<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1997
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
DAOU SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 330284454
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5120 SHOREHAM PLACE
SAN DIEGO, CALIFORNIA 92122
(619) 452-2221
(Address and telephone number, including area code, of principal executive
offices)
----------------------
1996 STOCK OPTION PLAN
(Full title of the plans)
----------------------
DANIEL J. DAOU
PRESIDENT
DAOU SYSTEMS, INC.
5120 SHOREHAM PLACE
SAN DIEGO, CALIFORNIA 92122
(619) 452-2221
(Name, address and telephone number, including area code, of agent for service)
----------------------
THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IMMEDIATELY
UPON FILING WITH THE SECURITIES AND EXCHANGE COMMISSION.
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED (1) PER UNIT (2) PRICE (1)(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value
per share.................... 1,367,925 $10.69 $14,628,234 $4,433
- -----------------------------------------------------------------------------------------------------------------------------------
(1) This Registration Statement shall also cover any additional shares of Common Stock which become issuable by reason of any stock
dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration which
results in an increase in the number of the Registrant's outstanding shares of Common Stock.
(2) Estimated solely for the purposes of calculating the registration fee in accordance with Rule 457(h). The proposed maximum
aggregate offering price is based on (i) the aggregate price of $7,592,562 at which the 824,210 options currently
outstanding may be exercised and (ii) an assumed offering price of $12.94 per share for the remaining 543,715 shares of
Common Stock covered by this Registration Statement.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
DAOU Systems, Inc. (the "Registrant") hereby incorporates by reference
into this Registration Statement the following documents previously filed with
the Securities and Exchange Commission (the "Commission"):
(i) The Registrant's Registration Statement on Form SB-2, filed with
the Commission on December 18, 1996, as amended, Registration
Statement No. 333-18155 (the "SB-2 Registration Statement"),
under the Securities Act of 1933, as amended (the "Securities
Act").
(ii) The description of the Common Stock contained in the Registrant's
Form 8-A, dated January 29, 1997 and filed pursuant to Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), for registration of the Common Stock, including any
amendment or report filed for the purpose of updating such
description.
(iii) The Registrant's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1997, filed with the Commission on
April 23, 1997.
All documents filed by the Registrant pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date of this Registration
Statement and prior to the filing of a post-effective amendment which indicates
that all securities offered hereby have been sold or which deregisters all
securities then remaining unsold, shall be deemed to be incorporated by
reference into this Registration Statement and to be a part hereof from the date
of filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a
corporation to indemnify its directors, officers, employees and other agents in
terms sufficiently broad to permit indemnification (including reimbursement for
expenses) under certain circumstances for liabilities arising under the
Securities Act.
II-1
<PAGE>
The Registrant's Certificate of Incorporation and Bylaws provide for
the indemnification of directors and officers to the fullest extent permitted by
the Delaware General Corporation Law and authorize the indemnification by the
Registrant of other officers, employees and other agents as set forth in the
Delaware General Corporation Law. The Registrant has entered into
indemnification agreements with its directors and executive officers, in
addition to the indemnification provided for in the Registrant's Bylaws.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
ITEM 8. EXHIBITS.
--------
4.1* -- Registrant's Amended and Restated Certificate of Incorporation.
4.2* -- Registrant's Bylaws.
4.3* -- Specimen Stock Certificate.
5.1 -- Opinion of Baker & McKenzie.
23.1 -- Consent of Ernst & Young LLP, independent auditors.
23.2 -- Consent of Baker & McKenzie -- Included in Exhibit 5.1.
24.1 -- Power of Attorney -- Reference is made to page II-4 of this
Registration Statement.
99.1 -- DAOU Systems, Inc. 1996 Stock Option Plan, as amended.
- -------------------------
* Incorporated by reference from the Registrant's SB-2 Registration
Statement.
ITEM 9. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act,
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this Registration Statement,
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
II-2
<PAGE>
provided, however, (x) that clauses (1)(i) and (1)(ii) shall not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference into this Registration
Statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold upon the
termination of the Registrant's 1996 Stock Option Plan.
B. The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on this 20th day of
June, 1997.
DAOU SYSTEMS, INC.
By: /s/ DANIEL J. DAOU
----------------------------------
Daniel J. Daou
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Georges J. Daou, Daniel J. Daou
and Fred C. McGee, as his attorney-in-fact, each with full power of
substitution, for him or her in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming his or her signature as it
may be signed by said attorney-in-fact to any and all amendments to this
Registration Statement.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on June 20, 1997.
