EXHIBIT 4.2
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
AUTO DATA NETWORK, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
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Auto Data Network, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Company"), hereby certifies that, pursuant
to the authority vested in the Board of Directors of the Company (the "Board")
by the Certificate of Incorporation of the Company (the "Certificate of
Incorporation"), as amended, the following resolution was adopted as of January
20, 2004 by the Board pursuant to Section 141 of the Delaware General
Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board in accordance with the provisions of the Certificate of Incorporation, as
amended, there shall be created a series of Preferred Stock, $0.001 par value,
which series shall have the following designations and number thereof, powers,
preferences, rights, qualifications, limitations and restrictions:
1. Designation and Number of Shares. There shall hereby be created and
established a series of Preferred Stock designated as "Series B Convertible
Preferred Stock" (the "Series B Preferred Stock"). The authorized number of
shares of Series B Preferred Stock shall be 5,514,474; provided, that whatever
number of shares of Series B Preferred Stock in excess of 4,342,105 shares is
not utilized to satisfy the preemptive rights of the holders of the Company's
Series A-1 Preferred Stock and Series A-2 Preferred Stock in respect of the
issuance of the Series B Preferred Stock shall be cancelled, retired and
eliminated by the Company from the shares of Series B Preferred Stock, as
applicable, which the Company shall be authorized to issue. Any such shares of
Series B Preferred Stock so cancelled, retired and eliminated shall have the
status of authorized and unissued shares of Preferred Stock issuable in
undesignated Series and may be redesignated and reissued in any series other
than as Series B Preferred Stock.
2. Conversion.
(a) Right to Convert. Each share of Series B Preferred Stock shall be
convertible into a number of shares of Common Stock equal to the applicable
Liquidation Amount (as defined in Section 5 herein) divided by the then
applicable Conversion Price (as defined herein) upon the earlier to occur of (i)
the election of the holder to convert (an "Optional Conversion"), in whole or in
part, at any time, or from time to time, commencing with date of the issuance of
Series B Preferred Stock (the "Issuance Date") or (ii) the earliest to occur of
the following dates (an "Automatic Conversion"): (A) the date, at any time after
the one year anniversary of the Issuance Date, upon which both (x) the average
of the Market Price (as defined herein) for a share of Common Stock for thirty
consecutive Trading Days (as defined herein) exceeds $10.00 (subject to
adjustment in the event of stock splits, reverse stock splits, stock dividends,
recapitalizations or similar events) and (y) the average of the trading volume
for the Common Stock during such period exceeds 150,000 shares per day (subject
to adjustment in the event of stock splits, reverse stock splits, stock
dividends, recapitalizations or similar events) shares per Trading Day; or (B)
upon the affirmative vote of the holders of a majority of the then outstanding
shares of Series B Preferred Stock.
(b) As used herein, "Market Price" means, with respect to the shares of
Common Stock, (i) if the shares are listed or admitted for trading on any
national securities exchange or included in The Nasdaq National Market or Nasdaq
SmallCap Market, the last reported sales price as reported on such exchange or
market; (ii) if the shares are not listed or admitted for trading on any
national securities exchange or included in The Nasdaq National Market or Nasdaq
SmallCap Market, the average of the last reported closing bid and asked
quotation for the shares as reported on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or a similar service if NASDAQ is
not reporting such information; or (iii) if the shares are not listed or
admitted for trading on any national securities exchange or included in The
Nasdaq National Market or Nasdaq SmallCap Market or quoted by NASDAQ or a
similar service, the average of the last reported bid and asked quotation for
the shares as quoted by a market maker in the shares (or if there is more than
one market maker, the bid and asked quotation shall be obtained from two market
makers and the average of the lowest bid and highest asked quotation) (such
applicable trading market to be referred to the "Trading Market"). In the
absence of any available public quotations for the Common Stock, the Board shall
determine in good faith the fair value of the Common Stock, which determination
shall be set forth in a certificate by the Secretary of the Company.
As used herein, "Trading Day" means a day on which the principal Trading
Market with respect to the Common Stock is open for the transaction of business.
(c) Effecting a Conversion. Immediately upon the occurrence of an
Automatic Conversion, each holder's shares of Series B Preferred Stock, shall be
deemed to have been converted into the applicable number of shares of the
Company's Common Stock in accordance with the then applicable Conversion Price,
and certificates evidencing such shares of Common Stock shall be issued to such
holder within five business days after receipt of the applicable certificates
evidencing such holder's shares of Series B Preferred Stock, together with other
customary documentation (including delivery instructions). The holder shall
effect any Optional Conversion by surrendering the certificate or certificates
representing the shares of Series B Preferred Stock, to be converted to the
Company, together with written notice of its election to convert and specifying
the name or names (with address) in which a certificate or certificates for
shares of Common Stock are to be issued (a "Stockholder Conversion Notice").
