<PAGE>
 
    
 As filed with the Securities and Exchange Commission on February 10, 1999     
                                                      Registration No. 333-70919
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 
                              AMENDMENT NO. 3     
 
                                       TO
                                    FORM S-1
                          REGISTRATION STATEMENT UNDER
                           THE SECURITIES ACT OF 1933
 
                                --------------
                           MICROSTRATEGY INCORPORATED
             (Exact name of Registrant as specified in its charter)
 

<TABLE>
<S>                                <C>                                <C>
            Delaware                              7372                            51-0323571
 (State or other jurisdiction of      (Primary Standard Industrial             (I.R.S. Employer
 incorporation or organization)       Classification Code Number)             Identification No.)
</TABLE>

 
                           8000 Towers Crescent Drive
                             Vienna, Virginia 22182
                                 (703) 848-8600
         (Address, including zip code, and telephone number, including
            area code, of Registrant's principal executive offices)
 
                                --------------
                             Mr. Michael J. Saylor
                     President and Chief Executive Officer
                           8000 Towers Crescent Drive
                             Vienna, Virginia 22182
                                 (703) 848-8600
           (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)
 
                                --------------
                                   Copies to:

<TABLE>
  <S>                                         <C>
             John D. Watson, Esq.                David C. Chapin, Esq.
            John B. Scanlon, Esq.             Christopher J. Austin, Esq.
               Latham & Watkins                      Ropes & Gray
  1001 Pennsylvania Avenue, N.W., Suite 1300    One International Place
             Washington, DC 20004                  Boston, MA 02110
                (202) 637-2200                      (617) 951-7000
</TABLE>

 
     Approximate date of commencement of the proposed sale to the public: As
soon as practicable after the effective date of the Registration Statement.
 
     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, check the following box: [_]
 
     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. [_]
 
     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. [_]
 
     If this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
 
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<TABLE>   
<CAPTION>
 Title of Each Class of                     Proposed Maximum   Proposed Maximum
       Securities           Amount to Be        Offering      Aggregate Offering      Amount of
    to be Registered       Registered(1)   Price Per Share(2)      Price(2)      Registration Fee(3)
- ----------------------------------------------------------------------------------------------------
<S>                      <C>               <C>                <C>                <C>
Class A Common Stock,
 $.001 par value........     2,300,000           $27.00          $62,100,000           $17,264
</TABLE>
    
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
   
(1) Includes 300,000 shares of Class A Common Stock that may be sold pursuant
    to the underwriters' over-allotment options.     
(2) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457 under the Securities Act of 1933.
   
(3) A filing fee of $39,324 was paid on January 21, 1999.     
 
     The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>
 
       
PROSPECTUS
                                
                             2,000,000 Shares     
                      [LOGO OF MICROSTRATEGY APPEARS HERE]
                              Class A Common Stock
 
                               -----------------
   
      We are offering and selling 1,585,000 shares of our Class A Common Stock
with this prospectus. Certain of our stockholders are offering and selling
415,000 shares of our Class A Common Stock with this prospectus. We will not
receive any of the proceeds from the sale of shares by the selling
stockholders. Our Class A Common Stock is traded on the Nasdaq National Market
under the symbol "MSTR." On February 9, 1999, the last reported sales price for
our Class A Common Stock on the Nasdaq National Market was $27 1/16 per share.
       
      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. Following this offering, beneficial owners of our Class B
Common Stock will own 30,167,614 shares of Class B Common Stock, or 97.7% of
the combined voting power of our common stock. Our employees beneficially own
almost all of the outstanding shares of our Class B Common Stock.     
 
      Investing in our Class A Common Stock involves risks which are described
in the "Risk Factors" section beginning on page 6 of this prospectus.
 
                               -----------------
 

<TABLE>   
<CAPTION>
                                                     Per Share    Total
                                                     ---------    -----
     <S>                                             <C>       <C>
     Public Offering Price.........................   $27.00   $54,000,000
     Underwriting Discount.........................    $1.35    $2,700,000
     Proceeds, before expenses, to MicroStrategy...   $25.65   $40,655,250
     Proceeds to selling stockholders..............   $25.65   $10,644,750
</TABLE>
    
   
      The underwriters may also purchase up to an additional 300,000 shares
from one of our existing stockholders at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments.     
 
      Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
   
      The shares of Class A Common Stock will be ready for delivery in New
York, New York on or about February 16, 1999.     
 
                               -----------------
 
Merrill Lynch & Co.
 
             Hambrecht & Quist
 
                                          Friedman, Billings, Ramsey & Co., Inc.
 
                               -----------------
                
             The date of this prospectus is February 10, 1999.     

<PAGE>
 
MIRCROSTRATEGY'S PRODUCTS
 

<TABLE>     
<S>                               <C>                                <C>                      <C> 
  Windows Off-the-Shelf            Custom Applications                World Wide Web             Consumer Devices 
       Reports                    Vertical Applications                  HTML                      Pager & Phone  
Executive Information Sys.            Statistics                         Java                        Fax & Printer
    SpreadSheets                      Data Mining                       ActiveX                       E-mail & Web
     DSS Agent                     DSS Objects                          DSS Web                   DSS Broadcaster
                                          DSS Server
     DSS Architect                 Query Engine                               DSS Administrator
                                   RDBMS Drivers Optimized for VLDB 
  Oracle           Sybase          Informix          DB2          Teradata          Tandem          SQL
                                                                                                    Server

</TABLE>
      

DSS Agent is an object-based DSS application development environment as well as
a power user discovery tool. Users can create sophisticated metrics, reports,
alerts, and intelligent agents without programming. DSS Agent reports can also
be embedded into easy-to-navigate graphical executive information systems.
Spreadsheet users can build custom VBA applications integrating the best
features of both products and maintaining their familiar user interface.

DSS Objects allows serious application developers to integrate DSS Agent objects
into their own custom applications, substituting proprietary algorithms &
interfaces, yet leveraging MicroStrategy's Toolset for DSS. Data mining,
statistical analysis, and closed-loop vertical applications are all supported
via this interface.
    
DSS Web allows DSS Agent reports to be deployed to their clients over the web,
while taking advantage of the features of DSS Server, DSS Architect, &
DSS Administrator. Applications run unchanged, simultaneously in Client/Server 
& Web mode. Users can drill-down, surf the database, and build new reports via
Web browsers. These applications can be customized using dynamic HTML, Java,
and/or ActiveX. Thus, developers get the benefits of an off-the-shelf feature
set, along with flexibility to tailor their application to the needs of a
particular user group.       
    
DSS Broadcaster, the industry's first information broadcast server, is 
designed to enable automated and personalized distribution of business analysis-
based messages via E-mail, Fax, Pager, and Mobile Phone. It is designed to
support, publish & subscribe via the Web, and enables the creation of DSS
solutions integrating both active and passive reporting components.      

DSS Server provides 3 Tier DSS services to all of our interfaces, including load
balancing, triage, caching, scheduling, data mart management, and asynchronous
query execution.
    
DSS Architect allows Data Warehouse designers to map the relational database to 
an end-user friendly, multi-dimensional view. It then automatically generates
the metadata necessary to maintain and optimize the DW tables.      

DSS Administrator automatically monitors usage of all deployed DSS applications
at the lowest level of detail. It also supports centralized maintenance &
application management, providing the tuning, deployment, and administrative
capabilities necessary to implement decision support services on a broad scale.

The Query Engine contains the intelligence necessary to convert an end-user
question into the high-fidelity, high-performance relational & vector execution
plans. The Query Engine supports cubic, star, and relational query types,
allowing the full range of analysis against the world's largest transaction
level databases, many containing terabytes of detail and thousands of
attributes.

High Performance Drivers optimize Query Engine output for a given relational
database and database schema. These drivers translate our logical query plan
into SQL syntax that is optimized for the target database platform and reflect
the DSS tuning insight that we have developed through hundreds of man-years of
experience building and maintaining data warehouse applications for the largest
companies in the world.


                     [LOGO OF MICROSTRATEGY APPEARS HERE]


<PAGE>
 
MicroStrategy's Vision: Any Question, Any Time, Anywhere


IMAGINE: You made $3,750 in the stock market today. Twenty minutes after the
market closed, this information was broadcast from your broker to your Pager.

Someone is trying to complete an electronic funds transfer of $56,000 from your
domestic bank to a numbered Swiss account. Since this is unprecedented and
potentially fraudulent, a notification has been forwarded to your Two-way Pager,
along with a request for permission.

A detailed breakdown of every check either clearing or deposited to your account
will be sitting on your Fax machine at the end of the day.

Your Voicemail has 8 messages: one from your wife, five from co-workers, and two
from your credit card provider's computer. Concert tickets are about to go on
sale for your favorite musician, and its database has placed two seats on hold
for 48 hours. Do you want them? By the way, someone is gambling on your credit
line in Vegas...a digital sentinel thought that you might like to know.

At work, your Printer has a 25 page report detailing all significant customer
transactions in your territory year-to-date.

Every month, you receive a credit report from your bank via surface Mail. It
details the current financial status of every one of your customers & suppliers
and provides interesting business analytics by weighting their financial
statistics with transactions from your check log. Your average customer grew 24%
this year.

A performance summary for each salesperson reporting to you appears on your
Personal Digital Assistant, updated every four hours. Backup information is
available on demand.

Your customer sends inventory replenishment requests and purchase order codes
directly to your Mobile Phone, taking advantage of the digital messaging
capabilities of the new PCS units. In the event of a stock-out situation, you
will know within minutes. When things are running smoothly, your phone remains
silent.

Your Email inbox has your factory's weekly flash report, summarizing latest
production, demand, inventory forecast, and quality observations. This message
contains a URL link launching your Web Browser, allowing you to drill-down
through the data in order to isolate problems and identify opportunities.

At the end of each week, you launch a Windows Program that serves as your
analytical window into your business --- surfing the database, filtering out
anomalies, comparing performance across time periods and business units, and
plotting future strategy.

When budgeting time arrives, a Spreadsheet model is automatically populated with
last year's performance statistics. You tweak some growth & cost parameters and
back it goes to the CFO.

You are the modern cyber-warrior. Facts find you when it is mission-critical for
you to be informed - answers to any question, any time, anywhere. You have no
blind spots. Arthur C. Clarke once said "Any sufficiently advanced technology is
indistinguishable from magic." To a 1980's business person, brought forward to
your era, you would appear telepathic and omniscient.

In your world, information flows like water

    
[LOGO OF MICROSTRATEGY(R) APPEARS HERE]      

<PAGE>
 
      [GRAPHIC ART OF MICRO COMPUTER HARDWARE AND SOFTWARE APPEARS HERE]


                           Pager       Two-Way Pager


          Spreadsheet               Pager                      Fax

Windows Program      LAN           Relational     Telephone           Voice Mail
                                    Databases   
                                                
                                   Publishing   
                                    Insurance   
                                  Credit Cards  
                                     Retail     
                                   Government   
                                 Pharmaceutical 
                               Telecommunications
                                     Banking     
                               
Web Browser        Internet                         Print               Printer

             Email                  Cellular                    Mail


                           Mobile Phone    Personal Digital 
                                              Assistant    

    
The applications described above represent MicroStrategy's vision for future DSS
applications. Not all of these applications are currently commercially available
and some of these applications may not become commercially available in the
future.      

Information Like Water(TM)

<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
<S>                                                                       <C>
Summary..................................................................   2
Risk Factors.............................................................   6
Use of Proceeds..........................................................  17
Price Range of Class A Common Stock......................................  17
Dividend Policy..........................................................  17
Capitalization...........................................................  18
Selected Consolidated Financial Data.....................................  19
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  20
Business.................................................................  29
Management...............................................................  52
Certain Transactions.....................................................  60
Principal and Selling Stockholders.......................................  62
Description of Capital Stock.............................................  65
Shares Eligible for Future Sale..........................................  67
Underwriting.............................................................  69
Legal Matters............................................................  71
Experts..................................................................  71
Where You Can Find More Information......................................  72
Index to Consolidated Financial Statements............................... F-1
Glossary of Terms........................................................ G-1
Supplemental Consolidated Financial Data................................. S-1
</TABLE>

 
                               -----------------
 
                           FORWARD-LOOKING STATEMENTS
 
      This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about us, including, among other things:
 
     .  our limited operating history and the uncertainty of our future
        results;
 
     .  fluctuations in our quarterly operating results;
 
     .  delays or losses of sales due to long sales and implementation
        cycles for our products;
 
     .  the possibility of lower prices, reduced gross margins and loss of
        market share due to increased competition; and
 
     .  increased demands on our resources due to continued growth.
 
      We undertake no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties, and assumptions, the
forward-looking events discussed in this prospectus might not occur.
 
                               -----------------
      You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
 
                               -----------------
 
      "MicroStrategy" and "Quick Strike" are registered trademarks of
MicroStrategy Incorporated ("MicroStrategy" or the "Company"). "DSS Server,"
"DSS Agent," "DSS Web," "DSS Objects," "DSS Architect," "DSS Administrator,"
"DSS Executive," "DSS Office," "DSS Broadcaster," "DSS Broadcaster Server,"
"DSS StockMarket," "DSS Subscriber," "DSS Telecaster," "Query Tone,"
"Information Like Water," "Changing The Way Government Looks At Information,"
"QuickPilot" and "Telepath" are trademarks or service marks of MicroStrategy.
This prospectus also contains trademarks and registered trademarks of companies
other than MicroStrategy.
 
                                       1

<PAGE>
 
 

                                    SUMMARY
 
      This summary may not contain all of the information that may be important
to you. You should read the entire prospectus, including the financial data and
related notes, before making an investment decision. Unless we otherwise
indicate, all information in this prospectus assumes no exercise of the over-
allotment option to purchase additional shares of Class A Common Stock granted
to the underwriters. A glossary of frequently-used technical terms begins on
page G-1 of this prospectus.
 
                                    Overview
 
      MicroStrategy is a leading worldwide provider of enterprise decision
support system, or DSS, software applications and related services. DSS Suite
provides Global 2000 enterprise and other user communities with timely answers
to mission-critical questions. It enables users to query and analyze the most
detailed, transaction-level databases, turning data into business intelligence.
In addition to supporting enterprise users, our products extend DSS
applications beyond corporate boundaries to customers, partners and supply
chain constituencies. DSS Suite is deployed across a broad range of pull and
push technology such as the Internet, e-mail, telephones, pagers and other
wireless communications devices. Our DSS Suite also provides the technology
foundation for the deployment of personalized, consumer-focused e-commerce
applications.
 
      The growth of DSS applications has been driven by the demand for enhanced
competitive business intelligence, improvements in transactional data capture
and increases in the performance-to-price ratio of computers. In addition, the
Internet has dramatically expanded the demand for information by allowing users
worldwide to cost-effectively access and receive information. As a result,
companies can turn electronic information into e-commerce opportunities. The
overall market for DSS applications is projected to grow substantially.
Forrester Research predicts that the decision support market will grow from
$1.6 billion in 1998 to $3.6 billion by 2001. In addition, International Data
Corporation projects that the market for Internet-related DSS applications will
grow from $970 million in 1998 to $2.3 billion by 2001.
 
      DSS Suite includes DSS Server, DSS Web, DSS Broadcaster, DSS Agent, DSS
Architect and DSS Administrator. It addresses the needs of the entire user
community, from end users to the managers of the information technology
infrastructure. DSS Suite provides the decision support infrastructure and
products used to implement corporate, business-to-business, and business-to-
consumer information solutions. We also offer comprehensive consulting,
training and support services for our customers and partners.
 
      MicroStrategy's objective is to become the world's leading provider of
DSS products. We believe that the future of DSS is "Query Tone." Query Tone
will provide users with the ability to ask any question, at any time, anywhere.
Just as the dial tone makes telecommunications services universally available,
we believe that Query Tone will make information a ubiquitous utility. We
intend to establish our DSS platform as the standard enabling technology for
Query Tone.
 
      We have over 690 customers. They use our decision support platform to
perform activities such as:
 
     .  one-to-one customer marketing and profitability analysis;
 
     .  financial analysis and risk profiling;
 
     .  customer acquisition, retention, and churn analysis; and
 
     .  merchandising and inventory analysis.
 
Our customers include Nielsen Media Research, Bank of America, Glaxo Wellcome,
General Motors, Hallmark, Kmart, MCI WorldCom, Merck/Medco, The SABRE Group,
USAA and Nissan.
 
                                       2

<PAGE>
 
 
 
      We market our software and services primarily through our direct sales
force with offices located in major cities throughout the U.S. and Europe. We
have also entered into relationships with more than 150 system integration,
application development and platform partners, including Acxiom, Andersen
Consulting, IBM, Retek Systems, NCR and Oracle.
 
      Our President, CEO and Chairman, Michael J. Saylor, founded MicroStrategy
in 1989. We have over 900 employees. We are incorporated in Delaware, and our
worldwide headquarters are located at 8000 Towers Crescent Drive, Vienna,
Virginia 22182. Our telephone number is (703) 848-8600, and our website is
www.strategy.com. The information on our website is not part of this
prospectus.
 
                              Recent Developments
 
      Our results of operations for the three months ended December 31, 1997
(unaudited) and 1998 (unaudited) and for the years ended December 31, 1997 and
1998 (unaudited) are summarized below. For more complete information on our
financial condition at December 31, 1997 and 1998 (unaudited) and our results
of operations for the three months ended December 31, 1997 (unaudited) and 1998
(unaudited) and for the years ended December 31, 1997 and 1998 (unaudited), see
"Supplemental Consolidated Financial Data."
 
                     (in thousands, except per share data)
 

<TABLE>
<CAPTION>
                                       Three Months Ended      Year Ended
                                          December 31,        December 31,
                                       ------------------- -------------------
                                         1997      1998    1997(1)   1998(1)
                                       --------- --------- ------- -----------
                                           (unaudited)             (unaudited)
<S>                                    <C>       <C>       <C>     <C>
Consolidated Statements of Operations
 Data:
Revenues.............................. $  18,794 $  35,732 $53,557  $106,430
Income from operations................       616     4,193     372     9,326
Net income............................ $     516 $   2,766 $   121  $  6,178
                                       ========= ========= =======  ========
Basic net income per share............ $    0.02 $    0.08 $  0.00  $   0.18
Shares used in computing basic net
income per share......................    29,494    35,633  29,494    33,493
Diluted net income per share.......... $    0.02 $    0.07 $  0.00  $   0.16
Shares used in computing diluted net
 income per share.....................    33,935    40,556  32,362    38,601
</TABLE>

 
- --------
 
(1) Before completing our initial public offering on June 16, 1998, we were an
    S corporation. As an S corporation, we were not liable for corporate income
    taxes. On a pro forma basis, if we had been a taxpaying entity, we would
    have recorded an income tax provision of approximately $489,000 and a net
    loss of approximately $368,000 for the year ended December 31, 1997, and
    would have recorded an income tax provision of approximately $3,649,000 and
    net income of $5,971,000 for the year ended December 31, 1998. Pro forma
    basic and diluted loss per share would have been $0.01 for the year ended
    December 31, 1997 and pro forma basic and diluted income per share would
    have been $0.18 and $0.15, respectively, for the year ended December 31,
    1998. See Note 1 to "Notes to Consolidated Financial Statements" for the
    basis of computing pro forma basic and diluted net income (loss) per share.
 
 
                                       3

<PAGE>
 
 
                                  The Offering
 

<TABLE>   
 <C>                                <S>
    Class A Common Stock offered:
      by MicroStrategy............. 1,585,000 shares
      by the selling stockholders..   415,000 shares
      Total offering............... 2,000,000 shares
    Common Stock to be outstanding
    after the offering............. 7,132,110 shares of Class A Common Stock,
                                    excluding (1) 6,045,809 shares of Class A
                                    Common Stock issuable upon exercise of
                                    employee and director stock options
                                    outstanding at December 31, 1998 with
                                    exercise prices ranging from $0.50 to
                                    $42.50 per share and with a weighted
                                    average exercise price of $5.46 per share,
                                    (2) 50,000 shares of Class A Common Stock
                                    issuable upon exercise of a warrant granted
                                    to one of our customers with an exercise
                                    price of $23.50 per share, and 30,167,614
                                    shares of Class B Common Stock and (3)
                                    192,744 shares of Class A Common Stock
                                    being issued upon the closing of the
                                    initial offering period of our employee
                                    stock purchase plan. The selling
                                    stockholders will convert 385,500 shares of
                                    Class B Common Stock into an identical
                                    number of shares of Class A Common Stock.
                                    The resulting 385,500 shares of Class A
                                    Common Stock will be offered by the selling
                                    stockholders in the offering.
    Use of Proceeds................ We estimate the net proceeds to us from the
                                    sale of Class A Common Stock offered with
                                    this prospectus to be approximately
                                    $40.1 million, after deducting the
                                    underwriting discount and estimated
                                    offering expenses that we will pay. We
                                    intend to use these net proceeds for
                                    working capital and general corporate
                                    purposes, including possible acquisitions
                                    or investments. We will not receive any of
                                    the proceeds from the sale of shares by the
                                    selling stockholders. See "Use of
                                    Proceeds."
    Risk Factors................... Investing in our Class A Common Stock
                                    involves risks which are described in the
                                    "Risk Factors" section beginning on page 6.
    Voting Rights.................. 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.
                                    Holders of Class A Common Stock and Class B
                                    Common Stock generally vote together as a
                                    single class on all matters presented to
                                    the stockholders for their vote or
                                    approval, except as may be required by
                                    Delaware law. Class B Common Stock may be
                                    converted into Class A Common Stock at any
                                    time on a one-for-one basis. The Class A
                                    Common Stock and the Class B Common Stock
                                    are referred to together as the Common
                                    Stock. Following this offering, beneficial
                                    owners of our Class B Common Stock will own
                                    30,167,614 shares of Class B Common Stock,
                                    or 97.7% of the combined voting power of
                                    our Common Stock. See "Description of
                                    Capital Stock."
    Nasdaq National Market Symbol.. "MSTR"
</TABLE>
    
 
 
 
                                       4

<PAGE>
 
 
                      Summary Consolidated Financial Data
                     (in thousands, except per share data)
 

<TABLE>
<CAPTION>
                                                                    Nine Months
                                                                       Ended
                                Year Ended December 31,            September 30,
                          --------------------------------------  ----------------
                           1993   1994    1995   1996    1997(1)   1997    1998(1)
                          ------ ------  ------ -------  -------  -------  -------
                                                                    (unaudited)
<S>                       <C>    <C>     <C>    <C>      <C>      <C>      <C>
Consolidated Statements
of Operations Data:
Revenues................  $4,102 $4,980  $9,777 $22,603  $53,557  $34,763  $70,699
Income (loss) from
 operations.............     710     (3)     77  (2,290)     372     (244)   5,140
Net income (loss).......  $  761 $  (61) $   48 $(2,375) $   121  $  (395) $ 3,412
                          ====== ======  ====== =======  =======  =======  =======
Basic net income (loss)
 per share..............  $ 0.03 $ 0.00  $ 0.00 $ (0.08) $  0.00  $ (0.01) $  0.10
Shares used in computing
 basic net income (loss)
 per share..............  24,640 27,988  28,897  29,494   29,494   29,501   32,771
Diluted net income
 (loss) per share.......  $ 0.03 $ 0.00  $ 0.00 $ (0.08) $  0.00  $ (0.01) $  0.09
Shares used in computing
 diluted net income
 (loss) per share.......  24,640 27,988  28,897  29,494   32,362   29,501   37,397
</TABLE>

 

<TABLE>   
<CAPTION>
                                                              As of September
                                                                  30, 1998
                                                             ------------------
                                                                         As
                                                             Actual  Adjusted(2)
                                                             ------- ----------
<S>                                                          <C>     <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................... $29,868  $69,923
Working capital.............................................  29,759   69,814
Total assets................................................  76,563  116,618
Total stockholders' equity..................................  43,409   83,464
</TABLE>
    
 
- --------
 
(1) Before completing our initial public offering on June 16, 1998, we were an
    S corporation. As an S corporation, we were not liable for corporate income
    taxes. On a pro forma basis, if we had been a taxpaying entity, we would
    have recorded an income tax provision of approximately $489,000 and a net
    loss of approximately $368,000 for the year ended December 31, 1997, and
    would have recorded an income tax provision of approximately $1,965,000 and
    net income of $3,205,000 for the nine months ended September 30, 1998. Pro
    forma basic and diluted loss per share would have been $0.01 for the year
    ended December 31, 1997 and pro forma basic and diluted income per share
    would have been $0.10 and $0.08, respectively, for the nine months ended
    September 30, 1998. See Note 1 to "Notes to Consolidated Financial
    Statements" for the basis of computing pro forma basic and diluted net
    income (loss) per share.
   
(2) As adjusted to reflect our sale of 1,585,000 shares of Class A Common Stock
    offered with this prospectus at a public offering price of $27.00 per
    share, after deducting the underwriting discount and the estimated offering
    expenses that we will pay.     
 
                                       5

<PAGE>
 

                                  RISK FACTORS
 
      Before you invest in our Class A Common Stock, you should be aware that
there are various risks, including those described below. You should carefully
consider these risk factors, together with all of the other information
included in this prospectus, before you decide whether to purchase shares of
our Class A Common Stock.
 
Limited Operating History; Uncertainty of Future Operating Results
 
      We began shipping DSS Agent, the first product in our current product
family, in 1994, and we introduced many of our other products in 1995. An
investor in our Class A Common Stock must consider the risks and difficulties
early-stage companies often encounter, particularly in new and rapidly evolving
markets. Our limited operating history makes predicting future operating
results difficult, if not impossible. In addition, we had net losses and losses
from operations in 1996 and 1994 and were only marginally profitable in 1997
and 1995. Although our revenues have grown in recent periods, we cannot be
certain that we will sustain or increase our revenues or improve our operating
results in the future.
 
Quarterly Operating Results May Fluctuate Significantly
 
      For a number of reasons, including those described below, our operating
results, revenues and expenses may vary significantly from quarter to quarter.
 
      Fluctuations in Quarterly Operating Results. Our quarterly operating
results may fluctuate as a result of:
 
      .  the size and timing of significant orders;
 
      .  the timing of new product announcements;
 
      .  changes in our pricing policies or those of our competitors;
 
      .  market acceptance of decision support software generally and of
         new and enhanced versions of our products in particular;
 
      .  the length of our sales cycles;
 
      .  changes in our operating expenses;
 
      .  personnel changes;
 
      .  our success in expanding our direct sales force and adding to our
         indirect distribution channels;
 
      .  the pace and success of our international expansion;
 
      .  delays or deferrals of customer implementation; and
 
      .  changes in foreign currency exchange rates.
 
      Fluctuations in Revenues. In the past, we have typically recognized much
of the revenue for any quarter in the last two to four weeks of that quarter.
As a result, even minor delays in booking orders near the end of a quarter can
adversely affect that quarter's revenues, particularly when large orders are
involved.
 
      Because we ship most of our software products shortly after they are
ordered, we have almost no order backlog. Accordingly, product license revenues
for any quarter depend largely on orders booked and shipped in that quarter.
Product license revenues also fluctuate because the market for our products is
 
                                       6

<PAGE>
 
evolving rapidly and because sales cycles, which may last many months, vary
widely from customer to customer. Sales cycles are affected by many factors
over which we have little or no control, including:
 
      .  customers' budgetary constraints;
 
      .  the timing of budget cycles;
 
      .  concerns about the introduction of new products by us or our
         competitors; and
 
      .  potential downturns in the economy, which may reduce demand for
         management information systems.
 
      Product support revenues depend largely on maintenance revenues from
existing customers and will vary with those customers' maintenance needs.
 
      Seasonal factors may also affect our revenues. For example, the pace of
new sales tends to slow in the summer.
 
      Fluctuations in Expenses. Because we plan to expand our business, we
expect our operating costs and expenses to increase substantially. Operating
costs and expenses we expect to increase include those associated with
expanding our technical support, research and development and sales and
marketing organizations. We also expect to devote substantial resources to
expanding our indirect sales channels and international operations. We base our
operating expense budgets on expected revenue trends. We may not be able to
reduce the operating costs and expenses associated with our expansion (or even
the rate at which those operating costs and expenses grow) in the short term
even if expected revenue trends match our actual revenues. As a result,
variations in the timing and amounts of revenue could materially adversely
affect our quarterly operating results.
 
      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 likely 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 price of our Class A Common Stock may fall.
 
Sales May Be Delayed or Lost Due to Long Sales and Implementation Cycles for
Our Products
 
      To date, our customers have typically invested substantial time, money
and other resources and involved many people in the decision to license our
software products. As a result, we may wait nine months or more after first
contact for customers to place orders while they seek internal approval for,
among other things, the necessary capital expenditures. During this long sales
cycle, certain 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. It
is also possible that our customers will divert technology expenditures in 1999
to fund Year 2000 compliance plans. See  "--Year 2000 Issues; Potential Impact
on Customers."
 
      Even after an order is placed, the time it takes to deploy our products
(the implementation cycle) varies widely from one customer to the next. The
implementation cycle can sometimes last several months, depending on the
customer's data warehousing and other requirements, 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.
 
      These and other events affecting the sales and implementation cycles for
our products could materially adversely affect our business, operating results
or financial condition.
 
                                       7

<PAGE>
 
Increased Competition May Lead to Lower Prices, Reduced Gross Margins and Loss
of Market Share
 
      The markets for decision support and Internet-based information services
are intensely competitive and subject to rapidly changing technology. In
addition, many of our competitors in these markets are offering (or may soon
offer) products and services that may compete with our information analysis and
broadcasting products.
 
      Our most direct competitors in the markets for decision support and
Internet-based information services provide:
 
      .  decision support software;
  
      .  push products;
 
      .  browsers with webcasting functionality;
 
      .  electronic and Internet commerce systems;
 
      .  vertical Internet information systems;
 
      .  wireless communications products;
 
      .  online services; and
 
      .  event-driven technology.
 
      Each of these products or services is discussed more fully below.
 
      Decision Support Software. In the decision support market, we compete
with vendors of relational online analytical processing software, such as
Information Advantage, Inc. and Platinum Technology Incorporated; vendors of
desktop online analytical processing, or OLAP, software, such as Business
Objects S.A. and Cognos Incorporated; and vendors of multidimensional OLAP
software, such as Oracle Corporation, Hyperion Solutions Corporation (which has
entered into a strategic relationship with International Business Machines
Corporation), Seagate Software, Inc. and SAS Institute Incorporated.
 
      We expect continued growth and competition in this market. In addition,
new competitors may emerge. Microsoft Corporation, for example, has indicated
that it will introduce certain products in 1999 that may compete with ours.
 
      Push Products. Our competitors in the push product market, including
PointCast Incorporated, Marimba, Inc. and BackWeb Technologies Inc., offer
technologies that deliver information over the Internet to recipients via Web
browsers and proprietary interfaces. Push product vendors mostly deliver text-
based information, such as news and sports, but often include some number-based
information, such as stock price updates. Marimba is expanding its services to
include the delivery of information and analysis from relational data sources,
which could provide us with increased competition in this market.
 
      Browsers with Webcasting Functionality. Web browsers with channels or the
ability to webcast, such as Microsoft Internet Explorer or Netscape Navigator,
provide an infrastructure for automatically updating information on a
recipient's computer. This infrastructure is a competitive alternative to our
DSS Broadcaster product line (although we use the same infrastructure to
enhance our DSS Web product line).
 
      Electronic and Internet Commerce Systems. Products and turn-key solutions
for electronic commerce, Internet commerce and electronic business, such as
those provided by IBM, Open Market Inc., USWeb/CKS Corp., Viant Corporation and
Sun Microsystems, Inc., can be used to provide Internet-based information
services. To the extent they can be used to deliver information and analysis
from relational database management systems, these products will compete with
ours.
 
                                       8

<PAGE>
 
      Vertical Internet Information Systems. Microsoft Expedia, Microsoft
Investor, StockBoss, Microsoft CarPoint, Mercury Mail, TechWeb, ESavers (US
Airways, Inc.), C.O.O.L. (Continental Airlines, Inc.), Internet Travel Network
and others have developed custom applications and products to commercialize,
analyze and deliver specific information over the Internet. These systems are
usually tailored to one application, such as delivering stock prices, and
cannot easily be used for others, such as delivering airfares. However, they
pose a competitive risk because, as a group, they offer applications similar to
some that have been developed using our products.
 
      Wireless Communications Products. Wireless communications and messaging
providers, such as AT&T Corp., Nextel Communications, Sprint Corporation, MCI
WorldCom, Inc., Iridium LLC, PageNet, Inc. and SkyTel Corp., offer a variety of
alpha-enabled mobile phones and pagers. It is possible that these companies
will someday offer custom-developed information services to their customers
that will compete with applications using our products and services.
 
      Online Service Providers. Online service providers include America
Online, Inc., Microsoft's Microsoft Network, Prodigy, Inc., @Home Corporation
and WebTV Networks, Inc. (acquired by Microsoft). These companies provide text-
based information over the Internet and on proprietary online services. They
could develop applications that compete with the functionality of our products.
 
      Event-Driven Technology. Providers of event notification systems include
TIBCO Finance Technology Inc., which sells a product that monitors stock
tickers and notifies subscribers when preset thresholds are crossed; Clarify
Inc., which handles loan applications with a financial system developed by SAP
AG; BEA Systems, Inc., which provides middleware; and Vitria Technology Inc.,
which provides event-based workflow software. The technology resulting from
these systems has overlapped with our technology in the past and may do so in
the future.
 
      We believe that we set ourselves apart from the competition by offering
comprehensive support for all significant relational database management system
platforms. If a single competing vendor gains a large share of the relational
database management system market, we may find it more difficult to
differentiate ourselves and our products. This may materially adversely affect
our business, operating results and financial condition.
 
      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 data warehouse industry. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements,
or to 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 materially adversely affect our
business, operating results and financial condition.
 
                                       9

<PAGE>
 
      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 future indirect channel partners may establish
cooperative relationships with our current or future competitors. Such
relationships may limit our ability to sell our products through certain
distribution channels. Accordingly, it is possible that new competitors or
alliances among current and future competitors may emerge and rapidly gain
significant market share. These developments could have a material adverse
effect on our margins and on our ability to obtain maintenance revenues for new
and existing product licenses on favorable terms.
 
Continued Growth will Increase Demands on Resources
 
      All areas of our operations are expanding rapidly, and we expect this
expansion to continue. The total number of our employees grew from 59 on
January 1, 1995 to 907 on December 31, 1998, and we expect our number of
employees to continue to increase. We have placed significant demands on our
administrative, operational, financial, and personnel resources and expect to
continue doing so. In particular, we expect the current and planned growth of
our international operations to lead to increased financial and administrative
demands. Expanded facilities will complicate operations, managing relationships
with new foreign partners will mean additional administrative burdens, and
managing foreign currency risks will require expanded treasury functions. We
may also need to greatly expand our support organization to further develop
indirect distribution channels in different and broader markets and to
accommodate growth in our installed customer base. Failure to effectively
manage our expansion could have a material adverse effect on our business,
operating results and financial condition.
 
Need to Recruit Additional Skilled Personnel; Dependence on Key Personnel
 
      Our future success depends on our continuing ability to attract, train,
assimilate and retain highly qualified personnel. Competition for these
personnel is intense. We may not be able to retain our current key employees or
attract, train, assimilate or retain other highly qualified personnel in the
future. Our future success also depends in large part on the continued service
of key management personnel, particularly Michael J. Saylor, our President and
Chief Executive Officer, and Sanju K. Bansal, our Executive Vice President and
Chief Operating Officer. Losing the services of one or more of these
individuals or other key personnel could materially adversely affect our
business, operating results and financial condition.
 
Dependence on New Versions, New Products and Rapid Technological Change
 
      The market for our products is characterized by rapid technological
change, frequent new product introductions and enhancements, uncertain product
life cycles, changing customer demands and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can quickly make existing products obsolete and
unmarketable. The emergence of new standards in related fields may also
adversely affect existing products. This could happen, for example, if new Web
protocols emerged that were incompatible with deployment of our DSS
applications over the Web. Although our DSS solutions allow the core database
component to reside on nearly all enterprise server hardware and operating
system combinations (Mainframe, AS/400, Unix, Windows NT and Windows), our
application server component runs at present only on the Windows NT operating
system. Therefore, our ability to increase sales may depend on the continued
acceptance of the Windows NT operating system. We cannot market our current DSS
applications to potential customers who use Unix operating systems as their
application server. We would have to invest substantial resources to develop a
Unix product, and we cannot be sure that we could introduce such a product on a
timely or cost effective basis, if at all.
 
      We believe that our future success depends largely on three factors: our
ability to continue to support a number of popular operating systems and
databases; our ability to maintain and improve our current product line; and
our ability to timely develop new products that achieve market acceptance,
maintain technological competitiveness and meet an expanding range of customer
requirements. DSS
 
                                       10

<PAGE>
 
applications, however, 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. Moreover, only
a few of our customers to date have deployed our products in environments that
involve terabytes of data and thousands of active users. As deployment in these
complex environments becomes more widespread, unexpected delays or other
difficulties may arise. As a result, lengthy delays in the general availability
of new releases or significant problems in installing or implementing new
releases could arise that will have a material adverse effect on our business,
operating results and financial condition. 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,
evolving industry standards or customer requirements. Nor can we be sure that
we will not have difficulties that could delay or prevent the successful
development, introduction or marketing of these enhancements. Finally, we
cannot be sure that our new products and product enhancements will achieve
market acceptance.
 
Government Regulation and Other Legal Uncertainties
 
      We are not directly regulated by any governmental agency, although we are
subject to the laws that generally apply to businesses. Certain U.S. and
foreign laws restricting the use of consumers' personal information may also
apply to us. Due to increasing use of the Internet and the dramatically
increased access to personal information made possible by technologies like
ours, laws and regulations may be adopted in the U.S. and abroad to limit
access to personal information over the Internet and other public data networks
in ways that adversely affect our business. In response to consumer pressures,
the U.S. Congress and various state legislatures are considering legislation
that would apply to us in areas such as privacy protection. It is possible that
some or all of this legislation may become law.
 
      Although existing laws govern such issues as personal privacy over the
Internet or other public data networks, it is unclear whether they apply to us.
Most of these laws were adopted before the widespread use and commercialization
of the Internet and other public data networks. As a result, these laws do not
address the unique issues presented by these media.
 
      Any new law or regulation or any expanded governmental enforcement of
existing regulations may limit our growth or increase our legal exposure, which
could have a material adverse effect on our business, financial condition and
results of operations.
 
Dependence on Growth of Market for Decision Support Software
 
      All of our revenues have come from sales of decision support software and
related maintenance, consulting and training services. We expect these sales to
account for substantially all of our revenues for the foreseeable future.
Although demand for decision support software has grown in recent years, the
market for decision support software applications is still emerging. Resistance
from consumer and privacy groups to increased commercial collection and use of
data on spending 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 that, even if it does grow, businesses will adopt our
solutions. We have spent, and intend to keep spending, considerable resources
to educate potential customers about decision support software generally 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.
 
Control by Existing Stockholders; Anti-Takeover Effect of Two Classes of Common
Stock
 
      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. Following the offering, holders of our Class B
 
                                       11

<PAGE>
 
   
Common Stock will own or control 30,167,614 shares of Class B Common Stock, or
97.7% of our voting power. Michael J. Saylor, our Chairman, President and Chief
Executive Officer, through his sole ownership and control of Alcantara LLC,
will control 22,424,662 shares of Class B Common Stock and 50,000 shares of
Class A Common Stock, or 72.6% of our voting power. Accordingly, Mr. Saylor
will be 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 certain other actions requiring the vote or consent of
stockholders, including mergers, going private transactions and other
extraordinary transactions and their terms.     
 
      Our Certificate of Incorporation allows holders of Class B Common Stock
(almost all of whom are employees of our company or related parties) to
transfer shares of Class B Common Stock, subject to the approval of a majority
of the holders of outstanding Class B Common Stock. Mr. Saylor or a group of
stockholders possessing a majority of the outstanding Class B Common Stock
could, without seeking anyone else's approval, transfer voting control of
MicroStrategy to a third party. Such a transfer of control could have a
material adverse effect on our business prospects 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.
 
Reliance on Channel Partners
 
      In addition to our direct sales force, we rely on channel partners, such
as original equipment manufacturers and value-added resellers, to license and
support our products in the United States and internationally. In particular,
for 1997 and for the nine months ended September 30, 1998, channel partners
accounted directly or indirectly for 27.5% and 33.0% of our total revenues,
respectively. Our channel partners generally offer customers the products of
several different companies, including some products that compete with ours. We
intend to expand our relationships with strategic partners and to increase the
proportion of our customers licensed through these indirect channels. We are
currently investing, and intend to increasingly invest, significant resources
to develop these channels. If these efforts do not generate significant license
revenues, our operating results could be adversely affected.
 
      We cannot be sure that we will attract strategic partners who will market
our products effectively and who will be qualified to provide timely and cost-
effective customer support and service. Our ability to achieve revenue growth
in the future will depend in part on our success in recruiting and maintaining
successful relationships with those strategic partners.
 
Risks Associated with Intellectual Property
 
      We regard our software products as proprietary, and we rely on a
combination of statutory and common law copyright, 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. We have no
patents or patent applications pending, no registered trademarks (other than
MicroStrategy or QuickStrike) and no registered copyrights (other than the
EISToolkit 2.0 reference manual). 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.
 
      As the number of software products in our target markets increases and
the functionality of these products further overlap, software developers may
become increasingly subject to infringement claims. Someone may even claim that
our technology infringes their proprietary rights. Any such claims, whether
with or without merit, can 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 product infringement against us and our
inability to license the infringed or similar technology could adversely affect
our business.
 
                                       12

<PAGE>
 
Difficulties Associated with International Operations and Expansion
   
      International sales accounted for 24.9%, 26.6%, 11.1%, and 11.3% of our
total revenue for the nine months ended September 30, 1998 and for the years
ended December 31, 1997, 1996 and 1995, respectively. We plan to continue
expanding our international operations and to enter new international markets.
This will require significant management attention and financial resources and
could adversely affect our business, operating results or financial condition.
In order to expand international sales successfully in 1999 and beyond, we must
set up additional foreign operations, hire additional personnel and recruit
additional international resellers and distributors. We cannot be sure that we
will be able to do so in a timely manner, and our failure to do so may limit
our international sales growth. Nor can we be sure that we will be able to
maintain or increase international market demand for our products.     
 
      There are certain risks inherent in our international business
activities. In addition to the currency fluctuations described below, these
include:
 
      .  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; and
 
      .  the burden of complying with a wide variety of foreign laws.
 
      These factors may have a material adverse effect on our future
international sales and, consequently, our results of operations.
 
Currency Fluctuations
 
      Our international revenues and expenses are denominated in foreign
currencies, principally the British Pound Sterling and the German Deutsche
Mark. The functional currency of each of our foreign subsidiaries is its local
currency. Our foreign currency translation gains and losses have so far been
immaterial. However, future fluctuations in exchange rates between the U.S.
Dollar and foreign currencies may materially adversely affect our business,
results of operations and financial condition, particularly our operating
margins. We cannot accurately predict the impact of future exchange rate
fluctuations on our results of operations. To date, we have not hedged the
risks associated with these fluctuations. Although we may do so in the future,
we cannot be sure that any hedging techniques we may implement will be
successful or that our business, results of operations, financial condition and
cash flows will not be materially adversely affected by exchange rate
fluctuations.
 
Possible Consequences of Euro Conversion
 
      On January 1, 1999, eleven of the fifteen member countries of the
European Union set fixed conversion rates between their existing sovereign
currencies and the euro and adopted the euro as their legal currency. A
MicroStrategy task force is currently assessing the impact of these events on
our company. In addition to tax and accounting issues, the task force is
considering:
 
      .  the technical challenges of adapting our systems to accommodate
         euro-denominated transactions;
 
                                       13

<PAGE>
 
      .  the competitive impact of cross-border price transparency, which
         may make it more difficult for businesses to charge different
         prices for the same products in different countries;
 
      .  the impact on currency exchange costs and currency exchange rate
         risk; and
 
      .  the impact on existing contracts.
 
      At this early stage, we cannot yet predict the consequences of euro
conversion for our company.
 
Risk of Software Defects; Potential Product Liability for Software Defects
 
      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
certain of our new products after their introduction. While we have not
experienced material adverse effects from any such errors to date, we cannot
be certain that, despite testing by us and by our current and potential
customers, errors will not be found in new products or releases after
commercial shipments begin. This could result in lost revenue or delays in
market acceptance, which could have a material adverse effect upon our
business, operating results and financial condition.
 
      Our license agreements with customers typically contain provisions
designed to limit our exposure to product liability claims. It is possible,
however, that these limitation of liability 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.
 
Year 2000 Issues; Potential Impact on Customers
 
      Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. These date code
fields will need to accept four-digit entries in order for 20th century dates
to be distinguished from 21st century dates. As a result, before the end of
this year, computer systems and software used by many companies may need to be
upgraded to comply with these "Year 2000" requirements.
 
      We have developed and largely implemented a Year 2000 readiness plan for
the current versions of most of our products. Accordingly, we believe that the
current versions of most of our products are Year 2000 compliant when
configured and used properly, provided that the underlying operating system of
the host machine and any other software used with or in the host machine or
our products are also Year 2000 compliant.
 
      In addition, we plan to test our own material internal information
technology, or IT, systems (including both our own software products and
third-party software and hardware technology) and our non-IT systems (such as
our security system, building equipment, and embedded microcontrollers) for
Year 2000 compliance beginning in the first quarter of 1999. We intend to make
any required changes in the second and third quarters of 1999 and to conduct
additional testing in the fourth quarter of 1999. To the extent that we are
not able to test technology provided by third-party vendors, we are asking
them to assure us that their systems are Year 2000 compliant.
 
      Although we are not currently aware of any material operational issues
or costs associated with preparing our material internal IT and non-IT systems
for the Year 2000, we may experience material unanticipated problems and costs
caused by undetected errors or defects in the technology used in these
systems. While we cannot be sure that all our non-material systems will be
Year 2000 compliant by 2000, we believe that failure of such systems will not
have a material adverse affect on our business,
 
                                      14

<PAGE>
 
financial condition or results of operations. We are currently developing a
contingency plan to provide for
the remote possibility that our material systems will not achieve timely Year
2000 compliance.
 
      We have funded most of our past Year 2000 compliance activities from cash
flows and have not allocated additional funds to making our products or
internal systems Year 2000 compliant. During 1999, we plan to spend
approximately $100,000 on preparing our internal systems for the Year 2000. We
do not expect to receive much outside assistance in completing our internal
Year 2000 effort.
 
