As filed with the Securities and Exchange Commission on March 26, 2002
Registration Statement No. 333-58136
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 6
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MICROSTRATEGY INCORPORATED
(Exact name of registrant as specified in its charter)
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Delaware 51-0323571
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1861 International Drive
McLean, Virginia 22102
(703) 848-8600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Mr. Michael J. Saylor
Chief Executive Officer
MicroStrategy Incorporated
1861 International Drive
McLean, Virginia 22102
(703) 848-8600
Copy to:
Thomas S. Ward, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
(617) 526-6000
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] 333- .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] 333- .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities or accept an offer to buy these securities until +
+the registration statement filed with the Securities and Exchange Commission +
+is effective. This prospectus is not an offer to sell these securities and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 26, 2002
PROSPECTUS
MICROSTRATEGY INCORPORATED
1,900,000 Shares of Class A Common Stock
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The shares of class A common stock described in this prospectus are issuable
upon exercise of warrants to be issued to class members pursuant to a
settlement agreement among us, some of our officers and directors and
plaintiffs' counsel, approved by the United States District Court for the
Eastern District of Virginia on April 2, 2001, relating to a consolidated class
action lawsuit filed against us, some of our officers and directors and our
independent accountants. We will sell the shares to the class members upon
exercise of the warrants at an exercise price of $40.00 per share. If all of
the warrants were exercised for cash, we would receive aggregate gross cash
proceeds of $76,000,000. However, holders of the warrants may not exercise some
or all of the warrants. In addition, the warrants may be exercised by the
surrender of notes issued by us to the class members pursuant to the settlement
agreement as payment of the exercise price, valued for this purpose at 133% of
the principal amount and all accrued and unpaid interest on the notes so
surrendered. Therefore, the amount of any cash proceeds that we may receive
upon exercise of the warrants is uncertain.
We have filed a registration statement (File No. 333-64104) for the resale of
25,563,896 shares of class A common stock by various selling stockholders,
which were issued in exchange for our series A preferred stock or are issuable
upon conversion of or as dividends on our series B preferred stock, series C
preferred stock, series D preferred stock and series E preferred stock. These
25,563,896 shares are not offered by means of this prospectus. These shares may
be sold by the selling stockholders from time to time, including concurrently
with the offering made pursuant to this prospectus.
Our class A common stock is traded on the Nasdaq National Market under the
symbol "MSTR." On March 22, 2002, the closing sale price of our class A common
stock on Nasdaq was $2.90 per share.
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Investing in our class A common stock involves a high degree of risk. See
"Risk Factors" beginning on page 6.
-----------
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.
The date of this prospectus is , 2002.
TABLE OF CONTENTS
Page
----
Where to Find More Information.......................................... 3
Incorporation of Certain Documents By Reference......................... 3
Special Note Regarding Forward-Looking Information...................... 4
Business................................................................ 5
Risk Factors............................................................ 6
Use of Proceeds......................................................... 16
Plan of Distribution.................................................... 16
Legal Matters........................................................... 16
Experts................................................................. 16
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We have not authorized anyone to provide you with information different from
that contained or incorporated by reference in this prospectus. The selling
stockholder is offering to sell, and seeking offers to buy, shares of our
common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of
any sale of the shares.
2
WHERE TO FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and other
documents with the Securities and Exchange Commission (the "SEC"). You may read
and copy any document we file at the SEC's public reference room at Judiciary
Plaza Building, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You
should call 1-800-SEC-0330 for more information on the public reference room.
Our SEC filings are also available to you on the SEC's Internet site at
http://www.sec.gov. Our common stock is quoted on Nasdaq. Reports, proxy
statements and other information concerning MicroStrategy may be inspected at
the offices of The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington,
D.C. 20006.
This prospectus is part of a registration statement that we filed with the
SEC. The registration statement contains more information than this prospectus
regarding MicroStrategy and the common stock, including certain exhibits and
schedules. You can obtain a copy of the registration statement from the SEC at
the address listed above or from its Internet site.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate" into this prospectus information we file
with the SEC in other documents. This means that we can disclose important
information to you by referring to other documents that contain that
information. The information incorporated by reference is considered to be part
of this prospectus, and information that we file with the SEC in the future and
incorporate by reference will automatically update and may supersede the
information contained in this prospectus. We incorporate by reference the
documents listed below and any future filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), prior to the sale of all the shares covered by
this prospectus.
