Exhibit 4.2
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF THE SERIES C CONVERTIBLE PREFERRED STOCK
OF
MICROSTRATEGY INCORPORATED
MicroStrategy Incorporated (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, par value $0.001 per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of Two Thousand
Seven Hundred Eighty Five (2,785) shares of Series C Convertible Preferred Stock
of the Company, as follows:
RESOLVED, that the Company is authorized to issue 2,785 shares of
Series C Convertible Preferred Stock (the "Preferred Shares"), par value
$0.001 per share, which shall have the following powers, designations,
preferences and other special rights:
(1) Dividends. The holders of the Preferred Shares shall be entitled to
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receive dividends ("Dividends") at a rate of 12.5% per annum, which shall be
cumulative, accrue daily from the Issuance Date (as defined below) and be due
and payable with respect to a Preferred Share beginning on the earlier of (A)
the later of (I) the date which is 10 days after the date on which the
Registration Statement (as defined in the Amended and Restated Registration
Rights Agreement (as defined below) to which the holder of the applicable
Preferred Shares is a party) covering the shares of Common Stock (as defined
below) issuable upon conversion of such Preferred Share is declared effective by
the Securities and Exchange Commission (the "SEC") or (II) July 1, 2001 or (B)
October 1, 2001 (the "First Dividend Date") and on the first day of each
Calendar Quarter (as defined below) after the First Dividend Date (each,
including the First Dividend Date, a "Dividend Date"). If a Dividend Date is
not a Business Day, then the Dividend shall be due and payable on the Business
Day immediately following such Dividend Date. Dividends shall be payable in
shares of Common Stock (as defined below) ("Dividend Shares"), or, at the option
of the Company, in cash, provided that the Dividends which accrued during any
period shall be payable in cash only if the Company provides written notice
("Dividend Election Notice") to each holder of Preferred Shares at least ten
(10) days prior to the Dividend Date. Dividends to be paid in shares of Common
Stock for each Preferred Share shall be paid in a number of fully paid and
nonassessable shares (rounded to the nearest whole share in accordance with
Section 2(b)) of Common Stock equal to the quotient of (a) the Additional Amount
(as defined below) divided by (b) the Dividend Conversion Price (as defined
below) on the applicable Dividend Date. Notwithstanding the foregoing, the
Company shall not be entitled to pay Dividends in shares of Common Stock and
shall be required to pay such Dividends in cash if (a) any event constituting a
Triggering Event (as defined in Section 3(b)), or an event that with the passage
of time and without being cured would constitute a Triggering Event, has
occurred and is continuing on the Dividend Date or the date which is 10 days
prior to the Dividend Date, unless otherwise consented to in writing by the
holder of Preferred Shares entitled to receive such Dividend or (b) the
Registration Statement is not effective and available for the resale of all of
the Registrable Securities (as defined in the Amended and Restated Registration
Rights Agreement to which the holder of the applicable Preferred Shares is a
party), including, without limitation, the Dividend Shares, on the Dividend Date
or the date which is 10 days prior to the Dividend Date. Notwithstanding the
foregoing, at any time prior to the First Dividend Date, upon the mutual written
agreement between the Company and the holders of at least two-thirds (2/3) of
the Preferred Shares then outstanding signed by all the parties thereto (a
"Dividend Accrual Election"), Dividends, in lieu of being paid on each Dividend
Date, shall be payable by inclusion of the Dividend in the Additional Amount as
set forth in Section 2(a)(i). Any accrued and unpaid Dividends which are not
paid within five (5) Business Days of such accrued and unpaid Dividends'
Dividend Date shall bear interest at the rate of 18.0% per annum from such
Dividend Date until the same is paid in full (the "Default Interest").
(2) Conversion of Preferred Shares. Preferred Shares shall be convertible
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into shares of the Company's Class A Common Stock, par value $0.001 per share
(the "Common Stock"), on the terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of this Certificate of
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Designations, the following terms shall have the following meanings:
(i) "Additional Amount" means, on a per Preferred Share basis,
the sum of (A) unpaid Default Interest through the date of determination plus
(B) the result of the following formula: (0.125)(N/365)($10,000).
(ii) "Amended and Restated Redemption and Exchange Agreement"
means, with respect to any Preferred Share, that certain amended and restated
redemption and exchange agreement between the Company and the initial holder of
such Preferred Share, as such agreement may be amended from time to time as
provided in such agreement.
(iii) "Amended and Restated Registration Rights Agreement"
means, with respect to any Preferred Share, that certain amended and restated
registration rights agreement between the Company and the initial holder of such
Preferred Share relating to the filing of a registration statement covering the
resale of the shares of Common Stock issuable
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upon conversion of, or as payment of Dividends on, such Preferred Share, as such
agreement may be amended from time to time as provided in such agreement.
(iv) "Approved Stock Plan" means any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer or
director for services provided to the Company.
(v) "Business Day" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
(vi) "Calendar Quarter" means, each of the period beginning on
and including January 1 and ending on and including March 31, the period
beginning on and including April 1 and ending on and including June 30, the
period beginning on and including July 1 and ending on and including September
30, and the period beginning on and including October 1 and ending on and
including December 31.
(vii) "Closing Sale Price" means, for any security as of any
date, the last closing trade price for such security on the Principal Market as
reported by Bloomberg, or if the Principal Market begins to operate on an
extended hours basis, and does not designate the closing trade price, then the
last trade price at 4:00 p.m., Eastern Time, as reported by Bloomberg, or if the
foregoing do not apply, the last closing trade price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the last closing ask price of such security as reported
by Bloomberg, or, if no last closing ask price is reported for such security by
Bloomberg, the average of the highest bid price and the lowest ask price of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Sale Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Sale Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of Preferred Shares. If the Company and the
holders of Preferred Shares are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved pursuant to Section
2(d)(iii) below. All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period.
(viii) "Common Stock Deemed Outstanding" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(f)(i)(A) and 2(f)(i)(B) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock owned or held by or for the account of the Company or
issuable upon conversion of the Preferred Shares, the Series A Preferred Shares,
the Series B Preferred Shares, the Series D Preferred Shares or the Series E
Preferred Shares.
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(ix) "Conversion Amount" means the sum of (1) the Additional
Amount, and (2) $10,000.
(x) "Conversion Price" means (A) as of any Conversion Date or
other date of determination during the period beginning on the Issuance Date (as
defined below) and ending on and including the day immediately preceding the
Mandatory Conversion or Redemption Date (as defined below), the Fixed Conversion
Price and (B) as of any Conversion Date or other date of determination, on or
after the Mandatory Conversion or Redemption Date, the Maturity Conversion Price
(as defined below), each in effect as of such date and subject to adjustment as
provided herein.
(xi) "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable or
exercisable for Common Stock.
(xii) "Dividend Conversion Price" means, with respect to any
Dividend Date, that price which shall be computed as the product of (A) 95%
multiplied by (B) the arithmetic average of the Weighted Average Price of the
Common Stock on each trading day during the five (5) consecutive trading days
immediately preceding such Dividend Date.
(xiii) "Fixed Conversion Price" means, with respect to any
Preferred Share, as of any Conversion Date or other date of determination,
$17.50, subject to adjustment as provided herein.
(xiv) "Issuance Date" means, with respect to each Preferred
Share, the first date on which any Preferred Shares are issued by the Company.
(xv) "Mandatory Conversion or Redemption Date" means, with
respect to a Preferred Share, the date which is three (3) years after the
Issuance Date.
(xvi) "Market Price" means, with respect to any security for
any date of determination, that price which is equal to the arithmetic average
of the Weighted Average Price of such security on each trading day during the 10
consecutive trading days immediately preceding such date of determination. All
such determinations to be appropriately adjusted for any stock dividend, stock
split stock combination or other similar transaction.
(xvii) "Maturity Date" means the Mandatory Conversion or
Redemption Date, unless extended pursuant to Section 2(d)(vii).
(xviii) "Maturity Conversion Price" means the product of (A) 95%
multiplied by (B) the arithmetic average of the Weighted Average Price of the
Common Stock on each trading day during the 30 consecutive trading days
immediately preceding the Mandatory Conversion or Redemption Date.
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(xix) "N" means the number of days from, but excluding, the
last Dividend Date with respect to which dividends, along with any Default
Interest, have been paid by the Company on the applicable Preferred Share, or
the Issuance Date if no Dividend Date has occurred, through and including the
Conversion Date, the Maturity Date or other date of determination for such
Preferred Share, as the case may be, for which such determination is being made;
provided, however, if a Dividend Accrual Election has occurred, then "N" shall
mean the number of days from, but excluding, the Issuance Date through and
including the Conversion Date, the redemption date or other date of
determination for such Preferred Share, as the case may be, for which such
determination is being made.