      Apart from current versions of our products and our internal systems, we
have identified four potential Year 2000 problem areas.
 
      First, we have not yet determined whether certain third-party software
incorporated in one of our products is Year 2000 compliant. Although we are not
currently aware of any material Year 2000 issues with these third-party
software products, undetected errors or defects, if they exist, may cause
material unanticipated problems and costs.
 
      Second, some of our customers may be using a version of our software that
is not Year 2000 compliant. While we have tried to make sure that all our
customers are using Year 2000 compliant versions of our software, we cannot be
certain that they have installed these versions.
 
      Third, not all platforms or versions of the operating systems that our
products currently support are Year 2000 compliant.
 
      Fourth, certain customers have elected to operate systems in a two-digit
year date environment, which is not Year 2000 compliant.
 
      We do not currently have much information on the Year 2000 compliance
status of our customers. As is the case with other similarly situated software
companies, if our current or future customers do not become Year 2000
compliant, or if they divert technology expenditures (especially technology
expenditures that were reserved for enterprise decision support software) to
address Year 2000 compliance problems, our business, results of operations,
financial condition or cash flows could be materially adversely affected.
 
      Since we are in the business of selling software, our risk of lawsuits
relating to Year 2000 issues with our products is likely to be greater than
that of companies in some other industries. Because computer systems may
incorporate components from different manufacturers, it may be difficult to
determine which component in a computer system may cause a Year 2000 problem.
As a result, we may be subjected to Year 2000-related lawsuits whether or not
our products and services are Year 2000 compliant. We cannot be certain at this
time what the outcomes or impact of any such lawsuits may be.
 
 
Shares Eligible for Future Sale Could Affect Market Price
   
      If our stockholders sell substantial amounts of our Class A Common Stock
in the public market following this offering, the market price of our Common
Stock could fall. Several of our principal stockholders hold a large number of
shares of the outstanding Class B Common Stock. A decision by one or more of
these stockholders to convert such shares into Class A Common Stock (which
conversion could happen at any time) and sell their shares could lower the
market price of the Class A Common Stock. Upon completion of this offering, we
will have outstanding 7,132,110 shares of Class A Common Stock and 30,167,614
shares of Class B Common Stock (based upon shares outstanding as of December
31, 1998), assuming no exercise of the underwriters' over-allotment option and
no exercise of outstanding options or warrants after December 31, 1998, except
for options for 29,500 shares exercised by certain     
 
                                       15

<PAGE>
 
   
selling stockholders and sold in the offering, and not giving any effect to the
192,744 shares of Class A Common Stock being issued upon the closing of the
initial offering period under our employee stock purchase plan. Of these
shares, 6,939,710 shares, comprised of the 2,000,000 shares to be sold in this
offering (plus any shares issued upon exercise of the underwriters' over-
allotment option), 4,590,000 of the shares sold in our initial public offering
in June 1998, and 349,710 shares sold after exercise of stock options, will be
freely tradable, subject to certain restrictions under Rule 144. This leaves
30,360,014 shares that will be eligible for sale in the public market in the
future as follows:     
 

<TABLE>   
<CAPTION>
  Number of Shares                                  Date
  ----------------                                  ----
<S>                           <C>
    452,110.................  At various times after the date of this
                              prospectus pursuant to Rule 144.
    46,000..................  At various times after 30 days from the date of
                              this prospectus pursuant to Rule 144.
    29,861,904..............  At various times after 90 days from the date of
                              this prospectus pursuant to Rule 144.
</TABLE>
    
 
      We registered for resale the 8,900,000 shares of Class A Common Stock
issuable upon the exercise of stock options either outstanding or available for
grant or purchase under our various stock option or purchase plans. These
shares are currently or upon grant will be eligible for sale in the public
markets, subject to Rule 144 limitations applicable to our "affiliates" as well
as to certain limitations on sale and vesting. The possible sale of a
significant number of these shares may cause the price of our Class A Common
Stock to fall. See "Management--Stock Option Plans", "Shares Eligible for
Future Sale" and "Underwriting".
 
Volatility of Stock Price
 
      The market price for our Class A Common Stock could fluctuate
significantly for any of the following reasons:
 
      .  quarter-to-quarter variations in our operating results;
 
      .  developments or disputes concerning proprietary rights;
 
      .  technological innovations or new products;
 
      .  governmental regulatory action;
 
      .  general conditions in the software industry;
 
      .  increased price competition;
 
      .  changes in earnings estimates by analysts; or
 
      .  other events or factors.
 
      Many of the above factors are beyond our control.
 
      The stock market has recently experienced extreme price and volume
fluctuations. These have particularly affected the market price of many
computer software companies, often without regard to their operating
performance.
 
 
                                       16

<PAGE>
 

                                USE OF PROCEEDS
   
      We estimate the net proceeds to us from the offering to be approximately
$40.1 million based on a public offering price of $27.00 per share and after
deducting the underwriting discount and estimated offering expenses that we
will pay. We intend to use these net proceeds for working capital and general
corporate purposes, including possible acquisitions or investments. Our
management will retain broad discretion to allocate much of the net proceeds
from the offering. Pending use, we plan to invest the net proceeds in interest-
bearing, investment-grade securities. We will not receive any of the proceeds
from the sale of shares of our Class A Common Stock by the selling
stockholders.     
 
      This discussion represents our best estimate of our allocation of the net
proceeds of the offering, based on our current plans and estimates regarding
our expected expenditures. Actual expenditures may vary substantially from
these estimates. We may find it necessary or advisable to reallocate the net
proceeds within the above categories, or to use portions of the net proceeds
for other purposes.
 
 
                      PRICE RANGE OF CLASS A COMMON STOCK
 
      The Class A Common Stock began trading on the Nasdaq National Market
under the symbol "MSTR" on June 11, 1998. The following table sets forth the
high and low closing sale prices for the Class A Common Stock as reported on
the Nasdaq National Market.
 

<TABLE>   
<CAPTION>
                                                                   LOW    HIGH
                                                                   ---    ----
     <S>                                                          <C>    <C>
     Second Quarter 1998 (beginning June 11)..................... $21.13 $28.25
     Third Quarter 1998..........................................  24.13  44.50
     Fourth Quarter 1998.........................................  20.75  33.88
     First Quarter 1999 (through February 9).....................  27.06  34.50
</TABLE>
    
   
      On February 9, 1999, the last reported sale price for the Class A Common
Stock was $27.06 per share. As of February 9, 1999, there were approximately
210 holders of record of the Class A Common Stock.     
 

                                DIVIDEND POLICY
 
      We have not declared or paid any dividends on our Class A Common Stock.
We expect to retain future earnings, if any, for developing our business, and
we do not anticipate paying any cash dividends on our Class A Common Stock in
the foreseeable future.
 
                                       17

<PAGE>
 

                                 CAPITALIZATION
 
      The following table sets forth our capitalization as of September 30,
1998 on an actual basis and as adjusted to reflect the offering.
 

<TABLE>   
<CAPTION>
                                                        Actual   As Adjusted(1)
                                                        -------  --------------
                                                            (in thousands)
     <S>                                                <C>      <C>
     Stockholders' equity:
      Preferred stock, par value $0.001 per share,
       5,000,000 shares authorized, no shares issued
       and outstanding................................  $    --     $     --
      Class A Common Stock, par value $0.001 per
       share, 100,000,000 shares authorized, 4,852,900
       shares issued and outstanding, actual;
       6,852,900 shares issued and outstanding, as
       adjusted.......................................        5            7
      Class B Common Stock, par value $0.001 per
       share, 100,000,000 shares authorized;
       30,735,514 issued and outstanding, actual;
       30,350,014 shares issued and outstanding, as
       adjusted.......................................       31           30
      Additional paid-in capital......................   41,544       81,598
      Accumulated other comprehensive income..........      553          553
      Accumulated earnings............................    2,463        2,463
      Deferred compensation...........................   (1,187)      (1,187)
                                                        -------     --------
        Total stockholders' equity....................   43,409       83,464
                                                        -------     --------
          Total capitalization........................  $43,409      $83,464
                                                        =======     ========
</TABLE>
    
 
- --------
   
(1) As adjusted to reflect our sale of 1,585,000 shares of Class A Common Stock
    offered with this prospectus at a public offering price of $27.00 per
    share, after deducting the underwriting discount and the estimated offering
    expenses that we will pay.     
 
                                       18

<PAGE>
 

                      SELECTED CONSOLIDATED FINANCIAL DATA
 
      The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements, the Notes
thereto and the other financial information included elsewhere in this
prospectus. The statement of operations data for the years ended December 31,
1995, 1996 and 1997, and the balance sheet data as of December 31, 1996 and
1997, are derived from audited financial statements included elsewhere in this
prospectus. The statement of operations data for the year ended December 31,
1994 and the balance sheet data as of December 31, 1994 and 1995, are derived
from audited financial statements not included herewith. The statement of
operations data for the year ended December 31, 1993, and for the nine months
ended September 30, 1997 and 1998 and the balance sheet data as of December 31,
1993, and as of September 30, 1998, have been derived from our unaudited
consolidated financial statements, which, in management's opinion, reflect all
adjustments necessary to fairly present this information when read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere in this prospectus.
 

<TABLE>
<CAPTION>
                                                                   Nine Months Ended
                                Year Ended December 31,              September 30,
                          ---------------------------------------  --------------------
                           1993   1994    1995    1996    1997(1)    1997    1998(1)
                           ----   ----    ----    ----    -------    ----    -------
                            (in thousands, except per share
                                         data)                        (unaudited)
Consolidated Statements of Operations Data:
<S>                       <C>    <C>     <C>     <C>      <C>      <C>       <C>
Revenues:
 Product licenses.......  $  676 $  622  $4,077  $15,873  $36,601  $ 23,410  $ 47,476
 Product support........   3,426  4,358   5,700    6,730   16,956    11,353    23,223
                          ------ ------  ------  -------  -------  --------  --------
  Total revenues........   4,102  4,980   9,777   22,603   53,557    34,763    70,699
                          ------ ------  ------  -------  -------  --------  --------
Costs and expenses:
 Cost of revenues.......   1,502  2,057   2,458    5,257   11,116     7,507    13,610
 Sales and marketing....     274    771   2,992   13,054   30,468    20,200    35,759
 Research and
 development............     153    200   1,855    2,840    5,049     3,137     8,086
 General and
 administrative.........   1,463  1,955   2,395    3,742    6,552     4,163     8,104
                          ------ ------  ------  -------  -------  --------  --------
  Total costs and
  expenses..............   3,392  4,983   9,700   24,893   53,185    35,007    65,559
                          ------ ------  ------  -------  -------  --------  --------
Income (loss) from
 operations.............     710     (3)     77   (2,290)     372      (244)    5,140
Interest income
 (expense), net.........       6    (34)    (40)    (105)    (239)     (148)       61
Other income (expense),
 net....................      45    (24)     11       20      (12)       (3)      (31)
                          ------ ------  ------  -------  -------  --------  --------
Provision for income
 taxes..................      --     --      --       --       --        --    (1,758)
                          ------ ------  ------  -------  -------  --------  --------
Net income (loss).......  $  761 $  (61) $   48  $(2,375) $   121  $   (395) $  3,412
                          ====== ======  ======  =======  =======  ========  ========
Basic net income (loss)
 per share(2)...........  $ 0.03 $ 0.00  $ 0.00  $ (0.08) $  0.00  $  (0.01) $   0.10
Shares used in computing
 basic net income
 (loss) per share(2)....  24,640 27,988  28,897   29,494   29,494    29,501    32,771
Diluted net income
 (loss) per share.......  $ 0.03 $ 0.00  $ 0.00  $ (0.08) $  0.00  $  (0.01) $   0.09
Shares used in computing
 diluted net
 income (loss)per
 share(2)...............  24,640 27,988  28,897   29,494   32,362    29,501    37,397
</TABLE>

 

<TABLE>
<CAPTION>
                                      December 31,
                          -------------------------------------  September 30,
                           1993   1994   1995   1996     1997        1998
                          ------ ------ ------ -------  -------  -------------
                                     (in thousands)               (unaudited)
<S>                       <C>    <C>    <C>    <C>      <C>      <C>
Consolidated Balance
 Sheet Data:
Cash and cash
 equivalents............. $  141 $  249 $  643 $ 1,686  $ 3,506     $29,868
Working capital
 (deficit)...............  1,752    848  1,343  (2,237)  (5,761)     29,759
Total assets.............  2,352  3,209  5,838  13,004   30,065      76,563
Notes payable, long-term
 portion.................    323    193    600     460    2,658          --
Total stockholders'
 (deficit) equity........  1,564  1,446  1,546    (793)    (427)     43,409
</TABLE>

 
- --------
(1) Before completing our initial public offering on June 16, 1998, we were an
    S corporation. As an S corporation, we were not liable for corporate income
    taxes. On a pro forma basis, if we had been a taxpaying entity, we would
    have recorded an income tax provision of approximately $489,000 and a net
    loss of approximately $368,000 for the year ended December 31, 1997, and
    would have recorded an income tax provision of approximately $1,965,000 and
    net income of $3,205,000 for the nine months ended September 30, 1998. Pro
    forma basic and diluted loss per share would have been $0.01 for the year
    ended December 31, 1997, and pro forma basic and diluted income per share
    would have been $0.10 and $0.08, respectively, for the nine months ended
    September 30, 1998 and 1997. See Note 1 of "Notes to Consolidated Financial
    Statements" for the basis of computing pro forma basic and diluted net
    income (loss) per share.
(2) The basis for the determination of shares used in computing net income per
    share is described in Note 1 of "Notes to Consolidated Financial
    Statements."
 
                                       19

<PAGE>
 

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
      The following discussion of our financial condition and results of
operations should be read in conjunction with our Consolidated Financial
Statements and the Notes thereto and the other financial information included
as part of this prospectus.
 
Overview
 
      Our primary business following our incorporation in 1989 was to provide
software consulting services for customers to help them build custom decision
support systems. Our activities during 1994 and 1995 increasingly focused on
the development and sale of software products. This trend culminated in the
release of a full complement of DSS products in 1995. Since then, we have
focused significant resources on adding functionality and features to our DSS
software products. As a result, we have transitioned our primary business from
providing services to providing software products.
 
      Since 1995, we have significantly increased our sales and marketing,
service and support, research and development and general and administrative
staffs. Our headcount has more than doubled each year since 1995. At January 1,
1995, we had 59 employees, and at December 31, 1998, we had 907 employees.
Although our revenues have significantly increased in each of the last nine
quarters, our operating margins fluctuated during 1996 and 1997 primarily
because of increases in staff levels. We expect to continue to add staff and
incur additional associated costs in future periods. If we cannot achieve
corresponding substantial revenue growth, we could suffer operating losses in
one or more fiscal quarters. We may be unable to forecast such losses before
the end of any given fiscal quarter. In addition, we have experienced net
losses and losses from operations for the fiscal years ended December 31, 1996
and December 31, 1994, and were only marginally profitable for the fiscal years
ended December 31, 1997 and December 31, 1995. While we have had significant
percentage growth in revenues in recent periods and currently expect
substantial, although potentially lower, percentage growth in revenues
throughout 1999, prior percentage revenue growth rates do not necessarily
indicate future growth rates or operating results. There are a number of
factors that could materially affect expected revenue and operating results for
future periods. See "Risk Factors--Limited Operating History; Uncertainty of
Future Operating Results," "--Quarterly Operating Results May Fluctuate
Significantly," "--Sales May Be Delayed or Lost Due to Long Sales and
Implementation Cycles For Our Products," "--Increased Competition May Lead to
Lower Prices, Reduced Gross Margins and Loss of Market Share," "--Continued
Growth will Increase Demands on Resources," "--Need to Recruit Additional
Skilled Personnel; Dependence on Key Personnel," and "--Dependence on New
Versions, New Products and Rapid Technological Change."
 
      Our revenues come from two principal sources: (1) product licenses and
(2) fees for maintenance, technical support, training and consulting services
(collectively, "product support"). Before January 1, 1998, we recognized
revenue in accordance with Statement of Position 91-1, "Software Revenue
Recognition." After December 31, 1997, we began recognizing revenue in
accordance with Statement of Position 97-2, "Software Revenue Recognition."
Product license revenues are generally recognized upon the execution of a
contract and shipment of the related software product, provided that no
significant vendor obligations remain outstanding and the resulting receivable
is deemed collectible by management. Maintenance revenues are derived from
customer support agreements generally entered into in connection with initial
product license sales and subsequent renewals. Fees for our maintenance and
support plans are recorded as deferred revenue when billed to the customer and
recognized ratably over the term of the maintenance and support agreement,
which is typically one year. Fees for our training and consulting services are
recognized at the time the services are performed.
 
      The sales cycle for our products may span nine months or more. In the
past, we have typically recognized much of the revenue for any quarter in the
last two to four weeks of that quarter. As a result, even minor delays in
booking orders near the end of a quarter can adversely affect that quarter's
revenues, particularly when large orders are involved. Because we ship most of
our software products
 
                                       20

<PAGE>
 
shortly after they are ordered, we have almost no order backlog. Accordingly,
product license revenues for any quarter depend largely on orders booked and
shipped in that quarter. For these and other reasons, our quarterly results
have varied significantly in the past and are likely to continue to do so. We
therefore believe that quarter-to-quarter comparisons of our results of
operations are not necessarily indicative of the results to be expected for any
future period. See "Risk Factors--Quarterly Operating Results May Fluctuate
Significantly."
 
      We license our software through our direct sales force and through, or in
conjunction with, value-added resellers and original equipment manufacturers.
Value-added resellers and original equipment manufacturers accounted, directly
or indirectly, for approximately 33.2%, 27.5%, 9.0% and 0.1% of our revenues
for the nine months ended September 30, 1998 and for the years ended 1997, 1996
and 1995, respectively. Although we believe that direct sales will continue to
account for most of our product license revenues, we intend to increase
indirect sales activities. As a result, we expect sales of our product licenses
through sales alliances, distributors, resellers and other indirect channels to
continue to increase as a percentage of product license revenues. However, we
cannot be sure that our efforts to continue to expand indirect sales will be
successful. We also intend to continue to expand our international operations
and have committed, and continue to commit, significant management time and
financial resources to developing direct and indirect international sales and
support channels.
 
Results of Operations
 
      The following table sets forth for the periods indicated the percentage
of total revenues represented by certain items reflected in our consolidated
statements of operations:
 

<TABLE>
<CAPTION>
                                                             Nine Months Ended
                                 Year Ended December 31,       September 30,
                                 --------------------------  -------------------
                                  1995     1996      1997      1997       1998
                                 -------  -------   -------  --------   --------
<S>                              <C>      <C>       <C>      <C>        <C>
Consolidated Statements of
 Operations Data:
Revenues:
 Product licenses............       41.7%    70.2%     68.3%     67.3%      67.2%
 Product support.............       58.3     29.8      31.7      32.7       32.8
                                 -------  -------   -------  --------   --------
   Total revenues............      100.0    100.0     100.0     100.0      100.0
                                 -------  -------   -------  --------   --------
Cost of revenues:
 Product licenses............        2.6      4.5       3.1       3.4        2.4
 Product support.............       22.5     18.7      17.7      18.2       16.9
                                 -------  -------   -------  --------   --------
   Total cost of revenues....       25.1     23.2      20.8      21.6       19.3
                                 -------  -------   -------  --------   --------
Gross margin.................       74.9     76.8      79.2      78.4       80.7
                                 -------  -------   -------  --------   --------
Operating expenses:
 Sales and marketing.........       30.6     57.8      56.9      58.1       50.6
 Research and development....       19.0     12.6       9.4       9.0       11.4
 General and administrative..       24.5     16.6      12.2      12.0       11.5
                                 -------  -------   -------  --------   --------
   Total operating expenses..       74.1     87.0      78.5      79.1       73.5
Income (loss) from
 operations..................        0.8    (10.2)      0.7      (0.7)       7.2
Interest income..............        0.2      0.1       0.2       0.2        1.0
Interest expense.............       (0.6)    (0.6)     (0.7)    ( 0.6)      (0.9)
Other income, net............        0.1      0.1        --        --         --
                                 -------  -------   -------  --------   --------
Provision for income taxes...         --       --        --        --       (2.5)
                                 -------  -------   -------  --------   --------
Net income (loss)............        0.5%   (10.6)%     0.2%     (1.1)%      4.8%
                                 =======  =======   =======  ========   ========
</TABLE>

 
                                       21

<PAGE>
 
Comparison of Nine Months Ended September 30, 1998 and 1997
 
 Revenues. Total revenues increased 103.4% to $70.7 million for the nine months
ended September 30, 1998 from $34.8 million for the nine months ended September
30, 1997. Total revenues consist of revenues from sales of software product
licenses and product support.
 
      Product License Revenues. Product license revenues increased 102.8% to
$47.5 million for the nine months ended September 30, 1998 from $23.4 million
for the nine months ended September 30, 1997, representing 67.2% and 67.3% of
total revenues for the nine months ended September 30, 1998 and 1997,
respectively. The significant increases in product license revenues were due to
growing market acceptance of our software products and continued expansion of
our sales and marketing organization.
 
      Product Support Revenues. Product support revenues increased 104.6% to
$23.2 million for the nine months ended September 30, 1998 from $11.4 million
for the nine months ended September 30, 1997, representing 32.8% and 32.7% of
total revenues for the nine months ended September 30, 1998 and 1997,
respectively. Product support revenues grew primarily because of our increasing
installed license base.
 
      International Revenues. We recognized $16.1 million and $9.2 million of
international revenues in the nine months ended September 30, 1998 and
September 30, 1997, representing approximately 22.7% and 26.4% of total
revenues, respectively.
 
 Costs and Expenses
 
      Cost of Product License Revenues. Cost of product license revenues
consists primarily of the costs of product manuals, media, amortization of
capitalized software and shipping paid to third parties. Cost of product
license revenues increased to $1.7 million for the nine months ended
September 30, 1998 from $1.2 million for the nine months ended September 30,
1997, representing 3.5% and 5.1% of total product license revenues,
respectively. The increase in cost of product licenses was directly
attributable to the increases in product license revenue, coupled with the
amortization of capitalized software. The total cost of product license
revenues as a percentage of revenues decreased during 1998 from the same period
in 1997, due to economies of scale realized by producing larger volumes of
product materials and an increasing number of customers reproducing licenses at
their sites.
 
      Cost of Product Support Revenues. Cost of product support revenues
consists of the cost of providing telephone support, training and consulting
services to customers and partners. Cost of product support revenues increased
to $11.9 million for the nine months ended September 30, 1998 from $6.3 million
for the nine months ended September 30, 1997, representing 51.4% and 55.7% of
total product support revenues, respectively. The increase in cost of product
support revenues in 1998 was primarily due to the increase in the number of
personnel providing consulting, training, and telephone support to customers
and to the training and related costs associated with increasing personnel
levels.
 
      Sales and Marketing Expenses. Sales and marketing expenses include
personnel costs, commissions, office facilities, travel, promotional events
such as trade shows, seminars and technical conferences, advertising and public
relations programs. Sales and marketing expenses increased to $35.8 million for
the nine months ended September 30, 1998 from $20.2 million for the nine months
ended September 30, 1997, representing 50.6% and 58.1% of total revenues,
respectively. The increase in sales and marketing expenses in 1998 was
primarily due to increased staffing as we established new international sales
offices and expanded our existing direct sales force, increased commissions to
sales representatives as a result of increased sales of software licenses and
increased promotional activities relating to the announcement of certain
product enhancements or releases. We believe that in light of the relatively
long sales cycle associated with decision support solutions and the recent
emergence of the industry, it is critically important to gain market share
among high-end customers. We have invested and will continue to invest heavily
in sales and marketing in order to create better market awareness of the value-
added potential of DSS products and to acquire market share.
 
 
                                       22

<PAGE>
 
      Research and Development Expenses. Research and development expenses
consist primarily of salaries and benefits of software engineering personnel,
payments to contract programmers, depreciation of equipment and expendable
equipment purchases. See Note 1 of "Notes to Consolidated Financial
Statements." Research and development expenses increased to $8.1 million for
the nine months ended September 30, 1998 from $3.1 million for the nine months
ended September 30, 1997, representing 11.4% and 9.0% of total revenues,
respectively. The increases in research and development expenses were primarily
due to additional hiring of research and development personnel. We expect
research and development expenses to continue to grow as we continue to invest
in developing new products, applications and product enhancements. In 1997, in
accordance with SFAS No. 86, we capitalized research and development costs due
to the significant increase in product development activities associated with
the version 5.0 release of the DSS software product line. As a result, we
capitalized approximately $1.4 million of costs during the nine months ended
September 30, 1997. During the nine months ended September 30, 1998, in
accordance with SFAS No. 86, the costs incurred between the establishment of
technological feasibility and general availability of our products were not
material and therefore have been expensed rather than capitalized.
 
      General and Administrative Expenses. General and administrative expenses
include the personnel and other costs of our finance, human resources,
information systems, administrative and executive departments as well as
outside professional fees. General and administrative expenses increased to
$8.1 million for the nine months ended September 30, 1998 from $4.2 million for
the nine months ended September 30, 1997, representing 11.5% and 12.0% of total
revenues, respectively. The increase in the dollar amount of general and
administrative expenses was primarily the result of increased staffing and
related costs associated with the growth of our business during these periods.
   
      Deferred Compensation Expense. During the nine months ended September 30,
1998 we granted options to purchase shares of common stock, of which options to
purchase 535,835 shares of common stock were granted at exercise prices below
fair market value. We will amortize approximately $1.3 million of compensation
expense relating to these options ratably over the five year vesting period of
these options. We will record additional compensation expense relating to the
options to be allocated across the above expense categories, as appropriate,
for the years ending December 31, 1998, 1999, 2000, 2001, 2002 and 2003 of $0.2
million, $0.3 million, $0.3 million, $0.2 million, $0.2 million and
$0.1 million, respectively. For the nine months ended September 30, 1998,
compensation expense related to the options is approximately $0.2 million.     
 
      Provision for Income Taxes. Prior to completing our initial public
offering, we had elected to be treated as a Subchapter S corporation for
federal and state income tax purposes. Under Subchapter S, our income was
allocated and taxable to our individual stockholders rather than to the
Company. Accordingly, no federal or state income taxes have been provided for
in the financial statements predating the initial public offering.
 
      Our S corporation status terminated shortly prior to completion of the
initial public offering. We are now subject to federal and state corporate
income taxation as a Subchapter C corporation. As a result, we have adopted
SFAS No. 109, "Accounting for Income Taxes." We recorded income tax expense of
$1.8 million for the nine months ended September 30, 1998. Had we been taxed as
a C corporation for the entire nine months ended September 30, 1998, we would
have recorded income tax expense of $2.0 million. The adoption of SFAS No. 109
did not have a material impact on our Company's operating results.
 
Comparison of Fiscal Years Ended December 31, 1997, 1996 and 1995
 
 Revenues. Total revenues increased to $53.6 million in 1997 from $22.6 million
in 1996 and from $9.8 million in 1995, representing increases of 136.9% and
131.2%, respectively. We cannot be certain that total revenues will continue to
increase at the rates experienced in prior periods, if at all.
 
      Product License Revenues. Product license revenues increased to $36.6
million in 1997 from $15.9 million in 1996 and from $4.1 million in 1995,
representing increases of 130.6% and 289.3%, respectively. Product license
revenues constituted 68.3%, 70.2% and 41.7% of total revenues for 1997,
 
                                       23

<PAGE>
 
1996 and 1995, respectively. Product license revenues grew significantly due to
growing market acceptance of our software products and continued expansion of
our sales and marketing organization. The significant increases in product
licenses as a percentage of total revenues from 1995 through 1997 were
primarily attributable to the transition of our business during that period
from providing consulting services to providing software products. The increase
in product license revenues from 1996 to 1997 was primarily attributable to the
introduction and release of new versions of DSS Administrator, DSS Web and DSS
Agent during 1997. These included significant new features and functionality
offered to a broader corporate customer base. Approximately 53%, 57% and 70% of
product license revenues were generated from new product releases during 1997,
1996 and 1995, respectively. These factors contributed to increases in the
number and average contract dollar amount of licenses for our DSS products
sold. To date, sales of product licenses have principally come from direct
sales to customers.
 
      Product Support Revenues. Product support revenues increased to $17.0
million in 1997 from $6.7 million in 1996 and from $5.7 million in 1995,
representing increases of 151.9% and 18.1%, respectively. Product support
revenues constituted 31.7%, 29.8%, and 58.3% of total revenues for 1997, 1996
and 1995, respectively. Product support revenues grew primarily because we sold
more licenses for our DSS products. However, product support revenues
significantly decreased as a percentage of total revenues during these periods,
mainly because of the transition of our business from providing consulting
services to providing software products. Even so, we expect product support
revenues as a percentage of total revenues to continue to fluctuate from period
to period but generally not to vary significantly from the percentage of total
revenues achieved in 1997. However, an element of our sales and marketing
strategy is to leverage third-party implementation services to enable us to
more rapidly penetrate our target market. To the extent that such efforts are
successful, our product support revenues could continue to decline as a
percentage of total revenues.
 
      International Revenues. We recognized $14.3 million, $2.5 million and
$1.1 million of international revenues in 1997, 1996 and 1995, respectively,
representing approximately 26.6%, 11.1% and 11.3% of total revenues,
respectively. We opened sales offices in Australia, Canada and Italy in 1998;
in Austria, France and the Netherlands in 1997; in Germany in 1996; in the
United Kingdom in 1995; and in Spain in 1994. International sales are subject
to a number of risks. See "Risk Factors--Difficulties Associated with
International Operations and Expansion" and "--Currency Fluctuations."
 
 Costs And Expenses
 
      Cost of Product License Revenues. Cost of product license revenues was
$1.6 million, $1.0 million and $0.3 million in 1997, 1996 and 1995,
respectively, representing 4.5%, 6.4% and 6.3% of total product license
revenues, respectively. The growth in cost of product licenses is directly
attributable to the increases in product license revenues. The total cost of
product license revenues as a percentage of revenues decreased during 1997 from
1996, due to economies of scale realized by producing larger volumes of product
materials and an increasing number of customers reproducing licenses at their
sites. We expect the cost of product license revenues to grow with license fee
revenues, but to remain relatively constant as a percentage of product license
revenues. However, if we enter into any royalty arrangements in the future,
cost of product license revenues as a percentage of total product license
revenues may increase.
 
      Cost of Product Support Revenues. Cost of product support revenues was
$9.5 million, $4.2 million and $2.2 million in 1997, 1996 and 1995,
respectively, representing 55.9%, 63.0% and 38.6% of total product support
revenues, respectively. The increase in cost of product support revenues, both
in dollar amount and as a percentage of 1996 product support revenues, was
primarily due to the increase in the number of personnel providing consulting,
training, and telephone support to customers and to the training and related
costs associated with increasing personnel levels. Despite the increases in
personnel and other costs in 1997, the total cost of product support revenues
decreased as a percentage of revenues during 1997 from 1996, primarily due to
increases in maintenance revenues without proportional increases in the cost of
product support revenues. We expect to continue to increase the number of
training and implementation consultants in the future, as well as technical
support personnel. To the
 
                                       24

<PAGE>
 
extent that our product support revenues do not increase at anticipated rates,
hiring additional consultants and technical support personnel could increase
the cost of product support revenues as a percentage of product support
revenues.
 
      Sales and Marketing Expenses. Sales and marketing expenses were $30.5
million, $13.1 million and $3.0 million in 1997, 1996 and 1995, respectively,
representing 56.9%, 57.8% and 30.6% of total revenues, respectively. The
significant growth in sales and marketing expenses in 1997 was primarily due to
increased staffing as we established new domestic and international sales
offices and expanded our existing direct sales force, and to a lesser extent,
increased commissions to sales representatives as a result of increased sales
of software licenses and increased promotional activities relating to the
announcement of certain product enhancements or releases. The growth in sales
and marketing expenses in 1996 was primarily attributable to increased costs
associated with developing a direct sales force, increased commissions to sales
representatives due to increased sales of product licenses and increased
marketing activities. We believe that in light of the relatively long sales
cycle associated with decision support solutions and the recent emergence of
the industry, it is critically important to gain market share among high-end
customers. We have invested and will continue to invest heavily in sales and
marketing in order to create better market awareness of the value-added
potential of DSS products and to acquire market share. We believe that the
dollar amount of sales and marketing expenses will continue to increase, but
should probably decrease over time as a percentage of total revenues from the
levels experienced in 1997 and 1996.
 
      Research and Development Expenses. Research and development expenses were
$5.1 million, $2.8 million and $1.9 million in 1997, 1996 and 1995,
respectively, representing 9.4%, 12.6% and 19.0% of total revenues,
respectively. The growth in research and development expenses was primarily due
to additional hiring of research and development personnel. In 1997, in
accordance with SFAS No. 86, we began to capitalize research and development
costs due to the significant increase in product development activities
associated with the version 5.0 release of the DSS software product line. As a
result, we capitalized $1.9 million of research and development costs in 1997.
Expenditures for research and development costs prior to capitalizing software
were $7.0 million in 1997.
 
      General and Administrative Expenses. General and administrative expenses
were $6.6 million, $3.7 million and $2.4 million in 1997, 1996 and 1995,
respectively, representing 12.2%, 16.6% and 24.5% of total revenues,
respectively. The growth in general and administrative expenses was primarily
the result of increased staff levels and related costs associated with the
growth of our business during these periods. The decreases in general and
administrative expenses as a percentage of total revenues in 1997 and 1996 were
primarily due to the substantial increase in total revenues. Although we expect
general and administrative expenses to continue to grow in the foreseeable
future, such expenses are not expected to significantly vary as a percentage of
total revenues in the future.
 
      Provision for Income Taxes. Prior to completing our initial public
offering, we had elected to be treated as a Subchapter S corporation for
federal and state income tax purposes. Under Subchapter S, our income was
allocated and taxable to our individual stockholders rather than to us.
Accordingly, no federal or state income taxes have been provided for in the
financial statements predating the initial public offering.
 
                                       25

<PAGE>
 
      Our S corporation status terminated shortly prior to completion of the
initial public offering. We are now subject to federal and state corporate
income taxation as a Subchapter C corporation. As a result, we have adopted
SFAS No. 109, "Accounting for Income Taxes." Had we been taxed as a C
corporation, we would have recorded a net deferred tax liability of
approximately $0.4 million as of December 31, 1997. As of December 31, 1997, we
would have recorded a valuation allowance of $1.8 million, primarily against
the net operating loss carryforwards in foreign jurisdictions. Our management
has concluded that no valuation allowance is required on the domestic net
deferred tax assets based on its assessment that current and expected future
levels of taxable income are sufficient to realize domestic deferred tax
assets. See Note 6 of Notes to Consolidated Financial Statements.
 
Recently Issued Accounting Standards
 
      As of September 30, 1998, we have adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
requires additional disclosures with respect to certain changes in assets and
liabilities that previously were not required to be reported as results of
operations for the period. In addition, SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", was issued, which
establishes standards for the manner in which public companies report
information about operating segments, products and services, geographic areas
and major customers in annual and interim financial statements. SFAS No. 131
will be effective for our filing on Form 10-K for the year ending December 31,
1998.
 
      In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which will be effective for our fiscal year
2000. This statement establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
imbedded in other contracts, be recorded in the balance sheet as either an
asset or liability measured at its fair value. The statement also requires that
changes in the derivative's fair value be recognized in earnings unless
specific hedge accounting criteria are met. We believe the adoption of SFAS No.
133 will not have a material effect on the financial statements.
 
                                       26

<PAGE>
 
Quarterly Financial Results
 
      The following tables set forth the unaudited consolidated statements of
operations data for the eight quarters ended September 30, 1998, as well as
such data expressed as a percentage of total revenues for the periods
indicated. This data has been derived from unaudited interim consolidated
financial statements that, in our opinion, have been prepared on a basis
consistent with the Consolidated Financial Statements contained elsewhere in
this prospectus. We believe that these statements include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information when read in conjunction with the Consolidated
Financial Statements and Notes thereto. The operating results for any quarter
are not necessarily indicative of results for any future period. See "Risk
Factors--Quarterly Operating Results May Fluctuate Significantly."
 

<TABLE>
<CAPTION>
                                                   Three Months Ended
                         -----------------------------------------------------------------------------
                         Dec 31,   March 31,  June 30, Sept 30,  Dec 31,  March 31, June 30,  Sept 30,
                          1996       1997       1997     1997     1997      1998      1998      1998
                         -------   ---------  -------- --------  -------  --------- --------  --------
                                                     (in thousands)
<S>                      <C>       <C>        <C>      <C>       <C>      <C>       <C>       <C>
Consolidated Statements
 of Operations Data:
Revenues:
 Product licenses....... $ 4,696    $ 4,731    $8,134  $10,545   $13,191   $14,282  $16,245   $16,949
 Product support........   1,898      3,406     3,741    4,206     5,603     5,613    7,545    10,065
                         -------    -------    ------  -------   -------   -------  -------   -------
  Total revenues........   6,594      8,137    11,875   14,751    18,794    19,895   23,790    27,014
                         -------    -------    ------  -------   -------   -------  -------   -------
Cost of revenues:
 Product licenses.......     333        357       396      434       454       538      552       586
 Product support........   1,195      1,799     2,059    2,462     3,155     3,163    4,113     4,658
                         -------    -------    ------  -------   -------   -------  -------   -------
  Total cost of
  revenues..............   1,528      2,156     2,455    2,896     3,609     3,701    4,665     5,244
                         -------    -------    ------  -------   -------   -------  -------   -------
Gross margin............   5,066      5,981     9,420   11,855    15,185    16,194   19,125    21,770
Operating expenses:
 Sales and marketing....   4,663      5,292     7,036    7,872    10,268    10,828   12,005    12,926
 Research and
 development............     910        735       915    1,487     1,912     2,092    2,776     3,218
 General and
 administrative.........   1,482        895     1,270    1,998     2,389     2,563    2,600     2,941
                         -------    -------    ------  -------   -------   -------  -------   -------
  Total operating
  expenses..............   7,055      6,922     9,221   11,357    14,569    15,483   17,381    19,085
Income (loss) from
 operations.............  (1,989)      (941)      199      498       616       711    1,744     2,685
Interest income.........      11         --        17       37        40        47       84       551
Interest expense........     (56)       (61)      (93)     (48)     (131)     (237)    (264)     (120)
Other income (expense),
 net....................     137         (1)       (1)      (1)       (9)       21      (45)       (7)
                         -------    -------    ------  -------   -------   -------  -------   -------
Provision for income
 taxes..................      --         --        --       --        --        --     (577)    1,181
                         -------    -------    ------  -------   -------   -------  -------   -------
Net income (loss)....... $(1,897)   $(1,003)   $  122  $   486   $   516   $   542  $   942   $ 1,928
                         =======    =======    ======  =======   =======   =======  =======   =======
<CAPTION>
                                                   Three Months Ended
                         -----------------------------------------------------------------------------
                         Dec 31,   March 31,  June 30, Sept 30,  Dec 31,  March 31, June 30,  Sept 30,
                          1996       1997       1997     1997     1997      1998      1998      1998
                         -------   ---------  -------- --------  -------  --------- --------  --------
<S>                      <C>       <C>        <C>      <C>       <C>      <C>       <C>       <C>
Percent of Total
Revenues:
Revenues:
 Product licenses.......    71.2%      58.1%     68.5%    71.5%     70.2%     71.8%    68.3%     62.7%
 Product support........    28.8       41.9      31.5     28.5      29.8      28.2     31.7      37.3
                         -------    -------    ------  -------   -------   -------  -------   -------
  Total revenues........   100.0      100.0     100.0    100.0     100.0     100.0    100.0     100.0
                         -------    -------    ------  -------   -------   -------  -------   -------
Cost of revenues:
 Product licenses.......     5.1        4.4       3.3      2.9       2.4       2.7      2.3       2.2
 Product support........    18.1       22.1      17.3     16.7      16.8      15.9     17.3      17.2
                         -------    -------    ------  -------   -------   -------  -------   -------
  Total cost of
  revenues..............    23.2       26.5      20.6     19.6      19.2      18.6     19.6      19.4
                         -------    -------    ------  -------   -------   -------  -------   -------
Gross margin............    76.8       73.5      79.4     80.4      80.8      81.4     80.4      80.6
Operating expenses:
 Sales and marketing....    70.7       65.0      59.3     53.4      54.6      54.4     50.5      47.8
 Research and
 development............    13.8        9.0       7.7     10.1      10.2      10.5     11.7      11.9
 General and
 administrative.........    22.5       11.0      10.7     13.5      12.7      12.9     10.9      10.9
                         -------    -------    ------  -------   -------   -------  -------   -------
  Total operating
  expenses..............   107.0       85.0      77.7     77.0      77.5      77.8     73.1      70.6
Income (loss) from
 operations.............   (30.2)     (11.5)      1.7      3.4       3.3       3.6      7.3      10.0
Interest income.........     0.2         --       0.1      0.2       0.2       0.2      0.4       2.0
Interest expense........    (0.8)      (0.7)     (0.8)    (0.3)     (0.7)     (1.2)    (1.1)     (0.4)
Other income (expense),
 net....................     2.1         --        --       --        --       0.1     (0.2)       --
                         -------    -------    ------  -------   -------   -------  -------   -------
Provision for income
 taxes..................      --         --        --       --        --        --     (2.4)     (4.4)
                         -------    -------    ------  -------   -------   -------  -------   -------
Net income (loss).......   (28.7)%    (12.2)%     1.0%     3.3%      2.8%      2.7%     4.0%      7.2%
                         =======    =======    ======  =======   =======   =======  =======   =======
</TABLE>

 
                                       27

<PAGE>
 
      Our operating results have in the past varied and are likely in the
future to vary significantly from quarter to quarter as a result of a number of
factors. See "Risk Factors--Quarterly Operating Results May Fluctuate
Significatly."
 
 
LIQUIDITY AND CAPITAL RESOURCES
 
      Since inception, we have primarily financed our operations and met our
capital expenditure requirements through cash flows from operations and short-
and long-term borrowings. We raised $48.6 million, net of expenses, from the
initial public offering. At September 30, 1998 and 1997, we had $29.9 million
and $3.5 million, respectively, of cash and cash equivalents.
 
      Cash flows provided (used) by operations were $(6.1) million and $5.3
million for the nine months ended September 30, 1998 and 1997, respectively.
The decrease in cash provided by operations in the nine month period ended
September 30, 1998 was primarily due to an increase in accounts receivable,
offset by an increase in accounts payable and other accrued liabilities and a
net operating loss in the nine month period ended September 30, 1997. Cash
flows provided (used) by operations were $5.0 million, $0.9 million and $(0.3)
million in 1997, 1996 and 1995, respectively. The increase in cash provided by
operations in fiscal 1997 and 1996 was primarily due to an increase in deferred
revenue and accounts payable, offset by an increase in accounts receivable and
a net operating loss in 1996. The decrease in cash from operations in 1995 was
due to an increase in accounts receivable offset by an increase in deferred
revenue.
   
      Our investing activities used cash of $6.1 and $4.3 million for the nine
months ended September 30, 1998 and 1997, respectively, and used cash of $7.9
million, $1.7 million and $0.5 million in the years ended December 31, 1997,
1996 and 1995, respectively. We used cash in investing activities principally
for capital expenditures related to the acquisition of computer equipment
required to support expansion of our operations.     
   
      Our financing activities provided cash of $38.4 million and $0.9 million
for the nine months ended September 30, 1998 and 1997, respectively, and
provided cash of $4.6 million, $1.8 million and $1.1 million in 1997, 1996 and
1995, respectively. The principal source of cash from financing activities
during the nine-month period ended September 30, 1998 was the initial public
offering, in which we raised $48.6 million, offset by net principal payments on
bank borrowings of $8.7 million. Prior to the initial public offering, our
principal source of cash from financing activities was net borrowings from
commercial lending institutions. In December 1996, we entered into a loan
agreement with a commercial bank (the "Business Loan"). The Business Loan, as
amended in September 1998, provides for a $5.0 million revolving line of credit
for general working capital purposes. Borrowings under the Business Loan may
not exceed 80% of eligible accounts receivable for the revolving working
capital line of credit. The borrowings bear interest at the lender's prime rate
or LIBOR plus 1.50% for the revolving line of credit. Borrowings under the
Business Loan are collateralized by substantially all of our assets. In July
1998, we repaid all net borrowings under the Business Loan. As of September 30,
1998, no amounts were outstanding under the Business Loan. We have signed a
commitment letter with the lender to expand the Business Loan to a $25.0
million revolving line of credit. Pursuant to the commitment letter, borrowings
under the expanded revolving line of credit will bear interest at a variable
rate equal to LIBOR plus 1.00% to 1.75%, depending upon the ratio of funded
debt to earnings.     
 
      We declared a $10.0 million dividend to our stockholders immediately
prior to the initial public offering. The dividend was paid in the form of
promissory notes (the "Dividend Notes"). The Dividend Notes have (1) a term of
one year, (2) bear interest at the applicable federal rate for debt obligations
having a maturity of one year, which was 5.46% as of September 30, 1998, and
(3) are payable in four equal quarterly installments. The Dividend Notes may be
prepaid without penalty at any time at our option. We intend to repay the
Dividend Notes from cash flows generated from operations, current available
cash and cash equivalents. As of January 15, 1999, $7.5 million of the Dividend
Notes had been repaid, of which $5.0 million had been repaid as of December 31,
1998, including repayments of $7.2 million to certain of our officers and
directors.
 
      We believe that existing cash balances, the proceeds generated by the
offering, the available borrowings under the Business Loan and the cash
generated internally by operations will satisfy our working capital
requirements for the foreseeable future.
 
                                       28

<PAGE>
 

 
                                   BUSINESS
 
      The following description of our business should be read in conjunction
with the information included elsewhere in this prospectus. This description
contains certain forward-looking statements that are based largely on our
current expectations and are subject to a number of risks and uncertainties.
Our actual results could differ significantly from the results discussed in the
forward-looking statements as a result of certain of the factors set forth
below and elsewhere in this prospectus.
 
