MicroStrategy (MSTR)

(a)  Securities Litigation

In 2000, the Company and certain of its officers and directors were named as defendants in a private securities class action lawsuit and a shareholder derivative lawsuit. The Company entered into agreements to settle these lawsuits in 2000 and subsequently completed its distribution of consideration under these lawsuits during 2002.

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MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Based on the terms of the settlement agreements, the Company established an initial estimate for the cost of the litigation settlement during 2000. Subsequently, during each successive financial reporting period prior to distribution of the consideration, the Company updated the estimated value assigned to each individual component of the settlement based upon valuation assumptions stemming from the settlement. As a result of changes in the estimated market borrowing rate and discount on the promissory notes, declines in the value of the Company’s class A common stock and reductions in the estimated fair value of warrants issued in connection with the litigation settlement, the Company recorded aggregate reductions in the provision for the litigation settlement of $11.4 million and during the year ended December 31, 2002. As distribution of the consideration was completed during the third quarter of 2002, no further reductions have been recorded thereafter. The reduction in estimated cost of litigation settlement in 2002 was comprised of the following, (in thousands):

The Company substantially reduced its outstanding obligations relating to the accrued litigation settlement upon completing its distribution of the consideration under the private securities class action settlement during 2002.