(xx) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(xxi) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xxii) "Principal Market" means the Nasdaq National Market, or
if the Common Stock is not traded on the Nasdaq National Market, then the
principal securities exchange or trading market for the Common Stock.
(xxiii) "Series A Preferred Shares" means the shares of the
Company's Series A Convertible Preferred Stock issued prior to the Issuance Date
pursuant to the Company's Certificate of Designations, Preferences and Rights of
the Series A Convertible Preferred Stock filed with the Secretary of State of
the State of Delaware on June 19, 2000.
(xxiv) "Series B Preferred Shares" means the shares of the
Company's Series B Convertible Preferred Stock issued pursuant to an Amended and
Restated Redemption and Exchange Agreement in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Series B
Convertible Preferred Stock filed with the Secretary of State of the State of
Delaware on or prior to the Issuance Date.
(xxv) "Series D Preferred Shares" means the shares of the
Company's Series D Convertible Preferred Stock issued pursuant to an Amended and
Restated Redemption and Exchange Agreement in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Series D
Convertible Preferred Stock filed with the Secretary of State of the State of
Delaware on or prior to the Issuance Date.
(xxvi) "Series E Preferred Shares" means the shares of the
Company's Series E Convertible Preferred Stock issued pursuant to an Amended and
Restated Redemption and Exchange Agreement in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Series E
Convertible Preferred Stock (the "Series E Certificate of Designations") filed
with the Secretary of State of the State of Delaware on or prior to the Issuance
Date.
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(xxvii) "Stated Value" means $10,000.
(xxviii) "Weighted Average Price" means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market during the period beginning at 9:30 a.m., New York City
Time, and ending at 4:00 p.m., New York City Time, as reported by Bloomberg
through its "Volume at Price" functions or, if the foregoing does not apply, the
dollar volume-weighted average price of such security in the over-the-counter
market on the electronic bulletin board for such security during the period
beginning at 9:30 a.m., New York City Time, and ending at 4:00 p.m., New York
City Time, as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Weighted Average Price cannot be calculated for
such security on such date on any of the foregoing bases, the Weighted Average
Price of such security on such date shall be the fair market value as mutually
determined by the Company and the holders of the Preferred Shares. If the
Company and the holders of the Preferred Shares are unable to agree upon the
fair market value of the Common Stock, then such dispute shall be resolved
pursuant to Section 2(d)(iii) below with the term "Weighted Average Price" being
substituted for the term "Closing Sale Price." All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(b) Holder's Conversion Right; Mandatory Redemption or Conversion.
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Subject to the provisions of Section 5, at any time or times on or after the
Issuance Date, any holder of Preferred Shares shall be entitled to convert any
whole or fractional number of Preferred Shares into fully paid and nonassessable
shares of Common Stock in accordance with Section 2(d) at the Conversion Rate
(as defined below). If any Preferred Shares remain outstanding on the Maturity
Date, then, pursuant and subject to Section 2(d)(vii), all such Preferred Shares
shall be converted at the Conversion Rate as of such date in accordance with
Section 2(d)(vii) or redeemed by the Company in accordance with Section
2(d)(vii). The Company shall not issue any fraction of a share of Common Stock
upon any conversion. All shares of Common Stock (including fractions thereof)
issuable upon conversion of more than one Preferred Share by a holder thereof
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round such fraction of a
share of Common Stock up or down to the nearest whole share.
(c) Conversion. The number of shares of Common Stock issuable upon
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conversion of each Preferred Share pursuant to Section 2(b) shall be determined
according to the following formula (the "Conversion Rate"):
Conversion Amount
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Conversion Price
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(d) Mechanics of Conversion. The conversion of Preferred Shares shall
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be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert Preferred
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Shares into shares of Common Stock on any date (the "Conversion Date"), the
holder thereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m., Eastern Time, on such date, a copy of an
executed notice of conversion in the form attached hereto as Exhibit I (the
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"Conversion Notice") to the Company and the Company's designated transfer agent
(the "Transfer Agent") and (B) if required by Section 2(d)(viii), surrender to a
common carrier for delivery to the Company as soon as practicable following such
date the original certificates representing the Preferred Shares being converted
(or an indemnification undertaking with respect to such shares in the case of
their loss, theft or destruction) (the "Preferred Stock Certificates").
(ii) Company's Response. Upon receipt by the Company of a copy
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of a Conversion Notice, the Company shall (I) as soon as practicable, but in no
event later than within one (1) Business Day, send, via facsimile, a
confirmation of receipt of such Conversion Notice to such holder and the
Transfer Agent, which confirmation shall constitute an instruction to the
Transfer Agent to process such Conversion Notice in accordance with the terms
herein and (II) on or before the second (2/nd/) Business Day following the date
of receipt by the Company of such Conversion Notice (the "Share Delivery Date"),
(A) issue and deliver to the address as specified in the Conversion Notice, a
certificate, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled, or (B)
provided the Transfer Agent is participating in The Depository Trust Company
("DTC") Fast Automated Securities Transfer Program, upon the request of the
holder, credit such aggregate number of shares of Common Stock to which the
holder shall be entitled to the holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system. If the number of
Preferred Shares represented by the Preferred Stock Certificate(s) submitted for
conversion, as may be required pursuant to Section 2(d)(viii), is greater than
the number of Preferred Shares being converted, then the Company shall, as soon
as practicable and in no event later than three Business Days after receipt of
the Preferred Stock Certificate(s) (the "Preferred Stock Delivery Date") and at
its own expense, issue and deliver to the holder a new Preferred Stock
Certificate representing the number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as to the
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determination of the Closing Sale Price or the arithmetic calculation of the
Conversion Rate, the Company shall instruct the Transfer Agent to issue to the
holder the number of shares of Common Stock that is not disputed and shall
transmit an explanation of the disputed determinations or arithmetic
calculations to the holder via facsimile within one (1) Business Day of receipt
of such holder's Conversion Notice or other date of determination. If such
holder and the Company are unable to agree upon the determination of the Closing
Sale Price or arithmetic calculation of the Conversion Rate within two (2)
Business Days of such disputed determination or arithmetic calculation being
transmitted to the holder, then the Company shall within one (1) Business Day
submit via facsimile (A) the disputed determination of the Closing Sale Price to
an independent, reputable investment bank selected by the Company and approved
by the holders of at least two-
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thirds (2/3) of the Preferred Shares then outstanding or (B) the disputed
arithmetic calculation of the Conversion Rate to the Company's independent,
outside accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than two (2)
Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent error.
(iv) Record Holder. The person or persons entitled to receive the
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shares of Common Stock issuable upon a conversion of Preferred Shares shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
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(A) Cash Damages. If (I) within five (5) Business Days
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after the Company's receipt of the facsimile copy of a Conversion Notice the
Company shall fail to issue and deliver a certificate to a holder or credit such
holder's balance account with DTC for the number of shares of Common Stock to
which such holder is entitled upon such holder's conversion of Preferred Shares
or (II) within five (5) Business Days of the Company's receipt of a Preferred
Stock Certificate the Company shall fail to issue and deliver a new Preferred
Stock Certificate representing the number of Preferred Shares to which such
holder is entitled pursuant to Section 2(d)(ii), then in addition to all other
available remedies which such holder may pursue hereunder and under the Amended
and Restated Redemption and Exchange Agreement (including indemnification
pursuant to Section 8 thereof), the Company shall pay additional damages to such
holder for each day after the Share Delivery Date such conversion is not timely
effected and/or each day after the Preferred Stock Delivery Date such Preferred
Stock Certificate is not delivered in an amount equal to 0.5% of the product of
(I) the sum of the number of shares of Common Stock not issued to the holder on
or prior to the Share Delivery Date and to which such holder is entitled as set
forth in the applicable Conversion Notice and, in the event the Company has
failed to deliver a Preferred Stock Certificate to the holder on or prior to the
Preferred Stock Delivery Date, the number of shares of Common Stock issuable
upon conversion of the Preferred Shares represented by such Preferred Stock
Certificate as of the Preferred Stock Delivery Date and (II) the Closing Sale
Price of the Common Stock on the Share Delivery Date, in the case of the failure
to deliver Common Stock, or the Preferred Stock Delivery Date, in the case of
failure to deliver a Preferred Stock Certificate. If the Company fails to pay
the additional damages set forth in this Section 2(d)(v) within five Business
Days of the date incurred, then the holder entitled to such payments shall have
the right at any time, so long as the Company continues to fail to make such
payments, to require the Company, upon written notice, to immediately issue, in
lieu of such cash damages, the number of shares of Common Stock equal to the
quotient of (X) the aggregate amount of the damages payments described herein
divided by (Y) the Conversion Price in effect on such Conversion Date as
specified by the holder in the Conversion Notice.
