Page 76 of 92 Pages
ARTICLES OF AMENDMENT
TO
THE 1999 RESTATED ARTICLES OF INCORPORATION OF
MEDICALOGIC/MEDSCAPE, INC.
(f/k/a MedicaLogic, Inc.)
1. The name of the Corporation is MedicaLogic/Medscape, Inc.
2. The 1999 Restated Articles of Incorporation of the
Corporation, as amended, are amended to add a new Article II.D to the end of
Article II to read in its entirety as follows:
"D. Series 1 Preferred Stock. This Article II.D sets forth
------------------------
the designation, relative rights, preferences and limitations of a new series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article II.C.
above. The shares of such series shall be designated Series 1 Convertible
Redeemable Preferred Stock ("Series 1 Preferred Stock") and the number of shares
------------------------
constituting such series shall be 5,933,332.
1. Rank. The Series 1 Preferred Stock will rank (i) junior
----
in right of payment to all existing and future debt obligations of the
Corporation upon liquidation, dissolution or winding up of the Corporation, (ii)
junior in right of payment to each class or series of capital stock of the
Company hereafter created, the terms of which expressly provide that such class
or series of capital stock will rank senior to the Series 1 Preferred Stock as
to dividends and upon liquidation, dissolution or winding up of the Corporation
("Senior Capital Stock"), (iii) pari passu in right of payment with each class
---------------------
of capital stock or series of Preferred Stock established hereafter by the
Corporation's Board of Directors, the terms of which expressly provide that such
class or series will rank on a parity with the Series 1 Preferred Stock as to
dividend rights and upon liquidation, dissolution or winding up of the
Corporation ("Parity Capital Stock") and (iv) senior in right of payment as to
---------------------
dividend rights and upon liquidation, dissolution or winding up of the
Corporation as to its Common Stock and any capital stock of the Corporation
hereafter created that expressly provides that it will rank junior to the Series
1 Preferred ("Junior Capital Stock").
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2. Dividends.
---------
(a) If the Corporation declares or pays any dividends
upon the Common Stock (whether payable in cash, securities or other property,
other than shares of Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of the Corporation), the Corporation shall
also declare and pay to the holders of Series 1 Preferred Stock at the same time
that it declares and pays such dividends to the holders of the Common Stock the
dividends which would have been declared and paid with respect to the Common
Stock issuable upon conversion of the Series 1 Preferred Stock had all of the
outstanding Series 1 Preferred Stock been converted immediately prior to the
record date for such dividend, or, if no record date is fixed, the date as of
which the record holders of Common Stock entitled to such dividends are to be
determined. Such dividends shall be cumulative. Declared but unpaid dividends
with respect to a share of Series 1 Preferred Stock shall be mandatorily paid
upon liquidation, dissolution or winding up of the Corporation or the conversion
of such share to Common Stock, to the extent assets are legally available
therefor. Payment of such dividends shall be, at the election of the
Corporation, either in cash or in Common Stock (valued at the fair market value
as determined in accordance with subsection (c) of Section 3 on the date of
payment). Any amounts for which assets are not legally available shall be paid
promptly as assets become legally available therefor.
(b) The holders of the Series 1 Preferred Stock will
also be entitled to receive dividends, out of any assets legally available
therefor, prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock) on the Junior Capital Stock and pari passu
with dividends payable to the holders of shares of Parity Capital Stock, at the
rate of $0.27 per share per annum, (as adjusted for stock splits, stock
dividends, combinations or other recapitalizations of the Series 1 Preferred
Stock) payable upon the occurrence of any of the events specified in Sections 3
(liquidation or deemed liquidation), 4 (certain redemption events) or 6
(conversion) hereof. Except for payments of dividends upon the occurrence of any
of the events specified in Section 3 or 4 (in which case dividends shall be paid
solely in cash), payment of such dividends shall be, at the election of the
Corporation, in cash or in Common Stock (valued at the fair market value as
determined in accordance with subsection (c) of Section 3 hereof on the date of
payment). Such dividends shall be cumulative and shall compound annually and
shall be computed on the basis of a 360-day year of twelve 30-day months and
shall be deemed to accrue from the date the Series 1 Preferred Stock is first
issued (the "Series 1 Purchase Date") on a daily basis.