Overview
 
      MicroStrategy is a leading worldwide provider of enterprise DSS software
applications and related services. DSS Suite provides Global 2000 enterprise
and other user communities with timely answers to mission-critical questions.
It enables users to query and analyze the most detailed, transaction-level
databases, turning data into business intelligence. In addition to supporting
enterprise users, our products extend DSS applications beyond corporate
boundaries to customers, partners, and supply chain constituencies. DSS Suite
is deployed across a broad range of pull and push technology such as the
Internet, e-mail, telephones, pagers and other wireless communications devices.
Our DSS Suite also provides the technology foundation for the deployment of
personalized, consumer-focused e-commerce applications.
 
Industry Background
 
      Online Transaction Processing; Construction of Data Warehouses. The
development of the DSS industry has been made possible by the widespread
implementation over the past ten years of online transaction processing systems
which create large volumes of transaction-oriented data. Online transaction
processing applications include standardized resource planning packages from
vendors such as SAP, Baan, PeopleSoft, Oracle and J.D. Edwards, as well as
custom and semi-custom systems which have been created to process transactions
such as securities trading, bank deposit withdrawals, airline reservations,
mortgage payments, wire transfers, retail sales, credit card payments and
telephone billing.
 
      The transactional data created by online transaction processing systems
is typically detailed and updated regularly, and has a short utility time
horizon. In contrast, data required by decision support analysts are typically
detailed, summarized and have a lengthy utility time horizon. In order to
provide data to decision support analysts, relevant transactional data must
often be extracted from online transaction processing systems, cleansed,
encoded, summarized and uploaded into a database known as a data warehouse.
Data warehouses have been developed in order to store the vast historical logs
of transaction details generated from one or more online transaction processing
applications. Data warehouses are substantially larger than the online
transaction processing databases, as data warehouses contain a broader scope of
transaction data spanning longer periods of time. The majority of Global 2000
enterprises have constructed or are constructing data warehouses to serve as an
information foundation for analyzing and optimizing their business operations.
Forrester Research predicts that the decision support market is projected to
grow from $1.6 billion in 1998 to $3.6 billion by 2001.
 
      The Enterprise DSS Market Opportunity. The construction of data
warehouses from online transaction processing applications has created the
market opportunity for scalable, sophisticated and maintainable DSS
applications that can extract highly useful business information from data
warehouses. The mission of DSS applications is different from but complementary
to that of online transaction processing applications. While online transaction
processing enables companies to "do business" by processing transactions that
are similar in nature, cost, frequency and complexity, DSS applications enable
companies to "do business better" by allowing rapid, effective and
comprehensive data analysis. Using online transaction processing applications,
companies may mail proposals to prospects, bill customers, reverse fraudulent
charges or book airline seats. In contrast, using DSS applications, companies
may select prospect lists to receive direct mail, allocate inventory to sell to
customers, identify potentially fraudulent charges or allocate airline seats
among various travel routes. Business analysts
 
                                       29

<PAGE>
 
often employ DSS applications to translate business questions into database-
interpretable queries. DSS applications mathematically process query results to
provide the business analyst with insightful answers to their questions.
"Enterprise DSS" refers to applications designed to answer questions at all
levels of detail, ranging from minute, operational questions to large-scale
strategic assessments, targeted at all types of decision makers within an
enterprise.
 
      Enterprise DSS applications help users address critical uncertainties
affecting their business by answering highly focused performance questions.
These questions vary by industry. Examples include:
 
       Retail. What products or groups of products should be sold? Where? At
what price? How much shelf space should be allocated for specific products? How
much promotion should each product receive? Which products sell well together?
How much inventory should be carried? What are the primary customer
characteristics?
 
       Banking & Finance. Who should be targeted for direct marketing efforts?
What products are most likely to appeal to existing customers? How profitable
are existing customers? Which customer groups are credit risks? What is the
proper pricing strategy for a given set of financial products? How much
fraudulent activity is occurring? How efficiently are underwriters and credit
officers performing?
 
       Healthcare. What is the range of outcomes for a given treatment? How
frequently is this treatment prescribed? Which drugs, hospitals, doctors,
healthplans are most effective? Which patient groups are most at risk? How
efficient and effective is a given technique for treating a specific illness?
 
      The promise of Enterprise DSS applications is to offer decision makers
across a broad range of industries the opportunity to ask and answer mission-
critical questions about their businesses using transactional data assets that
have been captured but not exploited to their fullest extent.
 
      Factors Driving Enterprise DSS Development. Despite the significant
promise of Enterprise DSS applications, until recently, a number of technical
and cost constraints had impaired development of the DSS market. The increase
in electronically captured and stored transactional data, together with recent
advances in software, hardware and networking, have converged to help resolve
these technical and cost constraints. Factors driving Enterprise DSS
development include:
 
       Increased Electronic Capture of Transactional Data. Electronically
captured data is critical to Enterprise DSS applications. In industries such as
retail, telecommunications, financial services and healthcare, an increasing
percentage of customer and supply chain transactions are captured and stored
electronically. The rapid growth in the electronic capture of business
transactions and the increased availability of related profile data on the
parties or products involved in each transaction are providing a rich data
foundation for the growth of Enterprise DSS applications.
 
       Improved Relational Database Management Software. Relational database
management system technology has become accepted as the primary data storage
and access platform for Enterprise DSS applications. Traditionally optimized
for online transaction processing applications only, relational database
management system technology has been improved specifically for DSS
applications. Such improvements have removed many of the database size,
manageability and query performance constraints that have traditionally made
Enterprise DSS development difficult.
 
       Improved Performance-to-Price Ratio of Computing and Storage
Hardware. The widespread availability of scalable hardware from a variety of
server vendors has produced significant improvements in server price and
performance. In the early 1990's, building and managing databases of one to
five gigabytes of stored data was considered typical. Over the past four years,
symmetric multi-processing, or SMP, servers running Unix have achieved
commercial acceptance, providing relational database management system vendors
with the first non-proprietary hardware platforms capable of supporting
enterprise-scale databases which considerably exceed five gigabytes. Based on a
survey of 50 companies in the Fortune 1,000 published by Forrester Research,
the average data warehouse was 132 gigabytes in 1997 and is expected to grow to
259 gigabytes by 1999. SMP servers have provided the capacity to store,
 
                                       30

<PAGE>
 
index, aggregate, query and manage these large data volumes, and, because no
one hardware vendor controls the market for these servers, the capacity is
available on a cost-effective basis. Further developments, such as massively
parallel processing servers, or MPP servers, are expected to provide
substantial improvements in performance over SMP servers, and are also now
becoming commercially available from a wide variety of hardware vendors.
 
       Improved Networking Protocols and Infrastructure. The emergence of
protocols such as TCP/IP, HTML, ActiveX and Java, combined with commercially
available servers and browsers supporting these protocols (collectively
comprising the infrastructure of the Web), bandwidth, security products,
authoring tools, administrative suites, access devices and third party
expertise have substantially decreased the cost of deploying multi-user
applications such as Enterprise DSS applications. The corresponding advances in
usability, reliability, maintainability and connectivity have accelerated the
commercial acceptance of Enterprise DSS applications by making such deployment
less risky, less expensive and less time-consuming for information systems
organizations.
 
      The Emergence of New DSS Applications. Synergies produced by the
combination of improved database software, abundant computing power and
efficiently connected networks are resulting in a dramatic increase in overall
DSS market potential and growth rate. International Data Corporation projects
that the market for Internet-related DSS applications will grow from $970
million in 1998 to $2.3 billion by 2001, and based on its survey of 50 Fortune
1,000 companies, Forrester Research estimates that 80% of the survey sample
will have Web access to the databases by 1999. As these advances converge, the
value of DSS applications (and therefore the size of information technology
budgets which support their development) is being enhanced by increasing the
number of users, the frequency of use and the importance of the information
obtained and by transforming under-utilized data into revenue-generating
assets, not simply measures for cost control. These advances are also
increasing the size of the market by enabling entirely new types of
applications to be deployed to new constituencies from the same central data
warehouse. In particular, the following three new classes of DSS applications
are becoming factors in the growth of the DSS market.
 
       Remote DSS. Remote DSS applications provide information to operational
professionals throughout an enterprise and enable them to improve performance
on a routine basis. Potential users include managers and other professional
staff throughout the sales, marketing, manufacturing, logistics, finance, human
resources and technology functions regardless of their geographic location.
Although an enterprise rarely has more than a few hundred centralized analysts
and executives for any given DSS application, the same enterprise may have
thousands of remote enterprise users, spread across dozens, hundreds or even
thousands of locations. For example, a Remote DSS application that profiles
customers and provides relevant sales information allows account executives
located across a business organization to identify problem accounts, discern
abnormal trends in their territory and proactively manage sales calls.
 
       Supply Chain DSS. Supply Chain DSS applications allow and encourage
trading partners to give preferential treatment to one another in exchange for
greater certainty and visibility up and down their value chains. In order to
obtain the information that enables this visibility and certainty, partners may
want to offer more favorable terms, invest more in co-marketing, make available
increased levels of supplies, provide more shelf space or pay higher prices.
Potential users include a firm's vendors, distributors, partners, outsourcers,
resellers and financing sources. The number of potential Supply Chain DSS
application users can range from hundreds to tens of thousands. For example, a
DSS application that provides access to retail sales information would be
valuable to the manufacturers and distributors who stock the shelves within
each store. This information can be used to design new products, refine
marketing campaigns, develop optimal pricing schemes, rationally allocate
inventory and proactively schedule factory production.
 
 
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<PAGE>
 
       Commercial DSS. Commercial DSS applications offer customers a new value-
added information service that can result in improved pricing, greater market
share, longer customer retention or a new revenue stream for the owner of the
DSS application. Information systems have been successfully bundled with
products and services over the past decade, although largely in the context of
online transaction processing applications such as automated teller machines,
voice response units and ticketing reservation systems. Those firms in the best
position to exploit the opportunities of Commercial DSS applications include
major banks, financial services, healthcare providers, retailers, publishers,
utilities and travel service providers all of whom have large volumes of
customers who must make intricate decisions on a routine basis. Many of these
systems have the potential for hundreds of thousands, or even millions, of
users. For example, healthcare providers that use DSS applications to offer
outcome analysis for various combinations of patients, treatments, drugs,
hospitals and doctors could provide patients with substantial peace of mind,
possibly encouraging them to be treated by that provider.
 
       Consumer DSS. Consumer DSS applications enable organizations to present
consumers with personalized services and product offerings based on a profile
which may include past selections and purchases by those consumers or their
peers. Consumer DSS applications use these profiles to deliver highly targeted
product offerings and information services on demand via the Internet, or
automatically via e-mail, telephones, pagers, and other wireless communications
devices. By integrating these personalized services and product offerings with
e-commerce applications, organizations can sell products and services, obtain
consumer approval, or confirm the delivery of information. For example, a
consumer could receive an e-mail from an online retailer two weeks before their
nephew's tenth birthday offering to sell by return e-mail the top three selling
toys for ten-year-olds in the nephew's town.
 
Challenges Facing Enterprise DSS Developers
 
      Notwithstanding the market potential for DSS applications, attempts to
build and deploy Enterprise DSS applications have traditionally been hampered
by a variety of factors, including the following.
 
      Optimal Query Generation Is Technically Challenging. Although Structured
Query Language, or SQL, has been held out as a universal software standard to
enable database queries, each relational database management system vendor has
added extensions and created a SQL interpreter that favors certain queries. In
many cases, the same SQL will not work against two different relational
database management systems and in most cases, the same SQL will not be optimal
for both. Changes in the relational database management system version, data
warehouse design, query profiles or application requirements may require costly
and time-consuming revisions to the SQL execution plans. Since relational
database management system vendors are constantly seeking to gain competitive
advantage for their particular database engine, severe maintenance demands have
been imposed on those firms developing their own DSS applications that generate
SQL directly against the relational database management system. Certain DSS
tools force the designer to "hardwire" application logic directly against the
logical database schema, resulting in either a "brittle" solution that may
preclude any future enhancements to the database, a "crippled" solution that
prevents many types of analysis from being implemented, or a "slow" solution
because optimal query response requires dynamic repathing at runtime.
 
      Administrative Tools Are Lacking. Companies need to deploy a multitude of
applications to a variety of constituencies, each with their own set of
security and access privileges. These constituencies need to share the same
data and application reporting objects, while using them to perform different
tasks. Users also require tools for version control, customer billing,
performance management and tuning, usage assessment, application maintenance
and mass upgrades. Because the DSS market is relatively new and still
developing, many of the administrative tools that are taken for granted in the
online transaction processing market are still missing. Given the lack of
management tools, it is quite challenging to scale up a workgroup application
meant to serve a small, localized set of users into a family of DSS services.
 
 
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<PAGE>
 
      End-User Application Protocol Interfaces Are in Flux. Currently, users
interact with their DSS applications through a variety of interfaces,
including:
 
      .  native Windows applications that are tailored to the power-user or
         analyst;
 
      .  executive information system interfaces;
 
      .  printed reports;
 
      .  Microsoft Excel add-in modules;
 
      .  Web browsers supporting only HTML, Java, Active X or various
         combinations of these protocols;
 
      .  custom interfaces constructed in Visual Basic, C++ or other
         programming languages;
 
      .  Microsoft Access; and
 
      .  other Microsoft Office applications, such as Word or PowerPoint.
 
      The optimal interface is a function of the user, its level of comfort
with the DSS application, the client hardware and the client operating system.
Since these factors are continually changing, it has been and remains unlikely
that any dominant interface will emerge. Accordingly, DSS developers are
required to develop applications that are compatible with a number of different
application protocol interfaces, or APIs, without the emergence of clear
standards. This interface flux introduces additional design, development,
quality assurance and support requirements into the typical Enterprise DSS
project.
 
      Certain DSS Toolsets Are Not Scalable. A number of DSS vendors have
developed OLAP and hybrid OLAP database toolsets in an attempt to solve data
warehouse design and query generation challenges. In contrast to relational
OLAP technology, OLAP and hybrid OLAP solutions require the creation of
intermediate data caches or proprietary, non-relational database management
systems that provide the basis for their analytical capabilities. These
proprietary databases have traditionally been optimized for the type of summary
analysis that a financial auditor or executive would find valuable in the
context of a planning/budgeting review, and their design reflects explicit
trade-offs between performance, simplicity, power and flexibility. Due to the
rapid increase in the size of decision support databases in recent years, the
design constraints of OLAP and hybrid OLAP architectures have become
increasingly visible. For example, these "solutions" may truncate the range of
schema designs (which are the physical and logical models of how the data
should be stored within a database), limit data volumes, limit the breadth and
richness of a data set and require indexing, consolidating, caching and loading
schemes that are prohibitively expensive for Enterprise DSS applications.
 
      Published benchmarks of OLAP vendors have seldom attempted to analyze
more than one gigabyte of input data. However, market research suggests that
the typical data warehouse contains in excess of 100 gigabytes of input data.
Thus, while very well suited for solving certain decision support problems,
many currently available OLAP toolsets are optimized to analyze datasets which
are two orders of magnitude smaller than those required for Enterprise DSS
applications.
 
      Existing DSS Tools Lack Features. Multi-dimensional analysis performed on
a large, relatively amorphous relational database management system can prove
quite challenging due to the stresses placed on the application server, network
and client interface during the analytical process. The tools typically used
for DSS application development have been designed to satisfy a lowest common
denominator requirement-- making certain assumptions about the volume and
nature of the data along with the complexity of analyses in order to simplify
the engineering challenges. Most do not allow the designer the ability to
articulate the sophisticated queries necessary for granular transaction-level
analysis (such as fraud detection, market basket analysis, call detail
analysis, database marketing, credit analysis and patient outcomes analysis).
Others lack object-based development environments, preventing developers from
reusing standard application logic. DSS tools may limit the range of
dimensionality, attribute richness, hierarchical choices, and filtering options
available to the end-user. They may lack advanced analytical capabilities such
as rankings ("top 10 vendors by department"), decilings ("bottom quartile of
 
                                       33

<PAGE>
 
customers in sales"), time-based calculations ("percent change over the same
period last year") and multi-dimensional calculations ("product contribution to
division profitability"). Many tools also lack sophisticated SQL generators and
are forced to rely upon intermediate data caches that are created on the
desktop or application server in order to perform their analysis. These caches
create network and CPU bottlenecks which prevent the execution of certain
queries and slow the performance of the MPP and SMP servers storing the
database.
 
      The Existing Relational Database Management System Market Has Been
Fragmented.  We believe that the data warehouse market has been fragmented.
Supporting the multiplicity of relational database management system APIs, as
well as the interface APIs, is difficult without incurring significant
sacrifices in functionality and scalability. Global 2000 enterprises, value
added resellers, data syndicators, original equipment manufacturers and system
integrators require DSS platforms that run well against relational database
management system platforms such as Oracle, Informix, Sybase, Tandem, Teradata,
IBM's DB2/390, DB2/400 and DB2/UDB and Microsoft's SQL Server and Access.
Providing this portability may not be desirable or even possible for DSS
vendors that have a disproportionately large investment in one of the competing
relational database management system standards. Even DSS vendors which claim
to be "open" often have not invested the resources necessary to provide
scalable performance against each of these databases.
 
      Essential Enterprise DSS Services Are Scarce. Most relational database
management system vendors have tended to design their products for online
transaction processing performance, rather than DSS performance. As the data
warehousing market began to grow, the vendors of these products have added
features and modified their core products in order to better serve the needs of
the DSS product user. However, as a database grows in depth and breadth, and
the queries become more sophisticated, it has proven increasingly difficult to
create high-performance database designs that properly balance performance,
functionality and maintainability requirements. Designs can vary based upon the
nature of the relational database management system platform, server hardware,
network, client hardware, data set, user constituencies and query profile. The
complexities of data warehouse design have created a critical, but largely
unmet, need for Enterprise DSS services, including:
 
      .  data warehouse design education;
 
      .  DSS application design education;
 
      .  end-user DSS usage education;
 
      .  data warehouse consulting to assist with hardware selection,
         relational database management system selection, network and
         database tuning, database design and project management;
 
      .  DSS consulting to assist with metric, filter and report definition
         and development; and
 
      .  telephone, Web-based and on-site support from professionals that
         understand Enterprise DSS products.
 
      Successful Enterprise DSS developers must be able to quickly resolve
problems that arise in a heterogeneous environment consisting of multiple
hardware servers, database servers, application servers, networks, APIs and
client hardware devices from multiple vendors.
 
The MicroStrategy Solution
 
      Through DSS Suite, we offer a comprehensive set of products and services
that function as a platform for developing and deploying Enterprise DSS
applications. Our software is designed to address the requirements of DSS
application developers who are required to create scalable, portable and highly
functional systems. DSS Suite frees application developers from the need to
divert scarce resources to the technical and system integration challenges that
are common across every industry. Instead, developers are able to focus on
solving the business critical analytical problems unique to their particular
industry. The advantages of DSS Suite include:
 
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<PAGE>
 
      Extremely Powerful Analytics to Transaction-Levels of Detail. DSS Suite
offers support beyond summary and detail queries to include queries at the most
detailed level. This feature is critical to a wide range of applications,
including call detail analysis, market basket analysis, fraud detection, credit
analysis and campaign management. DSS Suite supports analysis ranging from ten
attributes to 10,000 attributes, as well as support for sophisticated multi-
dimensional qualities (for example, weather, loan status or promotional flags)
and many-to-many relationships (such as colors and features). This
sophistication allows the creation of granular, transaction-specific DSS
applications that provide insight into customer behavior. Examples of the
difference between "Summary" and "Detail" questions (which many DSS tools can
offer) and "Transaction" level questions (where we believe we hold a distinct
advantage over our competition) are illustrated below for a typical retailer:
 

<TABLE>
      <C>          <S>
      Summary:     What were sales by department for the month of January?
      Detail:      What were sportswear item sales and costs by store for
                   Mondays in January?
      Transaction: What were sales and costs for the top five selling items in
                   January? What were the five items most often purchased with
                   each of those items, and what is the typical customer
                   profile of individuals who buy these items by age, gender
                   and income bracket? What percentage of profits are derived
                   from the five items associated with our best sellers?
</TABLE>

 
      Applications built with DSS Suite can access volumes of data ranging from
a few megabytes to terabytes. Using DSS Suite, our customers have successfully
deployed DSS applications with terabytes of data, thousands of attributes, and
billions of rows of detail. This scalability is accomplished with support for
very large database schemes, a three-tier architecture with support for query
governing and asynchronous execution and a relational query engine that
intelligently leverages the relational database management system server,
thereby avoiding any middle tier or client caching bottlenecks.
 
      Optimized Support for All Major Relational Database Management
System/Hardware Combinations. DSS Suite supports all major relational database
management system platforms commonly used for Enterprise DSS applications with
SQL-optimizing drivers that contain hundreds of optimization rules. DSS Suite
has been designed to take into account the strengths, weaknesses and
idiosyncrasies of each database's SQL interpreter so that queries are made as
efficiently as possible. Databases supported by DSS Suite include Oracle,
Informix, Sybase, Teradata, Tandem, SQL Server, DB2/390, DB2/400, DB2/UDB, MS
Access, Adabas D and Dbase. The databases can be run on platforms that support
Unix, MVS, OS400, Windows NT Windows, Tandem NonStop and OpenVMS and that
include hardware from companies such as Compaq, NCR, IBM, Sun, Sequent,
Hewlett-Packard, Pyramid, SNI, Data General and SGI. Although our DSS solutions
allow the core database component to reside on nearly all enterprise server
hardware and operating system combinations (Mainframe, AS/400, Unix, Windows
NT, Windows), our application server component currently runs only on the
Windows NT operating system. Therefore, our ability to increase sales of our
products may depend on the continued acceptance of the Windows NT operating
system.
 
      Applications Deployable to Multiple Types of Users with Full Interface
Flexibility. DSS Suite enables developers to create DSS applications in a
modular fashion and to deploy common components across the enterprise in a
variety of different forms without redundant coding. The same report logic can
be tailored for different constituencies such as non-computer users, company
executives, spreadsheet analysts, operations personnel, novices, power users,
suppliers, customers and consumers. Applications developed using DSS Suite will
simultaneously run the following interfaces:
 
      .  Internet Explorer with HTML, optional Java and ActiveX modes;
 
      .  Netscape Navigator with HTML, optional Java and ActiveX modes;
 
      .  DSS Agent analytical interface on Windows 98, Windows 95, Windows
         NT, Windows 3.1, Win-OS/2;
 
 
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<PAGE>
 
      .  DSS Executive information systems on Windows 98, Windows 95,
         Windows NT, Windows 3.1, Win-OS/2;
 
      .  Microsoft Excel on Windows; and
 
      .  Custom applications developed using Visual Basic, Visual Basic for
         Applications, Visual C++, combined with DSS Objects on the Windows
         platform.
 
      Support for Large Numbers of Users in Flexible Configurations. Our
technology allows applications built with DSS Suite to be deployed to very
large user populations--to tens of thousands for interactive analysis systems,
and to millions with DSS Broadcaster. DSS Suite fully leverages the parallel
processing and clustering features of the underlying relational database
management system. Applications can be run in the following modes:
 
      .  stand-alone and untethered on a single laptop;
 
      .  local area network with direct connection to the database server;
 
      .  wide area network, or WAN, with a high-speed connection to the
         application server, which in turn connects to the data warehouse
         server via a slower speed WAN;
 
      .  Internet via DSS Web and a standard browser; and
 
      .  remote, using DSS Web combined with wireless modems or satellite
         link-ups.
 
      DSS Suite offers a wide variety of features to support international
deployment, including modular language support and support for many
international character sets.
 
      Full Range of Services Necessary for Enterprise DSS Success. We offer a
full range of support services to ensure the success of our customers. During
the "proof of concept phase," our consultants assist with application
prototyping, infrastructure assessments, feasibility studies and provide
overall Enterprise DSS architecture guidance. Our educational courses, such as
"Introduction to DSS and Data Warehousing", provide the customer's information
system professionals with a framework for planning and managing the process
during this concept stage. During the data warehouse "construction phase," our
consultants provide project oversight and data warehouse design services, while
our educators teach courses such as "Data Warehousing--Data Modeling and
Design" to the customer's information system professionals. In order to support
the "full-scale development phase," our consultants assist with end-user
requirements analysis, DSS application design, project management and quality
assurance. Our educators offer courses in DSS design and development and
certify DSS development professionals. During the "deployment phase," our
consultants offer end-user support, system administration, performance tuning
and troubleshooting assistance. Our educators teach courses in Enterprise DSS
management and administration. Throughout all phases, our support staff
provides online support for databases and system utilities over the Web, along
with hotline telephone, fax and e-mail support. Our support engineers are fully
certified DSS engineers, capable of debugging client/server networks, providing
relational database management system configuration and tuning guidance,
offering data warehouse design support, DSS application development support,
and are fully certified in the installation, configuration and usage of our
products. In the event that technical issues cannot be resolved remotely, our
field engineers are dispatched on location to ensure the customer's success in
implementing our product.
 
Strategy
 
      Our objective is to become the world's leading provider of DSS products
and related services implemented by Global 2000 enterprises. Our strategy for
achieving this objective includes marketing, technological and sales
dimensions.
 
      Marketing Strategy--Create Widespread Demand for Decision Support
Services. Our marketing strategy focuses on communicating the possibilities for
value creation that new DSS technology offers to data content owners and other
potential users. Organizations that have accumulated
 
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<PAGE>
 
substantial data assets are frequently unaware of the "resonance" these data
assets may have both within and outside their enterprise--i.e., the extent to
which decision makers may benefit from the ability to query and analyze data
assets in diverse, sophisticated and spontaneous ways. In other cases, there is
a clear latent demand for information, but organizations are unaware that the
tools now exist to facilitate the creation of "industrial strength" DSS
applications that can satisfy this demand. Accordingly, our marketing strategy
is primarily educational, seeking to create demand for DSS applications among
the broadest possible set of decision makers, while at the same time providing
a clear technology solution to the information technology professionals who are
charged with building these applications. We believe that the future of
decision support is "Query Tone," a cue signaling the availability of
information on demand. We seek to position DSS application services as a
utility, comparable to water, electricity, telecommunications and radio, to be
relied upon daily by individuals in both their professional and personal lives.
 
      A principal theme of the Query Tone concept involves appealing to the
individual's "need to know." We believe that Query Tone will ultimately enable
knowledge workers to pose questions against databases that they previously had
thought were impossible to ask:
 
      .  How loyal are my customers?
 
      .  In which geographic areas are they concentrated?
 
      .  What are their demographic characteristics?
 
      .  How should marketing funds be allocated?
 
      .  To which customers should sales efforts be targeted?
 
      Consumers may similarly benefit from Query Tone's interrogatory
potential:
 
      .  How much money is in my bank account?
 
      .  What is my stock portfolio worth?
 
      .  Is someone using my credit card fraudulently?
 
      .  Which hospital has the best safety record for elective surgery?
 
      .  Which vacation resorts have the most loyal customer base?
 
      We believe that Query Tone will become as commonplace as the dial tone,
the universally recognized cue signaling the availability of telecommunications
services on demand. We believe that Query Tone will provide data content owners
with a business opportunity that allows them to differentiate their current
offerings, capture new revenue streams, increase market share and ensure the
continued loyalty of existing customers.
 
                                       37

<PAGE>
 
      Technology Strategy--Provide a Scalable, Sophisticated and Maintainable
DSS Platform. Our technology strategy is to provide scalable, sophisticated and
maintainable solutions that support the relational database management system
platforms maintained by the major vendors in the very large database segment of
the data warehouse market, including IBM, Oracle, NCR, Compaq, Informix, Sybase
and Microsoft. Through our commitment to cross-platform flexibility, we are
improving our competitive position vis-a-vis larger data warehouse developers
by exploiting the reluctance of the major vendors to provide optimal support
for each other's platforms and protocols. We intend to further differentiate
our product offerings by increasing functionality along the key dimensions of:
 
      .  capacity--the volume of information that can be efficiently
         analyzed;
 
      .  concurrency--the number of users which can be supported
         simultaneously;
 
      .  sophistication--the range of analytical methods available to the
         application designer;
 
      .  performance--the response time of the system to user queries;
 
      .  schema flexibility--the range of DSS and online transaction
         processing databases which the software is capable of efficiently
         querying without modification;
 
      .  maintain ability--the ease with which applications can be
         deployed, modified, upgraded and tuned;
 
      .  interface flexibility--the number of interface options and display
         features supported; and
 
      .  robustness--the reliability and availability of the software in
         mission critical environments.
 
      Sales Strategy--Acquire Market Share Among High-Volume Data Content
Owners. Our sales strategy focuses on building direct sales infrastructure and
relationships with indirect channel partners that are each targeted toward
acquiring market share among high-volume data content owners both domestically
and abroad. We believe that in many data-rich industries, including retail,
financial services and healthcare, a relative handful of large firms control a
disproportionate share of the data assets that have widespread business
applications both within those firms and throughout the larger economy. We also
believe that in light of the relatively long sales cycle associated with
acquiring DSS products and the recent emergence of the DSS industry, it is
critically important to gain market share with the firms that have "resonant"
data assets and that have the highest potential to attract large numbers of
decision makers. We are aggressively targeting key departments within these
firms that can be expected to help spread demand for our DSS solutions across
the enterprise as a whole. We are also expanding our active consulting practice
to enable ongoing customers to maximize the value of their investment, as well
as a support function to ensure that current customers have access to our field
engineering and tele-support. Finally, we are expanding our education program
to enhance our potential customers' and channel partners' understanding of the
power of DSS applications.
 
                                       38

<PAGE>
 
Products
 
      As illustrated by the following diagram, DSS Suite enables the access to
and analysis of information stored in large relational databases through
various access devices. DSS Suite provides the decision support infrastructure
and products used to implement three categories of applications:
 
      .  internal corporate information solutions;

      .  business-to-business information solutions; and

      .  business-to-consumer information solutions.
 
 
                     [GRAPHIC OF DSS SERVER APPEARS HERE]
 
  
      Relational Online Analytical Processing Server

       DSS Server--High Performance Server for Analysis of Very Large
Databases. DSS Server provides multidimensional analysis against our broad
array of supported relational database management systems, including Oracle,
Informix, DB2, Tandem, Sybase, SQL Server and Teradata. In order to optimize
DSS application performance, DSS Server also contains our High Performance
Drivers, a set of optimization rules built into our relational OLAP Engine that
tunes the SQL generated by DSS Server for superior query performance against
the target data warehouse relational database. Specifically designed for
enterprise and commercial data warehouse applications, DSS Server scales to
meet the decision making requirements of thousands of users accessing terabytes
of information. DSS Server provides a
 
                                       39

<PAGE>
 
sophisticated array of enterprise-critical management tools such as caching of
frequently accessed data sets and query governing to streamline performance and
batch job scheduling. DSS Server also has built-in multi-threaded user and
queue management for load balancing. With this broad set of management tools,
organizations have the flexibility to tailor their DSS architecture to work
optimally within their business environment.
 
      DSS Server also has the capability to create dynamic relational data
marts to create summary tables within the data warehouse for improved
performance and to pull subsets of the data warehouse into another relational
data store for focused analysis.
 
      Large-Scale Deployment Servers
 
        DSS Web--Interactive Analysis Environment for the World Wide Web. DSS
Web extends the information access and analysis capabilities of DSS Server to
any Internet- or intranet-connected user with a Web browser. Using the DSS Web
infrastructure, corporations can rapidly implement systems that allow local and
remote users to develop and access business reports that contain information
from a relational database.
 
        DSS Web provides a broad array of options for viewing information sets,
such as spreadsheet grids and a wide variety of graphs. Through DSS Web's
exception reporting capabilities, users receive key elements of a report in
easily interpretable, plain English messages. DSS Web also allows users to
drill dynamically to a lower level of detail to view the underlying information
or to create and save new analyses. For sensitive information, DSS Web's
security plug-ins allow businesses to extend the standard security
functionality with additional user authentication routines.
 
        DSS Web includes an API that allows businesses to customize, integrate
and embed DSS Web functionality into other applications. For example, a data
syndicator for healthcare information could utilize DSS Web with a customized
interface to sell access to this information to HMOs, hospitals, and
pharmacies.
 
        DSS Broadcaster--Personalized Information Broadcast Server. DSS
Broadcaster is a powerful information broadcast server designed to be capable
of delivering personalized messages to many thousands of recipients via e-mail,
fax, pager and mobile phone. DSS Broadcaster sends personalized information to
subscribers at pre-defined intervals when business metrics exceed pre-defined
thresholds. Continually monitoring business conditions ensures that the
appropriate information is delivered when it is required. DSS Broadcaster's
support for consumer devices delivers information where it is most convenient,
improving productivity by eliminating the need for users to actively log onto a
dedicated information analysis application.
 
        DSS Broadcaster provides both a platform for distributing information
throughout the corporate enterprise and an infrastructure to implement
information products and services over the Internet to target a broader
community. For example, a retailer will be able to offer suppliers a
subscription to a set of services that delivers product performance information
to a supplier's fax machine or e-mail.
 
        DSS Broadcaster reduces information overload and helps security
requirements by automatically customizing the contents of broadcast messages
for each individual subscriber. Microsoft Excel enclosures and embedded
hyperlinks to DSS Web products provide access to the underlying details for
further, interactive analysis.
 
      Advanced Analysis And Applications Development Interfaces
 
        DSS Agent--Desktop Environment for Sophisticated Analysis and
Development. DSS Agent is a desktop product that allows users to ask
sophisticated business questions against relational databases. DSS Agent
provides a broad range of business reporting views, including spreadsheet
grids, a wide
 
                                       40

<PAGE>
 
variety of graphs, mapping, and presentation-quality report writing. DSS Agent
provides an advanced set of analytical capabilities such as rankings, deciles,
time-based calculations and multi-dimensional calculations. The information
filtering capabilities provided by DSS Agent enable users to specify in plain
English precisely which constraints they wish to apply to the targeted
information, allowing them to ask questions such as: "What are the sales in
Boston on weekends in June for customers who are single, earn more than $30,000
per year and increased their purchases by 15% over last year?" Once users have
run a business report, DSS Agent provides capabilities for analytical follow-up
such as successively interjecting new information into the report, and drilling
throughout the user's business information. DSS Agent's intelligent agents and
alerts also allow users to take actions by automatically scanning the data
warehouse and highlighting exception areas.
 
      DSS Agent's filtering, reporting and analytical capabilities provide
users with the ability to scan through transaction-level detail in their data
warehouse and perform sophisticated market basket analyses. Through DSS Agent's
ability to build a sophisticated analytical report, users can understand what
products sell well together and whether or not that combination of product
sales is more or less profitable than the average market basket of products
sold. All reports and analyses developed with DSS Agent can be distributed via
the Internet with DSS Web and by e-mail, fax, pager, and mobile phone with DSS
Broadcaster. The sample retail report in the figure below illustrates DSS
Agent's powerful reporting capabilities.
 
 
                 [GRAPHIC OF DSS AGENT SCREEN APPEARS HERE] 
 
 
        DSS Objects--API for Custom Application Development. DSS Objects is a
development tool for building customized applications on top of DSS Server.
Specialized applications (such as forecasting, category management, scenario
analysis, and budgeting) and applications that tightly integrate DSS with
online transaction processing are easily developed in Visual Basic, Visual
Basic for Applications, Delphi, and Visual C++. DSS Objects allows systems
integrators, value added resellers, in-house application developers and
vertical solution providers to develop customized relational OLAP applications.
 
                                       41

<PAGE>
 
        DSS Objects also is packaged with an Excel add-in that enables
relational OLAP analyses to be conducted directly within Microsoft Excel for
those end-users who wish to use Excel as their analytical front-end interface.
The Excel add-in allows users to run reports against the data warehouse and
conduct follow-on analyses on that data through the use of the drill everywhere
capabilities included in the Excel add-in.
 
      Application Development And Management Tools
 
        DSS Architect--Tool for Rapid DSS Development. DSS Architect is a tool
for implementing information analysis applications on top of a relational
database management system. DSS Architect creates a set of business definitions
and rules based on the underlying structure of the relational database. Users
of applications such as DSS Agent, DSS Objects, DSS Web, and DSS Broadcaster
can use these business definitions to ask questions and conduct analysis of
information in the database. DSS Architect is highly automated and is based on
an open, flexible metadata architecture, which greatly reduces the cost and
time required to implement and maintain systems.
 
        DSS Executive--Object-Based Executive Information Systems Development
Tool. DSS Executive is a design tool for developing Executive Information
Systems or briefing books that provide high-level users with a series of views
that describe their business. Once briefing books are created, end users can
access them by running DSS Agent in Executive Information Systems mode. These
systems are easily implemented on top of any DSS Agent application by simply
compiling sets of analyses into dynamic pages that immediately focus users on
their key business drivers.
 
        DSS Administrator--Management and Monitoring Tools for Enterprise
Deployments. DSS Administrator provides a complete set of tools for managing
and monitoring large-scale decision support applications. System monitoring
capabilities provide the information needed to tune systems for high
performance and availability. The user and object management functionality
provided by DSS Administrator enables organizations to maintain enterprise
systems supporting thousands of users.
 
      DSS Administrator's Billing module provides the infrastructure needed to
implement billing systems for Internet-based information services. The Billing
module can be used to track system usage and generate the reports needed to
charge users of an Internet-based information service.
 
Customer Case Studies
 
      The following case studies illustrate the application and implementation
of our products and related services by certain of our customers.
 
      Hallmark. Hallmark is a leader in the greeting card industry.
 
       Representative Questions. Which type of retail outlets are over-stocked
for a particular Hallmark greeting card? Should Hallmark change its marketing
campaign strategy before shipping more cards from its distribution center?
 
       Problem. With over 40,500 domestic retail outlets and 40,000 products,
Hallmark faces an enormous challenge in monitoring the inventory of its
individual stores. The company's ability to track inventory and to determine
which retail outlets are over-stocked or under-stocked for particular greeting
cards has important implications with respect to marketing, distribution and
development decisions. To address these challenges, Hallmark sought out a
software system that would allow managers, product analysts, and high-level
executives to access over one billion rows of transaction level and product
level data. The company needed a system that could run against a variety of
platforms and relational databases, provide a single tool with the capability
to build point-of-sale and financial reporting applications, support complex
data drilling, and offer an intuitive, easy-to-use executive interface.
 
                                       42

<PAGE>
 
       Solution. By combining several different products from DSS Suite,
Hallmark created a DSS system that enables Hallmark personnel, from product
analysts to high-level executives, to utilize previously inaccessible
information. For example, using the system, product managers can quickly
analyze detailed point-of-sale data to determine the profitability of new
products. By making strategic decisions based on this information, product
managers can eliminate poorly selling products from the development cycle.
Additionally, reports of actionable trends at the end of each business day
provide critical information that managers use to make inventory decisions
which help avoid out-of-stock and over-stock situations. As a result, the
system has reduced product development time and improved product performance
and inventory management.
 
      La Caixa. La Caixa is the largest Spanish financial institution and one
of the largest savings banks in Europe.
 
       Representative Questions. How many customers does La Caixa have with
current account balances greater than five million pesetas? Which customers
have at least one credit card and what is the distribution of these customers
by age and income?
 
       Problem. Like many large banks with a diverse customer base, La Caixa
prefers to target-market specific products to those groups of customers who,
based on demographic and other information, would most likely benefit from such
products. In order to achieve this objective, the bank's product managers and
financial analysts needed a software system that would enable them to access
and analyze approximately one terabyte of detailed customer information, and
which was scalable to several terabytes of data. This system had to provide
high performance access to La Caixa's existing database, allow for intranet
database access to enable executives to analyze predefined reports and offer a
low maintenance solution for the company's information technology department.
 
        Solution. Using DSS Suite, La Caixa enabled more than 250 bank managers
to analyze over 15,000 customer characteristics to define market segmentation,
understand product profitability, monitor cash flow and analyze the loan risk
of customers of the bank's 3,500 branches. Such powerful analytic capabilities
have enabled La Caixa to improve the effectiveness of its marketing campaigns
and reduce the risk in the personal loans it grants. Additionally, executives
now can view high level reports through their intranet interface, creating a
cost effective and low maintenance solution.
 
      Source Informatics, a subsidiary of National Data Corporation. Source
Informatics is a leading data solutions and information provider to the
healthcare industry.
 
       Representative Questions. To what degree was a specific company's market
share affected when the patent expired on its most successful drug? Who are the
top 100 prescribers of Amoxicillin in Manhattan?
 
       Problem. Source Informatics collects information on approximately 130
million claims per month from a number of the largest pharmacies across the
United States and on 2.8 billion prescriptions from 893,000 doctors. In the
past, this information was distributed through a limited number of channels to
a narrow set of large pharmaceutical companies. As a result, Source Informatics
was not utilizing the full potential of its data warehouse. The Web made it
possible to allow new mass markets to access the information in its data
warehouse. In order to realize this possibility, National Data needed to
implement a system that would deploy a multitude of analytical applications to
a large number of customers simultaneously, where each of these customers
requires a different set of security and access privileges. Such a system had
to analyze multi-terabytes of data, handle many concurrent users and provide
the high levels of customized analytic complexity.
 
       Solution. Source Informatics looked to our DSS Suite, particularly DSS
Web, to develop and implement a creative solution to its problem. The diagram
below illustrates how we addressed Source Informatics' needs. Using various
components of the DSS Suite, Source Informatics divides its multi-terabyte data
warehouse into focused subsets of information which are then offered to
specific target
 
                                       43

<PAGE>
 
markets. Customers who do not need all the raw data now leverage these
information subsets via the Web on a subscription or a per-access basis. The
DSS Administrator component of the DSS Suite is then used to administer and
monitor usage patterns of potentially thousands of users, creating a complete
analysis, distribution and maintenance system. As a result, Source Informatics
is able to leverage its data warehouse via the Web to reach a larger set of
paying customers who can now answer their questions using empirical data.
 
 
             [GRAPHIC OF DATA WAREHOUSE FLOW CHART APPEARS HERE] 
 
 
Professional Services And Customer Support
 
      DSS Consulting--Data Warehouse And DSS Implementation Service. DSS
Consulting is dedicated to providing clients with the DSS industry's most
focused data warehouse and DSS implementation expertise. Our QuickStrike
program, a consulting program for organizations who have already committed to a
DSS development effort, includes ten working days of consulting provided by an
experienced MicroStrategy data warehouse DSS expert at a client's facilities.
Our consultants contribute to the success of Enterprise DSS projects by
providing services such as:
 
      .  DSS application design, development, test and deployment;
 
      .  data warehouse design, population, development, tuning, and
         maintenance;
 
      .  system integration project planning, methodology and audit
         oversight; and
 
      .  custom application design, development and implementation
         methodology for those who wish to develop applications with
         proprietary interfaces using DSS Objects.
 
      DSS Education--Data Warehouse and DSS Implementation Methodology. We
offer training courses to provide current and potential customers with an
effective way to learn about decision support systems and data warehousing.
These courses have been developed and are taught by senior MicroStrategy
consultants with years of experience designing and implementing data warehouses
and DSS solutions. Our training curriculum includes:
 
      .  Introduction to DSS and Data Warehousing;
 
      .  Data Warehousing, Decision Support and the Web;
 
      .  Advanced DSS Functionality and Architecture; and
 
      .  Data Warehousing--DSS Modeling and Design.
 
                                       44

<PAGE>
 
      DSS Support--Hotline, Knowledge Base and Field Engineering Services. We
provide full product implementation cycle support for Enterprise DSS
development and deployment through a variety of channels, including a Web-
accessible knowledge base, a telephone hotline, e-mail and fax. Our support
engineers are capable of providing client/server configuration assistance, data
warehouse design support, DSS application development assistance, relational
database management system tuning and configuration assistance and
installation, configuration, tuning, and usage support for all of our products.
Our support engineers maintain close relationships with the development centers
of the major relational database management system providers in order to
quickly resolve very large database performance issues that arise from the
interaction between DSS and relational database management system software. In
the event that it is not possible to troubleshoot an issue remotely, our field
engineers are available to be dispatched directly to a client site to isolate
and solve problems locally. Our support personnel are capable of providing
mission critical support and will interface on behalf of the customer with the
relevant very large database and relational database management system
providers to address incompatibilities, particular to a given configuration,
that are impairing the successful deployment of our DSS applications.
 
      The diagram set forth below illustrates the complete range of our
consulting, education and support services.
 
 
          [GRAPHIC OF DATA WAREHOUSE/DECISION SUPPORT APPEARS HERE] 
 
 
 
 
                                       45

<PAGE>
 
Customers
 
      We provide DSS products and related services that can support thousands
of users in multiple countries, speaking different languages and working with
different currencies. We have over 690 customers, spread across a variety of
major industries. A representative list of the firms that since January 1, 1996
have purchased over $250,000 of our products and services is as follows:
 
Banking & Finance         Telecommunications         Consumer Packaged Goods
 Banco Santander           Ameritech                  Beverage Data Network
 Bank of America*          AT&T Wireless Services     Brown & Williamson
 CIBC                      Bell Atlantic*             Estee Lauder
 Fannie Mae*               Bell South*                Hallmark*
                           Concert Management         Heublein
 First Data Corporation*     Services                 Ralston Purina
                           MCI WorldCom               S.C. Johnson Wax
 First Union Corporation*  Pacific Bell*              U.S. Borax      
 First USA Bank            Sprint*                                    
 Freddie Mac*                                                         
 GE Capital*                                         Technology            
 Royal Bank of Canada*    Pharmaceutical &            IBM Corporation*      
 Societe Generale            Healthcare               Nielsen Media Research
 The Provident Bank        Cardinal Health            NCR                    
 Visa International        Glaxo Wellcome*            Oculus                 
                           MedPartners                Perot Systems*          
                           Merck/Medco                Tandem Computers*       
Retail                     Premier                    Western Digital*        
 Asda Stores*              Smithkline Beecham                                 
 B & Q*                    Warner Lambert                                      
 Bear Creek*                                         Manufacturing &          
 Best Buy*                                             Industrial             
 Comet                    Grocery & Pharmacy          Allied Signal            
 Dayton Hudson             American Stores*           DuPont                   
 Elder Beerman             Associated Food Stores     Exxon Chemical           
 Federated Systems Group*  CVS Pharmacy*              General Motors           
 Kmart*                    Eckerd Corporation*        Koch Industries          
 Kohl's Department Stores  Food Lion                  Lexmark                  
 LCBO                      Hannaford Brothers         Monsanto*                
 Littlewoods*              Harris Teeter              Nissan                   
 Liz Claiborne*            Marsh Supermarkets         Samsung*                 
 Marks & Spencer*                                     Shaw Industries          
 Payless Cashways                                                              
 Payless Shoesource*      Insurance                                            
 ShopKo*                   Commercial Union          Other                     
 The Burton Group*           Insurance                London Electric          
 The Limited*              National Heritage          Penn Traffic             
 Victoria's Secret           Insurance*               The SABRE Group*         
 Woolworth's*              Nationwide Insurance       Universal Studios*       
                           USAA*                      US Air Force             
                                                                               
                                                                               
*  Indicates that customer has purchased more than $500,000 in products and
   services since January 1, 1996.
 
