Document:

<PAGE>

                                                                    Exhibit 10.3

                       REDEMPTION AND EXCHANGE AGREEMENT

     REDEMPTION AND EXCHANGE AGREEMENT (the "Agreement"), dated as of April 3,
2001, by and among MicroStrategy Incorporated, a Delaware corporation, with
headquarters located at 8000 Towers Crescent Drive, Vienna, Virginia 22182 (the
"Company"), and the investor listed on the Schedule of Investor attached hereto
(the "Investor").

     WHEREAS:

     A.   The Company, the Investor and certain other entities (the "Other
Investors") have entered into that certain Securities Purchase Agreement, dated
as of June 17, 2000 (the "Securities Purchase Agreement"), pursuant to which the
Investor and the Other Investors purchased from the Company shares of the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock"),
which are convertible into shares of the Company's Class A common stock, par
value $0.001 per share (the "Common Stock") (as converted, the "Series A
Conversion Shares"), in accordance with the terms of the Company's Certificate
of Designations, Preferences and Rights of the Series A Preferred Stock filed
with the Secretary of State of the State of Delaware on June 19, 2000 (the
"Series A Certificate of Designations");

     B.   Prior to the closing of the transactions contemplated hereby, the
Company will have authorized the following new series of its preferred stock,
par value $0.001 per share:  (1) the Company's Series B Convertible Preferred
Stock (the "Series B Preferred Stock"), which shall be convertible into shares
of Common Stock (as converted, the "Series B Conversion Shares"), in accordance
with the terms of the Company's Certificate of Designations, Preferences and
Rights of the Series B Preferred Stock, in the form attached hereto as Exhibit A
                                                                       ---------
(the "Series B Certificate of Designations"), (2) the Company's Series C
Convertible Preferred Stock (the "Series C Preferred Stock"), which shall be
convertible into shares of Common Stock (as converted, the "Series C Conversion
Shares"), in accordance with the terms of the Company's Certificate of
Designations, Preferences and Rights of the Series C Preferred Stock, in the
form attached hereto as Exhibit B (the "Series C Certificate of Designations"),
                        ---------
and (3)  the Company's Series D Convertible Preferred Stock (the "Series D
Preferred Stock" and, collectively with the Series B Preferred Stock and the
Series C Preferred Stock, the "Preferred Stock"), which shall be convertible
into shares of Common Stock (as converted, the "Series D Conversion Shares" and,
collectively with the Series B Conversion Shares and the Series C Conversion
Shares, the "Conversion Shares"), in accordance with the terms of the Company's
Certificate of Designations, Preferences and Rights of the Series D Preferred
Stock, in the form attached hereto as Exhibit C (the "Series D Certificate of
                                      ---------
Designations" and, collectively with the Series B Certificate of Designations
and the Series C Certificate of Designations, the "Certificates of
Designations");

     C.   The Investor is the holder of that number of shares of Series A
Preferred Stock (each a "Series A Preferred Share" and, collectively, the
"Series A Preferred Shares") set forth opposite its name in Column 2 on the
Schedule of Investor;
<PAGE>

     D.   Upon the terms and conditions set forth in this Agreement, the Company
wishes to redeem 900 of the Series A Preferred Shares, and the Investor wishes
to allow the Company to redeem such Series A Preferred Shares, for a redemption
price of $9,000,000 in cash;

     E.   The Company and the Investor wish to exchange, upon the terms and
conditions set forth in this Agreement, 1,215 of the Series A Preferred Shares
for a number of shares of Common Stock equal to the sum of (i) 2,430,000 shares
of Common Stock, as adjusted for any stock splits, stock dividends, stock
combinations or other similar transactions (the "Fixed Common Shares"), plus
(ii) the Additional Common Shares (as defined in Section 1(b)), subject to
reduction as provided in Section 1(c) (the Fixed Common Shares and the
Additional Common Shares issued pursuant to this Agreement, whether issued
pursuant to Section 1(b) or Section 1(c), are collectively referred to as the
"Common Shares");

     F.   The Company and the Investor wish to exchange, upon the terms and
conditions set forth in this Agreement, an aggregate of 1,192.5 of the Series A
Preferred Shares for an aggregate of 1,192.5 shares of Series B Preferred Stock,
as adjusted for any stock splits, stock dividends, stock combinations or other
similar transactions (the "Series B Preferred Shares");

     G.   The Company and the Investor wish to exchange, upon the terms and
conditions set forth in this Agreement, an aggregate of 1,192.5 of the Series A
Preferred Shares for an aggregate of 1,192.5 shares of Series C Preferred Stock,
as adjusted for any stock splits, stock dividends, stock combinations or other
similar transactions (the "Series C Preferred Shares")(if any shares of Series D
Preferred Stock are issued pursuant to this Agreement, then the term "Preferred
Shares" shall mean the Series B Preferred Shares, the Series C Preferred Shares
and the Shares of Series D Preferred Stock issued pursuant to this Agreement;
alternatively, if no shares of Series D Preferred Stock are issued pursuant to
this Agreement, then the term "Preferred Shares" shall mean the Series B
Preferred Shares and the Series C Preferred Shares);

     H.   The exchange of the Series A Preferred Shares for the Common Shares
and the Preferred Shares is being made in reliance upon the exemption from
registration provided by Section 3(a)(9) of the Securities Act of 1933, as
amended (the "1933 Act"); and

     I.   Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit D (the "Registration Rights Agreement")
                               ---------
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.

     NOW THEREFORE, the Company and the Investor hereby agree as follows:

     1.   REDEMPTION AND EXCHANGE OF SERIES A PREFERRED SHARES.
          ----------------------------------------------------

          a.   Redemption of Series A Preferred Shares. Subject to satisfaction
               ---------------------------------------
(or waiver) of the conditions set forth in Sections 6 and 7, the Company shall
redeem from the Investor and the Investor shall tender to the Company for
redemption on the Closing Date (as

                                       2
<PAGE>

defined below) that number of the Investor's Series A Preferred Shares set forth
opposite the Investor's name in Column 3 on the Schedule of Investor (the
"Closing"). The redemption price (the "Redemption Price") to be paid by the
Company for each Series A Preferred Share being redeemed at the Closing shall be
$10,000 in cash (such that the aggregate Redemption Price for all Series A
Preferred Shares being redeemed is $9,000,000).

          b.   Exchange of Series A Preferred Shares.  Subject to satisfaction
               -------------------------------------
(or waiver) of the conditions set forth in Sections 6 and 7, the Company shall
at the Closing (i) except as provided in Section 1(c), issue to the Investor,
and the Investor agrees to exchange that number of such Investor's Series A
Preferred Shares set forth opposite such Investor's name in Column 5 on the
Schedule of Investors for, that number of Common Shares equal to the sum of (A)
the number of Fixed Common Shares set forth opposite the Investor's name in
Column 6 on the Schedule of Investor, plus (B) the Additional Common Shares (as
defined below); (ii) issue to the Investor, and the Investor agrees to exchange
that number of the Investor's Series A Preferred Shares set forth opposite the
Investor's name in Column 7 on the Schedule of Investor for, that number of
Series B Preferred Shares set forth opposite the Investor's name in Column 8 on
the Schedule of Investor; and (iii) issue to the Investor, and the Investor
agrees to exchange that number of the Investor's Series A Preferred Shares set
forth opposite the Investor's name in Column 9 on the Schedule of Investor for,
that number of Series C Preferred Shares set forth opposite the Investor's name
in Column 10 on the Schedule of Investor. The "Additional Common Shares" means
the number of shares of Common Stock determined according to the following
formula:

