RESTATED ARTICLES OF INCORPORATION
OF DAOU SYSTEMS, INC.
A CALIFORNIA CORPORATION
The undersigned Georges J. Daou and Daniel J. Daou hereby certify
that:
ONE: They are the duly elected and acting Chief Executive Officer
and Secretary, respectively, of said corporation.
TWO: The Articles of Incorporation of said corporation shall be
amended and restated to read in full as follows:
ARTICLE I.
The name of this corporation is Daou Systems, Inc.
ARTICLE II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III.
A. CLASSES OF STOCK. This corporation is authorized to issue
two classes of stock to be designated, respectively, "COMMON STOCK" and
"PREFERRED STOCK." The total number of shares which the corporation is
authorized to issue is Twenty Five Million (25,000,000) shares. Fifteen Million
(15,000,000) shares shall be Common Stock and Ten Million (10,000,000 ) shares
shall be Preferred Stock. Upon the amendment of these Articles, each
outstanding share of Common Stock is divided into Four Hundred and Seventy-Five
(475) shares of Common Stock.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK.
The Preferred Stock authorized by these Restated Articles of Incorporation may
be issued from time to time in series. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock, which
series shall consist of 1,821,191 shares, are as set forth below in this
ARTICLE III(B). Subject to the rights of series of Preferred Stock which may
from time to time come into existence in compliance with the provisions of
SECTION 7, the Board of Directors is hereby authorized to fix or alter the
rights, preferences, privileges and restrictions granted to or imposed upon
additional series of Preferred Stock, and the number of shares constituting
any such series and the designation thereof, or of any of them. Subject to
the rights of series of Preferred Stock which may from time to time come into
existence in compliance with the provisions of SECTION 7, the Board of Directors
is also authorized to increase or decrease the number of shares of any series
(other than the Series A
Preferred Stock), prior or subsequent to the issue of that series, but not below
the number of shares of such series then outstanding. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
1. DIVIDEND PROVISIONS. Subject to the rights of series of
Preferred Stock which may from time to time come into existence in compliance
with the provisions of SECTION 7, the holders of shares of Series A Preferred
Stock shall be entitled to receive dividends out of any assets legally available
therefor, prior and in preference to any declaration or payment of any dividend
(other than a dividend payable solely in Common Stock or other securities and
rights convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of this corporation) on the Common
Stock of this corporation, at the rate of six percent (6%) per annum based on
the Original Series A Issue Price per share of Series A Preferred Stock
(appropriately adjusted for any stock split, dividend, combination or other
recapitalization) when, as and if declared by the Board of Directors. Such
dividends shall not be cumulative and, subject to the rights of series of
Preferred Stock which may from time to time come into existence in compliance
with the provisions of SECTION 7, shall be paid to the extent assets are legally
available therefor and any amounts for which assets are not legally available
shall be paid promptly as assets become legally available therefor; any partial
payment will be made pro rata among the holders of such shares. Unless full
dividends on the Series A Preferred Stock for the then current dividend period
shall have been paid or declared and a sum sufficient for the payment thereof
set apart, no dividend whatsoever (other than a dividend payable solely in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock) shall be paid or declared, and no distribution shall be made, on any
Common Stock. After full dividends on the Series A Preferred Stock for the then
current dividend period have been paid, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock shall participate in
any further dividends on a pro rata basis determined by the number of shares of
Common Stock held by each (assuming conversion of all such Series A Preferred
Stock).
2. LIQUIDATION PREFERENCE.
a. In the event of any liquidation, dissolution or winding up
of this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock which may from time to time come into existence in
compliance with the provisions of SECTION 7, the holders of Series A Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of this corporation to the holders of Common Stock by
reason of their ownership thereof, an amount per share equal to the sum of
(i) Seven Dollars ($7.00) for each outstanding share of Series A Preferred Stock
(the "ORIGINAL SERIES A ISSUE PRICE") and (ii) an amount equal to six percent
(6%) of the Original Series A Issue Price (compounded annually and computed on
the basis of a 360-day year of 30-day months and, for any period less than a
month, the actual number of days elapsed in such month for the period of time
that has passed since the original issuance of the Series A Preferred Stock)
less any dividends actually paid on the Series A Preferred Stock (such amount
being referred to herein as the "PREMIUM"). If upon the occurrence of such
event, the assets and
- 2 -
funds thus distributed among the holders of the Series A Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, subject to the rights of series of Preferred Stock
which may from time to time come into existence in compliance with the
provisions of SECTION 7, the entire assets and funds of the corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock in proportion to the amount of such stock owned by each
such holder.
