(0.03). In
addition, we reduced our reported revenue for 1997 from $53.6 million to $52.6
million and our results of operations from diluted net income per share of
$0.00 to diluted net loss per share of $(0.02).
We also made revisions to our balance sheet as of December 31, 1999. These
revisions include a reclassification of approximately $21.5 million from
accounts receivable to short-term investments relating to the value of proceeds
from a software transaction that was received in the form of a right to receive
shares of the customer's common stock. We also recorded an increase to goodwill
of approximately $31.4 million, net of the increase in amortization, relating
to the purchase of the intellectual property and other tangible and intangible
assets, including the assembled workforce relating to NCR's Teracube project,
in exchange for 566,372 shares of our class A common stock. We made this
revision as a result of a re-measurement of the purchase price of the Teracube
assets to reflect the value of our class A common stock on the transaction's
closing date. In addition, we reduced fixed assets by approximately $8.8
million, net of the decrease in depreciation, in order to record software
received for resale and software acquired for internal use in barter
transactions at the book value of our assets surrendered in the exchange.
Approximately $5.0 million of the reduction in fixed assets is a reduction in
revenue, as restated. Of this amount, no revenue will be recorded unless this
software is resold.
Legal Proceedings
Actions Arising under Federal Securities Laws. From March through May 2000,
25 class action complaints were filed in federal courts in various
jurisdictions alleging that we and certain of our officers and directors
violated section 10(b) of the Exchange Act, Rule 10b-5 promulgated by the SEC
thereunder, and section 20(a) and section 20A of the Exchange Act. The
Company's outside auditor, PricewaterhouseCoopers LLP, was also named in two of
the suits. The complaints contained varying allegations, including that we made
materially false and misleading statements with respect to our 1999, 1998 and
1997 financial results in our filings with the SEC, analysts' reports, press
releases and media reports. In June 2000, these putative class action lawsuits
were consolidated before one judge in the Eastern District of Virginia. On July
7, 2000, the lead plaintiffs filed an amended class action complaint naming us,
certain of our officers and directors, and PricewaterhouseCoopers LLP as
defendants. The amended class action complaint alleges claims under section
10(b), section 20(a) and section 20A of the Exchange Act. The amended class
action complaint does not specify the amount of damages sought. On July 17,
2000, we filed a motion to dismiss all counts of the amended complaint. No
ruling has yet been made with respect to that motion. We intend to defend this
matter vigorously.
Delaware Derivative Litigation. In June 2000, purported holders of our
common stock filed a shareholder derivative lawsuit in the Delaware Court of
Chancery seeking recovery for various alleged breaches of fiduciary duties by
certain of our directors and officers relating to our restatement of financial
results. We have not answered or otherwise responded to the derivative
complaint.
SEC Investigation. In March 2000, we were notified that the SEC had issued a
formal order of private investigation in connection with matters relating to
our restatement of our financial results. The SEC has
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requested that we provide them with certain documents concerning the revision
of our financial results and financial reporting documents. The SEC indicated
that its inquiry should not be construed as an indication by the SEC or its
staff that any violation of law has occurred, nor as an adverse reflection upon
any person, entity or security. We are cooperating with the SEC in connection
with this investigation and its outcome cannot yet be determined.
7
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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.
Our quarterly operating results revenue 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 expanding our direct sales force and adding to our
indirect distribution channels;
. the pace and success of our international expansion;
. delays or deferrals of customer implementation;
. changes in foreign currency exchange rates; and
. seasonal factors such as a lower pace of new sales in the summer.
Limited Ability to Adjust Expenses. Because we plan to expand our business,
we expect our operating expenses to increase. In particular, during 2000 we
expect to increase the costs associated with marketing, developing and
operating our Strategy.com network and with expanding our technical support,
research and development and sales and marketing organizations. We also expect
to devote resources to expanding our indirect sales channels and international
operations. We base our operating expense budgets on expected revenue trends.
In the short term, we may not be able to reduce the actual operating expenses
associated with our expansion.
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.
8
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We have only recently introduced our Strategy.com network and it is uncertain
whether it will achieve widespread acceptance
We have commercially introduced the finance, news and weather channels of
our Strategy.com network. We plan on introducing sports and traffic channels as
part of our suite of information channels, but they are still in development.
While we expect to implement these channels on a commercial basis by the end of
2000, we may encounter delays or difficulties in this commercial introduction.
We expect that a portion of our future revenue will depend on fees from
subscribers for the use of the Strategy.com network service, from products and
services offered through this network, and from royalties from affiliates who
bundle our Strategy.com network with their own product and service offerings.
We have not, to date, generated any material revenue from our Strategy.com
network and may not be able to do so in the future. If this service, or the
products and services offered through it, fail to achieve widespread customer
acceptance, our business, operating results and financial condition may be
materially adversely affected. In addition, revenue from Strategy.com would be
adversely affected if our affiliates do not perceive that the integration of
our Strategy.com network with their product and service offerings will increase
demand for their products and services or will otherwise be able to generate a
sufficient return on their investment in the use of our network.
We intend to make significant expenditures in developing our Strategy.com
network, which will result in us incurring operating losses
We plan to substantially increase the amounts we will expend on our
Strategy.com network compared to the expenses we have incurred to date. We
intend to substantially increase our investment in Strategy.com over the next
twelve months to market, develop and operate Strategy.com. We therefore expect
operating losses to increase in 2000. We also intend to continue making
significant investments in Strategy.com after 2000 and therefore believe we
will continue to be unprofitable for the foreseeable future.