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(B) Void Conversion Notice; Adjustment of Fixed Conversion
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Price. If for any reason a holder has not received all of the shares of Common
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Stock prior to the tenth (10th) Business Day after the Share Delivery Date with
respect to a conversion of Preferred Shares, then the holder, upon written
notice to the Company, with a copy to the Transfer Agent, may void its
Conversion Notice with respect to, and retain or have returned, as the case may
be, any Preferred Shares that have not been converted pursuant to such holder's
Conversion Notice; provided that the voiding of a holder's Conversion Notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice pursuant to Section 2(d)(v)(A) or
otherwise. Thereafter, the Fixed Conversion Price of any Preferred Shares
returned or retained by the holder for failure to timely convert shall be
adjusted to the lesser of (I) the Fixed Conversion Price as in effect on the
date on which the holder voided the Conversion Notice and (II) the lowest
Weighted Average Price of the Common Stock during the period beginning on the
Conversion Date and ending on the date such holder voided the Conversion Notice,
subject to further adjustment as provided in this Certificate of Designations.
(C) Conversion Failure. If for any reason a holder has not
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received all of the shares of Common Stock prior to the tenth (10th) Business
Day after the Share Delivery Date with respect to a conversion of Preferred
Shares (a "Conversion Failure"), then the holder, upon written notice to the
Company, may require that the Company redeem all Preferred Shares held by such
holder, including the Preferred Shares previously submitted for conversion and
with respect to which the Company has not delivered shares of Common Stock, in
accordance with Section 3.
(vi) Pro Rata Conversion. Subject to Section 12, in the event the
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Company receives a Conversion Notice from more than one holder of Preferred
Shares for the same Conversion Date and the Company can convert some, but not
all, of such Preferred Shares, the Company shall convert from each holder of
Preferred Shares electing to have Preferred Shares converted at such time a pro
rata amount of such holder's Preferred Shares submitted for conversion based on
the number of Preferred Shares submitted for conversion on such date by such
holder relative to the number of Preferred Shares submitted for conversion on
such date.
(vii) Mandatory Redemption or Conversion at Maturity. If any Preferred
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Share remains outstanding on the Mandatory Conversion or Redemption Date the
Company shall either (I) convert such Preferred Share at the Conversion Rate as
of the Maturity Date for such Preferred Share without the holder of such
Preferred Share being required to give a Conversion Notice on the Maturity Date
(a "Maturity Date Mandatory Conversion"), or (II) redeem such Preferred Share on
the Mandatory Conversion or Redemption Date for an amount in cash per Preferred
Share (the "Maturity Date Redemption Price") equal to the Conversion Amount (a
"Maturity Date Mandatory Redemption") as of the Mandatory Conversion or
Redemption Date. On or prior to the date which is 35 Business Days prior to the
Mandatory Conversion or Redemption Date, the Company shall deliver written
notice to each holder of Preferred Shares outstanding on such Date (a "Maturity
Date Election Notice"), which Maturity Date Election Notice shall state (x) the
number of Preferred Shares the Company has elected to convert on the Maturity
Date pursuant to a Maturity Date Mandatory Conversion, (y) the number of
Preferred Shares the Company has elected to redeem on the Maturity Date
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pursuant to a Maturity Date Mandatory Redemption, and (z) the number of
Preferred Shares of each holder of Preferred Shares with respect to which the
Company has elected a Maturity Date Mandatory Conversion and/or has elected a
Maturity Date Mandatory Redemption, based, if applicable, on such holder's
Maturity Allocation Percentage (as defined below). If the Company has elected
more than one of the Maturity Date Mandatory Conversion and Maturity Date
Mandatory Redemption, then the Company shall redeem Preferred Shares and/or
convert Preferred Shares pro rata from the holders of Preferred Shares then
outstanding (based on the number of Preferred Shares issued to such holder on
the Issuance Date of such Preferred Share relative to the total number of
Preferred Shares issued on the Issuance Date (such relative amount being
referred to herein as each such holder's "Maturity Allocation Percentage")). In
the event that any initial holder of the Preferred Shares shall sell or
otherwise transfer any of such holder's Preferred Shares, then the transferee
shall be allocated a pro rata portion of such holder's Maturity Allocation
Percentage. If the Company fails to deliver to a holder of Preferred Shares a
Maturity Date Election Notice with respect to any outstanding Preferred Share at
least 35 Business Days prior to the Mandatory Conversion or Redemption Date,
then the Company shall be deemed to have elected a Maturity Date Mandatory
Conversion for such Preferred Share. If the Company elects a Maturity Date
Mandatory Redemption, then on the Maturity Date the Company shall pay to each
holder of Preferred Shares with respect to which the Company has elected a
Maturity Date Mandatory Redemption, by wire transfer of immediately available
funds, an amount per Preferred Share selected for redemption pursuant to this
Section 2(d)(vii) equal to the Maturity Date Redemption Price. If the Company
elects a Maturity Date Mandatory Redemption and fails to redeem all of the
Preferred Shares selected for redemption which were outstanding on the Maturity
Date by payment of the Maturity Date Redemption Price for each such Preferred
Share, then in addition to any remedy such holder of Preferred Shares may have
under this Certificate of Designations, the applicable Amended and Restated
Redemption and Exchange Agreement and the applicable Amended and Restated
Registration Rights Agreement, (X) the applicable Maturity Date Redemption Price
payable in respect of such unredeemed Preferred Shares shall bear interest at
the rate of 1.5% per month, prorated for partial months, until paid in full, and
(Y) any holder of such Preferred Shares shall have the option to require the
Company to convert any or all of such holder's Preferred Shares that the Company
elected to redeem under this Section 2(d)(vii) and for which the Maturity Date
Redemption Price (together with any interest thereon ) has not been paid into
(on a per Preferred Share basis) shares of Common Stock equal to the number
which results from dividing the Maturity Date Redemption Price (together with
any interest thereon) by the Conversion Price in effect on the Maturity Date. If
the Company has elected or is deemed to have elected a Maturity Date Mandatory
Conversion then all Preferred Shares with respect to which the Company has
elected a Maturity Date Mandatory Conversion which remain outstanding on the
Maturity Date shall be converted at the Conversion Rate on such Maturity Date as
if such holder of such Preferred Shares had delivered a Conversion Notice with
respect to such Preferred Shares on the Maturity Date. Promptly following the
Maturity Date, all holders of Preferred Shares shall surrender all Preferred
Stock Certificates representing such Preferred Shares, duly endorsed for
cancellation, to the Company or the Transfer Agent. If the Company has elected,
or is deemed to have elected pursuant to this Section 2(d)(vii), a Maturity Date
Mandatory Conversion or has failed to pay the Maturity Date Redemption Price in
a timely manner as described above, then the Maturity Date shall be extended for
any Preferred Shares for as long as (A) the conversion of such Preferred Shares
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would violate the provisions of Section 5, (B) a Triggering Event shall have
occurred and be continuing, or (C) an event shall have occurred and be
continuing which with the passage of time and the failure to cure would result
in a Triggering Event. Notwithstanding anything to the contrary in this Section
2(d)(vii), any holder of Preferred Shares may convert such Preferred Shares
(including Preferred Shares with respect to which the Company has elected a
Maturity Date Mandatory Conversion or has elected a Maturity Date Mandatory
Redemption), but subject to Section 5 and Section 12, into shares of Common
Stock pursuant to Section 2(b) on or prior to the date immediately preceding the
Maturity Date for such Preferred Shares. In the event a holder of Preferred
Shares delivers a Conversion Notice to the Company after such holder's receipt
of a Maturity Date Election Notice with respect to the Preferred Shares covered
by such Conversion Notice and the Company has elected in such Maturity Date
Election Notice more than one of the Maturity Date Mandatory Conversion and
Maturity Date Mandatory Redemption with respect to such Preferred Shares, then
such number of Preferred Shares shall be deducted, first, from the number of
Preferred Shares, if any, designated by the Company as being subject to a
Maturity Date Mandatory Conversion in such Maturity Date Election Notice, and
then from the number of Preferred Shares, if any, designated by the Company as
being subject to a Maturity Date Mandatory Redemption in such Maturity Date
Election Notice.
