Correspondence 0001193125-23-106467 from Strategy Inc (MSTR)
Strategy Inc
Date: April 19, 2023 · CIK: 0001050446 · Accession: 0001193125-23-106467
AI Filing Summary & Sentiment
File numbers found in text: 000-24435
Referenced dates: April 5, 2023
Letter
Securities and Exchange Commission Division of Corporation Finance Re: MicroStrategy Incorporated Form 10-K for the Fiscal Year Ended December 31, 2022 Filed February 16, 2023 File No. 000-24435
Dear Ms. Collins and Ms. Ebbertt:
On behalf of MicroStrategy Incorporated (”MicroStrategy”), I am responding to the comments contained in the letter dated April 5, 2023 (the “Letter”) from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) to Andrew Kang, Senior Executive Vice President & Chief Financial Officer of MicroStrategy, relating to MicroStrategy’s Form 10-K for the fiscal year ended December 31, 2022 (the “2022 10-K”). The responses contained herein are keyed to the numbering of the comments in the Letter and the headings used in the Letter. Unless otherwise indicated, capitalized terms used herein have the meanings assigned to them in the 2022 10-K.
Form 10-K for Fiscal Year Ended December 31, 2022
Item 1. Business
Custody of our Bitcoin, page 9
Comment:
1. To the extent material, please tell us how recent bankruptcies in the crypto industry and failures of certain financial institutions, and the downstream effects of such events, have impacted or may impact your business, financial condition, customers, counterparties and custodians, either directly or indirectly. Clarify and disclose whether you have material assets that may not be recovered due to these events or may otherwise be lost or misappropriated.
1850 Towers Crescent Plaza
Tysons Corner, VA 22182
703 848
703 848 8610 Fax
www.microstrategy.com
Response:
Recent bankruptcies in the crypto industry and failures of certain financial institutions have not materially directly impacted the business or financial condition of MicroStrategy (together with its subsidiaries, “we,” “us,” “our” and the “Company”). We do not have any material exposure to companies in the crypto industry in our enterprise analytics business, and our customers include leading companies from a wide range of industries.
As disclosed in our 2022 10-K, our primary counterparty risk exposure with respect to our bitcoin is performance obligations under the various custody arrangements into which we have entered. None of our bitcoin was at the time of filing of our 2022 10-K, nor as of the date of the submission of this response, custodied with any entity that has entered bankruptcy or announced an intention to file for bankruptcy protection or to liquidate. The recent bankruptcies in the crypto industry and failures of certain financial institutions have not resulted in any loss or misappropriation of any of our bitcoin nor have such events materially impacted our access to any of our bitcoin.
Other than as addressed in our filings with the Commission, the recent bankruptcies in the crypto industry and failures of certain financial institutions also have not materially indirectly impacted our business or financial condition, nor do we believe that any of these events have materially affected the ability of our counterparties and custodians to do business with us to date. However, as disclosed in the 2022 Form 10-K—Item 1A. Risk Factors, such events could in the future have other indirect or downstream impacts on the digital assets industry generally, although we also do not believe any of these potential downstream impacts have had a material effect on the ability of our counterparties and custodians to do business with us to date.
Comment:
2. Please tell us the names of your custodians and the amount of bitcoin held at each. Also, tell us and disclose any direct custodians or other participants in the crypto asset markets known to:
•
Have filed for bankruptcy, been decreed insolvent or bankrupt, made any assignment for the benefit of creditors, or have had a receiver appointed for them.
•
Have experienced excessive redemptions or suspended redemptions or withdrawals of crypto assets.
•
Have the crypto assets of their customers unaccounted for.
•
Have experienced material corporate compliance failures.