The following documents that we have filed with the SEC are incorporated
herein by reference:
(1) Our Annual Report on Form 10-K for the year ended December 31,
2001;
(2) Our definitive proxy statement on Schedule 14A, relating to our
2001 Annual Meeting of Stockholders, filed June 28, 2001;
(3) Our Current Report on Form 8-K filed February 8, 2002;
(4) 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
(5) The description of our class A common stock contained in our
Registration Statement on Form 8-A, including any amendments or reports
filed for the purpose of updating such description.
You may request a copy of these documents, at no cost, by writing to:
MicroStrategy Incorporated
1861 International Drive
McLean, Virginia 22102
Attention: Investor Relations
Telephone: (703) 848-8600
3
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus contains or incorporates forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Exchange Act. You can identify these
forward-looking statements by our use of the words "believes," "anticipates,"
"plans," "expects," "may," "will," "intends," "estimates" and similar
expressions, whether in the negative or affirmative. Although we believe that
these forward-looking statements reasonably reflect our plans, intentions and
expectations, we cannot guarantee that we actually will achieve these plans,
intentions or expectations. Our actual results could differ materially from the
plans, intentions and expectations disclosed in the forward-looking statements
we make. We have included important factors in the cautionary statements below
(particularly under the heading "Risk Factors") that we believe could cause our
actual results to differ materially from the forward-looking statements that we
make. We do not intend to update information contained in any forward-looking
statement we make.
4
BUSINESS
We are a leading worldwide provider of business intelligence software that
enables companies to analyze the raw data stored across their enterprise to
reveal the trends and answers needed to manage their business effectively. Our
software delivers this critical insight to workgroups, the enterprise and
extranet communities via e-mail, web, wireless and voice communication
channels. Businesses can use our software platform to develop user-friendly
solutions, proactively optimize revenue-generating strategies, enhance cost-
efficiency and productivity and improve their customer relationships.
Our software platform enables users to query and analyze the most detailed,
transaction-level databases, turning data into business intelligence and
delivering reports and alerts about the users' business processes. Our web
architecture provides reporting, security, performance and standards that are
critical for web deployment. Within intranets, our products provide employees
with information to enable them to make better, more cost-effective business
decisions. In extranets, enterprises can use our MicroStrategy 7 software to
build stronger relationships by linking customers and suppliers via the
Internet. We also offer a comprehensive set of consulting, education and
technical support services for our customers and partners.
Our principal corporate offices are located in McLean, Virginia. We also
maintain domestic sales offices throughout the United States and international
sales offices throughout Europe, South America and the Asia-Pacific region.
International sales accounted for 34.1%, 25.9% and 24.0% of our total revenues
in 2001, 2000 and 1999, respectively.
MicroStrategy's executive offices are located at 1861 International Drive,
McLean, Virginia 22102, its telephone number is (703) 848-8600 and its website
is located at http://www.microstrategy.com. MicroStrategy(R) is a registered
trademark of MicroStrategy.
5
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our class A common stock could decline and you
may lose all or part of your investment.
We have experienced losses in the past and expect future losses through at
least the first half of 2002
We have not achieved profitability and have incurred significant operating
losses in each of the last five years. We incurred net losses of $80.9
million, $261.3 million, and $33.7 million for the years ended December 31,
2001, 2000 and 1999, respectively. As of December 31, 2001, our accumulated
deficit was $380.1 million. We expect our gross revenue to decline from the
year ended December 31, 2001 to the year ending December 31, 2002. In
connection with our April and September 2001 corporate restructurings, we
recorded restructuring and impairment charges of $39.5 million for the year
ended December 31, 2001.
We did not generate net income for the year ended December 31, 2001 and do
not expect to do so through at least the first half of 2002. Even if we are
able to generate net income, we may not be able sustain or increase
profitability on a quarterly or annual basis in the future. If revenue
declines more significantly than we anticipate, or if operating expenses
exceed our expectations or cannot be adjusted accordingly, our business,
results of operations and financial condition will be materially and adversely
affected.
Our quarterly operating results, revenues and expenses may fluctuate
significantly, which could have an adverse effect on the market price of our
stock
For a number of reasons, including those described below, our operating
results, revenues and expenses may vary significantly from quarter to quarter.
These fluctuations could have an adverse effect on the market price of our
class A common stock.
Fluctuations in Quarterly Operating Results. Our quarterly operating
results may fluctuate as a result of:
. the size, timing and execution of significant orders and shipments;
. the mix of products and services of customer orders, which can affect
whether we recognize revenue upon the signing and delivery of our
software products or whether revenue must be recognized as work
progresses or over the entire contract period;
. the timing of new product announcements;
. changes in our pricing policies or those of our competitors;
. market acceptance of business intelligence software generally and of new
and enhanced versions of our products in particular;
. the length of our sales cycles;
. changes in our operating expenses;
. personnel changes;
. our success in adding to our indirect distribution channels;
. utilization of our consulting personnel, which can be affected by delays
or deferrals of customer implementation of our software products and
consulting, education and support services;
. changes in foreign currency exchange rates; and
6
. seasonal factors, such as our traditionally lower pace of new sales in
the summer.