                          (0.07)(64/365)($45,000,000)
                          ---------------------------
                   (Additional Common Share Dividend Price)

where the "Additional Common Share Dividend Price" means the product of (A) 95%
multiplied by (B) the arithmetic average of the Weighted Average Price (as
defined in the Series A Certificate of Designations) of the Common Stock on each
of the five (5) consecutive trading days beginning on and including the third
trading day after the date on which the Announcing Form 8-K (as defined in
Section 4(f)) is filed with the Securities and Exchange Commission.

          c.   Alternative Issuance of Series D Preferred Stock. If the
               ------------------------------------------------
Investor has not received from the Company the written representation described
in Section 4(m) on or prior to the Closing Date, then, subject to satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7, the Company shall
at the Closing (in lieu of issuing the full amount of the Common Shares which
would otherwise have been issuable pursuant to Section 1(b)(i)) issue to the
Investor, and the Investor agrees to exchange that number of the Investor's
Series A Preferred Shares set forth opposite the Investor's name in Column 6 on
the Schedule of Investor for, both:

               i.   that reduced number of the Common Shares equal to difference
                    of (A) 1,768,757 minus (B) the number of Dividend Shares (as
                    defined in the Series A Certificate of Designations)
                    received by the Investor on or prior to April 3, 2001, and

                                       3
<PAGE>

               ii.  that number of shares of Series D Preferred Stock equal to
                    the quotient of (A) the difference of (x) the number of
                    Common Shares which would have been issuable pursuant to
                    clause (i) of Section 1(b) but for the fact that the
                    Investor has not received the written representation
                    referred to in Section 4(m), minus (y) the number of Common
                    Shares to be issued at the Closing pursuant to clause (i) of
                    this Section 1(c), divided by (B) 2,000 (the "Series D
                    Preferred Shares").

          d.   Closing Date.  The date and time of the Closing (the "Closing
               ------------
Date") shall be 10:00 a.m. Central Time, on June 4, 2001, subject to
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6 and 7 (or such other date as is mutually agreed to by the
Company and the Investor, but in no event later than June 15, 2001). The Closing
shall occur on the Closing Date at the offices of Katten Muchin Zavis, 525 West
Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.

          e.   Form of Payment.  On the Closing Date, (i) the Company (A) shall
               ---------------
pay to the Investor the aggregate Redemption Price for the Series A Preferred
Shares held by the Investor which the Company is redeeming at the Closing, by
wire transfer of immediately available funds in accordance with such Investor's
written wire instructions, and (B) shall issue and deliver to the Investor
certificates representing the Common Shares and Preferred Shares being issued in
exchange for such Investor's Series A Preferred Shares not being redeemed (in
such denominations as such Investor shall request), and (ii) the Investor shall
deliver to the Company stock certificates (the "Series A Preferred Stock
Certificates") representing such number of the Series A Preferred Shares held by
the Investor (as indicated opposite the Investor's name on the Schedule of
Investor).

     2.   INVESTOR'S REPRESENTATIONS AND WARRANTIES.
          -----------------------------------------

          The Investor represents and warrants that:

          a.   Reliance on Exemptions.  The Investor understands that the Common
               ----------------------
Shares, the Preferred Shares, the Conversion Shares and the Dividend Shares (as
defined in the Series B Certificate of Designations and the Series C Certificate
of Designations) (collectively, the "Securities") are being offered to it in
reliance on specific exemptions from the registration requirements of the United
States federal and state securities laws and that the Company is relying in part
upon the truth and accuracy of, and the Investor's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Investor set forth herein in order to determine the availability of such
exemptions and the eligibility of the Investor to acquire the Securities.

          b.   No Governmental Review.  The Investor understands that no United
               ----------------------
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the

                                       4
<PAGE>

investment in the Securities nor have such authorities passed upon or endorsed
the merits of the offering of the Securities.

          c.   Transfer or Resale.  The Investor understands that except as
               ------------------
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) the Investor shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) the
Investor provides the Company with reasonable assurance that such Securities can
be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of the Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register the Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. Notwithstanding the foregoing, the
Securities may be pledged in connection with a bona fide margin account or other
loan secured by the Securities.

          d.   Information.  The Investor and its advisors, if any, have been
               -----------
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the issuance of the Securities which
have been requested by the Investor.  The Investor and its advisors, if any,
have been afforded the opportunity to ask questions of the Company.  Neither
such inquiries nor any other due diligence investigations conducted by the
Investor or its advisors, if any, or its representatives shall modify, amend or
affect the Investor's right to rely on the Company's representations and
warranties contained in Sections 3 and 9(l) below.  The Investor understands
that its investment in the Securities involves a high degree of risk.  The
Investor has sought such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect to its
acquisition of the Securities.

          e.   Legends.  The Investor understands that the certificates or other
               -------
instruments representing the Preferred Shares and, until such time as the sale
of the Common Shares and the Conversion Shares have been registered under the
1933 Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Common Shares and the Conversion Shares, except as
set forth below, shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of such stock
certificates):

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
     UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
     SECURITIES LAWS.  THE

                                       5
<PAGE>

     SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I)
     IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
     SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
     STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL REASONABLY SATISFACTORY
     TO THE COMPANY, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
     REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS
     SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
     THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
     OR OTHER LOAN SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel
reasonably satisfactory to the Company, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of the Securities may be made
without registration under the 1933 Act, or (iii) such holder provides the
Company with reasonable assurances (including, if requested by the  Company,
delivering such reasonable assurances to the Company's counsel in connection
with such counsel rendering an opinion on the validity of a sale by the Investor
pursuant to Rule 144) that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold.

          f.   Authorization; Enforcement; Validity.  This Agreement and the
               ------------------------------------
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Investor and are valid and binding agreements of
the Investor enforceable against the Investor in accordance with their terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.

          g.   Residency.  The Investor is a resident of that country specified
               ---------
in its address on the Schedule of Investor.

     3.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
          ---------------------------------------------

          The Company represents and warrants to the Investor that:

          a.   Organization and Qualification.  The Company and its
               ------------------------------
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest which ownership entitles the Company to elect a majority of the
board of directors or similar governing body of such entity) are corporations
duly organized and validly existing in good standing under the laws of the

                                       6
<PAGE>

jurisdiction in which they are incorporated, and have the requisite corporate
power and authorization to own their properties and to carry on their business
as now being conducted.  Each of the Company and its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect.  As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations, or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below) or any of the
Certificates of Designations.  A complete list of entities in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest is set forth on Schedule 3(a).
                         -------------

          b.   Authorization; Enforcement; Validity.  The Company has the
               ------------------------------------
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5) and each of
the other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof and to redeem the 900 Series A Preferred Shares being redeemed pursuant
to this Agreement. The execution and delivery of the Transaction Documents by
the Company and the execution and filing of each of the Certificates of
Designations by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the redemption and
exchange of the Series A Preferred Shares, the issuance of the Common Shares and
the Preferred Shares and the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion of the Preferred Shares, have been
duly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders (except to the extent that stockholder approval may be required
pursuant to the rules of the Nasdaq National Market for the issuance of a number
of shares of Common Stock greater than that number of shares of Common Stock
that the Company may issue without breaching the Company's obligations under the
rules or regulations of the Nasdaq National Market (the "Nasdaq 19.99% Rule")).
The Transaction Documents have been duly executed and delivered by the Company.
The Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies. Each of the Certificates of Designations has been filed
prior to the Closing Date with the Secretary of State of the State of Delaware
and will be in full force and effect, enforceable against the Company in
accordance with its terms and shall not have been amended unless in compliance
with its terms.

          c.   Capitalization.  As of the date hereof, the authorized capital
               --------------
stock of the Company consists of (i) 330,000,000 shares of Class A common stock,
of which as of the date

