SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
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MicroStrategy Incorporated
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[Logo of MicroStrategy]
8000 Towers Crescent Drive
Vienna, Virginia 22182
Notice of Annual Meeting of Stockholders to
be Held on Friday, May 21, 1999
The Annual Meeting of Stockholders (the "Annual Meeting") of MicroStrategy
Incorporated, a Delaware corporation (the "Company"), will be held at the
Sheraton Premiere at Tyson's Corner, 8661 Leesburg Pike, Vienna, Virginia
22182 on Friday, May 21, 1999 at 4:00 p.m., local time, to consider and act
upon the following matters:
1. To elect five (5) directors for the ensuing year;
2. To approve the Company's 1999 Stock Option Plan;
3. To ratify the selection by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent auditors for the
current fiscal year; and
4. 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 April 16, 1999 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,
/s/ Sanju K. Bansal
Sanju K. Bansal,
Executive Vice President, Chief
Operating Officer and Secretary
Vienna, Virginia
April 22, 1999
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.
[LETTERHEAD OF MICROSTRATEGY APPEARS HERE]
April 22, 1999
Dear Stockholder:
It is a pleasure to invite you to our Company's 1999 Annual Meeting of
Stockholders on Friday, May 21, 1999, beginning at 4:00 p.m. local time at the
Sheraton Premiere at Tyson's Corner, 8661 Leesburg Pike, Vienna, Virginia
22182. This will be MicroStrategy's first Annual Meeting of Stockholders since
the Company's initial public offering in June 1998.
The enclosed proxy statement describes the matters that will be presented at
the meeting: (1) the election of five directors for the next year, (2) the
approval of the Company's 1999 Stock Option Plan; and (3) the ratification of
the selection of PricewaterhouseCoopers LLP as the Company's 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,
/s/ Michael J. Saylor
Michael J. Saylor
President, Chief Executive Officer
and Chairman of the Board
MICROSTRATEGY INCORPORATED
8000 Towers Crescent Drive
Vienna, Virginia 22182
Proxy Statement for the Annual Meeting of Stockholders
to be Held on Friday, May 21, 1999
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, May 21, 1999 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 April 16, 1999, 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 7,885,495 shares of Class A
Common Stock of the Company, $.001 par value per share ("Class A Common
Stock"), and an aggregate of 30,023,373 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, 1998 ("Fiscal Year 1998") is being mailed to stockholders, along
with these proxy materials, on or about April 22, 1999.
A copy of the Company's Annual Report on Form 10-K for Fiscal Year 1998 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 vote of a majority of the votes cast by the
holders of Common Stock voting on the matter is required to approve the 1999
Stock Option Plan and 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 1999 Stock Option Plan and the
ratification of the selection of PricewaterhouseCoopers LLP as the Company's
independent auditors).
1
Beneficial Ownership of Common Stock
The following table sets forth the beneficial ownership of the Company's
Common Stock as of March 1, 1999 by (i) each person who is known by the
Company to beneficially own more than 5% of any class of Common Stock, (ii) by
each director or nominee for director, (iii) by 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 March 1, 1999:
Number of Shares Percentage of
Beneficially Common Stock
Beneficial Owner(1) Owned(2)(3) Outstanding(3)(4)
------------------- ---------------- -----------------
Michael J. Saylor(5)....................... 22,474,662 59.5%
Sanju K. Bansal(6)......................... 4,816,979 12.7%
Pilgrim Baxter & Associates(7)............. 1,221,700 3.2%
Thomas P. Spahr(8)......................... 841,000 2.2%
Eduardo S. Sanchez(9)...................... 438,808 1.2%
Charles A. Veley(10)....................... 340,000 *
Stephen S. Trundle(11)..................... 315,539 *
Mark S. Lynch(12).......................... 25,000 *
Frank A. Ingari(13)........................ 14,500 *
Ralph S. Terkowitz(14)..................... 11,000 *
Jonathan J. Ledecky(15).................... 1,000 *
All directors and executive officers as a
group as of March 1, 1999
(14 persons)(3)........................... 29,295,904 77.5%
- --------
* Less than 1%
(1) Each person named below has an address in care of MicroStrategy
Incorporated, 8000 Towers Crescent Drive, Vienna, Virginia 22182, except
for Pilgrim Baxter & Associates, whose address is 825 Duportail Road,
Wayne, Pennsylvania 19087.
(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 March 1, 1999, 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
269,500 shares of Class A Common Stock that are exercisable within 60
days after March 1, 1999.