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. 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. 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
varies widely from one customer to the next. Implementing our product can
sometimes last several months, depending on the customer's needs and may begin
only with a pilot program. It may be difficult to deploy our products if the
customer has complicated deployment requirements, which typically involve
integrating databases, hardware and software from different vendors. If a
customer hires a third party to deploy our products, we cannot be sure that our
products will be deployed successfully.
Our employees, investors, customers, vendors and lenders may react adversely to
the revision of our 1999, 1998 and 1997 revenues and operating results
Our future success depends in large part on the support of our key
employees, investors, customers, vendors and lenders, who may react adversely
to the revision of our 1999, 1998 and 1997 revenues and operating results. The
revision of our 1999, 1998 and 1997 revenues and operating results has resulted
in substantial amounts of negative publicity about us. 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
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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 $70.6 million as of March 31, 2000. The timing and
ultimate recognition of our deferred revenue depends 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.
The conversion of the series A preferred shares could result in substantial
numbers of additional shares being issued if our market price declines during
periods in which the conversion price of the series A preferred shares may
adjust
As of August 1, 2000, the series A preferred shares are convertible at a
conversion price equal to $33.3854 per share. This conversion price may be
adjusted if the preferred stock remains outstanding on June 19, 2001 and on
each subsequent anniversary of such date, or upon the occurrence of various
events, including the failure to maintain the effectiveness of the registration
statement to which this prospectus relates, based on the market price of our
class A common stock if such adjustment would result in a lower conversion
price. 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. For example, the number of shares of
class A common stock that we would be required to issue upon conversion of all
12,500 series A preferred shares, excluding shares issued as accrued dividends,
would increase from approximately 3,744,152 shares, based on the applicable
conversion price of $33.3854 per share as of August 1, 2000, to approximately:
. 4,992,212 shares if the applicable conversion price decreased 25%;
. 7,488,303 shares if the applicable conversion price decreased 50%; or
. 14,976,516 shares if the applicable conversion price decreased 75%.
For additional information regarding the number of additional shares that may
be issued at various assumed conversion prices, see the table on page 22 under
"Plan of Distribution--Terms of the Series A Convertible Preferred Stock--
Conversion."
To the extent the series A preferred shares are converted or dividends on
the series A preferred 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 preferred shares as a result of the annual
and other adjustments described above, sales of which could further depress the
price of our class A common stock.
The conversion of and the payment of dividends in shares of class A common
stock in lieu of cash on the series A preferred shares may result in
substantial dilution to the interests of other holders of our class A common
stock. No selling stockholder may convert its series A preferred shares 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
series A preferred shares which have not been converted. Nevertheless, a
selling stockholder may still sell a substantial number of shares in the
market. By periodically selling shares
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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 series A
preferred shares if specific events occur.
In accordance with the terms of the agreements relating to the issuance of
the series A preferred shares, we are required to pay substantial penalties to
a holder of the series A preferred shares under specified circumstances,
including, among others:
. the nonpayment of dividends on the series A preferred shares in a timely
manner;
. our failure to deliver shares of our class A common stock upon conversion
of the series A preferred shares after a proper request;
. the nonpayment of the redemption price at maturity of the series A
preferred shares;
. failure to hold a meeting of our stockholders on or before July 31, 2001
to approve the issuance of the shares of class A common stock issuable
upon conversion of and in lieu of cash dividends on the series A
preferred stock; or
. a registration statement relating to the shares of class A common stock
issuable upon conversion of and in lieu of cash dividends on the series A
preferred shares has not been declared effective by the SEC on or before
December 15, 2000, or after being declared effective, is unavailable to
cover the resale of such shares for more than brief intervals.
Such penalties are generally paid in the form of interest payments, subject
to any restrictions imposed by applicable law, on the amount that a holder of
series A preferred shares was entitled to receive on the date of determination.
In addition, we incurred $577,500 in penalties as a result of a 14 day delay in
the filing of this registration statement of which this prospectus is a part.
We may need additional financing which could be difficult to obtain
We intend to grow our business rapidly, including investing substantial
amounts in our Strategy.com business and expect to incur operating losses for
the foreseeable future. Therefore, we may require significant external
financing in the future. 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 to
fund our growth, our business, financial condition and results of operations
would 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 some of our directors and executive officers are named as defendants
in a number of private securities litigation matters. Although we intend to
defend these actions vigorously, no assurance can be given as to the outcomes.
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. In addition, the SEC has issued a formal order of private
investigation in connection with matters relating to the restatement of our
financial results. The SEC has requested that we provide them with certain
documents concerning the revision of our financial results and financial
reporting documents. We are cooperating with the SEC in connection with this
investigation. Regardless of the outcome of any of these actions, it is likely
that we will incur substantial defense costs and that such actions will cause a
diversion of management time and attention.
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We expect that our ability to borrow money under our master equipment lease
agreement will require waivers by our lenders or amendments to that agreement
In November 1999, we signed a three-year master lease agreement to lease up
to $40.0 million of computer equipment, of which we have leased approximately
$17.8 million as of April 30, 2000. Future draw downs and interest rates under
the lease agreement are subject to our credit worthiness. As of July 31, 2000,
we are not able to draw down additional amounts under this 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 e-business, e-commerce, customer relationship management,
portals, business intelligence and Internet-based and wireless-based
information networks 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 our products and
our Strategy.com network.