b. Upon the completion of the distribution required by
SUBSECTION (a) of this SECTION 2 and any other distribution which may be
required with respect to series of Preferred Stock which may from time to time
come into existence in compliance with the provision of SECTION 7, if assets
remain in this corporation, the holders of the Common Stock of this corporation,
shall receive an aggregate amount equal to the total amount received by the
holders of the Series A Preferred Stock pursuant to SUBSECTION (a).
c. After the distributions described in SUBSECTION (a) and (b)
above have been paid, subject to the rights of series of Preferred Stock which
may from time to time come into existence in compliance with the provisions of
SECTION 7, the remaining assets of the corporation available for distribution to
shareholders shall be distributed among the holders of Series A Preferred Stock
and Common Stock pro rata based on the number of shares of Common Stock held by
each (assuming conversion of all such Series A Preferred Stock).
d. A consolidation or merger of this corporation with or into
any other corporation or corporations, or a sale, conveyance or disposition of
all or substantially all of the assets of this corporation or the effectuation
by the corporation of a transaction or series of related transactions in which
more than fifty percent (50%) of the voting power of the corporation is disposed
of, shall not be deemed to be a liquidation, dissolution or winding up within
the meaning of this SECTION 2, but shall instead be treated pursuant to
SECTION 5.
e. The liquidation preference of the Series A Preferred Stock
set forth in this SECTION 2 shall not be applicable to any transaction in which
the holders of Series A Preferred Stock receive not less than two times the
Original Series A Issue Price (appropriately adjusted for any stock split,
dividend, combination or other recapitalization) before August 31, 1997 and not
less than three times the Original Series A Issue Price (appropriately adjusted
for any stock split, dividend, combination or other recapitalization)
thereafter; provided, however, that in any such transaction the holders of
shares of Series A Preferred Stock and the holders of shares of Common Stock
will share in the consideration received on a pro rata basis determined by the
number of shares of Common Stock held by each (assuming conversion of all such
Series A Preferred Stock).
3. REDEMPTION.
a. On or after August 31, 2000, subject to the rights of series
of Preferred Stock which may from time to time come into existence in compliance
with the provisions of SECTION 7, within thirty (30) days after the receipt by
this corporation of a written request from the holders of a majority of the then
outstanding Series A Preferred Stock, but not less then one third of the
- 3 -
originally issued shares of Series A Preferred Stock (the "ORIGINAL SERIES A
PREFERRED STOCK"), that all or some of such holders' shares be redeemed, and
concurrently with surrender by such holders of the certificate representing such
shares, this corporation shall, to the extent it may lawfully do so, redeem the
shares specified in such request by paying in cash therefor a sum per share
equal to the Original Series A Issue Price plus an amount equal to six percent
(6%) of the Original Series A Issue Price compounded annually and computed for
the period of time that has passed since the original issuance of the Series A
Preferred Stock on the basis of a 360-day year of 30-day months and, for any
period less than a month, the actual number of days elapsed in such month, less
any dividends actually paid on the Series A Preferred Stock (the "SERIES A
REDEMPTION PRICE"). This corporation shall give each holder of Series A
Preferred Stock at least ten (10) days written notice of the date ("REDEMPTION
DATE") and place of redemption and the dollar amount of the Series A Redemption
Price, which notice shall be effective upon delivery or deposit in the U.S.