Response:
As disclosed in our 2022 10-K, we hold substantially all of our bitcoin in custody accounts at U.S.-based, institutional-grade custodians that have demonstrated records of regulatory compliance and information security, and all of our custodians are New York Department of Financial Services (“NYDFS”)-regulated custodians. To our knowledge, none of our custodians have filed for bankruptcy, been decreed insolvent or bankrupt, made any assignment for the benefit of creditors, or have had a receiver appointed for them. We are not aware of any of our custodians experiencing excessive redemptions or suspensions of redemptions or withdrawals of crypto assets, nor of any of our custodians having the crypto assets of their customers unaccounted for, in each case in a manner or to an extent that would be material to us.
1850 Towers Crescent Plaza
Tysons Corner, VA 22182
703 848
703 848 8610 Fax
www.microstrategy.com
For the names of our custodians and the amount of bitcoin custodied with each, please see Appendix A.
Rule 83 Confidential Treatment Request by MicroStrategy Incorporated Request #1
[**].
MicroStrategy Incorporated respectfully requests that the information contained in Request #1 be treated as confidential information and that the Commission provide timely notice to W. Ming Shao, Esq., Senior Executive Vice President & General Counsel, MicroStrategy Incorporated, 1850 Towers Crescent Plaza, Tysons Corner, VA 22182, phone 703-848-8600, before it permits any disclosure of the bracketed information contained in Request #1.
Item 15. Exhibits, Financial Statement Schedules
Notes to Consolidated Financial Statements
Note 4. Digital Assets, page 88
Comment:
3. We note that both the 2025 and 2028 Secured Notes are secured by bitcoin collateral. Please address the following:
•
Tell us the name of the custodian that held the Bitcoin Collateral Account for the 2025 Secured Notes, and whether they are a third-party, institutional-grade, US-based entity similar to your other bitcoin custodians.
•
Tell us, and revise to disclose as appropriate, whether the bitcoin being held as collateral for the 2028 Secured Notes is also held in a separate custodial account and, if so, provide us with the information requested in the previous bullet point.
•
Tell us whether the lender of either loan has any rights or access to the bitcoin, such as the right to pledge, rehypothecate, assign, commingle or otherwise use the assets pledged as collateral. Alternatively, clarify whether you retain sole custody legal ownership and control over the bitcoin. Explain how either parties’ rights might be impacted in the event of a default.
•
Provide us with your analysis of the accounting for the bitcoin pledged as collateral. In this regard, explain how the terms of the custodian account(s) and/or loan agreements support the inclusion of such bitcoin as an asset on your balance sheet. In addition, address your consideration to classify such bitcoin as a restricted asset separate from your other digital assets. Cite the accounting guidance you relied on to reach your conclusions.
•
Tell us, and consider revising to disclose, the dollar amount of bitcoin used as collateral for each loan as of each period end presented.
1850 Towers Crescent Plaza
Tysons Corner, VA 22182
703 848
703 848 8610 Fax
www.microstrategy.com
Response:
The following responses address each of the specific comments outlined in Comment 3:
•
Tell us the name of the custodian that held the Bitcoin Collateral Account for the 2025 Secured Notes, and whether they are a third-party, institutional-grade, US-based entity similar to your other bitcoin custodians.
We respectfully advise the Staff that we understand the reference to the “2025 Secured Notes” to be a reference to the $205.0 million term loan (“2025 Secured Term Loan”) issued by Silvergate Bank (“Silvergate”) to MacroStrategy LLC (“MacroStrategy”), a wholly-owned subsidiary of MicroStrategy. As disclosed in our Form 8-K filed on March 27, 2023, on March 23, 2023, we voluntarily prepaid the 2025 Secured Term Loan and all obligations thereunder, including with respect to the Bitcoin Collateral Account, have been terminated. For additional information about the custody of the bitcoin in the Bitcoin Collateral Account, please see Appendix A.
•
Tell us, and revise to disclose as appropriate, whether the bitcoin being held as collateral for the 2028 Secured Notes is also held in a separate custodial account and, if so, provide us with the information requested in the previous bullet point.