Our most direct competitors provide:
. e-business infrastructure software;
. customer relationship management products;
. e-commerce transaction systems;
. business intelligence products;
. web portals and information networks;
. vertical Internet portals and information networks; and
. wireless communications and wireless access protocol enabled products.
Each of these market segments is discussed more fully below.
E-business Infrastructure Software. In the e-business infrastructure market,
BroadVision, E.piphany, Vignette, Net Perceptions, Broadbase, Art Technology
Group, Engage, Doubleclick and Personify all provide products that compete
directly or indirectly with our software platform. Many of these companies
provide alternatives to our technology for adding intelligence and
personalization to e-commerce applications. For example, customer information,
such as past purchases, clickstream data and stated preferences, can be used to
create a personalized e-commerce experience that targets customers with offers
and interactions to which they are more likely to respond.
Customer Relationship Management Products. Companies that deliver customer
relationship management products alone or in conjunction with e-commerce
applications, such as BroadVision, E.piphany, Vignette and Siebel, compete with
our intelligent e-business products.
E-Commerce Transaction Systems. Products that support e-commerce
transactions, such as those provided by Microsoft, IBM, America Online's
Netscape division, BroadVision, Open Market, InterWorld, and Oracle could
provide competition for us. These products have the potential to extend their
capabilities to use customer information as the basis for generating targeted,
personalized product offers, which would compete with our e-business products.
Business Intelligence Products. In the business intelligence market, we
compete with providers of software used to enable businesses to analyze and
optimize their operations. In the enterprise category, which is generally
focused on large deployments, Information Advantage, which was recently
acquired by Sterling Software, competes with us. In the desktop analysis and
reporting category, we face competition from companies such as Business
Objects, Cognos, and Brio Technology. A third category includes products from
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companies such as Oracle, Microsoft, and IBM that are generally bundled with or
designed to work with their own relational databases.
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, Aether Systems, 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 e-business 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 may not be able to compete successfully against
current and future competitors or the competitive pressures we face may have a
material adverse affect 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, it is possible that 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.
Our business has expanded, and our failure to manage this expansion
effectively, as well as the strain on our resources, could have a material
adverse effect on our business, operating results and financial condition
We have rapidly expanded. Our total number of employees has grown from 59 on
December 31, 1994 to 2,279 on June 30, 2000. We have placed significant demands
on our administrative, operational, financial and personnel resources and
expect to continue doing so. In particular, we expect the current and planned
growth of our international operations to lead to increased financial and
administrative demands. For example, expanded facilities will complicate
operations, managing relationships with new foreign partners will mean
additional administrative burdens, and managing foreign currency risks will
require expanded treasury functions. We may also need to expand our support
organization to develop our indirect distribution channels in new and expanded
markets and to accommodate growth in our installed customer base. Failure to
manage our expansion effectively could have a material adverse effect on our
business, operating results and financial condition.
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In addition, the development of our Strategy.com network could divert the
time and attention of our senior management from our other business. Michael J.
Saylor, our chairman, president and chief executive officer, currently is
responsible for the strategic planning and direction of both our MicroStrategy
software platform and Strategy.com network businesses. If Mr. Saylor does not
effectively manage his time and attention between our businesses, it could
materially adversely affect our business, operating results and financial
condition.
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. Our
future success also depends in large part on the continued service of key
management personnel, particularly Michael J. Saylor, our chairman, president
and chief executive officer, and Sanju K. Bansal, our executive vice president
and chief operating officer. If we lose the services of one or both of these
individuals or other key personnel, or if we are unable to attract, train,
assimilate and retain the highly skilled personnel we need, our business,
operating results and financial condition could be materially adversely
affected.
Our inability to develop and release product enhancements and new products to
respond to rapid technological change in a timely and cost-effective manner
would have a material adverse effect on our business, operating results and
financial condition
The market for our products is characterized by rapid technological change,
frequent new product introductions and enhancements, changing customer demands
and evolving industry standards. The introduction of products embodying new
technologies can quickly make existing products obsolete and unmarketable. We
believe that our future success depends largely on three factors:
. our ability to continue to support a number of popular operating systems
and databases;
. our ability to maintain and improve our current product line; and
. our ability to rapidly develop new products that achieve market
acceptance, maintain technological competitiveness and meet an expanding
range of customer requirements.
Business intelligence applications are inherently complex, and it can take a
long time to develop and test major new products and product enhancements. In
addition, customers may delay their purchasing decisions because they
anticipate that new or enhanced versions of our products will soon become
available. We cannot be sure that we will succeed in developing and marketing,
on a timely and cost-effective basis, product enhancements or new products that
respond to technological change, introductions of new competitive products or
customer requirements, nor can we be sure that our new products and product
enhancements will achieve market acceptance.
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 applications. 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 operating system. Therefore, our ability to increase sales currently
depends on the continued acceptance of the Windows operating system. We cannot
market our current business intelligence applications to potential customers
who use Unix operating systems as their application server. We would have
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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 us and our products. Most of these laws were
adopted before the widespread use and commercialization of the Internet and
other public data networks. As a result, the laws do not address the unique
issues presented by these media.