mails in the manner specified in SUBSECTION 3(c)(ii). Payment of the Series A
Redemption Price shall be made as follows: (A) one-third of such price shall be
paid in cash on the Redemption Date; and (B) one-third of such price (plus
interest on unpaid balance of six percent (6%) compounded annually) shall be
paid in cash on each of the first and second anniversary dates of such
Redemption Date, respectively. If the certificate surrendered represents a
greater number of shares than the number redeemed, this corporation shall issue
to such holder a new certificate representing the shares which remain
outstanding.
b. From and after the Redemption Date, unless there shall have
been a default in payment of the Series A Redemption Price, all dividends on the
Series A Preferred Stock designated for redemption in the Redemption Notice
shall cease to accrue, all rights of the holders of such shares as holders of
Series A Preferred Stock (except the right to receive the Redemption Price
without interest upon surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of this corporation or be deemed to be outstanding for
any purpose whatsoever. Subject to the rights of series of Preferred Stock
which may from time to time come into existence in compliance with the
provisions of SECTION 7, if the funds of the corporation legally available for
redemption of shares of Series A Preferred Stock on any Redemption Date, or any
subsequent date as provided in SUBSECTION 3(a), are insufficient to redeem the
total number of shares of Series A Preferred Stock to be redeemed on such date,
those funds which are legally available will be used to redeem the maximum
possible number of such shares ratably among the holders of such shares to be
redeemed. The shares of Series A Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein.
Subject to the rights of series of Preferred Stock which may from time to time
come into existence in compliance with the provisions of SECTION 7, at any time
thereafter when additional funds of the Company are legally available for the
redemption of shares of Series A Preferred Stock, such funds will immediately be
used to redeem the balance of the shares which the Company has become obligated
to redeem on any Redemption Date but which it has not redeemed.
c. If at any time less than 25% of the Original Series A
Preferred Stock remains outstanding, the corporation may, upon a vote of its
Board of Directors, redeem the remaining outstanding Series A Preferred Stock by
payment in cash of the Series A Redemption Price in accordance with the notice
and other terms and conditions set forth above in this SECTION 3.
- 4 -
4. CONVERSION. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "CONVERSION RIGHTS"):
a. RIGHT TO CONVERT.
i) Subject to SUBSECTION (c), each share of Series A
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share and prior to the close of
business on any Redemption Date as may have been fixed in any Redemption Notice
with respect to such share, at the office of this corporation or any transfer
agent for the Series A Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series A Issue Price by the Conversion Price at the time in effect for such
share. The initial "CONVERSION PRICE" per share for shares of Series A
Preferred Stock shall be the Original Series A Issue Price; provided, however,
that the Conversion Price for the Series A Preferred Stock shall be subject to
adjustment as set forth in SUBSECTION 4(c).
ii) In the event of a call for redemption of any shares of
Series A Preferred Stock pursuant to SECTION 3, unless there shall have been a
default in payment of the Series A Redemption Price, the Conversion Rights shall
terminate as to the shares designated for redemption at the close of business on
the Redemption Date.
iii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such Series A Preferred Stock immediately upon the
consummation of the corporation's sale of its Common Stock in a public offering
pursuant to a registration statement under the Securities Act of 1933, as
amended, the public offering price of which was not less than two (2) times the
Original Series A Issue Price (appropriately adjusted for any stock split,
dividend, combination or other recapitalization) prior to August 31, 1997 and
not less than three (3) times such amount thereafter and $15,000,000 in the
aggregate.
b. MECHANICS OF CONVERSION. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice by mail, postage
prepaid, to this corporation at its principal corporate office, of the election
to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. This
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the shares of Series A Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as
- 5 -
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Series A Preferred Stock for
conversion, be conditioned upon the closing with the underwriter of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Series A Preferred
Stock shall not be deemed to have converted such Series A Preferred Stock until
immediately prior to the closing of such sale of securities.
c. CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The
Conversion Price of the Series A Preferred Stock shall be subject to adjustment
from time to time as follows:
i) A. Upon each issuance by the corporation of any
Additional Stock (as defined below), after the date upon which any shares of the
Series A Preferred Stock were first issued (the "PURCHASE DATE" with respect to
such series), without consideration or for a consideration per share less than
the Conversion Price for such series in effect immediately prior to the issuance
of such Additional Stock, the Conversion Price for such series in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this CLAUSE (i)) be adjusted to a price determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance (not
including shares excluded from the definition of Additional Stock by
SECTION 4(c)(ii)(B)) plus the number of shares of Common Stock which the
aggregate consideration received by the corporation for such issuance of
Additional Stock would purchase at such Conversion Price; and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance (not including shares excluded from the definition of
Additional Stock by SUBSECTION 4(c)(ii)(B)) plus the number of shares of such
Additional Stock.