(4) Number of shares deemed outstanding includes 7,765,084 shares of Class A
Common Stock and 30,023,373 shares of Class B Common Stock outstanding as
of March 1, 1999, 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 22,424,662 shares of
Class B Common Stock (74.7% of the Class B Common Stock outstanding) and
50,000 shares of Class A Common Stock held beneficially by Mr. Saylor as
a result of his beneficial ownership in Alcantara LLC and certain trusts.
Mr. Saylor's holdings of Class A Common Stock (including the shares of
Class A Common Stock issuable upon conversion of his Class B Common
Stock) constitute 76.8% the Company's Class A Common Stock outstanding.
(6) Mr. Bansal's holdings of Common Stock consist of 4,810,979 shares of
Class B Common Stock (16.0% of the Class B Common Stock outstanding) and
6,000 shares of Class A Common Stock held beneficially by Mr. Bansal as a
result of his beneficial ownership in Shangri-La LLC and certain trusts.
Mr. Bansal's holdings of Class A Common Stock (including the shares of
Class A Common Stock issuable upon conversion of his Class B Common
Stock) constitute 40.2% the Company's Class A Common Stock outstanding.
2
(7) Based upon a Form 13G filed with the SEC on April 9, 1999 by Pilgrim
Baxter & Associates, Ltd. The holdings of Pilgrim Baxter & Associates
Ltd. consist of 1,221,700 shares of Class A Common Stock, representing
15.7% of the Company's Class A Common Stock outstanding.
(8) Mr. Spahr's holdings of Common Stock consist of 834,000 shares of Class B
Common Stock and options exercisable within 60 days after March 1, 1999
for 7,000 shares of Class A Common Stock. Mr. Spahr's holdings of Class A
Common Stock (including the shares of Class A Common Stock issuable upon
conversion of his Class B Common Stock) constitute 9.8% of the Company's
Class A Common Stock outstanding. Mr. Spahr is the Company's Director,
Information Systems.
(9) Mr. Sanchez's holdings of Common Stock consist of 412,408 shares of Class
B Common Stock and options exercisable within 60 days after March 1, 1999
for 26,400 shares of Class A Common Stock. Mr. Sanchez's holdings of
Class A Common Stock (including the shares of Class A Common Stock
issuable upon conversion of his Class B Common Stock) constitute 5.4% of
the Company's Class A Common Stock outstanding.
(10) Mr. Veley's holdings of Common Stock consist of 292,000 shares of Class B
Common Stock, 20,000 shares of Class A Common Stock and options
exercisable within 60 days after March 1, 1999 for 28,000 shares of Class
A Common Stock.
(11) Mr. Trundle's holdings of Common Stock consist of 254,939 shares of Class
B Common Stock and options exercisable within 60 days after March 1, 1999
for 44,600 shares of Class A Common Stock.
(12) Mr. Lynch's holdings of Common Stock consist of options exercisable
within 60 days after March 1, 1999 for 25,000 shares of Class A Common
Stock.
(13) Mr. Ingari's holdings of Common Stock consist of 10,000 shares of Class A
Common Stock and options exercisable within 60 days after March 1, 1999
for 4,500 shares of Class A Common Stock.
(14) Mr. Terkowitz's holdings of Common Stock consist of 2,000 shares of Class
A Common Stock and options exercisable within 60 days after March 1, 1999
for 9,000 shares of Class A Common Stock.
(15) Mr. Ledecky's holdings of Common Stock consist of 1,000 shares of Class A
Common Stock.
3
ELECTION OF DIRECTORS
The persons named in the enclosed proxy will vote to elect as directors the
five 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 (34) has served as President, Chief Executive Officer and
Chairman of the Board of Directors since founding the Company in November
1989. Prior to joining the Company, 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. in
Aeronautics and Astronautics and an S.B. in Science, Technology and Society
from the Massachusetts Institute of Technology.
Sanju K. Bansal (33) 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 Johns Hopkins University.
Frank A. Ingari (49) has been a member of the Board of Directors of the
Company since October 1997. Mr. Ingari is Chief Executive Officer of Growth
Ally, L.L.C., a consulting firm specializing in assisting private technology
companies in accelerating their growth. 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. From 1991 to 1992, he served as Chairman of the Board
of Directors and Chief Executive Officer of ONTOS, Inc., a supplier of object-
oriented database management systems and application development software. Mr.
Ingari received a B.A. in Creative Writing and U.S. Foreign Relations from
Cornell University.
Jonathan J. Ledecky (41) has been a member of the Board of Directors of the
Company since June 1998. Mr. Ledecky founded Building One Services
Corporation, which is consolidating the facilities services management
industry, in February 1997 and serves as its Chairman of the Board. Mr.
