FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DAOU SYSTEMS, INC.
I, Lynn M. Morris, the incorporator of DAOU Systems, Inc., a corporation
duly organized under the laws of the State of Delaware (the "CORPORATION"), do
hereby certify as follows:
1. The name of the Corporation is DAOU Systems, Inc. and the original
Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on November 15, 1996 (the
"ORIGINAL CERTIFICATE OF INCORPORATION").
2. The Corporation has not received any payment for any of its stock.
3. No directors were named in the Original Certificate of Incorporation
and none have been elected.
4. Pursuant to Sections 241 and 245 of the General Corporation Law of the
State of Delaware, the following resolution restating, integrating and
further amending the Certificate of Incorporation of the Corporation
was approved by Written Consent by the Sole Incorporator dated as of
November 21, 1996:
NOW, THEREFORE, BE IT RESOLVED, that the Certificate of
Incorporation of the Corporation be, and hereby is,
restated and further amended to read in its entirety as
follows:
ARTICLE I
The name of the corporation is DAOU Systems, Inc., (hereinafter referred to
as (the "CORPORATION").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware. The
name of its registered agent at such address is Corporation Services Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
A. The 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 56,603,430
shares, 50,000,000 shares of which shall be Common Stock with a par value of
$0.001 each, and 6,603,430 shares of which shall be Preferred Stock with a par
value of $0.001.
B. The Preferred Stock of the Corporation may be issued as a class,
without series or, if so determined from time to time by the Board of Directors
of the Corporation, in one or more series, each series to be expressly
designated by a distinguishing number, letter or title. The Preferred Stock,
and each series thereof, shall have such voting powers and other rights,
privileges, preferences and restrictions as shall be set forth in the
resolutions of the Board of Directors providing for the issuance of such
preferred stock. There is hereby expressly granted to the Board of Directors of
the Corporation the authority to determine, fix, alter or revoke any and all of
the rights, preferences, privileges and restrictions and other terms of the
Preferred Stock and any series thereof, and the number of shares constituting
any series and the designation thereof, and to increase or decrease the number
of shares of any series subsequent to the issuance of shares of that series, but
not below the number of shares of such series then outstanding, or to eliminate
entirely any series if there no longer are any outstanding shares of such series
(and, thereupon, the shares previously designated for such series shall become
authorized but undesignated shares). In case the number of shares of any series
shall be so decreased, the shares constituting such shall resume the status they
had prior to the adoption of the resolution originally setting forth the number
of shares of such series.
1,603,430 of the authorized shares of Preferred Stock are hereby
designated the "Series A Preferred Stock."
C. The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred Stock are as follows:
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 the 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) on the
Common Stock, at the rate of six percent (6%) per annum based on the
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Series A Issue Price (as hereinafter defined in SUBSECTION 2(a)) per share of
the 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 the 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 the Corporation to the holders of Common
Stock by reason of their ownership thereof, an amount per share equal to the
sum of (i) Four Dollars and Ninety-Nine Cents ($4.99) for each outstanding
share of Series A Preferred Stock (the "SERIES A ISSUE PRICE") and (ii) an
amount equal to six percent (6%) of the 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 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 the Corporation, the holders of the Common Stock of the Corporation
shall
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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
stockholders 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 the Corporation with or into
any other corporation or corporations, or a sale, conveyance or disposition of
all or substantially all of the assets of the 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
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 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
the 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
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 certificates representing
such shares, the 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 Series A Issue Price plus an amount equal to six percent (6%) of
the 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").
The Corporation shall give each holder of Series A Preferred Stock at least ten
(10) days written notice of the date (the "REDEMPTION DATE") and place of
redemption and the dollar amount of the Series A
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Redemption Price, which notice shall be effective upon delivery or deposit in
the United States mail, postage prepaid and addressed to each holder of
record at his address appearing on the books of the Corporation. 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, the
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 the 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 twenty-five percent (25%) of the
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. 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 the Corporation or any transfer
5
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 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 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
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 the Corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice by mail, postage
prepaid, to the 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. The
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 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:
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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
SUBSECTION 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 SUBSECTION 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 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 the Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
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
7
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 the
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 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
8
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 the 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 the Corporation directly or pursuant to a
stock option plan or restricted stock plan approved by the Board of Directors of
the 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
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
9
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 the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the 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. The Corporation will not, by amendment of
its Certificate 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 the 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.
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 up to the nearest whole share.
ii. Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock pursuant to this SECTION 4,
the Corporation, at its
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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. The 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 the
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, the 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. The
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, the 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 the
Corporation.
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 stockholders immediately prior to such
transaction not holding (by virtue of such shares or
securities issued solely
11
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 stockholders
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
fifty percent (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 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 the 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:
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;
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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 SECTION 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 stockholders' 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 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.
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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 up 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 stockholders' meeting in accordance with the Bylaws of the 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 Series A
Preferred Stock are outstanding, the 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
fifty percent (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 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
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
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Certificate of Incorporation of the Corporation shall be appropriately
amended to effect the corresponding reduction in the Corporation's authorized
capital stock.