SIGNATURE TITLE
--------- -----
/s/ GEORGES J. DAOU Chief Executive Officer and
- ------------------------------------------ Chairman of the Board (Principal
Georges J. Daou Executive Officer)
/s/ DANIEL J. DAOU President and Director
- ------------------------------------------
Daniel J. Daou
/s/ FRED C. McGEE Senior Vice President, Chief
- ------------------------------------------ Financial Officer and Secretary
Fred C. McGee (Principal Financial and Accounting
Officer)
/s/ DAVID W. JAHNS Director
- ------------------------------------------
David W. Jahns
/s/ BERNARD F. McDONAGH Director
- ------------------------------------------
Bernard F. McDonagh
/s/ JOHN H. MORAGNE Director
- ------------------------------------------
John H. Moragne
II-4
<PAGE>
EXHIBIT INDEX
4.1* -- Registrant's Amended and Restated Certificate of Incorporation.
4.2* -- Registrant's Bylaws.
4.3* -- Specimen Stock Certificate.
5.1 -- Opinion of Baker & McKenzie.
23.1 -- Consent of Ernst & Young LLP, independent auditors.
23.2 -- Consent of Baker & McKenzie -- Included in Exhibit 5.1.
24.1 -- Power of Attorney -- Reference is made to page II-4 of this
Registration Statement.
99.1 -- DAOU Systems, Inc. 1996 Stock Option Plan, as amended.
- -----------------
* Incorporated by reference from the Registrant's SB-2 Registration
Statement.
<PAGE>
June 20, 1997
DAOU Systems, Inc.
5120 Shoreham Place
San Diego, California 92122
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-8 to be filed by you with
the Securities and Exchange Commission on or about June 20, 1997, in
connection with the registration under the Securities Act of 1933, as amended,
of an aggregate of 1,367,925 shares of the Company's Common Stock (the "Shares")
reserved for issuance under the Company's 1996 Stock Option Plan (the "Plan").
As your legal counsel, we have examined the Company's Certificate of
Incorporation and Bylaws, the written Plan, records of corporate proceedings
with respect to the Plan and such documents as we have deemed necessary in
connection with the issuance of the Shares.
Based upon the foregoing examinations and upon applicable laws, we are of the
opinion that upon the receipt by the Company of full payment for the Shares in
accordance with the terms and conditions of the Plan, the Shares, when offered
and sold in the manner provided for in the Registration Statement, will be
legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to said Registration
Statement and further consent to the use of our name wherever appearing in said
Registration Statement and amendments thereto.
Very truly yours,
BAKER & MCKENZIE
/s/ BAKER & MCKENZIE
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the 1996 Stock Option Plan of DAOU Systems, Inc. of
our report dated January 14, 1997 with respect to the financial statements of
DAOU Systems, Inc. included in its Registration Statement No. 333-18155 (Form
SB-2) for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
San Diego, California
June 18, 1997
<PAGE>
AMENDMENT NO. 2
TO
DAOU SYSTEMS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE. The Plan is intended to provide to officers, directors,
key Employees and Consultants of the Corporation an opportunity to acquire a
proprietary interest in the Corporation, to encourage such key individuals to
remain in the employ of or to contract with the Corporation, and to attract and
retain new Employees, Consultants and directors with outstanding qualifications.
Pursuant to the Plan, the Corporation may grant to officers, directors,
Consultants and key Employees of the Corporation options to purchase shares of
Common Stock upon such terms and conditions as provided herein.
2. DEFINITIONS.
(a) "AFFILIATE" means any corporation (other than the
Corporation) in an unbroken chain of corporations that includes the Corporation
if each of such corporations, other than the last corporation in the chain, owns
at least 50% of the total voting power of one of the other corporations.
(b) "BOARD" means the Board of Directors of the Corporation.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means the committee appointed by the Board to
administer the Plan, or if no such committee is appointed, the Board.
(e) "COMMON STOCK" means the voting common stock of the
Corporation.
(f) "CONSULTANT" means any person who, or any employee of any
firm which, is engaged by the Company or any Affiliate to render consulting
services and is compensated for such consulting services, and any non-employee
director of the Company whether compensated for such services or not.
(g) "CORPORATION" means DAOU Systems, Inc., a Delaware
corporation.
(h) "EFFECTIVE DATE" means January 1, 1996.