Ledecky founded U.S. Office Products in October 1994 and served as its
Chairman of the Board until June 1998 and Chief Executive Officer until
November 1997. Prior to founding U.S. Office Products, Mr. Ledecky served as
President and Chief Executive Officer of Legacy Dealer Capital Fund, Inc., a
wholly-owned subsidiary of Steelcase, Inc., the nation's largest manufacturer
of office furniture products. Mr. Ledecky is a director of publicly traded
Aztec Technology Partners, Navigant International, Unicapital Corporation,
School Specialty Inc., U.S.A. Floral Products and Workflow Management. Mr.
Ledecky received a B.A. in Government from Harvard University and an M.B.A.
from Harvard Business School.
Ralph S. Terkowitz (48) 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. Mr. Terkowitz is a director of
ICSA, a provider of network security validation for corporations. Mr.
Terkowitz
4
is also a founder and advisor to Hiresystems, an internet-based provider of
hiring management services. Mr. Terkowitz received an A.B. in Chemistry from
Cornell University and an M.S. in Chemical Physics from the University of
California, Berkeley.
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 twice during Fiscal Year 1998.
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 three times during Fiscal Year 1998.
The current members of the Compensation Committee are Mr. Terkowitz (Chairman)
and Mr. Ingari.
The Board of Directors met six times during Fiscal Year 1998. 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.
Officers, 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 and written representations by the persons
required to file such reports, all filing requirements of Section 16(a) were
satisfied with respect to Fiscal Year 1998, except that Thomas Spahr, who is
deemed to hold more than 10% of the Company's Class A Common Stock,
inadvertently did not timely file a Form 3 (Initial Statement of Beneficial
Ownership) in June 1998, a Form 4 (Statement of Changes in Beneficial
Ownership) in July 1998 and a Form 5 (Annual Statement of Beneficial
Ownership) in February 1999, although the information required by such forms
has been subsequently reported by Mr. Spahr.
Directors' Compensation
Directors do not receive any fees or other cash compensation for serving on
the Company's Board of Directors or any of its committees, but directors are
reimbursed for their reasonable out-of-pocket expenses arising from attendance
of meetings of the Board of Directors or any of its committees or in respect
of Company-related business.
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 Stock Option Plan (the "1997 Director Plan"). Pursuant to the
1997 Director Plan, Outside Directors are granted options on the following
terms: (i) each Outside Director of the Company is granted an option to
purchase 45,000 shares of Class A Common Stock upon his or her initial
election to the Board of Directors ("Initial Options") and (ii) each Outside
Director is granted an option to purchase 5,000 shares of Class A Common Stock
of the Company on the date of each annual meeting of stockholders occurring
after six months of service on the Board of Directors ("Subsequent Option").
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.
Initial Options granted under the 1997 Director 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
5
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 1998, options for 55,000 shares of Class A
Common Stock were granted under the 1997 Director Plan, of which options to
purchase 45,000 shares were Initial Options and options to purchase 10,000
shares were 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 1998 and the fiscal year ended December 31,
1997 (the Named Executive Officers).
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation(1) Compensation
---------------------- ------------------
Awards
------------------
Name and Fiscal Number of Shares
Principal Position Year Salary Bonus Underlying Options
- ------------------ ------ -------- ------ ------------------
Michael J. Saylor..................... 1998 $124,366 -- --
Chairman of the Board, Chief 1997 124,000 30,000 --
Executive Officer and President
Mark S. Lynch(2)...................... 1998 126,000 65,000 250,000
Vice President, Finance and 1997 44,135 25,000 --
Chief Financial Officer
Eduardo S. Sanchez.................... 1998 156,627 25,000 50,000
Vice President, 1997 122,300 -- 54,000
International Operations
Stephen S. Trundle.................... 1998 105,369 20,000 --
Vice President, 1997 100,100 -- --
Technology
Charles A. Veley...................... 1998 89,551 75,000 30,000
Vice President, 1997 90,250 50,000 --
Corporate Development
- --------
(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. 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 1, 1997 to December 31, 1997.