ARTICLE V
The Board of Directors shall have the power to adopt, amend and repeal the
Bylaws of the Corporation (except so far as the Bylaws of the Corporation
adopted by the stockholders shall otherwise provide). Any bylaws adopted by the
directors under the powers conferred hereby may be amended or repealed by the
directors or by the stockholders. Notwithstanding the foregoing and anything
contained in this Certificate of Incorporation to the contrary, Article II,
Sections 1(c), 5 and 7; Article III, Section 2; and Article VII of the Bylaws of
the Corporation as originally adopted by the sole incorporator shall not be
amended or repealed and no provision inconsistent therewith shall be adopted
without the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the voting power of all the shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class.
ARTICLE VI
A. The Corporation shall indemnify to the fullest extent permitted by the
General Corporation Law of Delaware any person who has been made, or is
threatened to be made, a party to an action, suit or proceeding, whether civil,
criminal, administrative, investigative, or otherwise (including an action, suit
or proceeding by or in the right of the Corporation), by reason of the fact that
the person is or was a director or officer of the Corporation, or a fiduciary
within the meaning of the Employee Retirement Income Security Act of 1974 with
respect to an employee benefit plan of the Corporation, or serves or served at
the request of the Corporation as a director, or as an officer, or as a
fiduciary of an employee benefit plan, of another corporation, partnership,
joint venture, trust or other enterprise. In addition, the Corporation shall
pay for or reimburse any expenses incurred by such persons who are parties to
such proceedings, in advance of the final disposition of such proceedings, to
the full extent permitted by the General Corporation Law of Delaware.
B. Neither any amendment nor repeal of this ARTICLE VI, nor the adoption
of any provisions of this Certificate of Incorporation inconsistent with this
ARTICLE VI, shall eliminate or reduce the effect of this ARTICLE VI in respect
of any matter occurring or arising or that, but for this ARTICLE VI, would
accrue or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
ARTICLE VII
A. The business and affairs of the Corporation shall be managed by the
Board of Directors of the Corporation.
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B. Except as otherwise provided for or fixed by or pursuant to the
provisions of ARTICLE IV hereof relating to the rights of the holders of
Preferred Stock to elect directors under specified circumstances, the number of
the directors of Corporation shall be fixed from time to time by or pursuant to
the Bylaws of the Corporation. From and after the annual meeting of
stockholders held in 1997, the directors, other than those who may be elected by
the holders of Preferred Stock, shall be classified, with respect to the time
for which they severally hold office, into three classes, as nearly equal in
number as possible, as shall be provided in the manner specified in the Bylaws
of the Corporation, one class to be originally elected for a term expiring at
the annual meeting of stockholders to be held in 1998, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1999, and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 2000, with each class to
hold office until its successor is elected and qualified. At each annual
meeting of the stockholders, the successors of the class of directors whose term
expires at that meeting shall be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their elections.
C. Advance notice of stockholder nominations for the election of
directors shall be given in the manner provided in the Bylaws of the
Corporation. Election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
D. Except as otherwise provided for or fixed by or pursuant to the
provisions of ARTICLE IV hereof in relation to the rights of the holders of
Preferred Stock to elect directors under specified circumstances, newly-created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
E. Subject to the rights of any Preferred Stock to elect directors under
specified circumstances, any director may be removed from office only with cause
and only by the affirmative vote of the holders of at least sixty-six and two-
thirds percent (66-2/3%) of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class.
F. To the fullest extent permitted by the General Corporation Law of the
State of Delaware, a director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Any repeal or modification of this paragraph
shall be prospective only and shall not adversely affect any limitation on the
personal liability of a director of the Corporation with respect to any act or
omission occurring prior to the time of such repeal or modification.
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G. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all
outstanding shares of the Corporation entitled to vote generally in the election
of directors, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal this ARTICLE VII.
ARTICLE VIII
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing of such holders.
Except as otherwise required by law and subject to the rights of the holders of
the Preferred Stock, special meetings of stockholders of the Corporation may be
called only by the Chairman of the Board, the President or the Board of
Directors pursuant to a resolution approved by a majority of the entire Board of
Directors. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all shares of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, amend, or adopt any
provision inconsistent with or repeal this ARTICLE VIII.
ARTICLE IX
Subject to the other terms of this Certificate of Incorporation, the
Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute and this Certificate of Incorporation, and all rights
conferred on stockholders herein are granted subject to this reservation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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ARTICLE X
The undersigned Incorporator hereby acknowledges that the foregoing
Certificate of Incorporation is her act and deed and that the facts stated
therein are true.
Dated: November __, 1996
----------------------------------
Lynn M. Morris, Incorporator
[SIGNATURE PAGE TO DAOU SYSTEMS, INC. RESTATED
CERTIFICATE OF INCORPORATION]
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