Sales and Marketing
 
      Direct Sales Organization. We market our software and services primarily
through our direct sales force. As of December 31, 1998, we had domestic sales
offices in Atlanta, Bedminster, Boston, Chicago, Cincinnati, Dallas, Denver,
Detroit, Kansas City, Los Angeles, Minneapolis, New York City,
 
                                       46

<PAGE>
 
San Francisco, Seattle, Tampa and Washington, D.C., and international sales
offices located in The Netherlands (Amsterdam), Spain (Barcelona and Madrid),
Germany (Cologne), the United Kingdom (London), France (Paris), Austria
(Vienna), Italy (Milan) and Canada (Toronto). We are represented by
distributors in countries in which we do not have sales offices, including
Australia, Brazil, Chile, Colombia, the Czech Republic, Finland, Greece,
Ireland, New Zealand, Singapore, South Africa, South Korea and Sweden.
 
      Indirect Sales Channels. We have entered into relationships with more
than 150 system integration, application development and platform partners
whose products and services are used in conjunction with our own. Agreements
with these partners generally provide them with non-exclusive rights to market
our products and services and allow access to our marketing materials, product
training and direct sales force for field level assistance. In addition, we
offer our partners product discounts. By using indirect sales channels, we
obtain favorable product recommendations from the leading system integration,
application developers and platform partners, thereby increasing our market
coverage. We also believe that such indirect sales channels allow us to
leverage sales and service resources, marketing and industry specific expertise
to expand our user base. We are not dependent upon any single third party
partner or small group of partners, the loss of which would have a material
adverse effect on us.
 
      Value-Added Resellers. Value-added resellers who resell DSS Suite bundled
with their own Enterprise DSS application and/or syndicated data products
include:
 
Retail                   Pharmaceutical            Finance
 AC Nielsen               Concepts Dynamics         American Management
 Consist                  IMS America                Systems
International             IMS Canada                Databasics
 FourGen Software         Source Informatics        PaySys
                                                    
 ICL Retail Systems      Telecom                   Cross Industry
 Intrepid Systems         CableData                 Acxiom
 Radiant Systems          Cincinnati Bell           Chilton Research
 Radius Retail            Information Systems       Services
 
 Retek Systems           Utility                    CIC/MetroMail
 Technology               james + martin            Naviant
  Investments                                       RDI-DW Specialists
 
      System Integrators. We have also entered into agreements to provide
training, support, marketing and sales assistance to a number of system
integrators, including:
 
AMS Andersen Consulting  EMS Ernst & Young H.I.T.   PRAGMATEK Consulting
Anubis Solutions Archer  james + martin John Galt    Group Professional
Decision Sciences        Knightsbridge Solutions    Software  Consulting
Beggsheidt Enterprise    Lancet Software            ProLink Retail Dynamics
Consulting CBSI Clarity  Development Manifest       (RDI) Revere Group RIS
Consulting CMS Computer  SolutionsMarketing Info    Information Services
Sciences Corporation     Systems Naviant            Shamrock Computer
Cornerstone Concepts     Technology Solutions NCR   Resources Software AG
Database Technologies    NexGen SI Nichols          Stonebridge Technologies
Decision Support         Research Noblestar         Syndicated Technologies
Associates Deloitte &    Systems Olympus Group      Virtual Solutions Zyga
ToucheDMR/Trecom EIS     Perspective Data
Pulse Emergent           Architecture
Corporation
 
                                       47

<PAGE>
 
      Platform Partners. Our platform partners consist of firms which co-sell
and co-market complementary technology to the same target customer base. These
platform partners include IBM, Compaq, NCR, Sequent, ICL, Data General,
Informatica, Oracle and Informix.
 
Research and Product Development
 
      We have made substantial investments in research and product development.
We believe that our future performance will depend in large part on our ability
to maintain and enhance our current product line, develop new products that
achieve market acceptance, maintain technological competitiveness and meet an
expanding range of customer requirements. As of December 31, 1998, the
Company's research and product development staff consisted of 171 employees.
Our total expenses for research and development for the nine months ended
September 30, 1998 and 1997 were $8.1 million and $3.1 million (excluding $1.4
million of capitalized software costs), respectively and for the years 1997,
1996 and 1995 were $5.1 million (excluding $1.9 million of capitalized software
costs), $2.8 million and $1.9 million, respectively.
 
Competition
 
      The markets for decision support and Internet-based information services
are intensely competitive and subject to rapidly changing technology. Our most
direct competitors in these markets are providers of decision support software,
push products, browsers with webcasting functionality, electronic and Internet
commerce systems, vertical Internet information systems, wireless
communications products, online service providers and event-driven technology.
Many of these competitors are offering (or may soon offer) products and
services that may compete with our information analysis and information
broadcasting products. The bases of competition in these markets include volume
and type of information accessed, timeliness of information delivery, degree of
personalization, range of information delivery media, quality of presentation,
price/performance, sophistication of notification events and ease of
implementation.
 
      Our competitors in the decision support market fall generally into the
following categories: (1) vendors of relational OLAP software such as
Information Advantage and Platinum Technology; (2) vendors of desktop OLAP
software such as Business Objects and Cognos; and (3) vendors of
multidimensional OLAP software such as Oracle, Hyperion Solutions (which has
entered into a strategic relationship with IBM), Seagate and SAS. We anticipate
continued growth and competition in the decision support software market and
the entrance of new competitors into this market in the future. Such new
competitors may include Microsoft, which has indicated that it will introduce
certain products in 1999 that may overlap to some extent with the functionality
of our products.
 
      Push product vendors such as PointCast, Marimba and BackWeb offer
technologies that deliver information over the Internet to recipients via Web
browsers and proprietary interfaces. Vendors of push products are focused
generally on the delivery of text-based information, such as news and sports,
but often include some level of numeric information such as stock price
updates. Moreover, Marimba has entered into technology partnerships that will
extend the scope of its offering to include the delivery of information and
analysis from relational data sources, which could provide us with increased
competition.
 
      Web browsers with channels or webcasting functionality, such as Microsoft
Internet Explorer and Netscape Navigator, provide an infrastructure for
automatically updating a set of information on a recipient's computer. Although
we use this infrastructure to enhance the functionality of our DSS Web product
line, webcasting and desktop channels offer an alternative information delivery
infrastructure to our DSS Broadcaster product line.
 
      Products and turn-key solutions for electronic commerce, Internet
commerce and electronic business, such as those provided by IBM, Open Market,
USWeb/CKS, Viant, Scient, iXL and Sun, provide a set of functionality that
could be used to implement Internet-based information services. To the extent
that these information products sell information and analysis from relational
database management systems they will compete with our products.
 
                                       48

<PAGE>
 
      Vertical Internet information systems, including Microsoft Expedia,
Microsoft Investor, StockBoss, Microsoft CarPoint, Mercury Mail, TechWeb,
ESavers (US Airways), C.O.O.L. (Continental Airlines), and Internet Travel
Network, have developed custom applications and products for the
commercialization, analysis and delivery of specific information via the
Internet. These systems are generally tailored to a particular application and
built in a fashion that is difficult to leverage into other applications. These
systems represent competition, in that they provide similar functionality to
applications developed using our products.
 
      Wireless communications and messaging providers, such as AT&T, Nextel,
Sprint, MCI WorldCom, Iridium, PageNet and SkyTel, offer a variety of alpha-
enabled mobile phones and pagers. It is possible that these companies will
implement custom-developed information services for consumers of their mobile
phones and pagers that will compete with applications using our products and
services.
 
      Online service providers include companies such as America Online, MSN,
Prodigy, @Home and WebTV (acquired by Microsoft) that provide text-based
content, such as news and sports, over the Internet and on proprietary online
services. The potential exists for these companies to implement applications
that overlap with the functionality we provide.
 
      Providers of event notification systems include companies such as TIBCO,
which markets a product that monitors stock tickers and notifies subscribers
when preset thresholds are crossed; Clarify, which handles loan applications
with a financial system developed by SAP; BEA Systems, which provides
middleware; and Vitria Technology, which provides event-based workflow
software. The systems for event-driven notification provided by these companies
at present and in the future may result in technology that overlaps with ours.
 
      We believe that we differentiate ourselves from other industry
participants by offering comprehensive support for all significant relational
database management system platforms. If a single vendor wins a substantial
share of the relational database management system market, we may find it more
difficult to differentiate our offerings from those of our competitors, which
may materially adversely affect our business, operating results and financial
condition.
 
      Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources, or greater name
recognition than we do. In addition, many of our competitors have well
established relationships with current and potential customers and extensive
knowledge of the data warehouse industry. As a result, these competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products, than we can. Increased competition may
result in price reductions, reduced gross margins and loss of market share.
There can be no assurance that we will be able to compete successfully against
current and future competitors or that the competitive pressures we face will
not materially adversely affect our business, operating results and financial
condition.
 
      Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to address the needs of our prospective
customers. Our current or future indirect channel partners may establish
cooperative relationships with our current or potential competitors, thereby
limiting our ability to sell our products through particular distribution
channels. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Such competition could have a material adverse effect on our margins and
our ability to obtain maintenance revenues for new and existing product
licenses on favorable terms.
 
Intellectual Property and Licenses
 
      We rely primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary technology. For example, we license rather than sell our software
and require licensees to enter into license agreements which
 
                                       49

<PAGE>
 
impose certain restrictions on their use of the software. In addition, we have
made efforts to avoid disclosure of our trade secrets, including but not
limited to requiring those persons with access to our proprietary technology
and information to enter into confidentiality agreements with and restricting
access to our source code. We seek to protect our software, documentation and
other written materials under trade secret and copyright laws, which afford
only limited protection. We presently have no patents or patent applications
pending. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that regard as proprietary. Policing unauthorized use of our
products is difficult, and while we are unable to determine the extent to which
piracy of our software products exists, software piracy can be expected to be a
persistent problem. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States. There can be no assurance that our means of protecting our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology.
 
      Generally, our products are licensed through "named-user licenses," under
which only one identified user may access the product for each "named-user"
license fee paid. A user is an individual to whom a licensee has assigned an
identification number for purposes of tracking use of a product and who is
under an obligation to the licensee to protect any of our confidential
information. Under its standard software license agreement, we have the ability
to request certified statements of records regarding identification numbers in
particular, and use of the products in general, once per year, and have the
right to audit use of the products at least once per year. Copying of products
and documentation is limited to the number of users for whom license fees have
been paid.
 
      There can be no assurance that third parties will not claim our
infringement of their current or future products. We expect that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require us to enter into royalty
or licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to us or at all, which could have a
material adverse effect upon our business, operating results and financial
condition.
 
Employees
 
      As of December 31, 1998, we had a total of 907 employees, of whom 748
were based in the United States and 159 were based internationally. Of the
total, 264 were engaged in sales and marketing, 171 in product development, 330
in professional services and 142 in finance, administration and corporate
operations. Our future performance depends in significant part upon the
continued service of our key management personnel, none of whom is bound by an
employment agreement. The loss of the services of one or more of our key
employees could have a material adverse effect on our business, operating
results and financial condition. Our future success also depends on our
continuing ability to attract, train and retain highly qualified technical,
sales, service, marketing and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that we can retain our key
personnel in the future. None of our employees is represented by a labor union.
We have not experienced any work stoppages and consider our relations with
employees to be good.
 
      We believe that effective recruiting, education, and nurturing of human
resources is critical to our success and have traditionally made substantial
investments in these areas in order to differentiate ourselves from our
competition, increase employee loyalty and create a culture conducive to
creativity, cooperation and continuous improvement. These measures include:
 
      Professional Education. Most newly hired professionals complete a
professional orientation course that ranges from 4-8 weeks presented by
"MicroStrategy University," our in-house education function. The curriculum
consists of lectures, problem sets and independent and group projects, covering
data warehousing, Enterprise DSS applications, MicroStrategy products, and
competitors and customers.
 
                                       50

<PAGE>
 
Certain lectures also deal with general business practices, ethics and
teamwork. At the end of this training, students must pass a number of oral and
written examinations in order to begin their assignments. Following this
introductory course, veteran employees normally complete at least two weeks of
continuing professional development each year. Course content for MicroStrategy
University is created by the most experienced members of the professional
staff, who generally have an annual obligation to create "expert content" based
upon the best practices they have most recently observed in the field. This
expert content is then used to upgrade and revitalize our education,
consulting, support, technology and marketing operations.
 
      Company Days. Each quarter, we invite the entire employee base together
for knowledge transfer within functions, across functions and across geographic
boundaries. These events are generally built around a set of company-wide
meetings and breakout sessions, but they also have particular cultural themes.
These events include: the "Company Retreat," which allows employees to network
with colleagues in an informal setting and which traditionally has consisted of
a cruise we sponsor; "University Week," which focuses on continuing
professional development along with the creation and codification of industry-
best practices; "Friends and Family Weekend," during which we sponsor a
weekend-long open house and host immediate and extended family, as well as
significant others of employees; and DDS World and other conferences where our
business partners and customers are encouraged to mix with the employee base in
order to exchange information and strengthen the firm's ties to the
marketplace. We believe that our "Company Day" events are long-term investments
which will, over time, result in superior productivity, morale, and loyalty
among the employee base, and we expect to continue to engage in these
activities in the future.
 
Facilities
 
      Our principal offices currently occupy over 284,000 square feet in
Vienna, Virginia pursuant to multiple leases which expire between January 1999
and September 2006. In addition, we also lease sales offices domestically and
internationally in a variety of locations, including Atlanta, Bedminster,
Boston, Chicago, Cincinnati, Dallas, Detroit, Los Angeles, Minneapolis, New
York City, San Francisco, Seattle, Washington, D.C., Amsterdam, Barcelona,
Cologne, London, Madrid, Milan, Paris and Vienna. We believe that suitable
additional or alternative space will be available in the future on commercially
reasonable terms as needed.
 
Legal Proceedings
 
      From time to time, we may be involved in litigation that arises in the
normal course of our business operations. As of the date of this prospectus, we
are not a party to any litigation that we believe could reasonably be expected
to have a material adverse effect on our business or results of operation.
 
                                       51

<PAGE>
 

                                   MANAGEMENT
 
Directors and Executive Officers
 
      The following information concerns members of our Board of Directors and
our executive officers:
 

<TABLE>   
<CAPTION>
           Name           Age                      Position
           ----           ---                      --------
 <C>                      <C> <S>
 Michael J. Saylor.......  34 President, Chief Executive Officer and Chairman
                              of the Board of Directors
 Sanju K. Bansal.........  33 Executive Vice President, Chief Operating Officer
                              and Director
 Siddhartha Banerjee.....  33 Vice President, Consulting Services
 Jonathan F. Klein.......  31 Vice President, Law and General Counsel
 Mark S. Lynch...........  35 Vice President, Finance and Chief Financial
                              Officer
 Eduardo S. Sanchez......  42 Vice President, International Operations
 David B. Sherwood, Jr...  30 Vice President, Marketing
 Ray B. Tacoma...........  49 Vice President, Sales
 Stephen S. Trundle......  30 Vice President, Technology
 Charles A. Veley........  33 Vice President, Corporate Development
 John L. Wyatt...........  47 Vice President, Corporate and President,
                              Commercial Intelligence
 Edward S. Yurcisin......  31 Vice President, Customer Management
 Frank A. Ingari.........  49 Director
 Jonathan J. Ledecky.....  41 Director
 Ralph S. Terkowitz......  48 Director
</TABLE>
    
 
      Michael J. Saylor has served as President, Chief Executive Officer and
Chairman of the Board of Directors since founding MicroStrategy in November
1989. Prior to that, Mr. Saylor was employed by E.I. du Pont de Nemours &
Company as a Venture Manager from 1988 to 1989 and by Federal Group, Inc. as a
Consultant from 1987 to 1988. Mr. Saylor received an S.B. in Aeronautics and
Astronautics and an S.B. in Science, Technology and Society from the
Massachusetts Institute of Technology.
 
      Sanju K. Bansal has served as Executive Vice President and Chief
Operating Officer since 1993 and was previously Vice President, Consulting
since joining MicroStrategy in 1990. He has been a member of the Board of
Directors of MicroStrategy since September 1997. Prior to joining
MicroStrategy, 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.
 
      Siddhartha Banerjee has served as Vice President, Consulting Services
since November 1998. From 1996 to 1998, Mr. Banerjee served as Director of
North America Consulting Services. From 1993 to 1996, Mr. Banerjee served as a
Consulting Senior Manager and as Director of Western Operations. Prior to that,
Mr. Banerjee worked at Ernst & Young as a consulting manager from 1989 to 1991
and at Sprint International as a Product Manager from 1991 to 1993. Mr.
Banerjee received an S.B. and an M.S. in Electrical Engineering from the
Massachusetts Institute of Technology.
 
      Jonathan F. Klein has served as Vice President, Law and General Counsel
since November 1998 and as Corporate Counsel from June 1997 to November 1998.
Prior to that, Mr. Klein was an appellate litigator with the United States
Department of Justice. Mr. Klein received a B.A. in Economics from Amherst
College and a J.D. from Harvard Law School.
 
      Mark S. Lynch has served as Vice President, Finance and Chief Financial
Officer since September 1997. Prior to that, Mr. Lynch was Chief Financial
Officer for WorldCorp and World Airways from 1996 to 1997, and before that was
Vice President, Finance for Intelidata, an electronic commerce firm, from 1991
to 1996. Mr. Lynch has also held several senior accounting positions with KPMG
Peat Marwick and Clark Construction Group. Mr. Lynch is a certified public
accountant and received a B.S. in Accounting from Penn State and an M.B.A. from
George Washington University.
 
                                       52

<PAGE>
 
       
      Eduardo S. Sanchez has served as Vice President, International Operations
since July 1997. From 1994 to 1997, he served as Managing Director, European
Operations and prior to that as Senior Manager, U.S. Consulting since joining
MicroStrategy in 1992. Prior to that, Mr. Sanchez was a manufacturing
consultant in Europe, the United States, South America and Japan. Mr. Sanchez
received an M.S. in Systems Engineering from George Mason University and a B.S.
in Electrical Engineering from the University of La Plata in Argentina.
 
      David B. Sherwood, Jr. has served as Vice President, Marketing since
February 1998 and as Director, Sales Programs from 1997 to 1998. From 1992 to
1996, Mr. Sherwood served as consultant and then Director of Field Sales. Prior
to that, Mr. Sherwood worked at Merrill Lynch as a financial analyst. Mr.
Sherwood received a A.B. in English from Dartmouth College.
 
      Ray B. Tacoma has served as Vice President, Sales since January 1999, and
Northeast Regional Vice President from 1997 to 1998. From 1993 to 1996, Mr.
Tacoma served as Vice President, Sales and held various other management
positions at nCUBE Corporation. From 1973 to 1992, Mr. Tacoma served in a
variety of management and sales positions at Sequent Computer Systems, Tandem
Computers, Inc., and Digital Equipment Corporation. Mr. Tacoma received a
B.S.M.E. from the University of Evansville.
 
      Stephen S. Trundle has served as Vice President, Technology since July
1997 and as Director, Technology from 1994 to 1997. From 1992 to 1994, Mr.
Trundle served as a Consultant and then a Senior Consultant with MicroStrategy.
Prior to that, Mr. Trundle worked for Bath Iron Works on the Aegis Destroyer
program from 1991 to 1992. Mr. Trundle received an A.B. in Engineering and an
A.B. in Government from Dartmouth College.
 
      Charles A. Veley has served as Vice President, Corporate Development
since October 1997 and as Director, Corporate Development from 1996 to October
1997. From 1994 to 1996, Mr. Veley was an Account Executive for Cambridge
Technology Partners, a client/server system integrator. From 1991 to 1994, Mr.
Veley was employed by MicroStrategy as Vice President, Sales and Marketing.
Prior to that, Mr. Veley was an Associate Consultant with the Boston Consulting
Group. Mr. Veley received an A.B. in Computer Science from Harvard College.
   
      John L. Wyatt has served as Vice President, Corporate and President of
MicroStrategy's Commercial Intelligence business unit since February 1999. From
1991 until 1998, Mr. Wyatt was the Chief Executive Officer of James Martin &
Co. In 1997, he became a member of that company's board of directors, on which
he continues to serve. Mr. Wyatt served as the President of a North American
start-up subsidiary of an international consulting firm from 1987 to 1990 and
as the President of Cohen & Wyatt, Inc., a systems integration solutions
company, from 1983 to 1986. Mr. Wyatt received a BEC in 1975 from the
University of New England in New South Wales, Australia.     
 
      Edward S. Yurcisin has served as Vice President, Customer Management
since November 1998. Since joining MicroStrategy in 1990, Mr. Yurcisin has also
served as a Consultant, a Consulting Manager, a Product Manager, an Account
Manager, and as Director of Technology Services. Mr. Yurcisin received a B.A.
in Economics and Political Science from Duke University.
 
      Frank A. Ingari has been a member of the Board of Directors of
MicroStrategy 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
C.E.O. 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 has been a member of the Board of Directors of
MicroStrategy since June 1998. Mr. Ledecky founded U.S. Office Products Company
in October 1994 and served as its Chairman of the Board and Chief Executive
Officer from inception through November 1997 and thereafter as a
 
                                       53

<PAGE>
 
director until May 1998. In February 1997, Mr. Ledecky founded Building One
Services Corp. which is presently consolidating the facilities services
management industry, and has since served as its Chairman and Chief Executive
Officer. Mr. Ledecky is also a director of publicly traded Aztec Technology
Partners, Navigant International, Unicapital Corporation, U.S.A. Floral
Products and WorkFlow Management. From 1991 to September 1994, Mr. Ledecky was
the 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.
 
      Ralph S. Terkowitz has been a member of the Board of Directors of
MicroStrategy 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. 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 of Directors
 
      Our Bylaws currently provide that the number of directors shall be fixed
by the Board. The Board of Directors has fixed the number of directors at five.
The Bylaws provide that directors shall be elected by a plurality vote, with no
cumulative voting, at the annual meeting of stockholders. Each elected director
holds office for a term of one year or until his successor shall have been duly
elected and qualified. Each of our directors has been elected to serve until
our 1999 annual meeting of stockholders, or until his successor shall have been
duly elected and qualified. We plan to hold annual stockholders meetings in the
future for the election of directors.
 
      The Board of Directors has established a Compensation Committee and an
Audit Committee consisting in each case of Messrs. Terkowitz and Ingari. Mr.
Terkowitz is the Chairman of the Compensation Committee and Mr. Ingari is
Chairman of the Audit Committee. The Compensation Committee will be responsible
for making recommendations to the Board concerning salaries and incentive
compensation for our officers and employees. The Audit Committee will be
responsible for reviewing the results and scope of the audit and other
accounting related services.
 
      Directors do not receive any fees or other cash compensation for serving
on the Board of Directors or any committee thereof, but each non-employee
director who has served during the prior six month period shall be entitled to
receive an option to purchase 5,000 shares of Class A Common Stock on the date
of each annual stockholders meeting pursuant to the terms of the Director
Option Plan. All directors are reimbursed for their reasonable out-of-pocket
expenses arising from attendance of meetings of the Board of Directors,
committees thereof or in respect of Company-related business. Mr. Terkowitz,
Mr. Ingari and Mr. Ledecky, who are not current or former officers of the
Company, were granted options to purchase 45,000 shares each of Class A Common
Stock under the Director Option Plan described below in connection with their
election to the Board of Directors. Mr. Terkowitz and Mr. Ingari each were
granted options to purchase 5,000 shares of Class A Common Stock, effective
June 4, 1998. See "--Stock Option Plans."
 
Employment Agreements
 
      Our employees are generally required to enter into confidentiality
agreements prohibiting such employee from disclosing any of our confidential or
proprietary information. In addition, the agreements generally provide that
upon termination such employee will not work for a competitor and will not
solicit our customers and employees for a period of one year. At the time of
commencement of employment, our employees also generally sign offer letters
specifying certain basic terms and conditions of employment. Otherwise, our
employees are not subject to written employment agreements.
 
                                       54

<PAGE>
 
Compensation Committee Interlocks and Insider Participation
 
      During the fiscal years ended December 31, 1996 and 1997, the Board of
Directors had no Compensation Committee. Decisions regarding compensation for
1996 and 1997 were made by senior management. The Compensation Committee is now
responsible for making recommendations to the Board of Directors concerning
salaries and incentive compensation (including option grants) for our officers
and directors. See "--Board of Directors."
 

Executive Compensation
 
      Summary Compensation. The following table provides certain summary
information concerning compensation paid or accrued by MicroStrategy to or on
behalf of our Chief Executive Officer and each of our other four most highly
compensated executive officers during the fiscal years ended December 31, 1998
and 1997 (the "Named Executive Officers"):
 
                           Summary Compensation Table
 

<TABLE>
<CAPTION>
                                                                Long Term
                                                   Annual      Compensation
                                              Compensation(1)     Awards
                                              ---------------- ------------
                                                                    Shares
                                                                  Underlying
         Name and Principal Position           Salary   Bonus      Options
         ---------------------------          -------- ------- ----------------
<S>                                           <C>      <C>     <C>          <C>
Michael J. Saylor
  Chairman of the Board, Chief Executive
   Officer and President
  1997....................................... $124,000 $30,000       --
  1998.......................................  124,366     --        --
Mark S. Lynch
  Vice President, Finance and Chief Financial
   Officer
  1997(/2/)..................................   44,135  25,000   250,000
  1998.......................................  126,000  65,000       --
Eduardo S. Sanchez
  Vice President, International Operations
  1997.......................................  122,300     --     54,000
  1998.......................................  156,627  25,000    50,000
Stephen S. Trundle
  Vice President, Technology
  1997.......................................  100,100     --        --
  1998.......................................  105,369  20,000       --
Charles A. Veley
  Vice President, Corporate Development
  1997.......................................   90,250  50,000       --
  1998.......................................   89,551  75,000    30,000
</TABLE>

- --------
(1) With respect to each of the Named Executive Officers, the aggregate amount
    of perquisites and other personal benefits, securities or property received
    was less than either $50,000 or 10% of the total annual salary and bonus
    reported for such Named Executive Officer.
(2) Mr. Lynch joined the Company as Vice President, Finance and Chief Financial
    Officer in September 1997. Accordingly, the 1997 information for Mr. Lynch
    is for the period from September 1, 1997 through December 31, 1997.
 
                                       55

<PAGE>
 
      Stock Options. The following table contains information concerning the
stock option grants made to each of the Named Executive Officers during the
fiscal year ended December 31, 1998:
 
                       Option Grants in Last Fiscal Year
 

<TABLE>
<CAPTION>
                                        Individual Grants
                         ------------------------------------------------
                                                                          Potential Realizable
                                                                                Value at
                         Number of Shares                                    Assumed Annual
                            of Class A    % of Total                      Rates of Stock Price
                           Common Stock    Options   Exercise                Appreciation for
                            Underlying    Granted to   Price                  Option Term(3)
                         Options Granted  Employees  Per Share Expiration ---------------------
          Name                 (1)         in 1998      (2)       Date       5%         10%
          ----           ---------------- ---------- --------- ---------- --------- -----------
<S>                      <C>              <C>        <C>       <C>        <C>       <C>
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
</TABLE>

- --------
(1) The options vest over a five-year period and expire on the tenth
    anniversary of the date of grant.
(2) The exercise price may be paid in cash or in shares of Class A Common Stock
    valued at fair market value on the exercise date. All stock options were
    granted with an exercise price equal to the fair market value of the common
    stock as determined by the Board of Directors on the grant date using a
    revenue multiple valuation methodology.
(3) The potential realizable value is calculated based on the term of the
    option at its time of grant (ten years). It is calculated assuming that the
    fair market value of the Class A Common Stock on the date of grant
    appreciates at the indicated annual rate compounded annually for the entire
    term of the option and that the option is exercised and sold on the last
    day of its term for the appreciated stock price.
 
                                       56

<PAGE>
 
      The following table sets forth information concerning option holdings
through December 31, 1998 by each of the Named Executive Officers:
 
                         Fiscal Year-End Option Values
 

<TABLE>   
<CAPTION>
                                Number of Shares of
                               Class A Common Stock      Value of Unexercised
                              Underlying Unexercised    In-the-Money Options at
                              Options at Year End(1)         Year End (2)
                             ------------------------- -------------------------
            Name             Exercisable Unexercisable Exercisable Unexercisable
            ----             ----------- ------------- ----------- -------------
<S>                          <C>         <C>           <C>         <C>
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
</TABLE>
    
- --------
(1) "Exercisable" refers to those options which will be vested and exercisable
    immediately upon completion of the offering, while "Unexercisable" refers
    to those options which will be unvested at such time.
   
(2) Value is determined by subtracting the exercise price from the fair market
    value of the Class A Common Stock at December 31, 1998 ($31.50 per share),
    multiplied by the number of shares underlying the options.     
 
Stock Option Plans
 
      1996 Stock Plan. Our 1996 Stock Plan (the "1996 Stock Plan"), as amended,
was approved by the Board of Directors and by the stockholders in August of
1997 and was amended and restated by the Board of Directors on October 23,
1998. The 1996 Stock Plan provides for the granting to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and for the granting of nonqualified stock options to
employees and consultants. A total of 8,000,000 shares of Class A Common Stock
have been reserved for issuance under the 1996 Stock Plan, and options to
purchase 6,169,969 shares have been granted as of December 31, 1998 thereunder.
To date, substantially all options granted under the 1996 Stock Plan have been
designated as incentive stock options. The 1996 Stock Plan is currently
administered by the Board of Directors. Certain executive officers designated
by the Board of Directors may also administer the 1996 Stock Plan and grant
additional options, within certain guidelines, with respect to grantees who are
neither directors nor executive officers.
 
      Options granted under the 1996 Stock Plan are not transferable by the
optionee other than by will or the laws of descent and distribution, and each
option is exercisable during the lifetime of the optionee only by such
optionee. The exercise price of all incentive stock options granted under the
1996 Stock Plan must be at least equal to the fair market value of the shares
of Class A Common Stock on the date of grant. With respect to any participant
who owns stock possessing more than 10% of the voting power of all classes of
our outstanding capital stock, the exercise price of any incentive stock option
must be equal to at least 110% of the fair market value of the shares of Class
A Common Stock on the grant date and the maximum term of the option must not
exceed five years. The terms of all other incentive options granted under the
1996 Stock Plan may not exceed 10 years.
 
      Stock options granted under the 1996 Stock Plan generally vest over a
five-year period, 20% per year. In the event we are merged with or into another
corporation, each option would be assumed or an equivalent option substituted
by the successor corporation. In the event that such successor corporation
refuses to assume the option or to substitute an equivalent option, the option
shall be deemed vested to the extent of the greater of (a) 40% of the number of
shares of Common Stock subject to the option and (b) the number of shares then
vested immediately prior to the change in control. Options to purchase
 
                                       57

<PAGE>
 
5,827,059 shares at a weighted average exercise price of $5.46 per share are
currently outstanding under the 1996 Stock Plan and options to purchase
1,830,031 shares of Class A Common Stock remain available for future grants
under the 1996 Stock Plan.
 
      French Plan. The 1997 Stock Option Plan for French employees (the "French
Plan") was approved by the Board of Directors in March of 1997. The French Plan
provides for the granting of options to employees of MicroStrategy France SARL,
our French subsidiary. A total of 300,000 shares of Class A Common Stock have
been reserved for issuance under the French Plan. Options to purchase 111,250
shares have been granted, of which options to purchase 103,650 shares are
outstanding and unexercised as of December 31, 1998 under the French Plan. The
French Plan is administered by the Board of Directors. Options granted under
the French Plan are not transferable by the optionee other than by will or by
the laws of descent and distribution. The exercise price for each option
granted under the French Plan shall be 100% of the fair market value of the
shares of Class A Common Stock on the date the option is granted and the
maximum term of the option must not exceed ten years.
 
      Stock options granted under the French Plan vest over a five year period
with 40% of options vesting on the second anniversary of the vesting
commencement date and 20% vesting on each subsequent anniversary. Options
issued under the French Plan have the same limitations on exercisability and
provisions for vesting upon a merger as options issued under the 1996 Stock
Plan described above.
 
      1997 Director Option Plan. Our 1997 Director Option Plan (the "Director
Option Plan") was adopted by the Board of Directors and the stockholders in
September 1997. A total of 200,000 shares of Class A Common Stock has been
reserved for issuance under the Director Option Plan. The Director Option Plan
provides for the grant of nonqualified stock options to non-employee directors
of the Company.
 
      The Director Option Plan provides that each person who becomes a non-
employee director shall, on the date on which the optionee first becomes a
director, be granted an option to purchase 45,000 shares of Class A Common
Stock (the "First Option"). On the date of each annual stockholders meeting
thereafter, each non-employee director shall be granted an option to purchase
5,000 shares of Class A Common Stock (a "Subsequent Option") if, on such date,
he or she shall have served on the Board of Directors for at least six months
prior to the annual meeting. Options to purchase 45,000 shares of Class A
Common Stock have been granted to each of Mr. Terkowitz and Mr. Ingari at an
exercise price of $2.50 per share and options to purchase 45,000 shares of
Class A Common Stock have been granted to Mr. Ledecky at an exercise price of
$12.00 per share. In addition, Mr. Terkowitz and Mr. Ingari each were granted
options to purchase 5,000 shares of Class A Common Stock, effective June 4,
1998, at an exercise price per share of $12.00. Each of Mr. Ingari and
Mr. Terkowitz have vested options to purchase 9,000 shares of Class A Common
Stock.
 
      The Director Option Plan sets neither a maximum nor a minimum number of
shares subject to options that may be granted over time to any one non-employee
director, but does stipulate the method of making a grant. No option granted
under the Director Option Plan is transferable by the optionee other than by
will or the laws of descent and distribution, and other than transfers to
certain family members or entities controlled by or for the benefit of certain
optionees, or approved by the Board. Each option is exercisable, during the
lifetime of the optionee, only by such optionee. The Director Option Plan
provides that the First Option shall become exercisable in installments of one-
fifth of the shares subject to the First Option on each of the first, second,
third, fourth and fifth anniversaries of the date of grant of the First Option,
and that each Subsequent Option shall become exercisable in full on the fifth
anniversary of its date of grant. The exercise price of all stock options
granted under the Director Option Plan shall be equal to the fair market value
of the shares of Class A Common Stock on the date of grant of the option.
Options granted under the Director Option Plan have a term of 10 years. In the
event we are merged with or into another corporation or substantially all of
our assets, are sold each option will be assumed or an equivalent option
substituted by the successor corporation. If the successor corporation does not
assume outstanding options, the exercisability of all outstanding options shall
be accelerated. The Board of
 
                                       58

<PAGE>
 
Directors may amend or terminate the Director Option Plan, provided, however,
that no such action may adversely affect any outstanding option and provided
further that the provisions affecting the grant and terms of options may not be
amended more than once during any six-month period.
   
      1998 Employee Stock Purchase Plan. Our 1998 Employee Stock Purchase Plan
(the "Purchase Plan") was approved in June 1998. The Purchase Plan provides for
the purchase of up to 400,000 authorized but unissued or reacquired shares of
Class A Common Stock, subject to adjustment upon changes in our capitalization,
and up to an additional 100,000 shares of Class A Common Stock during each
twelve-month period commencing on the first anniversary of the adoption of the
Purchase Plan through its expiration in June of 2008. The Purchase Plan is
intended to qualify for favorable tax treatment under Section 423 of the
Internal Revenue Code of 1986, as amended. Under the Purchase Plan, eligible
employees may purchase shares of Class A Common Stock through periodic payroll
deductions. The Purchase Plan will be implemented through a series of six month
offering periods commencing on each February 1 and August 1 (each an "Offering
Period"), except for the initial Offering Period which began on the date of the
closing of the initial public offering and ended on January 29, 1999. During
the initial Offering Period, 192,744 shares of Class A Common Stock were
purchased by our employees. All of our U.S. employees and employees of certain
designated subsidiaries who work at least twenty hours per week and more than
five months per calendar year are eligible to participate in the Purchase Plan.
    
      During the first Offering Period, participants may designate not more
than 10% of their base compensation, and in subsequent Offering Periods not
more than 10% of their total compensation, to be deducted each pay period for
the purchase of Class A Common Stock under the Purchase Plan. Participants may
purchase no more than $15,000 in Class A Common Stock in any one calendar year,
nor more than one thousand shares in any one Offering Period. The purchase
price per share will be 85% of the lesser of the fair market value of the Class
A Common Stock on the beginning or end of the Offering Period. Employees may
terminate their participation in the Purchase Plan at any time during an
Offering Period, but may not alter their rate of payroll deduction for that
offering. Participation ends automatically on termination of employment. The
Purchase Plan will terminate no later than December 31, 2002.
 
                                       59

<PAGE>
 

                              CERTAIN TRANSACTIONS
 
Equity Issuance, Stockholder Loans and Loan Guarantees
 
      Effective January 1, 1998, we 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 our foreign subsidiaries. As a result of such
exchange, each such subsidiary became wholly-owned by us. 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 and Mr. Bansal received 266,979 shares.
Our 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 our total market value to the foreign subsidiaries.
 
      We declared a $10.0 million dividend to our stockholders prior to the
initial public offering. This dividend was paid in the form of the Dividend
Notes prior to the termination of our S corporation election, which occurred
immediately before completion of the initial public offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." We intend to repay the Dividend Notes from
cash flows generated from operations, current available cash and cash
equivalents. As of January 15, 1999, $7.5 million of the Dividend Notes had
been repaid, including repayments of $7.2 million to certain of our officers
and directors.
 
      We have on occasion made certain open, non-interest bearing advances to
Mr. Saylor and Mr. Bansal. These advances resulted primarily from our paying S
corporation taxes for these individuals and other miscellaneous expenses since
our inception. There have been no such advances outstanding since our initial
public offering closed in June of 1998.
 
      Prior to our initial public offering, Mr. Saylor guaranteed amounts
outstanding under our Business Loan 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.
 
Option Grants
 
      On various occasions during 1998 and the two preceding fiscal years, we
granted options to purchase Common Stock to the following executive officers:
 
      .  on March 31, 1996, David Sherwood, Stephen Trundle, Eduardo
         Sanchez, Siddhartha Banerjee and Edward Yurcisin were granted
         options to purchase 101,000, 101,000, 26,000, 24,000, and 20,000
         shares of Common Stock, respectively, with an exercise price of
         $0.50 per share;
 
      .  on December 31, 1996, Charles Veley was granted an option to
         purchase 70,000 shares of Common Stock with an exercise price of
         $1.25 per share;
 
      .  on June 30, 1997, Jonathan Klein was granted an option to purchase
         10,000 shares of Common Stock with an exercise price of $2.00 per
         share;
 
       .  on September 30, 1997, Mark Lynch, Eduardo Sanchez and Ray Tacoma
         were granted options to purchase 250,000, 54,000 and 60,000 shares
         of Common Stock, respectively, with an exercise price of $2.50 per
         share;
 
      .  on January 1, 1998, Jonathan Klein was granted an option to
         purchase 40,000 shares of Common Stock with an exercise price of
         $4.00 per share;
 
      .  on April 1, 1998, Jonathan Klein was granted an option to purchase
         250 shares of Common Stock with an exercise price of $6.30 per
         share;
 
                                       60

<PAGE>
 
      .  on June 10, 1998, Charles Veley was granted an option to purchase
         30,000 shares of Class A Common Stock with an exercise price of
         $12.00 per share; and
 
      .  on June 16, 1998, Eduardo Sanchez was granted options to purchase
         50,000 shares of Class A Common Stock with an exercise price of
         $20.44 per share.
 
      During 1997 and 1998, our independent directors were also granted options
to purchase Common Stock under the 1997 Director Option Plan. See "Management--
Stock Option Plan--1997 Director Option Plan."
 
Stock Purchases
 
      On February 28, 1995, Messrs. Sanchez and Trundle purchased 442,408 and
294,938 shares, respectively, of Common Stock at a price of $0.107 per share.
On March 25, 1995, David Sherwood purchased 294,938 shares of Common Stock at a
price of $0.107 per share. On April 7, 1995, Messrs. Banerjee and Yurcisin
purchased 422,408 and 147,469, respectively, of Common Stock at a price of
$0.107 per share. The purchase price for each transaction was to be payable in
four installments. Upon the payment of each installment, the officer acquired
25% of the total shares. Installments were initially paid on the date of
purchase and at the end of each year thereafter, with the final installment
paid on December 31, 1997.
 
      In connection with our 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.
 
                                       61

<PAGE>
 
                       PRINCIPAL AND SELLING STOCKHOLDERS
 
      The following table sets forth certain information regarding the
beneficial ownership of our Common Stock as of December 31, 1998 and as
adjusted to reflect the sale of the shares of Class A Common Stock offered
hereby (1) by each Named Executive Officer and member of the Board of
Directors, (2) by each other employee who is a selling stockholder, and (3) by
each person not otherwise listed and known by us to beneficially own more than
5% of any class of our Common Stock. Except as otherwise noted, the position
with the Company held by each person named below is set forth under
"Management--Directors and Executive Officers." Each person named below has an
address in care of MicroStrategy Incorporated, 8000 Towers Crescent Drive,
Vienna, Virginia 22182, except for Fiduciary Trust Company International, whose
address is Two World Trade Center, New York, New York 10048.
 
 

<TABLE>   
<CAPTION>
                          Shares Beneficially Owned     Number of Shares  Shares Beneficially Owned
                          Prior to Offering (1)(2)      Being Offered (3)   After Offering (1)(2)
                          ----------------------------------------------- ------------------------------
          Name               Number        Percentage        Number          Number        Percentage
          ----            --------------- ------------------------------- --------------- --------------
<S>                       <C>             <C>           <C>               <C>             <C>
Michael J. Saylor(4)....       22,474,662         63.0%          --            22,474,662         60.3%
Sanju K. Bansal(5)......        4,966,979         13.9       150,000            4,816,979         12.9
Thomas Spahr(6).........          861,000          2.4        20,000              841,000          2.3
Eduardo S. Sanchez(7) ..          463,608          1.3        30,000              433,608          1.2
Siddhartha Banerjee(8)..          451,608          1.3        50,000              401,608          1.1
Charles A. Veley(9).....          348,000          1.0         8,000              340,000            *
Stephen S. Trundle(10)..          339,539          1.0        40,000              299,539            *
David B. Sherwood,
 Jr.(11)................          335,339            *        50,000              285,339            *
Fiduciary Trust Co.
 International(12)......          275,300            *           --               275,300            *
Edward S. Yurcisin(13)..          155,469            *        37,500              117,969            *
Mark S. Lynch(14).......           50,000            *        25,000               25,000            *
Frank A. Ingari(15).....           19,000            *         4,500               14,500            *
Ralph S. Terkowitz(16)..           11,000            *           --                11,000            *
Jonathan J.
 Ledecky(17)............            1,000            *           --                 1,000            *
All executive officers
 and directors as a
 group (14 persons)(1)..       29,640,704         82.5       395,000           29,245,704         78.0
</TABLE>
    
 
- --------
 
*  Less than 1.0%
   
(1) The shares listed in the table are shares of Class B Common Stock which
    have ten votes per share, except as otherwise set forth in the footnotes to
    this table. Shares held by the executive officers and directors as a group
    include options to purchase 241,800 (prior to the offering) and 212,300
    (after the offering) shares of Class A Common Stock that are exercisable
    within 60 days after December 31, 1998.     
   
(2) The persons named in this table have sole voting and investment power with
    respect to all shares of Common Stock shown as beneficially owned by them,
    subject to community property laws where applicable. Beneficial ownership
    is determined in accordance with the rules of the Securities and Exchange
    Commission. In computing the number of shares beneficially owned by a
    person and the percentage ownership of that person, shares of Common Stock
    subject to options held by that person that are exercisable now or within
    60 days after December 31, 1998 are deemed outstanding (although such
    shares are not deemed outstanding for the purpose of computing the
    percentage ownership of any other person). The percentage ownership figures
    are calculated assuming that (a) 5,132,110 shares of Class A Common Stock
    and 30,553,114 shares of Class B Common Stock were outstanding immediately
    prior to the offering and (b) 7,132,110 shares of Class A Common Stock and
    30,167,164 shares of Class B Common Stock will be outstanding after the
    offering.     
 
                                       62

<PAGE>
 
   
(3) 385,500 of the shares of Class A Common Stock being offered by the selling
    stockholders are being converted from Class B Common Stock, and Mr. Lynch
    is offering 25,000 shares and Mr. Ingari is offering 4,500 shares of Class
    A Common Stock pursuant to the exercise of options.     
   
(4) Prior to giving effect to the offering, Mr. Saylor's holdings of Common
    Stock consist of 22,424,662 shares of Class B Common Stock (73.4% 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. After giving effect to the offering,
    Mr. Saylor's holdings of Common Stock will consist of 22,424,662 shares of
    Class B Common Stock (74.3% of the Class B Common Stock then outstanding)
    and 50,000 shares of Class A Common Stock. Mr. Saylor has granted the
    underwriters the right to purchase up to 300,000 shares pursuant to the
    underwriters' overallotment option. If the underwriters purchase all
    300,000 of such shares, Mr. Saylor's holdings of Common Stock will consist
    of 22,124,662 shares of Class B Common Stock (74.1% of the Class B Common
    Stock then outstanding) and 50,000 shares of Class A Common Stock.     
   
(5) Prior to giving effect to the offering, Mr. Bansal's holdings of Common
    Stock consist of 4,960,979 shares of Class B Common Stock (16.2% 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. After giving effect to the offering, Mr.
    Bansal's holdings of Common Stock will consist of 4,810,979 shares of Class
    B Common Stock (15.9% of the Class B Common Stock then outstanding) and
    6,000 shares of Class A Common Stock.     
   
(6) Prior to giving effect to the offering, Mr. Spahr's holdings of Common
    Stock consist of 854,000 shares of Class B Common Stock (2.8% of the Class
    B Common Stock outstanding) and options exercisable within 60 days after
    December 31, 1998 for 7,000 shares of Class A Common Stock. After giving
    effect to the offering, Mr. Spahr's holdings of Common Stock will consist
    of 834,000 shares of Class B Common Stock (2.8% of the Class B Common Stock
    then outstanding) and options exercisable within 60 days after December 31,
    1998 for 7,000 shares of Class A Common Stock. Mr. Spahr is the Company's
    Director, Information Systems.     
   