As of March 31, 2023, MicroStrategy directly owned 14,890 bitcoins (the “MicroStrategy Bitcoins”), and our subsidiary MacroStrategy directly owned 125,110 bitcoins (“MacroStrategy Bitcoins”). As of March 31, 2023, all MicroStrategy Bitcoins were pledged as collateral in respect of our 6.125% Senior Secured Notes due 2028 (the “2028 Secured Notes”) to U.S. Bank National Association (“US Bank”), as collateral agent on behalf of the holders of the 2028 Secured Notes, while all MacroStrategy Bitcoins were unencumbered and not pledged as collateral. MicroStrategy and MacroStrategy maintain separate custodial accounts and MicroStrategy Bitcoins are not commingled with MacroStrategy Bitcoins. For additional information about the custody of the bitcoin pledged as collateral in respect of the 2028 Secured Notes, please see Appendix A.
We respectfully advise the Staff that we have previously disclosed in our 2022 10-K the number of bitcoins owned by each of MicroStrategy and MacroStrategy, and that all of the MicroStrategy Bitcoins are pledged as collateral in respect of our 2028 Secured Notes. We have also disclosed in our 2022 10-K that substantially all of our bitcoin is custodied with third-party custodians, including the MicroStrategy Bitcoins.
•
Tell us whether the lender of either loan has any rights or access to the bitcoin, such as the right to pledge, rehypothecate, assign, commingle or otherwise use the assets pledged as collateral. Alternatively, clarify whether you retain sole custody legal ownership and control over the bitcoin. Explain how either parties’ rights might be impacted in the event of a default.
Under the 2025 Secured Term Loan, MacroStrategy granted a security interest and lien to Silvergate on certain of MacroStrategy’s bitcoin, which were custodied in the Bitcoin Collateral Account (the “Silvergate Security Interest”), and under the collateral agreement governing the 2028 Secured Notes, MicroStrategy granted a security interest and lien on the MicroStrategy Bitcoins to US Bank (the “US Bank Security Interest” and, together with the Silvergate Security Interest, the “Security Interests”).
1850 Towers Crescent Plaza
Tysons Corner, VA 22182
703 848
703 848 8610 Fax
www.microstrategy.com
Under the Uniform Commercial Code as in effect in the State of New York (the “UCC”), a security interest in digital assets that are treated by the parties as “financial assets” under the UCC is perfected by conferring “control” over the digital assets to the secured party via a tri-party account control agreement among the borrower, secured party and custodian. “Control” for purposes of the UCC requires that the custodian comply with instructions from the secured party, but upon agreement of the parties, the right to deliver such instructions can be made subject to the occurrence and continuance of an event of default under underlying debt instruments.
Accordingly, in order to perfect the Security Interests, each of the secured parties and borrowers entered into tri-party account control agreements with the applicable custodians (the “Account Control Agreements”), which provide the secured parties with the right to deliver an instruction of exclusive control to the custodian, but only upon the occurrence and during the continuance of an event of default under the underlying debt instruments. These Security Interests and the Account Control Agreements conferred upon Silvergate and US Bank certain rights as secured parties, particularly the right to exercise remedies such as taking over the collateralized bitcoin upon the occurrence and continuance of an event of default; however, except upon the occurrence and continuance of such an event of default, the terms of the underlying debt instruments did not permit Silvergate and do not permit US Bank, as applicable, to pledge, rehypothecate, assign, commingle or otherwise use or direct the disposition of bitcoin pledged as collateral without the consent of MacroStrategy or MicroStrategy, as applicable.