-11-
(viii) Book-Entry. Notwithstanding anything to the contrary set
----------
forth herein, upon conversion of Preferred Shares in accordance with the terms
hereof, the holder thereof shall not be required to physically surrender the
certificate representing the Preferred Shares to the Company unless the full
number of Preferred Shares represented by the certificate are being converted.
The holder and the Company shall maintain records showing the number of
Preferred Shares so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the holder and the Company, so as
not to require physical surrender of the certificate representing the Preferred
Shares upon each such conversion. In the event of any dispute or discrepancy,
such records of the Company establishing the number of Preferred Shares to which
the record holder is entitled shall be controlling and determinative in the
absence of manifest error. Notwithstanding the foregoing, if Preferred Shares
represented by a certificate are converted as aforesaid, the holder may not
transfer the certificate representing the Preferred Shares unless the holder
first physically surrenders the certificate representing the Preferred Shares to
the Company, whereupon the Company will forthwith issue and deliver upon the
order of the holder a new certificate of like tenor, registered as the holder
may request, representing in the aggregate the remaining number of Preferred
Shares represented by such certificate. The holder and any assignee, by
acceptance of a certificate, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of any Preferred Shares, the
number of Preferred Shares represented by such certificate may be less than the
number of Preferred Shares stated on the face thereof. Each certificate for
Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW
THE TERMS OF THE COMPANY'S CERTIFICATE OF DESIGNATIONS
RELATING TO THE PREFERRED SHARES REPRESENTED BY THIS
CERTIFICATE, INCLUDING SECTION 2(d)(viii) THEREOF. THE
NUMBER OF PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE
MAY BE LESS THAN THE NUMBER OF PREFERRED SHARES STATED ON
THE FACE HEREOF PURSUANT TO SECTION 2(d)(viii) OF THE
CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE.
(e) Taxes. The Company shall pay any and all documentary, stamp,
-----
transfer and other similar taxes that may be payable with respect to the
issuance and delivery of Common Stock upon the conversion of Preferred Shares.
(f) Adjustments to Conversion Price. The Conversion Price will be
-------------------------------
subject to adjustment from time to time as provided in this Section 2(f).
(i) Adjustment of Fixed Conversion Price upon Issuance of
-----------------------------------------------------
Common Stock. If and whenever on or after the Issuance Date, the Company issues
- ------------
or sells, or in accordance with this Section 2(f) is deemed to have issued or
sold, any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but excluding
shares of Common Stock: (i) deemed to have been issued by the
-12-
Company in connection with an Approved Stock Plan; (ii) issued or deemed issued
in connection with the settlement or other resolution of the class action
lawsuit filed in the United States District Court for the Eastern District of
Virginia, captioned In re MicroStrategy Inc. Securities Litigation, Civ. No. 00-
----------------------------------------------
473-A, which was pending as of the Issuance Date; (iii) upon conversion of the
Preferred Shares, the Series A Preferred Shares, the Series B Preferred Shares,
the Series D Preferred Shares or the Series E Preferred Shares; (iv) as
consideration for mergers or consolidations or the acquisition of businesses or
their assets, provided that such issuance or deemed issuance will not exceed
4,000,000 shares of Common Stock (subject to adjustment for stock splits, stock
dividends, stock combination or other similar transactions) per calendar year
beginning with the calendar year which began on January 1, 2000, provided that
the Company shall be permitted to carry forward any such shares not used
pursuant to this subclause (iv) during the prior calendar year (including the
calendar year which began on January 1, 2000) in subsequent calendar years; (v)
issued upon conversion of shares of the Company's Class B common stock, provided
such shares of Class B common stock were issued and outstanding on the date
immediately preceding June 19, 2000; (vi) issued upon exercise of warrants to
purchase shares of Common Stock which were outstanding on the date immediately
preceding April 3, 2001, provided that such issuance of shares of Common Stock
upon exercise of such warrants is made pursuant to the terms of such warrants in
effect on the date immediately preceding April 3, 2001 and such warrants are not
amended after the date immediately preceding April 3, 2001; (vii) the issuance
of Common Stock or warrants to purchase Common Stock at a purchase price or an
exercise price, as the case may be, that is not less than the market price of
the Common Stock on the date of issuance of such Common Stock or warrant, in
connection with any strategic investor, lender, vendor, lease or similar
arrangement (the primary purpose of which is not to raise equity capital),
provided that the aggregate number of shares of Common Stock subject to warrants
and shares of Common Stock which the Company may issue pursuant to this
subclause (vii) shall not exceed 500,000 (subject to adjustment for stock
splits, stock dividends, stock combinations and other similar transactions);
(viii) issued or deemed issued upon conversion of the notes (the "Settlement
Notes") on the terms and conditions set forth in the Memorandum of
Understanding, dated October 23, 2000 (the "Memorandum of Understanding"),
relating to the settlement of the class action lawsuit filed in the United
States District Court for the Eastern District of Virginia, captioned In re
-----
MicroStrategy Inc. Securities Litigation, Civil Action No. 00-473-A pursuant to
- ----------------------------------------
the Memorandum of Understanding dated October 23, 2000 (the "Memorandum of
Understanding") by lead plaintiffs Akiko Minami, Atsukuni Minami and Local 133
Pension Fund, on behalf of themselves and the Certified Class and Settlement
Subclass (as defined in such Memorandum of Understanding) and defendants the
Company, Michael J. Saylor, Sanju K. Bansal, Mark S. Lynch, Stephen S. Trundle,
Ralph S. Terkowitz and Frank A. Ingari; and (ix) issued or deemed issued
(including by way of the issuance of Convertible Securities or Options), other
than as set forth in clauses (i) through (viii) above, provided that (A) the
amount of securities issued does not exceed (1) $25,000,000, if issued or deemed
issued on or prior to June 18, 2001 or (2) $20,000,000, if issued or deemed
issued during the period beginning on and including June 19, 2001 and ending on
and including December 31, 2001, (B) the proceeds from such issuance are first
used to redeem or repay Series E Preferred Shares, to the extent Series E
Preferred Shares are then outstanding, on or prior to the date which is 180 days
after the Issuance Date, and, after the date which is 180 days after the
Issuance Date, and provided that the Company complies with its obligations under
Section 7 of the Series E
-13-
Certificate of Designations, then subject to the holders of such Series E
Preferred Shares delivering a Notice of Holder Proceeds Redemption (as defined
in Section 7 of the Series E Certificate of Designations) in accordance with
Section 7 of the Series E Certificate of Designations the proceeds of such
issuance are first used to redeem the Series E Preferred Shares for which a
Notice of Holder Proceeds Redemption has been given, (C) the number of shares of
Common Stock issued or deemed issued in such issuance is a fixed number of
shares and (D) the price per share at which such shares of Common Stock are
issued or deemed issued is not a Variable Price (as defined in Section
2(f)(iii)(A))) for a consideration per share less than a price (the "Applicable
Price") equal to the Fixed Conversion Price in effect immediately prior to such
time, then immediately after such issue or sale, the Fixed Conversion Price then
in effect shall be reduced to an amount equal to the product of (x) the Fixed
Conversion Price in effect immediately prior to such issue or sale and (y) the
quotient of (1) the sum of (I) the product of the Applicable Price and the
number of shares of Common Stock Deemed Outstanding immediately prior to such
issue or sale and (II) the consideration, if any, received by the Company upon
such issue or sale, divided by (2) the product of (I) the Applicable Price
multiplied by (II) the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale; provided, however, that the Fixed
Conversion Price shall not be reduced pursuant to this Section 2(f)(i) at any
time that the amount of such reduction would be an amount less than 2% of the
Fixed Conversion Price immediately preceding such reduction, but any such amount
shall be carried forward and a reduction in the Fixed Conversion Price pursuant
to this Section 2(f)(i) shall be made with respect to such amount at the earlier
of (a) such time as all such amounts which have been carried forward pursuant to
this proviso aggregate 2% or more of the Fixed Conversion Price then in effect
and (b) the next reduction of the Fixed Conversion Price pursuant to this
Section 2(f)(i). For purposes of determining the adjusted Fixed Conversion Price
under this Section 2(f)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants or sells
-------------------
any Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion, exchange or
exercise of any Convertible Securities issuable upon exercise of such Option is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the granting or sale of such Option for such price per share. For purposes of
this Section 2(f)(i)(A), the "lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion, exchange or exercise of any Convertible Securities issuable upon
exercise of such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon granting or sale of the Option, upon exercise of
the Option and upon conversion, exchange or exercise of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Fixed
Conversion Price shall be made upon the actual issuance of such Common Stock or
of such Convertible Securities upon the exercise of such Options or upon the
actual issuance of such Common Stock upon conversion, exchange or exercise of
such Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in any manner
----------------------------------
issues or sells any Convertible Securities and the lowest price per share for
which one
-14-
share of Common Stock is issuable upon such conversion, exchange or exercise
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance of sale of such Convertible Securities for such price
per share. For the purposes of this Section 2(f)(i)(B), the "lowest price per
share for which one share of Common Stock is issuable upon such conversion,
exchange or exercise" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the issuance or sale of the Convertible Security
and upon the conversion, exchange or exercise of such Convertible Security,
excluding for purposes of such determination any price per share which is based
on the market price of the Common Stock at any time after the third anniversary
of the Issuance Date. No further adjustment of the Fixed Conversion Price shall
be made upon the actual issuance of such Common Stock upon conversion, exchange
or exercise of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any Options for which
adjustment of the Fixed Conversion Price had been or are to be made pursuant to
other provisions of this Section 2(f)(i), no further adjustment of the Fixed
Conversion Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If the purchase or
---------------------------------------------
exercise price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable or exercisable for Common Stock changes at any time, the Fixed
Conversion Price in effect at the time of such change shall be adjusted to the
Fixed Conversion Price which would have been in effect at such time had such
Options or Convertible Securities provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold. For purposes of this Section
2(f)(i)(C), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of the Preferred Shares are changed in
the manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change. No adjustment shall be made if such adjustment would
result in an increase of the Fixed Conversion Price then in effect.