----------------------
3. Liquidation Preference. In the event of any
------------------------
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, after payment in full of the outstanding debt obligations of the
Corporation and the liquidation preference (and any accrued and unpaid
dividends) on any Senior Capital Stock, distributions to the holders of the
Series 1 Preferred Stock shall be made in the following manner:
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(a) Each holder of Series 1 Preferred Stock shall be
entitled to receive, out of the assets of the Corporation available for
distribution, before any distribution is made to the holders of any Junior
Capital Stock, an amount ("Series 1 Preference") equal to the greater of (i) the
-------------------
sum of $3.00 per outstanding share of Series 1 Preferred Stock held by such
holder (as such amount may be adjusted to account for stock splits, stock
dividends, combinations or other recapitalizations of the Series 1 Preferred
Stock, the "Series 1 Original Issue Price"), plus an amount equal to the accrued
-----------------------------
and unpaid dividends on the Series 1 Preferred Stock to the date fixed for
liquidation, dissolution or winding up and (ii) the amount that such holder
would be entitled to receive if it were to convert all of the shares of Series 1
Preferred Stock held by such holder into shares of Common Stock (calculated in
accordance with Section 6 hereof) immediately prior to such liquidation,
dissolution or winding up. After payment in full of the Series 1 Preference to
which holders of Series 1 Preferred Stock are entitled, such holders will not be
entitled to any further participation in any distribution of assets of the
Corporation.
(b) For purposes of this Section 3, unless otherwise
agreed by holders of at least a majority of the then outstanding shares of
Series 1 Preferred Stock, a merger, consolidation or sale of all or
substantially all of the assets of the Corporation which will result in the
Corporation's shareholders immediately prior to such transaction not holding (by
virtue of such shares or securities issued solely with respect thereto) at least
a majority of the voting power of the surviving, continuing or purchasing
entity, shall be deemed to be a liquidation, dissolution or winding up within
the meaning of this Section 3.
(c) Whenever a distribution of assets provided for in
this Section 3 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined
mutually by the Corporation's Board of Directors and the holders of the majority
of the shares of Series 1 Preferred Stock then outstanding; or, if the Board of
Directors and the holders of the majority of the shares of the Series 1
Preferred Stock then outstanding shall fail to agree, at the Corporation's
expense by an appraiser chosen by the Board of Directors of the Corporation and
reasonably acceptable to the holders of a majority of the shares of Series 1
Preferred Stock then outstanding, provided that any securities shall be valued
as follows:
(i) Securities not subject to investment letter
or other similar restrictions on free marketability covered by Section 3(c)(ii)
below:
(A) If traded on a securities exchange or
through The Nasdaq National Market, the value shall be deemed to be the average
of the closing prices of the securities on such exchange over the thirty (30)
day period ending three (3) days prior to the date of distribution; and
(B) In all other cases, the value shall be
the fair market value thereof, as determined mutually by the Corporation's Board
of Directors and the holders of the majority of the shares of the Series 1
Preferred Stock then outstanding or, if the Board of Directors and the holders
of the majority of the shares of Series 1 Preferred Stock then outstanding shall
fail to agree, at the Corporation's expense by an appraiser chosen by the Board
of Directors of the Corporation and reasonably acceptable to the holders of a
majority of the shares of Series 1 Preferred Stock then outstanding.
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(ii) The method of valuation of securities subject
to investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in Sections 3(c)(i)(A) or 3(c)(i)(B) to reflect the
approximate fair market value thereof.
(d) If, upon any liquidation, dissolution or winding
up of the Corporation, the amounts payable pursuant to this Section 3 with
respect to the Series 1 Preferred Stock and the Parity Capital Stock are not
paid in full, the holders of the Series 1 Preferred Stock and the Parity Capital
Stock will share equally and ratably in any distribution of assets of the
Corporation in proportion to the full liquidation preference and all accumulated
and unpaid dividends to which each such holder is entitled.
(e) Written notice of a liquidation, dissolution or
winding up of the Corporation stating a payment or payments and the place where
such payment or payments shall be payable, shall be delivered in person, mailed
by certified mail, return receipt requested, mailed by overnight mail or sent by
telecopier, not less than ten (10) days prior to the earliest payment date
stated therein, to the holders of record of the Series 1 Preferred Stock, such
notice to be addressed to each such holder at its address as shown by the
records of the Corporation.
4. Certain Redemption Events.
-------------------------
A. Change of Control
-----------------
(a) In the event of a Change of Control (as defined in
subsection (g) of this Section 4), each holder of the then outstanding Series 1
Preferred Stock shall have the right to require the Corporation to purchase,
from any source of funds legally available therefor, all or a portion of such
holder's Series 1 Preferred Stock (the "Change of Control Offer") as of the date
-----------------------
that is no earlier than 30 days and no more than 60 days after the Change of
Control Notice Date (as defined in subsection (b) of this Section 4) (the
"Change of Control Purchase Date") for a purchase price (the "Change of Control
--------------------------------
Purchase Price") equal to 100% of the Series 1 Original Issue Price together
with accrued and unpaid dividends to but not including the Change of Control
Purchase Date.
