<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MicroStrategy Incorporated
---------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
MICROSTRATEGY INCORPORATED
8000 Towers Crescent Drive
Vienna, Virginia 22182
March [__], 2000
Dear MicroStrategy Stockholder:
You are cordially invited to our 2000 Annual Meeting of Stockholders on
Friday, April 28, 2000, beginning at 4:00 p.m. local time at the Renaissance
Hotel, 999 9/th/ Street, NW, Washington, D.C. This will be MicroStrategy's
second Annual Meeting of Stockholders since our initial public offering in June
1998.
The enclosed proxy statement describes the matters that will be presented
at the meeting: (1) the election of six directors for the next year; (2) the
approval of an amendment to our 1997 Director Option Plan; (3) the approval of
an amendment to our Certificate of Incorporation; and (4) the ratification of
the selection of PricewaterhouseCoopers LLP as our independent auditors for the
current fiscal year. The Board of Directors recommends that stockholders vote
"FOR" these proposals.
A reception for all stockholders will be held immediately following the
meeting. We look forward to seeing you there.
Very truly yours,
Michael J. Saylor
President, Chief Executive Officer and
Chairman of the Board
<PAGE>
MICROSTRATEGY INCORPORATED
8000 Towers Crescent Drive
Vienna, Virginia 22182
Notice of Annual Meeting of Stockholders to be Held on Friday, April 28, 2000
The Annual Meeting of Stockholders (the "Annual Meeting") of MicroStrategy
Incorporated, a Delaware corporation (the "Company"), will be held at the
Renaissance Hotel, 999 9th Street, NW, Washington, D.C. 20001-4427 on Friday,
April 28, 2000 at 4:00 p.m., local time, to consider and act upon the following
matters:
1. To elect six (6) directors for the ensuing year;
2. To approve an amendment to the Company's 1997 Director Option Plan to
increase the maximum number of shares of Class A Common Stock
available under the plan from 400,000 shares to 600,000 shares;
3. To approve an amendment to the Company's Certificate of Incorporation
to provide for (a) an increase in the number of authorized shares of
Class A Common Stock, $.001 par value per share, from 100,000,000
shares to 330,000,000 shares and an (b) an increase in the number of
authorized shares of Class B Common Stock, $.001 par value per share,
from 100,000,000 shares to 165,000,000 shares;
4. To ratify the selection by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent auditors for
the current fiscal year; and
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Stockholders of record at the close of business on March 23, 2000 will be
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. The stock transfer books of the Company will remain open.
By Order of the Board of Directors,
Sanju K. Bansal,
Executive Vice President, Chief
Operating Officer and Secretary
Vienna, Virginia
March __, 2000
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN
ORDER TO ENSURE REPRESENTATION OF YOUR SHARES AT THE ANNUAL MEETING. NO POSTAGE
NEED BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE>
MICROSTRATEGY INCORPORATED
8000 Towers Crescent Drive
Vienna, Virginia 22182
Proxy Statement for the Annual Meeting of Stockholders
to be Held on Friday, April 28, 2000
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of MicroStrategy Incorporated (the "Company")
for use at the Annual Meeting of Stockholders (the "Annual Meeting") to be held
on Friday, April 28, 2000 at 4:00 p.m., local time, and at any adjournment of
the Annual Meeting. All executed proxies will be voted in accordance with the
stockholders' instructions, and if no choice is specified, executed proxies will
be voted in favor of the matters set forth in the accompanying Notice of
Meeting. Any proxy may be revoked by a stockholder at any time before its
exercise by delivery of written revocation or a subsequently dated proxy to the
Secretary of the Company or by voting in person at the Annual Meeting.
On March 23, 2000, the record date for the determination of stockholders
entitled to vote at the Annual Meeting (the "Record Date"), there were
outstanding and entitled to vote an aggregate of _________ shares of Class A
Common Stock of the Company, $.001 par value per share ("Class A Common Stock"),
and an aggregate of _____________ shares of Class B Common Stock of the Company,
$.001 par value per share ("Class B Common Stock," and together with the Class A
Common Stock, the "Common Stock"). Each share of Class A Common Stock entitles
the record holder thereof to one vote on each of the matters to be voted on at
the Annual Meeting and each share of Class B Common Stock entitles the record
holder thereof to ten votes on each of the matters to be voted on at the Annual
Meeting.
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1999 ("Fiscal Year 1999") is being mailed to stockholders, along
with these proxy materials, on or about March [__], 2000.
A copy of the Company's Annual Report on Form 10-K for Fiscal Year 1999, as
filed with the Securities and Exchange Commission (the "SEC"), except for
exhibits, will be furnished without charge to any stockholder upon written
request to the Secretary of the Company, MicroStrategy Incorporated, 8000 Towers
Crescent Drive, Vienna, Virginia 22182.
Votes Required
The holders of a majority of the votes entitled to be cast by the shares of
Common Stock outstanding and entitled to vote at the Annual Meeting shall
constitute a quorum for the transaction of business at the Annual Meeting.
Shares of Common Stock represented in person or by proxy (including shares which
abstain or do not vote with respect to one or more of the matters presented for
stockholder approval) will be counted for purposes of determining whether a
quorum is present at the Annual Meeting.
The affirmative vote of the holders of a plurality of the votes cast by the
holders of Common Stock voting on the matter is required for the election of
directors and the affirmative
<PAGE>
vote of a majority of the votes cast by the holders of Common Stock voting on
the matter is required to approve the amendment to the Company's 1997 Director
Option Plan. The affirmative vote of the holders of a majority of the votes
entitled to be cast by the shares of Common Stock outstanding and entitled to
vote at the Annual Meeting is required to approve the amendment to the Company's
Certificate of Incorporation. The affirmative vote of the holders of a majority
of the votes cast by the holders of Common Stock voting on the matter is
required to ratify the selection by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent auditors for the current
year.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as shares voting on such matter. Accordingly, abstentions and
"broker non-votes" will have no effect on the voting on matters that require the
affirmative vote of a plurality or a majority of the votes cast by the holders
of Common Stock voting on the matter (such as the election of directors, the
approval of the amendment to the 1997 Director Option Plan and the ratification
of the selection of PricewaterhouseCoopers LLP as the Company's independent
auditors). However, for purposes of the approval of the amendment to the
Company's Certificate of Incorporation, abstentions and broker non-votes have
the effect of votes against the proposal.