(D) Calculation of Consideration Received. In case any Option is
-------------------------------------
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the gross amount received by the Company therefor, less expenses in excess
of 5% of the gross amount received. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Company
will be the arithmetic average of the Closing Sale Prices of such
-15-
securities during the 10 consecutive trading days ending on the date of receipt
of such securities. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding. If such parties are
unable to reach agreement within 10 days after the occurrence of an event
requiring valuation (the "Valuation Event"), the fair value of such
consideration will be determined within five Business Days after the tenth
(10th) day following the Valuation Event by an independent, reputable appraiser
selected by the Company from a list of approved appraisers agreed to by the
Company and the holders of the Preferred Shares on or prior to the Issuance
Date. The determination of such appraiser shall be deemed binding upon all
parties absent manifest error and the fees and expenses of such appraiser shall
be borne by the Company.
(E) Record Date. If the Company takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (I) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(II) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(ii) Adjustment of Fixed Conversion Price upon Subdivision or
--------------------------------------------------------
Combination of Common Stock. If the Company at any time subdivides (by any
- ---------------------------
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Fixed Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Fixed Conversion Price in
effect immediately prior to such combination will be proportionately increased.
(iii) Holder's Right of Alternative Conversion Price Following
--------------------------------------------------------
Issuance of Convertible Securities; Settlement Note Conversions. (A) If the
- ---------------------------------------------------------------
Company in any manner issued or issues or sold or sells any Options or
Convertible Securities after June 19, 2000 that are convertible into or
exchangeable or exercisable for Common Stock at a price which varies or may vary
with the market price of the Common Stock, including by way of one or more
reset(s) to a fixed price (each of the formulations for such variable price
being herein referred to as, the "Variable Price"), the Company shall provide
written notice thereof via facsimile and overnight courier to each holder of
Preferred Shares ("Variable Notice") on the date of issuance of such Convertible
Securities or Options. From and after the date the Company issues any such
Convertible Securities or Options with a Variable Price, a holder of Preferred
Shares shall have the right, but not the obligation, in its sole discretion to
substitute the Variable Price for the Conversion Price upon conversion of any
Preferred Shares by designating in the Conversion Notice delivered upon
conversion of such Preferred Shares that solely for purposes of such conversion
the holder is relying on the Variable Price rather than the Conversion Price
then in effect. A holder's election to rely on a Variable Price for a
particular conversion of Preferred Shares shall not obligate the holder to rely
on a Variable Price for any future conversions of Preferred Shares.
Notwithstanding the foregoing, an issuance by the Company of a Convertible
-16-
Security or Option will not be subject to this Section 2(f)(iii)(A) if such
Convertible Security or Option is convertible into or exchangeable or
exercisable for Common Stock at a fixed price which may vary with the market
price of the Common Stock only after the Maturity Date and the issuance of the
Settlement Notes (as defined in Section 2(f)(i)) will not be subject to this
Section 2(f)(iii)(A).
(B) If the Company issues Common Stock upon conversion of, or in
exchange for, the Settlement Notes (as defined in Section 2(f)(i)) at a price
per share which is less than the Fixed Conversion Price in effect immediately
prior to such time, then immediately after such issuance, the Fixed Conversion
Price then in effect shall be reduced to the price per share at which such
shares of Common Stock were issued, subject to further adjustment as provided in
this Certificate of Designations.
(iv) Other Events. If any event occurs of the type contemplated
------------
by the provisions of this Section 2(f) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(f).
(v) Notices.
--------
(A) Immediately upon any adjustment of the Conversion Price
pursuant to this Section 2(f), the Company will give written notice thereof to
each holder of Preferred Shares, setting forth in reasonable detail, and
certifying, the calculation of such adjustment.
(B) The Company will give written notice to each holder of
Preferred Shares at least ten (10) Business Days prior to the date on which the
Company closes its books or takes a record (I) with respect to any dividend or
distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for determining rights to
vote with respect to any Organic Change (as defined in Section 4(a)),
dissolution or liquidation, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to such
holder.
(C) The Company will also give written notice to each holder
of Preferred Shares at least ten (10) Business Days prior to the date on which
any Organic Change, dissolution or liquidation will take place, provided that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.
-17-
(3) Redemption at Option of Holders.
-------------------------------
(a) Redemption Option Upon Triggering Event. In addition to all other
---------------------------------------
rights of the holders of Preferred Shares contained herein, after a Triggering
Event (as defined below), each holder of Preferred Shares shall have the right,
at such holder's option, to require the Company to redeem all or a portion of
such holder's Preferred Shares at a price per Preferred Share equal to the
greater of (i) 125% of the Conversion Amount and (ii) the product of (A) the
Conversion Rate in effect at such time as such holder delivers a Notice of
Redemption at Option of Buyer (as defined below) and (B) the Closing Sale Price
of the Common Stock on the trading day immediately preceding such Triggering
Event on which the Principal Market is open for trading or if no Closing Sale
Price is reported by the Principal Market on such trading day, then the most
recently reported Closing Sale Price (the "Redemption Price").
(b) "Triggering Event". A "Triggering Event" shall be deemed to have
------------------
occurred at such time as any of the following events:
(i) the failure of the applicable Registration Statement to be
declared effective by the SEC on or prior to the date that is 335 days after the
Issuance Date;
(ii) the suspension from trading or failure of the Common Stock to
be listed on the Nasdaq National Market, The New York Stock Exchange, Inc. or
the Nasdaq SmallCap Market for a period of five (5) consecutive trading days or
for more than an aggregate of 10 trading days in any 365-day period;
(iii) the Company's notice or the Transfer Agent's notice, at the
Company's direction, to any holder of Preferred Shares, including by way of
public announcement, at any time, of its intention not to comply with a request
for conversion of any Preferred Shares into shares of Common Stock that is
tendered in accordance with the provisions of this Certificate of Designations;
(iv) a Conversion Failure (as defined in Section 2(d)(v)(C));
(v) upon the Company's receipt of a Conversion Notice after the
earlier of July 31, 2001 and the next annual meeting of stockholders of the
Company, the Company shall not be obligated to issue shares of Common Stock upon
such Conversion due to the provisions of Section 12; or
(vi) unless otherwise provided under Sections 3(b)(i) through
3(b)(v), above, the Company breaches any representation, warranty, covenant or
other term or condition of the applicable Amended and Restated Redemption and
Exchange Agreement (except for a breach of Sections 4(c) or 9(j) or the last
sentence of Section 4(f) of the applicable Amended and Restated Redemption and
Exchange Agreement), the applicable Amended and Restated Registration Rights
Agreement (except for a breach of Sections 3(d), 3(q) or 11(i) of the applicable
Amended and Restated Registration Rights Agreement), this Certificate of
Designations or any other agreement, document, certificate or other instrument
delivered in
-18-
connection with the transactions contemplated thereby and hereby, except to the
extent that such breach would not have a Material Adverse Effect (as defined in
Section 3(a) of the applicable Amended and Restated Redemption and Exchange
Agreement) and except, in the case of a breach of a covenant which is curable,
only if such breach continues for a period of at least 10 Business Days.