Due to increasing use of the Internet and the dramatically increased access
to personal information made possible by technologies like ours, the U.S.
federal and various state and foreign governments have recently proposed
limitations on the collection and use of personal information of users of the
Internet and other public data networks.
Although we attempt to obtain permission from users prior to collecting or
processing their personal data, new laws or regulations governing personal
privacy may change the ways in which we and our customers and affiliates may
gather this personal information. There may be significant costs and delays
involved with adapting our products to any change in regulations.
Our business, and in particular our 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 our affiliates, the utility of our products will decrease,
which could have a material adverse effect on our business, operating results
and financial condition. If personal information is misused by us, our
customers or our network affiliates, 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 web sites. This could materially and adversely affect
our business, financial condition and results of operations.
In addition, in Europe, the European Union Directive on Data Protection, a
comprehensive administrative and regulatory program, currently limits the
ability of companies to collect, store and exchange personal data with other
entities. Because the U.S. may not currently provide a level of data protection
sufficient to meet the guidelines under the European Union Directive, U.S.
companies could be prohibited from obtaining personal data from or exchanging
such data with companies in Europe.
Our business may suffer if either the Internet infrastructure or the wireless
communication infrastructure is unable to effectively support the growth in
demand placed upon it
Our Strategy.com network and our other products depend increasingly upon the
Internet infrastructure and wireless communications infrastructures to collect
information and deliver information to customers. We cannot assure you that
either of these infrastructures will continue to effectively support the
capacity, speed and security demands placed upon them as they continue to
experience increased numbers of users, frequency of
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use and increased requirements for data transmission by users. Even if the
necessary infrastructure or technologies are developed, we may incur
considerable costs to adapt our solutions accordingly. Furthermore, the
Internet has experienced a variety of outages and other delays due to damage to
portions of its infrastructure or attacks by hackers. These outages and delays
could impact the web sites using our products or hosting our Strategy.com
network and could materially affect our business, operating results and
financial condition.
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.
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 July 31, 2000, holders of our class B common stock owned
or controlled 55,164,115 shares of class B common stock, or 95.7% of the total
voting power. Michael J. Saylor, our chairman, president and chief executive
officer, controlled 43,549,324 shares of class B common stock, or 75.6% of the
total voting power, as of July 31, 2000. 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 employees of our company or related parties, to transfer
shares of class B common stock, subject to the approval of a majority of the
holders of 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
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States and internationally. In particular, for the years ended December 31,
1999, 1998, 1997 and 1996, channel partners accounted for, directly or
indirectly, approximately 39.2%, 33.6%, 27.0% and 9.0% of our total 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, there can be no
assurance that our efforts to continue to expand indirect sales in this manner
will be successful. We cannot be sure that we will 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.
We rely on our network affiliates to market our Strategy.com network to their
customers and if we are unable to enter into arrangements with a sufficient
number of affiliates, or if our affiliates are unable to interest their
customers in our services, our business, operating results and financial
condition will suffer
We rely on our network affiliates to market our Strategy.com network to
their customers. We cannot be sure that we will attract affiliates who will
market our services effectively. Our ability to achieve revenue growth in the
future will depend in part on our success in recruiting and maintaining
successful relationships with affiliates. If we are unable to recruit
affiliates or maintain our relationships with them, our business, operating
results and financial condition will suffer.
Third party providers of information and services for our Strategy.com network
may fail to provide us such information and services or may also provide such
information and services to our competitors
We rely on third parties to provide information and services for our
Strategy.com network. For example, we rely on Ameritrade to provide users of
our Strategy.com network with stock quote information and expect to rely upon a
third party to execute trades in securities when this capability is added to
our network. If one or more of these providers were to stop working with us, we
would have to rely on other parties to provide the information and services we
need. We cannot predict whether other parties would be willing to do so on
reasonable terms. Furthermore, we do not have long-term agreements with our
providers of information and services and we cannot restrict them from
providing similar information and services to our competitors. As a result, our
competitors may be able to duplicate some of the information and services that
we provide and may, therefore, find it easier to enter the market for personal
intelligence and compete with us.
We rely upon our network affiliates to deliver services we offer through our
Strategy.com network and if they have difficulty in doing so, we could be
exposed to liability and our reputation could suffer
We depend upon our affiliates to deliver services to subscribers of our
Strategy.com network. If our affiliates fail to deliver reliable services, we
could face liability claims from our subscribers and our reputation could be
damaged. In addition, we will be dependent on the performance of the systems
deployed and maintained by these parties, whom we will not control. We expect
to include contractual provisions limiting our liability to the subscriber for
failures and delays, but we cannot be sure that these limits will be
enforceable or will be sufficient to shield us from liability. We will seek to
obtain liability insurance to cover problems of this sort, but we cannot
guarantee that insurance will be available or that the amounts of our coverage
will be sufficient to cover all potential claims.
Our network affiliates will rely on us to maintain the infrastructure of the
Strategy.com network and any problems with that infrastructure could expose us
to liability from our affiliates and their customers
Our network affiliates depend on us to maintain the software and hardware
infrastructure of our Strategy.com network. If this infrastructure fails or our
affiliates or their customers otherwise experience
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difficulties or delays in accessing the network, we could face liability claims
from them. We expect to include contractual provisions limiting our liability
to our affiliates for system failures and delays, but we cannot be sure that
these limits will be enforceable or will be sufficient to shield us from
liability. We will seek to obtain liability insurance to cover problems of this
sort, but we cannot guarantee that insurance will be available or that the
amounts of our coverage will be sufficient to cover all potential claims.