(i) "EMPLOYEE" means any individual who is employed, within the
meaning of Section 3401 of the Code and the regulations thereunder, by the
Corporation or by any Affiliate. For purposes of the Plan and only for purposes
of the Plan, and in regard to Nonstatutory Stock Options but not for Incentive
Stock Options, a Consultant or director of the Corporation or any Affiliate will
be deemed to be an Employee, and service as a Consultant or director with the
Corporation or any Affiliate will be deemed to be employment, but no Incentive
Stock Option will
<PAGE>
be granted to a Consultant or director who is not an employee of the Corporation
or any Affiliate within the meaning of Section 3401 of the Code and the
regulations thereunder. In the case of a non-employee director or Consultant,
the provisions governing when a termination of employment has occurred for
purposes of the Plan will be set forth in the written Stock Option Agreement
between the Optionee and the Corporation, or, if not so set forth, the Committee
will have the discretion to determine when a termination of "employment" has
occurred for purposes of the Plan.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "EXERCISE PRICE" means the price per Share at which an
Option may be exercised, as determined by the Committee and as specified in the
Optionee's stock option agreement.
(l) "FAIR MARKET VALUE" means the value of each Share as
determined by the Board, subject to the limitations of Section 260.140.50 of
Title 10 of the California Code of Regulations.
(m) "INCENTIVE STOCK OPTION" means an Option of the type
described in Section 422(b) of the Code.
(n) "JOINT ESCROW INSTRUCTIONS" means joint escrow instructions
entered into between an Optionee and the Corporation in such form as may be
approved by the Committee from time to time.
(o) "NONEMPLOYEE DIRECTOR" shall mean a member of the Board who
(i) is not currently an officer or Employee of the Corporation or a parent or
Subsidiary of the Corporation, (ii) has not received compensation for serving as
a Consultant or in any other non-director capacity or had an interest in any
transaction with the Corporation or a parent or Subsidiary of the Corporation
that would exceed the $60,000 threshold for which disclosure would be required
under Item 404(a) of Regulation S-K, or (iii) has not been engaged through
another party in a business relationship with the Corporation which would be
disclosable under Item 404(b) of Regulation S-K. If the Board determines that
compliance with Section 162(m) of the Code is desirable, then the term
"Nonemployee Director" shall also be interpreted to satisfy the definition of
"outside director" under Section 162(m) and applicable regulations issued
pursuant thereto.
(p) "NONSTATUTORY STOCK OPTION" means an Option of the type not
described in Sections 422(b) or 423(b) of the Code.
(q) "OPTION" means an option to purchase Common Stock granted
pursuant to the Plan.
(r) "OPTIONEE" means any person who holds an Option pursuant to
the Plan.
2
<PAGE>
(s) "PLAN" means the DAOU Systems, Inc. 1996 Stock Option Plan,
as amended from time to time.
(t) "PURCHASE PRICE" means at any particular time the Exercise
Price times the number of Shares for which an Option is being exercised.
(u) "SHARE" means one share of authorized Common Stock.
3. ADMINISTRATION.
(a) THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall consist only of Nonemployee Directors of the
Corporation and shall have at least two members. The Committee shall meet such
other requirements as may be established from time to time by the Securities and
Exchange Commission for plans intended to qualify for exemption under Rule 16b-3
(or its successor) under the Exchange Act. The Board may appoint a separate
committee of the Board, composed of one or more directors of the Corporation who
need not be Nonemployee Directors, who may administer the Plan with respect to
Employees or Consultants who are not officers or directors of the Corporation or
incoming new directors of the Corporation, may grant Options under the Plan to
such persons and may determine the timing, number of Shares subject to such
Options and other terms of such grants.
(b) POWERS OF THE COMMITTEE. Subject to the provisions of the
Plan, the Committee will have the authority, in its discretion and on behalf of
the Corporation:
(i) to grant Options;
(ii) to determine the Exercise Price per Share of Options
to be granted;
(iii) to determine the Employees to whom, and the time or
times at which, Options will be granted and the number of Shares for which an
Option will be exercisable;
(iv) to interpret the Plan;
(v) to prescribe, amend, and rescind rules and
regulations relating to the Plan;
(vi) to determine the terms and provisions of each Option
granted and, with the consent of the holder thereof, modify or amend each
Option;
(vii) to accelerate or defer, with the consent of the
Optionee, the exercise date of any Option;
(viii) to authorize any person to execute on behalf of the
Corporation any instrument required to effectuate the grant of an Option
previously granted by the Committee;
3
<PAGE>
(ix) with the consent of the Optionee, to reprice, cancel,
and regrant, or otherwise adjust the Exercise Price of an Option previously
granted by the Committee; and
(x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) BOARD'S DETERMINATION OF FAIR MARKET VALUE. The Board will
have the authority to determine, upon review of relevant information, the Fair
Market Value of the Common Stock, subject to the provisions of the Plan and
irrespective of whether the Board has appointed a Committee to administer the
Plan. The Board may delegate this authority to the Committee.