                                       7
<PAGE>

hereof 30,654,653 shares are issued and outstanding, 6,842,861 shares are
reserved for issuance pursuant to the Company's stock option and purchase
plans, 50,975,624 shares are reserved for issuance pursuant to conversion of the
Company's Class B common stock and 128,334 shares are issuable and reserved for
issuance pursuant to securities (other than the Series A Preferred Stock, the
Preferred Stock, stock option and purchase plans and the Company's Class B
common stock) exercisable or exchangeable for, or convertible into, shares of
Common Stock, (ii) 165,000,000 shares of Class B common stock, of which as of
the date hereof 50,975,624 shares are issued and outstanding and (iii) 5,000,000
shares of preferred stock, of which as of the date hereof 12,500 shares of
Series A Preferred Stock are issued and outstanding. All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. As of the date hereof, the Company has outstanding options to
purchase 16,052,215 shares of Common Stock and outstanding warrants to purchase
128,334 shares of Common Stock. Except as disclosed in Schedule 3(c), (A) no
                                                       -------------
shares of the Company's capital stock are subject to preemptive rights or any
other similar rights (arising under Delaware law, Virginia law, the Company's
Certificate of Incorporation or By-laws or any agreement or instrument to which
the Company is a party) any liens or encumbrances granted or created by the
Company; (B) there are no outstanding debt securities issued by the Company; (C)
except as set forth in the third sentence of this Section 3(c), there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (D) there are
no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (E) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement; and (F) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. The Company has furnished to the
Investor true and correct copies of the Company's Certificate of Incorporation,
as amended and as in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-laws, as amended and as in effect on the
date hereof (the "By-laws"), and the terms of all securities convertible into or
exercisable or exchangeable for Common Stock and the material rights of the
holders thereof in respect thereto except for stock options granted under any
employee benefit plan or director stock option plan of the Company approved by
the board of directors of the Company.

          d.   Issuance of Securities.  As of the Closing, the Common Shares
               ----------------------
and the Preferred Shares will be duly authorized and, upon issuance in
accordance with the terms hereof, shall be (i) validly issued, fully paid and
non-assessable, (ii) free from all taxes, liens and charges with respect to the
issuance thereof and (iii) with respect to the Preferred Shares, entitled to the
rights and preferences set forth in the respective Certificates of Designations.
As of the Closing,

                                       8
<PAGE>

at least 125% of that number of shares of Common Stock issuable upon conversion
of all the Preferred Shares outstanding immediately following the Closing
(without regard to any limitations on conversions, but subject to adjustment
pursuant to the Company's covenant set forth in Section 4(d) below) will have
been duly authorized and reserved for issuance upon conversion of the Preferred
Shares. Upon conversion or issuance in accordance with the applicable
Certificates of Designations, the Conversion Shares and the Dividend Shares, as
the case may be, will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. The
issuance by the Company of the Securities is exempt from registration under the
1933 Act.

          e.   No Conflicts.  The execution, delivery and performance of the
               ------------
Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificates of Designations and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the reservation for issuance and issuance of the Conversion Shares)
will not (i) result in a violation of the Certificate of Incorporation or the
By-laws; (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party; (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Principal Market (as
defined below)) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries is bound or
affected.  Neither the Company nor its Subsidiaries is in violation of any term
of its Certificate of Incorporation or its By-laws or their organizational
charter or by-laws, respectively.  Except as disclosed in Schedule 3(e), neither
                                                          -------------
the Company or any of its Subsidiaries is in violation of any term of or in
default under any contract, agreement, mortgage, indebtedness, indenture,
instrument, judgment, decree or order or any statute, rule or regulation
applicable to the Company or its Subsidiaries, except where such violations and
defaults would not result, either individually or in the aggregate, in a
Material Adverse Effect.  The business of the Company and its Subsidiaries is
not being conducted, and shall not be conducted, in violation of any law,
ordinance or regulation of any governmental entity, except where such violations
would not result, either individually or in the aggregate, in a Material Adverse
Effect.  Except as specifically contemplated by this Agreement, as required
under the 1933 Act, as required by Blue Sky filings or as required by the Nasdaq
19.99% Rule, the Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by the
Transaction Documents or to perform its obligations under the Certificates of
Designations in accordance with the terms hereof or thereof.  Except as
disclosed in Schedule 3(e), all consents, authorizations, orders, filings and
             -------------
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof.  The
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.  The Company is not in violation of the
listing

                                       9
<PAGE>

requirements of the Principal Market, including, without limitation, the
requirements set forth in Rule 4310(c)(25)(H)(i) of The Nasdaq Stock Market's
Marketplace Rules.

          f.   SEC Documents; Financial Statements.  Since December 31, 1999,
               -----------------------------------
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). A complete list of the Company's SEC Documents is set forth on
Schedule 3(f). Except as disclosed on Schedule 3(f), as of the date hereof,
-------------                         -------------
the SEC Documents, as they may have been subsequently amended by filings made by
the Company with the SEC prior to the date hereof, complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents. None of the SEC
Documents, as of the date hereof and as they may have been subsequently amended
by filings made by the Company with the SEC prior to the date hereof, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  Except as disclosed on Schedule 3(f), as of their respective dates,
                                    -------------
the financial statements of the Company included in the SEC Documents complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto.  Except as
disclosed on Schedule 3(f), such financial statements have been prepared in
             -------------
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).  No other
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading.  As of the date hereof, the Company meets the requirements for use
of Form S-3 for registration of the resale of Registrable Securities (as defined
in the Registration Rights Agreement).  The Company is not required to file and
will not be required to file any agreement, note, lease, mortgage, deed or other
instrument entered into prior to the date hereof and to which the Company is a
party or by which the Company is bound which has not been previously filed as an
exhibit to its reports filed with the SEC under the 1934 Act.

          g.   Absence of Certain Changes.  Except as disclosed in Schedule
               --------------------------                          --------
3(g) or as disclosed in the Company's Annual Report on Form 10-K for the Year
----
Ended December 31, 2000, since December 31, 2000, there has been no change or
development that has had or could reasonably be expected to have a Material
Adverse Effect. The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any bankruptcy law nor
does the Company or any of its Subsidiaries have any knowledge or reason

                                       10
<PAGE>

to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a
creditor to do so. Except as disclosed in Schedule 3(g) or as disclosed in the
                                          -------------

Company's Annual Report on Form 10-K for the Year Ended December 31, 2000, since
December 31, 2000, the Company has not declared or paid any dividends, sold any
assets, individually or in the aggregate, in excess of $500,000 outside of the
ordinary course of business or had capital expenditures, individually or in the
aggregate, in excess of $1,000,000.

          h.   Acknowledgment Regarding Redemption and Exchange of Investor's
               --------------------------------------------------------------
Series A Preferred Shares.  The Company acknowledges and agrees that the
-------------------------
Investor is acting solely in the capacity of an arm's length purchaser with
respect to the Transaction Documents and the Certificates of Designations and
the transactions contemplated hereby and thereby. The Company further
acknowledges that the Investor is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the Certificates of Designations and the transactions contemplated
hereby and thereby and any advice given by the Investor or any of its
representatives or agents in connection with the Transaction Documents and the
Certificates of Designations and the transactions contemplated hereby and
thereby is merely incidental to the Investor's entering into this Agreement. The
Company further represents to the Investor that the Company's decision to enter
into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.

          i.   No Solicitation.  Neither the Company, nor any of its
               ---------------
affiliates, nor any person acting on its or their behalf, has paid or given,
either directly or indirectly, any commission or other remuneration to any
person for soliciting the exchange of the Series A Preferred Shares for the
Common Shares or the Preferred Shares or for any other transaction contemplated
by this Agreement.

          j.   No Integrated Offering.  Neither the Company, nor any of its
               ----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated (except for
the issuance of securities on the Closing Date to holders of the Series A
Preferred Stock), nor will the Company or any of its Subsidiaries take any
action or steps that would cause the offering of the Securities to be integrated
with other offerings (except for the issuance of securities on the Closing Date
to holders of the Series A Preferred Stock).

          k.   Application of Takeover Protections.  The Company and its board
               -----------------------------------
of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar anti-
takeover provision under the Certificate of Incorporation or the laws of the
state of its incorporation which is or could become applicable to the Investor
as a

                                       11
<PAGE>

result of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and the Investor's
ownership of the Securities.

          l.   Rights Agreement.  The Company has not adopted a shareholder
               ----------------
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.

          m.   No Other Agreements.  The Company has not, directly or
               -------------------
indirectly, made any agreements with the Investor relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.

          n.   Information.  Neither the Company nor any of its Subsidiaries
               -----------
nor any of their officers, directors, employees or agents have provided the
Investor with any material, nonpublic information.