Conferring “control” to the secured parties under the UCC and entering into the Account Control Agreements does not change the legal ownership of the pledged bitcoin prior to the secured party exercising exclusive control over the pledged bitcoin. Under the Account Control Agreements, the secured parties could only exercise exclusive control over the pledged bitcoin upon the occurrence and during the continuance of an event of default, and upon a submission of a notice to this effect by the applicable secured party to the applicable custodian. Only upon exercising exclusive control over the pledged bitcoin could the secured parties sell or otherwise transfer legal ownership of the pledged bitcoin. As there has not been an occurrence of an event of default under these debt instruments, we have at all times maintained legal ownership of our pledged bitcoin, subject to the security interest and liens on such bitcoin.
•
Provide us with your analysis of the accounting for the bitcoin pledged as collateral. In this regard, explain how the terms of the custodian account(s) and/or loan agreements support the inclusion of such bitcoin as an asset on your balance sheet. In addition, address your consideration to classify such bitcoin as a restricted asset separate from your other digital assets. Cite the accounting guidance you relied on to reach your conclusions.
1850 Towers Crescent Plaza
Tysons Corner, VA 22182
703 848
703 848 8610 Fax
www.microstrategy.com
We do not believe the Account Control Agreements limit our ability to present our pledged bitcoin as assets on our balance sheet. Although MicroStrategy can, and MacroStrategy could, only withdraw, transfer, or release the collateral in accordance with and subject to the Account Control Agreements and underlying debt instruments, this does not, in the case of the 2028 Secured Notes, and did not, in the case of the 2025 Secured Term Loan, result in the secured parties having rights to our digital assets in such a manner that we would not be able to present them as assets on our balance sheets. The secured party under the 2028 Secured Notes can only exercise, and the secured party under the 2025 Secured Term Loan could have only exercised, sole or exclusive control of the collateral upon submitting to the custodian a notice of sole or exclusive control (in the form designated under each underlying debt instrument and/or applicable Account Control Agreement), which in each case can only be submitted upon the occurrence and continuance of an event of default. Until such notice is received, US Bank is not, and Silvergate was not, able to unilaterally withdraw, transfer, substitute, or
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CORRESP 1 filename1.htm CORRESP 1850 Towers Crescent Plaza Tysons Corner, VA 22182 703 848 8600 703 848 8610 Fax www.microstrategy.com April 19, 2023 CONFIDENTIAL TREATMENT REQUEST UNDER RULE 83 The entity requesting confidential treatment is: MicroStrategy Incorporated 1850 Towers Crescent Plaza Tysons Corner, VA 22182 Attn: W. Ming Shao, Esq., Senior Executive Vice President & General Counsel 703-848-8600 Securities and Exchange Commission Division of Corporation Finance 100 F Street, NE Washington, D.C. 20549-4561 Attn: Kathleen Collins Brittany Ebbertt Re: MicroStrategy Incorporated Form 10-K for the Fiscal Year Ended December 31, 2022 Filed February 16, 2023 File No. 000-24435 Dear Ms. Collins and Ms. Ebbertt: On behalf of MicroStrategy Incorporated (”MicroStrategy”), I am responding to the comments contained in the letter dated April 5, 2023 (the “Letter”) from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) to Andrew Kang, Senior Executive Vice President & Chief Financial Officer of MicroStrategy, relating to MicroStrategy’s Form 10-K for the fiscal year ended December 31, 2022 (the “2022 10-K”). The responses contained herein are keyed to the numbering of the comments in the Letter and the headings used in the Letter. Unless otherwise indicated, capitalized terms used herein have the meanings assigned to them in the 2022 10-K. Form 10-K for Fiscal Year Ended December 31, 2022 Item 1. Business Custody of our Bitcoin, page 9 Comment: 1. To the extent material, please tell us how recent bankruptcies in the crypto industry and failures of certain financial institutions, and the downstream effects of such events, have impacted or may impact your business, financial condition, customers, counterparties and custodians, either directly or indirectly. Clarify and disclose whether you have material assets that may not be recovered due to these events or may otherwise be lost or misappropriated. 