(d) COMMITTEE'S INTERPRETATION OF THE PLAN. The interpretation
and construction by the Committee of any provision of the Plan or of any Option
granted hereunder will be final and binding on all parties claiming an interest
in an Option granted under the Plan. No member of the Committee will be liable
for any action or determination made in good faith with respect to the Plan or
any Option.
(e) COMMITTEE PROCEDURES. The Committee shall designate one of
its members as chairman. The Committee may hold meetings at such times and
places as it shall determine. The acts of a majority of the Committee's members
present at meetings at which a quorum exists, or acts reduced to or approved in
writing by all of the Committee's members, shall be valid acts of the Committee.
4. PARTICIPATION.
(a) ELIGIBILITY. The Optionees will be such persons as the
Committee may select from among the Employees, provided that Consultants are not
eligible to receive Incentive Stock Options.
(b) TEN PERCENT SHAREHOLDERS. Any Employee who owns more than
10% of the total combined voting power of all classes of outstanding stock of
the Corporation or any Affiliate will not be eligible to receive an Option
unless:
(i) the Exercise Price of the Shares subject to such Option
when granted is at least 110% of the Fair Market Value of such Shares, and
(ii) such Option by its terms is not exercisable after the
expiration of five years from the date of grant.
(c) STOCK OWNERSHIP. For purposes of SECTION 4(b), in
determining stock ownership, an Employee will be considered as owning the stock
owned, directly or indirectly, by or for his or her brothers and sisters,
spouse, ancestors, and lineal descendants. Stock owned, directly or indirectly,
by or for a corporation, partnership, estate, or trust will be considered as
being
4
<PAGE>
owned proportionately by or for its shareholders, partners, or beneficiaries,
respectively. Stock with respect to which such Employee holds an Option will be
counted in the determination of stock ownership for purposes of the above
SECTION 4(b).
(d) OUTSTANDING STOCK. For purposes of SECTION 4(b), the term
"outstanding stock" will include all stock actually issued and outstanding
immediately after the grant of the Option to the Optionee but will not include
any share for which an Option is exercisable by any person.
5. SHARES.
(a) SHARES SUBJECT TO THIS PLAN. The aggregate number of Shares
which may be issued upon exercise of Options under the Plan will not exceed One
Million Three Hundred Sixty-Seven Thousand Nine Hundred Twenty-Five (1,367,925)
shares of Common Stock, subject to adjustment pursuant to SECTION 9.
(b) OPTIONS NOT TO EXCEED SHARES AVAILABLE. The number of Shares for
which an Option is exercisable at any time will not exceed the number of Shares
remaining available for issuance under the Plan. If any Option expires or is
terminated, the number of Shares for which such Option was exercisable may be
made exercisable pursuant to other Options under the Plan. The limitations
established by this SECTION 5(b) will be subject to adjustment in the manner
provided in SECTION 9 upon the occurrence of an event specified therein.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENTS. Options will be evidenced by written
stock option agreements between the Optionee and the Corporation in such form as
the Committee will from time to time determine. No Option or purported Option
will be a valid and binding obligation of the Corporation unless so evidenced in
writing.
(b) NUMBER OF SHARES. Each stock option agreement will state the
number of Shares for which the Option is exercisable and will provide for the
adjustment thereof in accordance with SECTION 9. Each stock option agreement
will also specify whether the option is a Nonstatutory Stock Option or an
Incentive Stock Option.
(c) VESTING. An Optionee may not exercise his or her Option for any
Shares until the Option, in regard to such Shares, has vested. Each stock
option agreement will include a vesting schedule which will show when the Option
becomes exercisable, provided each Option will vest at a rate of at least 20%
per year over a period of five years with the first 20% becoming exercisable on
the first anniversary of the date when the Options were granted. The vesting
schedule will not impose upon the Corporation or any Affiliate any obligation to
retain the Optionee in its employ or under contract for any period or otherwise
change the employment-at-will status of an Optionee who is an Employee.
5
<PAGE>
(d) LAPSE OF OPTIONS. Each stock option agreement will state the
time or times when the Option covered thereby lapses and becomes unexercisable
in part or in full. An Option will lapse on the earliest of the following
events (unless otherwise determined by the Committee and reflected in an option
agreement):
(i) The tenth anniversary of the date of grant of the Option;
(ii) The first anniversary of the Optionee's death;
(iii) The first anniversary of the date when the Optionee
ceases to be an Employee due to Total and Permanent Disability (within the
meaning of Section 22(e)(3) of the Code);
(iv) On the date provided in SECTION 6(h)(i), unless with
respect to a Nonstatutory Stock Option, the Committee otherwise extends such
period before the applicable expiration date;
(v) On the date provided in SECTION 9 for a transaction
described in such section;
(vi) The date the Optionee files or has filed against him or her
a petition in bankruptcy; or
(vii) The expiration date specified in the Optionee's stock
option agreement.