     4.   COVENANTS.
          ---------

          a.   Best Efforts.  Each party shall use its best efforts to timely
               ------------
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement. Without limiting the generality of the foregoing, the
Company shall use its best efforts to obtain the consent of Foothill Capital
Corporation to the transactions contemplated by the Transaction Documents by
June 4, 2001.

          b.   Reporting Status.  Until the later of (i) the date which is one
               ----------------
year after the date as of which the Investor may sell all of the Common Shares
and the Conversion Shares without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) and (ii) the date which is
one (1) year after the Maturity Date (as defined in each of the Certificates of
Designations) (the "Reporting Period"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.

          c.   Financial Information.  The Company agrees to send the following
               ---------------------
to the Investor during the Reporting Period: (i) within two (2) days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, provided that if any such report is not filed with the SEC through
EDGAR then the Company shall deliver a copy of such report to the Investor by
facsimile on the same day it is filed with the SEC; (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries; and (iii) copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.

                                       12
<PAGE>

     d.  Reservation of Shares.  The Company shall take all action necessary to
         ---------------------
at all times have authorized, and reserved for the purpose of issuance, no less
than 125% of the number of shares of Common Stock needed to provide for the
issuance of the shares of Common Stock upon conversion of all outstanding
Preferred Shares (without regard to any limitations on conversions).

     e.  Listing.  The Company shall promptly secure the listing of all of the
         -------
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents and the Certificates of
Designations. The Company shall use its best efforts to maintain the Common
Stock's authorization for quotation on the Nasdaq National Market ("NASDAQ") or
listing on The New York Stock Exchange, Inc. ("NYSE") (as applicable, the
"Principal Market"). Neither the Company nor any of its Subsidiaries shall take
any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock from the Principal Market. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(e).

     f.  Disclosure of Transactions and Other Material Information.  On or
         ---------------------------------------------------------
before April 4, 2001, the Company shall file a Current Report on Form 8-K (the
"Announcing Form 8-K") with the SEC describing the terms of the transactions
contemplated by the Transaction Documents and by documents relating to the
issuance on the Closing Date of securities to other holders of Series A
Preferred Stock (the "Other Holder Documents") and including as exhibits to such
Current Report on Form 8-K this Agreement, each of the Certificates of
Designations, the Registration Rights Agreement and the Other Holder Documents,
in the form required by the 1934 Act. If the Closing does not occur on June 4,
2001 (or such later date as the Company and each Investor agree in writing),
then the Company shall file on June 4, 2001 (or such later date as the Company
and each Investor agree in writing), a Current Report on Form 8-K with the SEC
disclosing that the Closing did not occur. The Company has furnished to the
Investor a true and correct copy of the Company's Annual Report on Form 10-K for
the year ended December 31, 2000 as such Form 10-K has been or will be filed
with the SEC on or prior to the date the Announcing Form 8-K is filed with the
SEC. From and after the filing of the Announcing Form 8-K with the SEC, the
Investor shall not be in possession of any material nonpublic information
received from the Company, any of its Subsidiaries or any of its respective
officers, directors, employees or agents, that is not disclosed in the
Announcing Form 8-K. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents not to, provide the Investor with any material nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing of
the Announcing Form 8-K with the SEC without the express written consent of the
Investor. In the event of a breach of the foregoing covenant by the Company, any
of its Subsidiaries, or any of its or their respective officers, directors,
employees and agents, and if the Company has not publicly disclosed the material
nonpublic information within 12 hours of written notice of the breach from the
Investor, in addition to any other remedy provided herein or in the Transaction
Documents,

                                       13
<PAGE>

the Investor shall have the right to make a public disclosure, in the form of a
press release, public advertisement or otherwise, of such material nonpublic
information without the prior approval by the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees or agents. The
Investor shall not have any liability to the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees, shareholders or
agents for any such disclosure. Subject to the foregoing, neither the Company
nor the Investor shall issue any press releases or any other public statements
with respect to the transactions contemplated hereby or disclosing the name of
the Investor; provided, however, that the Company shall be entitled, without the
prior approval of the Investor, to make any press release or other public
disclosure with respect to such transactions (i) in substantial conformity with
the Announcing Form 8-K and contemporaneously therewith and (ii) as is required
by applicable law and regulations (provided that in the case of clause (i) the
Investor shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release).

     g.  Proxy Statement.  The Company shall provide each stockholder entitled
         ---------------
to vote at the next annual meeting of stockholders of the Company, which meeting
shall occur on or before July 31, 2001 (the "Stockholder Meeting Deadline"), a
proxy statement, which has been previously reviewed by the Investor and a
counsel of its choice, soliciting each such stockholder's affirmative vote at
such annual stockholder meeting for approval of the Company's issuance of all of
the Securities as described in this Agreement in accordance with applicable law
and the rules and regulations of the Principal Market (such affirmative approval
being referred to herein as the "Stockholder Approval"), and the Company shall
use its best efforts to solicit its stockholders' approval of such issuance of
the Securities and to cause the Board of Directors of the Company to recommend
to the stockholders that they approve such proposal.

     h.  Corporate Existence.  So long as the Investor beneficially owns any
         -------------------
Preferred Stock, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is quoted on or listed for trading on Nasdaq or
NYSE.

     i.  Pledge of Securities.  The Company acknowledges and agrees that the
         --------------------
Securities may be pledged by the Investor in connection with a bona fide margin
agreement or other loan secured by the Securities.  The pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and the Investor shall not be required to provide the Company with
any notice of the Investor's effecting a pledge of Securities thereof or
otherwise make any delivery to the Company pursuant to this Agreement, any other
Transaction Document or the Certificates of Designations, including without
limitation, Section 2(a) of this Agreement; provided that the Investor and its
pledgee shall be required to comply with the provisions of Section 2(a) hereof
in order to effect a sale, transfer or assignment of Securities to such pledgee.
The Company hereby agrees to execute and deliver such documentation as a pledgee
of the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by the Investor.