Each Stockholder Conversion Notice shall specify the number of shares of Series
B Preferred Stock to be converted and the date on which such conversion is to be
effected, which date may be neither prior to, nor more than 10 days after, the
date the holder delivers such Stockholder Conversion Notice. If no conversion
date is specified in a Stockholder Conversion Notice, the conversion date shall
be the date that the Stockholder Conversion Notice is delivered. Each
Stockholder Conversion Notice, once given, shall be irrevocable. A holder of
Series B Preferred Stock may only convert shares of Series B Preferred Stock in
blocks equal to not less than the lesser of (i) the number of shares of Series B
Preferred Stock, as applicable, convertible into 5,000 shares of Common Stock
and (ii) all shares of Series B Preferred Stock then held by the stockholder. If
the holder is converting less than all shares of Series B Preferred Stock, as
applicable, represented by the certificate or certificates tendered by the
holder with the Stockholder Conversion Notice, the Company shall convert the
number of shares of Series B Preferred Stock so specified and shall promptly
deliver (but not more than fifteen business days later) to such holder a
certificate for such number of shares as have not been converted. Upon an
Automatic Conversion, the Company shall notify each holder thereof and each
holder shall surrender the certificate or certificates representing all of the
shares of Series B Preferred Stock owned by such holder and each holder of
shares of Series B Preferred Stock shall be deemed to be the holder of record of
the Common Stock issued upon such Automatic Conversion. All fractional shares
resulting from the conversion of the Series B Preferred Stock shall be rounded
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up to the next highest whole share. All certificates representing shares of
Series B Preferred Stock surrendered for conversion shall be delivered to the
Company for cancellation and canceled by it. As promptly as practicable (but no
more than five business days) after the surrender of any shares of Series B
Preferred Stock, the Company shall (subject to compliance with the applicable
provisions of federal and state securities laws) deliver to the holder of such
shares so surrendered certificate(s) representing the number of fully paid and
nonassessable shares of Common Stock into which such shares are entitled to be
converted. Upon a conversion, any accrued and unpaid dividends shall be paid
either in cash, to the extent funds are legally available therefor, or shares of
Common Stock valued at the Market Price, in the sole discretion of the Company.
(d) Conversion Price. The initial conversion price per share of the Series
B Preferred Stock, as applicable (the "Conversion Price"), shall be equal to
$1.90 per share of Common Stock into which such number of share of Series B
Preferred Stock is convertible, subject to adjustment as provided in Section 3.
(e) Reservation of Shares. The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued Common Stock
solely for the purpose of issuance upon conversion of Series B Preferred Stock,
as herein provided, free from preemptive rights or any other actual contingent
purchase rights of persons other than the holders of Series B Preferred Stock
pursuant to this clause, not less than such number of shares of Common Stock as
shall be issuable upon the conversion of all outstanding shares of Series B
Preferred Stock. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and freely tradeable.
If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of Series B Preferred Stock, in addition to such other remedies as shall
be available to the holders of such Series B Preferred Stock, the Company will
take such corporate action necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
(f) Issue Taxes. The Company shall pay all issue taxes, if any, incurred
in respect of the issue of shares of Common Stock on conversion. If a holder of
shares of Series B Preferred Stock specifies that the shares of Common Stock to
be issued on Automatic Conversion are to be issued in a name or names other than
the name or names in which such Series B Preferred Stock stand or the names of
affiliates of the initial holder of such shares, then the Company shall not be
required to pay any additional transfer or other taxes incurred by reason of the
issuance of such shares of Common Stock to the name of another, and if the
appropriate transfer taxes shall not have been paid to the Company or the
transfer agent for the Series B Preferred Stock, as applicable, at the time of
Automatic Conversion of the Series B Preferred Stock, as applicable, the shares
of Common Stock issued upon conversion thereof may be registered in the name or
names in which the Series B Preferred Stock, as applicable, were registered,
despite the instructions to the contrary.
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3. Adjustment of Conversion Price.
(a) Definition of Additional Stock. For purposes of this Section 3,
"Additional Shares of Common Stock" includes all shares of Common Stock issued
by the Company after the Issuance Date, other than:
(i) The Shares of Series B Preferred Stock, or the Shares of Common
Stock issued upon conversion of shares of Series B Preferred Stock, the
Company's Series A-1 Preferred Stock or the Company's Series A-2 Preferred
Stock;
(ii) Shares of Common Stock (subject to appropriate adjustment for
any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) issuable or issued to the
Company's employees, directors or consultants pursuant to a stock option
plan or restricted stock plan approved by the Board;
(iii) Shares of Common Stock issued or issuable pursuant to
subsection 3(d) below;
(iv) Shares of Common Stock or Preferred Stock issuable upon
exercise of options, warrants or upon conversion of convertible securities
or other rights outstanding as of the Issuance Date; and
(v) Shares of capital stock or options or warrants to purchase
capital stock issued (a) to financial institutions or lessors in
connections with commercial credit agreements, equipment financings or
similar transactions or (b) to other corporations, persons or entities in
connection with acquisitions, mergers or similar business combinations,
partnership arrangements, strategic alliances, licensing arrangements or
similar non-capital raising transactions approved by the Board, including
within this exception shares issued to raise capital provided that the use
of proceeds is to consummate such non-capital raising transactions.