(c) Mechanics of Redemption at Option of Buyer. Within one (1)
------------------------------------------
Business Day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of Preferred Shares. At any time after the
earlier of a holder's receipt of a Notice of Triggering Event and such holder
becoming aware of a Triggering Event, any holder of Preferred Shares then
outstanding may require the Company to redeem up to all of such holder's
Preferred Shares by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Buyer") to the Company,
which Notice of Redemption at Option of Buyer shall indicate the number of
Preferred Shares that such holder is electing to redeem.
(d) Payment of Redemption Price. Upon the Company's receipt of a
---------------------------
Notice(s) of Redemption at Option of Buyer from any holder of Preferred Shares,
the Company shall immediately notify each holder of Preferred Shares by
facsimile of the Company's receipt of such notice(s). The Company shall deliver
the applicable Redemption Price to a holder which delivers a Notice of
Redemption at Option of Buyer within five Business Days after the Company's
receipt of a Notice of Redemption at Option of Buyer; provided that, if required
by Section 2(d)(viii), a holder's Preferred Stock Certificates shall have been
delivered to the Transfer Agent. If the Company is unable to redeem all of the
Preferred Shares submitted for redemption, the Company shall (i) redeem a pro
rata amount from each holder of Preferred Shares based on the number of
Preferred Shares submitted for redemption by such holder relative to the total
number of Preferred Shares submitted for redemption by all holders of Preferred
Shares and (ii) in addition to any remedy such holder of Preferred Shares may
have under this Certificate of Designations and the Amended and Restated
Redemption and Exchange Agreement, pay to each holder interest at the rate of
1.5% per month (prorated for partial months) in respect of each unredeemed
Preferred Share until paid in full.
-19-
(e) Void Redemption. In the event that the Company does not pay the
---------------
Redemption Price within the time period set forth in Section 3(d), at any time
thereafter and until the Company pays such unpaid applicable Redemption Price in
full, a holder of Preferred Shares shall have the option (the "Void Optional
Redemption Option") to, in lieu of redemption, require the Company to promptly
return to such holder any or all of the Preferred Shares that were submitted for
redemption by such holder under this Section 3 and for which the applicable
Redemption Price (together with any interest thereon) has not been paid, by
sending written notice thereof to the Company via facsimile (the "Void Optional
Redemption Notice"). Upon the Company's receipt of such Void Optional
Redemption Notice, (i) the Notice of Redemption at Option of Buyer shall be null
and void with respect to those Preferred Shares subject to the Void Optional
Redemption Notice, (ii) the Company shall immediately return any Preferred
Shares subject to the Void Optional Redemption Notice, and (iii) the Fixed
Conversion Price of such returned Preferred Shares shall be adjusted to the
lesser of (A) the Fixed Conversion Price as in effect on the date on which the
Void Optional Redemption Notice is delivered to the Company and (B) the lowest
Weighted Average Price of the Common Stock during the period beginning on the
date on which the Notice of Redemption at Option of Buyer is delivered to the
Company and ending on the date on which the Void Optional Redemption Notice is
delivered to the Company.
(f) Disputes; Miscellaneous. In the event of a dispute as to the
-----------------------
determination of the arithmetic calculation of the Redemption Price, such
dispute shall be resolved pursuant to Section 2(d)(iii) above with the term
"Redemption Price" being substituted for the term "Conversion Rate". A holder's
delivery of a Void Optional Redemption Notice and exercise of its rights
following such notice shall not effect the Company's obligations to make any
payments which have accrued prior to the date of such notice. In the event of a
redemption pursuant to this Section 3 of less than all of the Preferred Shares
represented by a particular Preferred Stock Certificate, the Company shall
promptly cause to be issued and delivered to the holder of such Preferred Shares
a Preferred Stock Certificate representing the remaining Preferred Shares which
have not been redeemed, if necessary.
(g) Registration Failure Conversion Price Reset and Redemption.
----------------------------------------------------------
(i) In addition to any other adjustment to the Fixed Conversion
Price provided for in this Certificate of Designations, in the event that the
applicable Registration Statement has not been declared effective by the SEC on
or prior to the date that is 180 days after the Issuance Date and the Market
Price of the Common Stock on the date which is 11 trading days after such
180/th/ day (such 11/th/ trading day is referred to herein as the "First
Registration Adjustment Date") is less than the Fixed Conversion Price in effect
immediately prior to such First Registration Adjustment Date, then from and
after such First Registration Adjustment Date the Fixed Conversion Price shall
be equal to the Market Price of the Common Stock on such First Registration
Adjustment Date, subject to further adjustment as provided in this Certificate
of Designations. In the event that the applicable Registration Statement has not
been declared effective by the SEC on or prior to the last day of any succeeding
90-day period after the date that is 180 days after the Issuance Date and the
Market Price of the Common Stock on the date which is exactly 11 trading days
after the last day of any succeeding 90-day period after such 180/th/ day
-20-
(each, such 11/th/ trading day is referred to herein as an "Additional
Registration Adjustment Date") is less than the Fixed Conversion Price in effect
immediately prior to such Additional Registration Adjustment Date, then from and
after such Additional Registration Adjustment Date the Fixed Conversion Price
shall be equal to the Market Price of the Common Stock on such Additional
Registration Adjustment Date, subject to further adjustment as provided in this
Certificate of Designations.
(ii) In addition to any other adjustment to the Fixed Conversion
Price provided for in this Certificate of Designations, in the event that a
Registration Failure (as defined below) occurs and the Market Price of the
Common Stock on the date which is 11 trading days after the first date of the
occurrence of such Registration Failure (such 11/th/ trading day is referred to
herein as the "First Registration Failure Adjustment Date") is less than the
Fixed Conversion Price in effect immediately prior to such First Registration
Failure Adjustment Date, then from and after such First Registration Failure
Adjustment Date the Fixed Conversion Price shall be equal to the Market Price of
the Common Stock on such First Registration Failure Adjustment Date, subject to
further adjustment as provided in this Certificate of Designations. In the event
that a Registration Failure continues on the last day of any succeeding 90-day
period after the first day of such Registration Failure and the Market Price of
the Common Stock on the date which is exactly 11 trading days after the last day
of any succeeding 90-day period after the first date of such Registration
Failure (each such 11/th/ trading day is referred to herein as an "Additional
Registration Failure Adjustment Date") is less than the Fixed Conversion Price
in effect immediately prior to such Additional Registration Failure Adjustment
Date, then from and after such Additional Registration Failure Adjustment Date
the Fixed Conversion Price shall be equal to the Market Price of the Common
Stock on such Additional Registration Failure Adjustment Date, subject to
further adjustment as provided in this Certificate of Designations. A
"Registration Failure" means while the Registration Statement is required to be
maintained effective pursuant to the terms of the applicable Amended and
Restated Registration Rights Agreement, except for days during any Allowable
Grace Period, the effectiveness of the Registration Statement lapses for any
reason (including, without limitation, the issuance of a stop order) or is
unavailable to the holder of the Preferred Shares for sale of all of the
Registrable Securities in accordance with the terms of the Amended and Restated
Registration Rights Agreement, and such lapse or unavailability continues for a
period of 10 consecutive trading days or for more than an aggregate of 20
trading days in any 365-day period (other than days during an Allowable Grace
Period).
(iii) Upon each Additional Registration Failure Adjustment Date on
which a Registration Failure is continuing, each holder of Preferred Shares
shall have the option to elect to adjust the Fixed Conversion Price pursuant to
Section 3(g)(ii) or to require the Company to redeem all or a portion of such
holder's Preferred Shares as if a Triggering Event described in Section 3(b) had
occurred on such Additional Registration Failure Adjustment Date. Each holder
of Preferred Shares shall be deemed to have elected to have the Fixed Conversion
Price adjusted pursuant to the terms of Section 2(g)(ii) unless within one (1)
Business Day after the applicable Additional Registration Failure Adjustment
Date such holder delivers written notice to the Company stating that such holder
elects to require the Company to redeem some or all of such holders Preferred
Shares in compliance and pursuant to the provisions of this Section
-21-
3. If a holder of Preferred Shares elects to require the Company to redeem some
but not all of such holders outstanding Preferred Shares, those Preferred Shares
which such holder has not elected to redeem shall be subject to the adjustment
to the Fixed Conversion Price provided for in Section 2(g)(ii), subject to
further adjustment as provided in this Certificate of Designations.
(4) Other Rights of Holders.