Limited Ability to Adjust Expenses. We base our operating expense budgets on
expected revenue trends. Many of our expenses, such as office and equipment
leases, are relatively fixed. We may be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall. Accordingly, any shortfall
in revenue may cause significant variation in operating results in any quarter.
Based on the above factors, we believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance.
It is possible that in one or more future quarters, our operating results may
be below the expectations of public market analysts and investors. In that
event, the trading price of our class A common stock may fall.
We may lose sales, or sales may be delayed, due to the long sales and
implementation cycles for our products, which would reduce our revenues
To date, our customers have typically invested substantial time, money and
other resources and involved many people in the decision to license our
software products and purchase our consulting and other services. As a result,
we may wait nine months or more after the first contact with a customer for
that customer to place an order while they seek internal approval for the
purchase of our products and/or services. During this long sales cycle, events
may occur that affect the size or timing of the order or even cause it to be
canceled. For example, our competitors may introduce new products, or the
customer's own budget and purchasing priorities may change.
Even after an order is placed, the time it takes to deploy our products and
complete consulting engagements varies widely from one customer to the next.
Implementing our 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 recognition of deferred revenue and advance payments is subject to future
performance obligations and may not be representative of revenues for
succeeding periods
Our deferred revenue and advance payments were approximately $26.4 million
as of December 31, 2001. The timing and ultimate recognition of our deferred
revenue and advance payments depend on our performance of various service
obligations. Because of the possibility of customer changes in development
schedules, delays in implementation and development efforts and the need to
satisfactorily perform product support services, deferred revenue and advance
payments at any particular date may not be representative of actual revenue for
any succeeding period.
We may need additional financing which could be difficult to obtain
We may require additional external financing through credit facilities, sale
of additional debt or equity securities in MicroStrategy or by obtaining other
financing facilities to support our operations. Obtaining additional financing
will be subject to a number of factors, including:
. market conditions;
. our operating performance; and
. investor sentiment.
These factors may make the timing, amount, terms and conditions of
additional financing unattractive to us. If we are unable to raise capital
needed to fund our operations, our business, operating results and financial
condition may be materially and adversely affected. Our credit facility
contains a covenant obligating us to obtain a minimum of $10 million in
additional financing on or before June 30, 2002. If we are unable to obtain a
waiver or extension of this covenant or are unable to obtain this financing on
acceptable terms, this covenant could have an adverse effect on our liquidity
and financial condition.
7
We face litigation that could have a material adverse effect on our business,
financial condition and results of operations
We and certain of our directors and executive officers are named as
defendants in a private securities class action lawsuit and a shareholder
derivative lawsuit relating to the restatement of our 1999, 1998 and 1997
financial results. Although we have entered into agreements to settle such
lawsuits and the settlements have received court approval, both settlements are
subject to various closing conditions. If the agreed upon settlements are not
consummated, it is possible that we may be required to pay substantial damages
or settlement costs which could have a material adverse effect on our financial
condition or results of operation.
The issuance of class A common stock as part of the proposed settlement of
class action litigation and the conversion of notes issued as part of the
litigation settlement could result in a substantial number of additional shares
of class A common stock being issued
The agreements we entered into to settle the private securities class action
lawsuit and the derivative suit relating to the restatement of our 1999, 1998
and 1997 financial results require us to issue to members of the class
2,777,778 shares of class A common stock. At the time of that issuance, some of
our officers will tender to us for no consideration 1,683,504 shares of class A
common stock for cancellation, resulting in a net issuance of 1,094,274 shares
of class A common stock. In addition, the settlement agreements require the
issuance of five-year unsecured subordinated promissory notes having an
aggregate principal amount of $80.5 million. We would have the option at any
time prior to the expiration of the five-year term of the notes to convert the
notes into a number of shares of class A common stock equal to the principal
amount of the notes being converted divided by 80% of the dollar volume-
weighted average trading price of the class A common stock over a ten-day
period preceding our delivery of a notice of conversion, which could result in
a substantial number of shares of class A common stock being issued. For
example, if the conversion price of the notes were based on the dollar volume-
weighted average trading price of the class A common stock during the 10
trading days ending March 1, 2002, we would be obligated to issue 36,133,216
shares of class A common stock if we elected to convert the notes. In addition,
if we elect to convert the notes at prices that would result in the issuance of
shares with a market value in excess of the value of the notes reflected on our
balance sheet, we would incur a non-cash charge to earnings at the time of
conversion equal to the amount of such excess, and this charge could be
substantial. The issuance of a substantial number of shares of class A common
stock as part of the litigation settlement and future conversions of the notes
issued in the litigation settlement may result in substantial dilution to the
interests of holders of class A common stock and may result in downward
pressure on the price of our class A common stock.