The number and kind of securities issuable upon the conversion of the
Series B Preferred Stock and the Conversion Price shall be subject to adjustment
from time to time in accordance with the following provisions:
(b) Subdivision or Combination of Shares. In the event that the Company
shall at any time or from time to time, prior to conversion of shares of Series
B Preferred Stock (x) subdivide the outstanding shares of Common Stock into a
larger number of shares or (y) combine the outstanding shares of Common Stock
into a smaller number of shares, then, and in each such case, the Conversion
Price in effect immediately prior to such event shall be adjusted (and any other
appropriate actions shall be taken by the Company) so that the holder of any
share of Series B Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other securities of
the Company that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had such share
of Series B Preferred Stock been converted immediately prior to the occurrence
of such event. An adjustment made pursuant to this Section 3(b) shall become
effective retroactively in the case of any such subdivision or combination, to
the close of business on the day upon which such corporate action becomes
effective.
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(c) Stock Dividends. In case Additional Shares of Common Stock are issued
as a dividend or other distribution on the Common Stock (or such dividend is
declared), the Conversion Price shall be reduced, as of the date a record is
taken of the holders of Common Stock for the purpose of receiving such dividend
or other distribution (or if no such record is taken, as at the earliest of the
date of such declaration, payment or other distribution), to the Conversion
Price determined by multiplying the Conversion Price in effect immediately prior
to such declaration, payment or other distribution by a fraction (i) the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the declaration or payment of such dividend or other
distribution, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after the declaration or payment
of such dividend or other distribution. In the event that the Company shall
declare or pay any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Company shall be deemed to have made
a dividend payable in Common Stock in an amount of shares equal to the maximum
number of shares issuable upon exercise of such rights to acquire Common Stock.
(d) Recapitalization or Reclassification of Common Stock. In case of any
(i) capital reorganization or any reclassification (other than a change in par
value) of the capital stock of the Company, or (ii) exchange or conversion of
the Common Stock for or into securities of another corporation or other entity,
or (iii) consolidation or merger of the Company with or into any other person
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock) or (iv) sale,
lease or other conveyance of all or substantially all of the assets of the
Company, then in each instance referred to in the preceding clauses (i) through
(iv), except in the case of a "Change in Control Transaction" (as such term is
hereinafter defined in Section 11), the Board and the person formed by such
consolidation or resulting from such capital reorganization, reclassification or
merger or which acquires (by sale, lease or other conveyance) such assets, as
the case may be, shall make provision such that the Series B Preferred Stock
shall thereafter be convertible for the kind and amount of shares of stock,
other securities, cash and other property receivable upon such capital
reorganization, reclassification, consolidation, merger, sale, lease or other
conveyance, as the case may be, by a holder of shares of Common Stock equal to
the number of shares of Common Stock underlying the Series B Preferred Stock, as
applicable, issuable upon the conversion of the Series B Preferred Stock
immediately prior to the effective date of such capital reorganization,
reclassification, merger, consolidation, sale, lease or other conveyance and, in
each instance referred to in the preceding clauses (i) through (iv) (each, a
"Transaction"), appropriate adjustment (as reasonably determined in good faith
by the Board) shall be made in the application of the provisions herein set
forth with respect to rights and interests thereafter of the holders of the
Series B Preferred Stock, to the end that the provisions set forth herein
(including the specified changes in and other adjustments of the number of
shares underlying the Series B Preferred Stock) shall thereafter be applicable,
as near as reasonably may be, in relation to any such shares of stock or other
securities or other property thereafter deliverable upon conversion of the
Series B Preferred Stock. The Company shall not enter into any Transaction
unless effective provision shall be made so as to give effect to the provisions
set forth in this subsection (d).
The Company shall not effect any transaction described in this subsection
3(d) unless (i) it first gives twenty (20) days' prior written notice of such
merger, consolidation, exchange of shares, recapitalization, reorganization or
other similar event or sale of assets (during which time the holders of Series A
Preferred Stock shall be entitled to convert the Series A Preferred Stock) and
(ii) the resulting successor or acquiring entity (if not the Company) assumes by
written instrument the obligations of this subsection 3(d). The provisions of
this subsection 3(d) shall similarly apply to successive consolidations,
reorganizations, reclassifications, exchanges, conversions, mergers, sales,
leases and other conveyances.