6
Option Grants Table
The following table contains information concerning grants of stock options
made to each of the Named Executive Officers during Fiscal Year 1998:
Option Grants in Last Fiscal Year
Individual Grants
--------------------------------------------------------------------------
Potential Realizable
Value at Assumed
% of Total Annual Rates of Stock
Number of Shares Options Price Appreciation for
of Class A Common Granted to Exercise Option Term(3)
Stock Underlying Employees Price Per Expiration -----------------------
Name Options Granted(1) in 1998 Share(2) Date 5% 10%
- ---- ------------------ ---------- --------- ---------- ---------- ------------
Michael J. Saylor....... -- -- % $ -- -- $ -- $ --
Mark S. Lynch........... -- -- -- -- -- --
Eduardo S. Sanchez...... 50,000 2.7 20.44 6/16/08 642,650 1,628,650
Stephen S. Trundle...... -- -- -- -- -- --
Charles A. Veley........ 30,000 1.6 12.00 6/10/08 226,410 573,750
- --------
(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 the number and value
of unexercised options held by each of the Named Executive Officers on
December 31, 1998. None of the Named Executive Officers exercised any stock
options during Fiscal Year 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Shares of Class A Common Value of Unexercised
Stock Underlying Unexercised in-the-Money
Options at Fiscal Options at Fiscal
Year-End Year-End(2)
---------------------------------- -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ---------------------------------- -------------------------
Michael J. Saylor....... --/-- $ --/$--
Mark S. Lynch........... 50,000/200,000 $1,450,000/$5,800,000
Eduardo S. Sanchez...... 21,200/108,800 $ 635,600/$2,289,400
Stephen S. Trundle...... 40,400/60,600 $1,252,400/$1,878,600
Charles A. Veley........ 28,000/72,000 $ 847,000/$1,855,500
- --------
(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, 1998 ($31.50
per share), multiplied by the number of shares underlying the options.
7
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
Equity Issuance, Stockholder Loans and Loan Guarantees
Effective January 1, 1998, the Company issued a total of 1,401,641 shares of
Common Stock to Messrs. Saylor and Bansal to purchase their approximately 21%
minority interest in certain of the Company's foreign subsidiaries. As a
result of such exchange, each such subsidiary became wholly-owned by the
Company. The transaction and the valuation of the percentage interests held by
each of Messrs. Saylor and Bansal for purposes of determining the number of
shares of Common Stock to be issued to each of them respectively was reviewed
and approved by the disinterested members of the Board of Directors. Mr.
Saylor received 1,134,662 shares of Common Stock in the exchange (all of which
were converted into shares of Class B Common Stock immediately prior to the
Company's initial public offering) and Mr. Bansal received 266,979 shares of
Common Stock (all of which were converted into shares of Class B Common Stock
immediately prior to the Company's initial public offering). The Company's
cost to acquire the minority interest in foreign subsidiaries was
approximately $5.6 million using a fair value of $4.00 per share as of January
1, 1998 and a valuation approved by the Board of Directors that assigned
approximately 20% of the Company's total market value to the foreign
subsidiaries.
The Company declared a $10.0 million dividend to its stockholders prior to
the initial public offering. This dividend was paid in the form of the
Dividend Notes prior to the termination of the Company's S corporation
election, which occurred immediately before completion of the initial public
offering. The Company intends to repay the Dividend Notes from cash flows
generated from operations, current available cash and cash equivalents. As of
March 1, 1999, $7.5 million of the Dividend Notes had been repaid, including
repayments of $7.2 million to certain of the Company's officers and directors.
The Company has on occasion made certain open, non-interest bearing advances
to Mr. Saylor and Mr. Bansal. These advances resulted primarily from the
Company's paying S corporation taxes for these individuals and other
miscellaneous expenses since the Company's inception. There have been no such
advances outstanding since the Company's initial public offering closed in
June of 1998.
Prior to the Company's initial public offering, Mr. Saylor guaranteed
amounts outstanding under the Company's loan agreement with a commercial bank
to the extent that amounts outstanding exceeded $2.0 million. Mr. Saylor's
liability was capped at $2.0 million. This guarantee terminated when the
initial public offering closed in June of 1998. Mr. Saylor did not receive any
compensation for providing the guarantee.
Stock Purchases
In connection with the Company's initial public offering, Messrs. Terkowitz,
Ingari, Ledecky and Klein purchased 2,000, 10,000, 1,000 and 2,500 shares of
Class A Common Stock, respectively.
8
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
This report addresses the compensation policies of the Company applicable to
its officers during Fiscal Year 1998. 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 1998,
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 1998, 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 1998, 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 1998, a total of $220,000 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, the Committee awarded stock options to certain executive
officers. In Fiscal Year 1998, 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") in Fiscal Year
1998 were incentive stock options with an exercise price that was equal to the
fair market value of the Class A Common Stock on the option grant date.