However, the foregoing calculation shall not take
into account shares deemed issued pursuant to SECTION 4(c)(i)(E) on account of
options, rights or convertible or exchangeable securities (or the actual or
deemed consideration therefor), except to the extent (i) such options, rights or
convertible or exchangeable securities have been exercised, converted or
exchanged or (ii) the consideration to be paid upon such exercise, conversion or
exchange per share of underlying Common Stock is less than or equal to the per
share consideration for the Additional Stock which has given rise to the
Conversion Price adjustment being calculated.
B. Except to the limited extent provided for in
SUBSECTIONS (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this SUBSECTION 4(c)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment,
and (for purposes of clarification only) in no event will such adjustment have
the effect of increasing the Conversion Price above the Original Series A Issue
Price.
C. In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
- 6 -
D. In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
E. In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this SUBSECTION 4(c)(i) and SUBSECTION 4(c)(ii):
1. The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability, including without limitation, the
passage of time, but without taking into account potential
antidilution adjustments) of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal
to the consideration (determined in the manner provided in
SUBSECTIONS 4(c)(i)(C) and (c)(i)(D)), if any, received by the
corporation upon the issuance of such options or rights plus the
exercise price provided in such options or rights for the Common
Stock covered thereby.
2. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming
the satisfaction of any conditions to convertibility or
exchangeability, including, without limitation, the passage of time,
but without taking into account potential antidilution adjustments)
for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the
corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received
by the corporation upon the conversion or exchange of such securities
or the exercise of any related options or rights (the consideration in
each case to be determined in the manner provided in
SUBSECTIONS 4(c)(i)(C) and (c)(i)(D)).
3. In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to
this corporation upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the Series A
Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the
actual
- 7 -
issuance of Common Stock or any payment of such consideration upon the
exercise of any such options or rights or the conversion or exchange
of such securities.
4. Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A
Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the issuance of
only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon
the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or
rights related to such securities.
5. The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to
SUBSECTIONS 4(c)(i)(E)(1) and (2) shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in
either SUBSECTION 4(c)(i)(E)(3) or (4).
ii) "ADDITIONAL STOCK" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to SUBSECTION 4(c)(i)(E))
by this corporation after the Purchase Date other than:
A. Common Stock issued pursuant to a transaction
described in SUBSECTION 4(c)(iii),
B. shares of Common Stock issuable or issued to
employees consultants or directors of this corporation directly or pursuant to a
stock option plan or restricted stock plan approved by the Board of Directors of
this corporation, or in connection with lease lines, bank financings or other
similar transactions or
C. shares of Common Stock issued or issuable (I) in a
public offering in connection with which all outstanding shares of Series A
Preferred Stock will be converted to Common Stock pursuant to
SUBSECTION 4(a)(iii) or (II) upon exercise of warrants or rights granted to
underwriters in connection with such a public offering.
iii) In the event the corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"COMMON STOCK EQUIVALENTS") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
- 8 -
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
such series shall be increased in proportion to such increase of the aggregate
of shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents with the number of shares issuable with respect to
Common Stock Equivalents determined from time to time in the manner provided for
deemed issuances in SUBSECTION 4(c)(i)(E).
iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
d. OTHER DISTRIBUTIONS. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in SUBSECTION 4(c)(iii), then,
in each such case for the purpose of this SUBSECTION 4(d), the holders of the
Series A Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Series A Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
e. RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this SECTION 4 or SECTION 5) provision shall be made so that the holders of the
Series A Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series A Preferred Stock the number of shares of stock or other
securities or property of the Company or otherwise, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this SECTION 4 with respect to the rights of
the holders of the Series A Preferred Stock after the recapitalization to the
end that the provisions of this SECTION 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock) shall be applicable after that event
as nearly equivalent as may be practicable.
f. NO IMPAIRMENT. This corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, recapitalization,
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 this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this SECTION 4 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 A Preferred Stock against impairment.