We are vulnerable to system failures which could cause interruptions or
disruptions in our service
The hardware infrastructure on which the Strategy.com system operates is
located at the Exodus Communications data center in Northern Virginia. We
cannot assure you that we will be able to manage this relationship successfully
to mitigate any risks associated with having our hardware infrastructure
maintained by Exodus. Unexpected events such as natural disasters, power losses
and vandalism could damage our systems. Telecommunications failures, computer
viruses, electronic break-ins or other similar disruptive problems could
adversely affect the operation of our systems. Our insurance policies may not
adequately compensate us for any losses that may occur due to any damages or
interruptions in our systems. Accordingly, we could be required to make capital
expenditures in the event of damage. We do not currently have a formal disaster
recovery plan. Periodically, we experience unscheduled system downtime that
results in our web site being inaccessible to subscribers. Although we have not
suffered material losses during these downtimes to date, if these problems
persist in the future, users, network affiliates and advertisers could lose
confidence in our services.
System capacity constraints may diminish our ability to generate revenues from
Strategy.com
A substantial increase in the use of the products and services offered by
Strategy.com could strain the capacity of our systems, which could lead to
slower response time or system failures. System failures or slowdowns could
adversely affect the speed and responsiveness of our Strategy.com network.
These would diminish the experience for our subscribers and affect our
reputation. The ability of our systems to manage a significantly increased
volume of transactions in a production environment is unknown. As a result, we
face risks related to our ability to scale up to our expected transaction
levels while maintaining satisfactory performance. If our transaction volume
increases significantly, we may need to purchase additional servers and
networking equipment to maintain adequate data transmission speeds. The
availability of these products and related services may be limited or their
cost may be significant.
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 regard our software products as proprietary and we rely on a combination
of federal and international copyright, state and federal trademark and service
mark and state and common law 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. We have only one patent and no registered trademarks,
other than MicroStrategy(R), DSS Agent(R) and QuickStrike(R). 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
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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.
Expanding our international operations will be difficult 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 22.6%, 24.0%, 26.1%, 27.1% of our total
revenues for the three months ended March 31, 2000 and the years ended December
31, 1999, 1998 and 1997, respectively. We plan to continue expanding our
international operations and to enter new international markets. This will
require significant management attention and financial resources and could
adversely affect our business, operating results and financial condition. In
order to expand international sales successfully, we must set up additional
foreign operations, hire additional personnel and recruit additional
international resellers and distributors. We cannot be sure that we will be
able to do so in a timely manner, and our failure to do so may limit our
international sales growth.
There are certain risks inherent in our international business activities
including:
. changes in foreign currency exchange rates;
. unexpected changes in regulatory requirements;
. tariffs and other trade barriers;
. costs of localizing products for foreign countries;
. lack of acceptance of localized products in foreign countries;
. longer accounts receivable payment cycles;
. difficulties in managing international operations;
. tax issues, including restrictions on repatriating earnings;
. weaker intellectual property protection in other countries; and
. the burden of complying with a wide variety of foreign laws.
These factors may have a material adverse effect on our future international
sales and, consequently, our business, operating results and financial
condition.
The nature of our products makes them particularly vulnerable to undetected
errors, or bugs, which could cause problems with how the products perform and
which could in turn reduce demand for our products, reduce our revenue and lead
to product liability claims against us
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. We cannot be certain that, despite testing
by us and by our current and potential customers, errors will not 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.
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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 earnings estimates by analysts; 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 computer software companies, often without regard to their operating
performance.
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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
are issuable upon conversion of or as dividends on the series A preferred
shares. 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 the series A preferred shares, 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. The second column lists, for each selling stockholder,
the number of shares of class A common stock, based on its ownership of series
A preferred shares, that would have been issuable to the selling stockholders
on August 1, 2000 assuming conversion of all series A preferred shares and
accrued dividends on that date, without regard to any limitations on
conversions or exercise. Because conversion of the series A preferred shares is
based on a conversion price which may be adjusted annually or upon the
occurrence of certain events based on market price of our class A common stock,
the numbers listed in the second column may fluctuate from time to time. The
third column lists each selling stockholder's pro rata portion, based on its
ownership of series A preferred shares, of the 5,412,975 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 by agreement 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 the conversion price on August 1, 2000 of $33.3854. In accordance with
the terms of the registration rights agreement with the holders of the series A
preferred shares, this prospectus covers the resale of 125% of the number of
shares of class A common stock issuable upon conversion of the series A
preferred shares, determined as if the series A preferred shares were converted
in full at the assumed conversion price of $33.3854, plus 125% of the number of
shares of class A common stock issuable in lieu of cash dividends payable on
the series A preferred shares. Because the conversion of the series A preferred
shares into class A common stock is based on a conversion price which may be
adjusted annually or upon the occurrence of certain events based on the market
price of our class A common stock, the number of shares that will actually be
issued upon conversion may be more than the 5,412,975 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 designations for the series A preferred shares, no
selling stockholder may convert series A 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 series A preferred shares which have not been
converted. The number of shares in the second column
21
<PAGE>
does not reflect this limitation. The selling stockholders may sell all, some
or none of their shares in this offering. See "Plan of Distribution."