-----------------------
(a) Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets to another Person or
other transaction which is effected in such a way that holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any (i) sale of all
or substantially all of the Company's assets to an acquiring Person or (ii)
other Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the successor
resulting from such Organic Change (in each case, the "Acquiring Entity") a
written agreement (in form and substance reasonably satisfactory to the holders
of at least two-thirds (2/3) of the Preferred Shares then outstanding) to
deliver to each holder of Preferred Shares in exchange for such shares, a
security of the Acquiring Entity evidenced by a written instrument substantially
similar in form and substance to the Preferred Shares, including, without
limitation, having a stated value and liquidation preference equal to the Stated
Value and the Liquidation Preference of the Preferred Shares held by such
holder, and reasonably satisfactory to the holders of at least two-thirds (2/3)
of the Preferred Shares then outstanding. Prior to the consummation of any
other Organic Change, the Company shall make appropriate provision (in form and
substance reasonably satisfactory to the holders of at least two-thirds (2/3) of
the Preferred Shares then outstanding) to insure that each of the holders of the
Preferred Shares will thereafter have the right to acquire and receive in lieu
of or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Preferred Shares such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the conversion of such holder's Preferred Shares as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the convertibility of the Preferred Shares).
(b) Optional Redemption Upon Change of Control. In addition to the
------------------------------------------
rights of the holders of Preferred Shares under Section 4(a), upon a Change of
Control (as defined below) of the Company each holder of Preferred Shares shall
have the right, at such holder's option, to require the Company to redeem all or
a portion of such holder's Preferred Shares at a price per Preferred Share equal
to 125% of the Conversion Amount ("Change of Control Redemption Price"). No
sooner than 20 Business Days nor later than 10 Business Days prior to the
consummation of a Change of Control, but not prior to the public announcement of
such Change of Control, the Company shall deliver written notice thereof via
facsimile and overnight courier (a "Notice of Change of Control") to each holder
of Preferred Shares. At any time during the period beginning after receipt of a
Notice of Change of Control (or, in the event a Notice of
-22-
Change of Control is not delivered at least 10 Business Days prior to a Change
of Control, at any time on or after the date which is 10 Business Days prior to
a Change of Control) and ending on the date of such Change of Control, any
holder of the Preferred Shares then outstanding may require the Company to
redeem all or a portion of the holder's Preferred Shares then outstanding by
delivering written notice thereof via facsimile and overnight courier (a "Notice
of Redemption Upon Change of Control") to the Company, which Notice of
Redemption Upon Change of Control shall indicate (i) the number of Preferred
Shares that such holder is submitting for redemption, and (ii) the applicable
Change of Control Redemption Price, as calculated pursuant to this Section 4(b).
Upon the Company's receipt of a Notice(s) of Redemption Upon Change of Control
from any holder of Preferred Shares, the Company shall promptly, but in no event
later than one (1) Business Day following such receipt, notify each holder of
Preferred Shares by facsimile of the Company's receipt of such Notice(s) of
Redemption Upon Change of Control. The Company shall deliver the applicable
Change of Control Redemption Price simultaneously with the consummation of the
Change of Control; provided that, if required by Section 2(d)(viii), a holder's
Preferred Stock Certificates shall have been so delivered to the Company.
Payments provided for in this Section 4(b) shall have priority to payments to
other stockholders in connection with a Change of Control, subject to payment to
such stockholders solely in their capacities as creditors of the Company. For
purposes of this Section 4(b), "Change of Control" means (i) the consolidation,
merger or other business combination of the Company with or into another Person
(other than (A) a consolidation, merger or other business combination in which
holders of the Company's voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the voting power
of the surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation) of
such entity or entities, or (B) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company),
(ii) the sale or transfer of all or substantially all of the Company's assets,
or (iii) a purchase, tender or exchange offer made to and accepted by the
holders of more than 50% of the aggregate voting power of the outstanding Common
Stock and the Company's outstanding Class B common stock considered as a single
class.
(c) Purchase Rights. If at any time the Company grants, issues or
---------------
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the holders of Preferred Shares will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Preferred Shares (without taking into account any limitations
or restrictions on the convertibility of the Preferred Shares) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(5) Limitation on Beneficial Ownership. The Company shall not effect and
----------------------------------
shall have no obligation to effect any conversion of Preferred Shares, and no
holder of Preferred Shares shall have the right to convert any Preferred Shares,
to the extent that after giving effect to such
-23-
conversion, the beneficial owner of such shares (together with such Person's
affiliates) would have acquired, through conversion of Preferred Shares or
otherwise, beneficial ownership of a number of shares of Common Stock during the
60-day period ending on and including the Conversion Date of such conversion
(the "60 Day Period"), that, when added to the number of shares of Common Stock
beneficially owned by such Person (together with such Person's affiliates) at
the beginning of the 60 Day Period, exceeds 9.99% of the number of shares of
Common Stock outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by a Person and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of the Preferred Shares with
respect to which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (A)
conversion of the remaining, nonconverted Preferred Shares beneficially owned by
such Person or any of its affiliates and (B) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without limitation, any warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by such Person or any of its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 5, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Section 5, in determining the number of
outstanding shares of Common Stock a holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-Q, Form 10-K or other public filing with the SEC, as the case may be,
(2) a more recent public announcement by the Company, or (3) any other notice by
the Company or its transfer agent setting forth the number of shares of Common
Stock outstanding. Upon the written request of any holder, the Company shall
promptly, but in no event later than one (1) Business Day following the receipt
of such notice, confirm in writing to any such holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to conversions of Preferred
Shares, Series A Preferred Shares, Series B Preferred Shares, Series D Preferred
Shares and Series E Preferred Shares by such holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
-24-
(6) Reservation of Shares. The Company shall, so long as any of the
---------------------
Preferred Shares are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversions of the Preferred Shares, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding; provided that the
number of shares of Common Stock so reserved shall at no time be less than 125%
of the number of shares of Common Stock for which the Preferred Shares are at
any time convertible (without regard to any limitations on conversions). The
initial number of shares of Common Stock reserved for conversions of the
Preferred Shares and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Preferred Shares based on the number
of Preferred Shares held by each holder at the time of issuance of the Preferred
Shares or increase in the number of reserved shares, as the case may be. In the
event a holder shall sell or otherwise transfer any of such holder's Preferred
Shares, each transferee shall be allocated a pro rata portion of the number of
reserved shares of Common Stock reserved for such transferor. Any shares of
Common Stock reserved and allocated to any Person which ceases to hold any
Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holders.
(7) Voting Rights. Holders of Preferred Shares shall have no voting
-------------
rights, except as required by law, including but not limited to the Delaware
General Corporation Law, and as expressly provided in this Certificate of
Designations.
(8) Liquidation, Dissolution, Winding-Up. In the event of any voluntary or
------------------------------------
involuntary liquidation, dissolution or winding up of the Company, the holders
of the Preferred Shares shall be entitled to receive in cash out of the assets
of the Company, whether from capital or from earnings available for distribution
to its stockholders (the "Liquidation Funds"), before any amount shall be paid
to the holders of any of the capital stock of the Company of any class junior in
rank to the Preferred Shares in respect of the preferences as to distributions
and payments on the liquidation, dissolution and winding up of the Company, an
amount per Preferred Share equal to the sum of (i) the Stated Value and (ii) the
Additional Amount for such Preferred Share; provided that, if the Liquidation
Funds are insufficient to pay the full amount due to the holders of Preferred
Shares and holders of shares of other classes or series of preferred stock of
the Company that are of equal rank with the Preferred Shares (including the
Series A Preferred Shares outstanding on the Issuance Date, the Series B
Preferred Shares, the Series D Preferred Shares and the Series E Preferred
Shares) as to payments of Liquidation Funds (the "Pari Passu Shares"), then each
holder of Preferred Shares and Pari Passu Shares shall receive a percentage of
the Liquidation Funds equal to the full amount of Liquidation Funds payable to
such holder as a liquidation preference, in accordance with their respective
Certificate of Designations, Preferences and Rights, as a percentage of the full
amount of Liquidation Funds payable to all holders of Preferred Shares and Pari
Passu Shares. The purchase or redemption by the Company of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person, nor the
sale or transfer by the Company of less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company.
-25-
(9) Preferred Rank. All shares of Common Stock shall be of junior rank to
--------------
all Preferred Shares with respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company. The
rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. The Preferred Shares shall rank pari
passu with the Series A Preferred Shares outstanding on the Issuance Date, the
Series B Preferred Shares, the Series D Preferred Shares and the Series E
Preferred Shares in respect the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than two-thirds (2/3)
of the then outstanding Preferred Shares, the Company shall not hereafter
authorize or issue additional or other capital stock that is of senior rank to
the Preferred Shares in respect of the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company.