The conversion of the shares of our preferred stock could result in substantial
numbers of additional shares of class A common stock being issued if our market
price declines during periods in which the conversion price of the preferred
stock may adjust
Our series B preferred stock, series C preferred stock and series D
preferred stock are convertible into shares of our class A common stock at
conversion prices currently equal to $12.50, $17.50 and $5.00 per share,
respectively. The outstanding shares of series B preferred stock, series C
preferred stock and series D preferred stock would currently convert into
7,142,200 shares of class A common stock, plus a number of shares reflecting
accrued but unpaid dividends as of the conversion date. However, if the holders
of the series B preferred stock and series C preferred stock do not convert
their shares into shares of class A common stock prior to their maturity three
years from the date of issuance, and if we do not redeem their outstanding
shares of series B preferred stock and series C preferred stock at maturity,
the conversion price for such shares will be reset to a price equal to 95% of
the dollar volume-weighted average price of our class A common stock for the 30
trading days prior to the maturity date. If the market price at maturity of our
class A common stock is less than the applicable conversion price, the number
of shares of class A common stock that we could be required to issue upon
conversion of the series B preferred stock and series C preferred stock would
increase. For instance, if the market price of our class A common stock on the
maturity date of our series B preferred stock and series C preferred stock were
$2.72, the closing sale price of our class A common stock as of March 1,
8
2002, the holders of the series B preferred stock and series C preferred stock
did not elect to convert any of their shares prior to the maturity date and we
did not redeem such shares on the maturity date, we would be required to issue
a total of 22,408,088 shares of our class A common stock upon conversion of
such shares at maturity plus a number of shares reflecting accrued but unpaid
dividends.
We currently have 650 shares of our series A preferred stock outstanding. As
of March 1, 2002, shares of series A preferred stock are convertible into
2,108,247 shares of class A common stock based on the current conversion price
equal to $3.08313 per share. At our option, the series A preferred stock may be
redeemed on the maturity date of June 19, 2002 at stated value plus accrued
dividends or mandatorily converted into class A common stock based on a
conversion price equal to 95% of the average of the dollar volume-weighted
average price of the class A common stock during the 30 consecutive trading
days immediately preceding the maturity date. Additionally, at our option, we
may extend the maturity of the series A preferred stock for up to an additional
two years. If we elect to extend the maturity of the series A preferred stock,
the conversion price may be adjusted based on the average of the dollar-volume
weighted average price of the class A common stock on each trading day during
the ten days immediately following each anniversary of the original maturity,
if such adjustment would result in a lower conversion price. The conversion
price of the series A preferred stock may also be adjusted upon the occurrence
of various events, including the failure to maintain the effectiveness of the
registration statement to which these shares relate and the issuance of certain
equity securities. As a result, the lower the price of our class A common stock
at these intervals, the greater the number of shares the holder will receive
upon conversion after any such adjustment.
To the extent the shares of our preferred stock are converted or dividends
on these shares are paid in shares of class A common stock rather than cash, a
significant number of shares of class A common stock may be sold into the
market, which could decrease the price of our class A common stock and
encourage short sales. Short sales could place further downward pressure on the
price of our class A common stock. In that case, we could be required to issue
an increasingly greater number of shares of our class A common stock upon
future conversions of the series A preferred stock, series B preferred stock
and series C preferred stock as a result of the annual and other adjustments
described above, sales of which could further depress the price of our class A
common stock.
The conversion of and the payment of dividends in shares of class A common
stock in lieu of cash on the preferred stock may result in substantial dilution
to the interests of other holders of our class A common stock. No holder may
convert its preferred stock if upon such conversion the holder together with
its affiliates would have acquired a number of shares of class A common stock
during the 60-day period ending on the date of conversion which, when added to
the number of shares of class A common stock held at the beginning of such 60-
day period, would exceed 9.99% of our then outstanding class A common stock,
excluding for purposes of such determination shares of class A common stock
issuable upon conversion of shares of preferred stock which have not been
converted. Nevertheless, a holder may still sell a substantial number of shares
in the market. By periodically selling shares into the market, an individual
holder 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.
The conversion and other features of our preferred stock will have the
effect of reducing earnings per share if we were to generate net income in any
future period.