                                       14
<PAGE>

          j.  Limitation on Net Sales of Common Stock. So long as the Investor
              ---------------------------------------
holds any Preferred Shares, Conversion Shares or Common Shares, the Investor
agrees that it will not enter into, directly or indirectly, any net sales of
Common Stock on any single day (each such day is referred to as a "Limited Sales
Day") in excess of that number of shares of Common Stock equal to the sum of
(i)1.8% of the daily trading volume for the Common Stock (as reported by
Bloomberg Financial Markets ("Bloomberg")) for that trading day (such amount,
with respect to such Limited Sales Day, is referred to as the Investor's "Daily
Sales Amount"), plus (ii) the aggregate amount of all the Investor's Daily Sales
Amounts during the period beginning on and including the date immediately
following the Closing Date and ending on and including the date immediately
preceding the Limited Sales Day with respect to which this determination is
being made, less the net sales of Common Stock made by the Investor on each of
the days during such period; provided, however, that the restrictions on net
sales set forth above shall not apply (i) on and after the first date on which
there has been any Change of Control (as defined in Section 4(b) of the Series B
Certificate of Designations) or an announcement of any pending, proposed or
intended Change of Control, (ii) on and after the first date on which there has
occurred a Triggering Event (as defined in Section 3(b) of the applicable
Certificates of Designations) or an event that with the passage of time and
without being cured would constitute a Triggering Event, (iii) if the Company is
in default under any of the Certificates of Designations for failing to effect
any requested conversion or redemption of any Preferred Shares pursuant to the
applicable Certificates of Designations, (iv) on and after any date on which the
Company issues or sells or is deemed to have issued or sold any securities with
a Variable Price (as defined in the Series B Certificate of Designations),
except for the Settlement Notes (as defined in Section 2(f)(i) of the Series B
Certificate of Designations), (v) on and after the Stockholder Meeting Deadline,
if the Company fails to receive the Stockholder Approval on or before the
Stockholder Meeting Deadline, (vi) on and after the 30th trading day prior to
the date which is three (3) years after the Closing Date, or (vii) with respect
to any sale of Common Stock at a price equal to or greater than $17.50 (as
adjusted for any stock splits, stock dividends, stock combinations or other
similar transactions) and any such sale shall be ignored for all purposes of
this Section 4(k).

          k.  Restrictions on Issuances of Preferred Shares. The Company shall
              ---------------------------------------------
not issue any shares of Series B Preferred Stock or Series D Preferred Stock to
anyone other than the Investor, except on the Closing Date concurrent with the
Closing to holders of the Series A Preferred Stock.

          l.  Supplemental Representation Regarding the Nasdaq 19.99% Rule. If
              ------------------------------------------------------------
the Company receives written confirmation from NASDAQ that both the Common Stock
and the Company's Class B common stock, par value $0.001 per share, are included
for purposes of the Nasdaq 19.99% Rule (the "Nasdaq Confirmation"), then the
Company shall provide to the Investor a letter or other written document
containing the following representation:

     Under the Nasdaq 19.99% Rule, both the Common Stock and the
     Company's Class B common stock, par value $0.001 per share, are
     included when making a determination regarding the number of
     shares of common stock outstanding

                                       15
<PAGE>

     immediately prior to June 19, 2000, or at any other time a determination of
     the number of shares outstanding is made for purposes of the Nasdaq 19.99%
     Rule or determining the Exchange Cap (as defined in Section 12 of the
     Series B Certificate of Designations and in Section 11 of the Series D
     Certificate of Designations).

     5.  TRANSFER AGENT INSTRUCTIONS.
         ---------------------------

         The Company shall issue irrevocable instructions to its transfer agent
in the form attached hereto as Exhibit D (the "Irrevocable Transfer Agent
                               ---------
Instructions"), and any subsequent transfer agent, to issue certificates,
registered in the name of the Investor or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to time by the Investor
to the Company upon conversion of the Preferred Shares. Prior to registration of
the Common Shares and the Conversion Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(b) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 2(b) hereof (in the case of the Common
Shares and the Conversion Shares, prior to registration of the Common Shares and
the Conversion Shares under the 1933 Act) will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. If the Investor provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of Securities may be made
without registration under the 1933 Act or the Investor provides the Company
with reasonable assurances (including, if requested by the Company, delivering
such reasonable assurances to the Company's counsel in connection with such
counsel rendering an opinion on the validity of a sale by such Investor pursuant
to Rule 144) that the Securities can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold, the Company shall permit the transfer, and, in the
case of the Common Shares and the Conversion Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Investor and without any restrictive legend.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Investor by vitiating the intent and purpose of
the transaction contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Investor shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.

                                       16
<PAGE>

     6.  CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.
         --------------------------------------------------

         The obligation of the Company to redeem and exchange the Series A
Preferred Shares (including the issuance of the applicable number of Common
Shares and Preferred Shares to the Investor) at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
the Investor with prior written notice thereof:

         a.  The Investor shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.

         b.  Each of the Certificates of Designations shall have been filed with
the Secretary of State of the State of Delaware;

         c.  The Investor shall have delivered to the Company the Series A
Preferred Stock Certificates representing the Series A Preferred Shares to be
redeemed or exchanged by the Company from the Investor at the Closing.

         d.  The representations and warranties of the Investor shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date), and the Investor shall have performed, satisfied and complied
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Investor at or
prior to the Closing Date.

         e.  The Company shall have obtained the consent of Foothill Capital
Corporation to the transactions contemplated by the Transaction Documents.

         f.  The Company shall have entered into separate redemption and
exchange agreements relating to the Series A Preferred Stock with each of the
Other Investors and all conditions to the closings contemplated by such
agreements shall have been satisfied or waived.

     7.  CONDITIONS TO THE INVESTOR'S OBLIGATIONS AT CLOSING.
         ---------------------------------------------------

         The obligation of the Investor hereunder to tender the Series A
Preferred Shares to the Company for redemption and exchange at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Investor's sole
benefit and may be waived by the Investor at any time in its sole discretion by
providing the Company with prior written notice thereof:

         a.  The Company shall have executed each of the Transaction Documents
and delivered the same to the Investor.

                                       17
<PAGE>

     b.  Each of the Certificates of Designations shall have been filed with the
Secretary of State of the State of Delaware, and a copy of each certified by the
Secretary of State of the State of Delaware shall have been delivered to the
Investor.

     c.  The Company shall have delivered to the Investor the Redemption Price
for the number of Series A Redemption Shares being redeemed by the Company from
the Investor (as set forth in Section 1(a)) on the Closing Date, by wire
transfer of immediately available funds pursuant to the wire instructions
provided by the Investor (and the Company shall have delivered the amounts set
forth in Section 4(j) by wire transfer of immediately available funds to the
Investor or its designee(s)).

     d.  The Company shall have executed and delivered to the Investor the stock
certificates (in such denominations as the Investor shall request) for the
Common Shares and the Preferred Shares being issued in exchange for the
Investor's Series A Preferred Shares (as set forth in Section 1(b)) at the
Closing.

     e.  The Common Stock (x) shall be designated for quotation or listed on the
Principal Market and (y) shall not have been suspended by the SEC or the
Principal Market from trading on the Principal Market nor shall suspension by
the SEC have been threatened in writing by the SEC; and the Common Shares and
the Conversion Shares issuable upon conversion of the Preferred Shares shall be
listed upon the Principal Market.

     f.  The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date other than the representation contained in Section 3(c) which shall be
updated as of the Closing Date), other than the representation made in the
second sentence of Section 3(c), which representation shall be true and correct
in all material respects as of the Closing Date as though made at that time,
and the Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date.  The
Investor shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by the Investor,
including, without limitation, an update as of the Closing Date regarding the
representation contained in Section 3(c) above.

     g.  The Investor shall have received the opinion of Hale and Dorr LLP,
dated as of the Closing Date, in the form of Exhibit F attached hereto.
                                             ---------

     h.  The Board of Directors of the Company shall have adopted resolutions
consistent with Section 3(b) above and in a form reasonably acceptable to the
Investor, including, without limitation, containing a determination by the Board
of Directors of the Company that immediately prior to the Closing the capital of
the Company is not impaired (as determined in accordance with Section 160(a)(1)
of the Delaware General Corporation Law) and that immediately follwoing the
Closing and after giving effect to the redemption of all the shares