(7) Prior to giving effect to the offering, Mr. Sanchez's holdings of Common
    Stock consist of 442,408 shares of Class B Common Stock (1.4% of the Class
    B Common Stock outstanding) and options exercisable within 60 days after
    December 31, 1998 for 21,200 shares of Class A Common Stock. After giving
    effect to the offering, Mr. Sanchez's holdings of Common Stock will consist
    of 412,408 shares of Class B Common Stock (1.4% of the Class B Common Stock
    then outstanding) and options exercisable within 60 days after December 31,
    1998 for 21,200 shares of Class A Common Stock.     
   
(8) Prior to giving effect to the offering, Mr. Banerjee's holdings of Common
    Stock consist of 442,008 shares of Class B Common Stock (1.4% of the Class
    B Common Stock outstanding) and options exercisable within 60 days after
    December 31, 1998 for 9,600 shares of Class A Common Stock. After giving
    effect to the offering, Mr. Banerjee's holdings of Common Stock will
    consist of 392,008 shares of Class B Common Stock (1.3% of the Class B
    Common Stock then outstanding) and options exercisable within 60 days after
    December 31, 1998 for 9,600 shares of Class A Common Stock.     
   
(9) Prior to giving effect to the offering, Mr. Veley's holdings of Common
    Stock consist of 300,000 shares of Class B Common Stock (1.0% of the Class
    B Common Stock outstanding), 20,000 shares of Class A Common Stock and
    options exercisable within 60 days after December 31, 1998 for 28,000
    shares of Class A Common Stock. After giving effect to the offering, Mr.
    Veley's holdings of Common Stock will consist of 292,000 shares of Class B
    Common Stock (1.0% of the Class B Common Stock then outstanding), 20,000
    shares of Class A Common Stock and options exercisable within 60 days after
    December 31, 1998 for 28,000 shares of Class A Common Stock.     
 
(10) Prior to giving effect to the offering, Mr. Trundle's holdings of Common
     Stock consist of 294,939 shares of Class B Common Stock (1.0% of the Class
     B Common Stock outstanding) and options exercisable within 60 days after
     December 31, 1998 for 44,600 shares of Class A Common Stock. After giving
     effect to the offering, Mr. Trundle's holdings of Common Stock will
     consist of
 
                                       63

<PAGE>
 
      
   254,939 shares of Class B Common Stock (0.8% of the Class B Common Stock
   then outstanding) and options exercisable within 60 days after December 31,
   1998 for 44,600 shares of Class A Common Stock.     
   
(11) Prior to giving effect to the offering, Mr. Sherwood's holdings of Common
     Stock consist of 294,939 shares of Class B Common Stock (1.0% of the
     Class B Common Stock outstanding) and options exercisable within 60 days
     after December 31, 1998 for 40,400 shares of Class A Common Stock. After
     giving effect to the offering, Mr. Sherwood's holdings of Common Stock
     will consist of 244,939 shares of Class B Common Stock (0.8% of the Class
     B Common Stock then outstanding) and options exercisable within 60 days
     after December 31, 1998 for 40,400 shares of Class A Common Stock.     
   
(12) Based upon a Form 13G filed with the Commission on January 6, 1999 by
     Fiduciary Trust Company International. Fiduciary Trust Company
     International, which is not affiliated with the Company, holds shares of
     Class A Common Stock representing 5.4% of the Class A Common Stock
     outstanding prior to giving effect to the offering. After giving effect
     to the offering, such shares will represent 3.9% of the Class A Common
     Stock then outstanding.     
   
(13) Prior to giving effect to the offering, Mr. Yurcisin's holdings of Common
     Stock consist of 147,469 shares of Class B Common Stock (0.5% of the
     Class B Common Stock outstanding) and options exercisable within 60 days
     after December 31, 1998 for 8,000 shares of Class A Common Stock. After
     giving effect to the offering, Mr. Yurcisin's holdings of Common Stock
     will consist of 109,969 shares of Class B Common Stock (0.4% of the Class
     B Common Stock then outstanding) and options exercisable within 60 days
     after December 31, 1998 for 8,000 shares of Class A Common Stock.     
          
(14) Prior to giving effect to the offering, Mr. Lynch's holdings of Common
     Stock consist of options exercisable within 60 days after December 31,
     1998 for 50,000 shares of Class A Common Stock. After giving effect to
     the offering, Mr. Lynch will own options exercisable within 60 days after
     December 31, 1998 for 25,000 shares of Class A Common Stock.     
   
(15) Prior to giving effect to the offering, Mr. Ingari's holdings of Common
     Stock consist of 10,000 shares of Class A Common Stock and options
     exercisable within 60 days after December 31, 1998 for 9,000 shares of
     Class A Common Stock. After giving effect to the offering, Mr. Ingari's
     holdings of Common Stock will consist of 10,000 shares of Class A Common
     Stock and options exercisable within 60 days after December 31, 1998 for
     4,500 shares of Class A Common Stock.     
   
(16) Prior to giving effect to the offering, Mr. Terkowitz's holdings of
     Common Stock consist of 2,000 shares of Class A Common Stock and options
     exercisable within 60 days after December 31, 1998 for 9,000 shares of
     Class A Common Stock. After giving effect to the offering, Mr.
     Terkowitz's holdings of Common Stock will consist of 2,000 shares of
     Class A Common Stock and options exercisable within 60 days after
     December 31, 1998 for 9,000 shares of Class A Common Stock.     
   
(17) Prior to giving effect to the offering, Mr. Ledecky's holdings of Common
     Stock consist of 1,000 shares of Class A Common Stock. After giving
     effect to the offering, Mr. Ledecky's holdings of Common Stock will
     consist of 1,000 shares of Class A Common Stock.     
 
                                      64

<PAGE>
 

                          DESCRIPTION OF CAPITAL STOCK
 
      The following description is a summary of our Amended and Restated
Certificate of Incorporation (the "Certificate"), a copy of which is filed as
an exhibit to the Registration Statement of which this prospectus forms a part,
and which is incorporated by reference in this prospectus.
   
      As of the date of this prospectus, our authorized capital stock consists
of 100,000,000 shares of Class A Common Stock, 100,000,000 shares of Class B
Common Stock and 5,000,000 shares of preferred stock. As of the date of this
prospectus (but giving effect to the offering), there are 7,132,110 shares of
Class A Common Stock, 30,167,614 shares of Class B Common Stock and no shares
of preferred stock outstanding, assuming no exercise of the underwriter's over-
allotment option, no exercise of outstanding options or warrants after December
31, 1998, except for options for 29,500 shares exercised by certain selling
stockholders and sold in the offering, and not giving any effect to the
192,744 shares of Class A Common Stock being issued upon the closing of the
initial offering period under our employee stock purchase plan.     
 
Common Stock
 
      Voting Rights. Holders of Class A Common Stock are entitled to one (1)
vote per share. Holders of Class B Common Stock are entitled to ten (10) votes
per share. Holders of Class A Common Stock and Class B Common Stock vote
together as a single class on all matters presented to the stockholders for
their vote or approval, except as may be required by Delaware law or as
otherwise expressly specified in the Certificate. We may increase or decrease
the number of authorized shares of Class A Common Stock or Class B Common Stock
by action of the Board of Directors and the affirmative vote of the holders of
a majority of the voting power of the capital stock entitled to vote.
 
      Dividends. Holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends at the same rate, when and if declared by the
Board of Directors, out of legally available funds. We may not make any
dividend or distribution with respect to any class of Common Stock unless at
the same time we make a ratable dividend or distribution with respect to each
outstanding share of Common Stock regardless of class. In the case of a stock
dividend or other distribution payable in shares of a class of Common Stock,
only shares of Class A Common Stock may be distributed with respect to Class A
Common Stock and only shares of Class B Common Stock may be distributed with
respect to Class B Common Stock, and the number of shares of Common Stock
payable per share will be equal for each class.
 
      Split, Subdivision or Combination. None of the Class A Common Stock or
the Class B Common Stock may be subdivided or combined in any manner unless the
shares of the other class are subdivided or combined in the same proportion.
 
      Conversion Rights. Class A Common Stock has no conversion rights. Each
share of Class B Common Stock is convertible at any time, at the option of the
holder, into one share of Class A Common Stock. Each share of Class B Common
Stock shall convert automatically into one share of Class A Common Stock upon
its sale, assignment, gift or other transfer, other than a transfer approved in
advance of the effectiveness thereof by the holders of a majority of the Class
B Common Stock outstanding, voting separately as a class; provided, however,
that a transfer effected as a result of the death of the transferor may be
approved by the holders of a majority of the Class B Common Stock outstanding,
voting separately as a class, within thirty days following such transfer. For
purposes of determining whether a transfer has been approved by the holders of
a majority of the Class B Common Stock outstanding, the shares for which
approval of the transfer is being sought shall continue to be considered
outstanding shares of Class B Common Stock and the proposed transferor (or in
the case of shares transferred as a result of the death of the proposed
transferor, the Executor or similar personal representative of such proposed
transferor) shall be entitled to vote on such transfer.
 
      Notwithstanding the foregoing, (1) these conversion rights shall not
apply in the case of a merger or similar transaction in which all the
outstanding shares of Common Stock regardless of class are purchased by the
acquiror, and (2) any holder of Class B Common Stock may pledge his shares of
Class B Common Stock to a financial institution (the "Pledgee") pursuant to a
bona fide pledge of such
 
                                       65

<PAGE>
 
shares as collateral security for indebtedness due to the Pledgee and that, if
the Pledgee forecloses or takes similar action, such pledged shares of Class B
Common Stock shall be converted automatically into shares of Class A Common
Stock; provided, however, that if within five business days after such
foreclosure or similar event such converted shares are returned to the pledgor,
such shares shall be converted automatically back into shares of Class B Common
Stock.
 
      Merger. Upon our merger or consolidation, holders of each class of Common
Stock will be entitled to receive equal per share payments or distributions,
except that in any transaction in which shares of capital stock are
distributed, such shares may differ only to the extent that the Class A Common
Stock and the Class B Common Stock differ as provided in our Certificate.
 
      Liquidation. Upon our dissolution or liquidation, the holders of the
Class A Common Stock and Class B Common Stock will be entitled to receive
ratably all of our assets available for distribution to stockholders, subject
to any preferential rights of any then outstanding Preferred Stock.
 
      Other Provisions. The holders of the Class A Common Stock and Class B
Common Stock are not entitled to preemptive rights. The rights of holders of
Class A Common Stock and Class B Common Stock are subject to the rights of
holders of shares of any series of Preferred Stock that we may designate and
issue in the future.
 
Preferred Stock
 
      The Board of Directors has the authority, without further action by the
stockholders, to issue shares of preferred stock from time to time in one or
more series. Each series of preferred stock will have the number of shares,
designations, powers, preferences and special or relative rights and privileges
as may be determined by the Board of Directors, which may include dividend
rights, voting rights, redemption and sinking fund provisions, liquidation
preferences, conversion rights and preemptive rights. The authority of the
Board of Directors to issue preferred stock without further action by the
stockholders provides flexibility in connection with possible acquisitions and
other corporate purposes, but may also result in the issuance of preferred
stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of Common Stock or which could
make it more difficult for a third party to gain control of us.
 
Transfer Agent and Registrar
 
      The Transfer Agent and Registrar for the Class A Common Stock is American
Stock Transfer & Trust Company.
 
Trading
 
      The Class A Common Stock is traded on the Nasdaq National Market under
the trading symbol "MSTR."
 
Certain Anti-Takeover, Limited Liability and Indemnification Provisions
 
      Delaware Anti-Takeover Law. We are a Delaware corporation subject to
Section 203 of the Delaware General Corporation Law ("DGCL"). Under Section
203, certain "business combinations" between a Delaware corporation whose stock
generally is publicly traded or held of record by more than 2,000 stockholders
and an "interested stockholder" are prohibited for a three-year period
following the date that such stockholder became an interested stockholder,
unless (1) the corporation has elected in its certificate of incorporation not
to be governed by Section 203 (we have not made such an election), (2) the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder was approved by the board of directors of
the corporation before such stockholder became an interested stockholder, (3)
upon consummation of the transaction that made such stockholder an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the commencement of the transaction
(excluding voting stock owned by directors who are
 
                                       66

<PAGE>
 
also officers or held in employee benefit plans in which the employees do not
have a confidential right to tender stock held by the plan in a tender or
exchange offer) or (4) the business combination is approved by the board of
directors of the corporation and authorized at a meeting by two-thirds of the
voting stock which the interested stockholder did not own. The three-year
prohibition also does not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an interested
stockholder, transactions with an interested stockholder involving the assets
or stock of the corporation or its majority-owned subsidiaries, and
transactions which increase an interested stockholder's percentage ownership of
stock. The term "interested stockholder" is defined generally as those
stockholders who become beneficial owners of 15% or more of a Delaware
corporation's voting stock, together with the affiliates or associates of that
stockholder.
 
      Limitation of Officer and Director Liability and Indemnification
Arrangements. Our Certificate provides that an officer or director of ours will
not be personally liable to us or our 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 DGCL. The provision has no effect on any
non-monetary remedies that may be available to us or our stockholders, nor does
it relieve us or our officers or directors from compliance with federal or
state securities laws. The Certificate also generally provides that we 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 (each, a "Proceeding") by reason of the fact that he is or was a
director or officer of ours, or is or was serving at our request 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 us if (1) the officer or director did not act in
good faith and in a manner reasonably believed to be in, or not opposed to, our
best interests, or (2) with respect to any criminal action or proceeding, the
officer or director had reasonable cause to believe his conduct was unlawful.
 
                        SHARES ELIGIBLE FOR FUTURE SALE
   
      Upon the closing of the offering, we will have 7,132,110 shares of Class
A Common Stock and 30,167,614 shares of Class B Common Stock outstanding,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants after December 31, 1998 (except for options
for 29,500 shares exercised by certain selling stockholders and sold in the
offering and not giving any effect to the 192,744 shares of Class A Common
Stock being issued upon the closing of the initial offering period under our
employee stock purchase plan) to purchase Class A Common Stock. Of these
shares, 6,939,710 shares, comprised of the 2,000,000 shares of Class A Common
Stock sold in the offering (plus any shares issued upon exercise of the
underwriters' over-allotment option), 4,590,000 of the shares sold in our
initial public offering in June 1998, and 349,710 shares sold after conversion
of stock options will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), except that any shares held by an "affiliate" of ours, as that term is
defined in Rule 144 under the Securities Act ("Rule 144"), may generally only
be sold in compliance with the limitations of Rule 144 described below. The
remaining 30,360,014 shares of Common Stock are "restricted securities" within
the meaning of Rule 144 in that they have not been registered under the
Securities Act. These restricted securities will generally be available for
sale in the open market after the offering, subject to the Lock-up Agreements
(defined below) and the applicable requirements of Rule 144.     
 
      In general, Rule 144 provides that after a period of one year has elapsed
between the later of the date on which restricted securities were acquired from
us and the date on which they were acquired from an affiliate of ours, the
holder of such restricted securities (including an affiliate) is entitled to
sell a number of shares within any three-month period that does not exceed the
greater of (1) one percent of the then outstanding shares of the Class A Common
Stock or (2) the average weekly reported volume of trading of the Class A
Common Stock during the four calendar weeks preceding such sale. Sales under
 
                                       67

<PAGE>
 
   
Rule 144 also are subject to certain requirements pertaining to the manner of
such sales, notice of such sales and the availability of current public
information concerning us. Affiliates may sell shares not constituting
restricted securities in accordance with the foregoing volume limitations and
other requirements of Rule 144 but without regard to the one year holding
period. Under Rule 144(k), after a period of two years has elapsed between the
later of the date on which restricted securities were acquired from us and the
date on which they were acquired from an affiliate, a holder of such restricted
securities who is not an affiliate of ours at the time of the sale and has not
been an affiliate for at least three months prior to the sale would be entitled
to sell the shares immediately without regard to the volume limitations and
other conditions of Rule 144 described above.     
   
      The selling stockholders have entered into agreements with the
underwriters (the "Lock-up Agreements") which provide that, until the
expiration of 90 days after the date of this Prospectus, they will not offer,
sell, contract to sell or otherwise dispose of, any shares of Class A Common
Stock or any securities of MicroStrategy that are substantially similar to the
Class A Common Stock or which are convertible into or exchangeable for, or
represent the right to receive, Class A Common Stock (including Class B Common
Stock) without the prior written consent of Merrill Lynch. In addition, we have
agreed not to sell or otherwise dispose of any shares of Common Stock during
the 90-day period following the date of the Prospectus, except we may issue,
and grant options to purchase, shares of Class A Common Stock under the Company
Stock Plans. In addition, we may issue shares of Class A Common Stock in
connection with any acquisition of another company if the terms of such
issuance provide that such Class A Common Stock shall not be resold prior to
the expiration of the 90-day period referenced in the preceding sentence. We
may also issue warrants or similar securities to strategic partners or
customers to purchase shares of Class A Common Stock, if such warrants or
similar securities are not convertible into shares of Class A Common Stock or
transferable (other than to affiliates) prior to the expiration of the 90-day
period referenced in the next preceding sentence     
 
      We filed a Registration Statement on Form S-8 to register the 8,000,000,
300,000, 200,000 and 400,000 shares of Class A Common Stock issuable upon the
exercise of stock options either outstanding or available for grant or purchase
under our 1996 Stock Plan, 1997 Stock Option Plan for French Employees, 1997
Director Option Plan and 1998 Employee Stock Purchase Plan, respectively.
Holders of shares acquired under these plans may currently sell shares of Class
A Common Stock acquired under the plans, except for holders of shares under the
1998 Employee Stock Purchase Plan, who cannot acquire shares before January 31,
1999. The shares covered by the Registration Statement on Form S-8 are
currently or upon grant will be eligible for sale in the public markets,
subject to Rule 144 limitations applicable to our "affiliates" as well as to
the limitations on sale and vesting described above.
 
                                       68

<PAGE>
 

                                  UNDERWRITING
 
      Merrill Lynch, Pierce, Fenner & Smith Incorporated, Hambrecht & Quist LLC
and Friedman, Billings, Ramsey & Co., Inc. are acting as representatives of
each of the underwriters named below. Subject to the terms and conditions set
forth in a purchase agreement among us, the selling stockholders and the
underwriters, we and the selling stockholders have agreed to sell to the
underwriters, and each of the underwriters severally and not jointly has agreed
to purchase from us and the selling stockholders, the number of shares of Class
A Common Stock set forth opposite its name below.
 

<TABLE>   
<CAPTION>
                                                                 NUMBER OF
       UNDERWRITER                                                SHARES
       -----------                                               --------- ---
  <S>                                                            <C>       <C>
  Merrill Lynch, Pierce, Fenner & Smith
           Incorporated.........................................   900,000
  Hambrecht & Quist LLC ........................................   600,000
  Friedman, Billings, Ramsey & Co., Inc. .......................   300,000
  Barrington Research Associates, Inc...........................    50,000
  Dain Rauscher Wessels, A division of Dain Rauscher
   Incorporated.................................................    50,000
  First Albany Corporation......................................    50,000
  Scott & Stringfellow, Inc.....................................    50,000
                                                                 --------- ---
        Total................................................... 2,000,000
                                                                 ========= ===
</TABLE>
    
      In the purchase agreement, the several underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the shares
being sold pursuant to such agreement if any of the shares being sold pursuant
to such agreement are purchased. Under certain circumstances, under the
purchase agreement, the commitments of non-defaulting underwriters may be
increased.
   
      The representatives have advised us and the selling stockholders that the
underwriters propose initially to offer the shares to the public at the public
offering price set forth on the cover page of this prospectus, and to certain
dealers at such price less a concession not in excess of $.78 per share. The
underwriters may allow, and such dealers may reallow, a discount not in excess
of $.10 per share on sales to certain other dealers. After the public offering,
the public offering price, concession and discount may be changed.     
   
      One of our existing stockholders has granted an option to the
underwriters, exercisable for 30 days after the date of this prospectus, to
purchase up to an aggregate of 300,000 additional shares at the public offering
price set forth on the cover page of this prospectus, less the underwriting
discount. The underwriters may exercise this option solely to cover over-
allotments, if any, made on the shares offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares proportionate
to such underwriter's initial amount reflected in the foregoing table.     
 
      The following table shows the per share and total underwriting discounts
to be paid by us and the selling stockholders to the underwriters. This
information is presented assuming either no exercise or full exercise by the
underwriters of the over-allotment option.
 

<TABLE>   
<CAPTION>
                                             PER     WITHOUT
                                            SHARE    OPTION    WITH OPTION
                                            ------ ----------- ----------- ---
   <S>                                      <C>    <C>         <C>         <C>
   Public Offering Price................... $27.00 $54,000,000 $62,100,000
   Underwriting Discount...................  $1.35  $2,700,000  $3,105,000
   Proceeds, before expenses, to
    MicroStrategy.......................... $25.65 $40,655,250 $40,655,250
   Proceeds to selling stockholders........ $25.65 $10,644,750 $18,339,750
</TABLE>
    
 
                                       69

<PAGE>
 
      We will not receive any of the proceeds from the sale of shares by the
selling stockholders. The expenses of the offering are estimated at $600,000
and are payable by us.
 
      The shares are being offered by the several underwriters, subject to
prior sale, when as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel for the underwriters and certain other
conditions. The underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part.
   
      The selling stockholders have entered into Lock-up Agreements with the
underwriters which provide that, until the expiration of 90 days after the date
of this Prospectus, they will not offer, sell, contract to sell or otherwise
dispose of, any shares of Class A Common Stock or any of our other securities
that are substantially similar to the Class A Common Stock or which are
convertible into or exchangeable for, or represent the right to receive, Class
A Common Stock (including Class B Common Stock) without the prior written
consent of Merrill Lynch. In addition, we have agreed not to sell or otherwise
dispose of any shares of Common Stock during the 90-day period following the
date of the Prospectus, except we may issue, and grant options to purchase,
shares of Class A Common Stock under our stock option and stock purchase plans.
In addition, we may issue shares of Class A Common Stock in connection with any
acquisition of another company if the terms of such issuance provide that such
Class A Common Stock shall not be resold prior to the expiration of the 90-day
period referenced in the preceding sentence. We may also issue warrants or
similar securities to strategic partners or customers to purchase shares of
Class A Common Stock, if such warrants or similar securities are not
convertible into shares of Class A Common Stock or transferable (other than to
affiliates) prior to the expiration of the 90-day period referenced in the next
preceeding sentence.     
 
      We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including certain liabilities under the Securities
Act, or to contribute to payments the underwriters may be required to make in
respect thereof.
 
      Until the distribution of the shares is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members to bid for and purchase Class A Common Stock. As an exception to these
rules, the representatives are permitted to engage in certain transactions that
stabilize the price of the Class A Common Stock. Such transactions consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price
of the Class A Common Stock.
 
      If the underwriters create a short position in the Class A Common Stock
in connection with the offerings, i.e., if they sell more shares than are set
forth on the cover page of this prospectus, the representatives may reduce that
short position by purchasing shares in the open market. The representatives may
also elect to reduce any short position by exercising all or part of the over-
allotment option described above.
 
      The representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that if the representatives purchase
shares in the open market to reduce the underwriters' short position or to
stabilize the price of the Class A Common Stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
 
      In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Class A Common Stock to the
extent that it discourages resales of the shares.
 
      Neither we nor any of the selling stockholders or underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Class A
Common Stock. In addition, neither we nor any of the selling stockholders or
underwriters makes any representation that the representatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
 
 
                                       70

<PAGE>
 
      Some of the underwriters have provided investment banking services to us
in the past and are likely to do so in the future. They receive customary fees
and commissions for these services.
 
      In connection with this offering, certain underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the Class A Common Stock on
the Nasdaq National Market in accordance with Rule 103 of Regulation M under
the Securities Exchange Act of 1934, as amended, during the business day prior
to the pricing of the offering before the commencement of offers or sales of
the Class A Common Stock. Passive market makers must comply with applicable
volume and price limitations and must be identified as such. In general, a
passive market maker must display its bid at a price not in excess of the
highest independent bid of such security; if all independent bids are lowered
below the passive market makers' bid, however, such bid must then be lowered
when certain purchase limits are exceeded.
 

                                 LEGAL MATTERS
 
      The validity of the Class A Common Stock offered hereby and certain other
legal matters will be passed upon for us by Latham & Watkins, Washington, D.C.
Certain legal matters in connection with the offering will be reviewed for the
underwriters by Ropes & Gray, Boston, Massachusetts.
 

                                    EXPERTS
 
      The consolidated balance sheets of MicroStrategy Incorporated, as of
December 31, 1996 and 1997, and the consolidated statements of operations and
comprehensive income, stockholders' (deficit) equity, and cash flows for each
of the three years in the period ended December 31, 1997 included in this
prospectus, have been audited by PricewaterhouseCoopers LLP, independent
accountants, as set forth in their report thereon appearing elsewhere herein
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
 
                                       71

<PAGE>
 
                      WHERE YOU CAN FIND MORE INFORMATION
 
      We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and, therefore, we file reports, proxy
statements, information statements and other information with the Securities
and Exchange Commission. You may inspect and copy this information (at
prescribed rates) at the Commission's public reference facilities at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the regional offices of
the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. Please call the Commission at 1-800-SEC-0330 for more information
on its public reference rooms. The Commission also maintains an Internet
Website at http://www.sec.gov that contains reports, proxy statements,
registration statements, information statements and other information regarding
registrants, including us, that file electronically with the Commission. Our
Class A Common Stock is quoted on the Nasdaq National Market. Reports, proxy
statements, information statements and other information about us may also be
inspected at the office of the National Association of Securities Dealers,
Inc., located at 1735 K Street, N.W., Washington, D.C. 20006.
 
      We have filed with the Securities and Exchange Commission, Washington,
D.C., 20549, a Registration Statement on Form S-1 under the Securities Act of
1933, as amended, with respect to the Class A Common Stock offered with this
prospectus. This prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules to the
Registration Statement. Certain items are omitted in accordance with the rules
and regulations of the Commission. For further information with respect to
MicroStrategy and the Class A Common Stock offered with this prospectus,
reference is made to the Registration Statement and the exhibits and schedules
files as a part of the Registration Statement. Statements contained in this
prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and, in each instance, if such contract or
document is filed as an exhibit, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference to such exhibit.
The Registration Statement, including exhibits and schedules thereto, is
available as set forth in the previous paragraph.
 
                                       72

<PAGE>
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 

<TABLE>
<S>                                                                        <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and as of
 September 30, 1998 (unaudited)........................................... F-3
Consolidated Statements of Operations and Comprehensive Income for the
 Years Ended December 31, 1995, 1996 and 1997 and for the nine months
 ended September 30, 1997 and 1998 (unaudited)............................ F-4
Consolidated Statements of Stockholders' (Deficit) Equity for the Years
 Ended December 31, 1995, 1996 and 1997 and for the nine months ended
 September 30, 1998 (unaudited)........................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
 1995, 1996 and 1997 and for the nine months ended September 30, 1997 and
 1998 (unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>

 
                                      F-1

<PAGE>
 

                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and Stockholders
MicroStrategy Incorporated
 
      In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and comprehensive income, changes
in stockholders (deficit) equity and cash flows present fairly, in all material
respects, the financial position of MicroStrategy Incorporated and its
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
 
 
                                            PricewaterhouseCoopers LLP
 
McLean, Virginia
January 30, 1998, except for Note 4 as to

which the date is May 8, 1998 and Note 8
as to which the date is June 10, 1998
 
                                      F-2

<PAGE>
 
                          MICROSTRATEGY INCORPORATED
                          CONSOLIDATED BALANCE SHEETS
 
                (in thousands, except share and per share data)
 

<TABLE>
<CAPTION>
                                                 December 31,
                                                ----------------  September 30,
                                                 1996     1997        1998
                                                -------  -------  -------------
                                                                   (Unaudited)
<S>                                             <C>      <C>      <C>
ASSETS
Current assets:
  Cash and cash equivalents.................... $ 1,686  $ 3,506     $29,868
  Accounts receivable, net.....................   8,475   16,085      29,478
  Prepaid expenses and other current assets....     395    1,435       2,772
                                                -------  -------     -------
    Total current assets.......................  10,556   21,026      62,118
                                                -------  -------     -------
Property and equipment, net....................   2,197    6,891      11,690
Deposits and other assets......................     251    2,148       2,755
                                                -------  -------     -------
    Total assets............................... $13,004  $30,065     $76,563
                                                =======  =======     =======
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
  Line-of-credit............................... $ 2,758  $ 4,508     $    --
  Notes payable, current portion...............     356      900          --
  Dividend Notes payable to stockholders.......      --       --       7,500
  Accounts payable and accrued expenses........   2,811    9,406      10,944
  Accrued compensation and employee benefits...   1,748    3,633       4,690
  Deferred revenue.............................   5,120    8,340       9,225
                                                -------  -------     -------
    Total current liabilities..................  12,793   26,787      32,359
Notes payable, long-term portion...............     460    2,658          --
Deferred revenue...............................     544    1,047         795
                                                -------  -------     -------
    Total liabilities..........................  13,797   30,492      33,154
                                                -------  -------     -------
Commitments and contingencies
Stockholders' (deficit) equity:
  Preferred stock, par value $0.001 per share,
   5,000,000 shares authorized, no shares
   issued or outstanding.......................      --       --          --
  Common stock, par value $0.001 per share,
   50,000,000 shares authorized; 31,442,673
   issued and outstanding at December 31, 1996;
   29,493,873 issued and outstanding at
   December 31, 1997; no shares issued and
   outstanding at September 30, 1998 in 1998...      31       29          --
  Class A Common Stock, par value $0.001 per
   share, 100,000,000 shares authorized; no
   shares issued or outstanding at December 31,
   1996 or December 31, 1997; 4,852,900 issued
   and outstanding at September 30, 1998.......      --       --           5
  Class B Common Stock, par value $0.001 per
   share, 100,000,000 shares authorized; no
   shares issued or outstanding at December 31,
   1996 or 1997; 30,735,514 issued and
   outstanding at September 30, 1998...........      --       --          31
  Additional paid-in capital...................     213       20      41,544
  Accumulated other comprehensive income.......      --      158         553
  Retained earnings (accumulated deficit)......    (755)    (634)      2,463
  Deferred compensation........................      --       --      (1,187)
  Notes receivable from stockholders...........     (87)      --          --
  Less cost of treasury stock, 1,948,800 shares
   in 1996 and no shares in 1997 and 1998......    (195)      --          --
                                                -------  -------     -------
    Total stockholders' (deficit) equity.......    (793)    (427)     43,409
                                                -------  -------     -------
      Total liabilities and stockholders'
       (deficit) equity........................ $13,004  $30,065     $76,563
                                                =======  =======     =======
</TABLE>

 
      The accompanying Notes are an integral part of these Consolidated
Financial Statements.
 
                                      F-3

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 
                (in thousands, except share and per share data)
 

<TABLE>
<CAPTION>
                                                                Nine Months Ended
                              Years ended December 31,            September 30,
                          ----------------------------------  ----------------------
                             1995        1996        1997        1997        1998
                          ----------  ----------  ----------  ----------  ----------
                                                                   (Unaudited)
<S>                       <C>         <C>         <C>         <C>         <C>
Revenues:
 Product licenses.......  $    4,077  $   15,873  $   36,601  $   23,410  $   47,476
 Product support........       5,700       6,730      16,956      11,353      23,223
                          ----------  ----------  ----------  ----------  ----------
   Total revenues.......       9,777      22,603      53,557      34,763      70,699
                          ----------  ----------  ----------  ----------  ----------
Cost of revenues:
 Product licenses.......         257       1,020       1,641       1,187       1,676
 Product support........       2,201       4,237       9,475       6,320      11,934
                          ----------  ----------  ----------  ----------  ----------
   Total cost of
    revenues............       2,458       5,257      11,116       7,507      13,610
                          ----------  ----------  ----------  ----------  ----------
Gross margin............       7,319      17,346      42,441      27,256      57,089
Operating expenses:
 Sales and marketing....       2,992      13,054      30,468      20,200      35,759
 Research and
  development...........       1,855       2,840       5,049       3,137       8,086
 General and
  administrative........       2,395       3,742       6,552       4,163       8,104
                          ----------  ----------  ----------  ----------  ----------
   Total operating
    expenses............       7,242      19,636      42,069      27,500      51,949
                          ----------  ----------  ----------  ----------  ----------
Income (loss) from
 operations.............          77      (2,290)        372        (244)      5,140
Interest income.........          16          22          94          54         682
Interest expense........         (56)       (127)       (333)       (202)       (621)
Other income (expense),
 net....................          11          20         (12)         (3)        (31)
                          ----------  ----------  ----------  ----------  ----------
Income before income
 taxes..................          48      (2,375)        121        (395)      5,170
                          ----------  ----------  ----------  ----------  ----------
Provision for income
 taxes..................          --          --          --          --      (1,758)
                          ----------  ----------  ----------  ----------  ----------
Net income (loss).......  $       48  $   (2,375) $      121  $     (395) $    3,412
                          ----------  ----------  ----------  ----------  ----------
Other comprehensive
 income:
 Foreign currency
  translation
  adjustment............          --          --         158         (95)        395
                          ----------  ----------  ----------  ----------  ----------
Comprehensive income
 (loss).................  $       48  $   (2,375) $      279  $     (490) $    3,807
                          ==========  ==========  ==========  ==========  ==========
Basic net income (loss)
 per share..............  $     0.00  $    (0.08) $     0.00  $    (0.01) $     0.10
                          ==========  ==========  ==========  ==========  ==========
Weighted average shares
 outstanding used in
 computing basic net
 income (loss) per
 share..................  28,896,622  29,493,873  29,493,873  29,501,012  32,771,485
                          ==========  ==========  ==========  ==========  ==========
Diluted net income
 (loss) per share.......  $     0.00  $    (0.08) $     0.00  $    (0.01) $     0.09
                          ==========  ==========  ==========  ==========  ==========
Weighted average shares
 outstanding used in
 computing diluted net
 income (loss) per
 share..................  28,896,622  29,493,873  32,362,277  29,501,012  37,936,672
                          ==========  ==========  ==========  ==========  ==========
Pro forma information
 (unaudited):
Net income, as
 reported...............                          $      121              $    5,170
Pro forma income taxes..                                (489)                 (1,965)
                                                  ==========              ==========
Pro forma net income
 (loss).................                          $     (368)             $    3,205
                                                  ==========              ==========
Pro forma basic net
 income (loss) per
 share..................                          $    (0.01)             $     0.10
                                                  ==========              ==========
Pro forma diluted net
 income (loss) per
 share..................                          $    (0.01)             $     0.08
                                                  ==========              ==========
</TABLE>

 
  The accompanying Notes are an integral part of these Consolidated Financial
                                  Statements.
 
                                      F-4

<PAGE>
 
                          MICROSTRATEGY INCORPORATED
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                            Class A           Class B                   Accumulated    Retained
                       Common Stock       Common Stock     Common Stock     Additional     Other       Earnings
                    ------------------- ---------------- ------------------  Paid-in   Comprehensive (Accumulated   Deferred
                      Shares     Amount  Shares   Amount   Shares    Amount  Capital      Income       Deficit)   Compensation
                    -----------  ------ --------- ------ ----------  ------ ---------- ------------- ------------ ------------
 <S>                <C>          <C>    <C>       <C>    <C>         <C>    <C>        <C>           <C>          <C>
 Balance,
 December 31,
 1994............    31,328,000   $ 31         --   --           --    --       $ 40       $ --        $ 1,738         $ --
 Issuance of
 common stock in
 exchange for
 notes receivable
 from
 stockholders....     1,666,404      2         --   --           --    --        157         --             --           --
 Proceeds from
 payments on
 notes
 receivable......            --     --         --   --           --    --         --         --             --           --
 Retirement of
 treasury stock..      (688,000)    (1)        --   --           --    --         --         --            (66)          --
                    -----------   ----  ---------  ---   ----------   ---    -------       ----        -------      -------
 Net income......            --     --         --   --           --    --         --         --             48           --
                    -----------   ----  ---------  ---   ----------   ---    -------       ----        -------      -------
 Balance,
 December 31,
 1995............    32,306,404     32         --   --           --    --        197         --          1,720           --
 Issuance of
 common stock in
 exchange for
 notes receivable
 from
 stockholders....       147,469     --         --   --           --    --         16         --             --           --
 Proceeds from
 payments on
 notes
 receivable......            --     --         --   --           --    --         --         --             --           --
 Retirement of
 treasury stock..    (1,011,200)    (1)        --   --           --    --         --         --           (100)          --
 Net loss........            --     --         --   --           --    --         --         --         (2,375)          --
                    -----------   ----  ---------  ---   ----------   ---    -------       ----        -------      -------
 Balance,
 December 31,
 1996............    31,442,673     31         --   --           --    --        213         --           (755)          --
 Proceeds from
 payments on
 notes
 receivable......            --     --         --   --           --    --         --         --             --           --
 Retirement of
 treasury stock..    (1,948,800)    (2)        --   --           --    --       (193)        --             --           --
 Translation
 adjustment......            --     --         --   --           --    --         --        158             --           --
 Net income......            --     --         --   --           --    --         --         --            121           --
                    -----------   ----  ---------  ---   ----------   ---    -------       ----        -------      -------
 Balance,
 December 31,
 1997............    29,493,873     29         --   --           --    --         20        158           (634)          --
 Issuance of
 common stock in
 exchange for
 minority
 interest of
 Company's
 foreign
 subsidiaries ...     1,401,641      2         --   --           --    --      1,066         --             --           --
 Stock Options
 issued below
 fair market
 value...........            --     --         --   --           --    --      1,350         --             --       (1,350)
 Declaration of
 dividend .......            --     --         --   --           --    --    (10,000)        --             --           --
 Issuance of
 Class A common
 shares in
 connection with
 initial public
 offering, net of
 offering costs
 ................            --     --  4,440,000    5           --    --     48,586         --             --           --
 Deferred
 compensation
 resulting from
 the issuance of
 stock options
 below fair
 market value ...            --     --         --   --           --    --         --         --             --          163
 S-Corporation to
 C-Corporation
 conversion .....            --     --         --   --           --    --        315         --           (315)          --
 Exercise of
 Stock options...            --     --    252,900   --           --    --        207         --             --           --
 Conversion of
 common stock to
 Class B common
 shares .........   (30,895,514)   (31)        --   --   30,895,514    31         --         --             --           --
 Conversion of
 Class B common
 stock to Class A
 common stock ...            --     --    160,000   --     (160,000)   --         --         --             --           --
 Translation
 adjustment .....            --     --         --   --           --    --         --        395             --           --
 Net income......            --     --         --   --           --    --         --         --          3,412           --
                    -----------   ----  ---------  ---   ----------   ---    -------       ----        -------      -------
 Balance,
 September 30,
 1998
 (unaudited).....            --   $ --  4,852,900  $ 5   30,735,514   $31    $41,544       $553        $ 2,463      $(1,187)
                    ===========   ====  =========  ===   ==========   ===    =======       ====        =======      =======
<CAPTION>
                       Notes
                     Receivable    Treasury Stock
                        from     --------------------
                    Stockholders   Shares    Amount    Total
                    ------------ ----------- -------- ---------
 <S>                <C>          <C>         <C>      <C>
 Balance,
 December 31,
 1994............       $ --      3,648,000  $ (363)   $ 1,446
 Issuance of
 common stock in
 exchange for
 notes receivable
 from
 stockholders....       (159)            --       --        --
 Proceeds from
 payments on
 notes
 receivable......         52             --       --        52
 Retirement of
 treasury stock..         --       (688,000)      67        --
                    ------------ ----------- -------- ---------
 Net income......         --             --       --        48
                    ------------ ----------- -------- ---------
 Balance,
 December 31,
 1995............       (107)     2,960,000     (296)    1,546
 Issuance of
 common stock in
 exchange for
 notes receivable

 from
 stockholders....        (16)            --       --        --
 Proceeds from
 payments on
 notes
 receivable......         36             --       --        36
 Retirement of
 treasury stock..         --     (1,011,200)     101        --
 Net loss........         --             --       --    (2,375)
                    ------------ ----------- -------- ---------
 Balance,
 December 31,
 1996............        (87)     1,948,800     (195)     (793)
 Proceeds from
 payments on
 notes
 receivable......         87             --       --        87
 Retirement of
 treasury stock..         --     (1,948,800)     195        --
 Translation
 adjustment......         --             --       --       158
 Net income......         --             --       --       121
                    ------------ ----------- -------- ---------
 Balance,
 December 31,
 1997............         --             --       --      (427)
 Issuance of
 common stock in
 exchange for
 minority
 interest of
 Company's
 foreign
 subsidiaries ...         --             --       --     1,068
 Stock Options
 issued below
 fair market
 value...........         --             --       --        --
 Declaration of
 dividend .......         --             --       --   (10,000)
 Issuance of
 Class A common
 shares in
 connection with
 initial public
 offering, net of
 offering costs
 ................         --             --       --    48,591
 Deferred
 compensation
 resulting from
 the issuance of
 stock options
 below fair
 market value ...         --             --       --       163
 S-Corporation to
 C-Corporation
 conversion .....         --             --       --        --
 Exercise of
 Stock options...         --             --       --       207
 Conversion of
 common stock to
 Class B common
 shares .........         --             --       --        --
 Conversion of
 Class B common
 stock to Class A
 common stock ...         --             --       --        --
 Translation
 adjustment .....         --             --       --       395
 Net income......         --             --       --     3,412
                    ------------ ----------- -------- ---------
 Balance,
 September 30,
 1998
 (unaudited).....       $ --             --  $    --  $ 43,409
                    ============ =========== ======== =========
</TABLE>

  The accompanying Notes are an integral part of these Consolidated Financial
                                  Statements.
 
                                      F-5

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                 (in thousands)
 

<TABLE>
<CAPTION>
                                                                Nine Months
                                     Years ended December          Ended
                                             31,               September 30,
                                    ------------------------  ----------------
                                     1995    1996     1997     1997     1998
                                    ------  -------  -------  ------  --------
                                                                (Unaudited)
<S>                                 <C>     <C>      <C>      <C>     <C>
Operating activities:
 Net income (loss)................  $   48  $(2,375) $   121  $ (395) $  3,412
Adjustments to reconcile net
 income (loss) to net cash from
 operating activities:
 Depreciation and amortization....     283      306    1,243     648     2,045
 Provision for doubtful accounts,
  net of write-offs and
  recoveries......................      36      381      312     312       150
 Loss on sale of property and
  equipment.......................      --       17       --      --        --
 Compensation expense recognized
  in exchange for notes payable...     397       --       --      --        --
 Other............................      --       --       --      --       163
Changes in operating assets and
 liabilities, net of effect of
 foreign exchange rate changes:
 Accounts receivable..............  (2,771)  (4,859)  (8,235) (1,192)  (13,228)
 Prepaid expenses and other
  current assets..................      (4)    (230)  (1,051)   (240)     (938)
 Accounts payable and accrued
  expenses, compensation and
  benefits........................     117    3,780    8,951   3,426     1,213
 Deferred revenue.................   1,627    3,985    3,512   2,589     1,145
 Deposits and other assets........      --      (58)     102     117       (48)
                                    ------  -------  -------  ------  --------
    Net cash provided by (used in)
     operating activities.........    (267)     947    4,955   5,265    (6,086)
                                    ------  -------  -------  ------  --------
Investing activities:
 Acquisition of property and
  equipment.......................    (469)  (1,680)  (5,954) (2,876)   (6,144)
 Increase in capitalized
  software........................      --       --   (1,928) (1,400)       --
                                    ------  -------  -------  ------  --------
    Net cash used in investing
     activities:..................    (469)  (1,680)  (7,882) (4,276)   (6,144)
                                    ------  -------  -------  ------  --------
Financing activities:
 Borrowings on short-term line of
  credit, net.....................     750    2,008    1,750      --        --
 Repayments on short-term line of
  credit, net.....................      --       --       --      --    (4,508)
 Proceeds from payments on notes
  receivable......................      52       36       87      41        --
 Repayments of Dividend Notes
  payable.........................      --       --       --      --    (2,500)
 Proceeds from issuance of notes
  payable.........................     438      306    3,264   1,272       862
 Principal payments on notes
  payable.........................    (110)    (574)    (521)   (369)   (4,211)
 Proceeds from sale of Class A
  Common Stock and exercise of
  stock options, net of offering
  costs...........................      --       --       --      --    48,797
                                    ------  -------  -------  ------  --------
      Net cash provided by
       financing activities.......   1,130    1,776    4,580     944    38,440
                                    ------  -------  -------  ------  --------
Effect of foreign exchange rate
 changes on cash..................      --       --      167    (113)      152
                                    ------  -------  -------  ------  --------
Net increase (decrease) in cash
 and cash equivalents.............     394    1,043    1,820   1,820    26,362
Cash and cash equivalents,
 beginning of period..............     249      643    1,686   1,686     3,506
                                    ------  -------  -------  ------  --------
Cash and cash equivalents, end of
 period...........................  $  643  $ 1,686  $ 3,506  $3,506  $ 29,868
                                    ======  =======  =======  ======  ========
Supplemental disclosure of noncash
 investing and financing
 activities:
 Issuance of notes receivable in
  exchange for common stock.......  $  159  $    16       --      --        --
                                    ======  =======  =======  ======  ========
 Retirement of treasury stock.....  $   67  $   101  $   195  $  193        --
                                    ======  =======  =======  ======  ========
 Issuance of common stock in
  exchange for minority interest
  of Company's foreign
  subsidiaries....................      --       --       --      --  $  1,068
                                    ======  =======  =======  ======  ========
Supplemental disclosure of cash
 flow information:
 Cash paid during the year for
  interest........................  $   58  $   112  $   290  $  144  $    576
                                    ======  =======  =======  ======  ========
 Cash paid during the year for
  income taxes....................      --       --       --      --  $  1,330
                                    ======  =======  =======  ======  ========
</TABLE>

 
  The accompanying Notes are an integral part of these Consolidated Financial
                                  Statements.
 
                                      F-6

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
     (Figures in tables are in thousands, except share and per share data)
 
NOTE 1--Organization and Summary of Significant Accounting Policies:
 
Organization
 
      MicroStrategy Incorporated (the "Company") designs, develops, markets and
supports high performance, mission critical client server relational database
management systems and provides related software and services for data
warehouse applications. The Company provides its products and services to
customers both domestically and worldwide.
 