We may be required to pay substantial penalties to the holders of the preferred
shares if specific events occur
In accordance with the terms of the agreements relating to the issuance of
our redeemable convertible preferred stock, we are required to pay substantial
penalties to a holder of preferred stock under specified circumstances,
including, among others:
. nonpayment of dividends on the series A preferred stock, series B
preferred stock and series C preferred stock in a timely manner;
9
. failure to deliver shares of our class A common stock upon conversion of
the preferred shares after a proper request;
. nonpayment of the redemption price at maturity of any remaining series A
preferred stock, series B preferred stock and series C preferred stock;
or
. the unavailability of the registration statement relating to the shares
of class A common stock issuable upon conversion of and in lieu of cash
dividends on the preferred stock to cover the resale of such shares for
more than brief intervals.
These penalties are generally paid in the form of interest payments, subject
to any restrictions imposed by applicable law. In the third quarter of 2000, we
incurred $578,000 in penalties as a result of a 14-day delay in the filing of a
registration statement registering the shares of class A common stock issuable
upon conversion of and in lieu of dividends on the series A preferred stock.
We have substantial real estate lease commitments for unoccupied space and if
we are unable to sublet this space on acceptable terms our operating results
and financial condition could be adversely affected
We are party to real estate leases relating to approximately 139,000 square
feet that are unoccupied. We have established a restructuring reserve of $11.0
million related to the costs of disposition of this space as of December 31,
2001. In establishing this reserve, we have assumed that we will be able to
sublet the available space and receive approximately $13.0 million of sublease
income relating to this space. We may not be able to sublet this space on the
assumed terms. If we are unable to do so, we would incur additional
restructuring costs relating to these leases and would expend more cash than
currently expected, which could have an adverse affect on our operating results
and financial condition.
We face intense competition, which may lead to lower prices for our products,
reduced gross margins, loss of market share and reduced revenue
The markets for business intelligence software, analytical applications, and
narrowcast messaging technologies are intensely competitive and subject to
rapidly changing technology. In addition, many of our competitors in these
markets are offering, or may soon offer, products and services that may compete
with MicroStrategy products.
MicroStrategy's most direct competitors provide:
. business intelligence software;
. OLAP, tools;
. query and reporting tools;
. web-based static reporting tools; and
. information delivery and proactive reporting.
Each of these markets are discussed more fully below.
Business Intelligence Software. Makers of business intelligence software
provide business intelligence capabilities designed for integration,
customization and application development. Leading analyst firms classify
companies such as Microsoft, Oracle, Hyperion Solutions, SAP AG, Computer
Associates and SAS to be leading providers of business intelligence software.
OLAP Tools. Companies that build software to perform online analytical
processing (OLAP) provide offerings competitive with the core MicroStrategy 7
platform. Whether web-based or client-server, these tools give end users the
ability to query underlying data sources without having to hand code structured
query language queries. Most OLAP tools allow users to build their own
calculations and specify report layouts and
10
other options. Additionally, OLAP tools provide users the ability to navigate
throughout the underlying data in an easy, graphical mode, often referred to as
drilling. Providers of OLAP tools include Cognos, Hyperion Solutions, Brio
Software, IBM, Crystal Decisions and Microsoft.
Query and Reporting Tools. Query and reporting tools allow large numbers of
end users to gain access to pre-defined reports for simple analysis. Often the
end users are able to specify some sort of run-time criteria that customizes
the result set for that particular person. Some limited drilling is also
provided. Companies which produce query and reporting tools include Business
Objects, Cognos, Oracle, Crystal Decisions, nQuire, Information Builders and
Brio Software.
Web-based Static Reporting Tools. Companies that offer software to deliver
pre-built reports for end user viewing and consumption can also compete with
MicroStrategy. These applications often lack the sophistication, robustness and
scalability of MicroStrategy's platform, but can be attractive for small,
departmental applications. Vendors in this category include Actuate, Business
Objects, Crystal Decisions, Microsoft and SAS.
Information Delivery and Proactive Reporting. Companies that focus on the
proactive delivery of information, via e-mail, website, or other medium can
compete with MicroStrategy's offerings. Typically, these tools serve to push
out compiled reports on a scheduled basis to sets of users based on job type.
MicroStrategy software has integrated this technology into the MicroStrategy 7
platform. Vendors of such technology include Actuate and Business Objects.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources, and greater name
recognition than we do. In addition, many of our competitors have strong
relationships with current and potential customers and extensive knowledge of
the business intelligence industry. As a result, they may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and sale
of their products than we can. Increased competition may lead to price cuts,
reduced gross margins and loss of market share. We cannot be sure that we will
be able to compete successfully against current and future competitors or that
the competitive pressures we face will not have a material adverse effect on
our business, operating results and financial condition.