                                       18
<PAGE>

of the Company's Series A Preferred Stock which the Company redeemed at the
Clsoing, whether from the Investor or from the Other Investors, the capital of
the Company would not be impaired (as determined in accordance with Section
160(a)(1) of the Delaware General Corporation Law) (as (the "Resolutions").

          i.  As of the Closing Date, the Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, at least 125% of that number of shares of
Common Stock issuable upon conversion of all the Preferred Shares outstanding
immediately following the Closing (without regard to any limitations on
conversions).

          j.  The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged in
---------
writing by the Company's transfer agent.

          k.  The Company shall have delivered to the Investor a certificate
evidencing the incorporation and good standing of (i) the Company and each
Subsidiary in such entity's state of incorporation or organization issued by the
Secretary of State of such state of incorporation or organization, and (ii) the
Company in Virginia issued by the Secretary of State of Virginia, each as of a
date within ten days of the Closing Date.

          l.  The Company shall have delivered to the Investor a certified copy
of the Certificate of Incorporation as certified by the Secretary of State of
the State of Delaware as of a date within ten days of the Closing Date.

          m.  The Company shall have delivered to the Investor a secretary's
certificate, dated as of the Closing Date, certifying as to (A) the Resolutions,
(B) the Certificate of Incorporation and (C) the By-laws, each as in effect at
the Closing.

          n.  certifying the number of shares of Common Stock outstanding as of
a date within five days of the Closing Date.

          o.  The Company shall have delivered to the Investor such other
documents relating to the transactions contemplated by the Transaction Documents
as the Investor or their counsel may reasonably request.

     8.   INDEMNIFICATION.
          ---------------

          In consideration of the Investor's execution and delivery of the
Transaction Documents and in addition to all of the Company's other obligations
under the Transaction Documents and the Certificates of Designations, the
Company shall defend, protect, indemnify and hold harmless the Investor and each
other holder of the Securities and all of their stockholders, officers,
directors, employees and direct or indirect investors and any of the foregoing
persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the

                                       19
<PAGE>

"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(c) any cause of action, suit or claim brought or made against such Indemnitee
(other than a cause of action, suit or claim which is (x) brought or made by the
Company and (y) is not a shareholder derivative suit) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, or (ii) the status of the Investor or holder of
the Securities as an investor in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law. Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 8 shall be the same as those set forth
in Sections 6(a) and (d) of the Registration Rights Agreement, including,
without limitation, those procedures with respect to the settlement of claims
and the Company's rights to assume the defense of claims.

     9.  MISCELLANEOUS.
         -------------

         a.    Governing Law; Jurisdiction; Jury Trial. All questions concerning
               ---------------------------------------
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED

                                       20
<PAGE>

HEREBY.

     b.  Counterparts.  This Agreement may be executed in two or more identical
         ------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

     c.  Headings.  The headings of this Agreement are for convenience of
         --------
reference and shall not form part of, or affect the interpretation of, this
Agreement.

     d.  Severability.  If any provision of this Agreement shall be invalid or
         ------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

     e.  Entire Agreement; Effect on Prior Agreements; Amendments.
         --------------------------------------------------------

         i.  Except for the Securities Purchase Agreement, the Registration
Rights Agreement dated as of June 17, 2000 by and among the Company, the
Investor and the Other Investors (the "Series A Registration Rights Agreement"),
the Series A Certificate of Designations, the Waiver Agreements, each executed
as of January 3, 2001, between the Company and the Investor, and the Irrevocable
Transfer Agent Instructions (as defined in the Securities Purchase Agreement),
this Agreement, the Certificates of Designations and each of the other
Transaction Documents supersede all other prior oral or written agreements
between the Investor, the Company, their affiliates and persons acting on their
behalf with respect to the matters discussed herein, and this Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Investor
makes any representation, warranty, covenant or undertaking with respect to such
matters.

         ii. If the Closing occurs on or prior to June 4, 2001 (or such later
date as the Company and the Investor agree in writing), then effective as of the
Closing, the Investor permanently waives the Company's compliance with its
obligations under the Securities Purchase Agreement, except for Sections 8 and 9
of the Securities Purchase Agreement. If the Closing occurs on or prior to June
4, 2001 (or such later date as the Company and the Investor agree in writing),
then effective as of the Closing, the Investor permanently waives the Company's
compliance with its obligations under the Series A Registration Rights
Agreement, except for Sections 5, 6 and 7 of the Series A Registration Rights
Agreement. If the Closing occurs on or prior to June 4, 2001 (or such later date
as the Company and the Investor agree in writing), then effective as of the
Closing, the Company permanently waives the Investor's compliance with its
obligations under the Series A Registration Rights Agreement, except for
Sections 6 and 7 of the Series A Registration Rights Agreement.

                                       21
<PAGE>

               iii.  No provision of this Agreement may be amended or waived
other than by an instrument in writing signed by the Company and the holders of
at least two-thirds ([]) of the Common Shares and Conversion Shares (assuming
conversion of all outstanding Preferred Shares without giving effect to any
limitations on conversion) or, if prior to the Closing Date, the Investor. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Securities then outstanding. No consideration shall be
offered or paid to any person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents or the Certificates of
Designations unless the same consideration also is offered to all of the parties
to the Transaction Documents or holders of Securities, as the case may be.

          f.   Notices.  Any notices, consents, waivers or other communications
               -------
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same.  The addresses and facsimile numbers
for such communications shall be:

     If to the Company:

          MicroStrategy Incorporated
          8000 Towers Crescent Drive
          Vienna, Virginia 22182
          Telephone:  (703) 848-8600
          Facsimile:  (703) 744-6050
          Attention:  Eric F. Brown, Chief Financial Officer

     With a copy to:

          Hale and Dorr LLP
          60 State Street
          Boston, Massachusetts 02109
          Telephone:  (617) 526-6000
          Facsimile:  (617) 526-5000
          Attention:  Thomas S. Ward, Esq.

     If to the Transfer Agent:

          American Stock Transfer & Trust Co.
          40 Wall Street, 46/th/ Floor
          New York, NY 10005
          Telephone:  (718) 921-8360
          Facsimile:  (718) 921-8310
          Attention:  Karen Lazar

                                       22
<PAGE>

     If to the Investor, to it at the address and facsimile number set forth on
the Schedule of Investor, with copies to the Investor's representatives as set
forth on the Schedule of Investor, or at such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.

          g.   Successors and Assigns. This Agreement shall be binding upon and
               ----------------------
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Securities. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least two-thirds ([]) of the Common Shares and
Conversion Shares (assuming conversion of all outstanding Preferred Shares
without giving effect to any limitations on conversion), including by merger or
consolidation, except pursuant to a Change of Control (as defined in Section
4(b) of the Series B Certificate of Designations) with respect to which the
Company is in compliance with Section 4 of each of the Certificates of
Designations and Section 4(h) of this Agreement. The Investor may assign some or
all of its rights hereunder without the consent of the Company, provided,
however, that the transferee has agreed in writing to be bound by the applicable
provisions of this Agreement and the Company has consented to such assignment
and assumption, which consent shall not be unreasonably withheld.
Notwithstanding anything to the contrary contained in the Transaction Documents,
the Investor shall be entitled to pledge the Securities in connection with a
bona fide margin account or other loan secured by the Securities.

          h.   No Third Party Beneficiaries. This Agreement is intended for the
               ----------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

          i.   Survival. Unless this Agreement is terminated under Section 9(k),
               --------
the representations and warranties of the Company and the Investor contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing. The Investor shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.

          j.   Further Assurances. Each party shall do and perform, or cause to
               ------------------
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

                                       23
<PAGE>

          k.   Termination. In the event that the Closing shall not have
               -----------
occurred with respect to the Investor on or before June 4, 2001 due to the
Company's or the Investor's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this Section
9(k), the Company shall remain obligated to reimburse the nonbreaching Investor
for the expenses described in Section 4(j) above.