(b) Within 15 days after the occurrence of a Change of
Control, the Corporation shall mail to all holders of record of the Series 1
Preferred Stock a written notice of the Change of Control, such date being the
"Change of Control Notice Date." The notice shall include the form of Change of
------------------------------
Control Purchase Notice (as defined in subsection (c) of this Section 4) to be
completed by the holder and shall state:
(i) the date of such Change of Control and,
briefly, the events causing such Change of Control;
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(ii) the date by which the Change of Control
Purchase Notice pursuant to this Section 4 must be given;
(iii) the Change of Control Purchase Date;
(iv) the Change of Control Purchase Price;
(v) the name and address of the paying agent for
the Series 1 Preferred Stock appointed by the Corporation (the "Paying Agent");
------------
(vi) that Series 1 Preferred Stock as to which a
Change of Control Purchase Notice has been given may be converted into Common
Stock only to the extent that the Change of Control Purchase Notice has been
withdrawn in accordance with the terms of this Section 4;
(vii)the procedures that the holder must follow
to exercise rights under this Section 4; and
(viii) the procedures for withdrawing a Change of
Control Purchase Notice, including a form of notice of withdrawal.
(c) A holder may exercise its rights specified in
subsection (a) of this Section 4 upon delivery of a written notice of the
exercise of such rights (a "Change of Control Purchase Notice") to the Paying
-----------------------------------
Agent at any time prior to the close of business on the business day next
preceding the Change of Control Purchase Date, stating:
(i) the name of the holder;
(ii) the certificate numbers of the Series 1
Preferred Stock that the holder will deliver to be purchased;
(iii)the number of shares of Series 1 Preferred
Stock that the holder will deliver to be purchased; and
(iv) that such Series 1 Preferred Stock shall be
purchased pursuant to the terms and conditions specified in this Section 4.
The delivery of such Series 1 Preferred Stock to the Paying Agent
(together with all necessary endorsements) at the office of the Paying Agent
shall be a condition to the receipt by the holder of the Change of Control
Purchase Price therefor; provided, however, that such Change of Control Purchase
-------- -------
Price shall be so paid pursuant to this Section 4 only if the Series 1 Preferred
Stock so delivered to the Paying Agent shall conform in all material respects to
the description thereof set forth in the related Change of Control Purchase
Notice and provided, further, that the Corporation shall be required to give
-------- -------
written notice to any holder in the event the delivered stock does not conform
in all material respects to the description thereof, in sufficient time, if
practicable, prior to the Change of Control Purchase Date such that such holder
may reasonably be expected to correct such delivery and resubmit such stock.
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Notwithstanding anything herein to the contrary, any holder delivering
to the Paying Agent the Change of Control Purchase Notice shall have the right
to withdraw such Change of Control Purchase Notice at any time prior to the
close of business on the business day immediately preceding the Change of
Control Purchase Date by delivery of a written notice of withdrawal to the
Paying Agent in accordance with subsection (e) of this Section 4.
The Corporation will comply with the requirements of Rule 14e-1 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and any
other securities laws and regulations to the extent those laws and regulations
are applicable in connection with the purchase of the Series 1 Preferred Stock
by the Corporation pursuant to this Section 4. To the extent that the provisions
of any such securities laws or regulations conflict with any provisions of this
Section 4, the Corporation will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
Section 4.
(d) On the Change of Control Purchase Date, the
Corporation will, to the extent lawful: (i) accept for payment all shares of
Series 1 Preferred Stock properly tendered; and (ii) cause the Paying Agent to
deliver to any transfer agent appointed by the Corporation such shares of Series
1 Preferred Stock accepted by the Corporation for purchase.
The Corporation will not be required to administer the Change of
Control Offer upon the occurrence of a Change of Control if a third party (x)
makes the Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements described in this Section 4 and (y) purchases
all shares of Series 1 Preferred Stock validly tendered and not withdrawn.
(e) Upon receipt by the Paying Agent of the Change of
Control Purchase Notice specified in subsection (c) of this Section 4, the
holder of the Series 1 Preferred Stock in respect of which such Change of
Control Purchase Notice was given shall (unless such Change of Control Purchase
Notice is withdrawn as specified below) thereafter be entitled to receive solely
the Change of Control Purchase Price with respect to such Series 1 Preferred
Stock. Such Change of Control Purchase Price shall be paid to such holder
promptly following the Change of Control Purchase Date with respect to such
Series 1 Preferred Stock (provided the conditions in subsections (c) and (d) of
this Section 4 required to be in prior to the Purchase Date have been
satisfied). Series 1 Preferred Stock in respect of which a Change of Control
Notice has been given by the holder thereof may not be converted into shares of
Common Stock on or after the date of delivery of such Change of Control Purchase
Notice unless such Change of Control Purchase Notice has first been validly
withdrawn.