Current and future competitors may also make strategic acquisitions or
establish cooperative relationships among themselves or with others. By doing
so, they may increase their ability to meet the needs of our potential
customers. Our current or prospective indirect channel partners may establish
cooperative relationships with our current or future competitors. These
relationships may limit our ability to sell our products through specific
distribution channels. Accordingly, new competitors or alliances among current
and future competitors may emerge and rapidly gain significant market share.
These developments could harm our ability to obtain maintenance revenues for
new and existing product licenses on favorable terms.
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
11
. 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 products. Although the core database component of our
business intelligence solutions is compatible with nearly all enterprise server
hardware and operating system combinations, such as OS/390, AS/400, Unix and
Windows, our application server component runs only on the Windows NT and
Windows 2000 operating systems. Therefore, our ability to increase sales
currently depends on the continued acceptance of the Windows NT and Windows
2000 operating systems.
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 holders of class B common stock, 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 March 1, 2002, holders of our class B common stock owned
or controlled 46,531,368 shares of class B common stock, or 91.0% of the total
voting power. Michael J. Saylor, our Chairman and Chief Executive Officer,
controlled 1,041,420 shares of class A common stock and 37,090,235 shares of
class B common stock, or 72.7% of total voting power, as of March 1, 2002.
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.
12
Our certificate of incorporation allows holders of class B common stock,
almost all of whom are current employees or former employees of our company or
related parties, to transfer shares of class B common stock, subject to the
approval of stockholders possessing a majority of the outstanding class B
common stock. Mr. Saylor or a group of stockholders possessing a majority of
the outstanding class B common stock could, without seeking anyone else's
approval, transfer voting control of MicroStrategy to a third party. Such a
transfer of control could have a material adverse effect on our business,
operating results and financial condition. Mr. Saylor will also be able to
prevent a change of control of MicroStrategy, regardless of whether holders of
class A common stock might otherwise receive a premium for their shares over
the then current market price.
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 value-added resellers, system integrators and original
equipment manufacturers to license and support our products in the
United States and internationally. In particular, for the years ended December
31, 2001, 2000 and 1999, channel partners accounted for, directly or
indirectly, approximately 35.4%, 45.0% and 39.2% of our total product license
revenues, respectively. Our channel partners generally offer customers the
products of several different companies, including some products that compete
with ours. Although we believe that direct sales will continue to account for a
majority of product license revenues, we intend to increase the level of
indirect sales activities through our strategic channel partners. However, we
may not be successful in our efforts to continue to expand indirect sales in
this manner. We may not be able to attract strategic partners who will market
our products effectively and who will be qualified to provide timely and cost-
effective customer support and service. Our ability to achieve revenue growth
in the future will depend in part on our success in developing and maintaining
successful relationships with those strategic partners. If we are unable to
develop or maintain our relationships with these strategic partners, our
business, operating results and financial condition will suffer.
We have only limited protection for our proprietary rights in our software,
which makes it difficult to prevent third parties from infringing upon our
rights
We rely primarily on a combination of copyright, patent, trademark and trade
secret laws, customer licensing agreements, employee and third-party
nondisclosure agreements and other methods to protect our proprietary rights.
However, these laws and contractual provisions provide only limited protection.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology.
Policing such unauthorized use is difficult, and we cannot be certain that we
can prevent it, particularly in countries where the laws may not protect our
proprietary rights as fully as in the United States.
Our products may be susceptible to claims by other companies that our products
infringe upon their proprietary rights, which could adversely affect our
business, operating results and financial condition
As the number of software products in our target markets increases and the
functionality of these products further overlaps, we may become increasingly
subject to claims by a third party that our technology infringes such party's
proprietary rights. Regardless of their merit, any such claims could be time
consuming and expensive to defend, may divert management's attention and
resources, could cause product shipment delays and could require us to enter
into costly royalty or licensing agreements. If successful, a claim of
infringement against us and our inability to license the infringed or similar
technology could have a material adverse effect on our business, operating
results and financial condition.
On October 2, 2001, we filed a lawsuit in the Virginia Circuit Court for
Fairfax County against two field employees of Business Objects, S.A. ("BO").