1 1850 Towers Crescent Plaza Tysons Corner, VA 22182 703 848 8600 703 848 8610 Fax www.microstrategy.com Response: Recent bankruptcies in the crypto industry and failures of certain financial institutions have not materially directly impacted the business or financial condition of MicroStrategy (together with its subsidiaries, “we,” “us,” “our” and the “Company”). We do not have any material exposure to companies in the crypto industry in our enterprise analytics business, and our customers include leading companies from a wide range of industries. As disclosed in our 2022 10-K, our primary counterparty risk exposure with respect to our bitcoin is performance obligations under the various custody arrangements into which we have entered. None of our bitcoin was at the time of filing of our 2022 10-K, nor as of the date of the submission of this response, custodied with any entity that has entered bankruptcy or announced an intention to file for bankruptcy protection or to liquidate. The recent bankruptcies in the crypto industry and failures of certain financial institutions have not resulted in any loss or misappropriation of any of our bitcoin nor have such events materially impacted our access to any of our bitcoin. Other than as addressed in our filings with the Commission, the recent bankruptcies in the crypto industry and failures of certain financial institutions also have not materially indirectly impacted our business or financial condition, nor do we believe that any of these events have materially affected the ability of our counterparties and custodians to do business with us to date. However, as disclosed in the 2022 Form 10-K—Item 1A. Risk Factors, such events could in the future have other indirect or downstream impacts on the digital assets industry generally, although we also do not believe any of these potential downstream impacts have had a material effect on the ability of our counterparties and custodians to do business with us to date. Comment: 2. Please tell us the names of your custodians and the amount of bitcoin held at each. Also, tell us and disclose any direct custodians or other participants in the crypto asset markets known to: • Have filed for bankruptcy, been decreed insolvent or bankrupt, made any assignment for the benefit of creditors, or have had a receiver appointed for them. • Have experienced excessive redemptions or suspended redemptions or withdrawals of crypto assets. • Have the crypto assets of their customers unaccounted for. • Have experienced material corporate compliance failures. Response: As disclosed in our 2022 10-K, we hold substantially all of our bitcoin in custody accounts at U.S.-based, institutional-grade custodians that have demonstrated records of regulatory compliance and information security, and all of our custodians are New York Department of Financial Services (“NYDFS”)-regulated custodians. To our knowledge, none of our custodians have filed for bankruptcy, been decreed insolvent or bankrupt, made any assignment for the benefit of creditors, or have had a receiver appointed for them. We are not aware of any of our custodians experiencing excessive redemptions or suspensions of redemptions or withdrawals of crypto assets, nor of any of our custodians having the crypto assets of their customers unaccounted for, in each case in a manner or to an extent that would be material to us. 2 1850 Towers Crescent Plaza Tysons Corner, VA 22182 703 848 8600 703 848 8610 Fax www.microstrategy.com For the names of our custodians and the amount of bitcoin custodied with each, please see Appendix A. Rule 83 Confidential Treatment Request by MicroStrategy Incorporated Request #1 [**]. MicroStrategy Incorporated respectfully requests that the information contained in Request #1 be treated as confidential information and that the Commission provide timely notice to W. Ming Shao, Esq., Senior Executive Vice President & General Counsel, MicroStrategy Incorporated, 1850 Towers Crescent Plaza, Tysons Corner, VA 22182, phone 703-848-8600, before it permits any disclosure of the bracketed information contained in Request #1. Item 15. Exhibits, Financial Statement Schedules Notes to Consolidated Financial Statements Note 4. Digital Assets, page 88 Comment: 3. We note that both the 2025 and 2028 Secured Notes are secured by bitcoin collateral. Please address the following: • Tell us the name of the custodian that held the Bitcoin Collateral Account for the 2025 Secured Notes, and whether they are a third-party, institutional-grade, US-based entity similar to your other bitcoin