Generally, the options granted under the 1996 Stock Plan vest ratably over a
five-year period on the anniversary date of the option grant date. Under the
1996 Stock Plan, an aggregate of 120,250 stock options were granted to three
executive officers of the Company during Fiscal Year 1998. 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 paid to Mr. Saylor in Fiscal
Year 1998 was justified in light of the significant and material contributions
of Mr. Saylor to the day-to-day business operations of the Company, the
consummation in Fiscal Year 1998 of the Company's initial public offering and
the preparations in 1999 for
9
the Company's follow-on offering. Mr. Saylor did not receive a bonus with
respect to Fiscal Year 1998. The Committee did not make any stock option or
other stock-based incentive awards to Mr. Saylor during Fiscal Year 1998. In
the subjective view of the Committee, Mr. Saylor's base salary 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.
COMPENSATION COMMITTEE
Ralph S. Terkowitz
Frank A. Ingari
10
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, 1998 (the end of Fiscal Year 1998) 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
Information Advantage, Inc., 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, 1998 (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, 1998 Dec. 31, 1998
------------- -------------
Microstrategy Incorporated.......................... $100 $262.50
Nasdaq Index........................................ $100 $125.00
Peer Index.......................................... $100 $114.13
11
APPROVAL OF 1999 STOCK OPTION PLAN
On April 20, 1999, the Board of Directors of the Company adopted, subject to
stockholder approval, the 1999 Stock Option Plan (the "1999 Plan"). Up to
2,500,000 shares of Class A Common Stock (subject to adjustment in the event
of stock splits and other similar events) may be issued pursuant to awards
granted under the 1999 Plan. If the Company's stockholders approve the 1999
Plan, the Company intends to amend the 1996 Plan to eliminate the ability of
the Company to issue any additional options under the 1996 Plan after the date
of stockholder approval of the 1999 Plan. As of April 16, 1999, there were
remaining for grant under the 1996 Plan options to purchase up to an
additional 1,470,148 shares of Class A Common Stock. The Company intends to
grant options under the 1996 Plan between April 16, 1999 and the date of the
Annual Meeting only in the ordinary course of business.
The Board of Directors believes that the future success of the Company
depends, in large part, upon the ability of the Company to maintain a
competitive position in attracting, retaining and motivating key personnel.
Accordingly, the Board of Directors believes adoption of the 1999 Plan is in
the best interests of the Company and its stockholders and recommends a vote
FOR this proposal.
Summary of the 1999 Plan
The following is a brief summary of the 1999 Plan.
Description of Awards
The 1999 Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and nonstatutory stock options (collectively "Awards").
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Class A Common Stock at
a specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Options may be granted at an
exercise price which may be less than, equal to, or greater than the fair
market value of the Class A Common Stock on the date of grant. Under present
law, however, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Class A
Common Stock on the date of grant (or less than 110% of the fair market value
in the case of incentive stock options granted to optionees holding more than
10% of the voting power of the Company). The 1999 Plan permits the Board to
determine the manner of payment of the exercise price of options, including
through payment by cash, check, or in connection with a "cashless exercise"
through a broker, by surrender to the Company of shares of Class A Common
Stock, by delivery to the Company of a promissory note, or by any other lawful
means.
Eligibility to Receive Awards
Officers, employees, consultants and advisors of the Company and its
subsidiaries are eligible to be granted Awards under the 1999 Plan. Under
present law, however, incentive stock options may only be granted to
employees. The maximum number of shares with respect to which an Award may be
granted to any participant under the 1999 Plan may not exceed 500,000 shares
per calendar year.
As of March 31, 1999, approximately 1,042 persons were eligible to receive
Awards under the 1999 Plan, including the Company's 13 executive officers. The
granting of Awards under the 1999 Plan is discretionary, and the Company
cannot now determine the number or type of Awards to be granted in the future
to any particular person or group.
On March 31, 1999, the last reported sale price of the Company Class A
Common Stock on the Nasdaq National Market was $19.25.
12
Administration
The 1999 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 1999 Plan and to interpret the provisions of the
1999 Plan. Pursuant to the terms of the 1999 Plan, the Board of Directors may
delegate authority under the 1999 Plan to one or more committees of the Board,
and subject to certain limitations, to one or more executive officers of the
Company. The Board has authorized the Compensation Committee to administer
certain aspects of the 1999 Plan, including the granting of options to
executive officers. Subject to any applicable limitations contained in the
1999 Plan, the Board of Directors, the Compensation Committee, or any other
committee or executive officer to whom the Board delegates authority, as the
case may be, selects the recipients of Awards and determines (i) the number of
shares of Class A Common Stock covered by options and the dates upon which
such options become exercisable, (ii) the exercise price of options and (iii)
the duration of options.