Our lawsuit alleged that these employees, who previously worked for us,
breached their fiduciary and contractual obligations to us by, among other
things,
13
misappropriating our trade secrets and confidential information and soliciting
our employees and customers. Our complaint sought injunctive relief and damages
of at least $3 million. On October 17, 2001, BO filed suit against us in the
United States District Court for the Northern District of California, claiming
that our software infringes a patent issued to BO relating to relational
database access. The suit seeks injunctive relief and unspecified monetary
damages. We intend to vigorously defend the case. On October 31, 2001, we filed
suit against BO in the United States District Court for the Eastern District of
Virginia, claiming that BO's software infringes two patents held by us relating
to asynchronous control of report generation using a web browser and a system
and method of adapting automatic output of OLAP reports to disparate user
output devices. On February 21, 2002, we filed a motion to amend our complaint
against BO to add claims for violations of the federal Computer Fraud and Abuse
Act, misappropriation of trade secrets, and tortious interference with
contractual relations. We are seeking monetary damages and injunctive relief.
On March 13, 2002, we voluntarily dismissed without prejudice our lawsuit
pending in the Virginia Circuit Court for Fairfax County against the two field
employees of BO.
Managing our international operations is complex and our failure to do so
successfully or in a cost-effective manner would have a material adverse effect
on our business, operating results and financial condition
International sales accounted for 34.1%, 25.9% and 24.0% of our total
revenues for the years ended December 31, 2001, 2000 and 1999, respectively.
Our international operations require significant management attention and
financial resources.
There are certain risks inherent in our international business activities
including:
. changes in foreign currency exchange rates;
. unexpected changes in regulatory requirements;
. tariffs and other trade barriers;
. costs of localizing products for foreign countries;
. lack of acceptance of localized products in foreign countries;
. longer accounts receivable payment cycles;
. difficulties in managing international operations;
. tax issues, including restrictions on repatriating earnings;
. weaker intellectual property protection in other countries;
. economic weakness or currency related crises that may arise in different
countries or geographic regions; 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, on our business, operating results and financial
condition.
The nature of our products makes them particularly vulnerable to undetected
errors, or bugs, which could cause problems with how the products perform and
which could in turn reduce demand for our products, reduce our revenue and lead
to product liability claims against us
Software products as complex as ours may contain errors or defects,
especially when first or subsequent versions are released. Although we test our
products extensively, we have in the past discovered software errors in new
products after their introduction. Despite testing by us and by our current and
potential customers, errors may be found in new products or releases after
commercial shipments begin. This could result in lost revenue or delays in
market acceptance, which could have a material adverse effect upon our
business, operating results and financial condition.
14
Our license agreements with customers typically contain provisions designed
to limit our exposure to product liability claims. It is possible, however,
that these provisions may not be effective under the laws of certain domestic
or international jurisdictions. Although there have been no product liability
claims against us to date, our license and support of products may involve the
risk of these claims. A successful product liability claim against us could
have a material adverse effect on our business, operating results and financial
condition.
The price of our stock may be extremely volatile
The market price for our class A common stock has historically been volatile
and could fluctuate significantly for any of the following reasons:
. quarter-to-quarter variations in our operating results;
. developments or disputes concerning proprietary rights;
. technological innovations or new products;
. governmental regulatory action;
. general conditions in the software industry;
. increased price competition;
. changes in revenue or earnings estimates by analysts;
. any change in the actual or expected amount of dilution attributable to
issuances of additional shares of class A common stock upon conversion of
our preferred stock or as a result of the litigation settlement; or
. other events or factors.
Many of the above factors are beyond our control.
The stock market has recently experienced extreme price and volume
fluctuations. These fluctuations have particularly affected the market price of
many software companies, often without regard to their operating performance.
15
USE OF PROCEEDS
If all of the warrants were exercised for cash, we would receive aggregate
gross cash proceeds from the sale of 1,900,000 shares of Class A Common Stock
of approximately $76,000,000. However, the warrants may be exercised by the
surrender of notes issued by us to the class members pursuant to the settlement
agreement as payment of the exercise price, valued for this purpose at 133% of
the principal amount and all accrued and unpaid interest on the notes so
surrendered. Therefore, the amount of any cash proceeds that we may receive
upon the exercise of the warrants is uncertain.
We intend to use the proceeds received upon any exercise of the warrants for
working capital and other general corporate proposals.
We will bear all costs, fees and expenses incurred in effecting the
registration of the shares covered by this prospectus, including, without
limitation, all registration and filing fees, Nasdaq listing fees, fees and
expenses of our counsel, fees and expenses of our accountants, and blue sky
fees and expenses.
PLAN OF DISTRIBUTION
We are registering the shares of class A common stock issuable upon exercise
of warrants to be issued to class members pursuant to a settlement agreement
among us, some of our officers and directors and plaintiffs' counsel, approved
by the United States District Court for the Eastern District of Virginia on
April 2, 2001, relating to a consolidated class action lawsuit filed against
us, some of our officers and directors and our independent accountants. We will
issue the shares directly to the holders of the warrants, upon exercise of such
warrants, from time to time after the date of this prospectus. The warrants
expire five years from the date of issue.