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(e) Issuance of Stock at Less than Conversion Price. If the Company shall
issue any Additional Shares of Common Stock after the Issuance Date (other than
as provided in the foregoing subsections 3(b) through 3(d)), for no
consideration or for a consideration per share less than the Conversion Price in
effect on the date of and immediately prior to such issue, then in such event,
the Conversion Price shall be reduced, concurrently with such issue, to a price
equal to the quotient obtained by dividing:
(i) an amount equal to (x) the total number of shares of Common
Stock outstanding immediately prior to such issuance or sale multiplied by
the Conversion Price in effect immediately prior to such issuance or sale,
plus (y) the Aggregate Consideration Received (as such term is defined in
subsection 3(g)(v)) or deemed to be received by the Company upon such
issuance or sale, by
(ii) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
(f) Issuance of Options and Convertible Securities Deemed Issuance of
Additional Shares of Common Stock. If the Company, at any time or from time to
time after the Issuance Date, shall issue any options, warrants or rights to
purchase Common Stock (collectively, "Options") or securities that, by their
terms, directly or indirectly, are convertible into or exchangeable for shares
of Common Stock ("Convertible Securities") or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued under this
Certificate as of the time of such issue or, in case such a record date shall
have been fixed, as of the close of business on such record date, provided that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:
(i) no further adjustment in the Conversion Price shall be made upon
the subsequent issue of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or exchange of such
Convertible Securities and, upon the expiration of any such Option or the
termination of any such right to convert or exchange such Convertible
Securities, the Conversion Price then in effect hereunder shall forthwith
be increased to the Conversion Price which would have been in effect at
the time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration
or termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding;
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(ii) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of shares
of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or
upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities, provided that no readjustment
pursuant to this clause (B) shall have the effect of increasing the
Conversion Price to an amount which exceeds the lower of (i) the
Conversion Price on the original adjustment date, or (ii) the Conversion
Price that would have resulted from any issuance of Additional Shares of
Common Stock between the original adjustment date and such readjustment
date; and
(iii) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any decrease in the
consideration payable to the Company, or increase in the number of shares
of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or
upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such decrease or
increase becoming effective, be recomputed to reflect such decrease or
increase insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities, provided that no readjustment
pursuant to this clause (C) shall have the effect of decreasing the
Conversion Price to an amount which exceeds the lower of (i) the
Conversion Price on the original adjustment date, or (ii) the Conversion
Price that would have resulted from any issuance of Additional Shares of
Common Stock between the original adjustment date and such readjustment
date.
(g) Other Provisions Applicable to Adjustment Under this Section 3. The
following provisions shall be applicable to the adjustments in the Conversion
Price as provided in this Section 3.
(i) Treasury Shares. The number of shares of Common Stock at any
time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Company.
(ii) Other Action Affecting Common Stock. If the Company shall take
any action affecting the outstanding number of shares of Common Stock
other than an action described in any of the foregoing subsections 3(b)
through 3(f) hereof, inclusive, which would have an inequitable effect on
the holders of the Series A Preferred Stock, then the Conversion Price
shall be adjusted in such manner and at such times as the Board on the
advice of the Company's independent public accountants may in good faith
determine to be equitable in the circumstances.
(iii) Minimum Adjustment. No adjustment of the Conversion Price
shall be made if the amount of any such adjustment would be an amount less
than one percent (1%) of the Conversion Price then in effect, but any such
amount shall be carried forward and an adjustment in respect thereof shall
be made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried
forward, shall aggregate an increase or decrease of one percent (1%) or
more.
(iv) Certain Adjustments. The Conversion Price shall not be adjusted
upward except in the event of a combination of the outstanding shares of
Common Stock into a smaller number of shares of Common Stock.
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(v) Determination of Consideration.
(A) For purposes of subsection 3(e), the "Effective Price" of
Additional Shares of Common Stock shall mean the quotient determined
by dividing the total number of Additional Shares of Common Stock
issued or sold, or deemed to have been issued or sold, by the
Corporation under subsection 3(e), into the Aggregate Consideration
Received, or deemed to have been received, by the Company under this
subsection 3(e), for the issue of such Additional Shares of Common
Stock
(B) For purposes of this Subsection 3(f), the Aggregate
Consideration Received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(1) insofar as it consists of cash, be computed at the
aggregate gross amount of cash received by the
Company before deduction of any underwriting or
similar commissions, compensation or concessions
paid or allowed by the Company in connection with
such issue or sale and without deduction of any
expenses payable by the Company and excluding
amounts paid or payable for accrued interest or
accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair market value thereof
at the time of such issue, as determined in good
faith by the Board; and
in the event Additional Shares of Common Stock are issued together with other
shares or securities or other assets of the Company for consideration which
covers both, be the proportion of such consideration so received, computed as
provided in clauses (1) and (2) above, as determined in good faith by the Board.
(B) Options and Convertible Securities. The consideration per
share received by the Company for Additional Shares of Common Stock
deemed to have been issued pursuant to subsection 3(f)(ii), relating
to Options and Convertible Securities, shall be determined by
dividing
(1) the total amount, if any, received or receivable
by the Company as consideration for the issue of
such Options or Convertible Securities, plus the
minimum aggregate amount of additional
consideration (as set forth in the instruments
relating thereto, without regard to any provision
contained therein for a subsequent adjustment of
such consideration) payable to the Company upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the
exercise of such Options for Convertible
Securities and the conversion or exchange of such
Convertible Securities, by
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(2) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto,
without regard to any provision contained therein
for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the
conversion or exchange of such Convertible
Securities.
(i) No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at all
times in good faith assist in the carrying out of all the provisions of Section
3 and in the taking of all such action as may be necessary or appropriate in
order to protect the conversion rights of the holders of the Series B Preferred
Stock against impairment.
(j) Notices of Adjustments. Whenever the Conversion Price is adjusted as
herein provided, the Chief Financial Officer (or other senior executive officer
in the absence of such person) of the Company shall, in good faith, compute the
adjusted Conversion Price in accordance with the foregoing provisions and shall
prepare a written certificate setting forth such adjusted Conversion Price and
showing in detail the facts upon which such adjustment is based, and such
written instrument shall promptly be delivered to each record holder of the
Series B Preferred Stock.
