EXHIBIT 10.4
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES D-1 CONVERTIBLE PREFERRED STOCK
OF
AUTO DATA NETWORK, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
------------------------------------
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 August
2, 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 D-1
Convertible Preferred Stock" (the "SERIES D-1_PREFERRED STOCK"). Subject to the
following sentence, the authorized number of shares of Series D-1 Preferred
Stock shall be 2,800,000. Whatever number of shares of Series D-1 Preferred
Stock are not issued pursuant to the merger of Carparts Technologies, Inc. with
and into Car Parts Technologies Acquisition Inc., pursuant to the Amended and
Restated Agreement and Plan of Merger by and among Auto Data Network Inc., Car
Parts Technologies Acquisition Inc. and CarParts Technologies, Inc. dated as of
August 2, 2004 (the "Merger Agreement"), or thereafter 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 D-1
Preferred Stock, shall be cancelled, retired and eliminated by the Company from
the shares of Series D-1 Preferred Stock, as applicable, which the Company shall
be authorized to issue. Any such shares of Series D-1 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 D-1 Preferred
Stock.
2. CONVERSION.
(a) RIGHT TO CONVERT. Each share of Series D-1 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 D-1 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
$8.85818182 (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 D-1 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 D-1 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 D-1 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 D-1 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 D-1 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
- 2 -
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 D-1 Preferred Stock may only convert
shares of Series D-1 Preferred Stock in blocks equal to not less than the lesser
of (i) the number of shares of Series D-1 Preferred Stock, as applicable,
convertible into 5,000 shares of Common Stock and (ii) all shares of Series D-1
Preferred Stock then held by the stockholder. If the holder is converting less
than all shares of Series D-1 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 D-1
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 D-1 Preferred Stock
owned by such holder and each holder of shares of Series D-1 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 D-1 Preferred Stock shall be rounded up to the next highest whole share.
All certificates representing shares of Series D-1 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 D-1 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 D-1 Preferred Stock, as applicable (the "CONVERSION PRICE"), shall be
equal to $2.214545455 per share of Common Stock into which such number of share
of Series D-1 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 D-1 Preferred
Stock, as herein provided, free from preemptive rights or any other actual
contingent purchase rights of persons other than the rights of the holders of
the Series A-1 and Series A-2 Preferred Stock and any corresponding rights that
may be granted to the holders of the Series C Preferred Stock, and the rights of
the holders of the Series D-1 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 D-1 Preferred Stock; provided,
that enforcement of the covenant to reserve shares shall be subject to such
grace period as is reflected in the Merger Agreement. 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 D-1 Preferred Stock, in addition to such other remedies as
shall be available to the holders of such Series D-1 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.
- 3 -
(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 D-1 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 D-1 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 D-1 Preferred Stock, as applicable,
at the time of Automatic Conversion of the Series D-1 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 D-1 Preferred Stock, as
applicable, were registered, despite the instructions to the contrary.
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 D-1 Preferred Stock or shares of
the Company's Series D-2 Preferred Stock, or the shares of Common Stock
issued upon conversion of shares of the Company's Series A-1 Preferred
Stock, the Company's Series A-2 Preferred Stock, the Company's Series B
Preferred Stock, the Company's Series B-2 Preferred Stock, the
Company's Series D-1 Preferred Stock, or the Company's Series D-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 D-1 Preferred Stock and the Conversion Price shall be subject to
adjustment from time to time in accordance with the following provisions:
- 4 -
(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 D-1 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 D-1 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 D-1 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.
(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 D-1 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 D-1
Preferred Stock, as applicable, issuable upon the conversion of the Series D-1
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 D-1 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 D-1 Preferred Stock) shall thereafter
be applicable,
- 5 -
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 D-1 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 D-1 Preferred Stock shall be entitled to convert the Series
D-1 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.
(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
- 6 -
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;
(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 D-1 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
- 7 -
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.
(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 consist 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 consist 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,
- 8 -
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
(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 D-1
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 D-1 Preferred Stock.
- 9 -
4. RANKING.
The Series D-1 Preferred Stock shall rank, as to dividends, rights upon
liquidation, dissolution or winding up, junior to the Company's Series A-1,
Series A-2, Series B and Series B-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 D- 1 Preferred Stock, except (x) as otherwise
approved by the affirmative vote or consent of the holders of a majority of the
outstanding shares of Series D-1 Preferred Stock pursuant to Section 9 hereof,
(y) the Series D-2 Preferred Stock (the "Subsequent Junior Preferred Stock") to
be issued pursuant to the transaction in which this Series D-1 Preferred Stock
is issued, which will rank pari passu with the Series D-1 Preferred Stock, and
(z) the Series C Preferred Stock (the "DCS Transaction Preferred Stock"), which
will rank senior to the Series D-1 Preferred Stock and the Series D-2 Preferred
Stock and may be ranked senior to other series of the Company's preferred stock,
and which the Company anticipates issuing in connection with the financing in
which the Company is engaged as of the date of issuance of this Series D-1
Preferred Stock, principally for the purpose of raising sufficient funds to
complete the Company's acquisition of DCS Automotive Ltd.. (All equity
securities of the Company to which the Series D-1 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 D-1 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 D-1 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.