custodians. • Tell us, and revise to disclose as appropriate, whether the bitcoin being held as collateral for the 2028 Secured Notes is also held in a separate custodial account and, if so, provide us with the information requested in the previous bullet point. • Tell us whether the lender of either loan has any rights or access to the bitcoin, such as the right to pledge, rehypothecate, assign, commingle or otherwise use the assets pledged as collateral. Alternatively, clarify whether you retain sole custody legal ownership and control over the bitcoin. Explain how either parties’ rights might be impacted in the event of a default. • Provide us with your analysis of the accounting for the bitcoin pledged as collateral. In this regard, explain how the terms of the custodian account(s) and/or loan agreements support the inclusion of such bitcoin as an asset on your balance sheet. In addition, address your consideration to classify such bitcoin as a restricted asset separate from your other digital assets. Cite the accounting guidance you relied on to reach your conclusions. • Tell us, and consider revising to disclose, the dollar amount of bitcoin used as collateral for each loan as of each period end presented. 3 1850 Towers Crescent Plaza Tysons Corner, VA 22182 703 848 8600 703 848 8610 Fax www.microstrategy.com Response: The following responses address each of the specific comments outlined in Comment 3: • Tell us the name of the custodian that held the Bitcoin Collateral Account for the 2025 Secured Notes, and whether they are a third-party, institutional-grade, US-based entity similar to your other bitcoin custodians. We respectfully advise the Staff that we understand the reference to the “2025 Secured Notes” to be a reference to the $205.0 million term loan (“2025 Secured Term Loan”) issued by Silvergate Bank (“Silvergate”) to MacroStrategy LLC (“MacroStrategy”), a wholly-owned subsidiary of MicroStrategy. As disclosed in our Form 8-K filed on March 27, 2023, on March 23, 2023, we voluntarily prepaid the 2025 Secured Term Loan and all obligations thereunder, including with respect to the Bitcoin Collateral Account, have been terminated. For additional information about the custody of the bitcoin in the Bitcoin Collateral Account, please see Appendix A. • Tell us, and revise to disclose as appropriate, whether the bitcoin being held as collateral for the 2028 Secured Notes is also held in a separate custodial account and, if so, provide us with the information requested in the previous bullet point. As of March 31, 2023, MicroStrategy directly owned 14,890 bitcoins (the “MicroStrategy Bitcoins”), and our subsidiary MacroStrategy directly owned 125,110 bitcoins (“MacroStrategy Bitcoins”). As of March 31, 2023, all MicroStrategy Bitcoins were pledged as collateral in respect of our 6.125% Senior Secured Notes due 2028 (the “2028 Secured Notes”) to U.S. Bank National Association (“US Bank”), as collateral agent on behalf of the holders of the 2028 Secured Notes, while all MacroStrategy Bitcoins were unencumbered and not pledged as collateral. MicroStrategy and MacroStrategy maintain separate custodial accounts and MicroStrategy Bitcoins are not commingled with MacroStrategy Bitcoins. For additional information about the custody of the bitcoin pledged as collateral in respect of the 2028 Secured Notes, please see Appendix A. We respectfully advise the Staff that we have previously disclosed in our 2022 10-K the number of bitcoins owned by each of MicroStrategy and MacroStrategy, and that all of the MicroStrategy Bitcoins are pledged as collateral in respect of our 2028 Secured Notes. We have also disclosed in our 2022 10-K that substantially all of our bitcoin is custodied with third-party custodians, including the MicroStrategy Bitcoins. • Tell us whether the lender of either loan has any rights or access to the bitcoin, such as the right to pledge, rehypothecate, assign, commingle or otherwise use the assets pledged as collateral. Alternatively, clarify whether you retain sole custody legal ownership and control over the bitcoin. Explain how either parties’ rights might be impacted in the event of a default. Under the 2025 Secured Term Loan, MacroStrategy granted a security interest and lien to Silvergate on certain of MacroStrategy’s bitcoin, which were custodied in the Bitcoin Collateral Account (the “Silvergate Security Interest”), and under the collateral agreement governing the 2028 Secured Notes, MicroStrategy granted a security interest and lien on the MicroStrategy Bitcoins to US Bank (the “US Bank Security Interest” and, together with the Silvergate Security Interest, the “Security Interests”). 