(e) EXERCISE PRICE. Each stock option agreement will state the
Exercise Price for the Shares for which the Option is exercisable. Subject to
SECTION 4(b), the Exercise Price of an Incentive Stock Option and a Nonstatutory
Stock Option will, when granted, be not less than 100% and 85% of the Fair
Market Value of the Shares for which the Option is exercisable, respectively,
and not less than the par value of the Shares.
(f) MEDIUM AND TIME OF PAYMENT. The Purchase Price will be payable
in full in cash upon the exercise of an Option but the Committee may allow the
Optionee to pay the Purchase Price:
(i) by surrendering Shares, in good form for transfer, owned by
the Optionee for more than 12 months and which have a Fair Market Value on the
date of exercise equal to the Purchase Price; or
(ii) in any combination of such consideration or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable law as long as the sum of the consideration so paid
equals the Purchase Price.
6
<PAGE>
The Committee or a stock option agreement may prescribe requirements with
respect to the exercise of Options, including the submission by the Optionee of
such forms and documents as the Committee may require and the delivery by the
Optionee of cash sufficient to satisfy applicable withholding requirements. The
Committee may vary the exercise requirements and procedures from time to time to
facilitate, for example, the broker-assisted exercise of Options.
(g) NONTRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the Option will be exercisable only by the Optionee or the Optionee's
conservator or legal representative and will not be assignable or transferable
except pursuant to a qualified domestic relations order as defined by the Code.
In the event of the Optionee's death, the Option will not be transferable by the
Optionee other than by will or the laws of descent and distribution.
(h) TERMINATION OF EMPLOYMENT OTHER THAN BY DEATH OR DISABILITY.
(i) If an Optionee ceases to be an Employee for any reason other
than his or her death or disability, the Optionee will have the right, subject
to the provisions of this SECTION 6, to exercise any Option held by the Optionee
for 30 days after his or her termination of employment, but not beyond the
otherwise applicable term of the Option and only to the extent that on such date
of termination of employment the Optionee's right to exercise such Option had
vested.
(ii) For purposes of this SECTION 6(h), the employment
relationship will be treated as continuing intact while the Optionee is an
active employee of the Corporation or any Affiliate, or is on military leave,
sick leave, or other bona fide leave of absence to be determined in the sole
discretion of the Committee. The preceding sentence notwithstanding, in the
case of an Incentive Stock Option, employment will be deemed to terminate on the
date that the Optionee ceases active employment with the Corporation or any
Affiliate, unless the Optionee's reemployment rights are guaranteed by statute
or contract.
(i) DEATH OF OPTIONEE. If an Optionee dies while an Employee, or
after ceasing to be an Employee but during the period while he or she could have
exercised an Option under SECTION 6(h), any Option granted to the Optionee may
be exercised, to the extent it had vested at the time of death and subject to
the Plan, at any time within 12 months after the Optionee's death, by the
executors or administrators of his or her estate or by any person or persons who
acquire the Option by will or the laws of descent and distribution, but not
beyond the otherwise applicable term of the Option.
(j) DISABILITY OF OPTIONEE. If an Optionee ceases to be an Employee
due to becoming totally and permanently disabled within the meaning of Section
22(e)(3) of the Code, any Option granted to the Optionee may be exercised to the
extent it had vested at the time of cessation and, subject to the Plan, at any
time within 12 months after the Optionee's termination of employment, but not
beyond the otherwise applicable term of the Option.
(k) RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an
Optionee, will have no rights as a shareholder of the Corporation with respect
to any Shares for which his or her
7
<PAGE>
Option is exercisable until the date of the issuance of a stock certificate for
such Shares. No adjustment will be made for dividends, ordinary or
extraordinary or whether in currency, securities, or other property,
distributions, or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in SECTION 9.
(l) MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. Within the
limitations of the Plan, the Committee may modify, extend or renew outstanding
Options or accept the cancellation of outstanding Options for the granting of
new Options in substitution therefor. Notwithstanding the preceding sentence,
no modification of an Option will, without the consent of the Optionee, alter or
impair any rights or obligations under any Option previously granted.