Basis of Presentation
 
      The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries located in France, Germany, United Kingdom,
the Netherlands, Spain and Italy. All significant intercompany accounts and
transactions have been eliminated in consolidation.
 
      Prior to January 1, 1998, the Company owned 79% of its foreign
subsidiaries, 17% of the foreign subsidiaries was owned by the Company's
majority stockholder and the remaining 4% was owned by a minority stockholder.
Due to the fact that 96% of the foreign subsidiaries were under common control
and the remaining minority shareholder's interest was immaterial, the Company
has consolidated 100% of the foreign subsidiaries since inception and has not
reflected the minority interest in its consolidated balance sheets. Effective
January 1, 1998, the Company acquired the remaining 21% minority interest of
its foreign subsidiaries through the issuance of 1,401,641 shares of Class B
Common Stock.
 
Use of Estimates
 
      The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
 
Cash and Cash Equivalents
 
      The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents include various short-term money market instruments.
 
Software Development Costs
 
      In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed," software development costs
are expensed as incurred until technological feasibility has been established,
at which time such costs are capitalized until the product is available for
general release to customers. The Company defines the establishment of
technological feasibility as the completion of all planning, designing, coding
and testing activities that are necessary to establish products that meet
design specifications including functions, features and technical performance
requirements. Under the Company's definition, establishing technological
feasibility is considered complete only after the majority of customer testing
and customer feedback has been incorporated into product functionality.
Software development costs capitalized include direct labor costs and fringe
labor overhead costs attributed to programmers, software engineers, quality
control and field certifiers working
 
                                      F-7

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
          (Figures in tables are in thousands, except per share data)
 
on products after they reach technological feasibility but before they are
generally available to customers for sale. Capitalized costs are amortized over
the estimated product life using the greater of the straight-line method or the
ratio of current product revenues to total projected future revenues. Software
development costs net of accumulated amortization are $1,831,000 and $1,397,000
at December 31, 1997 and September 30, 1998 respectively, and are included in
deposits and other assets on the balance sheet. Amortization expense related to
software development costs was $97,000 and $434,000 for the year ended December
31, 1997 and the nine months ended September 30, 1998, respectively. Prior to
the year ended December 31, 1997, the establishment of technological
feasibility of the Company's products and general release of such software had
substantially coincided. As a result, software development costs qualifying for
capitalization were insignificant and, therefore, the Company had not
capitalized any software development costs prior to 1997.
 
Property and Equipment
 
      Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to ten years. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful lives of the
assets or the terms of the leases. Depreciation and amortization expense
related to property and equipment was $283,000, $306,000 and $1,141,000
respectively, for the years ended December 31, 1995, 1996 and 1997.
 
Revenue Recognition
 
      The Company recognizes revenue in accordance with the American Institute
of Certified Public Accountants' (AICPA) Statement of Position (SOP) 91-1,
Software Revenue Recognition. Revenue from product licensing arrangements is
generally recognized after execution of a licensing agreement and shipment of
the product, provided that no significant vendor obligations remain and the
resulting receivable is deemed collectible by management. In addition, the
Company recognizes revenue from sales to value added resellers and original
equipment manufacturers at the time of product shipment, subject to evaluation
of possible product returns or exchanges. Historically, the Company has not
experienced any returns or exchanges of its products from direct sale
customers, value added resellers or original equipment manufacturers. Services
revenue, which includes training and consulting, is recognized at the time the
service is performed. The Company defers and recognizes maintenance revenue
ratably over the terms of the contract period, ranging from 12 to 36 months.
 
      In October 1997, the AICPA issued SOP 97-2 "Software Revenue
Recognition," which superseded SOP 91-1, effective January 1, 1998. SOP 97-2
was amended on March 31, 1998 by SOP 98-4 "Deferral of the effective date of a
provision of SOP 97-2." In December 1998, the AICPA issued SOP 98-9
"Modification of SOP 97-2, Software Revenue Recognition", which amends SOP 98-
4, and is effective after December 31,1998. Management has assessed these new
statements and believes that their adoption will not have a material effect on
the timing of the Company's revenue recognition or cause changes to its revenue
recognition policies.
 
Income Taxes
 
      The Company had elected to be treated for federal and state income tax
purpose as a Subchapter S corporation. Under Subchapter S, the taxable income
or loss was reported by the stockholders and, accordingly, no federal or state
income taxes had been provided in the financial statements.
 
      In connection with the initial public offering of the Company's common
stock (the Offering), the Company is no longer a Subchapter S corporation for
tax purposes. The Company is subject to federal and state income taxes and
recognizes deferred taxes in accordance with Statement of Financial Accounting
Standard No. 109, "Accounting For Income Taxes". This statement provides for
 
                                      F-8

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
          (Figures in tables are in thousands, except per share data)
 
a liability approach under which deferred income taxes are provided based upon
enacted tax laws and rates applicable to the periods in which the taxes become
payable.
 
      The consolidated statement of operations includes pro forma information
to reflect income taxes as if the Company had been a Subchapter C corporation
for the year ended December 31, 1997 and the nine months ended September 30,
1998.
 
Basic and Diluted Net Income (Loss) Per Share
 
      Net income (loss) per share is computed on a basic and diluted basis
using the weighted average number of shares of Common Stock, assuming
conversion of dilutive common stock equivalent shares from common stock
options.
 
Pro Forma Basic and Diluted Net Loss per Share (Unaudited)
 
      Unaudited pro forma basic net income per share for the year ended
December 31, 1997 and the nine months ended September 30, 1998 is based on the
weighted average number of common shares outstanding during the period. The
unaudited pro forma weighted average number of common shares for the year ended
December 31, 1997, includes the number of shares issued upon the initial public
offering and the number of shares whose proceeds would be necessary to pay the
dividend as required by Staff Accounting Bulletin topic 1.B.3. The Company
expects to pay the dividend out of cash flows from future operations. The
unaudited pro forma weighted average number of common shares assuming dilution
includes shares issuable upon the exercise of stock options computed in
accordance with the treasury stock method, and shares issuable upon the
exercise of the underwriters' over-allotment option.
 
Foreign Currency Translation
 
      The assets and liabilities of non-U.S. operations are translated into
U.S. dollars at exchange rates in effect as of each balance sheet date. To
date, the Company has not sought to hedge the risks associated with
fluctuations in exchange rates but may undertake such transactions in the
future. Revenue and expense accounts of these operations are translated at
average exchange rates prevailing during the period the transactions occur.
Accordingly, translation gains and losses are included as component of
stockholders' equity. Foreign currency transaction gains and losses are
included in determining net income. To date, such gains and losses have not
been significant.
 
Concentrations of Credit Risk
 
      Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable. The Company sells products and services to various
companies across several industries throughout the world in the ordinary course
of business. The Company routinely assesses the financial strength of its
customers and maintains allowances for anticipated losses.
 
      For the years ended December 31, 1996 and 1997, no one customer accounted
for 10% or more of total revenues. For the year ended December 31, 1995, one
customer accounted for 14% of total revenues.
 
      For the year ended December 31, 1995, one customer accounted for 13% of
accounts receivable. For the years ended December 31, 1996 and 1997, no one
customer accounted for 10% or more of total accounts receivable.
 
                                      F-9

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
          (Figures in tables are in thousands, except per share data)
 
 
Fair Value of Financial Instruments
 
      The Company's financial instruments, which consist of cash, cash
equivalents, accounts receivable, accounts payable, line of credit and notes
payable, approximate fair value. The carrying amounts of the line of credit and
notes payable approximate fair value as these financial instruments contain
variable interest rates which reprice frequently.
 
Purchase of Minority Interest in Foreign Subsidiaries
 
      Effective January 1, 1998, the Company issued a total of 1,401,641 shares
of Class B Common Stock to certain existing stockholders in exchange for their
approximate 21% minority interest in certain of the Company's foreign
subsidiaries. The transaction and the valuation of the percentage interests
held by each of the minority interest stockholders for purposes of determining
the number of shares of Common Stock to be issued to each of them were reviewed
and approved by the disinterested members of the Board of Directors. The
Company accounted for the transaction under the purchase method of accounting.
The 1,134,662 shares issued to the majority stockholder of the Company in
exchange for his shares in the foreign subsidiaries' minority interest
(representing 17% of the foreign subsidiaries) was an exchange between entities
under common control and was therefore accounted for at historical cost. The
historical cost for the majority stockholder's investment in the minority
interest was approximately $58,000. The shares issued to the other minority
interest stockholder (representing 4% of the foreign subsidiaries) were
recorded at fair value. Accordingly the Company recorded $1,068,000 for
acquired intangible assets, which is included in deposits and other assets in
the balance sheet representing the excess of the fair market value for 266,979
of the shares issued in exchange for the non controlling interests shares in
the foreign subsidiaries. The Company has allocated the following amounts to
the identifiable intangible assets and is amortizing those assets on a
straight-line basis over the following estimated useful lives:
 

<TABLE>
     <S>                                                        <C>    <C>
     Distribution channels..................................... $  478 15 years
     Trade name................................................    239 20 years
     Customer list.............................................    267 10 years
     Assembled workforce.......................................     66 10 years
     Goodwill..................................................     18  5 years
                                                                ------
                                                                $1,068
                                                                ======
</TABLE>

 
      Had the Company purchased the minority interest as of January 1, 1997,
the Company would have reduced net income by $80,700 and $60,500 for the year
ended December 31, 1997 and nine months ended September 30, 1998, respectively.
There would have been no impact on revenues, basic earnings and diluted
earnings per share.
 
Interim results (unaudited)
 
      The accompanying consolidated balance sheet as of September 30, 1998, the
consolidated statements of operations and of cash flows for the nine months
ended September 30, 1997 and 1998, and the consolidated statement of
stockholders' equity for the nine months ended September 30, 1998 are
unaudited. In the opinion of management, the statements have been prepared on
the same basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results of interim periods. The data disclosed in these
notes to consolidated financial statements for these periods are also
unaudited.
 
                                      F-10

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
          (Figures in tables are in thousands, except per share data)
 
 
NOTE 2--Accounts Receivable
 
      Accounts receivable, net of allowances, consist of the following:
 

<TABLE>
<CAPTION>
                                                                 December 31,
                                                                ---------------
                                                                 1996    1997
                                                                ------  -------
     <S>                                                        <C>     <C>
     Billed.................................................... $7,947  $16,621
     Unbilled..................................................    986      234
     Less allowance for doubtful accounts......................   (458)    (770)
                                                                ------  -------
                                                                $8,475  $16,085
                                                                ======  =======
</TABLE>

 
NOTE 3--Property and Equipment
 
      Property and equipment consists of the following:
 

<TABLE>
<CAPTION>
                                                                December 31,
                                                               ----------------
                                                                1996     1997
                                                               -------  -------
     <S>                                                       <C>      <C>
     Computer equipment and software.......................... $ 2,209  $ 6,703
     Furniture and equipment..................................     494    1,512
     Leasehold improvements...................................      47      292
     Less: accumulated depreciation and amortization..........    (553)  (1,616)
                                                               -------  -------
                                                               $ 2,197  $ 6,891
                                                               =======  =======
</TABLE>

 
NOTE 4--Bank Borrowings
 
      On December 10, 1996, the Company entered into a business loan with a
bank (the "Business Loan"). This Business Loan was used to repay the Company's
previous line of credit with another financial institution. Pursuant to the
Business Loan, at December 31, 1997 the Company had available a $6.4 million
revolving line of credit, a $2.0 million revolving equipment line and, since
November 1997, a $2.0 million non-revolving equipment loan. On March 31, 1998,
the Company increased the revolving credit line by $3.0 million to $9.4
million, increased the non-revolving equipment loan by $2.0 million to $4.0
million and amended certain of its debt covenants. Borrowings under the
Business Loan may not exceed 80% of eligible accounts receivable for the
revolving credit line and 80% of the cost of the asset for the equipment credit
lines. The borrowings bear interest at the lender's prime rate or LIBOR plus
2.75% for the revolving line of credit and prime plus one-half percent or a
rate equal to the yield of U.S. Treasury Bonds plus 2.65% for loans with a 3-
year maturity or 2.85% for loans with a 4-year maturity for the equipment lines
of credit (revolving and non-revolving). In addition, borrowings under the
Business Loan are collateralized by substantially all of the Company's assets
and are partially guaranteed by a stockholder and officer of the Company for up
to $2.0 million for all amounts borrowed under the Business Loan in excess of
$2.0 million.
 
      The Business Loan requires the Company to maintain certain financial
ratios and to comply with certain other covenants. From time to time, the
Company has not been in compliance with certain of these covenants. However,
the Company has obtained a waiver from the financial institution for events of
 
                                      F-11

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
          (Figures in tables are in thousands, except per share data)
 
non-compliance with these covenants through December 31, 1997. On March 31,
1998, the Company amended certain of these debt covenants and is in compliance
with these revised covenants.
 
NOTE 5--Notes Payable
 
      Notes payable consist of the following:
 

<TABLE>
<CAPTION>
                                                                December 31,
                                                                -------------
                                                                1996    1997
                                                                -----  ------
     <S>                                                        <C>    <C>
     Notes payable to financial institution with interest
      rates varying from 8.8% to 9.4%, at December 31, 1997,
      maturities through December 31, 2001, repayable in
      monthly installments and collateralized by the related
      equipment...............................................  $ 306  $3,328
     Note payable to consultant bearing interest at 8.5%,
      repayable in monthly installments of $9 through December
      2000....................................................    315     230
     Notes payable to stockholders............................    195      --
                                                                -----  ------
     Total notes payable......................................    816   3,558
     Less: current portion....................................   (356)   (900)
                                                                -----  ------
     Notes payable, long term portion.........................  $ 460  $2,658
                                                                =====  ======
</TABLE>

 
      Annual maturities of long-term debt at December 31, 1997 are as follows:
 

<TABLE>
     <S>                                                                  <C>
     1998................................................................ $  900
     1999................................................................    976
     2000................................................................    991
     2001................................................................    691
                                                                          ------
                                                                          $3,558
                                                                          ======
</TABLE>

 
NOTE 6--Income Taxes (unaudited)
 
      As of December 31, 1997 the Company was an S corporation and,
accordingly, not liable for corporate income taxes. Had the Company been a tax-
paying entity, the tax provision would have $489,000. The Company's actual tax
provision for the nine months ended September 30, 1998 was $1,758,000:
 

<TABLE>
<CAPTION>
                                                                    Nine Months
                                                       Year ended      ended
                                                      December 31, September 30,
                                                          1997         1998
                                                      ------------ -------------
                                                       (Proforma)   (unaudited)
     <S>                                              <C>          <C>
     Current:
       Federal.......................................    $ (148)      $1,304
       State.........................................        71          577
       Foreign.......................................       124           --
                                                         ------       ------
                                                             47        1,881
     Deferred:
       Federal.......................................       794          205
       State.........................................       170           36
       Foreign.......................................    (1,443)        (588)
                                                         ------       ------
                                                           (479)        (347)
     Increase in valuation allowance.................       921          224
                                                         ------       ------
                                                          $ 489       $1,758
                                                         ======       ======
</TABLE>

 
                                      F-12

<PAGE>
 
                          MICROSTRATEGY INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
          (Figures in tables are in thousands, except per share data)
 
 
      Pre-tax income for the Company's year ended December 31, 1997 and for
the Company's domestic operations was $1,031,000 and $4,709,000, respectively.
The pro forma and actual provisions for the year ended December 31, 1997 and
the nine months ended September 30, 1998 for income taxes differs from the
amount computed by applying the federal statutory income tax rate to the
Company's income before taxes as follows:
 

<TABLE>
<CAPTION>
                                             Nine months
                                Year ended      ended
                               December 31, September 30,
                                   1997         1998
                               ------------ -------------
                               (Pro forma)   (unaudited)
     <S>                       <C>          <C>
     Income tax benefit at
      federal statutory
      rate...................      $ 41        $1,756
     State income tax, net of
      federal tax effect.....         5           380
     Foreign income taxes....         2            --
     Research and development
      tax credit.............      (480)         (400)
     Foreign sales
      corporation benefit....        --          (177)
     S-Corp income not
      taxed..................        --          (239)
     Other permanent items...        --           214
     Change in valuation
      allowance..............       921           224
                                   ----        ------
     Provision for income
      taxes..................      $489        $1,758
                                   ====        ======
</TABLE>

 
      Significant components of the Company's deferred tax assets and
liabilities are as follows:
 

<TABLE>
<CAPTION>
                                                      December 31, September 30,
                                                          1997         1998
                                                      ------------ -------------
                                                      (Pro forma)   (unaudited)
     <S>                                              <C>          <C>
     Deferred tax assets:
       Accounts receivable allowances................    $  287       $  369
       Accrued compensation..........................       384          759
       Deferred revenue..............................       595           --
       Other accruals and allowances.................        --          925
       State tax credits.............................        --          264
       Foreign net operating losses..................     1,801        2,116
                                                         ------       ------
                                                          3,067        4,433
       Valuation allowance...........................    (1,801)      (1,744)
                                                         ------       ------
     Net deferred tax assets.........................     1,266        2,689
                                                         ------       ------
     Deferred tax liabilities:
       Prepaid assets................................       447          380
       Depreciation..................................       558          684
       Capitalized software..........................       703          923
       Accounting method change related to
        C corporation conversion.....................        --        1,625
                                                         ------       ------
         Total deferred tax liabilities..............     1,708        3,612
                                                         ------       ------
     Total net deferred tax liability................    $ (442)      $ (923)
                                                         ======       ======
</TABLE>

 
      Upon termination of its S corporation status, the Company accounts for
income taxes in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." Had the Company been taxed as a C
corporation, the Company would have recorded net deferred tax liability of
$442,000 as of December 31, 1997. As of December 31, 1997, the Company would
have recorded a valuation allowance of $1,801,000, primarily against the net
operating loss carryforwards in
 
                                     F-13

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
          (Figures in tables are in thousands, except per share data)
 
 
foreign jurisdictions. As of December 31, 1997, management has concluded that
no valuation allowance is required on the domestic deferred tax assets based on
its assessment that current and expected future levels of taxable income are
sufficient to realize domestic deferred tax assets.
 
NOTE 7--Commitments and Contingencies
 
Operating Leases
 
      The Company leases office space under operating lease agreements expiring
at various dates through 2000. In addition to base rent, the Company is
responsible for certain taxes, utilities, and maintenance costs. Future minimum
lease payments under noncancelable operating leases with a remaining term in
excess of one year at December 31, 1997 are as follows:
 

<TABLE>
     <S>                                                                    <C>
     1999.................................................................. $795
     2000..................................................................  667
     2001..................................................................  321
     2002..................................................................  184
</TABLE>

 
      Total rental expense for 1995, 1996 and 1997 was approximately $298,000,
$699,000 and $1,635,000, respectively.
 
Contingencies
 
      The Company is involved in proceedings through the normal course of
business. However, the ultimate resolution of these proceedings cannot be
predicted with certainty. Management believes that any unfavorable outcome
related to these proceedings will not have a material effect on the Company's
financial position or results of operations.
 
NOTE 8--Stockholders Equity
 
Net Income (Loss) Per Share
 
      Reconciliations of the basic net income (loss) per share and diluted net
income (loss) per share computations for the years ended December 31, 1995,
1996, 1997 and the nine months ended September 30, 1998 are as follows:
 

<TABLE>
<CAPTION>
                                                                            For the Nine Months
                                                                            Ended September 30,
                         For the Year Ended December 31,                           1998
                         ---------------------------------                -----------------------
                            1995       1996        1997    Pro forma 1997   Actual     Pro Forma
                         ---------- ----------  ---------- -------------- ----------- -----------
                                                            (Unaudited)   (Unaudited) (Unaudited)
<S>                      <C>        <C>         <C>        <C>            <C>         <C>
Basic net income (loss)
 per share:
Weighted-average common
 shares outstanding..... 28,896,622 29,493,873  29,493,873   35,568,848   32,771,485  32,771,485
                         ========== ==========  ==========   ==========   ==========  ==========
Net income (loss)....... $       48 $   (2,375) $      121   $     (368)  $    3,412  $    3,205
                         ========== ==========  ==========   ==========   ==========  ==========
Basic net income (loss)
 per share.............. $     0.00 $    (0.08) $     0.00   $    (0.01)  $     0.10  $     0.10
                         ========== ==========  ==========   ==========   ==========  ==========
Diluted net income
 (loss) per share:
Weighted-average common
 shares outstanding..... 28,896,622 29,493,873  29,493,873   35,568,848   32,771,485  32,771,485
                         ========== ==========  ==========   ==========   ==========  ==========
</TABLE>

 
                                      F-14

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
          (Figures in tables are in thousands, except per share data)
 
 

<TABLE>
<CAPTION>
                                                                            For the Nine Months
                                                                            Ended September 30,
                         For the Year Ended December 31,                           1998
                         ---------------------------------                -----------------------
                            1995       1996        1997    Pro forma 1997   Actual     Pro Forma
                         ---------- ----------  ---------- -------------- ----------- -----------
                                                            (Unaudited)   (Unaudited) (Unaudited)
<S>                      <C>        <C>         <C>        <C>            <C>         <C>
Common shares issuable
 on exercise of stock
 options, net of shares
 assumed to be
 repurchased at the
 average market price...         --         --   2,868,404    2,868,404    5,165,187   5,165,187
Common shares issuable
 upon underwriters
 option.................         --         --          --      600,000           --          --
                         ---------- ----------  ----------   ----------   ----------  ----------
Weighted-average common
 shares outstanding,
 assuming dilution...... 28,896,622 29,493,873  32,362,277   39,037,252   37,936,672  37,936,672
                         ========== ==========  ==========   ==========   ==========  ==========
Net income (loss)....... $       48 $   (2,375) $      121   $     (368)  $    3,412  $    3,205
                         ========== ==========  ==========   ==========   ==========  ==========
Diluted net income
 (loss) per share....... $     0.00 $    (0.08) $     0.00   $    (0.01)  $     0.09  $     0.08
                         ========== ==========  ==========   ==========   ==========  ==========
</TABLE>

 
      Common stock equivalents are included in the computation of diluted net
income (loss) per share using the treasury stock method. During 1996, stock
options granted by the Company to purchase 1,172,963 common shares were not
included in the computation because the effect was anti-dilutive.
 
      Immediately prior to the initial public offering, all outstanding shares
of common stock were exchanged and converted into shares of Class A Common
Stock and exchanged for an identical number of shares of Class B Common Stock.
 
      Pro forma weighted average shares outstanding during 1997 includes
1,401,641 shares of common stock issued to two of the existing stockholders
effective January 1, 1998 in exchange for their minority interests in certain
of the Company's foreign subsidiaries and also includes 3,840,000 shares of
common stock issued upon the Company's initial public offering. Pro forma
weighted average shares outstanding also includes the assumed issuance of an
additional 1,111,111 shares of common stock which would be necessary for the
Company to pay a $10 million dividend to the existing shareholders.
 
Employee and Directors Stock Option Plans
 
      In February 1996, the Company adopted a Stock Plan (the "1996 Stock
Plan") in order to provide an incentive to eligible employees, consultants and
officers of the Company. Under the 1996 Stock Plan, as amended, 8,000,000
shares of common stock are reserved, options to purchase 4,720,863 shares of
which have been granted as of December 31, 1997.
 
      In March 1997, the Company adopted the "French Plan", which provides for
the granting of options to employees of MicroStrategy France SARL, the
Company's French subsidiary. A total of 300,000 shares of common stock has been
reserved under the French Plan, options to purchase 101,000 shares of which
have been granted as of December 31, 1997.
 
      In September 1997, the Company adopted the "1997 Director Option Plan",
which provides for the grants of nonqualified stock options to non-employee
directors of the Company. A total of 200,000 shares of common stock has been
reserved under the Director Option Plan, options to purchase 90,000 shares of
which have been granted as of December 31, 1997.
 
                                      F-15

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
          (Figures in tables are in thousands, except per share data)
 
 
      Shares of Class A Common Stock will be issued upon exercise of any of the
stock options granted under the 1996 Stock Plan, the French Plan and the 1997
Director Option Plan.
 
      The stock option exercise price of options under the Company's stock
option plans may not be less than the determined fair market value at the date
of grant. Stock options to date generally vest ratably over five years from the
date of grant and expire ten years after grant. Vested stock options are
exercisable at the earliest of (1) the closing of an underwritten public
offering, (2) change in control of the Company or (3) 78 months following the
date of grant of an option.
 
      A summary of the status of the Company's stock option plans as required
by SFAS 123 is presented below:
 

<TABLE>
<CAPTION>
                                                    Option Price    Weighted
                                                     Range Per      Average
                                          Shares       Share     Exercise Price
                                         ---------  ------------ --------------
<S>                                      <C>        <C>          <C>
Outstanding at December 31, 1995........        --  $        $       $  --
 Granted................................ 2,482,416   0.50-- 1.25      0.84
 Exercised..............................        --            --        --
 Surrendered............................   (23,000)  0.50-- 1.13      0.55
                                         ---------  ------------     -----
Outstanding at December 31, 1996........ 2,459,416   0.50-- 1.25      0.84
 Granted................................ 2,660,363   1.50-- 4.00      2.44
 Exercised..............................        --            --        --
 Surrendered............................  (207,916)  0.50-- 2.50      1.10
                                         ---------  ------------     -----
Outstanding at December 31, 1997........ 4,911,863   0.50-- 4.00      1.70
 Granted................................ 1,624,740   4.00--42.50     12.79
 Exercised..............................  (252,900)  0.50-- 2.50      0.89
 Surrendered............................  (188,984)  0.50--12.00      2.11
                                         ---------  ------------     -----
Outstanding at September 30, 1998        6,094,719   0.50--42.50      4.67
Options vested at December 31, 1997.....   456,300  $0.50--$1.25     $0.83
</TABLE>

 
      No options were exercisable as of December 31, 1996.
 

<TABLE>
<S>              <C>       <C>              <C>            <C>      <C>
                                                              Options
                                                            Exercisable
                    Options Outstanding        Weighted     at December
                    at December 31, 1997       Average        31, 1997
                 --------------             Exercise Price --------------
<CAPTION>                                   --------------
                           Weighted Average                Weighted
                              Remaining                    Average
   Range of      Number of   Contractual      Number of    Exercise
Exercise Prices   Shares      Life(Years)       Shares      Price
- ---------------  --------- ---------------- -------------- --------
<S>              <C>       <C>              <C>            <C>      <C>
$0.50-- $1.00    1,445,000       8.31           $0.65      289,000  $0.62
 1.13--  1.50    1,200,433       8.96            1.42      167,300   1.19
 2.00--  4.00    2,266,430       9.74            2.62           --     --
                 ---------                                 -------
                 4,911,863                                 456,300
                 ---------                                 -------
</TABLE>

 
      In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock--Based Compensation." As permitted by
SFAS 123, the Company has elected to continue following the provisions of
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees," and to adopt the disclosure only provisions of SFAS No.
123. If compensation expense had been recorded based on the fair value at the
grant dates for awards under the Plans, the Company's net loss would have been
adjusted to the pro forma amounts presented below:
 
                                      F-16

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
          (Figures in tables are in thousands, except per share data)
 
 

<TABLE>
<CAPTION>
                                                                 Year ended
                                                                December 31,
                                                               ---------------
                                                                1996     1997
                                                               -------  ------
     <S>                                                       <C>      <C>
     Net income (loss)
      As reported............................................. $(2,375) $  121
      Pro forma............................................... $(2,467) $ (258)
      Basic net income (loss) per share, as reported.......... $ (0.08) $ 0.00
      Diluted net income (loss) per share, as reported........ $ (0.08) $ 0.00
      Pro forma basic net income (loss) per share............. $ (0.08) $(0.01)
      Pro forma diluted net income (loss) per share........... $ (0.08) $(0.01)
</TABLE>

 
      The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants issued during the years ended December 31, 1996 and 1997, respectively:
volatility factors of 70% and 60%, weighted-average expected life of 5 years
and 2.5 years, risk-free interest rates of 6%, and no dividend yields. The
weighted average fair value of grants made during the years ended December 31,
1996 and 1997 are $0.52 and $1.04, respectively.
 
      During the nine months ended September 30, 1998, the Company granted
options to purchase 1,624,740 shares of common stock, of which options to
purchase 535,835 shares of common stock were granted at exercise prices below
fair market value. The Company will amortize approximately $1,350,000 of
compensation expense related to these options. The Company will record
additional compensation expense relating to the options for the years ending
December 31, 1998, 1999, 2000, 2001, 2002 and 2003 of $186,000, $270,000,
$270,000, $270,000, $270,000 and $84,000, respectively. For the nine months
ended September 30, 1998, the Company recorded $119,000 of compensation expense
related to the aforementioned options.
 
Distribution to S Corporation Stockholders
 
      On June 11, 1998, the Company declared and paid a dividend of $10,000,000
to certain stockholders in the form of short-term notes prior to the
termination of the Company's S corporation election. The notes bore interest at
the "applicable federal rate" for short-term obligations and became due and
payable at various times during 1998. The Company is repaying the notes from
cash flows from future operations in accordance with the terms of the notes.
The remaining balance on the dividend notes payable to stockholders is
$7,500,000 at September 30, 1998.
 
NOTE 9--Employee Benefit Plan
 
      The Company sponsors a plan to provide retirement and incidental benefits
for its employees, known as the MicroStrategy 401(k) plan (the "Plan").
Participants may make voluntary contributions to the Plan of up to 20% of their
compensation not to exceed the Federally determined maximum allowable
contribution. The Plan permits for discretionary company contributions;
however, no contributions were made for the years ended December 31, 1995, 1996
and 1997.
 
                                      F-17

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
          (Figures in tables are in thousands, except per share data)
 
 
NOTE 10--Segment Information
 
      The following table presents a summary of operations by geographic
region, including eliminations of all significant intercompany transactions:
 

<TABLE>
<CAPTION>
                                                            Year ended
                                                           December 31,
                                                      ------------------------
                                                       1995    1996     1997
                                                      ------  -------  -------
<S>                                                   <C>     <C>      <C>
Revenue:
Domestic............................................. $8,675  $20,089  $39,310
Europe...............................................  1,102    2,514   14,247
                                                      ------  -------  -------
    Total revenue.................................... $9,777  $22,603  $53,557
                                                      ======  =======  =======
Operating (loss) income:
Domestic............................................. $  129  $(1,172) $  (639)
Europe...............................................    (52)  (1,118)   1,011
                                                      ------  -------  -------
    Total operating (loss) income.................... $   77  $(2,290) $   372
                                                      ======  =======  =======
Identifiable Assets:
Domestic.............................................         $ 9,046  $21,376
Europe...............................................           3,958    8,689
                                                              -------  -------
    Total assets.....................................         $13,004  $30,065
                                                              =======  =======
</TABLE>

 
                                      F-18

<PAGE>
 
                               GLOSSARY OF TERMS
 
      "API"--Application Program Interface. Provides routines, protocols and
tools for developing custom applications. Software that provides an API
affords businesses an opportunity to customize, integrate and embed provided
functionality into their own applications.
 
      "Business Metrics"--Business measures used to gauge corporate
performance. For example: profit, loss, sales, and inventory.
 
      "C++"--A popular programming language used to create computer
applications software.
 
      "Commercial DSS"--Commercial Decision Support Systems. A DSS based on
corporate data that is provided to customers, as opposed to employees. For
example, healthcare providers that provide patients with outcome analysis
capabilities for various combinations of patients, treatments, drugs,
hospitals and doctors.
 
      "CPU"--Central Processing Unit. The CPU is the brain of the computer.
Sometimes referred to simply as the processor or central processor, the CPU is
where most calculations take place. In terms of computing power, the CPU is
the most important element of a computer system.
 
      "Data Warehouse"--A collection of data designed to support management
decision-making. Data warehouses contain refined, standardized data culled
from many different departments across a business enterprise. These data
present a coherent picture of business conditions at a single point in time.
 
      "Decilings"--A type of analysis that distributes results into ten
groups; 1st 10%, 2nd 10%, etc.
 
      "Delphi"--A programming language developed by Borland International,
Inc. Delphi is similar to Visual Basic from Microsoft, but whereas Visual
Basic is based on the BASIC programming language, Delphi is based on Pascal.
 
      "DSS"--Decision Support System. Software designed to support the
management decision-making process via ad hoc query processing against
corporate data stores.
 
      "Enterprise DSS"--A Decision Support System that comprises the
information requirements of all departments within a corporation, thereby
satisfying the reporting requirements of the corporate "enterprise", as
opposed to a single department.
 
      "Gigabyte"--A measure of computer data storage; approximately 1 billion
bytes (1,000,000,000). In comparison, a 3.5" floppy disk contains 1.44
Megabytes; approximately 1,440,000 bytes.
 
      "Global 2000"--The 2000 largest publicly traded corporations worldwide
(based on revenue).
 
      "Hardware"--Refers to computer components such disks, disk drives,
monitors, keyboards, printers, memory chips, CPUs, etc.
 
      "HTML"--Hypertext Markup Language. The language used to create World
Wide Web pages, with hyperlinks and markup for text formatting (different
heading styles, bold, italic, numbered lists, insertion of images, etc.).
 
      "JAVA"--A cross-platform programming language developed by Sun
Microsystems that can be used to create animations and interactive features on
World Wide Web pages. Java programs are embedded into HTML documents.
 
                                      G-1

<PAGE>
 
      "Load Balancing"--Distributing processing and communications activity
evenly across computer systems so that no single device is overwhelmed.
 
      "Middleware"--Software that connects two otherwise separate software
programs.
 
      "MPP"--Massively Parallel Processing. A type of computing that uses many
separate CPUs running in parallel to execute a single program.
 
      "OLAP"--Online Analytical Processing. A category of software tools that
provides analysis of data stored in a database.
 
      "Platform Partners"--MicroStrategy Platform Partners are firms which co-
sell and co-market complementary technology to the same target customer base.
These platform partners include IBM, Compaq, NCR, Sequent, ICL, Data General,
Informatica, Oracle and Informix.
 
      "Pull Technology"--To request data from another program or computer. The
World Wide Web is based on pull technologies where a page isn't delivered until
a browser request is received.
 
      "Push Technology"--A technology that allows information to be delivered
or "pushed" directly to a user who subscribes to it, rather than the user
having to request the information. Probably the oldest and most widely used
push technology is e-mail--mail is pushed (delivered) to you whether or not
requested. The prime example of an Internet push technology is the PointCast
Network.
 
      "Query Tone"--Query Tone is universal knowledge enablement--the ability
of any user to ask any question at any time.
 
      "Remote DSS"--Remote DSS applications provide information to operational
professionals throughout an enterprise regardless of their geographic location.
Users may be spread across dozens, hundreds or even thousands of locations.
 
      "Scalable Hardware"--How well a computer's hardware system (memory,
processor, disk drives, etc.) can adapt to different demands. As demands
increase, scalable hardware systems provide additional capabilities in cost-
effective increments with minimal impact on the unit cost of business and the
procurement of additional services.
 
      "SMP"--Symmetric Multiprocessing. A computer architecture that provides
fast performance by making multiple CPUs available to complete individual
processes simultaneously (multiprocessing). SMP uses a single operating system
that shares common memory and disk input/output resources.
 
      "SQL"--Structured Query Language (Pronounced SQL Or Sequel). A language
used to create, maintain, and query relational databases. SQL uses regular
English words for many of its commands, which makes it easy to use. It is often
embedded within other programming languages.
 
      "Supply Chain DSS"--Supply Chain Decision Support Systems allow and
encourage trading partners to give preferential treatment to one another in
exchange for greater certainty and visibility up and down their value chains.
For example, a DSS application that provides access to retail sales information
would be valuable to the manufacturers who stock the shelves within each store.
This information can be used to design new products, refine marketing
campaigns, develop optimal pricing schemes, rationally allocate inventory and
proactively schedule factory production.
 
      "TCP/IP"--The Transmission Control Protocol (TCP) On Top Of The Internet
Protocol (IP). A transmission protocol used to transfer data between different
types of computers and computer networks.
 
                                      G-2

<PAGE>
 
      "Terabyte"--A measure of computer data storage; approximately 1 trillion
bytes (1,000,000,000,000). In comparison, a 3.5" floppy disk contains 1.44
Megabytes, approximately 1,440,000 bytes.
 
      "Visual Basic"--A programming language from Microsoft in which a
programmer uses a graphical user interface to choose and modify pre-selected
chunks of code written in the BASIC programming language.
 
      "WAN"--Wide Area Network. A network in which computers are connected to
each other over a long distance, using telephone lines and satellite
communications.
 
      "Year 2000 Compliant"--We use the definition for "Year 2000 Compliant"
developed by the British Standards Institute. In order to be Year 2000
Compliant, each of the following four conditions must be satisfied:
 
      (1)No value for the current date will cause any interruption in
operation;
 
    (2) Date-based functionality must behave consistently for dates prior
        to, during, and after the Year 2000;
 
    (3) In all interfaces and data storage, the century in any date must be
        specified either explicitly or by unambiguous algorithms or
        inferencing rules; and
 
    (4)The Year 2000 must be recognized as a leap year.
 
                                      G-3

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
                    SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
                (in thousands, except share and per share data)
 

<TABLE>
<CAPTION>
                            Three Months Ended          Year Ended
                                December 31,            December 31,
                           ----------------------  ----------------------
                              1997        1998      1997(1)     1998(1)
                           ----------  ----------  ----------  ----------
                                (unaudited)                  (unaudited)
<S>                        <C>         <C>         <C>         <C>         <C>
Revenues:
 Product licenses......... $   13,191  $   25,245  $   36,601  $   72,721
 Product support..........      5,603      10,487      16,956      33,709
                           ----------  ----------  ----------  ----------
    Total revenues........     18,794      35,732      53,557     106,430
                           ----------  ----------  ----------  ----------
Cost of Revenues:
 Product licenses.........        454         570       1,641       2,246
 Product support..........      3,155       5,601       9,475      17,535
                           ----------  ----------  ----------  ----------
    Total cost of
     revenues.............      3,609       6,171      11,116      19,781
                           ----------  ----------  ----------  ----------
Gross profit..............     15,185      29,561      42,441      86,649
Operating expenses:
 Sales and marketing......     10,268      17,644      30,468      53,408
 Research and
  development.............      1,912       4,020       5,049      12,106
 General and
  administrative..........      2,389       3,704       6,552      11,809
                           ----------  ----------  ----------  ----------
    Total operating
     expenses.............     14,569      25,368      42,069      77,323
                           ----------  ----------  ----------  ----------
Income (loss) from
 operations...............        616       4,193         372       9,326
Interest income...........         40         345          94       1,028
Interest expense..........       (131)        (98)       (333)       (720)
Other income (expense),
 net......................         (9)         17         (12)        (14)
                           ----------  ----------  ----------  ----------
    Total other income
     (expense)............       (100)        264        (251)        294
                           ----------  ----------  ----------  ----------
Income before taxes.......        516       4,457         121       9,620
                           ----------  ----------  ----------  ----------
Income tax................         --       1,691          --       3,442
                           ----------  ----------  ----------  ----------
Net income................ $      516  $    2,766  $      121  $    6,178
                           ----------  ----------  ----------  ----------
Earnings per share
 (basic).................. $     0.02  $     0.08  $     0.00  $     0.18
                           ==========  ==========  ==========  ==========
Weighted average
 outstanding shares
 (basic).................. 29,493,873  35,633,499  29,493,873  33,492,869
                           ==========  ==========  ==========  ==========
Earnings per share
 (diluted)................ $     0.02  $     0.07  $     0.00  $     0.16
                           ==========  ==========  ==========  ==========
Weighted average
 outstanding shares
 (diluted)................ 33,934,669  40,555,540  32,362,277  38,601,389
                           ==========  ==========  ==========  ==========
Pro forma information:
Pro forma net income......                         $     (368) $    5,971
                                                   ==========  ==========
Pro forma earnings per
 share (basic)............                         $    (0.01) $     0.18
                                                   ==========  ==========
Pro forma earnings per
 share (diluted)..........                         $    (0.01) $     0.15
                                                   ==========  ==========
</TABLE>

- --------
(1)  Before completing our initial public offering on June 16, 1998, we were an
     S corporation. As an S corporation, we were not liable for corporate
     income taxes. On a pro forma basis, if we had been a taxpaying entity, we
     would have recorded an income tax provision of approximately $489,000 and
     a net loss of approximately $368,000 for the year ended December 31, 1997,
     and would have recorded an income tax provision of approximately
     $3,649,000 and net income of $5,971,000 for the year ended December 31,
     1998. Pro forma basic and diluted loss per share would have been $0.01 for
     the year ended December 31, 1997 and pro forma basic and diluted income
     per share would have been $0.18 and $0.15, respectively, for the year
     ended December 31, 1998. See Note 1 to "Notes to Consolidated Financial
     Statements" for the basis of computing pro forma basic and diluted net
     income (loss) per share.
 
                                      S-1

<PAGE>
 
                           MICROSTRATEGY INCORPORATED
 
                    SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
                                 (in thousands)
 

<TABLE>
<CAPTION>
                                                               Year Ended
                                                              December 31,
                                                           --------------------
                                                            1997       1998
                                                           -------  -----------
                                                                    (unaudited)
<S>                                                        <C>      <C>
ASSETS
Current assets:
  Cash and cash equivalents............................... $ 3,506    $27,491
  Accounts receivable, net................................  16,085     33,054
  Prepaid expenses and other current assets...............   1,435      2,198
  Deferred tax asset......................................     --         716
                                                           -------    -------
    Total current assets..................................  21,026     63,459
                                                           -------    -------
Property and equipment, net...............................   6,891     13,773
Other longterm receivables................................     --       2,700
Deposits and other assets.................................   2,148      2,757
                                                           -------    -------
    Total assets.......................................... $30,065    $82,689
                                                           =======    =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and other..............................   9,406     11,470
  Accrued compensation and employee benefits..............   3,633      7,356
  Deferred revenue........................................   8,340     10,732
  Line-of-credit..........................................   4,508        --
  Notes payable, current portion..........................     900        --
  Dividend notes payable..................................     --       5,000
                                                           -------    -------
    Total current liabilities.............................  26,787     34,558
Notes payable, longterm portion...........................   2,658        --
Deferred revenue..........................................   1,047        746
Deferred tax liability....................................      --      1,105
                                                           -------    -------
    Total liabilities.....................................  30,492     36,409
Stockholders' (deficit) equity:
  Preferred stock; $.001 par value; 5,000 shares
   authorized; no shares issued or outstanding............     --         --
  Common stock; $.001 par value; 50,000 shares authorized;
   no and 29,494 shares issued and outstanding,
   respectively...........................................      29        --
  Class A Common Stock; $.001 par value; 100,000 shares
   authorized; 5,053 and no shares issued and outstanding,
   respectively...........................................     --           5
  Class B Common Stock; $.001 par value; 100,000 shares
   authorized; 30,633 and no shares issued and
   outstanding, respectively..............................     --          31
Additional paid-in capital................................      20     42,219
Deferred compensation.....................................     --      (2,098)
Cumulative translation adjustment.........................     158        894
Retained earnings.........................................    (634)     5,229
                                                           -------    -------
    Total Liabilities and Stockholders' Equity............ $30,065    $82,689
                                                           =======    =======
</TABLE>

 
                                      S-2

<PAGE>
 
Mission: Provide Query Tone to the World's Largest Companies


Banking                                       [LOGO OF ROYAL TRUST APPEARS HERE]

    
Royal Trust, a private investment trust and custody subsidiary of the Royal Bank
of Canada, with more than 1 million clients worldwide, is providing one-to-one
marketing services by using a decision support solution based on MicroStrategy's
technology. The integrated one-to-one marketing solution, deployed via the World
Wide Web, enables Royal Trust's marketing and distributed sales forces in its
Wealth Management Divisions to interactively analyze 200 gigabytes of customer
portfolio and market information. Royal Trust believes that the new web-based
DSS solution makes it possible for its personnel to more closely target and
market their products and services to meet client requirements, thereby
increasing customer loyalty and profitability.      

Royal Trust believes that its DSS solution provides users with information that
helps to identify market opportunities, identify the scope of the clients
affected, and communicate with each relationship manager the impact on a
specific portfolio, along with a recommended action. Expected benefits to Royal
Trust may include higher response rates to marketing campaigns, enhanced
customer retention, increased sales force productivity, and faster decision
making capabilities.


Retail                                     [LOGO OF HALLMARK APPEARS HERE]

Hallmark, the multi-billion dollar leader in the greeting card industry, is
getting closer to its customers and making more informed decisions using its
point of sale data warehouse in conjunction with MicroStrategy's DSS technology.
Hallmark is now able to improve decision making for determining assortments,
promotions, advertising, inventory management, pricing, and product development.

Hallmark believes its DSS Solution provides users with reports of actionable
trends by the end of the business day, resulting in cost savings, more efficient
production, and promotion decision processes. Over 200 Hallmark managers and
analysts now have the ability to better understand sales trends and customer
purchase patterns by analyzing 200 gigabytes of transaction-level data and
item-level data on over 40,000 products and 18,000 retail stores. 

Using MicroStrategy's technology to retrieve data from the warehouse, Hallmark
believes that it has reduced product development and merchandising time, enabled
evaluation of promotional programs, reduced in-store testing time, and improved
inventory and planning for individual stores. The application has increased the
efficiency of the decision making process, affecting total product performance,
product selection, and inventory management for individual stores or clusters of
stores.

Pharmaceutical                             [LOGO OF GLAXO WELLCOME APPEARS HERE]

Glaxo Wellcome, a research-based pharmaceutical manufacturer, has developed a
strategic analysis application for its data warehouse that projects product
demand and availability to reduce the risk that life preserving pharmaceutical
products are not available to customers. Glaxo Wellcome believes that its DSS
solution provides analyses of sales, inventory, and prescription data for drugs
manufactured by Glaxo Wellcome by analyzing the distribution cycle of
pharmaceutical drugs, along with historical market data. 

Using MicroStrategy's technology, Glaxo Wellcome can project increased demand,
respond more efficiently to consumer requirements, and maximize the efficiency
of the supply chain. In addition to helping Glaxo Wellcome, Inc. project market
demand for their products, Glaxo Wellcome believes that a number of other
benefits are associated with this business-critical pharmaceutical application.
By improving inventory management, the DSS solution is helping Glaxo Wellcome
streamline the business process, and control expenses. MicroStrategy's products
have also enhanced reporting processes: monthly reports are now fully automated,
can be produced and distributed within hours, are easy to understand, and
provide additional analytical capabilities to users.
    