4. Ranking.
The Series B Preferred Stock shall rank, as to dividends, rights upon
liquidation, dissolution or winding up, junior to the Company's Series A-1 and
Series A-2 Preferred Stock, and shall rank senior and prior to (i) the Common
Stock and (ii) each other class or series of capital stock of the Company
hereafter created which does not expressly rank pari passu with or senior to the
Series B Preferred Stock, except as otherwise approved by the affirmative vote
or consent of the holders of a majority of the outstanding shares of Series B
Preferred Stock pursuant to Section 9 hereof. (All equity securities of the
Company to which the Series B Preferred Stock ranks senior to, whether with
respect to dividends, rights upon liquidation, dissolution, winding up or
otherwise, including the Common Stock, are collectively referred to herein as
"Junior Securities," all equity securities of the Company to which the Series B
Preferred Stock ranks on a parity with, whether with respect to dividends or
upon liquidation, dissolution, winding up or otherwise, are collectively
referred to herein as "Parity Securities" and all equity securities of the
Company to which the Series B Preferred Stock ranks junior, whether with respect
to dividends or upon liquidation, dissolution, winding up or otherwise are
collectively referred to herein as "Senior Securities").
5. Liquidation Rights.
(a) Liquidation Preference. Upon a voluntary or involuntary
liquidation, under applicable bankruptcy or reorganization legislation, or
dissolution or winding up of the Company (each a "Liquidation"), before any
distribution of assets shall be made to the holders of Junior Securities, the
holder of each share of Series B Preferred Stock then outstanding shall be paid
out of the assets of the Company legally available for distribution to its
stockholders (the "Available Assets") an amount per share equal to the
"Liquidation Amount." For purposes of a Liquidation, the Liquidation Amount
shall mean the original issue price per share of the Series B Preferred Stock
($3.80, as adjusted for stock splits, dividends, combinations or other
recapitalization of the Series B Preferred Stock) plus all dividends accrued but
unpaid on such share (whether or not declared) up to the date of the Liquidation
(the "Liquidation Preference"). Upon the completion of the distribution required
by this subsection 4(a), and any other distribution to any other class or series
of Senior Securities, if assets remain in the Company, the remaining assets of
the Company available for distribution to stockholders shall be distributed
among the holders of shares of any other series of preferred stock in accordance
with their respective terms, then to the holders of Common Stock pro rata based
on the number of shares of the Common Stock actually outstanding and held by
holders of shares of Common Stock.
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(b) Priority. If the Available Assets are insufficient to pay the
holders of Series B Preferred Stock the full amount of the Liquidation Amount,
the holders of Series B Preferred Stock, in the aggregate, will share ratably in
the distribution of the Available Assets in proportion to the respective amounts
that would otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(c) Notice. The Company will send a written notice of a Liquidation
to the holders of record of the Series B Preferred Stock, stating a payment
date, the Liquidation Amount and the place where the Liquidation Amount will be
paid, using any of the following delivery methods: (i) in person; (ii) mailed by
certified or registered mail, return receipt requested; or (iii) sent by
national courier, not less than 25 days prior to the payment date stated
therein. The notice will be addressed to each holder at its address as shown by
the records of the Company.
6. Appraisal. If a majority in interest of the holders of the Series B
Preferred Stock, in the aggregate, reasonably disagrees with any of the Board's
determinations referred to in Section 2, Section 3 or Section 5 above (each, a
"Determination"), then the Company and a majority in interest of such holders
(the "Series B Representative") shall use good faith efforts to mutually agree
upon the designation of a single Qualified Appraiser (as defined below) within
seven (7) business days of such event requiring a Determination. The date of
such event requiring a Determination shall be referred to as the "Determination
Date." If such a single Qualified Appraiser is designated, that person shall
make a Determination. If the Company and the Series B Representative do not so
agree upon the designation of a single Qualified Appraiser within such period,
then within five (5) business days following the end of such period, each of the
Company and the Series B Representative by written notice to the other shall
designate a Qualified Appraiser (or if any party fails to select a Qualified
Appraiser within the time period specified, the person selected by the other
party shall be the Qualified Appraiser) and the two Qualified Appraisers so
designated shall within ten (10) business days of their designation jointly
designate a third Qualified Appraiser and solely such third Qualified Appraiser
so designated shall independently make a Determination. If there is only a
single Qualified Appraiser, the fees and expenses of the Qualified Appraiser
shall be paid equally by the Company and the Series B Representative. If three
Qualified Appraisers are appointed, the Company shall pay the fees and expenses
of the Qualified Appraiser which it appoints, the Series B Representative shall
pay the fees and expenses of the Qualified Appraiser which it appoints, and the
fees and expenses of the third Qualified Appraiser shall be shared equally by
the Company and the Series B Representative. The designated Qualified Appraiser
shall make the Determination not later than ten (10) business days following the
Determination Date. The Determination made by the Qualified Appraiser shall be
final, conclusive and binding on the parties hereto. None of the Qualified
Appraisers shall be affiliated with any of the Company, the Series B
Representative or another Qualified Appraiser. For the purposes of this
Agreement, "Qualified Appraiser" shall mean an individual who is engaged on a
regular basis (although not necessarily full time) in valuing securities or
arrangements similar to this Agreement, as the case may be, and may include (but
shall not be limited to) professional business appraisers, investment bankers or
accountants.