We will pay all expenses of the registration of the shares of class A common
stock pursuant to the settlement agreement, estimated to be $100,000 in total,
including, without limitation, SEC filing fees and expenses of compliance with
state securities or "blue sky" laws.
LEGAL MATTERS
The validity of the shares of class A common stock offered by this
prospectus has been passed upon by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The financial statements incorporated in this registration statement by
reference to the Annual Report on Form 10-K for the year ended December 31,
2001 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses to be incurred in
connection with the sale and distribution of the securities being registered
hereby, all of which will be borne by MicroStrategy Incorporated. All amounts
shown are estimates except the Securities and Exchange Commission registration
fee.
Filing Fee--Securities and Exchange Commission..................... $ 19,000
Legal fees and expenses............................................ $ 50,000
Accounting fees and expenses....................................... $ 20,000
Miscellaneous expenses............................................. $ 11,000
--------
Total Expenses................................................... $100,000
========
Item 15. Indemnification of Directors and Officers.
Section 102 of the Delaware General Corporation Law allows a corporation to
eliminate the personal liability of directors of a corporation to the
corporation or its stockholders for monetary damages for a breach of fiduciary
duty as a director, except where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or knowingly
violated a law, authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an improper
personal benefit. MicroStrategy has included such a provision in its
Certificate of Incorporation.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.
MicroStrategy's certificate of incorporation provides that an officer or
director of MicroStrategy will not be personally liable to MicroStrategy or its
stockholders for monetary damages for any breach of his fiduciary duty as an
officer or director, except in certain cases where liability is mandated by the
Delaware General Corporation Law. The provision has no effect on any non-
monetary remedies that may be available to MicroStrategy or its stockholders,
nor does it relieve MicroStrategy or its officers or directors from compliance
with federal or state securities laws. MicroStrategy's certificate of
incorporation also generally provides that MicroStrategy shall indemnify, to
the fullest extent permitted by law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, investigation, administrative hearing or any other proceeding by reason
of the fact that he is or was a director or officer of MicroStrategy, or is or
was serving at the request of MicroStrategy as a director, officer, employee or
agent of another entity, against expenses incurred by him in connection with
such proceeding. An officer or director shall not be entitled to
indemnification by MicroStrategy if the officer or director did not act in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the MicroStrategy, or with respect to any criminal action or
proceeding, the officer or director had reasonable cause to believe his conduct
was unlawful.
II-1
MicroStrategy has purchased directors' and officers' liability insurance
which would indemnify its directors and officers against damages arising out of
certain kinds of claims which might be made against them based on their
negligent acts or omissions while acting in their capacity as such.
Item 16. Exhibits
Exhibit
Number Description
------- -----------
3.1+ Form of Warrant.
5.1+ Opinion of Hale and Dorr LLP.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2+ Consent of Hale and Dorr LLP (included in Exhibit 5.1 filed herewith).
Power of Attorney (see the signature page to this Registration
24.1+ Statement).
--------
+ previously filed
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post- effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included is a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
Company pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that are
incorporated by reference in this Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of McLean, Commonwealth of Virginia, on March 26,
2002.
Microstrategy Incorporated
/s/ Michael J. Saylor
By: _________________________________
Michael J. Saylor
Chairman of the Board of
Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Michael J. Saylor Chairman of the Board of March 26, 2002
______________________________________ Directors and Chief Executive
Michael J. Saylor Officer (Principal Executive
Officer)
/s/ Eric F. Brown President and Chief Financial March 26, 2002
______________________________________ Officer (Principal Financial
Eric F. Brown and Accounting Officer)
* Director March 26, 2002
______________________________________
Sanju K. Bansal
* Director March 26, 2002
______________________________________
F. David Fowler
Director March 26, 2002
______________________________________
Jonathan J. Ledecky
Director March 26, 2002
______________________________________
Jay H. Nussbaum
* Director March 26, 2002
______________________________________
Stuart B. Ross
* Director March 26, 2002
______________________________________
John W. Sidgmore
* Director March 26, 2002
______________________________________
Ralph S. Terkowitz
/s/ Eric F. Brown
*By: ____________________________
Eric F. Brown
Attorney-in-fact
II-4
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1+ Form of Warrant.
5.1+ Opinion of Hale and Dorr LLP.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2+ Consent of Hale and Dorr LLP (included in Exhibit 5.1 filed herewith).
24.1+ Power of Attorney (see the signature page to this Registration
Statement).
--------
+ previously filed
II-5