SECTION 1.01 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 D-1 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
D-1 Preferred Stock ($2.214545455, as adjusted for stock splits, dividends,
combinations or other recapitalization of the Series D-1 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.
- 10 -
SECTION 1.02 PRIORITY. If the Available Assets are
insufficient to pay the holders of Series D-1 Preferred Stock the full amount of
the Liquidation Amount, the holders of Series D-1 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.
SECTION 1.03 NOTICE. The Company will send a written notice of
a Liquidation to the holders of record of the Series D-1 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 D-1 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 D-1 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 D-1
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 D-1 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 D-1 Representative. If three Qualified Appraisers are appointed, the
Company shall pay the fees and expenses of the Qualified Appraiser which it
appoints, the Series D-1 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 D-1
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 D-1 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.
- 11 -
7. DIVIDENDS.
Dividends shall accrue on each outstanding share of Series D-1
Preferred Stock and on each outstanding share of Series D-1 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 D-1 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 July, October, January and April of each year (each such date, a "DIVIDEND
PAYMENT DATE"). Dividends shall begin to accrue on the Series D-1 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 D-1
Preferred Stock shall be cumulative; therefore, if a full or partial dividend on
the shares of Series D-1 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 D-1
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 D-1 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 D-1 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 D-1 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
D-1 Preferred Stock were converted at the then-effective Conversion Rate.
8. VOTING RIGHTS.
Each holder of outstanding shares of Series D-1 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 D-1 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 D-1 Preferred Stock shall vote together
with the holders of Common Stock as a single class.
Notwithstanding the above, the Company shall provide each holder of
Series D-1 Preferred Stock with prior written notification of any meeting of the
stockholders (and copies of proxy materials and
- 12 -
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 D-1 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 D-1 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 D-1 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 D-1 Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series D-1 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 D-1 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 D-1 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 D-1 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, other
than the Subsequent Junior Preferred Stock and the DCS Transaction
Preferred Stock;
(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
- 13 -
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) 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
(iv) increase the authorized number of shares of Series
D-1 Preferred Stock; or
(v) amend the Certificate of Incorporation or Bylaws of
the Company or alter or change the rights, preferences or privileges of
the Series D-1 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 D-1 Preferred Stock other than
to permit the issuance of the Subsequent Junior Preferred Stock or the
DCS Transaction 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 D-1 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 D-1 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 A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred
Stock, Series B-2 Preferred Stock and Series D-1 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.
(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 D-1 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 D-1 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 D-1 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
- 14 -
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 D-1 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,
Series B Preferred Stock, Series B-2 Preferred Stock, Series D-1
Preferred Stock, Subsequent Junior Preferred Stock or DCS Transaction
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 financngs 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;
(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;
- 15 -
(ix) shares issued pursuant to any of the Series D-1
Preferred Stock purchase agreements or any of the other documents
executed, filed or delivered in connection therewith; and
(x) shares of Subsequent Junior Preferred Stock or DCS
Transaction Preferred Stock.
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 D- 1 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 D-1 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 D-1 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 D-1 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 D-1 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 D-1 Preferred Stock
being redeemed in an account for disbursement to holders of shares of Series D-1
Preferred Stock, as applicable, upon receipt of certificates evidencing their
respective shares and other customary documentation for such redemption, no
holder of such Series D-1 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 D-1 PREFERRED STOCK.
No share or shares of Series D-1 Preferred Stock acquired by the
Company by reason of redemption, purchase, conversion or otherwise shall be
reissued, and all such shares of Series D-1 Preferred Stock shall be cancelled,
retired and eliminated from the shares of Series D-1 Preferred Stock, as
applicable, which the Company shall be authorized to issue. Any such shares of
Series D-1 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
D-1 Preferred Stock.
- 16 -
13. REGISTERED HOLDERS.
A holder of Series D-1 Preferred Stock registered on the Company's
stock transfer books as the owner of shares of Series D-1 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
D-1 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 D-1 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 D-1 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 D-1 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.]
- 17 -
IN WITNESS WHEREOF, the undersigned, being the Chief Financial Officer of the
Company, has executed this Certificate of Designations as of August 6, 2004.
AUTO DATA NETWORK, INC.
By: /S/ LEE COLE
----------------------------
Name: Lee Cole
- 18 -