(m) RULE 16b-3. Options granted to persons who are subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3 promulgated thereunder and shall contain such additional conditions
or restrictions as may be required thereunder to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to the Plan's
transactions; provided, however, that this provision shall not apply if, at the
time of such option grant, the Plan, as it relates to such grant, is not
administered by a Committee consisting solely of Nonemployee Directors.
(n) OTHER PROVISIONS. The stock option agreements authorized under
the Plan may contain such other provisions which are not inconsistent with the
terms of the Plan, including, without limitation, restrictions upon the exercise
of the Option, as the Committee will deem advisable.
7. $100,000 PER YEAR LIMITATION ON VESTING OF ISOs. To the extent that
the Fair Market Value of Shares (determined for each Share as of the date of
grant of the Option covering such Share) subject to Options granted under the
Plan (or any other plan of the Corporation or any Affiliate), which are
designated as Incentive Stock Options and which become exercisable by an
Optionee for the first time during a single calendar year, exceeds $100,000, the
Options (or portion thereof) covering such Shares will be recharacterized (to
the extent of such excess over $100,000) as a Nonstatutory Stock Option. In
determining which Option(s) will be treated as Nonstatutory Stock Options under
the preceding sentence, the Options will be taken into account in the order
granted, with the result that a later granted Option will be recharacterized as
a Nonstatutory Stock Option prior to such recharacterization of a previously
granted Option.
8. TERM OF PLAN. Options may be granted pursuant to the Plan until a
date no more than ten (10) years from the date when the Plan is adopted or the
date when the Plan is approved by the shareholders of the Corporation, whichever
is earlier, and all Options which are outstanding on such date will remain in
effect until they are exercised or expire by their respective terms.
9. RECAPITALIZATION, TAKEOVERS, AND LIQUIDATIONS.
(a) REORGANIZATIONS. The number of Shares covered by the Plan, as
provided in SECTION 5, and the number of Shares for which each Option is
exercisable will be proportionately
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adjusted for any increase or decrease in the number of issued Shares resulting
from a stock split, a reverse stock split, the payment of a stock dividend,
recapitalization, combination or reclassification of the Corporation's stock or
any other event which results in an increase or decrease in the number of issued
Shares effected without receipt of consideration by the Corporation, and the
Exercise Price will be proportionately increased in the event the number of
Shares subject to such Option are decreased and will be proportionately
decreased in the event the number of Shares subject to such Option are
increased. For the purposes of this SECTION 9(a), the conversion of any
convertible securities of the Corporation will not be deemed to have been
"effected without receipt of consideration." Adjustments will be made by the
Board, whose determination in that respect will be final, binding and
conclusive. Except as expressly provided in the Plan, no issuance by the
Corporation of shares of stock of any class, or securities convertible into
shares of stock of any class, will affect, and no adjustment by reason thereof
will be made with respect to, the number or price of Shares subject to an
Option.
(b) LIQUIDATION. In the event of the dissolution or liquidation of
the Corporation, each Option will terminate immediately prior to the
consummation of such action. The Committee will notify the Optionee not less
than 15 days prior to the proposed consummation of a pending dissolution or
liquidation, and such Option will be exercisable as to all Shares which are
vested prior to expiration until immediately prior to the consummation of such
action.
(c) MERGER. In the event of (i) a proposed merger of the Corporation
with or into another corporation, as a result of which the Corporation is not
the surviving corporation and (ii) the Option is not assumed or an equivalent
option substituted by the successor corporation or a parent or subsidiary of the
successor corporation, then in such case the Option will terminate immediately
prior to the consummation of such transaction. The Committee will notify the
Optionee not less than 15 days prior to the proposed consummation of such
transaction, and the Option will be exercisable as to all Shares which are
vested prior to expiration and until immediately prior to the consummation of
such transaction.
(d) DETERMINATION BY COMMITTEE. All adjustments described in this
SECTION 9 will be made by the Committee, whose determination will be conclusive
and binding on all persons.
(e) LIMITATION ON RIGHTS OF OPTIONEE. Except as expressly provided
in this SECTION 9, no Optionee will have any rights by reason of any payment of
any stock dividend, stock split or reverse stock split or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
reorganization, consolidation, dissolution, liquidation, merger, exchange,
split-up or reverse split-up, or spin-off of assets or stock of another
corporation. Any issuance by the Corporation of Shares, Options or securities
convertible into Shares or Options will not affect, and no adjustment by reason
thereof will be made with respect to, the number or Exercise Price of the Shares
for which an Option is exercisable. Notwithstanding the foregoing, if the
Corporation enters into a transaction affecting the Corporation's capital stock
or distributions to the holders of its capital stock for which a revision in the
terms of each Option is not required pursuant to this SECTION 9, the Committee
will have the right, but not the obligation, to revise the terms of each Option
in a manner that the Committee, in its sole discretion, deems fair and
reasonable given the
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transaction involved. If necessary or appropriate in connection with such
transaction, the Committee may declare that any Option will terminate as of a
date fixed by the Committee and give each Optionee the right to exercise his or
her Option in whole or in part, including exercise as to Shares to which the
Option would not otherwise be exercisable.