Telecommunications                           [LOGO OF MCI WORLDCOM APPEARS HERE]

MCI WorldCom, a pioneer of diversified communications and one of the world's
largest long distance providers, needs to provide users with the correct
information in order to operate their businesses in an efficient manner.
MCI WorldCom collects and summarizes information on millions of customers and
billion of calls. The system "Data$martMCI" is growing at the rate of almost
half a terabyte a year. Easy access to this data is the key to the system's
success. It is expected that the system will be handling thousands of queries
every day.

In the near future, MCI WorldCom's Business Markets Finance Unit expects that as
many as 10,000 of its employees will be using a MicroStrategy-built DSS solution
to access several terabytes of data to answer highly detailed questions on every
aspect of its business. Using MicroStrategy's technology, MCI WorldCom's
Business Markets Finance Unit expects that its field sales staff will be able to
review their customers' phone usage patterns, accountants will be able to view
performance trends over time, and financial analysts will be able to more
accurately project the profitability of potential customers. In addition to
projected cost savings, MCI WorldCom's Business Markets Finance Unit believes
that MicroStrategy's products have resulted in significant cost savings during
the project's pilot stage.     

Query Tone represents the ability, where appropriate, of any user to receive the
answer to any question, any time, anywhere from the proper data warehouse.

                     [LOGO OF MICROSTRATEGY(R) APPEARS HERE]

                        [GRAPHIC ARTWORK APPEARS HERE]


<TABLE> 
<CAPTION> 

Data Warehouse     Department          Enterprise               Supply/Chain               Commercial            Consumer
                                                                                                                                  
                   Department          Enterprise Data                                                                            
                   Data Mart/DSS       Warehouse/DSS            Supply Chain DSS           Commercial DSS        Consumer DSS     
<S>                <C>                 <C>                      <C>                        <C>                   <C>               
Typical User       VP of Marketing     Regional Sales Manager   Vendor Account Executive   Small Business Owner  Mom              
                                                                                                                                  
Typical            How effective was   Which are the bottom     Which items had more       Where are my new      My child needs 
Question           last week's $10     10 stores by sales?      than 3 stock-outs          customers coming      surgery, which 
                   million promotion   Show me unprofitable     during the last year       from? How loyal are   hospital, doctor,
                   campaign?           departments within       for my largest             they? What are their  HMO should I use?
                                       each.                    customer?                  demographic &         How does our bank
                                                                                           psychographic         account fluctuate
                                                                                           profiles?             during December?
Potential                                                                                                                        
                                                                                                                                 
Users per                                                                                                                        
Database*          50 - 500            500 - 5,000              50,000                     500,000               5,000,000
                                                                                                                                 
Global Users*      5,000,000           50,000,000               100,000,000                250,000,000           1,000,000,000
</TABLE>
 

*The above potential user counts are for illustrative purposes only and do not
                    represent actual market size estimates.

<PAGE>
 
                                                     VICTORIA'S
Apparel                                                SECRET  

Victoria's Secret Stores, a leading provider of women's lingerie and
accessories, developed a data warehouse and intranet application to streamline
its supply chain and maintain optimal inventory per store. The data warehouse
contains detailed sales and inventory information for each item in each store
for three seasons, which amounts to approximately 150 gigabytes of data. Using
MicroStrategy's technology, Victoria's Secret Stores is able to deliver a set of
merchandising best practices to hundreds of its merchandisers, individual store
managers, and associates, providing them with a consistent methodology to follow
when making decisions about product pricing, promotion, and inventory. 
    
This DSS solution enables Victoria's Secret Stores to provide its customers with
an optional selection of styles, colors and size combinations at its shops--with
little or no increase in inventory costs. Victoria's Secret Stores estimates
that it has the potential to significantly reduce markdown expenses by varying
promotions and allocating inventory based on the geographic buying patterns it
has found through the MicroStrategy-based application.      

Healthcare                                       [LOGO OF PREMIER APPEARS HERE]

Premier Inc., the largest hospital alliance in the United States, is using
MicroStrategy's DSS technology to enable its 1,800 member hospitals to make more
cost-effective decisions and improve market position. Market Vantage, an
innovative Query Tone application for healthcare, provides subscribers with
information from the National Database of all Medicare Discharges and All-Payor
Data from 28 states, which in the aggregate contain more than 11 million records
in a 50-gigabyte data warehouse. Member hospitals subscribe to Market Vantage to
evaluate hospital efficiency, market share, quality of care, patient
demographics, physician profiles, and a variety of competitive positioning
questions. 

Premier believes that it will generate substantial revenue by commercializing
its data. By offering services that project the future volume of procedures
required by certain communities, Premier is able to more accurately identify the
long-term cost savings and value associated with mergers of community hospitals.
Premier also provides hospitals with assessments that pinpoint opportunities for
cost reduction. Using MicroStrategy's technology, Premier believes that it will
make a positive impact in the healthcare industry by providing hospitals with
the information they require to determine procedures that can be performed at a
lower cost without sacrificing the quality of care.

Manufacturing/Industrial      [Logo of Lexmark Appears Here]

Lexmark International, a global developer, manufacturer and supplier of printing
solutions and products, has implemented a MicroStrategy-based Retail Management 
System application that provides reliable, accurate, and timely information on 
sales performance and inventory levels.  Lexmark leverages this business 
information to strengthen its strategic planning and decision-making processes
and improve the data flow between Lexmark and the thousands of retail partner
outlets that carry and sell its products.

Using MicroStrategy's DSS technology, Lexmark buyers, financial analysts, 
marketing analysts, regional managers, merchandisers, and field sales 
representatives worldwide may now analyze sales and inventory data in a timely 
manner.  With quick and easy access to this information, Lexmark has identified 
sales opportunities, cut operating costs, improved supply chain management, and 
increased profitability.  For example, merchandisers are able to effectively 
manage inventory levels at any given retail outlet, eliminating some of the 
costs associated with having excess inventory or insufficient product to meet 
demand.  Furthermore, sales representatives can now obtain a clear 
understanding of consumer demand, determine how well their particular region is 
performing, and identify the most or least popular selling Lexmark item. 

Media/Market Research                        [LOGO OF ESPN/CHILTON APPEARS HERE]

ESPN, the leading cable television sports network, and Chilton Research
Services, one of America's top market research and consulting firms, have formed
a joint venture to offer Sports Poll Interactive, the first web-based data
warehouse subscription service for sports marketers. Powered by MicroStrategy's
DSS Web, Sports Poll Interactive guides major marketing decisions by allowing
advertisers, event sponsors, media outlets, and sports associations to purchase
information on the behaviors, perceptions, interests, and demographics of sports
fans across the United States. 

ESPN/CHILTON believes that this powerful e-commerce solution will enable it to
increase the number of organizations it can serve, significantly reduce the need
for ESPN/CHILTON to hire additional staff to field customer requests and reduce
printing and distribution costs associated with using paper reports. For
example, for the first time companies can log onto the Internet to gauge whether
hockey is more popular than baseball in Los Angeles and which pro athlete it
should secure to endorse its next product. This Query Tone application enables
organizations to make more effective marketing and organizational decisions.

Information Like Water(TM)

<PAGE>
 
MicroStrategy's Services


<TABLE> 
<CAPTION> 
        FINANCE   HEALTH CARE   RETAIL   TELCO   MEDIA   MANUFACTURING


          Data Warehouse/Decision Support Best Practices Methodology

        ===============================================================

                           MicroStrategy University

                DSS Training     DSS Consulting    DSS Support

<S>          <C>          <C>               <C>            <C>            <C>            <C>             <C>         <C> 
Off-Site     On-Site          Partner        Production       Sales         Channels         Field         Tele          VTG
Training     Training      Certification     Consulting     Consulting     Consulting     Engineering     Support     Technologies
</TABLE>
 

Knowledge Transfer                   Implementation                  Maintenance


DSS Training includes classes for beginner, intermediate, and advanced DSS
users, DSS developers, and Data Warehouse modelers. These classes are taught at
many fixed locations throughout the US and Europe, as well as on customer sites.
For our Channel Partners, we also offer Certification Courses which are more
challenging and empowering. Thousands of DSS professionals have attended these
classes, which range in duration from one day to three weeks.


DSS Consulting includes one group dedicated to helping our customers achieve
production success with their DSS applications, another group focused upon sales
support, prototyping, and pilot applications development, and a third group that
is especially dedicated to helping our VAR and SI partners overcome those
challenges unique to building and deploying successful industry specific DSS
applications. MicroStrategy consulting provides the expertise necessary to
support all major phases of the Data Warehouse and Decision Support lifecycle.


DSS Support consists of traditional telephone support services, augmented by
field engineers able to travel onsite on less than one day's notice, as well as
relational database specific, very large database experts capable of working
directly with either customers or platform vendors to optimize the performance
of key high-end configurations. MicroStrategy support engineers undergo the same
rigorous training that is required of consultants who work in the field. Their
expertise allows us to offer the mission critical support and deployment
security that is expected by the world's largest organizations.
    
MicroStrategy University consists of compulsory "bootcamps" for most Technical
(6 weeks) and Sales & Marketing (4 weeks) professionals. These are followed by
continuing professional development courses for veteran employees (at least 2
weeks/year).    

For one week each year, the firm is converted into the world's largest DSS/DW
campus, with dozens of courses being taught to 85% of the firm's employees by
the most experienced 5% of our professional staff. This annual exercise results
in the creation of thousands of pages of fresh, recently updated courseware
(Expert Content) on topics such as Vertical Applications, DW Modeling & Tuning
Methods, Optimization Strategies for Various RDBMS Platforms, DSS Design
Techniques, Consulting, and Methodology. This Expert Content is then used to
upgrade & revitalize our operational Education, Consulting, and Support
programs.
    
MicroStrategy draws Data Warehouse / Decision Support Best Practice Methodology
from its first hand experience implementing large-scale DW projects across all
major RDBMS platforms and industries. These engagements provide invaluable
primary knowledge of the current state of DSS technology. With in-excess-of 650
customers across data rich industries such as finance, health care, retail,
telecommunications, media, and manufacturing, we have had the opportunity to
gather "real world" knowledge that is nearly impossible to duplicate in a
laboratory.      

[LOGO OF MICROSTRATEGY APPEARS HERE]

<PAGE>
 

 
                                   PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 

Item 13. Other Expenses Of Issuance And Distribution
 
      The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Class A Common Stock being registered hereby. All of the
amounts shown are estimates except for the Commission registration fee, NASD
filing fee, and Nasdaq National Market Listing Fees.
 

<TABLE>
     <S>                                                               <C>
     Commission Registration Fee...................................... $ 39,324
     NASD Filing Fee..................................................   14,645
     Nasdaq National Market Listing Fees..............................   17,500
     Accounting Fees and Expenses.....................................  100,000
     Blue Sky Fees and Expenses.......................................    5,000
     Legal Fees and Expenses..........................................  200,000
     Printing and Engraving Expenses..................................  200,000
     Transfer Agent Fees..............................................    5,000
     Miscellaneous Expenses...........................................   18,531
                                                                       --------
        Total......................................................... $600,000
                                                                       ========
</TABLE>

 

Item 14. Indemnification Of Directors And Officers
 
      Section 145 of the General Corporation Law of the State of Delaware
("Section 145") permits a Delaware corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of
the corporation) by reason of the fact that such person is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by such person in
connection with such action, suit, or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful.
 
      In the case of an action by or in the right of the corporation, Section
145 permits the corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that such person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner such person reasonably believed to be in
or not opposed to the best interest of the corporation. No indemnification may
be made in respect of any claim, issue, or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
 
      To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in the preceding two paragraphs, Section
145 requires that such person be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
 
                                      II-1

<PAGE>
 
      Section 145 provides that expenses (including attorneys' fees) incurred
by an officer or director in defending any civil, criminal, administrative, or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in Section 145.
 
      The Company's Certificate provides that an officer or director of the
Company will not be personally liable to the Company 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 DGCL. The
provision has no effect on any non-monetary remedies that may be available to
the Company or its stockholders, nor does it relieve the Company or its
officers or directors from compliance with federal or state securities laws.
The Certificate also generally provides that the Company 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 (each, a
"Proceeding") by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company 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 the Company if (1) 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 Company, or (2) with respect to any
criminal action or proceeding, the officer or director had reasonable cause to
believe his conduct was unlawful.
   
      The Underwriting Agreement previously filed as Exhibit 1.1 provides for
indemnification of the directors, certain officers and controlling persons of
the Company by the Underwriters against certain civil liabilities, including
liabilities under the Securities Act.     
 

Item 15. Recent Sales Of Unregistered Securities
 
      The following transactions reflect the issuance during the previous three
years of securities not registered under the Securities Act:
 
      1. At various times during the period from March 31, 1996 through June
10, 1998, the Company has granted to employees and directors options to
purchase an aggregate of 5,998,603 shares of Common Stock with exercise prices
ranging from $0.50 to $12.00.
 
      2. On February 28, 1995, the Company issued 1,327,224.32 shares of Common
Stock for an aggregate purchase price of $142,152.75 to four employees of the
Company. The purchase price for the Common Stock was to be paid in four cash
installments, the first due on the date of issuance and the remaining payments
due on December 31 of each year over the next three-year period.
 
      3. On March 23, 1995, the Company issued 294,938.72 shares of the Common
Stock for a purchase price of $31,589.50 to an employee of the Company. The
purchase price for the Common Stock was to be paid in four cash installments,
the first due on the date of issuance and the remaining payments due on
December 31 of each year over the next three-year period.
 
      4. On March 29, 1995, the Company issued 44,240.80 shares of the Common
Stock for a purchase price of $4,738.42 to an employee of the Company. The
purchase price for the Common Stock was to be paid in four cash installments,
the first due on the date of issuance and the remaining payments due on
December 31 of each year over the next three-year period.
 
      5. On January 10, 1996, the Company issued 147,469.44 shares of the
Common Stock for a purchase price of $15,794.75 to an employee of the Company.
The purchase price for the Common Stock was to be paid in three cash
installments, the first due on the date of issuance and the remaining payments
due on December 31 of each year over the next two-year period.
 
                                      II-2

<PAGE>
 
      6. Effective January 1, 1998, the Company issued a total of 1,401,641
shares of Common Stock to Messrs. Saylor and Bansal in exchange for their
interests in certain of the Company's international subsidiaries.
 
      All of the shares of Common Stock described in paragraphs 2 through 6
above were changed and converted into shares of Class A Common Stock and
exchanged for an identical number of shares of Class B Common Stock prior to
consummation of the initial public offering. The issuances of the securities
described above were made in reliance on one or more of the exemptions from
registration under the Securities Act, including those provided for by Section
4(2) and Rule 701 thereunder. The purchasers of these securities represented
that they had adequate access, through their employment with the Company, to
information about the Company.
 

Item 16. Exhibits And Financial Statement Schedules
 
      (a)Exhibits
 

<TABLE>   
<CAPTION>
 Exhibit
 Number  Description
 ------- -----------
 <C>     <S>
   1.1   Form of Underwriting Agreement.
   3.1   Certificate of Incorporation, as amended, of the Company.**
   3.2   Bylaws of the Company.**
   4.1   Form of Certificate of Class A Common Stock of the Company.**
   5.1   Opinion of Latham & Watkins.
  10.1   Stock Purchase Agreement dated September 8, 1991 between the Company
         and Sanju K. Bansal.**
  10.2   Stock Purchase Agreement dated October 11, 1992 between the Company
         and Charles A. Veley.**
  10.3   Stock Purchase Agreement dated February 28, 1995 between the Company
         and Eduardo S. Sanchez.**
  10.4   Stock Purchase Agreement dated February 28, 1995 between the Company
         and Stephen S. Trundle.**
  10.5   1996 Stock Plan (as amended) of the Company.***
  10.6   1997 Director Option Plan of the Company.**
  10.7   Standard Office Lease between Tycon Tower I Investment Limited
         Partnership and the Company dated May 30, 1997.**
  10.8   Sublease Agreement between Capital One Services, Inc. and the Company
         dated August 28, 1997.**
         Sublease between Arthur Andersen LLP and the Company dated June 6,
  10.9   1996.**
         Sublease between Landmark Systems Corporation and the Company dated
 10.10   July 28, 1994.**
 10.11   Business Loan/Security Agreement between the Company and NationsBank,
         N.A., dated December 10, 1996.**
 10.12   Modification of Business Loan/Security Agreement between the Company
         and NationsBank, N.A. dated November 20, 1997.**
 10.13   Lease Agreement between Prentiss Properties Acquisition Partners, L.P.
         and the Company dated August 14, 1998.****
 10.14   Modification of Business Loan/Security Agreement between the Company
         and NationsBank, N.A. dated September 25, 1998.*
 10.15   Commitment Letter to the Company from NationsBank, N.A. dated January
         29, 1999.*
  21.1   Subsidiaries of the Company.**
  23.1   Consent of PricewaterhouseCoopers LLP.
</TABLE>
    
 
 
                                      II-3

<PAGE>
 

<TABLE>   
<CAPTION>
 Exhibit
 Number  Description
 ------- -----------
 <C>     <S>
 23.2    Consent of Latham & Watkins (included in Exhibit 5.1).
 24.1    Power of Attorney.*
 27.1    Financial Data Schedule.*
</TABLE>
    
 
- --------
    * Previously filed and unchanged.
   
   ** Filed as the identically numbered exhibit with the Company's Registration
      Statement on Form S-1 (Registration No. 333-49899) and incorporated by
      reference herein.     
          
  *** Filed as Exhibit 10.1 with the Company's Quarterly Report on Form 10-Q
      for the quarter ended September 30, 1998 (File No. 000-24435), and
      incorporated by reference herein.     
   
 **** Filed as Exhibit 10.2 with the Company's Quarterly Report on Form 10-Q
      for the quarter ended September 30, 1998 (File No. 000-24435), and
      incorporated by reference herein.     
 
      (b)Financial Statement Schedules
 
      The following schedule to the Financial Statements of the Company and its
subsidiaries is included in this Registration Statement:
 

<TABLE>
<CAPTION>
     Schedule   Description
     --------   -----------
     <S>        <C>
        I       Valuation and Qualifying Accounts and Reserves
</TABLE>

 

Item 17. Undertakings
 
      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 foregoing provisions, 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.
 
      The undersigned Registrant hereby undertakes that:
 
      (1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
 
      (2) For the purpose 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 new securities at that time shall be deemed
to be the initial bona fide offering thereof.
 
                                      II-4

<PAGE>
 

                                   SIGNATURES
   
      Pursuant to the requirements of the Securities Act of 1933, as amended,
MicroStrategy Incorporated has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Vienna,
Virginia on February 10, 1999.     
 
                                           MicroStrategy Incorporated
 
                                                       /s/ Mark S. Lynch
                                              By: -----------------------------
                                                         Mark S. Lynch
                                                  Vice President, Finance and
                                                    Chief Financial Officer
   
      Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.     
 
             Name                           Title                    Date
 
              *                 Chairman of the Board, Chief        
- ------------------------------   Executive Officer and           February 10,
      Michael J. Saylor          President (Principal Executive   1999     
                                 Officer)
 
              *                 Executive Vice President, Chief     
- ------------------------------   Operating Officer and Director  February 10,
       Sanju K. Bansal                                            1999     
 
      /s/ Mark S. Lynch         Vice President, Finance and         
- ------------------------------   Chief Financial Officer         February 10,
        Mark S. Lynch            (Principal Financial and         1999     
                                 Accounting Officer)
 
              *                 Director                            
- ------------------------------                                   February 10,
       Frank A. Ingari                                            1999     
 
              *                 Director                            
- ------------------------------                                   February 10,
      Ralph S. Terkowitz                                          1999     
 
              *                 Director                            
- ------------------------------                                   February 10,
     Jonathan J. Ledecky                                          1999     
 
* By: /s/ Mark S. Lynch
  -------------------------
        Mark S. Lynch
       Attorney-in-Fact
 
                                      II-5

<PAGE>
 

                               INDEX TO EXHIBITS
 

<TABLE>   
<CAPTION>
 Exhibit
 Number  Description                                                       Page
 ------- -----------                                                       ----
 <C>     <S>                                                               <C>
   1.1   Form of Underwriting Agreement.
   3.1   Certificate of Incorporation, as amended, of the Company.**
   3.2   Bylaws of the Company.**
   4.1   Form of Certificate of Class A Common Stock of the Company.**
   5.1   Opinion of Latham & Watkins.
  10.1   Stock Purchase Agreement dated September 8, 1991 between the
         Company and Sanju K. Bansal.**
  10.2   Stock Purchase Agreement dated October 11, 1992 between the
         Company and Charles A. Veley.**
  10.3   Stock Purchase Agreement dated February 28, 1995 between the
         Company and Eduardo S. Sanchez.**
  10.4   Stock Purchase Agreement dated February 28, 1995 between the
         Company and Stephen S. Trundle.**
  10.5   1996 Stock Plan (as amended) of the Company.***
  10.6   1997 Director Option Plan of the Company.**
  10.7   Standard Office Lease between Tycon Tower I Investment Limited
         Partnership and the Company dated May 30, 1997.**
  10.8   Sublease Agreement between Capital One Services, Inc. and the
         Company dated August 28, 1997.**
         Sublease between Arthur Andersen LLP and the Company dated June
  10.9   6, 1996.**
 10.10   Sublease between Landmark Systems Corporation and the Company
         dated July 28, 1994.**
 10.11   Business Loan/Security Agreement between the Company and
         NationsBank, N.A., dated December 10, 1996.**
 10.12   Modification of Business Loan/Security Agreement between the
         Company and NationsBank, N.A. dated November 20, 1997.**
 10.13   Lease Agreement between Prentiss Properties Acquisition
         Partners, L.P. and the Company dated August 14, 1998.****
 10.14   Modification of Business Loan/Security Agreement between the
         Company and NationsBank, N.A. dated September 25, 1998.*
 10.15   Commitment Letter to the Company from NationsBank, N.A. dated
         January 29, 1999.*
  21.1   Subsidiaries of the Company.**
  23.1   Consent of PricewaterhouseCoopers LLP.
  23.2   Consent of Latham & Watkins (included in Exhibit 5.1).
  24.1   Power of Attorney.*
  27.1   Financial Data Schedule.*
</TABLE>
    
- --------
    * Previously filed and unchanged.
   ** Filed as the identically numbered exhibit with the Company's Registration
      Statement on Form S-1 (Registration No. 333-49899) and incorporated by
      reference herein.
          
  *** Filed as Exhibit 10.1 with the Company's Quarterly Report on Form 10-Q
      for the quarter ended September 30, 1998 (File No. 000-24435), and
      incorporated by reference herein.     
   
 **** Filed as Exhibit 10.2 with the Company's Quarterly Report on Form 10-Q
      for the quarter ended September 30, 1998 (File No. 000-24435), and
      incorporated by reference herein.     





<PAGE>
 
                                                                     Exhibit 1.1
================================================================================




                          MICROSTRATEGY INCORPORATED
                           (a Delaware corporation)


                   2,000,000 Shares of Class A Common Stock



                              PURCHASE AGREEMENT
                              ------------------



Dated:  February 10, 1999


================================================================================

<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
 
 
<S>                                                                                                  <C> 
    SECTION 1. Representations and Warranties.......................................................   3
               ------------------------------
          (a)  Representations and Warranties by the Company........................................   3
               (i)    Compliance with Registration Requirements.....................................   3
                      -----------------------------------------
               (ii)   Independent Accountants.......................................................   4
                      -----------------------
               (iii)  Financial Statements..........................................................   4
                      --------------------
               (iv)   No Material Adverse Change in Business........................................   4
                      --------------------------------------
               (v)    Good Standing of the Company..................................................   4
                      ----------------------------
               (vi)   Good Standing of Subsidiaries.................................................   5
                      -----------------------------
               (vii)  Capitalization................................................................   5
                      --------------
               (viii) Authorization of Agreement....................................................   5
                      --------------------------
               (ix)   Authorization and Description of Securities...................................   6
                      -------------------------------------------
               (x)    Absence of Defaults and Conflicts.............................................   6
                      ---------------------------------
               (xi)   Absence of Labor Dispute......................................................   6
                      ------------------------
               (xii)  Absence of Proceedings........................................................   7
                      ----------------------
               (xiii) Accuracy of Exhibits..........................................................   7
                      --------------------
               (xiv)  Possession of Intellectual Property...........................................   7
                      -----------------------------------
               (xv)   Absence of Further Requirements...............................................   7
                      -------------------------------
               (xvi)  Possession of Licenses and Permits............................................   8
                      ----------------------------------
               (xvii) Title to Property.............................................................   8
                      -----------------
               (xviii)Compliance with Cuba Act......................................................   8
                      ------------------------
               (xix)  Investment Company Act........................................................   8
                      ----------------------
               (xx)   Environmental Laws............................................................   9
                      ------------------
               (xxi)  Registration Rights...........................................................   9
                      -------------------
               (xxii) Securities Exchange Act of 1934...............................................   9
                      -------------------------------
          (b)  Representations and Warranties by and Covenants of the Selling Stockholders..........   9
               (i)    Authorization of Agreements...................................................  10
                      ---------------------------
               (ii)   Good and Marketable Title.....................................................  10
                      -------------------------
               (iii)  Due Execution of Power of
 Attorney and Custody Agreement......................  10
                      --------------------------------------------------------
               (iv)   Absence of Manipulation.......................................................  11
                      -----------------------
               (v)    Absence of Further Requirements...............................................  11
                      -------------------------------
               (vi)   Restriction on Sale of Securities.............................................  11
                      ---------------------------------
               (vii)  Certificates Suitable for Transfer............................................  11
                      ----------------------------------
               (viii) No Association with NASD......................................................  12
                      ------------------------
          (c)  Representations and Warranties by the Principal Selling Stockholders.................  12
          (d)  Representations and Warranties by certain Selling Stockholders.......................  12
          (e)  Officer's Certificates...............................................................  12
</TABLE>
 
 
                                       i

<PAGE>

<TABLE> 
<S>                                                                                          <C>     
     SECTION 2. Sale and Delivery to Underwriters; Closing..................................  12
                ------------------------------------------
          (a) Initial Securities............................................................  13
          (b) Option Securities.............................................................  13
          (c) Payment.......................................................................  13
          (d) Denominations; Registration...................................................  14
 
     SECTION 3. Covenants of the Company....................................................  14
                ------------------------
          (a) Compliance with Securities Regulations and Commission Requests................  14
          (b) Filing of Amendments..........................................................  15
          (c) Delivery of Registration Statements...........................................  15
          (d) Delivery of Prospectuses......................................................  15
          (e) Continued Compliance with Securities Laws.....................................  15
          (f) Blue Sky Qualifications.......................................................  16
          (g) Rule 158......................................................................  16
          (h) Use of Proceeds...............................................................  16
          (i) Listing.......................................................................  16
          (j) Restriction on Sale of Securities.............................................  17
          (k) Reporting Requirements........................................................  17
          (l) Compliance with Rule 463......................................................  17
 
     SECTION 4. Payment of Expenses.........................................................  17
                -------------------
          (a) Expenses......................................................................  17
          (b) Termination of Agreement......................................................  18
          (c) Allocation of Expenses........................................................  18
 
     SECTION 5. Conditions of Underwriters' Obligations.....................................  18
                ---------------------------------------
          (a) Effectiveness of Registration Statement.......................................  18
          (b) Opinion of Counsel for Company................................................  18
          (c) Opinion of Counsel for the Selling Stockholders...............................  19
          (d) Opinion of Counsel for Underwriters...........................................  19
          (e) Officers' Certificate.........................................................  19
          (f) Accountant's Comfort Letter...................................................  19
          (g) Certificate of Selling Stockholders...........................................  19
          (h) Bring-down Comfort Letter.....................................................  20
          (i) Approval of Listing...........................................................  20
          (j) No Objection..................................................................  20
          (k) Lock-up Agreements............................................................  20
          (l) Conditions to Purchase of Option Securities...................................  20
                 (i)   Officers' Certificate................................................  20
                       ---------------------
                 (ii)  Opinion of Counsel for Company.......................................  20
                       ------------------------------
                 (iii) Opinion of Counsel for Alcantara LLC.................................  20
                       ------------------------------------
                 (iv)  Opinion of Counsel for Underwriters..................................  21
                       -----------------------------------
                 (v)   Bring-down Comfort Letter............................................  21
                       -------------------------
          (m) Additional Documents..........................................................  21
          (n) Termination of Agreement......................................................  21
</TABLE>
 
 
                                      ii

<PAGE>

<TABLE> 
<S>                                                                                           <C> 
     SECTION 6. Indemnification..............................................................  21
                ---------------
          (a)  Indemnification of Underwriters by Company and Principal 
               Selling Stockholders..........................................................  21
          (b)  Indemnification of Underwriters by certain Selling Stockholders...............  23
          (c)  Indemnification of Company, Directors and Officers, and 
               Selling Stockholders..........................................................  24
          (d)  Actions against Parties; Notification.........................................  24
          (e)  Settlement without Consent if Failure to Reimburse............................  25
          (f)  Other Agreements with Respect to Indemnification..............................  25
 
     SECTION 7. Contribution.................................................................  25
                ------------
 
     SECTION 8. Representations, Warranties and Agreements to Survive Delivery................  27
                --------------------------------------------------------------
                
     SECTION 9. Termination of Agreement......................................................  27
                ------------------------
          (a) Termination; General............................................................  27
          (b) Liabilities.....................................................................  27
 
     SECTION 10. Default by One or More of the Underwriters...................................  27
                 ------------------------------------------
                 
     SECTION 11. Default by the Company or one or more of the Selling Stockholders............  28
                 -----------------------------------------------------------------
                 
     SECTION 12. Notices......................................................................  29
                 -------
                 
     SECTION 13. Parties......................................................................  29
                 -------
                 
     SECTION 14. Governing Law And Time.......................................................  29
                 ----------------------
                 
     SECTION 15. Effect of Headings...........................................................  30
                 ------------------
 
SCHEDULE A....................................................................................  32
 
SCHEDULE B....................................................................................  33
 
SCHEDULE C....................................................................................  34
 
SCHEDULE D....................................................................................  35
</TABLE>
 
 

                                      iii

<PAGE>
 
                          MICROSTRATEGY INCORPORATED

                           (a Delaware corporation)

                   2,000,000 Shares of Class A Common Stock

                          (Par Value $.001 Per Share)

                              PURCHASE AGREEMENT
                              ------------------

                                                            February 10, 1999

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
     Incorporated
HAMBRECHT & QUIST LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
 as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
     Merrill Lynch, Pierce, Fenner & Smith
     Incorporated
North Tower
World Financial Center
New York, New York  10281-1209

Ladies and Gentlemen:

     MicroStrategy Incorporated, a Delaware corporation (the "Company") and the
stockholders of the Company named in Schedule D hereto (the "Selling
Stockholders") confirm their agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other
Underwriters named in Schedule A hereto (collectively, the "Underwriters"),
which term shall also include any underwriter substituted as hereinafter
provided in Section 10 hereof), for whom Merrill Lynch, Hambrecht & Quist LLC
and Friedman, Billings, Ramsey & Co., Inc. are acting as representatives (in
such capacity, the "Representatives"), with respect to (i) the sale by the
Company and the Selling Stockholders, acting severally and not jointly, and the
purchase by the Underwriters, acting severally and not jointly, of the
respective shares of Class A Common Stock, par value $.001 per share, of the
Company ("Class A Common Stock") set forth in Schedule A, and (ii) the grant by
Alcantara LLC to the Underwriters, acting severally and not jointly, of the
option described in Section 2(b) hereof to purchase all or any part of 300,000
additional shares of Class A Common Stock to cover over-allotments, if any.  The
aforesaid 2,000,000 shares of 

<PAGE>
 
Class A Common Stock (the "Initial Securities") to be purchased by the
Underwriters and all or any part of the 300,000 shares of Class A Common Stock
subject to the option described in Section 2(b) hereof (the "Option Securities")
are hereinafter called, collectively, the "Securities."

     The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.

     The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-70919) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b).
The information included in such prospectus or in such Term Sheet, as the case
may be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information."

     Each prospectus used before such registration statement became effective,
and any prospectus that omitted, as applicable, the Rule 430A Information or the
Rule 434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus."  Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus in
the form first furnished to the Underwriters for use in connection with the
offering of the Securities is herein called the "Prospectus." If Rule 434 is
relied on, the term "Prospectus" shall refer to the preliminary prospectus dated
January 28, 1999 together with the Term Sheet and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
For purposes of this Agreement, all references to the Registration Statement,
any preliminary prospectus, the Prospectus or any Term Sheet or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").

                                       3

<PAGE>
 
     SECTION 1.  Representations and Warranties.
                 ------------------------------ 

     (a)  Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter as
follows:

          (i)  Compliance with Registration Requirements. Each of the
               -----------------------------------------               
     Registration Statement and any Rule 462(b) Registration Statement has
     become effective under the 1933 Act and no stop order suspending the
     effectiveness of the Registration Statement or any Rule 462(b) Registration
     Statement has been issued under the 1933 Act and no proceedings for that
     purpose have been instituted or are pending or, to the knowledge of the
     Company, are contemplated by the Commission, and any request on the part of
     the Commission for additional information has been complied with.

          At the respective times the Registration Statement, any Rule 462(b)
     Registration Statement and any post-effective amendments thereto became
     effective and at the Closing Time (and, if any Option Securities are
     purchased, at the Date of Delivery), the Registration Statement, the Rule
     462(b) Registration Statement and any amendments and supplements thereto
     complied and will comply in all material respects with the requirements of
     the 1933 Act and the 1933 Act Regulations, and did not and will not contain
     an untrue statement of a material fact or omit to state a material fact
     required to be stated therein or necessary to make the statements therein
     not misleading.   Neither the Prospectus nor any amendments or supplements
     thereto, at the time the Prospectus or any such amendment or supplement was
     issued and at the Closing Time (and, if any Option Securities are
     purchased, at the Date of Delivery), included or will include an untrue
     statement of a material fact or omitted or will omit to state a material
     fact necessary in order to make the statements therein, in the light of the
     circumstances under which they were made, not misleading. If Rule 434 is
     used, the Company will comply with the requirements of Rule 434 and the
     Prospectus shall not be "materially different", as such term is used in
     Rule 434 from the prospectus included in the Registration Statement at the
     time it became effective. The representations and warranties in this
     subsection shall not apply to statements in or omissions from the
     Registration Statement or Prospectus made in reliance upon and in
     conformity with information furnished to the Company in writing by any
     Underwriter through Merrill Lynch expressly for use in the Registration
     Statement or Prospectus.

          Each preliminary prospectus and the prospectus filed as part of the
     Registration Statement as originally filed or as part of any amendment
     thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
     filed in all material respects with the 1933) Act Regulations and each
     preliminary prospectus and the Prospectus delivered to the Underwriters for
     use in connection with this offering were identical to the electronically
     transmitted copies thereof filed with the Commission pursuant to EDGAR,
     except to the extent permitted by Regulation S-T.


                                       4

<PAGE>
 
          (ii)  Independent Accountants.   The accountants who certified the
                -----------------------                                     
     financial statements and supporting schedules included in the Registration
     Statement are independent public accountants as required by the 1933 Act
     and the 1933 Act Regulations.

          (iii)  Financial Statements.   The financial statements included in
                 --------------------                                        
     the Registration Statement and the Prospectus, together with the related
     schedules and notes, present fairly the financial position of the Company
     and its consolidated subsidiaries at the dates indicated and the statement
     of operations, stockholders' equity and cash flows of the Company and its
     consolidated subsidiaries for the periods specified; said financial
     statements have been prepared in conformity with generally accepted
     accounting principles ("GAAP") applied on a consistent basis throughout the
     periods involved; except, in the case of interim financial statements, for
     the absence of complete footnote disclosure and customary year end
     adjustments. The selected financial data and the summary financial
     information included in the Prospectus present fairly the information shown
     therein and have been compiled on a basis consistent with that of the
     audited financial statements included in the Registration Statement.  The
     pro forma financial information included in the Registration Statement and
     the Prospectus present fairly the information shown therein, have been
     prepared in accordance with the Commission's rules and guidelines with
     respect to pro forma financial statements and have been properly compiled
     on the bases described therein, and the assumptions used in the preparation
     thereof are reasonable and the adjustments used therein are appropriate to
     give effect to the transactions and circumstances referred to therein.

          (iv)  No Material Adverse Change in Business.   Since the respective
                --------------------------------------                        
     dates as of which information is given in the Registration Statement and
     the Prospectus, except as otherwise stated therein, (A) there has been no
     material adverse change in the condition, financial or otherwise, or in the
     earnings, business affairs or business prospects, of the Company and its
     subsidiaries considered as one enterprise, whether or not arising in the
     ordinary course of business (a "Material Adverse Effect"), (B) there have
     been no transactions entered into by the Company or any of its
     subsidiaries, other than those in the ordinary course of business, which
     are material with respect to the Company and its subsidiaries considered as
     one enterprise, and (C) there has been no dividend or distribution of any
     kind declared, paid or made by the Company on any class of its capital
     stock.

          (v)  Good Standing of the Company.   The Company has been duly
               ----------------------------                             
     organized and is validly existing as a corporation in good standing under
     the laws of the State of Delaware, and has corporate power and authority to
     own, lease and operate its properties and to conduct its business as
     described in the Prospectus and to enter into 

                                       5

<PAGE>
 
     and perform its obligations under this Agreement; and the Company is duly
     qualified as a foreign corporation to transact business and is in good
     standing in each other jurisdiction in which such qualification is
     required, whether by reason of the ownership or leasing of property or the
     conduct of business, except where the failure so to qualify or to be in
     good standing would not result in a Material Adverse Effect.

          (vi)  Good Standing of Subsidiaries  .  Each subsidiary of the Company
                -----------------------------                                   
     (each a "Subsidiary" and, collectively, the "Subsidiaries") has been duly
     organized and is validly existing as a corporation in good standing under
     the laws of the jurisdiction of its incorporation, has corporate power and
     authority to own, lease and operate its properties and to conduct its
     business as described in the Prospectus and is duly qualified as a foreign
     corporation to transact business and is in good standing in each
     jurisdiction in which such qualification is required, whether by reason of
     the ownership or leasing of property or the conduct of business, except
     where the failure so to qualify or to be in good standing would not result
     in a Material Adverse Effect; except as otherwise disclosed in the
     Registration Statement, all of the issued and outstanding capital stock of
     each such Subsidiary has been duly authorized and validly issued, is fully
     paid and non-assessable and is owned by the Company, directly or through
     subsidiaries, free and clear of any security interest, mortgage, pledge,
     lien, encumbrance, claim or equity; none of the outstanding shares of
     capital stock of any Subsidiary was issued in violation of the preemptive
     or similar rights of any securityholder of such Subsidiary.  The only
     subsidiaries of the Company are the subsidiaries listed on Exhibit 21.1 to
     the Registration Statement.

          (vii)  Capitalization.   The authorized, issued and outstanding
                 --------------                                          
     capital stock of the Company at September 30, 1998 is as set forth in the
     Prospectus in the column entitled "Actual" under the caption
     "Capitalization."  Except for issuances of Class A Common Stock subsequent
     to September 30, 1998 pursuant to the conversion of shares of Class B
     Common Stock, par value $.001 per share (the "Class B Common Stock") into
     shares of Class A Common Stock, pursuant to purchases under the employee
     stock purchase plan described in the Prospectus and pursuant to the
     exercise of employee and director options to purchase shares of Class A
     Common Stock under the stock option plans described in the Prospectus, no
     shares of the Company's capital stock have been issued since September 30,
     1998.  The shares of issued and outstanding capital stock of the Company
     have been duly authorized and validly issued and are fully paid and non-
     assessable; none of the outstanding shares of capital stock of the Company
     was issued in violation of the preemptive or other similar rights of any
     securityholder of the Company.

          (viii)  Authorization of Agreement.   This Agreement has been duly
                  --------------------------                                
     authorized, executed and delivered by the Company.


                                       6

<PAGE>
 
          (ix)  Authorization and Description of Securities.    The Securities
                -------------------------------------------                   
     have been duly authorized for issuance and sale to the Underwriters
     pursuant to this Agreement and, when issued and delivered by the Company
     pursuant to this Agreement against payment of the consideration set forth
     herein, will be validly issued, fully paid and non-assessable; the Class A
     Common Stock conforms to all statements relating thereto contained in the
     Prospectus and such description conforms to the rights set forth in the
     instruments defining the same; no holder of the Securities will be subject
     to personal liability by reason of being such a holder; and the issuance of
     the Securities is not subject to the preemptive or other similar rights of
     any securityholder of the Company.

          (x)  Absence of Defaults and Conflicts.   Neither the Company nor any
               ---------------------------------                               
     of its subsidiaries is in violation of its charter or by-laws or in default
     in the performance or observance of any obligation, agreement, covenant or
     condition contained in any contract, indenture, mortgage, deed of trust,
     loan or credit agreement, note, lease or other agreement or instrument to
     which the Company or any of its subsidiaries is a party or by which it or
     any of them may be bound, or to which any of the property or assets of the
     Company or any subsidiary is subject (collectively, "Agreements and
     Instruments") except for such defaults that would not result in a Material
     Adverse Effect; and the execution, delivery and performance of this
     Agreement and the consummation of the transactions contemplated herein and
     in the Registration Statement (including each of the transactions described
     in the Prospectus under the caption "Certain Transactions," the issuance
     and sale of the Securities and the use of the proceeds from the sale of the
     Securities as described in the Prospectus under the caption "Use of
     Proceeds") and compliance by the Company with its obligations hereunder
     have been duly authorized by all necessary corporate action and do not and
     will not, whether with or without the giving of notice or passage of time
     or both, conflict with or constitute a breach of, or default or Repayment
     Event (as defined below) under, or result in the creation or imposition of
     any lien, charge or encumbrance upon any property or assets of the Company
     or any subsidiary pursuant to, the Agreements and Instruments (except for
     such conflicts, breaches or defaults or liens, charges or encumbrances that
     would not result in a Material Adverse Effect), nor will such action result
     in any violation of the provisions of the charter or by-laws of the Company
     or any subsidiary or any applicable law, statute, rule, regulation,
     judgment, order, writ or decree of any government, government
     instrumentality or court, domestic or foreign, having jurisdiction over the
     Company or any subsidiary or any of their assets, properties or operations.
     As used herein, a "Repayment Event" means any event or condition which
     gives the holder of any note, debenture or other evidence of indebtedness
     (or any person acting on such holder's behalf) the right to require the
     repurchase, redemption or repayment of all or a portion of such
     indebtedness by the Company or any subsidiary.

          (xi)  Absence of Labor Dispute.    No labor dispute with the employees
                -------------------------                                       
     of the Company or any subsidiary exists or, to the knowledge of the
     Company, is imminent, which, in any case under this clause (xi) could
     reasonably be expected to result in a Material Adverse Effect.


                                       7

<PAGE>
 
          (xii)  Absence of Proceedings.    Except as set forth in the
                 -----------------------                              
     Prospectus there is no action, suit, proceeding, inquiry or investigation
     before or brought by any court or governmental agency or body, domestic or
     foreign, now pending, or, to the knowledge of the Company, threatened,
     against or affecting the Company or any subsidiary, that is required to be
     disclosed in the Registration Statement or which could reasonably be
     expected to result in a Material Adverse Effect, or which could reasonably
     be expected to materially and adversely affect the properties or assets
     thereof or the consummation of the transactions contemplated in this
     Agreement or the performance by, if determined adversely to the Company of
     its obligations hereunder; the aggregate of all pending legal or
     governmental proceedings to which the Company or any subsidiary is a party
     or of which any of their respective property or assets is the subject, that
     are not described in the Registration Statement, including ordinary routine
     litigation incidental to the business, could not reasonably be expected to
     result in a Material Adverse Effect.

          (xiii)  Accuracy of Exhibits.   There are no contracts or documents
                  --------------------                                       
     that are required to be described in the Registration Statement or the
     Prospectus or to be filed as exhibits thereto that have not been so
     described and filed as required.

          (xiv)  Possession of Intellectual Property.   Except as described in
                 -----------------------------------                          
     the Prospectus or as would not have a Material Adverse Effect, the Company
     and its subsidiaries own or possess or reasonably believes it can acquire
     on reasonable terms, adequate patents, patent rights, licenses, inventions,
     copyrights, know-how (including trade secrets and other unpatented and/or
     unpatentable proprietary or confidential information, systems or
     procedures), trademarks, service marks, trade names or other intellectual
     property (collectively, "Intellectual Property") necessary to carry on the
     business now operated by them, and neither the Company nor any of its
     subsidiaries has received any notice or is otherwise aware of any
     infringement of or conflict with asserted rights of others with respect to
     any Intellectual Property or of any facts or circumstances which would
     render any Intellectual Property invalid or inadequate to protect the
     interest of the Company or any of its subsidiaries therein, and which
     infringement or conflict (if the subject of any unfavorable decision,
     ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
     would result in a Material Adverse Effect.

          (xv)  Absence of Further Requirements.   Except as described in the
                -------------------------------                              
     Prospectus, no filing with, or authorization, approval, consent, license,
     order, registration, qualification or decree of, any court or governmental
     authority or agency is necessary or required for the performance by the
     Company of its obligations hereunder, in connection with the offering,
     issuance or sale of the Securities hereunder or the consummation of the
     transactions contemplated by this Agreement (including each of the
     transactions described in the Prospectus under the caption "Certain
     Transactions"), except such as have been already obtained or, as may be
     required under the 1933 Act or the 1933 Act Regulations or state securities
     laws.

                                       8

<PAGE>
 
          (xvi)  Possession of Licenses and Permits.    Except as described in
                 ----------------------------------                           
     the Prospectus, the Company and its subsidiaries possess such permits,
     licenses, approvals, consents and other authorizations (collectively,
     "Governmental Licenses") issued by the appropriate federal, state, local or
     foreign regulatory agencies or bodies necessary to conduct the business now
     operated by them; the Company and its subsidiaries are in compliance with
     the terms and conditions of all such Governmental Licenses, except where
     the failure so to comply would not, singly or in the aggregate, have a
     Material Adverse Effect; all of the Governmental Licenses are valid and in
     full force and effect, except when the invalidity of such Governmental
     Licenses, or the failure of such Governmental Licenses to be in full force
     and effect would not have a Material Adverse Effect; and neither the
     Company nor any of its subsidiaries has received any notice of proceedings
     relating to the revocation or modification of any such Governmental
     Licenses which, singly or in the aggregate, if the subject of an
     unfavorable decision, ruling or finding, would result in a Material Adverse
     Effect.