The Board of Directors is required to make appropriate adjustments in
connection with the 1999 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. In the event of a merger or
other Acquisition Event (as defined in the 1999 Plan), the Board of Directors
must provide for outstanding Options to be assumed, or substituted for, by the
acquiring or succeeding corporation. In the event that the acquiring or
succeeding corporation does not agree to assume, or substitute for, such
Options, the exercisability of all outstanding Options will accelerate. In
certain circumstances, the Board of Directors may also provide for a cash out
of the value of any outstanding options. If any Award expires or is
terminated, surrendered, canceled or forfeited, the unused shares of Class A
Common Stock covered by such Award will again be available for grant under the
1999 Plan.
Amendment or Termination
No Award may be made under the 1999 Plan after April 21, 2009, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 1999 Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or
vested (to the extent such amendment was required to grant such Award) unless
and until such amendment shall have been approved by the Company's
stockholders.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under
the 1999 Plan and with respect to the sale of Class A Common Stock acquired
under the 1999 Plan.
Incentive Stock Options
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will
recognize taxable income with respect to an incentive stock option only upon
the sale of Class A Common Stock acquired through the exercise of the option
("ISO Stock"). The exercise of an incentive stock option, however, may subject
the participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least
two years from the date the option was granted (the "Grant Date") and one year
from the date the option was exercised (the "Exercise Date"), then the
participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of
the gain recognized by the participant will be ordinary compensation income
and the remaining gain,
13
if any, will be a capital gain. This capital gain will be a long-term capital
gain if the participant has held the ISO Stock for more than one year prior to
the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize a capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a long-
term capital loss if the participant has held the ISO Stock for more than one
year prior to the date of sale.
Nonstatutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
nonstatutory stock option generally will recognize ordinary compensation
income in an amount equal to the excess of the fair market value of the Class
A Common Stock acquired through the exercise of the option ("NSO Stock") on
the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will
be a long-term gain or loss if the participant has held the NSO Stock for more
than one year prior to the date of the sale.
Maximum Income Tax Rates on Capital Gain and Ordinary Income
Long-term capital gain will be taxable at a maximum rate of 20% if
attributable to Class A Common Stock held for more than one year. Short-term
capital gain and ordinary income will be taxable at a maximum rate of 39.6%.
Phaseouts of personal exemptions and reductions of allowable itemized
deductions at higher levels of income may result in slightly higher marginal
tax rates. Ordinary compensation income will also be subject to a medicare tax
and, under certain circumstances, a social security tax.
Tax Consequences to the Company
The grant of an Award under the 1999 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Class A Common Stock acquired under the 1999 Plan
will have any 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 1999 Plan,
including as a result of the exercise of a nonstatutory stock option or a
Disqualifying Disposition. Any such deduction will be subject to the
limitations of Section 162(m) of the Code. The Company will have a withholding
obligation with respect to any ordinary compensation income recognized by
participants under the 1999 Plan who are employees or otherwise subject to
withholding in connection with the exercise of a nonstatutory stock option.
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.
14
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 in person or
by telephone, 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 2000 Annual
Meeting of Stockholders (the "2000 Annual Meeting") must be received by the
Company at its principal offices, 8000 Towers Crescent Drive, Vienna, Virginia
22182 not later than December 26, 1999 for inclusion in the proxy materials
for the 2000 Annual Meeting. The Company suggests that proponents submit their
proposals by certified mail, return receipt requested, addressed to the
Secretary of the Company.
If a stockholder of the Company wishes to present a proposal before the 2000
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 March 7, 2000. If a
stockholder fails to provide timely notice of a proposal to be presented at
the 2000 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,
/s/ Sanju K. Bansal
Sanju K. Bansal, Executive Vice
President, Chief Operating Officer
and Secretary
April 22, 1999
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.
15
MICROSTRATEGY INCORPORATED
1999 STOCK OPTION PLAN
----------------------
1. Purpose
-------
The purpose of this 1999 Stock Option Plan (the "Plan") of MicroStrategy
Incorporated, a Delaware corporation (the "Company"), is to enhance the
Company's ability to attract, retain and motivate persons who make (or are
expected to make) important contributions to the Company by providing such
persons with equity ownership opportunities and performance-based incentives and
thereby better aligning the interests of such persons with those of the
Company's stockholders. Except where the context otherwise requires, the term
"Company" shall include any of the Company's present or future subsidiary
corporations as defined in Section 424(f) of the Internal Revenue Code of 1986,
as amended, and any regulations promulgated thereunder (the "Code").