- 9 -
g. NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
i) No fractional shares shall be issued upon conversion of
the Series A Preferred Stock, and the number of shares of Common Stock to be
issued shall be rounded to the nearest whole share. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Series A Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock pursuant to this SECTION 4,
this corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price at the time in effect, and (C) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series A Preferred
Stock.
h. NOTICES OF RECORD DATE. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
i. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock; and 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 the
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, this corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
j. NOTICES. Any notice required by the provisions of this
SECTION 4 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
corporation.
- 10 -
5. MERGER, CONSOLIDATION.
a. At any time, in the event of:
i) any transaction or series of related transactions
(including, without limitation, any reorganization,
merger or consolidation) which will result in the
corporation's shareholders immediately prior to such
transaction not holding (by virtue of such shares or
securities issued solely with respect thereto) at least
Fifty Percent (50%) of the voting power of the
surviving or continuing entity,
ii) a sale of all or substantially all of the assets of the
corporation, unless the corporation's shareholders
immediately prior to such sale will, as a result of
such sale, hold (by virtue of securities issued as
consideration for the corporation's sale) at least 50%
of the voting power of the purchasing entity,
then, subject to the rights of series of Preferred Stock which may from time to
time come into existence in compliance with the provisions of SECTION 7, holders
of the Series A Preferred Stock shall receive for each share of such stock in
cash or in securities received from the acquiring corporation, or in a
combination thereof, at the closing of any such transaction, an amount equal to
the greater of (A) the Original Series A Issue Price, plus an amount equal to
the Premium as of the date of closing of such transaction or (B) that share of
the total consideration to be paid by the acquiring entity in such transaction
as equals the proportion that the number of shares of Common Stock and Common
Stock issuable upon conversion of the outstanding Series A Preferred Stock then
held by each of them bears to the total number of shares of outstanding Common
Stock and shares of Common Stock issuable upon conversion of the outstanding
Series A Preferred Stock. Such payments shall be made with respect to the
Series A Preferred Stock (A) by redemption of such shares in one installment
pursuant to SUBSECTION 3(b) (provided that in such event the moment immediately
prior to the closing of such transaction shall, for purposes of this
subparagraph, be deemed to be the "REDEMPTION DATE", only twenty (20) days'
prior notice of the date fixed for redemption need be given and the consent of
the holders of the Series A Preferred Stock shall be deemed to have been given)
or (B) by purchase of such shares of Series A Preferred Stock by the surviving
corporation, entity or person or by this corporation. In the event the proceeds
of the transaction are not sufficient to make full payment of the aforesaid
preferential amounts to the holders of the Series A Preferred Stock in
accordance herewith, then, subject to the rights of series of Preferred Stock
which may from time to time come into existence in compliance with the
provisions of SECTION 7, the entire amount payable in respect of the proposed
transaction shall be distributed among the holders of the Series A Preferred
Stock in proportion to the amount of such stock owned by each such holder.
b. Any securities to be delivered to the holders of the Series
A Preferred Stock pursuant to SUBSECTION 5(a) above shall be valued as follows:
- 11 -
i) Securities not subject to investment letter or other
similar restrictions on free marketability (covered by (ii) below):
A. If traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the 15-day period ending three (3) days prior to the closing;
B. If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
are applicable) over the 15-day period ending three (3) days prior to the
closing; and
C. If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
corporation and the holders of Preferred Stock which would be entitled to
receive such securities or the same type of securities and which Preferred Stock
represents at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in (i) (A),
(B) or (C) to reflect the approximate fair market value thereof, as mutually
determined by the corporation and the holders of Preferred Stock which would be
entitled to receive such securities or the same type of securities and which
represent at least a majority of the voting power of all then outstanding shares
of such Preferred Stock.