Beneficial Ownership of Common Stock
The following table sets forth the beneficial ownership of the Company's
Common Stock as of January 31, 2000 by (i) each person who is known by the
Company to beneficially own more than 5% of any class of Common Stock, (ii) each
director or nominee for director, (iii) each of the executive officers named in
the Summary Compensation Table set forth under the caption "Executive
Compensation" below (the "Named Executive Officers"), and (iv) all directors and
executive officers as a group as of January 31, 2000:
2
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percentage of
Beneficially Common Stock
Beneficial Owner(1) Owned(2)(3) Outstanding(3)(4)
- ------------------- ---------------- -----------------
<S> <C> <C>
Michael J. Saylor (5) 43,549,324 55.7
Sanju K. Bansal (6) 8,698,958 11.1
Jonathan F. Klein (7) 42,321 *
Mark S. Lynch (8) 26,634 *
Joseph P. Payne (9) 2,380 *
Frank A. Ingari (10) 27,000 *
Jonathan J. Ledecky (11) 20,000 *
Ralph S. Terkowitz (12) 20,000 *
John W. Sidgmore (13) -- *
Thomas P. Spahr (14) 1,507,600 1.9
Pilgrim Baxter & Associates, Ltd. (15) 2,956,200 3.8
All executive officers and directors as 52,954,563 67.6%
a group (10 persons(3))
</TABLE>
_________________
* Less than 1%
(1) Each person named above (except Pilgrim Baxter & Associates, Ltd.) has an
address in care of MicroStrategy Incorporated, 8000 Towers Crescent Drive,
Vienna, Virginia 22182.
(2) The inclusion of any shares of Common Stock deemed beneficially owned does
not constitute an admission of beneficial ownership of those shares. In
accordance with the rules of the SEC, each stockholder is deemed to
beneficially own any shares subject to stock options that are currently
exercisable or exercisable within 60 days after January 31, 2000, and any
reference below to shares subject to outstanding stock options held by the
person in question refers only to such stock options.
(3) The shares listed in this table are shares of Class B Common Stock except
as otherwise set forth in the footnotes to this table. Shares held by the
directors and executive officers as a group include options to purchase
204,700 shares of Class A Common Stock that are exercisable within 60 days
after January 31, 2000.
(4) Number of shares deemed outstanding includes 22,651,210 shares of Class A
Common Stock and 55,516,929 shares of Class B Common Stock outstanding as
of January 31, 2000, plus any shares of Common Stock subject to outstanding
stock options held by the person in question.
(5) Mr. Saylor's holdings of Common Stock consist of 43,149,324 shares of
Class B Common Stock held beneficially by Mr. Saylor as a result of his
beneficial ownership in Alcantara LLC and 400,000 shares of Class B Common
Stock held in trust (78.4% of the Class B Common Stock outstanding).
(6) Mr. Bansal's holdings of Common Stock consist of 8,223,958 shares of Class
B Common Stock held beneficially by Mr. Bansal as a result of his
beneficial ownership in Shangri-La LLC, 439,046 shares of Class B Common
Stock held in trust and 16,954 shares of Class B Common Stock held in his
own name (15.6% of the Class B Common Stock outstanding) and 19,000 shares
of Class A Common Stock held in his own name.
(7) Mr. Klein's holdings of Common Stock consist of 42,221 shares of Class A
Common Stock and options exercisable within 60 days after January 31, 2000
for 100 shares of Class A Common Stock.
3
<PAGE>
(8) Mr. Lynch's holdings of Common Stock consist of 26,634 shares of Class A
Common Stock.
(9) Mr. Payne's holdings of Common Stock consist of 2,380 shares of Class A
Common Stock.
(10) Mr. Ingari's holdings of Common Stock consist of 20,000 shares of Class A
Common Stock and options exercisable within 60 days after January 31, 2000
for 7,000 shares of Class A Common Stock.
(11) Mr. Ledecky's holdings of Common Stock consist of 2,000 shares of Class A
Common Stock and options exercisable within 60 days after January 31, 2000
for 18,000 shares of Class A Common Stock.
(12) Mr. Terkowitz's holdings of Common Stock consist of 2,000 shares of Class A
Common Stock and options exercisable within 60 days after January 31, 2000
for 18,000 shares of Class A Common Stock.
(13) Mr. Sidgmore was elected as a director on February 16, 2000.
(14) Mr. Spahr's holdings of Common Stock consist of 1,429,000 shares of Class B
Common Stock (2.6% of the Class B Common Stock outstanding), 6,600 shares
of Class A Common Stock, 48,000 shares of Class A Common Stock held
beneficially by Mr. Spahr in trust and options exercisable within 60 days
after January 31, 2000 for 24,000 shares of Class A Common Stock.
(15) Pilgrim Baxter & Associates, Ltd.'s holdings of Common Stock consist of
2,956,200 shares of Class A Common Stock (13.0% of the Class A Common Stock
outstanding).
PROPOSAL 1
ELECTION OF DIRECTORS
The persons named in the enclosed proxy will vote to elect as directors the six
nominees named below, all of whom are presently directors of the Company, unless
authority to vote for the election of any or all of the nominees is withheld by
marking the proxy to that effect. All of the nominees have indicated their
willingness to serve, if elected, but if any should be unable or unwilling to
serve, proxies may be voted for a substitute nominee designated by the Board of
Directors. Each director will be elected to hold office until the next annual
meeting of stockholders (subject to the election and qualification of his
successor and to his earlier death, resignation or removal).
Nominees
Set forth below, for each nominee, are his name and age, his positions with the
Company, his principal occupation and business experience during the past five
years and the year of the commencement of his term as a director of the Company:
Michael J. Saylor (35) has served as President, Chief Executive Officer and
Chairman of the Board of Directors since founding the Company in November 1989.
Prior to that, Mr. Saylor was employed by E.I. du Pont de Nemours & Company as a
Venture Manager from 1988 to 1989 and by Federal Group, Inc. as a Consultant
from 1987 to 1988. Mr. Saylor received an S.B.
4
<PAGE>
in Aeronautics and Astronautics and an S.B. in Science, Technology and Society
from the Massachusetts Institute of Technology.
Sanju K. Bansal (34) has served as Executive Vice President and Chief Operating
Officer since 1993 and was previously Vice President, Consulting since joining
the Company in 1990. He has been a member of the Board of Directors of the
Company since September 1997. Prior to joining the Company, Mr. Bansal was a
consultant at Booz Allen & Hamilton, a worldwide technical and management
consulting firm, from 1987 to 1990. Mr. Bansal received an S.B. in Electrical
Engineering from the Massachusetts Institute of Technology and an M.S. in
Computer Science from the John Hopkins University.
Frank A. Ingari (50) has been a member of the Board of Directors of the Company
since October 1997. Mr. Ingari is Founder and Chief Executive Officer of
Wheelhouse Corporation, an eMarketing services firm formed in April of 1999.
Between 1997 and April 1999, Mr. Ingari founded Growth Ally, L.L.C., a
consulting firm specializing in assisting private technology companies in
accelerating their growth and served as its Chief Executive Officer. Mr. Ingari
was Chairman and Chief Executive Officer of Shiva Corporation from 1993 to 1997.