2. Eligibility
-----------
All of the Company's employees, officers, consultants and advisors (and any
individuals who have accepted an offer for employment) are eligible to be
granted options (each, an "Award") under the Plan. Each person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be administered by
------------------------------------
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
--------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
-------------------------
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 6, Awards may be
----------------
made under the Plan for up to 2,500,000 shares of Class A Common Stock, $0.001
par value per share, of the Company (the "Common Stock"). If any Award expires
or is terminated, surrendered or canceled without having been fully exercised or
is forfeited in whole or in part or results in any Common Stock not being
issued, the unused Common Stock covered by such Award shall again be available
for the grant of Awards under the Plan, subject, however, in the case of
Incentive Stock Options (as hereinafter defined), to any limitation required
under the Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 6, for
---------------------
Awards granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares of
Common Stock with respect to which an Award may be granted to any Participant
under the Plan shall be 500,000 per calendar year. The per-Participant limit
described in this Section 4(b) shall be construed and applied consistently with
Section 162(m) of the Code.
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each,
-------
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
2
(c) Exercise Price. The Board shall establish the exercise price at the
--------------
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
-------------------
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) Exercise of Option. Options may be exercised by delivery to the
------------------
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise provide
in an option agreement, by (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (ii) delivery by the Participant
to the Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price;
(3) to the extent permitted by the Board, in its sole discretion, by
delivery of shares of Common Stock owned by the Participant valued at their fair
market value as determined by (or in a manner approved by) the Board in good
faith ("Fair Market Value"), provided (i) such method of payment is then
permitted under applicable law and (ii) such Common Stock was owned by the
Participant at least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion by
(i) delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) payment of such other lawful consideration as
the Board may determine; or
(5) by any combination of the above permitted forms of payment.
(g) Buyout Provisions. The Board may at any time offer to purchase for a
-----------------
payment in cash, promissory note or shares of Common Stock, an Option previously
granted, based on such terms and conditions as the Board shall establish and
communicate to the Participant at the time that such offer is made.
3
6. Adjustments for Changes in Common Stock and Certain Other Events
----------------------------------------------------------------
(a) Changes in Capitalization. In the event of any stock split, reverse
-------------------------
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, and (iv) the terms of each other outstanding Award shall be
appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 6(a)
applies and Section 6(c) also applies to any event, Section 6(c) shall be
applicable to such event, and this Section 6(a) shall not be applicable. 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 of Common Stock subject to an Award.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
--------------------------
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation
or dissolution on any Award granted under the Plan at the time of the grant of
such Award.
(c) Acquisition Events
------------------
(1) Definition. An "Acquisition Event" shall mean:
----------
(a) any merger or consolidation of the Company with or into
another entity as a result of which the Common Stock is
converted into or exchanged for the right to receive cash,
securities or other property; or
(b) any exchange of shares of the Company for cash, securities
or other property pursuant to a statutory share exchange
transaction.
(2) Effect on Options. Upon the occurrence of an Acquisition Event,
-----------------
or the execution by the Company of any definitive agreement with respect to
an Acquisition Event, the Board shall provide that all outstanding Options
shall be assumed, or equivalent options shall be substituted, by the
4
acquiring or succeeding corporation (or an affiliate thereof); provided
--------
that if the acquiring or succeeding corporation (or an affiliate thereof)
----
does not agree to assume, or substitute for, such Options, then the Board
shall, upon written notice to the Participants, provide that all of the
then unexercised Options will become exercisable in full as of a specified
time prior to the Acquisition Event, and will terminate immediately prior
to the occurrence of the Acquisition Event, except to the extent exercised
by the Participants before the consummation of such Acquisition Event;
provided, however, that in the event of an Acquisition Event under the
-------- -------
terms of which holders of Common Stock will receive upon consummation
thereof a cash payment for each share of Common Stock surrendered pursuant
to such Acquisition Event (the "Acquisition Price"), then the Board may
instead provide that all outstanding Options shall terminate upon
consummation of such Acquisition Event and that each Participant shall
receive, in exchange therefor, a cash payment equal to the amount (if any)
by which (A) the Acquisition Price multiplied by the number of shares of
Common Stock subject to the outstanding Options held by such Participant
(whether or not exercisable) exceeds (B) the aggregate exercise price of
such Options. For purposes hereof, an Option shall be considered to be
assumed if, following consummation of the Acquisition Event, the Option
confers the right to purchase, for each share of Common Stock subject to
the Option immediately prior to the consummation of the Acquisition Event,
the consideration (whether cash, securities or other property) received as
a result of the Acquisition Event by holders of Common Stock for each share
of Common Stock held immediately prior to the consummation of the
Acquisition Event (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the
outstanding shares of Common Stock); provided, however, that if the
-------- -------
consideration received as a result of the Acquisition Event is not solely
common stock of the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the acquiring or succeeding
corporation, provide for the consideration to be received upon the exercise
of Options to consist solely of common stock of the acquiring or succeeding
corporation (or an affiliate thereof) equivalent in fair market value to
the per share consideration received by holders of outstanding shares of
Common Stock as a result of the Acquisition Event.