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7. Dividends.
Dividends shall accrue on each outstanding share of Series B Preferred
Stock and on each outstanding share of Series B Preferred Stock at the rate
equal to 5% per annum (pro rated in the first annual period if the initial
Issuance Date is after the commencement of the initial quarterly payment period)
of the initial Liquidation Preference per share of Series B Preferred Stock, as
applicable, whether or not declared by the Board. Such dividends shall accrue
and, if declared, shall be payable quarterly in arrears on the 30th day of
January, April, July and October of each year (each such date, a "Dividend
Payment Date"). Dividends shall begin to accrue on the Series B Preferred Stock
as of the Issuance Date, provided that the dividends due in respect of the
initial quarterly period shall be pro rated if such Issuance Date is after the
commencement of such quarterly period. Dividends payable on shares of Series B
Preferred Stock shall be cumulative; therefore, if a full or partial dividend on
the shares of Series B Preferred Stock with respect to any quarter is not
declared by the Board, the Company shall remain obligated to pay a full dividend
with respect to that quarter, provided, however, that any unpaid dividends shall
not bear interest. At the election of the Company, any accrued but unpaid
dividends may be paid in cash at any time.
At the election of the Company, each dividend on the Series B Preferred
Stock may be paid in shares of Common Stock. Dividends paid in shares of Common
Stock shall be paid in full shares only, with a cash payment equal to the value
of any fractional shares. The issuance of such shares of Common Stock shall be
valued at the average of the per share Market Price for the ten Trading Day
period immediately preceding the date on which the dividend becomes due. Each
dividend paid in capital stock shall be mailed to the holders of record of the
Series B Preferred Stock as their names and addresses appear on the share
register of the Company or at the office of the transfer agent on the
corresponding dividend payment date. Holders of Series B Preferred Stock will
receive written notification from the Company or the transfer agent if a
dividend is paid in kind, which notification will specify the number of shares
of Common Stock paid as a dividend. All holders of shares of Common Stock issued
as dividends shall be entitled to all of the rights and benefits relating to
shares of Common Stock as set forth in the Company's Certificate of
Incorporation.
After payment of setting aside of the payment of dividends described in
this Section 7, any additional dividends (other dividends on Common Stock
payable solely in Common Stock) declared or paid in any fiscal year shall be
declared or paid among the holders of Series B Preferred Stock, and Common Stock
then outstanding in proportion to the nearest whole number of shares of Common
Stock which would be held by each such holder if all holders of Series B
Preferred Stock were converted at the then-effective Conversion Rate.
8. Voting Rights.
Each holder of outstanding shares of Series B Preferred Stock is entitled
to the number of votes equal to the number of whole shares of Common Stock into
which the shares of Series B Preferred Stock held of record by such holder are
convertible at each meeting of stockholders of the Company (and written actions
of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Company for their action or consideration.
Except as provided by law and by the provisions of Section 9 below, the holders
of shares of Series B Preferred Stock shall vote together with the holders of
Common Stock as a single class.
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Notwithstanding the above, the Company shall provide each holder of Series
B Preferred Stock with prior written notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). In the event of any undertaking by the Company of a record of its
stockholders for the purpose of determining stockholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining stockholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Company, or any proposed
liquidation, dissolution or winding up of the Company, the Company shall mail a
notice to each holder, at least ten (10) days prior to the record date specified
therein (or twenty (20) days prior to the consummation of any transaction or
event, whichever is earlier), of the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the Delaware General Corporation Law ("DGCL") the
vote of the holders of the Series B Preferred Stock, voting separately as a
class or series as applicable, is required to authorize a given action of the
Company, the affirmative vote or consent of the holders of at least a majority
of the shares of the Series B Preferred Stock, voting together in the aggregate
and not in separate series unless required under the DGCL, represented at a duly
held meeting at which a quorum is present or by written consent of a majority of
the shares of Series B Preferred Stock (except as otherwise may be required
under the DGCL), voting together in the aggregate and not in separate series
unless required under the DGCL, shall constitute the approval of such action by
the class or by both series, as applicable. To the extent that under the DGCL
holders of the Series B Preferred Stock are entitled to vote on a matter with
holders of Common Stock, voting together as one class, each share of Series B
Preferred Stock shall entitle the holder thereof to cast that a number of votes
per share as is equal to the number of shares of Common Stock into which it is
then convertible using the record date for determining the stockholders of the
Company eligible to vote on such matters as the date as of which the Conversion
Price is calculated. Holders of the Series B Preferred Stock shall be entitled
to written notice of all stockholder meetings or written consents (and copies of
proxy materials and other information sent to stockholders) with respect to
which they would be entitled by vote, which notice would be provided pursuant to
the Company's bylaws and the DGCL).