Prior to joining Shiva Corporation, Mr. Ingari was Vice President, Marketing at
Lotus Development Corporation. Mr. Ingari received a B.A. in Creative Writing
and U.S. Foreign Relations from Cornell University.
Jonathan J. Ledecky (42) has been a member of the Board of Directors of the
Company since June 1998. Mr. Ledecky is currently Vice Chairman of Lincoln
Holdings LLC, which owns the Washington Capitals, the Washington Wizards and the
Washington Mystics sports teams. Mr. Ledecky founded U.S. Office Products
Company in October 1994 and served as its Chairman of the Board and Chief
Executive Officer from inception through November 1997 and thereafter as a
director until May 1998. In February 1997, Mr. Ledecky founded Building One
Services Corp., now Encompass Services Corporation, and served as its Chairman
until February 2000 and Chief Executive Officer until June 1999. Mr. Ledecky is
also a director of publicly traded Aztec Technology Partners, Unicapital
Corporation, U.S.A. Floral Products, School Speciality, Inc., OneMain.com and
WorkFlow Management.
Ralph S. Terkowitz (49) has been a member of the Board of Directors of the
Company since September 1997. Mr. Terkowitz is Vice President, Technology for
the Washington Post Company, a position he has held since 1992. Until February
1996, Mr. Terkowitz was Chief Executive Officer, President and publisher of
Digital Ink, an Internet publishing venture that launched, among other ventures,
WashingtonPost.com and PoliticsNow. In 1998 he was co-Chief Executive Officer
of HireSystems and instrumental in the formation of BrassRing.com. Mr.
Terkowitz is director of ICSA, BigStep and OutTask. Mr. Terkowitz received an
A.B. in Chemistry from Cornell University and an M.S. in Chemical Physics from
the University of California, Berkeley.
John W. Sidgmore (48) has been a member of the board of directors of the Company
since February 2000. Mr. Sidgmore was the President and Chief Executive Officer
of UUNET Technologies, Inc., a provider of worldwide Internet services, from
June 1994 until November 1998 and has served as chairman since November 1998.
Since December 1996, Mr. Sidgmore
5
<PAGE>
has served as the Chief Operating Officer and Vice Chairman of WorldCom Inc.,
now MCI WorldCom, a provider of long distance, Internet and telecommunication
services. Prior to joining UUNET, Mr. Sidgmore was President and Chief Executive
Officer of Intelicom Solutions, now CSC Intelicom, a telecommunications software
company. Mr. Sidgmore is also a member of the board of directors of MCI WorldCom
and ADC Telecommunications, Inc.
Board and Committee Meetings
The Company has a standing Audit Committee of the Board of Directors, which
provides the opportunity for direct contact between the Company's independent
auditors and the Board. The Audit Committee met five times during Fiscal Year
1999. The current Audit Committee members are Mr. Ingari (Chairman) and Mr.
Terkowitz.
The Company has a standing Compensation Committee of the Board of
Directors, which makes compensation decisions regarding the officers of the
Company and provides recommendations to the Board regarding compensation
programs of the Company. The Compensation Committee met two times during Fiscal
Year 1999. The current members of the Compensation Committee are Mr. Terkowitz
(Chairman) and Mr. Ingari.
The Board of Directors met six times during Fiscal Year 1999. Each
director attended at least 75% of the aggregate of the number of Board meetings
and the number of meetings held by all committees on which he then served.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and holders of more than 10% of the
Company's Class A Common Stock to file with the SEC initial reports of ownership
of the Company's Class A Common Stock and other equity securities on a Form 3
and reports of changes in such ownership on a Form 4 or Form 5. Officer's,
directors and holders of 10% of the Company's Class A Common Stock are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. To the Company's knowledge, based solely on a review of the
Company's records, the filing requirements of Section 16(a) were satisfied with
respect to Fiscal Year 1999.
Directors' Compensation
Directors do not receive any fees or other cash compensation for serving on
the Company's Board of Directors or any committee thereof. Directors of the
Company who are not employees of the Company or any subsidiary ("Outside
Directors") are entitled to receive options under the 1997 Director Option Plan.
Pursuant to the 1997 Director Option Plan, Outside Directors are granted
options on the following terms: (i) each Outside Director of the Company is
granted an option to purchase 90,000 shares of Class A Common Stock upon his or
her initial election to the Board of Directors ("First Options") and (ii) each
Outside Director is granted an option to purchase 10,000 shares of Class A
Common Stock of the Company on the date of each annual meeting of stockholders
6
<PAGE>
occurring after six months of service on the Board of Directors ("Subsequent
Options"). Each option granted under the 1997 Director Plan has an exercise
price equal to the fair market value of the Class A Common Stock on the date of
grant. First Options granted under the 1997 Director Option Plan become
exercisable in equal annual installments over a five-year period and Subsequent
Options become exercisable in full on the fifth anniversary of the date of
grant. In the event of a merger of the Company with or into another corporation
or a sale of all or substantially all of the Company's assets, each option will
be assumed or an equivalent option will be substituted by the successor
corporation. If the successor corporation does not assume outstanding options,
the exercisability of all outstanding options will accelerate. The term of each
option granted under the 1997 Director Plan is ten years, provided that, in
general, an option may be exercised only while the Outside Director continues to
serve as a director of the Company or within 60 days thereafter. In Fiscal Year
1999, options for 30,000 shares of Class A Common Stock were granted under the
1997 Director Option Plan as Subsequent Options.
Executive Compensation
Summary Compensation
The following table sets forth certain information concerning the
compensation for each of the last two fiscal years of the Company's Chief
Executive Officer and the Company's four other most highly compensated executive
officers for Fiscal Year 1999 and the fiscal year ended December 31, 1998 (the
"Named Executive Officers").
7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation(1) Compensation
Awards
----------------------------------------------- -------------------------
Name and Fiscal Salary Bonus Number of Shares
------ -----
Principal Position Year Underlying Options
------------------ ---- ------------------
<S> <C> <C> <C> <C>
Michael J. Saylor 1999 139,628 50,000 --
Chairman of the Board, Chief 1998 124,366 -- --
Executive Officer and President 1997 124,000 30,000 --
Sanju K. Bansal 1999 104,542 40,000 --
Executive Vice President, Chief 1998 111,205 -- --
Operating Officer and Director 1997 132,130 30,000 --
Jonathan F. Klein (2) 1999 102,241 30,000 30,000
Vice President, Law and General 1998 98,108 15,000 80,500
Counsel 1997 46,420 -- 20,000
Mark S. Lynch (3) 1999 132,191 -- 100,000
Vice President, Finance and Chief 1998 126,000 65,000 --
Financial Officer 1997 44,135 25,000 500,000
Joseph P. Payne (4) 1999 118,319 15,000 250,000
Vice President, Marketing and Chief 1998 -- -- --
Marketing Officer 1997 -- -- --
</TABLE>
_____________________
(1) In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted because such
perquisites and other person benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary of such Named Executive Officer.