4 1850 Towers Crescent Plaza Tysons Corner, VA 22182 703 848 8600 703 848 8610 Fax www.microstrategy.com Under the Uniform Commercial Code as in effect in the State of New York (the “UCC”), a security interest in digital assets that are treated by the parties as “financial assets” under the UCC is perfected by conferring “control” over the digital assets to the secured party via a tri-party account control agreement among the borrower, secured party and custodian. “Control” for purposes of the UCC requires that the custodian comply with instructions from the secured party, but upon agreement of the parties, the right to deliver such instructions can be made subject to the occurrence and continuance of an event of default under underlying debt instruments. Accordingly, in order to perfect the Security Interests, each of the secured parties and borrowers entered into tri-party account control agreements with the applicable custodians (the “Account Control Agreements”), which provide the secured parties with the right to deliver an instruction of exclusive control to the custodian, but only upon the occurrence and during the continuance of an event of default under the underlying debt instruments. These Security Interests and the Account Control Agreements conferred upon Silvergate and US Bank certain rights as secured parties, particularly the right to exercise remedies such as taking over the collateralized bitcoin upon the occurrence and continuance of an event of default; however, except upon the occurrence and continuance of such an event of default, the terms of the underlying debt instruments did not permit Silvergate and do not permit US Bank, as applicable, to pledge, rehypothecate, assign, commingle or otherwise use or direct the disposition of bitcoin pledged as collateral without the consent of MacroStrategy or MicroStrategy, as applicable. Conferring “control” to the secured parties under the UCC and entering into the Account Control Agreements does not change the legal ownership of the pledged bitcoin prior to the secured party exercising exclusive control over the pledged bitcoin. Under the Account Control Agreements, the secured parties could only exercise exclusive control over the pledged bitcoin upon the occurrence and during the continuance of an event of default, and upon a submission of a notice to this effect by the applicable secured party to the applicable custodian. Only upon exercising exclusive control over the pledged bitcoin could the secured parties sell or otherwise transfer legal ownership of the pledged bitcoin. As there has not been an occurrence of an event of default under these debt instruments, we have at all times maintained legal ownership of our pledged bitcoin, subject to the security interest and liens on such bitcoin. • Provide us with your analysis of the accounting for the bitcoin pledged as collateral. In this regard, explain how the terms of the custodian account(s) and/or loan agreements support the inclusion of such bitcoin as an asset on your balance sheet. In addition, address your consideration to classify such bitcoin as a restricted asset separate from your other digital assets. Cite the accounting guidance you relied on to reach your conclusions. 5 1850 Towers Crescent Plaza Tysons Corner, VA 22182 703 848 8600 703 848 8610 Fax www.microstrategy.com We do not believe the Account Control Agreements limit our ability to present our pledged bitcoin as assets on our balance sheet. Although MicroStrategy can, and MacroStrategy could, only withdraw, transfer, or release the collateral in accordance with and subject to the Account Control Agreements and underlying debt instruments, this does not, in the case of the 2028 Secured Notes, and did not, in the case of the 2025 Secured Term Loan, result in the secured parties having rights to our digital assets in such a manner that we would not be able to present them as assets on our balance sheets. The secured party under the 2028 Secured Notes can only exercise, and the secured party under the 2025 Secured Term Loan could have only exercised, sole or exclusive control of the collateral upon submitting to the custodian a notice of sole or exclusive control (in the form designated under each underlying debt instrument and/or applicable Account Control Agreement), which in each case can only be submitted upon the occurrence and continuance of an event of default. Until such notice is received, US Bank is not, and Silvergate was not, able to unilaterally withdraw, transfer, substitute, or