9. Protective Provisions.
(a) So long as the shares of Series B Preferred Stock are outstanding, the
Company shall not, take, approve or otherwise ratify any of the following
actions without the consent of at least a majority of the then outstanding
shares of Series B Preferred Stock, voting as a separate series:
(i) authorize, issue or agree to authorize or issue any new class or
series of Senior Securities or Parity Securities or securities or rights
of any kind convertible into or exercisable or exchangeable for any such
Senior Securities or Parity Securities, or offer, sell or issue any Senior
Securities or Parity Securities or securities or rights of any kind
convertible into or exercisable or exchangeable for any such Senior
Securities or Parity Securities;
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(ii) purchase, repurchase or redeem shares of (i) Common Stock, (ii)
securities or rights of any kind convertible into or exercisable or
exchangeable for Common Stock or (iii) other securities of the Company,
(except in the case of a termination of an employee, at which the Company
may repurchase or redeem such shares of Common Stock at cost and pursuant
to any agreement under which such shares of Common Stock were issued);
(iii) effect any merger, combination, reorganization of the Company,
or any sale or license of all or substantially all of the Company's
assets, in either case other than a merger, combination or reorganization
or other transaction (or series of such transactions) in which 50% or more
of the voting power of the Company is disposed of or in which the
stockholders of the Company immediately prior to such merger,
reorganization or consolidation own less than 50% of the Company's voting
power immediately after; or
(iv) declare or pay dividends or any other distribution on shares of
Common Stock or any other capital stock of the Company except as
contemplated herein; or
(v) authorize, issue or agree to authorize or issue any new class or
series of Senior Securities or securities or rights of any kind
convertible into or exercisable or exchangeable for any such Senior
Securities, or offer, sell or issue any Senior Securities or securities or
rights of any kind convertible into or exercisable or exchangeable for any
such Senior Securities;
(vi) increase the authorized number of shares of Series B Preferred
Stock; or
(vii) amend the Certificate of Incorporation or Bylaws of the
Company or alter or change the rights, preferences or privileges of the
Series B Preferred Stock or any Parity Securities or Senior Securities in
each case so as to affect adversely the rights, preferences or privileges
of the Series B Preferred Stock.
10. Preemptive Right.
(a) The Company shall not issue or sell any shares of Common Stock or
securities convertible into or exercisable or exchangeable for shares of Common
Stock (the securities issued in such transactions being referred to as the
"Newly Issued Securities"), other than any such issuance or sale which is
excluded from the definition of "Newly Issued Securities" pursuant to Section
10(d), unless prior to the issuance or sale of such Newly Issued Securities the
Company shall have set aside such additional securities as shall be necessary to
enable each holder of Series B Preferred Stock to have the opportunity (such
opportunity being herein referred to as the "Preemptive Right") to purchase (on
the same terms as such Newly Issued Securities are sold) the same proportion of
such Newly Issued Securities sold by the Company as (x) the number of shares of
Common Stock (calculated solely on account of outstanding Series B Preferred
Stock on an as converted basis) held by such holder on the day preceding the
issuance and sale of such Newly Issued Securities bears to (y) the total number
of shares of Common Stock (calculated on a fully diluted basis with respect to
the Series B Preferred Stock and any other Common Stock equivalents which are
"in the money") outstanding on the day preceding the date of the issuance and
sale of such Newly Issued Securities.
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(b) Promptly after the issuance and sale by the Company of any Newly
Issued Securities, the Company shall give written notice thereof (the
"Preemptive Notice") to each holder of Series B Preferred Stock. The Preemptive
Notice shall specify (i) the number of such Newly Issued Securities issued or
sold, (ii) the price and other terms of their proposed issuance or sale, (iii)
the number of such Newly Issued Securities which such holder is entitled to
purchase (determined as provided in subsection (a) above), and (iv) the period
during which such holder may elect to purchase such Newly Issued Securities,
which period shall extend for at least thirty (30) days following the receipt by
such holder of the Preemptive Notice (the "Preemptive Acceptance Period"). Each
holder of Series B Preferred Stock who desires to purchase Newly Issued
Securities shall notify the Company within the Preemptive Acceptance Period of
the number of Newly Issued Securities such holder wishes to purchase, as well as
the number, if any, of additional Newly Issued Securities such holder would be
willing to purchase in the event that all of the Newly Issued Securities subject
to the Preemptive Right are not subscribed for by the other holders of Series B
Preferred Stock, by completing, executing and delivering to the Company the form
of Preemptive Acceptance Election Notice furnished by the Company with the
Preemptive Notice, and depositing sufficient cash, in accordance with the terms
set forth in the Preemptive Acceptance Election Notice, to consummate the
purchase of the purchase of all the securities such holder has so indicated such
holder is willing to purchase. The Company, in its sole and absolute discretion,
may agree to payment deposit arrangements other than those set forth in the
Preemptive Acceptance Election Notice, or may decline to accept alternative
arrangements for any reason or without reason. (c) After the conclusion of the
Preemptive Acceptance Period, the Company shall promptly take such steps to
issue and deliver securities to holders of Series B Preferred Stock, accept
purchase price deposits and return unused deposits (without interest and less
any payment transfer charges as may apply) as may be necessary or appropriate to
consummate the exercise of Preemptive Rights in accordance with this Section 10.