(2) Mr. Klein joined the Company in June 1997 as Corporate Counsel and became
Vice President, Law and General Counsel in November 1998. Accordingly, the
1997 information for Mr. Klein is for the period from June 9, 1997 to
December 31, 1997.
(3) Mr. Lynch joined the Company in September 1997 as Vice President, Finance
and Chief Financial Officer. Accordingly, the 1997 information for Mr.
Lynch is for the period from September 2, 1997 to December 31, 1997.
(4) Mr. Payne joined the Company in April 1999 as Vice President, Marketing and
Chief Marketing Officer. Accordingly, the 1999 information for Mr. Payne
is for the period from April 22, 1999 to December 31, 1999 and there is no
information for 1998 and 1997.
Option Grants Table
The following table contains information concerning grants of stock
options made to each of the Named Executive Officers during Fiscal Year 1999:
8
<PAGE>
Option Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Number of Shares Options Annual Rates of Stock
of Class A Common Granted to Exercise Price Appreciation for
Stock Underlying Employees Price Per Expiration Option Term(3)
--------------
Name Options Granted(1) in 1999 Share(2) Date 5% 10%
---- ------------------- ------- -------- ---- -- ---
<S> <C> <C> <C> <C> <C>
Michael J. Saylor -- -- % $ -- -- $ -- $ --
Sanju K. Bansal -- -- -- -- -- --
Jonathan F. Klein 30,000 0.6 13.22 8/10/09 249,401 632,030
Mark S. Lynch 100,000 1.9 13.22 8/10/09 831,336 2,106,768
Joseph P. Payne 250,000 4.8 8.88 4/22/09 1,395,360 3,536,116
</TABLE>
____________________________
(1) The options vest over a five-year period and expire on the tenth
anniversary of the date of grant.
(2) The exercise price may be paid in cash or in shares of Class A Common Stock
valued at fair market value on the exercise date. All stock options were
granted with an exercise price equal to the fair market value of the Common
Stock as determined by the Board of Directors on the grant date using a
revenue multiple valuation methodology.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that
the fair market value of the Class A Common Stock on the date of grant
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price.
Option Exercises and Holdings
The following table sets forth information concerning each exercise of a
stock option during Fiscal Year 1999 by each of the Named Executive Officers and
the number and value of unexercised options held by each of the Named Executive
Officers on December 31, 1999.
9
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares of Class
Number of A Common Stock Value of Unexercised in-
Shares Underlying Unexercised the-Money Options at Fiscal
Acquired Options at Fiscal Year-End Year-End(2)
on Value
Name Exercise Realized(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------- -------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael J. Saylor -- $ -- -- / -- $ -- / $ --
Sanju K. Bansal -- -- -- / -- -- / --
Jonathan F. Klein 20,000 119,000 4,100 / 106,400 426,185 / 10,634,170
Mark S. Lynch 200,000 7,186,979 -- / 400,000 -- / 40,303,100
Joseph P. Payne -- -- -- / 250,000 -- / 24,031,250
</TABLE>
_____________________
(1) Represents the difference between the exercise price and the fair market
value of the Class A Common Stock on the date of exercise.
(2) Value is determined by subtracting the exercise price per share from the
fair market value of the Class A Common Stock on December 31, 1999 ($105.00
per share), multiplied by the number of shares underlying the options.
Employment Agreements
Employees of the Company are generally required to enter into
confidentiality agreements prohibiting the employees from disclosing any
confidential or proprietary information of the Company. In addition, the
agreements generally provide that upon termination, an employee will not work
for a competitor and will not solicit Company customers and employees for a
period of one year. At the time of commencement of employment, the Company's
employees also generally sign offer letters specifying certain basic terms and
conditions of employment. Otherwise, employees of the Company are not subject
to written employment agreements.
Certain Relationships and Related Transactions
On December 30, 1999 MicroStrategy entered into a business alliance
agreement with Wheelhouse Corporation, a company for which Frank A. Ingari, a
director of the Company, is a founding stockholder and Chief Executive Officer.
Wheelhouse acquired the right to offer MicroStrategy products in the marketplace
as a sales agent. In addition, Wheelhouse is entitled to a finders fee of 1.5%
of the license fees paid to MicroStrategy by any company referred to
MicroStrategy by Wheelhouse. Wheelhouse also acquired a suite of MicroStrategy
Development software and MicroStrategy technology training for a fee of
$160,000.
10
<PAGE>
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
This report addresses the compensation policies of the Company applicable
to its officers during Fiscal Year 1999. The Company's executive compensation
program is administered by the Compensation Committee of the Board of Directors
(the "Committee"), which is comprised of two non-employee directors. The
Committee is responsible for determining the compensation package of each
executive officer, including the Chief Executive Officer. In Fiscal Year 1999,
the Board of Directors did not modify in any material way or reject any action
or recommendation of the Committee with respect to executive officer
compensation.
Executive Compensation Policy
The objectives of the Committee in determining executive compensation are
(i) to recognize and reward exceptional performance by the Company's executives,
(ii) to provide incentives for high levels of current and future performance,
and (iii) to align the objectives and rewards of Company executives with those
of the stockholders of the Company. The Committee believes that an executive
compensation program that achieves these objectives will not only properly
motivate and compensate the Company's current officers, but will enable the
Company to attract other officers that may be needed by the Company in the
future. The executive compensation program is implemented through three
principal elements--base salary, bonus and stock option grants.
Executive Officer Compensation
In setting base salaries for Fiscal Year 1999, the Committee used a
subjective evaluation process considering the performance of the Company, the
officer's position, level and scope of responsibility, as well as the
recommendations of management with respect to base salary for such executive
officer. The Committee also generally sought to set salaries at levels that, in
the opinion of the members of the Committee, approximate the salary levels for
companies that are comparable to the Company.
Bonuses are awarded principally on the basis of the Company's performance
during the period and on the Committee's assessment of the extent to which the
executive officer contributed to the overall performance of the Company or a
particular department of the Company for a specific period. In awarding
performance-based bonuses for Fiscal Year 1999, the Committee sought to set such
bonuses at a level that would provide executive officers eligible to receive
such bonuses with a strong incentive to contribute to the success and
profitability of the Company. During Fiscal Year 1999, a total of $135,000 was
paid in bonuses to six executive officers of the Company.