<TABLE>
<CAPTION>
Percentage of
Number of Shares Number of Shares Shares of
of Class A Common Number of Shares of Class A Common Class A
Stock of Class A Stock Common Stock
Beneficially Owned Common Stock Beneficially Owned Beneficially Owned
Name of Selling Prior to Offered After After
Stockholder Offering(1)(2) Hereby(2) Offering (1)(2)(3) Offering (1)(3)
--------------- ------------------ ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
HFTP Investment
L.L.C.(4).............. 866,076 866,076 0 0%
Leonardo, L.P.(5)....... 1,948,671 1,948,671 0 0%
Fisher Capital Ltd.(6).. 1,766,795 1,766,795 0 0%
Wingate Capital
Ltd.(6)................ 831,433 831,433 0 0%
</TABLE>
--------
(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 all of the shares of our class A common stock issuable upon
conversion of our series A preferred shares. The actual number of shares of
our common stock offered hereby and included in the registration statement
of which this prospectus is a part includes, pursuant to 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 A preferred shares to
prevent dilution resulting from stock splits, stock dividends and similar
transactions. Pursuant to the terms of our series A preferred shares, the
series A preferred shares are convertible by a holder of such stock only to
the extent that the number of shares of our common stock issuable upon such
conversion, together with the number of shares of common stock already
owned by such holder and its affiliates (but not including shares of our
common stock underlying unconverted series A preferred shares held by such
holder and its affiliates) would not exceed 9.99% of all of our then
outstanding common stock.
(3) We do not know when or in what amounts the selling stockholders will offer
shares for sale, if at all. The selling stockholders may not 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 can
not 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.
(4) Promethean Investment Group, LLC, a New York limited liability company
("Promethean"), serves as investment advisor to HFTP Investment, L.L.C.
("HFTP") 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.
(5) Angelo, Gordon & Co., L.P. ("Angelo Gordon") 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
22
<PAGE>
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.
(6) Citadel Limited Partnership is the trading manager of each of Fisher
Capital Ltd. and Wingate Capital Ltd. (collectively, the "Citadel
Entities") and consequently has voting control and investment discretion
over securities held by the Citadel Entities. Kenneth C. Griffin
indirectly controls Citadel Limited Partnership. The ownership information
for each of the Citadel Entities does not include ownership information
for the other Citadel Entities. Citadel Limited Partnership, Kenneth C.
Griffin and each of the Citadel Entities disclaim ownership of the shares
held by the other Citadel Entities. Neither Fisher nor Wingate is a
registered broker-dealer. Each of Fisher and Wingate, however, is under
common control with, and therefore an affiliate of, a registered broker-
dealer.
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 the shares of class A common stock issuable upon
conversion of or as dividends on the series A preferred stock to permit the
resale of the shares of class A common stock by the holders of the series A
preferred stock 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.
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,
(1) on any national securities exchange or quotation service on which
the securities may be listed or quoted at the time of sale,
(2) in the over-the-counter market,
(3) in transactions otherwise than on these exchanges or systems or in
the over-the-counter market,
(4) through the writing of options, whether such options are listed on
an options exchange or otherwise, or
(5) 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 to close out short positions, or 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,
brokers-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, brokers-dealers or agents may be in
excess of those customary in the types of transactions involved).
23
<PAGE>
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
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 $170,000 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.
24
<PAGE>
Terms of the Series A Convertible Preferred Stock
Dividends
The series A preferred shares carry a dividend rate of 7% per annum, payable
semi-annually during the first year and quarterly thereafter or upon conversion
or redemption. At our option, dividends may be paid in cash or shares of class
A common stock, subject to satisfaction of the conditions described below. If
we choose to pay dividends in shares of our class A common stock, the number of
shares to be issued in payment of a dividend on the series A preferred shares
will be equal to the accrued dividends divided by the dividend conversion price
as described below.
For purposes of this calculation, the dividend conversion price will be
equal to 95% of the average of the dollar volume-weighted average prices of our
class A common stock during the five consecutive trading days immediately
preceding the dividend date. For example, if the dividend date were August 1,
2000 and we elected to pay the dividend in shares of our class A common stock,
95% of the average of the closing sale prices of our class A common stock
during the five consecutive trading days ending on July 31, 2000 was $23.88148
per share, and we would have been required to issue two shares of class A
common stock per share of series A preferred stock in lieu of a cash dividend,
calculated as follows, where N represents the number of days since the date of
last dividend payment (assuming N is 30 days):
(0.07) (N/365) ($10,000)
------------------------ = 2
$23.88148
For example, assuming we paid all dividends on all outstanding shares of
series A preferred stock over the two-year term of the securities and assuming
the conversion rate of $23.88148 indicated in the illustration above remained
constant, we would issue approximately 732,785 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. 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 A preferred shares to be
declared effective by the SEC on or prior to June 20, 2001;
. the suspension or delisting from trading of our class A common stock on
the Nasdaq National 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 A preferred shares of our intent not
to comply with a request for conversion tendered in accordance with the
terms of the certificate of designations relating to the series A
preferred shares;
. 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 the transactions in which the series A
preferred shares were issued, our failure to issue shares of class A
common stock after a proper request from a holder of the series A
preferred shares due to the limitation on the number of shares we may
issue to comply with Nasdaq Rule 4460; or
. our breach of any representation, warranty, covenant or other term or
condition of the documents governing the issuance of the series A
preferred shares unless the breach would not have a material adverse
effect or is cured within 10 business days after it occurs.