          (xvii)  Title to Property.   The Company and its subsidiaries have
                  -----------------                                         
     good and marketable title to all real property owned by the Company and its
     subsidiaries and good title to all other properties owned by them, in each
     case, free and clear of all mortgages, pledges, liens, security interests,
     claims, restrictions or encumbrances of any kind except such as (a) are
     described in the Prospectus or (b) would not, singly or in the aggregate,
     reasonably be expected to have a Material Adverse Effect; and all of the
     leases and subleases material to the business of the Company and its
     subsidiaries, considered as one enterprise, and under which the Company or
     any of its subsidiaries holds properties described in the Prospectus, are
     in full force and effect, and neither the Company nor any subsidiary has
     any notice of any material claim of any sort that has been asserted by
     anyone adverse to the rights of the Company or any subsidiary under any of
     the leases or subleases mentioned above, or affecting or questioning the
     rights of the Company or such subsidiary to the continued possession of the
     leased or subleased premises under any such lease or sublease, except as
     such would not reasonably be expected to have a Material Adverse Effect.

          (xviii)  Compliance with Cuba Act.   The Company has complied with,
                   ------------------------                                  
     and is and will be in compliance with, the provisions of that certain
     Florida act relating to disclosure of doing business with Cuba, codified as
     Section 517.075 of the Florida statutes, and the rules and regulations
     thereunder (collectively, the "Cuba Act") or is exempt therefrom.

          (xix)  Investment Company Act.   The Company is not, and upon the
                 ----------------------                                    
     issuance and sale of the Securities as herein contemplated and the
     application of the net proceeds therefrom as described in the Prospectus
     will not be, an "investment company" or an entity "controlled" by an
     "investment company" as such terms are defined in the Investment Company
     Act of 1940, as amended (the "1940 Act").

                                       9

<PAGE>
 
          (xx)  Environmental Laws.   Except as described in the Registration
                ------------------                                           
     Statement and except as would not, singly or in the aggregate, result in a
     Material Adverse Effect, (A) neither the Company nor any of its
     subsidiaries is in violation of any federal, state, local or foreign
     statute, law, rule, regulation, ordinance, code, policy or rule of common
     law or any judicial or administrative interpretation thereof, including any
     judicial or administrative order, consent, decree or judgment, relating to
     pollution or protection of human health, the environment (including,
     without limitation, ambient air, surface water, groundwater, land surface
     or subsurface strata) or wildlife, including, without limitation, laws and
     regulations relating to the release or threatened release of chemicals,
     pollutants, contaminants, wastes, toxic substances, hazardous substances,
     petroleum or petroleum products (collectively, "Hazardous Materials") or to
     the manufacture, processing, distribution, use, treatment, storage,
     disposal, transport or handling of Hazardous Materials (collectively,
     "Environmental Laws"), (B) the Company and its subsidiaries have all
     permits, authorizations and approvals required under any applicable
     Environmental Laws and are each in compliance with their requirements, 
     (C) there are no pending or threatened administrative, regulatory or
     judicial actions, suits, demands, demand letters, claims, liens, notices of
     noncompliance or violation, investigation or proceedings relating to any
     Environmental Law against the Company or any of its subsidiaries, and 
     (D) there are no events or circumstances that might reasonably be expected
     to form the basis of an order for clean-up or remediation, or an action,
     suit or proceeding by any private party or governmental body or agency,
     against or affecting the Company or any of its subsidiaries relating to
     Hazardous Materials or any Environmental Laws.

          (xxi)  Registration Rights.   Other than Thomas Spahr there are no
                 -------------------                                        
     persons with registration rights or other similar rights to have any
     securities registered pursuant to the Registration Statement or otherwise
     registered by the Company under the 1933 Act.

          (xxii)  Securities Exchange Act of 1934.    The Company has filed all
                  -------------------------------                              
     reports it has been required to file under the Securities Exchange Act of
     1934, as amended (the "1934 Act"), and the rules and regulations of the
     Commission thereunder; such reports when filed conformed in all material
     respects to the requirements of the Exchange Act; and none of such reports
     contained an untrue statement of a material fact or omitted to state a
     material fact required to be stated therein to make the statements therein,
     in light of the circumstances under which they were made, not misleading.

     (b)  Representations and Warranties by and Covenants of the Selling
Stockholders. Each of the Selling Stockholders severally, but not jointly,
represents and warrants to each Underwriter as of the date hereof and as of the
Closing Time and agrees with each Underwriter, as follows:

                                      10

<PAGE>
 

          (i)  Authorization of Agreements.    The Selling Stockholder has the
               ---------------------------                                    
     full right to enter into this Agreement, a Power of Attorney (the "Power of
     Attorney") and a Custody Agreement (the "Custody Agreement") and to sell,
     transfer and deliver the Securities to be sold by the Selling Stockholder
     hereunder.  The execution and delivery of this Agreement, the Power of
     Attorney and the Custody Agreement and the sale and delivery of the
     Securities to be sold by the Selling Stockholder and the consummation by
     the Selling Stockholder of the transactions contemplated herein and
     compliance by the Selling Stockholder with its obligations hereunder do not
     and will not, whether with or without the giving of notice or passage of
     time or both, conflict with or constitute a breach of, or default under, or
     result in the creation or imposition of any tax, lien, charge, or
     encumbrance upon the Securities to be sold by the Selling Stockholder or
     any property or assets of the Selling Stockholder pursuant to any contract,
     indenture, mortgage, deed of trust, loan or credit agreement, note,
     license, lease or other agreement or instrument to which the Selling
     Stockholder is a party or by which the Selling Stockholder may be bound, or
     to which any of the property or assets of the Selling Stockholder is
     subject, nor will such action result in any violation of the provisions of
     any applicable treaty, law, statute, rule, regulation, judgment, order,
     writ or decree of any government, government instrumentality or court,
     domestic or foreign, having jurisdiction over the Selling Stockholder or
     any of his properties.

          (ii)  Good and Marketable Title.    The Selling Stockholder has and
                -------------------------                                    
     will at the Closing Time have good and marketable title to the Securities
     to be sold by the Selling Stockholder hereunder, free and clear of any
     security interest, mortgage, pledge, lien, charge, claim or encumbrance of
     any kind, other than pursuant to this Agreement; and upon delivery of such
     Securities and payment of the purchase price thereof as herein
     contemplated, assuming each such Underwriter has no notice of any adverse
     claim, each of the Underwriters will receive good and marketable title to
     the Securities purchased by it from the Selling Stockholder, free and clear
     of any security interest, mortgage, pledge, lien, charge, claim, equity or
     encumbrance of any kind.

          (iii)  Due Execution of Power of Attorney and Custody Agreement.
                 --------------------------------------------------------   
     The Selling Stockholder has duly executed and delivered, in the form
     heretofore furnished to the Representatives, the Power of Attorney with
     Mark S. Lynch and Jonathan F. Klein as attorneys-in-fact (the "Attorneys-
     in-Fact") and the Custody Agreement with American Stock Transfer and Trust
     Company as custodian (the "Custodian"); the Custodian is authorized to
     deliver the Securities to be sold by the Selling Stockholder hereunder and
     to accept payment therefor; and the Attorneys-in-Fact are authorized to
     execute and deliver this Agreement and the certificate referred to in
     Section 5(g) or that may be required pursuant to Section 5(m) on behalf of
     the Selling Stockholder, to sell, assign, and transfer to the Underwriters
     the Securities to be sold by the Selling Stockholder hereunder, to
     determine the purchase price to be paid by the Underwriters to the Selling
     Stockholder, as provided in Section 2(a) hereof, to authorize the delivery
     of the Securities to be sold by the Selling Stockholder hereunder, to
     accept payment therefor, and otherwise to act on behalf of the Selling
     Stockholder in connection with this Agreement.

                                      11

<PAGE>
 
          (iv)  Absence of Manipulation.  The Selling Stockholder has not
                -----------------------                                    
     taken, and will not take, directly or indirectly, any action that is
     designed to or that has constituted or which might reasonably be expected
     to cause or result in stabilization or manipulation of the price of any
     security of the Company to facilitate the sale or resale of the Securities.

          (v)  Absence of Further Requirements.    No filing with, or consent,
               -------------------------------                                
     approval, authorization, order, registration, qualification or decree of,
     any court or governmental authority or agency, domestic or foreign, is
     necessary or required for the performance by the Selling Stockholder of his
     obligations hereunder or in the Power of Attorney and Custody Agreement, or
     in connection with the sale and delivery by the Selling Stockholder of the
     Securities hereunder or the consummation by the Selling Stockholder of the
     transactions contemplated by this Agreement, except such as may have
     previously been made or obtained or as may be required under the 1933 Act
     or the 1933 Act Regulations or state securities laws.

          (vi)  Restriction on Sale of Securities.    During a period of 90 days
                ---------------------------------                               
     from the date of the Prospectus, the Selling Stockholder will not, without
     the prior written consent of Merrill Lynch, offer, sell, contract to sell,
     or otherwise dispose of, except as provided in this paragraph any
     securities of the Company that are substantially similar to the shares of
     Class A Common Stock, including but not limited to any securities of the
     Company that are convertible into or exchangeable for, or that represent
     the right to receive Class A Common Stock or any substantially similar
     securities.  The foregoing sentence shall not apply to the Securities to be
     sold hereunder.  Notwithstanding the foregoing restrictions on transfer,
     the Selling Stockholder shall be permitted to make the following transfers:
     (i) transfers made by gift, provided the donee thereof agrees in writing to
     be bound by the terms hereof; (ii) transfers to the transferor's
     affiliates, as such term is defined in Rule 405 promulgated under the
     Securities Act of 1933, provided that each transferee agrees in writing to
     be bound by the terms hereof; (iii) transfers made with the prior written
     consent of Merrill Lynch; and (iv) transfers pursuant to the Registration
     Statement.

          (vii)  Certificates Suitable for Transfer.  Certificates for all of
                 ----------------------------------                            
     the Securities to be sold by the Selling Stockholder pursuant to this
     Agreement, in suitable form for transfer by delivery or accompanied by duly
     executed instruments of transfer or assignment in blank with signatures
     guaranteed, have been placed in custody with the Custodian with irrevocable
     conditional instructions to deliver such Securities to the Underwriters
     pursuant to this Agreement.


                                      12

<PAGE>
 
          (viii)  No Association with NASD.    Neither the Selling Stockholder
                  ------------------------                                    
     nor any of his affiliates directly, or indirectly through one or more
     intermediaries, control, or is controlled by, or is under common control
     with, or has any other association with (within the meaning of Article I,
     Section 1(m) of the By-laws of the National Association of Securities
     Dealers, Inc.), any member firm of the National Association of Securities
     Dealers, Inc.

     (c)  Representations and Warranties by the Principal Selling Stockholders.
Each of the Selling Stockholders identified as a "Principal Selling
Stockholder" on Schedule D represents and warrants to each Underwriter as of the
date hereof and as of the Closing Time, and agrees with each Underwriter, that
(i) he has reviewed and is familiar with the Registration Statement and
Prospectus and, to his knowledge, neither the Prospectus nor any amendments or
supplements thereto includes any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, and 
(ii) he is not prompted to sell the Securities to be sold by him hereunder by
any information concerning the Company or any subsidiary of the Company which is
not set forth in the Prospectus.

     (d)  Representations and Warranties by certain Selling Stockholders.
Each of the Selling Stockholders who is not a Principal Selling Stockholder
represents and warrants to each Underwriter as of the date hereof and as of the
Closing Time, and agrees with each Underwriter, that (i) he or she has reviewed
and is familiar with the Registration Statement and Prospectus and, to the
extent any statements or omissions made in the Registration Statement, the
Prospectus or any amendment or supplement thereto are made in reliance upon and
in conformity with information furnished in writing to the Company by or on
behalf of such Selling Stockholder expressly for use therein, neither the
Prospectus nor any amendments or supplements thereto includes any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, and (ii) he or she is not prompted to sell the
Securities to be sold by him or her hereunder by any information concerning the
Company or any subsidiary of the Company which is not set forth in the
Prospectus.

     (e)  Officer's Certificates.   Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.


                                      13

<PAGE>
 
     SECTION 2.  Sale and Delivery to Underwriters; Closing.
                 ------------------------------------------

     (a)  Initial Securities.    On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company and the Selling Stockholders, severally and not jointly,
agree to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company and
the Selling Stockholders, at the price per share set forth in Schedule B, that
proportion of the number of Initial Securities set forth in Schedule A opposite
the name of the Company or the Selling Stockholders, as the case may be, that
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter, plus any additional number of Initial Securities that such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof, bears to the total number of Initial Securities, subject, in
each case, to such adjustments among the Underwriters as the Representatives in
their sole discretion shall make to eliminate any sales or purchases of
fractional securities.

     (b)  Option Securities.   In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, Alcantara LLC hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional 300,000 shares of Class A
Common Stock at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Company and
payable on the Initial Securities but not payable on the Option Securities.  The
option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to
Alcantara LLC setting forth the number of Option Securities as to which the
several Underwriters are then exercising the option and the time and date of
payment and delivery for such Option Securities. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Representatives, but
shall not be earlier than one full business day, or later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Time, as hereinafter defined.  If the option is exercised as to all or
any portion of the Option Securities, each of the Underwriters, acting severally
and not jointly, will purchase that proportion of the total number of Option
Securities then being purchased that the number of Initial Securities set forth
in Schedule A opposite the name of such Underwriter bears to the total number of
Initial Securities, subject in each case to such adjustments as the
Representatives in their discretion shall make to eliminate any sales or
purchases of fractional shares.

     (c)  Payment.   Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Ropes &
Gray, 885 Third Avenue, New York, New York  10022, or at such other place as
shall be agreed upon by the Representatives and the Company, at 9:00 A.M.
(Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery
being herein called the "Closing Time").

                                      14

<PAGE>
 
     In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and Alcantara LLC, on each Date of Delivery as specified in the notice from the
Representatives to Alcantara LLC.

     Payment shall be made to the Company and the Selling Stockholders by wire
transfer of immediately available funds to the respective bank accounts
designated by the Company and the Selling Stockholders (with wire transfer
instructions to be provided by the Selling Stockholders prior to the Closing
Time), against delivery to the Representatives for the respective accounts of
the Underwriters of certificates for the Securities to be purchased by them. It
is understood that each Underwriter has authorized the Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial Securities and the Option Securities, if any, which it
has agreed to purchase. Merrill Lynch, individually and not as representative of
the Underwriters, may (but shall not be obligated to) make payment of the
purchase price for the Initial Securities or the Option Securities, if any, to
be purchased by any Underwriter whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such Underwriter from its obligations hereunder.

     (d)  Denominations; Registration.   Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be.  The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.

     SECTION 3.  Covenants of the Company. The Company covenants with the
                 ------------------------                                  
Underwriters as follows:

     (a)  Compliance with Securities Regulations and Commission Requests.   The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Representatives immediately, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of 


                                      15

<PAGE>
 
any order preventing or suspending the use of any preliminary prospectus, or of
the suspension of the qualification of the Securities for offering or sale in
any jurisdiction, or of the initiation or threatening of any proceedings for any
of such purposes. The Company will promptly effect the filings necessary
pursuant to Rule 424(b) and will take such steps as it deems necessary to
ascertain promptly whether the form of prospectus transmitted for filing under
Rule 424(b) was received for filing by the Commission and, in the event that it
was not, it will promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.

     (b)  Filing of Amendments.   The Company will give the Representatives
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
will furnish the Representatives with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be; and
will not file or use any such document to which the Representatives or counsel
for the Underwriters shall reasonably object.

     (c)  Delivery of Registration Statements.   The Company has furnished or
will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters.  The copies
of the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.

     (d)  Delivery of Prospectuses.   The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act.  The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such
number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request.  The Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.


                                      16

<PAGE>
 
     (e)  Continued Compliance with Securities Laws.   The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement and in the
Prospectus.  If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the Prospectus
will not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.

     (f)  Blue Sky Qualifications.   The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
as the Representatives may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the effective
date of the Registration Statement and any Rule 462(b) Registration Statement;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject.  In each jurisdiction in which the
Securities have been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to continue such
qualification in effect for a period of not less than one year from the
effective date of the Registration Statement and any Rule 462(b) Registration
Statement.

     (g)  Rule 158.   The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.

     (h)  Use of Proceeds.   The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds".

     (i)  Listing.  The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market and will
file with the Nasdaq National Market all documents and notices required by the
Nasdaq National Market of companies that have securities that are traded in the
over-the-counter market and quotations for which are reported by the Nasdaq
National Market.


                                      17

<PAGE>
 
     (j)  Restriction on Sale of Securities.   During a period of 90 days from
the date of the Prospectus, the Company will not without the prior written
consent of Merrill Lynch, (i) directly or indirectly, offer, sell, contract to
sell, or otherwise dispose of any securities of the Company that are
substantially similar to the Class A Common Stock, including but not limited to
any securities of the Company that are convertible into or exchangeable for, or
that represent the right to receive Class A Common Stock, Class B Common Stock,
or any substantially similar securities, or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the Class
A or Class B Common Stock, whether any such swap or transaction described in
clause (i) or (ii) above is to be settled by delivery of Class A or Class B
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply (i) to the Securities to be sold hereunder, (ii) to
delivery or registration of shares of Class A Common Stock (A) upon issuance of
securities under the Company's existing employee benefit plans, (B) upon
exercise of options outstanding as of the date of this Agreement, and (C) in
connection with any acquisition of another company if the terms of such issuance
provide that such Class A Common Stock shall not be resold prior to the
expiration of the 90-day period referenced in the foregoing sentence, or 
(iii) to the issuance of warrants or similar securities to strategic partners or
customers to purchase shares of Class A Common Stock if such warrants are not
convertible into shares of Class A Common Stock or transferable (other than to
affiliates) prior to the expiration of the 90-day period referenced in the
foregoing sentence.

     (k)  Reporting Requirements.   The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.

     (l)  Compliance with Rule 463.   The Company will file with the Commission
such reports on Form 10-Q as may be required pursuant to Rule 463 of the 1933
Act Regulations.

     SECTION 4. Payment of Expenses.
                -------------------   

     (a)   Expenses.   The Company will pay all expenses incident to the
performance of its and the Selling Stockholders' obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement, any Agreement among
Underwriters and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Securities to the
Underwriters, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, 

                                      18

<PAGE>
 
(v) the qualification of the Securities under securities laws in accordance with
the provisions of Section 3(f) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities, and (x) the fees and expenses incurred in connection with the
inclusion of the Securities in the Nasdaq National Market.

     (b)  Termination of Agreement.   If this Agreement is terminated by the
Representatives in accordance with the provisions of Sections 5, 9(a)(i) or 11
hereof, the Company shall reimburse the Underwriters for all of their out-of-
pocket expenses, including the reasonable fees and disbursements of counsel for
the Underwriters.

     (c)  Allocation of Expenses.    The provisions of this Section shall not
affect any agreement that the Company and the Selling Stockholders may make for
the sharing of such costs and expenses.

     SECTION 5.  Conditions of Underwriters' Obligations. The obligations of
                 ---------------------------------------                      
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:

     (a)  Effectiveness of Registration Statement.   The Registration Statement,
including any Rule 462(b) Registration Statement has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434,
a Term Sheet shall have been filed with the Commission in accordance with Rule
424(b).

                                      19

<PAGE>
 
     (b)  Opinion of Counsel for Company.   At Closing Time, the Representatives
shall have received the favorable opinion, dated as of Closing Time, of Latham &
Watkins, counsel for the Company, in form and substance satisfactory to counsel
for the Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters to such effect as counsel to the Underwriters
may reasonably request.

     (c)  Opinion of Counsel for the Selling Stockholders.    At Closing Time,
the Representative shall have received the favorable opinion, dated as of
Closing Time, of counsel for the Selling Stockholders in form and substance
satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters to such effect as
counsel to the Underwriters may reasonably request.

     (d)  Opinion of Counsel for Underwriters.   At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Ropes & Gray, counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters with respect
to the matters previously designated by the Representatives.  In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of The Commonwealth of Massachusetts, the
federal law of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Representatives. Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of officers
of the Company and its subsidiaries and certificates of public officials.

     (e)  Officers' Certificate.   At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, and the Representatives shall have
received a certificate of the President or a Vice President of the Company and
of the chief financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section l(a) hereof are true
and correct with the same force and effect as though expressly made at, and as
of, Closing Time, (iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior to
Closing Time, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted, or are pending, or are contemplated by the Commission.

     (f)  Accountant's Comfort Letter.   At the time of the execution of this
Agreement and, if different, at the date of the Prospectus the Representatives
shall have received from PricewaterhouseCoopers L.L.P. a letter dated such date,
in form and substance satisfactory to the Representatives, together with signed
or reproduced copies of such letter for each of the other Underwriters
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus.

                                      20

<PAGE>
 
     (g)  Certificate of Selling Stockholders.    At Closing Time, the
Representatives shall have received a certificate of the Selling Stockholders,
dated as of the Closing Time, to the effect that (i) the representations and
warranties of the Selling Stockholders contained in Section 1(b) hereof are true
and correct in all material respects with the same force and effect as though
expressly made at and as of the Closing Time and (ii) the Selling Stockholders
have complied in all material respects with all agreements and all conditions on
their part to be performed under this Agreement at or prior to Closing Time.

     (h)  Bring-down Comfort Letter.   At Closing Time, the Representatives
shall have received from PricewaterhouseCoopers L.L.P. a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (f) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to
Closing Time.

     (i)  Approval of Listing. At Closing Time, the Securities shall have been
approved for inclusion in the Nasdaq National Market, subject only to official
notice of issuance.

     (j)  No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.

     (k)  Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the form of
Exhibit A hereto signed by the persons listed on Schedule C hereto.

     (l)  Conditions to Purchase of Option Securities.   In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company and Alcantara LLC contained herein and the statements in any
certificates furnished by the Company or any subsidiary of the Company or
Alcantara LLC hereunder shall be true and correct as of each Date of Delivery
and, at the relevant Date of Delivery, the Representatives shall have received:

          (i)  Officers' Certificate.   A certificate, dated such Date of
               ---------------------                                     
     Delivery, of the President or a Vice President of the Company and of the
     chief financial or chief accounting officer of the Company confirming that
     the certificate delivered at the Closing Time pursuant to Section 5(e)
     hereof remains true and correct as of such Date of Delivery.

          (ii)  Opinion of Counsel for Company.   The favorable opinion of
                ------------------------------                            
     Latham & Watkins, counsel for the Company, in form and substance
     satisfactory to counsel for the Underwriters, dated such Date of Delivery,
     relating to the Option Securities to be purchased on such Date of Delivery
     and otherwise to the same effect as the opinion required by Section 5(b)
     hereof.


                                      21

<PAGE>
 
          (iii)  Opinion of Counsel for Alcantara LLC.   The favorable opinion
                 ------------------------------------                         
     of counsel for Alcantara LLC, in form and substance satisfactory to counsel
     for the Underwriters, dated such Date of Delivery, relating to the Option
     Securities to be purchased on such Date of Delivery and otherwise to the
     same effect as the opinion required by Section 5(c) hereof.

          (iv)  Opinion of Counsel for Underwriters.   The favorable opinion of
                -----------------------------------                            
     Ropes & Gray, counsel for the Underwriters, dated such Date of Delivery,
     relating to the Option Securities to be purchased on such Date of Delivery
     and otherwise to the same effect as the opinion required by Section 5(d)
     hereof.

          (v)  Bring-down Comfort Letter.   A letter from PricewaterhouseCoopers
               -------------------------                                        
     L.L.P., in form and substance satisfactory to the Representatives and dated
     such Date of Delivery, substantially in the same form and substance as the
     letter furnished to the Representatives pursuant to Section 5(f) hereof,
     except that the "specified date" in the letter furnished pursuant to this
     paragraph shall be a date not more than five days prior to such Date of
     Delivery.

     (m)  Additional Documents.   At Closing Time and at each Date of Delivery,
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.

     (n)  Termination of Agreement.   If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by notice to the Company at
any time at or prior to Closing Time or such Date of Delivery, as the case may
be, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.


                                      22

<PAGE>
 
     SECTION 6.  Indemnification.
                 ---------------   

     (a)  Indemnification of Underwriters by Company and Principal Selling
Stockholders.   The Company and the Principal Selling Stockholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act as follows:

          (i) against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, arising out of any untrue statement or alleged
     untrue statement of a material fact contained in the Registration Statement
     (or any amendment thereto), including the Rule 430A Information and the
     Rule 434 Information, if applicable, or the omission or alleged omission
     therefrom of a material fact required to be stated therein or necessary to
     make the statements therein not misleading or arising out of any untrue
     statement or alleged untrue statement of a material fact included in any
     preliminary prospectus or the Prospectus (or any amendment or supplement
     thereto), or the omission or alleged omission therefrom of a material fact
     necessary in order to make the statements therein, in the light of the
     circumstances under which they were made, not misleading;

          (ii) against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, to the extent of the aggregate amount paid in
     settlement of any litigation, or any investigation or proceeding by any
     governmental agency or body, commenced or threatened, or of any claim
     whatsoever based upon any such untrue statement or omission, or any such
     alleged untrue statement or omission, provided that (subject to Section
     6(e) below) any such settlement is effected with the written consent of the
     Company and the Principal Selling Stockholders; and

          (iii)  against any and all expense whatsoever, as incurred (including
     the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
     incurred in investigating, preparing or defending against any litigation,
     or any investigation or proceeding by any governmental agency or body,
     commenced or threatened, or any claim whatsoever based upon any such untrue
     statement or omission, or any such alleged untrue statement or omission, to
     the extent that any such expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
- --------  -------                                                            
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further, that
                                                         --------  -------      
the Company will not be liable to an Underwriter with respect to any preliminary
prospectus to the extent that the Company shall sustain the burden of proving
that any such loss, liability, claim, damage or 

                                      23

<PAGE>
 
expense resulted from the fact that such Underwriter in contravention of a
requirement of this Agreement or applicable law, sold Securities to a person to
whom such Underwriter failed to send or give, at or prior to Closing Time, a
copy of the Prospectus as then amended or supplemented if the Company has
previously furnished copies thereof (sufficiently in advance of Closing Time to
allow for distribution by Closing Time) to the Underwriter and the loss,
liability, claim, damage or expense of such Underwriter resulted from an untrue
statement or omission or alleged untrue statement or omission of a material fact
contained in or omitted from the preliminary prospectus which was corrected in
the Prospectus as, if applicable, amended or supplemented prior to Closing Time,
and such Prospectus was required by law to be delivered at or prior to the
written confirmation of sale to such person; and provided, further, that the
                                                 --------  -------
liability of each Principal Selling Stockholder pursuant to this Section 6(a)
shall not exceed the product of the number of Securities sold by such Principal
Selling Stockholder and the public offering price per share of the Securities as
set forth in the Prospectus.

     (b)  Indemnification of Underwriters by certain Selling Stockholders.   The
Selling Stockholders who are not Principal Selling Stockholders severally agree
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:

          (i) against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, arising out of any untrue statement or alleged
     untrue statement of a material fact contained in the Registration Statement
     (or any amendment thereto), including the Rule 430A Information and the
     Rule 434 Information, if applicable, or the omission or alleged omission
     therefrom of a material fact required to be stated therein or necessary to
     make the statements therein not misleading or arising out of any untrue
     statement or alleged untrue statement of a material fact included in any
     preliminary prospectus or the Prospectus (or any amendment or supplement
     thereto), or the omission or alleged omission therefrom of a material fact
     necessary in order to make the statements therein, in the light of the
     circumstances under which they were made, not misleading, in each case only
     with respect to untrue statements or omissions, or alleged untrue
     statements or omissions, made in reliance upon and in conformity with
     written information furnished to the Company by or on behalf of such
     Selling Stockholder expressly for use in the Registration Statement (or any
     amendment thereto) or such preliminary prospectus or the Prospectus (or any
     amendment or supplement thereto);

          (ii) against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, to the extent of the aggregate amount paid in
     settlement of any litigation, or any investigation or proceeding by any
     governmental agency or body, commenced or threatened, or of any claim
     whatsoever based upon any such untrue statement or omission, or any such
     alleged untrue statement or omission, provided that (subject to 
     Section 6(e) below) any such settlement is effected with the written
     consent of the Company and the Selling Stockholders; and


                                      24

<PAGE>
 
          (iii)  against any and all expense whatsoever, as incurred (including
     the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
     incurred in investigating, preparing or defending against any litigation,
     or any investigation or proceeding by any governmental agency or body,
     commenced or threatened, or any claim whatsoever based upon any such untrue
     statement or omission, or any such alleged untrue statement or omission, to
     the extent that any such expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
- --------  -------                                                            
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further, that
                                                         --------  -------      
the liability of each Selling Stockholder who is not a Principal Selling
Stockholder pursuant to this Section 6(b) shall not exceed the product of the
number of Securities sold by such Selling Stockholder and the public offering
price per share of the Securities as set forth in the Prospectus.

     (c)  Indemnification of Company, Directors and Officers, and Selling
Stockholders.   Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, the Selling Stockholders, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through Merrill
Lynch expressly for use in the Registration Statement (or any amendment thereto)
or such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).

     (d)  Actions against Parties; Notification.   Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Sections 6(a) or 6(b)
above, counsel to 


                                      25

<PAGE>
 
the indemnified parties shall be selected by Merrill Lynch, and, in the case of
parties indemnified pursuant to Section 6(c) above, counsel to the indemnified
parties shall be selected by the Company. An indemnifying party may participate
at its own expense in the defense of any such action; provided, however, that
counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.

     (e)  Settlement without Consent if Failure to Reimburse.   If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Sections 6(a)(ii) and 6(b)(ii) effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into, and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.

     (f)  Other Agreements with Respect to Indemnification.    The provisions of
this Section shall not affect any agreement among the Company and the Selling
Stockholders with respect to indemnification.

     SECTION 7.  Contribution.   If the indemnification provided for in Section
                 ------------                                                  
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders, as applicable, on the one hand and the Underwriters on the
other hand from the offering of the Securities pursuant to this Agreement or
(ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Stockholders, as applicable, on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions,
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.

                                      26

<PAGE>
 
     The relative benefits received by the Company and the Selling Stockholders,
as applicable, on the one hand and the Underwriters on the other hand in
connection with the offering of the Securities pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities pursuant to this Agreement (before deducting
expenses) received by the Company and the Selling Stockholders, as applicable,
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.

     The relative fault of the Company and the Selling Stockholders, as
applicable, on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company and the
Selling Stockholders, as applicable, or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.

     The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.

     Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public, exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

     No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

                                      27

<PAGE>
 
     For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.

     SECTION 8.  Representations, Warranties and Agreements to Survive 
                 -----------------------------------------------------  
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement or in certificates of officers of the Company or any of its
subsidiaries, or in certificates of the Selling Stockholders submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters.

     SECTION 9.  Termination of Agreement.
                 ------------------------   

     (a)  Termination; General.   The Representatives may terminate this
Agreement, by notice to the Company and the Selling Stockholders, at any time at
or prior to Closing Time (i) if there has been, since the time of execution of
this Agreement or since the respective dates as of which information is given in
the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the Representatives, impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or materially limited by the
Commission or the Nasdaq National Market, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the
National Association of Securities Dealers, Inc. or any other governmental
authority, or (iv) if a banking moratorium has been declared by either Federal
or New York authorities.


                                      28

<PAGE>
 
     (b)  Liabilities.   If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.

     SECTION 10.  Default by One or More of the Underwriters. If one or more
                  ------------------------------------------                  
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:

     (a) if the number of Defaulted Securities does not exceed 10% of the number
of Securities to be purchased on such date, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or

     (b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which occurs after the Closing Time, the obligation of the
Underwriters to purchase and of Alcantara LLC to sell the Option Securities to
be purchased and sold on such Date of Delivery shall terminate without liability
on the part of any non-defaulting Underwriter.

     No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.

     In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery, that is after the Closing
Time, that does not result in a termination of the obligation of the
Underwriters to purchase and Alcantara LLC to sell the relevant Option
Securities, as the case may be, either the Representatives or the Company shall
have the right to postpone the Closing Time or the relevant Date of Delivery, as
the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 10.


                                      29

<PAGE>
 
     SECTION 11.  Default by the Company or one or more of the Selling
                  ----------------------------------------------------
Stockholders.
- ------------ 

     (a) If a Selling Stockholder shall fail at Closing Time or at a Date of
Delivery to sell and deliver the number of Securities which such Selling
Stockholder or Selling Stockholders are obligated to sell hereunder, and the
remaining Selling Stockholders do not exercise the right hereby granted to
increase, pro rata or otherwise, the number of Securities to be sold by them
hereunder to the total number to be sold by all Selling Stockholders as set
forth in Schedule A hereto, then the Underwriters may, at the option of the
Representatives, by notice from the Representatives to the Company and the non-
defaulting Selling Stockholders, either (a) terminate this Agreement without any
liability on the fault of any non-defaulting party except that the provisions of
Sections 1, 4, 6, 7 and 8 shall remain in full force and effect or (b) elect to
purchase the Securities which the non-defaulting Selling Stockholders and the
Company have agreed to sell hereunder.  No action taken pursuant to this Section
11 shall relieve any Selling Stockholder so defaulting from liability, if any,
in respect of such default.

     In the event of a default by any Selling Stockholder as referred to in this
Section 11, each of the Representatives, the Company and the non-defaulting
Selling Stockholders shall have the right to postpone Closing Time or Date of
Delivery for a period not exceeding seven business days in order to effect any
required change in the Registration Statement or Prospectus or in any other
documents or arrangements.

     (b) If the Company shall fail at Closing Time or at any Date of Delivery to
sell the number of Securities that it is obligated to sell hereunder, then this
Agreement shall terminate without any liability on the part of any non-
defaulting party; provided, however, that the provisions of Sections 1, 4, 6, 7
and 8 shall remain in full force and effect.  No action taken pursuant to this
Section shall relieve the Company from liability, if any, in respect of such
default.

     SECTION 12.  Notices. All notices and other communications hereunder
                  -------                                                   
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at Merrill Lynch & Co.,
3300 Hillview Avenue, Suite 150, Palo Alto, California 94304-1203, attention of
Mark Hanson, with a copy to IBK Counsel, North Tower, World Financial Center,
New York, New York 10281-1201, attention of Juno Mayer, Esq.; and notices to the
Company or the Selling Stockholders shall be directed to it or them, as the case
may be, at MicroStrategy Incorporated, 8000 Towers Crescent Drive, Vienna,
Virginia  22182.

     SECTION 13.  Parties. This Agreement shall each inure to the benefit of
                  -------                                                     
and be binding upon the Underwriters, the Selling Stockholders and the Company
and their respective successors or assigns. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriters, the Selling Stockholders and the
Company and their respective successors and the controlling persons and 

                                      30

<PAGE>
 
officers and directors referred to in Sections 6 and 7 and their heirs and
legal. representatives, any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision herein contained. This Agreement
and all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Selling Stockholders and the Company
and their respective successors or assigns, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any Underwriter shall be deemed to be a successor or assigns by reason merely of
such purchase.

     SECTION 14.  Governing Law And Time. THIS AGREEMENT SHALL BE GOVERNED BY
                  ----------------------                                       
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.  SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.

     SECTION 15.  Effect of Headings. The Article and Section headings herein
                  ------------------                                           
and the Table of Contents are for convenience only and shall not affect the
construction hereof.


                                      31

<PAGE>
 
     If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters, the Selling Stockholders and the Company in accordance with
its terms.

                         Very truly yours,

                         MICROSTRATEGY INCORPORATED

                         By:
                            -----------------------------------     
                            Name:  Mark S. Lynch
                            Title: Vice President, Finance
                                   and Chief Financial Officer

                         Siddhartha Banerjee
                         Shangri-La LLC, acting by and through its
                            sole member, Sanju K. Bansal
                         Frank A. Ingari
                         Mark S. Lynch
                         Eduardo S. Sanchez
                         Alcantara LLC, acting by and through its
                            sole member, Michael J. Saylor
                         David B. Sherwood
                         Thomas Spahr
                         Stephen S. Trundle
                         Charles A. Veley
                         Edward S. Yurcisin

                         By:
                            -----------------------------------     
                            Name: Mark S. Lynch
                            As Attorney-in-Fact acting on behalf of each of the
                            Selling Stockholders named in Schedule D hereto

CONFIRMED AND ACCEPTED,
as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
          INCORPORATED
HAMBRECHT & QUIST LLC
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
          INCORPORATED

By:_____________________________________
     Authorized Signatory

For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.

                                      32

<PAGE>
 
                                   SCHEDULE A


<TABLE>
<CAPTION>


                                                        Total Number of
     Name of Underwriter                               Initial Securities
     -------------------                               ------------------

<S>                                                    <C> 
Merrill Lynch, Pierce, Fenner & Smith
     Incorporated....................................    900,000
Hambrecht & Quist LLC................................    600,000
Friedman, Billings, Ramsey & Co., Inc................    300,000
Barrington Research Associates, Inc..................     50,000
Dain Rauscher Wessels, a division of Dain Rauscher
     Incorporated....................................     50,000
First Albany Corporation.............................     50,000
Scott & Stringfellow, Inc............................     50,000
 
Total................................................  2,000,000
                                                       =========
 
Number of Initial Securities to be sold by:
 
  Company............................................  1,585,000
  Siddhartha Banerjee................................     50,000
  Shangri-La LLC, acting by and through its sole
     member, Sanju K. Bansal.........................    150,000
  Frank A. Ingari....................................      4,500
  Mark S. Lynch......................................     25,000
  Eduardo S. Sanchez.................................     30,000
  David B. Sherwood..................................     50,000
  Thomas Spahr.......................................     20,000
  Stephen S. Trundle.................................     40,000
  Charles A. Veley...................................      8,000
  Edward S. Yurcisin.................................     37,500
 
Total................................................  2,000,000
                                                       =========
 
Number of Option Securities, if any, to be sold by:
 
  Alcantara LLC, acting by and through its sole
     member, Michael J. Saylor.......................    300,000
</TABLE>


<PAGE>
 
                                  SCHEDULE B

                          MICROSTRATEGY INCORPORATED
                   2,000,000 Shares of Class A Common Stock
                          (Par Value $.001 Per Share)

     1.  The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $27.00.

     2.  The purchase price per share for the Securities to be paid by the
several Underwriters shall be $25.65, being an amount equal to the initial
public offering price set forth above less $1.35 per share; provided that the
purchase price per share for any Option Securities purchased upon the exercise
of the over-allotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.

<PAGE>
 
                                  SCHEDULE C

                         List of persons and entities
                              subject to lock-up



Siddhartha Banerjee
Sanju K. Bansal
Shangri-La LLC
Frank A. Ingari
Mark S. Lynch
Eduardo S. Sanchez
Michael J. Saylor
Alcantara LLC
David B. Sherwood
Thomas Spahr
Stephen S. Trundle
Charles A. Veley
Edward S. Yurcisin
The Michael J. Saylor Qualified Annuity Trust
The Sanju K. Bansal Qualified Annuity Trust No. 1
The Sanju K. Bansal Qualified Annuity Trust No. 2

<PAGE>
 
                                  SCHEDULE D

                         List of Selling Stockholders



Siddhartha Banerjee
Shangri-La LLC, acting by and through its sole member, Sanju K. Bansal
Frank A. Ingari
Mark S. Lynch*
Eduardo S. Sanchez*
Alcantara LLC, acting by and through its sole member, Michael J. Saylor*
David B. Sherwood
Thomas Spahr
Stephen S. Trundle*
Charles A. Veley*
Edward S. Yurcisin



- ---------------
*Those persons designated with an "*" above are "Principal Selling Stockholders"
for purposes of Sections 1(a) and 6.

<PAGE>
 
                                   EXHIBIT A



                                        February ___, 1999



Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner
 & Smith Incorporated
World Financial Center
North Tower, 30th Floor
250 Vesey Street
New York, New York 10004

MicroStrategy Incorporated
8000 Towers Crescent Drive
Vienna, VA  22182

Ladies and Gentlemen:

     The undersigned officer, director or beneficial owner of securities of
MicroStrategy Incorporated, a Delaware corporation (the "Company"), understands
that the Company is engaged in the preparation of a registration statement (the
"Registration Statement") for the public offering (the "Offering") of shares of
its Class A common stock, par value $.001 per share (the "Shares") underwritten
by Merrill Lynch, Pierce, Fenner & Smith Incorporated, Hambrecht & Quist LLC and
Friedman, Billings, Ramsey & Co., Inc. (the "Representatives") and several other
underwriters (collectively with the Representatives, the "Underwriters").

     The undersigned recognizes that it is in the best financial interest of the
undersigned, as an officer, director or beneficial owner of securities of the
Company, that the Company complete the Offering, and you have requested this
agreement to facilitate the Offering.

     In connection therewith, the undersigned hereby agrees that during the
period beginning on the date hereof and continuing to and including the date 
90 days after the effective date of the Registration Statement, the undersigned
will not offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder any securities of the Company that are substantially similar
to the Shares, including but not limited to any securities that are convertible
into or exchangeable for, or that represent the right to receive, common stock
or any substantially similar securities.

     The undersigned further represents and agrees that the undersigned has not
taken and will not take, directly or indirectly, any action which is designed to
or which has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the 

<PAGE>
 
price of any security of the Company to facilitate the sale or resale of the
Shares, or which has otherwise constituted or will constitute any prohibited bid
for or purchase of the Shares or any related securities.

     Notwithstanding the foregoing restrictions on transfer, the undersigned
shall be permitted to make the following transfers: (i) transfers made by gift,
provided the donee thereof agrees in writing to be bound by the terms hereof;
(ii) transfers to the transferor's affiliates, as such term is defined in Rule
405 promulgated under the Securities Act of 1933, as amended, provided that each
transferee agrees in writing to be bound by the terms hereof; (iii) transfers
made with the prior written consent of the Representatives; and (iv) transfers
pursuant to the Registration Statement.

     The undersigned also agrees and consents to the entry of stock transfer
instructions with the Company's transfer agent against the transfer of shares of
common stock issued or issuable to the undersigned, except in accordance with
the terms hereof.  This instrument shall terminate if (a) the purchase agreement
relating to the Offering shall not have been entered into by February 15, 1999,
or (b) the purchase agreement relating to the Offering (other than the
provisions thereof that survive termination) shall terminate or be terminated
prior to payment for the delivery of the Shares hereunder.

     Executed as an instrument under seal.

                                        Sincerely yours,



<PAGE>
                                                                     EXHIBIT 5.1

                 [LETTERHEAD OF LATHAM & WATKINS APPEARS HERE]



                               February 10, 1999



MicroStrategy Incorporated
8000 Towers Crescent Drive
Vienna, VA  22182

        Re:  Registration Statement No. 333-70919; 2,300,000 shares
             of Class A Common Stock, par value $0.001 per share
             --------------------------------------------------- 
               

Ladies and Gentlemen:

          In connection with the registration of 2,300,000 shares of Class A
Common Stock of MicroStrategy Incorporated, a Delaware corporation (the
"Company"), par value $0.001 per share under the Securities Act of 1933, as
amended (the "Act"), by the Company on Form S-1 filed with the Securities and
Exchange Commission (the "Commission") on January 21, 1999 (File No. 333-70919),
as amended by Amendment No. 1 filed with the Commission on January 29, 1999,
further amended by Amendment No. 2 filed with the Commission on February 9, 1999
and further amended by Amendment No. 3 filed with the Commission on February 10,
1999 (as so amended, the "Registration Statement"), you have requested our
opinion with respect to the matters set forth below. A total of 1,585,000 shares
of Class A Common Stock are being offered by the Company (the "Company Shares"),
and a total of 715,000 shares of Class A Common Stock are being offered by the
Selling Stockholders named in the Registration Statement
 (the "Secondary
Shares") (including 300,000 shares subject to an over-allotment option to be
granted to the Underwriters).

          In our capacity as your counsel in connection with such registration,
we are familiar with the actions taken and proposed to be taken by the Company
in connection with the authorization, issuance and sale of the Company Shares
and by the Selling Stockholders in connection with the sale of the Secondary
Shares, including (a) the exchange by certain of the Selling Stockholders of
685,500 shares of the Company's Class B Common Stock for an identical number
of shares of Class A Common Stock (the "Exchanged Secondary Shares") and (b) the
issuance of 29,500 shares of Class A Common Stock pursuant to the exercise by
other Selling Stockholders of employee and director stock options (the "Optioned
Secondary Shares").  For the purposes of this opinion, we have assumed such
actions will be timely completed in the manner presently proposed.  In addition,
we have made such legal and factual examinations and inquiries, including an
examination of original or copies certified or otherwise identified to our
satisfaction of such documents, corporate records and instruments, as we have
deemed necessary or appropriate for purposes of this opinion.

          In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.

<PAGE>
 
          We are opining herein as to the effect on the subject transaction only
of the General Corporation Law of the State of Delaware, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of any
other laws, or as to any matters of municipal law or the laws of any other local
agencies within the state.

          Subject to the foregoing, it is our opinion that (i) the Company
Shares have been duly authorized, and, upon issuance, delivery and payment
therefor in the manner contemplated by the Registration Statement, will be
validly issued, fully paid and nonassessable, (ii) the Exchanged Secondary
Shares have been duly authorized, and, upon issuance thereof in exchange for
shares of the Company's Class B Common Stock, will be validly issued, fully paid
and nonassessable; and (iii) the Optioned Secondary Shares have been duly
authorized, and, upon issuance thereof pursuant to the valid exercise of
employee and director stock options for due consideration, will be validly
issued, fully paid and nonassessable.

          We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Experts."

                                 Very truly yours,

                                 /s/  Latham & Watkins



<PAGE>

 
                                                                    Exhibit 23.1
 
                      CONSENT OF INDEPENDENT ACCOUNTANTS

        We consent to the inclusion in this Amendment No. 3 to Registration
Statement on Form S-1 (Registration No. 333-70919) of our reports dated 
January 30, 1998, except for note 4 as to which the date is May 8 and Note 8 as
to which the date is June 10, 1998, on our audits of the consolidated financial
statements and financial statement schedule of MicroStrategy Incorporated. We
also consent to the reference to our firm under the captions "Experts".


                                                      PricewaterhouseCoopers LLP


McLean, Virginia
February 10, 1999