          l.   Placement Agent. The Company acknowledges that it has not engaged
               ---------------
a placement agent in connection with the transactions contemplated by this
Agreement; however, the Company has engaged Friedman, Billings & Ramsey, Inc. as
a financial advisor in connection with the transactions contemplated by this
Agreement. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions relating to or
arising out of the transactions contemplated hereby. The Company shall pay, and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, attorney's fees and out-of-pocket expenses) arising in
connection with any such claim.

          m.   No Strict Construction. The language used in this Agreement will
               ----------------------
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

          n.   Remedies. The Investor and each holder of the Securities shall
               --------
have all rights and remedies set forth in the Transaction Documents and the
Certificates of Designations and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.

          o.   Payment Set Aside. To the extent that the Company makes a payment
               -----------------
or payments to the Investor hereunder or pursuant to the Registration Rights
Agreement, any of the Certificates of Designations or the Investor enforces or
exercises its rights hereunder or thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

          p.   Mutual General Release.
               ----------------------
<PAGE>

          i.   In consideration of the releases set forth in Sections 9(p)(ii)
and 9(p)(iii), effective as of the Closing, the Investor, on behalf of itself
and , to the extent permitted by law, its heirs, executors, administrators,
devisees, trustees, partners, directors, officers, shareholders, employees,
consultants, representatives, predecessors, principals, agents, parents,
associates, affiliates, subsidiaries, attorneys, accountants, successors,
successors-in-interest and assignees (collectively, the "Investor Releasing
Persons"), hereby waives and releases, to the fullest extent permitted by law,
but subject to Section 9(p)(iv) below, any and all claims, rights and causes of
action, whether known or unknown (collectively, the "Investor Claims"), that any
of the Investor Releasing Persons had, currently has or then has against (i) the
Company, (ii) any of the Company's current or former parents, shareholders,
affiliates, subsidiaries, predecessors or assigns, or (iii) any of the Company's
or such other persons' or entities' current or former officers, directors,
employees, agents, principals, investors, signatories, advisors, consultants,
spouses, heirs, estates, executors, attorneys, auditors and associates and
members of their immediate families (collectively, the "Company Released
Persons"), including, without limitation, Investor Claims arising out of or
relating to the Securities Purchase Agreement, the Series A Registration Rights
Agreement and the Series A Certificate of Designations (collectively, the
"Released Documents") other than Investor Claims arising after the Closing.

          ii.  In further consideration of the Investor entering into this
Agreement, effective as of the date of this Agreement, the Company on behalf of
itself and, to the extent permitted by law, its heirs, executors,
administrators, devisees, trustees, partners, directors, officers, shareholders,
employees, consultants, representatives, predecessors, principals, agents,
parents, associates, affiliates, subsidiaries, attorneys, accountants,
successors, successors-in-interest and assignees (collectively, the "Company
Releasing Persons"), hereby waives and releases, to the fullest extent permitted
by law, but subject to Section 9(p)(iv) below, any and all claims, rights and
causes of action, whether known or unknown (collectively, the "Company Claims"),
that any of the Company Releasing Persons had or currently has against (i) the
Investor, (ii) any of the Investor's respective current or former parents,
shareholders, affiliates, subsidiaries, predecessors or assigns, or (iii) any of
the Investor's or such other persons' or entities' current or former officers,
directors, employees, agents, principals, investors, signatories, advisors,
consultants, spouses, heirs, estates, executors, attorneys, auditors and
associates and members of their immediate families (collectively, the "Investor
Released Persons"), including, without limitation, any Company Claims arising
out of or relating to the Released Documents; provided, however, that if the
Investor breaches its obligations under Section 4(a), then the release set forth
in this Section 9(p)(ii) shall be null and void and of no further force or
effect.

          iii. In further consideration of the Investor entering into this
Agreement, effective as of the Closing, the Company on behalf of itself and, to
the extent permitted by law, the other Company Releasing Persons, hereby waives
and releases, to the fullest extent permitted by law, but subject to Section
9(p)(iv) below, any and all Company Claims, that any of the Company Releasing
Persons had, currently has or then has against any of the Investor Released
Persons, including, without limitation, any Company Claims arising out of or
relating to the Released Documents.

          iv.  The Company and the Investor acknowledge that the releases set
<PAGE>

forth in Sections 9(p)(i), 9(p)(ii) and 9(p)(iii) above do not affect any claim
which any Company Releasing Person or Investor Releasing Person may have under
this Agreement, Section 8 or Section 9(m) of the Securities Purchase Agreement
or Sections 5, 6 or 7 of the Series A Registration Rights Agreement.

                                  * * * * * *
<PAGE>

     IN WITNESS WHEREOF, the Investor and the Company have caused this
Redemption and Exchange Agreement to be duly executed as of the date first
written above.

COMPANY:                                        INVESTOR:

MICROSTRATEGY INCORPORATED                      LEONARDO, L.P.

By: /s/ Michael J. Saylor                       By: Angelo, Gordon & Co., L.P.
--------------------------------------------
Name:   Michael J. Saylor
--------------------------------------------
Its: Chairman and Chief Executive Officer
--------------------------------------------
                                                By: /s/ John M. Angelo
                                                    ---------------------------
                                                Name:   John M. Angelo
                                                     -------------------------
                                                Its: Chief Executive Officer
                                                     --------------------------
<PAGE>

                              SCHEDULE OF INVESTOR
                                 (Page 1 of 2)

<TABLE>
<CAPTION>
         (1)                            (2)          (3)           (4)           (5)               (6)         (7)          (8)
                                    Total Number  Series A      Aggregate    Series A          Total Fixed  Series A      Total
Investor's Name,  Address           of Series A   Preferred     Redemption   Preferred Shares  Common       Preferred     Series B
and Facsimile Number                Preferred     Shares Being    Price      Being Exchanged   Shares       Shares Being  Preferred
                                    Shares        Redeemed                   for Common                     Exchanged     Shares
                                                                             Shares                         for Series B
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>           <C>           <C>          <C>               <C>          <C>           <C>
Leonardo, L.P.                         4,500        900         $9,000,000       1,215          2,430,000     1,192.5      1,192.5
%Angelo, Gordon & Co., L.P.
245 Park Avenue - 26/th/ Floor
New York, New York 10167
Attention: Ari Storch
           Adam J. Chill
Facsimile: (212) 867-6449
Telephone: (212) 692-2035

(Representatives)

Angelo, Gordon & Co., L.P.
245 Park Avenue - 26/th/ Floor
New York, New York 10167
Attention: Ari Storch
           Adam J. Chill
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
         (1)                                                      (9)                   (10)
                                                          Series A Preferred        Total Series C
Investor's Name,  Address                                 Shares Being              Preferred
and Facsimile Number                                      Exchanged for             Shares
                                                          Series C
------------------------------------------------------------------------------------------------------
<S>                                                       <C>                       <C>
Leonardo, L.P.                                               1,192.5                   1,192.5
%Angelo, Gordon & Co., L.P.
245 Park Avenue - 26/th/ Floor
New York, New York 10167
Attention: Ari Storch
           Adam J. Chill
Facsimile: (212) 867-6449
Telephone: (212) 692-2035

(Representatives)

Angelo, Gordon & Co., L.P.
245 Park Avenue - 26/th/ Floor
New York, New York 10167
Attention: Ari Storch
           Adam J. Chill
Facsimile: (212) 867-6449
Telephone: (212) 692-2035
</TABLE>
<PAGE>