c. In the event the requirements of SUBSECTION 5(a) are not
complied with, the corporation shall forthwith either:
i) cause such closing to be postponed until such time as
the requirements of this SECTION 5 have been complied with, or
ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in SUBSECTION 5.
d. The corporation shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this SECTION 5, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any
- 12 -
material changes provided for herein; provided, however, that such periods may
be shortened upon the written consent of the holders of Preferred Stock which is
entitled to such notice rights or similar notice rights and which represents at
least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
e. The provisions of this SECTION 5 are in addition to the
protective provisions of SECTION 7.
6. VOTING RIGHTS. The holder of each share of Series A Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such Series A Preferred Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the nearest whole
share), and with respect to such vote, such holder shall have full voting rights
and powers equal to the voting rights and powers of the holders of Common Stock,
and shall be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the by-laws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
7. PROTECTIVE PROVISIONS. So long as a majority of the Original
Series A Preferred Stock are outstanding, this corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, voting as a separate class:
a. sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than 50%
of the voting power of the corporation is disposed of (provided, however that
the holders of Series A Preferred Stock will not be entitled to vote as a class
on mergers, consolidations, sale of assets, business combinations or similar
transactions in which the holders of Series A Preferred Stock receive per share
not less than two (2) times the Original Series A Issue Price (appropriately
adjusted for any stock split, dividend, combination or other recapitalization)
prior to August 31, 1997 and not less than three (3) times such amount
thereafter; or
b. alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock so as to affect adversely such shares; or
c. increase the authorized number of shares of Series A
Preferred Stock; or
d. create any new class or reclassify any series of stock or
any other securities convertible into equity securities of the corporation
having a preference over, or being on a parity with, the Series A Preferred
Stock with respect to voting, redemption, dividends or upon liquidation; or
- 13 -
e. repurchase or redeem any shares of the corporation's capital
stock other than shares repurchased at cost from employees or officers.
8. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any shares
of Series A Preferred Stock shall be redeemed or converted pursuant to SECTION 3
or SECTION 4, the shares so converted or redeemed shall be canceled and shall
not be issuable by the corporation. The Articles of Incorporation of this
corporation shall be appropriately amended to effect the corresponding reduction
in the corporation's authorized capital stock.
ARTICLE IV.
Section 1. The liability of the directors of this corporation
for monetary damages shall be eliminated to the fullest extent permissible under
California law.
Section 2. This corporation is authorized to indemnify the
directors and officers and agents of this corporation to the fullest extent
permissible under California law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 14 -
THREE: The foregoing restated articles of incorporation have
been approved by the Board of Directors of said corporation.
FOUR: The foregoing restated articles of incorporation were
approved by the holders of the requisite number of shares of said corporation in
accordance with Sections 158, 902 and 903 of the California General Corporation
Law; the total number of outstanding shares of each class entitled to vote with
respect to the foregoing amendment was 10,000 shares of Common Stock. The
number of shares voting in favor of the foregoing amendments equaled 10,000
shares. The percentage vote equaled 100% of the outstanding shares of the
corporation.
IN WITNESS WHEREOF, the undersigned have executed this
certificate on October 20, 1995.
/s/ Georges J. Daou
-------------------------------------------
Georges J. Daou, Chief Executive Officer
/s/ Daniel J. Daou
-------------------------------------------
Daniel J. Daou, Secretary
The undersigned certify under penalty of perjury that they have
read the foregoing Restated Articles of Incorporation and know the contents
thereof, and that the statements therein are true.
Executed at San Diego, California, on Oct. 20, 1995.
/s/ Georges J. Daou
-------------------------------------------
Georges J. Daou, Chief Executive Officer
/s/ Daniel J. Daou
-------------------------------------------
Daniel J. Daou, Secretary
[SIGNATURE PAGE TO DAOU SYSTEMS, INC. RESTATED
ARTICLES OF INCORPORATION]
- 15 -