25
<PAGE>
Maturity Date
The series A preferred shares mature on June 19, 2002, subject to extension
in some circumstances, at which time the series A preferred shares must be
redeemed or converted at our option. If we elect to redeem any series A
preferred shares outstanding on June 19, 2002, the amount required to be paid
will be equal to the price originally paid for such shares plus accrued and
unpaid dividends. If we elect to convert any series A preferred shares
outstanding on June 19, 2002, we will be required to issue shares in an amount
determined as described below under "Conversion."
Conversion
We may require the selling stockholders to convert their series A preferred
shares into shares of our class A common stock on June 19, 2002, which date may
be extended under some circumstances. If we do not require the selling
stockholders to convert their series A preferred shares, then we must redeem
them as described in the foregoing paragraph. The selling stockholders have the
right to convert their series A preferred shares into shares of our class A
common stock at any time and from time to time, subject to certain 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 series A preferred share 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 A
preferred stock, then the applicable conversion price will be the conversion
price then in effect, as it may have been adjusted annually based on the market
price of our class A common stock. If we require conversion at the maturity
date pursuant to the terms of the certificate of designation, the applicable
conversion price will be 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.
The following table sets forth the number of shares of class A common stock
we would be required to issue upon conversion of all 12,500 series A preferred
shares outstanding at an assumed conversion price of $33.3854 per share of
class A common stock as of August 1, 2000, and the resulting percentage of our
total shares of class A common stock and class B common stock (assuming the
conversion of each share of class B common stock into one share of class A
common stock) outstanding after such a conversion. The table also sets forth
the number of shares of class A common stock we would be required to issue
assuming (1) increases of 25%, 50% and 75% in the assumed conversion price; and
(2) decreases of 25%, 50% and 75% in the assumed conversion price.
<TABLE>
<CAPTION>
Number of Percentage of Total
Shares of Outstanding Class A
Class A Common Stock
Assumed Conversion Common Stock and Class B
Price Per Share of Issuable Upon Common Stock
Class A Common Stock Conversion(1) After Conversion(2)
--------------------- ------------- -------------------
<S> <C> <C>
$58.4425 (+75%)............................... 2,139,513 2.7%
$50.0781 (+50%)............................... 2,496,101 3.1
$41.7318 (+25%)............................... 2,995,323 3.7
$33.3854...................................... 3,744,152 4.7
$25.0390 (-25%)............................... 4,992,212 6.2
$16.6927 (-50%)............................... 7,488,303 9.4
$8.3464 (-75%)................................ 14,976,516 18.7
</TABLE>
--------
(1) The number of shares of class A common stock issuable upon conversion and
the percentage of outstanding class A common stock after such conversion
set forth above do not take into account any shares of class A common stock
that may be issuable as dividends on the series A preferred shares. If the
dividends on series A preferred shares had been paid in class A common
stock for the full $125.0 million stated value of the series A preferred
shares over the two-year term thereof, assuming a constant dividend
26
<PAGE>
conversion price of $23.88148, we would have been required to issue an
additional 732,785 shares as payment for accrued dividends.
(2) Calculated based on 24,746,835 shares of class A common stock and
55,164,115 shares of class B common stock issued and outstanding as of July
31, 2000. At the option of the holder, each share of class B common stock
is convertible into one share of class A common stock.
No holder may convert any series A preferred shares 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 series A preferred
shares that have not been converted.
In addition to other adjustments in the conversion price provided in the
certificate of designations, if the registration statement to which this
prospectus relates is not declared effective by December 15, 2000, then the
conversion price will be adjusted based upon the then current market price of
the class A common stock on the 11th trading day after such date, if such
adjustment would result in a lower conversion price.
If the registration statement is still not declared effective at the end of
each 90 day period thereafter, then the conversion price will be adjusted based
upon the then current market price of the class A common stock on the 11th
trading day after the last trading day succeeding each 90 day period
thereafter.
In addition, if while the registration statement is required to be
maintained effective:
. the effectiveness of the registration statement lapses for any reason,
including, without limitation, the issuance of a stop order; or
. the registration statement is unavailable to a holder of the series A
preferred shares for sale of all of the shares being registered by the
registration statement in accordance with the terms of the related
registration rights agreement and such lapse or unavailability continues
for a period of 10 consecutive trading days or for more than an aggregate
of 20 trading days in any 365 day period, subject to certain grace
periods, the conversion price will be adjusted.
Redemption
To the extent that we do not convert the shares of series A preferred stock
outstanding on June 18, 2002, and do not extend such date pursuant to the terms
of the certificate of designations, we must redeem such series A preferred
shares for cash equal to the price paid for each preferred share plus accrued
dividends.
If a triggering event as described under the heading "Dividends" above
occurs or if an event described in the last paragraph of "Conversion" above
occurs, the holders of the series A preferred shares will have the right to
require us to redeem all or a portion of any outstanding series A preferred
shares for cash. The redemption price in such a case is the greater of:
. 125% of the price paid for the series A preferred shares plus accrued
dividends; or
. the product of the number of shares of class A common stock into which
the series A preferred stock is convertible multiplied by the closing
sale price of our class A common stock on the day immediately before the
triggering event occurs.