In a further attempt to link compensation to the long-term performance of
the Company, stock options were awarded to certain executive officers. In Fiscal
Year 1999, option awards were made based principally on the recommendations of
management. All of the options granted under the Amended and Restated 1996 Stock
Plan (the "1996 Stock Plan") and the 1999 Stock Option Plan in Fiscal Year 1999
were granted with an exercise price that was equal to the fair
11
<PAGE>
market value of the Class A Common Stock on the option grant date. Generally,
the options granted to executive officers under the 1996 Stock Plan and the 1999
Stock Option Plan vest ratably over a five-year period on the anniversary date
of the option grant date. Under the 1996 Stock Plan, options to purchase an
aggregate of 250,000 shares of Class A Common Stock were granted to one
executive officer of the Company during Fiscal Year 1999. Under the 1999 Stock
Option Plan, options to purchase an aggregate of 230,000 shares of Class A
Common Stock were granted to three executive officers of the Company during
Fiscal Year 1999. It has been the practice of the Committee to fix the exercise
price of options granted at 100% of the fair market value of the Class A Common
Stock on the date of grant.
Chief Executive Officer Compensation
The Committee believes that the base salary and bonus paid to Mr. Saylor in
Fiscal Year 1999 was justified in light of the significant and material
contributions of Mr. Saylor to the day-to-day business operations of the Company
and the preparations in 1999 for the Company's follow-on offering. The
Committee did not make any stock option or other stock-based incentive awards to
Mr. Saylor during Fiscal Year 1999. In the subjective view of the Committee,
Mr. Saylor's base salary and bonus is below the median base salary and bonus
awarded by comparable companies to their Chief Executive Officers. The Committee
determined that, given Mr. Saylor's substantial beneficial ownership of the
Company's Common Stock, his long-term interests in the performance and
profitability of the Company are aligned with those of other stockholders and,
accordingly, no additional financial or stock-based incentives were warranted.
Section 162(m) of the Internal Revenue Code
The Committee also takes into account, to the extent it believes
appropriate, the limitations on the deductibility of executive compensation
imposed by Section 162(m) of the Internal Revenue Code in determining
compensation levels and practices.
12
<PAGE>
COMPENSATION COMMITTEE
Ralph S. Terkowitz
Frank A. Ingari
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Class A Common Stock of the Company from June 11, 1998 (the date the Company's
shares of Class A Common Stock were first offered to the public) to December 31,
1999 (the end of Fiscal Year 1999) with the cumulative total return of (i) the
CRSP Total Return Index for the Nasdaq National Market (U.S. Companies) (the
"Nasdaq Index") and (ii) a peer group of companies consisting of Business
Objects, Cognos, Inc., Brio Industries, Inc. and Actuate Software Corporation
(the "Peer Index"). This graph assumes the investment of $100.00 on June 11,
1998 in the Company's Class A Common Stock, the Nasdaq Index and the Peer Index,
and assumes any dividends are reinvested. Measurement points are June 11, 1998
and December 31, 1999 (the date the Company's shares of Class A Common Stock
were first offered to the public and the Company's last fiscal year end,
respectively).
[Comparison Graph Appears Here]
June 11, Dec. 31,
1998 1999
MicroStrategy Incorporated $100 $1,750.01
Nasdaq Index $100 $ 225.83
Peer Index (1) $100 $ 330.36
________________
(1) The Company notes that Information Advantage, Inc., a former constituent of
the Peer Index in the Company's proxy statement for the 1999 Annual Meeting
of Stockholders, is no longer in existence as a result of an acquisition by
Sterling Software in August 1999.
13
<PAGE>
PROPOSAL 2
AMENDMENT TO THE 1997 DIRECTOR OPTION PLAN
Introduction
A proposal will be presented at the Annual Meeting that the Stockholders
approve an amendment to the Company's 1997 Director Option Plan to increase the
maximum number of shares of Class A Common Stock available under the plan from
400,000 shares to 600,000 shares (subject to a proportionate adjustment for
certain changes in the Company's capitalization, such as a stock split).
Approval of the proposed amendment to the 1997 Director Option Plan by the
affirmative vote of a majority of the votes cast by the holders of Common Stock
present, or represented, and entitled to vote at the Annual Meeting is
appropriate in order to ensure that the Company will have sufficient shares of
Class A Common Stock available under the 1997 Director Option Plan to continue
to provide option grants in order to attract and retain the best available
personnel for service as Outside Directors of the Company.
On February 16, 2000, John W. Sidgmore was granted an option to purchase
90,000 shares of the Company's Class A Common Stock pursuant to the 1997
Director Option Plan. Due to prior grants under the 1997 Director Option Plan,
10,000 of Mr. Sidgmore's 90,000 shares subject to option are subject to
stockholder approval of this proposal.
Set forth below is a brief summary of the principal provisions of the 1997
Director Option Plan.
Summary of the Plan
The Company's 1997 Director Option Plan was adopted by the Board of
Directors and the stockholders in September of 1997. The Director Option Plan
provides that each person who becomes a non-employee director of the Company
shall, on the date on which the optionee first becomes a director of the
Company, be granted an option to purchase 90,000 shares of Class A Common Stock
(the "First Option"). On the date of each annual stockholders meeting
thereafter, each non-employee director shall be granted an option to purchase
10,000 shares of Class A Common Stock (a "Subsequent Option") if, on such date,
he or she shall have served on the Company's Board of Directors for at least six
months prior to the annual meeting.
The Director Option Plan sets neither a maximum nor a minimum number of
shares subject to options that may be granted to any one non-employee director,
but does stipulate the method of making a grant. No option granted under the
Director Option Plan is transferable by the optionee other than by will or the
laws of descent and distribution, and each option is exercisable, during the
lifetime of the optionee, only by such optionee. The Director Option Plan
provides that the First Option shall become exercisable in installments of one-
fifth of the shares subject to the First Option on each of the first, second,
third, fourth and fifth anniversaries of the date of grant of the First Option,
and that each Subsequent Option shall become exercisable in full on the fifth
anniversary of its date of grant. The exercise price of all stock options
granted under the Director Option Plan shall be equal to the fair market value
of the shares of Class A Common Stock on the date of grant of the option.
Options granted under the Director Option
14
<PAGE>
Plan have a term of 10 years. In the event of a merger of the Company with or
into another corporation or a sale of substantially all of the Company's assets,
each option will be assumed or an equivalent option substituted by the successor
corporation. If the successor corporation does not assume outstanding options,
the exercisability of all outstanding options shall be accelerated. The Board of
Directors may amend or terminate the Director Option Plan, provided, however,
that no such action may adversely affect any outstanding option and provided
further that the provisions affecting the grant and terms of options may not be
amended more than once during any six-month period.
In fiscal 2000, the Company anticipates that it will award to non-executive
directors as a group options to purchase 120,000 shares under the 1997 Director
Option Plan. The Named Executive Officers and other officers of the Company are
not eligible to receive awards under the 1997 Director Option Plan and therefore
will not receive any grants under the plan in fiscal 2000.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options granted under the
1997 Director Option Plan and with respect to the sale of Common Stock acquired
under the 1997 Director Option Plan.