(f) NO RESTRICTION ON RIGHTS OF CORPORATION. The grant of an Option
will not affect or restrict in any way the right or power of the Corporation to
make adjustments, reclassifications, reorganizations, or changes of its capital
or business structure, or to merge or consolidate, or to dissolve, liquidate,
sell, or transfer all or any part of its business or assets.
10. SECURITIES LAW REQUIREMENTS.
(a) LEGALITY OF ISSUANCE. No Share will be issued upon the exercise
of any Option unless and until the Corporation has determined that:
(i) The Corporation and the Optionee have taken all actions
required to exempt the issuance of the Shares from the registration requirements
under the Securities Act of 1933, as amended (the "ACT"), or the Corporation and
the Optionee will determine that the registration requirements of the Act do not
apply to such exercise;
(ii) Any applicable listing requirement of any stock exchange on
which the Common Stock is listed has been satisfied; and
(iii) Any other applicable provision of state or Federal law
has been satisfied.
(b) RESTRICTIONS ON TRANSFER; REPRESENTATIONS OF OPTIONEE; LEGENDS.
Regardless of whether the offering and sale of Shares has been registered under
the Act or has been registered or qualified under the securities laws of any
state, the Corporation may impose restrictions upon the sale, pledge, or other
transfer of such Shares, including the placement of appropriate legends on stock
certificates, if, in the judgment of the Corporation and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with the
provisions of the Act, the securities laws of any state, or any other law. If
the sale of Shares is not registered under the Act and the Corporation will
determine that the registration requirements of the Act apply to such sale, but
an exemption is available which requires an investment representation or other
representation, the Optionee will be required, as a condition to purchasing
Shares by exercise of his or her Option, to represent that such Shares are being
acquired for investment, and not with a view to the sale or distribution
thereof, except in compliance with the Act, and to make such other
representations as are deemed necessary or appropriate by the Corporation and
its counsel. Stock certificates evidencing Shares acquired pursuant to an
unregistered transaction to which the Act applies will bear a restrictive legend
substantially in the following form and such other restrictive legends as are
required or deemed advisable under the Plan or the provisions of any applicable
law:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED
UNDER THE SECURITIES LAWS OF ANY STATE. THESE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN
CONNECTION WITH ANY DISTRIBUTION THEREOF, AND MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION UNDER THE ACT AND/OR QUALIFICATION UNDER ANY
APPLICABLE STATE SECURITIES LAWS, OR WITHOUT AN OPINION OF COUNSEL
ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION
OR QUALIFICATION IS NOT REQUIRED."
Any determination by the Corporation and its counsel in connection with any of
the matters set forth in this SECTION 10 will be conclusive and binding on all
persons.
(c) REGISTRATION OR QUALIFICATION OF SECURITIES. The Corporation
may, but will not be obligated to, register or qualify the sale of Shares under
the Act or any other applicable law. In connection with any such registration
or qualification, the Corporation will provide each Optionee with such
information required pursuant to all applicable laws and regulations.
(d) EXCHANGE OF CERTIFICATES. If, in the opinion of the Corporation
and its counsel, any legend placed on a stock certificate representing Shares
issued hereunder is no longer required, the Optionee or the holder of such
certificate will be entitled to exchange such certificate for a certificate
representing the same number of Shares but without such legend.
11. EXERCISE OF UNVESTED OPTIONS. The Committee may grant to any Optionee
the right to exercise any Option prior to the complete vesting of such Option.
Without limiting the generality of the foregoing, the Committee may provide that
if an Option is exercised prior to having completely vested, the Shares issued
upon such exercise will remain subject to vesting at the same rate as under the
Option so exercised and will be subject to a right, but not an obligation, of
repurchase by the Corporation with respect to all unvested Shares if the
Optionee ceases to be an Employee for any reason. For the purposes of
facilitating the enforcement of any such right of repurchase, at the request of
the Committee, the Optionee will enter into the Joint Escrow Instructions with
the Corporation and deliver every certificate for his or her unvested Shares
with a stock power executed in blank by the Optionee and by the Optionee's
spouse, if required for transfer.
