<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY [ ], 1998
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 of Principal Executive Offices, Zip Code)
---------------------
1996 STOCK OPTION PLAN
(Full title of the plan)
---------------------
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)
---------------------
Copy to:
JOHN J. HENTRICH, ESQ.
BAKER & MCKENZIE
101 WEST BROADWAY, TWELFTH FLOOR
SAN DIEGO, CALIFORNIA 92101-3890
(619) 236-1441
---------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
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(3) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value
per share . . . . . . . . . . . 2,632,075 $ 22.25 $ 58,563,669 $ 17.300
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These shares represent shares of Common Stock which have become available
for issuance under the Registrant's 1996 Stock Option Plan as a result of
an amendment approved by the stockholders at the Registrant's Annual
Meeting of Stockholders held on May 19, 1998 (the "Annual Meeting")
increasing the number of shares reserved for issuance thereunder from
1,367,925 to 4,000,000. 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) Calculated solely for the purpose of determining the registration fee on
the basis of the average of the high and low prices of the Common Stock as
reported by the Nasdaq National Market System on July 22, 1998 in
accordance with Rule 457(h)(1) and (c) of the Securities Act of 1933, as
amended (the "Act").
(3) Calculated in accordance with the Rule 457(h) under the Act.
<PAGE>
STATEMENT UNDER GENERAL INSTRUCTION E--REGISTRATION OF ADDITIONAL SECURITIES.
Unless as noted herein, the contents of the Registrant's Registration
Statement on Form S-8 with respect to the 1996 Stock Option Plan (File No.
333-29745) are hereby incorporated by reference into this Registration
Statement.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
<TABLE>
<CAPTION>
ITEM 8. EXHIBITS.
<S> <C>
5.1 -- Opinion of Baker & McKenzie.
23.1 -- Consent of Ernst & Young LLP, independent auditors.
23.2 -- Consent of Deloitte & Touche LLP, Independent Auditors.
23.3 -- Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.4 -- Consent of Baker & McKenzie (contained in Exhibit 5.1).
24.1 -- Power of Attorney (see page II-2).
99.1 -- DAOU Systems, Inc. 1996 Stock Option Plan, as amended.
</TABLE>
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all 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 24th day of July, 1998.
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 jointly and severally, as his attorneys-in-fact, each with
full power of substitution, for him in any and all capacities, to sign any
amendments to this Registration Statement on Form S-8 and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on July 24, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/Georges J. Daou Chief Executive Officer and Chairman of the Board
- -------------------------- of Directors (Principal Executive Officer)
Georges J. Daou
/s/Daniel J. Daou President and Director
- --------------------------
Daniel J. Daou
/s/Fred C. McGee Executive Vice President, Chief Financial Officer
- -------------------------- and Secretary (Principal Financial and Accounting
Fred C. McGee Officer)
/s/Larry D. Grandia Director
- --------------------------
Larry D. Grandia
/s/Richard B. Jaffe Director
- --------------------------
Richard B. Jaffe
/s/David W. Jahns Director
- --------------------------
David W. Jahns
/s/John H. Moragne Director
- --------------------------
John H. Moragne
</TABLE>
II-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
5.1 -- Opinion of Baker & McKenzie.
23.1 -- Consent of Ernst & Young LLP, independent auditors.
23.2 -- Consent of Deloitte & Touche LLP, Independent Auditors.
23.3 -- Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.4 -- Consent of Baker & McKenzie (contained in Exhibit 5.1).
24.1 -- Power of Attorney (see page II-2).
99.1 -- DAOU Systems, Inc. 1996 Stock Option Plan, as amended.
</TABLE>
II-3
<PAGE>
EXHIBIT 5.1
July 24, 1998
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 July 24, 1998 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of 2,632,075 shares (the "Shares") of the
Company's Common Stock, $.001 par value per share, reserved for issuance
pursuant to the Company's 1996 Stock Option Plan (the "Plan").
As your legal counsel, in connection with this transaction, 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 non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in
the 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 February 13, 1998 with respect to the supplemental
consolidated financial statements of DAOU Systems, Inc. for the year ended
December 31, 1997 included in its Current Report on Form 8-K dated May 19,
1998 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
San Diego, California
July 23, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of DAOU Systems, Inc. on Form S-8 of our report dated February 13, 1998,
(relating to the financial statements of Sentient Systems, Inc.), appearing in
Form 8-K of DAOU Systems, Inc. dated May 19, 1998 filed with the Securities
and Exchange Commission.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
McLean, Virginia
July 24, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-8 of DAOU Systems, Inc. of our report, dated March 8, 1996, on our
audit of the financial statements of Sentient Systems, Inc. as of November
30, 1995 and for the year then ended as included in the Current Report on
Form 8-K for DAOU Systems, Inc. dated May 19, 1998, which report is
incorporated by reference in this registration statement on Form S-8.
/s/ Pricewaterhouse Coopers L.L.P.
McLean, Virginia
July 23, 1998
<PAGE>
EXHIBIT 99.1
AMENDMENT NO. 4
TO
DAOU SYSTEMS, INC.
1996 STOCK OPTION PLAN
SECTION 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.
SECTION 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 (as further described in Section 3 hereof), 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 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
<PAGE>
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.
(s) "OUTSIDE DIRECTORS" shall mean a member of the Board who qualifies
as an "outside director" pursuant to Internal Revenue Code Section 162(m) and
the Regulations promulgated thereunder.
(t) "PLAN" means the DAOU Systems, Inc. 1996 Stock Option Plan, as
amended from time to time.
(u) "PURCHASE PRICE" means at any particular time the Exercise Price
times the number of Shares for which an Option is being exercised.
(v) "SHARE" means one share of authorized Common Stock.
SECTION 3. ADMINISTRATION.
-2-
<PAGE>
(a) THE COMMITTEE. The Plan shall be administered by the Committee.
The Committee shall consist only of Nonemployee Directors of the Corporation
who are also Outside Directors 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;
(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.
-3-
<PAGE>
(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.
SECTION 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 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.
(e) MAXIMUM NUMBER OF OPTIONS TO ONE PERSON. No single Optionee shall
be entitled to receive more than One Hundred Fifty Thousand (150,000) Options
in any year pursuant to this Plan.
SECTION 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 Four
Million (4,000,000) shares of Common Stock, subject to adjustment pursuant to
SECTION 9; PROVIDED, HOWEVER, that in no event shall the number of shares of
Common Stock underlying Options granted pursuant to the Plan
-4-
<PAGE>
exceed twenty-five percent (25%) of the number of the outstanding shares of
Common Stock at the end of the immediately preceding fiscal quarter.
(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.
SECTION 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.
(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;
-5-
<PAGE>
(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.
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
-6-
<PAGE>
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 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.
SECTION 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
-7-
<PAGE>
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.
SECTION 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.
SECTION 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 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.
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(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
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.
SECTION 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
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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:
"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.
SECTION 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.
SECTION 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
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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 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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
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.
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SECTION 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.
SECTION 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.
SECTION 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.
SECTION 20. EXECUTION. To record the adoption of the Plan by the Board
effective as of May 19, 1998, the Corporation has caused its authorized
officer to execute the same.
DAOU SYSTEMS, INC.,
a Delaware corporation
By: /s/ Daniel J. Daou
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Daniel J. Daou, President
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