Tax Consequences to Participants. A participant will not recognize taxable
- --------------------------------
income upon the grant of an option under the 1997 Director Option Plan.
Nevertheless, a participant generally will recognize ordinary compensation
income upon the exercise of the option in an amount equal to the excess of the
fair market value of the Common Stock acquired through the exercise of the
option (the "Option Stock") on the exercise date over the exercise price.
A participant will have a tax basis for any Option Stock equal to the
exercise price plus any income recognized with respect to the option. Upon
selling Option Stock, a participant generally will recognize capital gain or
loss in an amount equal to the difference between the sale price of the Option
Stock and the participant's tax basis in the Option Stock. This capital gain or
loss will be a long-term capital gain or loss if the participant has held the
Option Stock for more than one year prior to the date of the sale and will be a
short-term capital gain or loss if the participant has held the Option Stock for
a shorter period.
Tax Consequences to the Company. The grant of an option under the 1997 Director
- -------------------------------
Option Plan will have no tax consequences to the Company. The Company generally
will be entitled to a business-expense deduction, however, with respect to any
ordinary compensation income recognized by a participant under the Director
Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THE
PROPOSED AMENDMENT TO THE COMPANY'S 1997 DIRECTOR OPTION PLAN.
15
<PAGE>
PROPOSAL 3
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
Currently the Company's Certificate of Incorporation authorizes the
issuance of 100,000,000 shares of Class A Common Stock and 100,000,000 shares of
Class B Common Stock. On January 3, 2000 the Company's Board of Directors
approved a two-for-one split of the Company's Class A Common Stock and Class B
Common Stock. As of the close of business on February 23, 2000, 23,332,210
shares of Class A Common Stock were issued and outstanding and 55,516,929 shares
of Class B Common Stock were issued and outstanding, leaving 76,667,790 shares
of Class A Common Stock authorized but unissued and 44,483,071 shares of Class B
Common Stock authorized but unissued. Of the authorized but unissued shares, the
Company has reserved 60,607,047 shares of Class A Common Stock for issuance upon
conversion of the Class B Common Stock and for future issuances under the
Company's stock option plans and employee stock purchase plan.
The Board of Directors of the Company believes that the adoption of the
proposed amendment to the Company's Certificate of Incorporation increasing the
authorized shares of Class A Common Stock and Class B Common Stock is advisable
and in the best interests of the Company and its stockholders and is
recommending such amendment to restore the flexibility to issue Class A Common
Stock and Class B Common Stock that existed before the stock split mentioned
above and to assure that an adequate supply of authorized and unissued shares of
Class A Common Stock and Class B Common Stock is available for general corporate
needs, including future stock dividends, stock splits, issuances under the
Company's stock option plans and employee stock purchase plan, acquisitions and
equity financings. The availability of additional shares of Class A Common Stock
and Class B Common Stock for issuance, without the delay and expense of
obtaining the approval of stockholders at a special meeting, will afford the
Company greater flexibility in taking corporate action.
The newly authorized Class A Common Stock and Class B Common Stock, like
the currently authorized Class A Common Stock and Class B Common Stock, may be
used by the Company for any proper corporate purpose. Such purposes may include,
without limitation, issuance as part or all of the consideration required to be
paid by the Company in the acquisition of other businesses or properties, or
issuance in public or private sales for cash as a means of obtaining additional
capital for use in the Company's business and operations. Notwithstanding the
foregoing, the Company generally does not intend to issue additional shares of
Class B Common Stock except in connection with future stock splits.
If approved by the stockholders, the increased number of authorized shares
of Class A Common Stock and Class B Common Stock will be available for issuance
from time to time for such purposes and consideration as the Board of Directors
may approve and no further vote of the stockholders of the Company will be
required, except as required under the Delaware General Corporation Law or the
rules of any national securities exchange or quotation system, such as the
NASDAQ National Market, on which the shares of the Company are at the time
listed or quoted.
The additional shares of Class A Common Stock and Class B Common Stock for
which
16
<PAGE>
authorization is sought would be identical to the shares of Class A Common Stock
and Class B Common Stock of the Company currently authorized. Although the Board
of Directors will authorize the issuance of additional Class A Common Stock and
Class B Common Stock based on its judgment as to the best interests of the
Company and its stockholders, the issuance of additional shares could have a
dilutive effect on the earnings per share, book value per share, and on the
equity and voting power of existing holders of Class A Common Stock and Class B
Common Stock. Holders of Class A Common Stock and Class B Common Stock are not
now, and will not be, entitled to preemptive rights to purchase shares of any
authorized capital stock of the Company.
In addition, the issuance of additional shares of Class A Common Stock and
Class B Common Stock could, in certain instances, render more difficult or
discourage a merger, tender offer, or proxy contest and thus potentially have an
"anti-takeover" effect, especially if Class A Common Stock and Class B Common
Stock were issued in response to a potential takeover. Such an issuance could
deter the types of transactions which may be proposed or could discourage or
limit the stockholders' participation in certain types of transactions that
might be proposed (such as a tender offer), whether or not such transactions
were favored by the majority of the stockholders, and could enhance the ability
of officers and Directors to retain their positions. For example, without
further stockholder approval, the Board could (i) adopt a "poison pill" which
would, under certain circumstances related to an acquisition not approved by the
Board of Directors, give certain holders the right to acquire additional shares
of Class A Common Stock and/or Class B Common Stock at a low price, or (ii) sell
shares of Class A Common Stock and Class B Common Stock in a private transaction
to purchasers who would oppose a takeover or favor the current Board. Although
this proposal to increase the authorized shares of Class A Common Stock and
Class B Common Stock has been prompted by business and financial considerations
and not by the threat of any known or threatened hostile takeover attempt,
stockholders should be aware that the approval of this proposal could facilitate
future efforts by the Company to deter or prevent changes in control of the
Company, including transactions in which the stockholders might otherwise
receive a premium for their shares over then current market prices.
If the amendment is approved by the stockholders, the first paragraph of
Article IV of the Company's Certificate of Incorporation will be amended to read
as follows:
"The total number of shares of capital stock which the
corporation shall have the authority to issue is
500,000,000 shares, consisting of three classes of
capital stock: (a) 330,000,000 shares of Class A Common
Stock, par value per share (the "Class A Common
Stock"); (b) 165,000,000 shares of Class B Common
Stock, par value $0.001 per share (the "Class B Common
Stock") (the Class A Common Stock and the Class B
Common Stock are collectively referred to as the
"Common Stock"); and (c) 5,000,000 shares of Preferred
Stock, par value $0.001 per share (the "Preferred
Stock")."