12. AMENDMENT OF THE PLAN. The Board or the Committee may, from time to
time, terminate, suspend or discontinue the Plan, in whole or in part, or revise
or amend the Plan in any respect whatsoever including, but not limited to, the
adoption of any amendment(s) deemed necessary or advisable to qualify the
Options under rules and regulations promulgated by the
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Securities and Exchange Commission with respect to Employees who are subject to
the provisions of Section 16 of the Exchange Act or to correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any Option
granted thereunder, without approval of the shareholders of the Corporation, but
without the approval of the Corporation's shareholders, no such revision or
amendment will:
(a) Increase the number of Shares subject to the Plan, other than any
increase pursuant to SECTION 9;
(b) Materially modify the requirements as to eligibility for
participation in the Plan;
(c) Materially increase the benefits accruing to Optionees under the
Plan;
(d) Extend the term of the Plan; or
(e) Amend this SECTION 12 to defeat its purpose.
No amendment, termination or modification of the Plan will affect any Option
theretofore granted in any material adverse way without the consent of the
Optionee.
13. APPLICATION OF FUNDS. The proceeds received by the Corporation from
the sale of Common Stock pursuant to the exercise of an Option will be used for
general corporate purposes.
14. APPROVAL OF SHAREHOLDERS. The Plan will be subject to approval by the
affirmative vote of the holders of a majority of all classes of the outstanding
shares present and entitled to vote at the first meeting of shareholders of the
Corporation following the adoption of the Plan or by written consent, and in no
event later than one year following the Effective Date. Prior to such approval,
Options may be granted but will not be exercisable. Any amendment described in
SECTION 12.(a) to (d) will also be subject to approval by the Corporation's
shareholders.
15. WITHHOLDING OF TAXES. In the event the Corporation or an Affiliate
determines that it is required to withhold federal, state, or local taxes in
connection with the exercise of an Option or the disposition of Shares issued
pursuant to the exercise of an Option, the Optionee or any person succeeding to
the rights of the Optionee, as a condition to such exercise or disposition, may
be required to make arrangements satisfactory to the Corporation or the
Affiliate to enable it to satisfy such withholding requirements. Alternatively
the Corporation may issue or transfer Shares net of the number of Shares
sufficient to satisfy withholding tax requirements. For withholding tax
purposes, the Shares will be valued on the date the withholding obligation is
incurred.
16. RIGHTS AS AN EMPLOYEE. Neither the Plan nor any Option granted
pursuant thereto will be construed to give any person the right to remain in the
employ of the Corporation or any Affiliate, or to affect the right of the
Corporation or any Affiliate to terminate such individual's
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employment at any time with or without cause. The grant of an Option will not
entitle the Optionee to, or disqualify the Optionee from, participation in the
grant of any other Option under the Plan or participation in any other benefit
plan maintained by the Corporation or any Affiliate.
17. DISAVOWAL OF REPRESENTATIONS, UNDERTAKINGS, OR CREATION OF IMPLIED
RIGHTS. In adopting and maintaining the Plan and granting options hereunder,
neither the Corporation nor any Affiliate makes any representations or
undertakings with respect to the initial qualification or treatment of Options
under federal or state tax or securities laws. The Corporation and each
Affiliate expressly disavows the creation of any rights in Employees, Optionees,
or beneficiaries of any obligations on the part of the Corporation, any
Affiliate or the Committee, except as expressly provided herein.
18. INSPECTION OF RECORDS. Copies of the Plan, records reflecting each
Optionee's Option(s), and any other documents and records which an Optionee is
entitled by law to inspect will be open to inspection by the Optionee and his or
her duly authorized representative at the office of the Committee at any
reasonable business hour.
19. INFORMATION TO OPTIONEES. Each Optionee will be provided with such
information regarding the Corporation as the Committee from time to time deems
necessary or appropriate; provided however, that each Optionee will at all times
be provided with such information as is required to be provided from time to
time pursuant to applicable regulatory requirements, including, but not limited
to, the requirement in Section 260.140.46 of Title 10 of the California Code of
Regulations of annual financial statements, or any applicable successor
regulation, and any other applicable requirements of the Securities and Exchange
Commission, the California Department of Corporations, and other state
securities agencies.
20. EXECUTION. To record the adoption of the Plan by the Board effective
as of June 17, 1997, the Corporation has caused its authorized officer to
execute the same.
DAOU SYSTEMS, INC.,
a Delaware corporation
By: /s/DANIEL J. DAOU
--------------------------------------
Daniel J. Daou, President
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