5
7. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise determine
-------------------------
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced by a written instrument
-------------
in such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each Award
----------------
may be made alone or in addition or in relation to any other Award. The terms
of each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) Termination of Status. The Board shall determine the effect on an
---------------------
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator or guardian may exercise rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may, to the extent then permitted under applicable law, satisfy
such tax obligations in whole or in part by delivery of shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to a
Participant.
(f) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from
6
shares previously delivered under the Plan until (i) all conditions of the Award
have been met or removed to the satisfaction of the Company, (ii) in the opinion
of the Company's counsel, all other legal matters in connection with the
issuance and delivery of such shares have been satisfied, including any
applicable securities laws and any applicable stock exchange or stock market
rules and regulations, and (iii) the Participant has executed and delivered to
the Company such representations or agreements as the Company may consider
appropriate to satisfy the requirements of any applicable laws, rules or
regulations.
(h) Acceleration. The Board may at any time provide that any Options shall
------------
become immediately exercisable in full or in part or that any other Awards may
become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
8. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
--------------------------------------
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant shall have any rights as a stockholder with respect to any
shares of Common Stock to be distributed with respect to an Award until becoming
the record holder of such shares. Notwithstanding the foregoing, in the event
the Company effects a split of the Common Stock by means of a stock dividend and
the exercise price of and the number of shares subject to such Option are
adjusted as of the date of the distribution of the dividend (rather than as of
the record date for such dividend), then an optionee who exercises an Option
between the record date and the distribution date for such stock dividend shall
be entitled to receive, on the distribution date, the stock dividend with
respect to the shares of Common Stock acquired upon such Option exercise,
notwithstanding the fact that such shares were not outstanding as of the close
of business on the record date for such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on
-------------------------------
the date on which it is adopted by the Board, but no Award granted to a
Participant designated by the Board as subject to Section 162(m) of the Code by
the Board shall become exercisable, vested or realizable, as applicable to such
Award, unless and until the Plan has been approved by the Company's stockholders
to the extent stockholder approval is required by Section 162(m) (including the
vote required under Section 162(m)). No Awards shall be granted under the Plan
after the completion of ten years from the earlier of (i) the date on which the
Plan was adopted by the Board or (ii) the date the Plan was
7
approved by the Company's stockholders, but Awards previously granted may extend
beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that to the extent required by
Section 162(m) of the Code, no Award granted after the date of such amendment to
a Participant designated as subject to Section 162(m) by the Board shall become
exercisable, realizable or vested, as applicable to such Award (to the extent
that such amendment to the Plan was required to grant such Award to a particular
Participant), unless and until such amendment shall have been approved by the
Company's stockholders as required by Section 162(m) (including the vote
required under Section 162(m)).
(e) Governing Law. The provisions of the Plan and all Awards made
-------------
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
8
PROXY MICROSTRATEGY INCORPORATED PROXY
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 21, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoint(s) Michael J.
Saylor, Mark S. Lynch and Jonathan F. Klein, and each of them, with full power
of substitution in each of them, 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 Sheraton Premiere at
Tysons Corner, 8661 Leesburg Pike, Vienna, Virginia 22182 on Friday, May 21,
1999, at 4:00 p.m. local time, and at any adjournment thereof (the "Annual
Meeting").
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Annual 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 Annual
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 Annual Meeting.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED POSTAGE-PAID
RETURN ENVELOPE.
1. To elect the following five (5) directors listed at right (except as
marked below) for the ensuing year.
NOMINEES: Michael J. Saylor, Sanju K. Bansal, Frank A. Ingari, Jonathan J.
Ledecky and Ralph S. Terkowitz
___ ___
/__/ FOR all nominees /__/ WITHHOLD AUTHORITY to vote
(except as marked below) for all nominees
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
PRINT THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW.
____________________________________________________________________________
(Continued, and to be signed, on reverse side)
2. To approve the Company's 1999 Stock Option Plan.
___ ___ ___
/__/ FOR /__/ AGAINST /__/ ABSTAIN
3. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent auditors for the current fiscal year.
___ ___ ___
/__/ FOR /__/ AGAINST /__/ ABSTAIN
Dated......................, 1999
...................................
Signature
...................................
Signature if held jointly
Note: Please sign exactly as name
appears above.
If 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.