If approved by the stockholders, the amendment to the Company's Certificate
of Incorporation increasing the authorized shares of Common Stock will become
effective upon the filing of an amendment to the Company's Certificate of
Incorporation with the Secretary of State
17
<PAGE>
of the State of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THE
PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of PricewaterhouseCoopers LLP
as the Company's independent auditors for the current fiscal year. Although
stockholder approval of the Board of Directors' selection of
PricewaterhouseCoopers LLP is not required by law, the Board of Directors
believes that it is advisable to give stockholders an opportunity to ratify this
selection. If this proposal is not approved at the Annual Meeting, the Board of
Directors may reconsider its selection of PricewaterhouseCoopers LLP.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting and will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from stockholders.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly presented
at the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews, and the Company reserves the right to retain
outside agencies for the purpose of soliciting proxies. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting material to the owners
of stock held in their names, and, as required by law, the Company will
reimburse them for their out-of-pocket expenses in this regard.
Stockholder Proposals
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting of Stockholders (the "2001 Annual Meeting") must be received by the
Company at its principal offices, 8000 Towers Crescent Drive, Vienna, Virginia
22182 not later than November 29, 2000 for inclusion in the proxy materials for
the 2001 Annual Meeting. The Company suggests that proponents submit their
proposals by certified mail, return receipt requested, addressed to the
Secretary of the Company.
18
<PAGE>
If a stockholder of the Company wishes to present a proposal before the
2001 Annual Meeting, but does not wish to have the proposal considered for
inclusion in the Company's proxy statement and proxy card, such stockholder must
also give written notice to the Secretary of the Company at the address noted
above. The Secretary must receive such notice by February 11, 2001. If a
stockholder fails to provide timely notice of a proposal to be presented at the
2001 Annual Meeting, the proxies designated by the Board of Directors of the
Company will have discretionary authority to vote on any such proposal.
By Order of the Board of Directors,
Sanju K. Bansal,
Executive Vice President, Chief
Operating Officer and Secretary
March __, 2000
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. STOCKHOLDERS WHO ATTEND
THE MEETING MAY VOTE THEIR STOCK PERSONALLY EVEN IF THEY HAVE SENT IN THEIR
PROXIES.
19
<PAGE>
Appendix A
----------
MICROSTRATEGY INCORPORATED
1997 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1997 Director Option Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Class A Common Stock of the Company.
------------
(d) "Company" means Microstrategy Incorporated, a Delaware
-------
corporation.
(e) "Director" means a member of the Board.
--------
(f) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(h) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date
20
<PAGE>
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "Inside Director" means a Director who is an Employee.
---------------
(j) "Option" means a stock option granted pursuant to the Plan.
------
(k) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(l) "Optionee" means a Director who holds an Option.
--------
(m) "Outside Director" means a Director who is not an Employee.
----------------
(n) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1997 Director Option Plan.
----
(p) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 200,000 Shares of Common Stock (the "Pool"). The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. The provisions set forth in this Section
--------------------
4(a) shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
21
<PAGE>
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 45,000 Shares (the "First Option") on the date on which the
later of the following events occurs: (A) the effective date of this Plan, as
determined in accordance with Section 6 hereof, or (B) the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be granted an Option to
purchase 5,000 Shares (a "Subsequent Option") each year on the date of the
annual stockholders' meeting provided he or she is then an Outside Director and
if as of such date, he or she shall have served on the Board for at least the
preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall vest and become exercisable
only pursuant to the terms of the Director Option Agreement evidencing such
First Option, except as set forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option. In the event
that the date of grant of the First Option is not a trading day, the exercise
price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become vested as to twenty percent (20%) of the Shares subject to the First
Option on each anniversary of its date of grant, provided that the Optionee
continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall vest and become
exercisable only pursuant to the terms of the Director Option Agreement
evidencing such Subsequent
22
<PAGE>
Option, except as set forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option. In the
event that the date of grant of the Subsequent Option is not a trading day, the
exercise price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall vest as to one hundred percent (100%) of the Shares subject to the
Subsequent Option on the fifth anniversary of its date of grant, provided that
the Optionee continues to serve as a Director on such date.
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the stockholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the stockholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (A) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (B) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) delivery of a properly
executed exercise notice together with such other documentation as the Company
and the broker, if applicable, shall require to effect an exercise of the option
and delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (v) any combination of the foregoing methods of payment.
23
<PAGE>
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall vest and become exercisable at such times as are set
forth in Section 4 hereof and pursuant to the Director Option Agreement;
provided, however, that no Options shall be exercisable until stockholder
approval of the Plan in accordance with Section 16 hereof has been obtained.
An Option may not be exercised for a fraction of a Share.
If otherwise exercisable, an Option shall be deemed to be exercised
when written notice of such exercise has been given to the Company in accordance
with the terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised has
been received by the Company. Full payment may consist of any consideration and
method of payment allowable under Section 7 of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment shall be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Rule 16b-3. Options granted to Outside Directors must comply
----------
with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
or any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify Plan transactions, and
other transactions by Outside Directors that otherwise could be matched with
Plan transactions, for the maximum exemption from Section 16 of the Exchange
Act.
(c) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code), the Optionee shall retain any vested
portion of this Option (determined in accordance with the terms of the Director
Option Agreement) and the Optionee (or his or her legal representative, as
applicable) may exercise his or her Option, but only pursuant to the terms of
the Director Option Agreement. To the extent that the Option was not vested on
the date of such termination, and to the extent that the Optionee does not
exercise such Option (to the extent otherwise so entitled) within the time
specified pursuant to the Director Option Agreement, the Option shall terminate.
(d) Disability of Optionee. In the event Optionee's status as a
----------------------
Director
24
<PAGE>
terminates as a result of total and permanent disability (as defined in Section
22(e)(3) of the Code), the Optionee shall retain any vested portion of his or
her Option (determined in accordance with the terms of the Director Option
Agreement) and the Optionee (or his legal representative, as applicable) may
exercise his or her Option, but only pursuant to the terms of the applicable
Director Option Agreement . To the extent that the Option was not vested on the
date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified pursuant to the Director
Option Agreement, the Option shall terminate.
(e) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance shall retain the vested portion of the Option (determined
in accordance with the terms of the Director Option Agreement) and may exercise
the Option, but only in accordance with the terms of the Director Option
Agreement (but in no event later than the expiration of its ten (10) year term).
To the extent that the Option was not vested on the date of death, and to the
extent that the Optionee's estate or a person who acquired the right to exercise
such Option does not exercise such Option (to the extent otherwise so entitled)
within the time specified in the Director Option Agreement, the Option shall
terminate.