In the event of a merger transaction, a hostile takeover or a sale of all or
substantially all of our assets, each holder of the series A preferred shares
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 price paid for such
shares plus accrued dividends.
27
<PAGE>
Liquidation Preference
In the event of our liquidation, the holders of the series A preferred
shares 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 the amount originally paid for the series A preferred shares, or $10,000 per
share, plus accrued and unpaid dividends on any outstanding series A preferred
shares.
Voting Rights
Other than as required by law, the holders of the series A preferred shares
have no voting rights except that the consent of holders of at least two-thirds
of the outstanding series A preferred shares will be required to effect any
change in either our amended and restated certificate of incorporation or
certificate of designations that would change any of the rights of the series A
preferred shares or to issue any other additional series A preferred shares.
LEGAL MATTERS
The validity of the shares offered by this prospectus has been passed upon
by Hale and Dorr LLP.
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,
1999 have been so incorporated in reliance on the report, which contains an
explanatory paragraph relating to the restatement of the Company's financial
statements for the years ended December 31, 1999, 1998 and 1997 as described in
Note 3 to the financial statements, of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
28
<PAGE>
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 (except any
underwriting discounts and commissions and expenses incurred by the selling
stockholder for brokerage, accounting, tax or legal services or any other
expenses incurred by the selling stockholder in disposing of the shares). All
amounts shown are estimates except the Securities and Exchange Commission
registration fee.
<TABLE>
<S> <C>
Filing Fee--Securities and Exchange Commission..................... $ 29,967
Legal fees and expenses............................................ $100,000
Accounting fees and expenses....................................... $ 20,000
Miscellaneous expenses............................................. $ 20,033
--------
Total Expenses................................................... $170,000
========
</TABLE>
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 MicroStrategy, or with respect to any criminal action or
proceeding, the officer or director had reasonable cause to believe his conduct
was unlawful.
II-1
<PAGE>
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
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.1 to the Registrant's Registration Statement
on Form S-1/A filed on June 10, 1998).
3.2 Certificate of Designations, Preferences and Rights (incorporated
herein by reference to Exhibit 3.1 to the Registrant's Current Report
on Form 8-K filed on June 19, 2000).
4.1 Registration Rights Agreement dated as of June 17, 2000 by and among
MicroStrategy, Incorporated and each of the buyers thereto
(incorporated herein by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K filed on June 19, 2000).
5.1 Opinion of Hale and Dorr LLP.
10.1 Pledge and Security Agreement, dated June 29, 2000, by MicroStrategy
Incorporated in favor of Bank of America N.A.
10.2 Letter Agreement, dated June 29, 2000, from Bank of America N.A.
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).
</TABLE>
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.
II-2
<PAGE>
(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 Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Vienna, Commonwealth of Virginia, on August 3,
2000.
MicroStrategy Incorporated
/s/ Michael J. Saylor
BY:__________________________________
Michael J. Saylor
President and Chief Executive
Officer
SIGNATURES AND POWER OF ATTORNEY
We, the undersigned officers and directors of MicroStrategy Incorporated,
hereby severally constitute and appoint Michael J. Saylor, Sanju K. Bansal,
Eric F. Brown, Jonathan F. Klein and Thomas S. Ward and each of them singly,
our true and lawful attorneys with full power to any of them, and to each of
them singly, to sign for us and in our names in the capacities indicated below
any and all pre-effective and post-effective amendments to this Registration
Statement on Form S-3 filed herewith and generally to do all such things in our
name and behalf in our capacities as officers and directors to enable
MicroStrategy Incorporated to comply with the provisions of the Securities Act
of 1933, as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorneys, or any of them, to any and all amendments to said
Registration Statement.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael J. Saylor President, Chief Executive August 3, 2000
______________________________________ Officer and Director
Michael J. Saylor (Principal Executive
Officer)
/s/ Eric F. Brown Chief Financial Officer August 2, 2000
______________________________________ (Principal Financial and
Eric F. Brown Accounting Officer)
/s/ Sanju K. Bansal Director August 2, 2000
______________________________________
Sanju K. Bansal
/s/ Frank A. Ingari Director August 3, 2000
______________________________________
Frank A. Ingari
______________________________________ Director August , 2000
Jonathan J. Ledecky
/s/ John W. Sidgmore Director August 3, 2000
______________________________________
John W. Sidgmore
/s/ Ralph S. Terkowitz Director August 3, 2000
______________________________________
Ralph S. Terkowitz
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.1 to the Registrant's Registration Statement
on Form S-1/A filed on June 10, 1998).
3.2 Certificate of Designations, Preferences and Rights (incorporated
herein by reference to Exhibit 3.1 to the Registrant's Current Report
on Form 8-K filed on June 19, 2000).
4.1 Registration Rights Agreement dated as of June 17, 2000 by and among
MicroStrategy, Incorporated and each of the buyers thereto
(incorporated herein by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K filed on June 19, 2000).
5.1 Opinion of Hale and Dorr LLP.
10.1 Pledge and Security Agreement, dated June 29, 2000, by MicroStrategy
Incorporated in favor of Bank of America N.A.
10.2 Letter Agreement, dated June 29, 2000, from Bank of America N.A.
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).
</TABLE>