Without the prior express written consent of the holders of not less than two-
thirds (2/3) of the then outstanding Preferred Shares, the Company shall not
hereafter authorize or make any amendment to the Company's Certificate of
Incorporation or bylaws, or file any resolution of the board of directors of the
Company with the Secretary of State of the State of Delaware or enter into any
agreement containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Preferred Shares
relative to the holders of the Common Stock or the holders of any other class of
capital stock. In the event of the merger or consolidation of the Company with
or into another corporation, the Preferred Shares shall maintain their relative
powers, designations and preferences provided for herein and no merger shall
result inconsistent therewith.
(10) Participation. Subject to the rights of the holders, if any, of the
-------------
Pari Passu Shares, the holders of the Preferred Shares shall, as holders of
Preferred Stock, be entitled to such dividends paid and distributions made to
the holders of Common Stock to the same extent as if such holders of Preferred
Shares had converted the Preferred Shares into Common Stock (without regard to
any limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(11) Restriction on Redemption and Cash Dividends. On any date on or prior
--------------------------------------------
to June 19, 2001, unless all of the Preferred Shares have been converted or
redeemed as provided herein, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, its capital
stock (other than the Preferred Shares and the Series A Preferred Shares
outstanding on the Issuance Date, the Series B Preferred Shares, the Series D
Preferred Shares and the Series E Preferred Shares and other than the redemption
or repurchase by the Company of shares of Common Stock upon the termination of
an employee's employment with the Company pursuant to the terms of written
employment agreements entered into after the Issuance Date whereby such employee
purchased such shares at a price which was paid to the Company after the
Issuance Date or award made after the Issuance Date under any employee equity
incentive plan adopted by a majority of the members of the Company's Board of
Directors, and which initial purchase price is greater than or equal to the
redemption or repurchase price paid to such employee) without the prior express
written consent of the holders
-26-
of not less than two-thirds (2/3) of the then outstanding Preferred Shares. On
any date after June 19, 2001, unless all of the Preferred Shares have been
converted or redeemed as provided herein, the Company shall not, directly or
indirectly, redeem, or declare or pay any cash dividend or distribution on, its
capital stock (other than the Preferred Shares, the Series A Preferred Shares
outstanding on the Issuance Date, the Series B Preferred Shares, the Series D
Preferred Shares and the Series E Preferred Shares and other than the redemption
or repurchase by the Company of shares of Common Stock) without the prior
express written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares.
(12) Limitation on Number of Conversion Shares. Notwithstanding anything
-----------------------------------------
to the contrary contained herein, the Company shall not be obligated to issue
any shares of Common Stock upon conversion of the Preferred Shares if the
issuance of such shares of Common Stock would exceed that number of shares of
Common Stock which the Company may issue upon conversion of the Preferred Shares
without breaching the Company's obligations under the rules or regulations of
the Principal Market, or the market or exchange where the Common Stock is then
traded (the "Exchange Cap"), except that such limitation shall not apply in the
event that the Company (a) obtains the approval of its stockholders as required
by the applicable rules of the Principal Market (or any successor rule or
regulation) for issuances of Common Stock in excess of such amount, or (b)
obtains a written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the holders
of at least two-thirds (2/3) of the Preferred Shares then outstanding. Until
such approval or written opinion is obtained, no purchaser of Preferred Shares
pursuant to an Amended and Restated Redemption and Exchange Agreement (the
"Purchasers") shall be issued, upon conversion of Preferred Shares, shares of
Common Stock in an amount greater than the product of (i) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the number of
Series A Preferred Shares issued to such Purchaser pursuant to the Securities
Purchase Agreement (as defined in the Amended and Restated Redemption and
Exchange Agreement) and the denominator of which is the aggregate amount of all
the Series A Preferred Shares issued pursuant to the Securities Purchase
Agreement (the "Cap Allocation Amount"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Preferred Shares, the
transferee shall be allocated a pro rata portion of such Purchaser's Cap
Allocation Amount. In the event that any holder of Preferred Shares shall
convert all of such holder's Preferred Shares into a number of shares of Common
Stock which, in the aggregate, is less than such holder's Cap Allocation Amount,
then the difference between such holder's Cap Allocation Amount and the number
of shares of Common Stock actually issued to such holder shall be allocated to
the respective Cap Allocation Amounts of the remaining holders of Preferred
Shares on a pro rata basis in proportion to the number of Preferred Shares then
held by each such holder.
(13) Vote to Change the Terms of or Issue Additional Preferred Shares;
-----------------------------------------------------------------
Waiver. The affirmative vote at a meeting duly called for such purpose or the
- ------
written consent without a meeting, of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares, shall be required for (a) any
change to this Certificate of Designations or the Company's Certificate of
Incorporation which would amend, alter, change or repeal any of the powers,
designations, preferences and rights of the Preferred Shares or (b) the issuance
of Preferred Shares other than on the Issuance Date pursuant to an Amended and
Restated Redemption and
-27-
Exchange Agreement which has substantially the same terms as the Amended and
Restated Redemption and Exchange Agreement pursuant to which the other Preferred
Shares were issued on the Issuance Date (as determined in the sole discretion of
the holders of the Preferred Shares representing at least two-thirds (2/3) of
the other Preferred Shares issued on the Issuance Date). Any of the terms,
conditions, requirements or obligations set forth in this Certificate of
Designations may be waived by the affirmative vote at a meeting duly called for
such purpose or the written consent without a meeting, of the holders of not
less than two-thirds (2/3) of the then outstanding Preferred Shares.
(14) Lost or Stolen Certificates. Upon receipt by the Company of evidence
---------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(15) Remedies, Characterizations, Other Obligations, Breaches and
------------------------------------------------------------
Injunctive Relief. The remedies provided in this Certificate of Designations
- -----------------
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief). No remedy contained herein shall
be deemed a waiver of compliance with the provisions giving rise to such remedy.
Nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the holder thereof and shall not, except as
expressly provided herein, be subject to any other obligation of the Company (or
the performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(16) Specific Shall Not Limit General; Construction. No specific provision
----------------------------------------------
contained in this Certificate of Designations shall limit or modify any more
general provision contained herein. This Certificate of Designations shall be
deemed to be jointly drafted by the Company and all Buyers and shall not be
construed against any person as the drafter hereof.
(17) Failure or Indulgence Not Waiver. No failure or delay on the part of
--------------------------------
a holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a
-28-
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
(18) Notice. Whenever notice is required to be given under this
------
Certificate of Designations, unless otherwise provided herein, such notice shall
be given in accordance with Section 9(f) of the applicable Amended and Restated
Redemption and Exchange Agreement.
(19) Transfer of Preferred Shares. A holder of Preferred Shares may assign
----------------------------
some or all of its rights hereunder or the Preferred Shares held by such holder
without the consent of the Company.
* * * * *
-29-
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed by Eric F. Brown, its President and Chief Financial Officer, as of
the 14th day of June, 2001.
MICROSTRATEGY INCORPORATED
By: /s/ Eric F. Brown
----------------------------------
Eric F. Brown
Its: President and Chief Financial Officer
-30-
EXHIBIT I
MICROSTRATEGY INCORPORATED
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
MicroStrategy Incorporated for its Series C Convertible Preferred Stock (the
"Certificate of Designations"). In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to convert the number
of shares of Series C Convertible Preferred Stock, par value $0.001 per share
(the "Preferred Shares"), of MicroStrategy Incorporated, a Delaware corporation
(the "Company"), indicated below into shares of Class A Common Stock, par value
$0.001 per share (the "Common Stock"), of the Company, as of the date specified
below.
Date of Conversion:___
Number of Preferred Shares to be converted:___
Stock certificate no(s). of Preferred Shares to be converted:___
Please confirm the following information:
Conversion Price:___
Number of shares of Common Stock to be issued:___
Is the Variable Price being relied on pursuant to Section 2(f)(iii)(A) of
the Certificate of Designations? (check one) YES ____ No ____
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:________________________
_______________________
Facsimile Number:________________
Authorization:___________________
By:________________
Title:_____________
Dated:________________
Account Number (if electronic book entry transfer):____________
Transaction Code Number (if electronic book entry transfer):_____________
[NOTE TO HOLDER -- THIS FORM MUST BE SENT CONCURRENTLY TO
TRANSFER AGENT]
ACKNOWLEDGMENT
--------------
The Company hereby acknowledges this Conversion Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated _________ __, 2001 from
the Company and acknowledged and agreed to by [TRANSFER AGENT].
MICROSTRATEGY INCORPORATED
By:________________________________
Name:_________________________________
Title:________________________________