9. Non-Transferability of Options. No Option may be sold, pledged,
------------------------------
assigned or transferred in any manner other than by a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder ("QDRO") or by
will or the laws of descent and distribution unless and until such Option has
been exercised, or the shares underlying such Option have been issued, and all
restrictions applicable to such shares have lapsed; provided, however, an
Optionee may transfer an Option to a Permitted Transferee (as defined below) to
the extent permitted by any applicable law or regulations and subject to the
following terms and conditions:
(a) An Option transferred to a Permitted Transferee shall not be
assignable or transferable by the Permitted Transferee other than by a QDRO or
by will or the laws of descent and distribution.
(b) Any Option which is transferred to a Permitted Transferee shall
continue to be subject to all the terms and conditions of the Option as
applicable to the original holder (other than the ability to further transfer
the Option).
(c) The Optionee and the Permitted Transferee shall execute any and
all documents reasonably requested by the Board, including without limitation
documents to (i) confirm the status of the transferee as a Permitted Transferee,
(ii) satisfy any requirements for an exemption for the transfer under applicable
federal and state securities laws and (iii) evidence the transfer.
(d) Shares of Common Stock acquired by a Permitted Transferee through
exercise of an Option have not been registered under the Securities Act of 1933,
as amended, or any state securities act and may not be transferred, nor will any
assignee or transferee thereof be recognized as an owner of such shares of
Common Stock for any purpose, unless a registration statement under the
Securities Act of 1933, as amended, and any applicable state securities act with
respect to such
25
<PAGE>
shares shall then be in effect or unless the availability of an exemption from
registration with respect to any proposed transfer or disposition of such shares
shall be established to the satisfaction of counsel for the Company.
As used in this Section 9, "Permitted Transferee" shall mean (i) one
or more of the following family members of an Optionee: spouse, former spouse,
child (whether natural or adopted), stepchild, any other lineal descendant of
the Optionee, (ii) a trust, partnership or other entity established and existing
for the sole benefit of, or under the sole control of the Optionee or one or
more of the above family members of the Optionee, or (iii) any other transferee
specifically approved by the Board after taking into account any state or
federal tax or securities laws applicable to transferable Options.
No interest or right therein shall be liable for the debts, contracts
or engagements of the holder thereof or his successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding provisions of
this Section 9. Except as specifically provided in this Section 9, an Option
shall be exercised during the Optionee's lifetime only by the Optionee or his
guardian or legal representative.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding
26
<PAGE>
Options may be assumed or equivalent options may be substituted by the successor
corporation or a Parent or Subsidiary thereof (the "Successor Corporation"). If
an Option is assumed or substituted for, the Option or equivalent option shall
continue to be exercisable as provided in Section 4 hereof for so long as the
Optionee serves as a Director or a director of the Successor Corporation.
Following such assumption or substitution, if the Optionee's status as a
Director or director of the Successor Corporation, as applicable, is terminated
other than upon a voluntary resignation by the Optionee, the Option or option
shall become fully exercisable, including as to Shares for which it would not
otherwise be exercisable. Thereafter, the Option or option shall remain
exercisable in accordance with Sections 8(c) through (e) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. Except as set forth in Section 4, the
-------------------------
Board may at any time amend, alter, suspend, or discontinue the Plan, but no
amendment, alteration, suspension, or discontinuation shall be made which would
impair the rights of any Optionee under any grant theretofore made, without his
or her consent. In addition, to the extent necessary and desirable to comply
with Rule 16b-3 under the Exchange Act (or any applicable law or regulation),
the Company shall obtain stockholder approval of any Plan amendment in such a
manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations
27
<PAGE>
promulgated thereunder, state securities laws, and the requirements of any stock
exchange upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
16. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
28
<PAGE>
AMENDMENT NO. 1 TO THE 1997 DIRECTOR OPTION PLAN
OF MICROSTRATEGY INCORPORATED
The first sentence of Section 3 of the 1997 Director Option Plan (the
"Plan") of MicroStrategy Corporation is hereby amended and restated in its
entirety, subject to stockholder approval, to provide as follows:
"Subject to the provisions of Section 10 of the Plan (except as such
provisions relate to stock splits effected prior to February 16, 2000), the
maximum aggregate number of Shares which may be optioned and sold under the Plan
is 600,000 Shares of Common Stock (the `Pool')."
Adopted by the Board of Directors
on February 16, 2000
29
<PAGE>
Appendix B
----------
PROXY MICROSTRATEGY INCORPORATED PROXY
Proxy for the Annual Meeting of Stockholders to be held April 28, 2000
This Proxy is Solicited on Behalf of the Board of Directors of the Company
The undersigned, revoking all prior proxies, hereby appoint(s) Michael J.
Saylor, Mark Lynch and Jonathan F. Klein, and each of them, with full power of
substitution, as proxies to represent and vote, as designated herein, all shares
of stock of MicroStrategy Incorporated (the "Company") which the undersigned
would be entitled to vote if personally present at the Annual Meeting of
Stockholders of the Company to be held at the Renaissance Hotel, 999 9th Street,
NW, Washington, D.C. 20001-4427 on Friday, April 28, 2000 at 4:00 p.m., local
time, and at any adjournment thereof (the "Meeting").
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy
will be voted FOR all proposals. Attendance of the undersigned at the meeting
or at any adjournment thereof will not be deemed to revoke this proxy unless the
undersigned shall revoke this proxy in writing or shall deliver a subsequently
dated proxy to the Secretary of the Company or shall vote in person at the
Meeting.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED POSTAGE-PAID
RETURN ENVELOPE.
<TABLE>
<S> <C> <C> <C> <C>
1. To elect the following six (6) directors 2. Approval of an amendment to the Company's 1997 For Against Abstain
(except as marked below) for the ensuing year. Director Option Plan, as set forth in the
accompanying Proxy Statement. [ ] [ ] [ ]
Nominees: Michael J. Saylor, Sanju K. Bansal,
Ralph S. Terkowitz, Frank A. Ingari, Jonathan 3. Approval of an amendment to the Company's
J. Ledecky and John W. Sidgmore Certificate of Incorporation to increase the
number of authorized Class A Common Stock and [ ] [ ] [ ]
[ ] FOR all nominees [ ] WITHHOLD authority Class B Common Stock, as set forth in the
(except as marked below) to vote for all accompanying Proxy Statement.
nominees
4. Ratification of selection of [ ] [ ] [ ]
FOR all nominees except the following nominee(s): PricewaterhouseCoopers LLP as the Company's
independent public accountants for the current
fiscal year.
____________________________________________
NOTE: Please sign exactly as name appears hereon.
____________________________________________ If the stock is registered in the names of two or
more persons, each should sign. Executors,
administrators, trustees, guardians, attorneys and
corporate officers should add their titles.
Signature:____________________ Date:_________ Signature:____________________ Date:____________
</TABLE>