(d) The term "Newly Issued Securities" shall not include:
(i) Shares of Common Stock issued upon conversion of shares of
Series A-1 Preferred Stock, Series A-2 Preferred Stock or Series B
Preferred Stock;
(ii) Shares of Common Stock (subject to appropriate adjustment for
any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) issuable or issued to the
Company's employees, directors or consultants pursuant to a stock option
plan or restricted stock plan approved by the Board;
(iii) Shares of Common Stock issued or issuable pursuant to
subsection 3(d);
(iv) Shares of Common Stock or Preferred Stock issuable upon
exercise of options, warrants or upon conversion of convertible securities
or other rights outstanding as of the Issuance Date;
(v) Shares of capital stock or options or warrants to purchase
capital stock, issued to financial institutions or lessors in connections
with commercial credit agreements, equipment financings or similar
transactions or to other corporations, persons or entities in connection
with acquisitions, mergers or similar business combinations, partnership
arrangements, strategic alliances, licensing arrangements or similar
non-capital raising transactions approved by the Board, including within
this exception from the definition of the term "Newly Issued Securities"
shares issued to raise capital provided that the use of proceeds is to
consummate such non-capital raising transactions;
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(vi) Shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization of the Company;
(vii) Securities that are issued by the Company pursuant to a
registration statement filed under the Securities Act;
(viii) shares issued in exchange, at fair market value, for assets
or equipment to be used by the Company in the ordinary course of business;
and
(ix) shares issued pursuant to any of the Series B Preferred Stock
purchase agreements or any of the other documents executed, filed or
delivered in connection therewith.
11. Mandatory Redemption
(a) On the date which is five (5) years after the Issuance Date (such
fifth anniversary, the "Mandatory Redemption Date"), the Company shall redeem
each then outstanding share of the Series B Preferred Stock for an amount per
share equal to the Liquidation Amount.
(b) Upon a Change of Control Redemption Event, the Company shall redeem
each then outstanding share of the Series B Preferred Stock for an amount per
share equal to either (x) the Liquidation Amount or (y) the property, rights or
securities which the holder of the shares of Common Stock into which such share
of Series B Preferred Stock could have been converted would have received,
whichever is elected by the holder. For purposes of this Section 11, a "Change
of Control Redemption Event" shall be deemed to have occurred upon a merger,
combination or reorganization of the Company in which more than 50% of the
voting power of the Company is disposed of, or in which the stockholders of the
Company immediately prior to such merger, reorganization or consolidation own
less than 50% of the Company's voting power immediately after, unless a majority
of the holders of the Series B Preferred Stock, voting as a separate series,
shall have approved of the transaction.
(b) From and after the latest to occur of (i) the Mandatory Redemption
Date or a Change of Control Redemption Event, and (ii) the date upon which the
Company irrevocably deposits the aggregate Liquidation Amount or the property,
rights or securities which the holder of the shares of Common Stock into which
such share of Series B Preferred Stock could have been converted would have
received, whichever is elected by the applicable holder within the applicable
time period (or the Liquidation Amount if no such election is made within the
applicable time period), in respect of the shares of Series B Preferred Stock
being redeemed in an account for disbursement to holders of shares of Series B
Preferred Stock, as applicable, upon receipt of certificates evidencing their
respective shares and other customary documentation for such redemption, no
holder of such Series B Preferred Stock shall have any rights in respect of such
shares other than to receive the applicable Liquidation Amount per share in
respect of such holder's shares.
12. No Reissuance of Series B Preferred Stock.
No share or shares of Series B Preferred Stock acquired by the Company by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares of Series B Preferred Stock shall be cancelled, retired and
eliminated from the shares of Series B Preferred Stock, as applicable, which the
Company shall be authorized to issue. Any such shares of Series B Preferred
Stock acquired by the Company shall have the status of authorized and unissued
shares of Preferred Stock issuable in undesignated Series and may be
redesignated and reissued in any series other than as Series B Preferred Stock.
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13. Registered Holders.
A holder of Series B Preferred Stock registered on the Company's stock
transfer books as the owner of shares of Series B Preferred Stock, as
applicable, shall be treated as the owner of such shares of all purposes. All
notices and all payments required to be mailed to a holder of shares of Series B
Preferred Stock shall be mailed to such holder's registered address on the
Company's stock transfer books, and all dividends and redemption payments to a
holder of Series B Preferred Stock made hereunder shall be deemed to be paid in
compliance hereof on the date such payments are deposited into the mail
addressed to such holder at such holder's registered address on the Company's
stock transfer books.
14. Certain Remedies.
Any registered holder of shares of Series B Preferred Stock shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Certificate of Designations and to enforce specifically the terms and
provisions of this Certificate of Designations in any court of the United States
or any state thereof having jurisdiction, this being in addition to any other
remedy to which such holder may be entitled at law or in equity.
15. Headings of Subdivisions.
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
16. Severability of Provisions.
If any right, preference or limitation of the Series B Preferred Stock set
forth herein (as may be amended) from time to time is invalid, unlawful or
incapable of being enforced by reason of any rule of law or public policy, such
right, preference or limitation (including, without limitation, the dividend
rate) shall be enforced to the maximum extent permitted by law and all other
rights, preferences and limitations set forth herein (as so amended) which can
be given effect without the invalid, unlawful or unenforceable right, preference
or limitation herein set forth shall be deemed dependent upon any other such
right, preference or limitation unless so expressed herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the undersigned, being the President of the Company,
has executed this Certificate of Designation as of January 20, 2004.
AUTO DATA NETWORK, INC.
By:
-----------------------------
Name:
Title:
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