SCHEDULES

Schedule 3(a) -      Subsidiaries
Schedule 3(c) -      Capitalization
Schedule 3(e) -      Conflicts
Schedule 3(f) -      SEC Documents
Schedule 3(g) -      Material Changes

EXHIBITS
--------

Exhibit A     -      Form of Series B Certificate of Designations
Exhibit B     -      Form of Series C Certificate of Designations
Exhibit C     -      Form of Series D Certificate of Designations
Exhibit D     -      Form of Registration Rights Agreement
Exhibit E     -      Form of Irrevocable Transfer Agent Instructions
Exhibit F     -      Form of Company Counsel Opinion
<PAGE>

                                   EXHIBIT A

                  Form of Series B Certificate of Designations

                [Filed as Exhibit 10.4 to Current Report on Form
             8-K of MicroStrategy Incorporated dated April 3, 2001]
<PAGE>

                                   EXHIBIT B

                  Form of Series C Certificate of Designations

                [Filed as Exhibit 10.5 to Current Report on Form
             8-K of MicroStrategy Incorporated dated April 3, 2001]
<PAGE>

                                   EXHIBIT C

                  Form of Series D Certificate of Designations

                [Filed as Exhibit 10.6 to Current Report on Form
             8-K of MicroStrategy Incorporated dated April 3, 2001]
<PAGE>

                                   EXHIBIT D

                     Form of Registration Rights Agreement

                [Filed as Exhibit 10.9 to Current Report on Form
             8-K of MicroStrategy Incorporated dated April 3, 2001]<PAGE>

                                                                    Exhibit 10.4

                   CERTIFICATE OF DESIGNATIONS, PREFERENCES
            AND RIGHTS OF THE SERIES B 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 Three Thousand
Three Hundred Fifteen (3,315) shares of Series B Convertible Preferred Stock of
the Company, as follows:

          RESOLVED, that the Company is authorized to issue 3,315 shares of
     Series B 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
          ---------
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 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
<PAGE>

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
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
          ------------------------------
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
               ---------------------
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)    "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.

               (iii)   "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.

               (iv)    "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.

                                      -2-
<PAGE>

               (v)     "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.

               (vi)    "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 C Preferred Shares or the Series D Preferred Shares.

               (vii)   "Conversion Amount" means the sum of (1) the Additional
Amount, and (2) $10,000.

               (viii)  "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.

               (ix)    "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable or
exercisable for Common Stock.

               (x)     "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.

               (xi)    "Fixed Conversion Price" means, with respect to any
Preferred Share, as of any Conversion Date or other date of determination,
$12.50, subject to adjustment as provided herein.

                                      -3-
<PAGE>

               (xii)     "Issuance Date" means, with respect to each Preferred
Share, the first date on which any Preferred Shares are issued by the Company.

               (xiii)    "Mandatory Conversion or Redemption Date" means, with
respect to a Preferred Share, the date which is three (3) years after the
Issuance Date.

               (xiv)     "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.

               (xv)      "Maturity Date" means the Mandatory Conversion or
Redemption Date, unless extended pursuant to Section 2(d)(vii).

               (xvi)     "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.

               (xvii)    "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.

               (xviii)   "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.

               (xix)     "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.

               (xx)      "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.

               (xxi)     "Redemption and Exchange Agreement" means, with respect
to any Preferred Share, that certain 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.

                                      -4-
<PAGE>

               (xxii)    "Registration Rights Agreement" means, with respect to
any Preferred Share, that certain 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 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.

               (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 C Preferred Shares" means the shares of the
Company's Series C Convertible Preferred Stock issued pursuant to a Redemption
and Exchange Agreement in accordance with the terms of the Company's Certificate
of Designations, Preferences and Rights of the Series C 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 a 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)    "Stated Value" means $10,000.

               (xxvii)   "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.
               -------------------------------------------------------------
Subject to the provisions of Section 5, at any time or times on or after the
Issuance Date, any holder of

                                      -5-
<PAGE>

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
               ----------
conversion of each Preferred Share pursuant to Section 2(b) shall be determined
according to the following formula (the "Conversion Rate"):

                               Conversion Amount
                               -----------------
                               Conversion Price

          (d)  Mechanics of Conversion.  The conversion of Preferred Shares
               -----------------------
shall be conducted in the following manner:

               (i)    Holder's Delivery Requirements.  To convert Preferred
                      ------------------------------
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
                                                             ---------
"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 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

                                      -6-
<PAGE>

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
                       ------------------
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-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 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.
                       -----------------------------------

                       (A)  Cash Damages.  If (I) within five (5) Business Days
                            ------------
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
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

                                      -7-
<PAGE>

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.

                       (B)  Void Conversion Notice; Adjustment of Fixed
                            -------------------------------------------
Conversion Price.  If for any reason a holder has not 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, 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 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 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 Share remains outstanding on the Maturity 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 such Maturity Date (a
"Maturity

                                      -8-
<PAGE>

Date Mandatory Conversion"), or (II) redeem such Preferred Share for an amount
in cash per Preferred Share (the "Maturity Date Redemption Price") equal to the
Conversion Amount (a "Maturity Date Mandatory Redemption"). 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 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 Redemption and Exchange
Agreement and the applicable 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

                                      -9-
<PAGE>

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 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.

               (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

                                      -10-
<PAGE>

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 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; (iv) upon conversion of the Preferred Shares, the
Series C Preferred Shares or the Series D Preferred Shares; (iii) 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

                                      -11-
<PAGE>

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) during
the period from April 3, 2001 through and including the Issuance Date, provided
that (A) the amount of securities issued does not exceed $31,000,000, (B) the
proceeds from such issuance are used to redeem Series A Preferred Shares
pursuant to Redemption and Exchange Agreements, (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

                                      -12-
<PAGE>

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 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.

                                      -13-
<PAGE>

                      (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 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 con sideration 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

                                      -14-
<PAGE>

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
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,

                                      -15-
<PAGE>

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.

     (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 or The New York Stock Exchange, Inc.
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 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 Redemption and Exchange Agreement), the applicable
Registration Rights Agreement (except for a breach of Sections 3(d), 3(q) or
11(i) of the applicable Registration Rights Agreement), this Certificate of
Designations or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated thereby and hereby,
except to the extent that such breach would not have a Material Adverse Effect

                                      -16-
<PAGE>

(as defined in Section 3(a) of the applicable 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 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.

               (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.

                                      -17-
<PAGE>

                 (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 (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

                                      -18-
<PAGE>

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
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 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 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

                                      -19-
<PAGE>

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 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.  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.

                                      -20-
<PAGE>

          (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 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 by such holder and its affiliates since the date as of which such number
of outstanding shares of Common Stock was reported.

     (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

                                      -21-
<PAGE>

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 C
Preferred Shares and the Series D 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.

     (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 C Preferred Shares and the Series D Preferred Shares in respect the
preferences as to distributions and payments

                                      -22-
<PAGE>

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 C Preferred Shares and the Series D
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 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 C Preferred Shares and the Series D
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

                                      -23-
<PAGE>

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 a 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 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 a redemption and
exchange agreement which has substantially the same terms as the 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

                                      -24-
<PAGE>

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 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 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.

                                 *  *  *  *  *

                                      -25-
<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed by ___________________, its [President and Chief Executive
Officer], as of the ____ day of _________, 2001.

                                    MICROSTRATEGY INCORPORATED

                                    By:_________________________________
                                    Name:_______________________________
                                    Its:________________________________

                                      -26-
<PAGE>

                                   EXHIBIT I

                           MICROSTRATEGY INCORPORATED
                               CONVERSION NOTICE

Reference is made to the Certificate of Designations, Preferences and Rights of
MicroStrategy Incorporated for its Series B 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 B 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]

<PAGE>

                                 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:________________________

                                      -28-

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