A Change of Control Purchase Notice may be withdrawn by means of a
written notice of withdrawal delivered by the holder to the office of the Paying
Agent at any time prior to the close of business on the business day immediately
preceding the Change of Control Purchase Date, specifying: (i) the name of the
holder; (ii) the certificate numbers of the Series 1 Preferred Stock in respect
of which such notice of withdrawal is being submitted; (iii) the number of
shares of Series 1 Preferred Stock with respect to which such notice of
withdrawal is being submitted; and (iv) the number of shares, if any, of such
Series 1 Preferred Stock that remains subject to the original Change of Control
Purchase Notice and that has been or will be delivered for purchase by the
Corporation.
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(f) On or prior to the time for payment required by
subsection (e) of this Section 4, the Corporation shall deposit with the Paying
Agent an amount of money sufficient to pay the aggregate Change of Control
Purchase Price of all of the shares of Series 1 Preferred that are to be
purchased as of such Change of Control Purchase Date.
(g) A Change of Control shall be deemed to have
occurred if any of the following occurs: (i) any "person" or "group" (as such
terms are used in Section 13(d) or 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rules 13d-3 or 13d-5 under the Exchange Act),
directly or indirectly, of more than 35% of the total outstanding voting stock
of the Corporation (except that the person or group shall not be deemed the
"beneficial owner" of shares tendered pursuant to a tender or exchange offer
made by that person or group or any of their affiliates until the tendered
shares are accepted for purchase or exchange) or has, directly or indirectly,
the right to elect or designate a majority of the Board of Directors of the
Corporation, (ii) the Corporation consolidates with, or merges with or into,
another person, or sells substantially all of its assets to any person pursuant
to a transaction in which the "beneficial owners" (as defined above) of the
voting stock of the Corporation immediately before such transaction own,
directly or indirectly, immediately after such transaction, less than a majority
of the voting power of all voting stock of the surviving, continuing or
purchasing entity, or (iii) individuals who on the date of the original issuance
of this Series 1 Preferred Stock constituted the Board of Directors of the
Corporation (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Corporation was approved by a vote of the majority of the directors of the
Corporation then still in office who were either directors on the original
issuance date of the Series 1 Preferred Stock or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office. No inference shall be created
that officers or employees of the Corporation are acting as a "person" or
"group" (as such terms are used in Sections 13(d) or 14(d) of the Exchange Act)
with the power to designate a majority of the members of the Board solely
because such officers or employees constitute a majority of the members of the
Board.
Notwithstanding the foregoing, a Change of Control will be deemed not
to have occurred in connection with any transaction pursuant to which the then
outstanding Common Stock is converted into or exchanged for cash and/or
fully-registered marketable securities at a price per share (determined in
accordance with Section 3(c)(i)) at least equal to five (5) times the Series 1
Conversion Price (as defined in Section 6 hereof) in effect immediately
preceding such transaction.
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B. Trigger Event
-------------
(a) If the Company fails to obtain the shareholder
approval contemplated by Section 4.2(b) of the Preferred Stock and Warrant
Purchase Agreement dated on or about December 22, 2000 between the Corporation
and the original holders of the Series 1 Preferred Stock (a "Trigger Event"),
--------------
each holder of the then outstanding Series 1 Preferred Stock shall have the
right to require the Corporation to purchase, from any funds legally available
therefor, all or a portion of such holder's Series 1 Preferred Stock (the
"Trigger Event Offer") as of the date that is no earlier than 30 days and no
---------------------
more than 60 days after the Trigger Event Notice Date (as defined below) (the
"Trigger Event Purchase Date") for a purchase price equal to 100% of the Series
----------------------------
1 Original Issue Price together with accrued and unpaid dividends thereon to but
not including the Trigger Event Purchase Date. The Trigger Event Offer shall
otherwise be conducted in accordance with the terms of Section 4.A above,
mutatis mutandis.
"Trigger Event Notice Date" shall mean the date on
----------------------------
which the Corporation delivers notice to each holder of record of Series 1
Preferred Stock of the occurrence of a Trigger Event.
5. Voting Rights.
-------------
(a) The holder of each share of Series 1 Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such Series 1 Preferred Stock could then be converted, and with respect to such
vote, such holder shall have full voting rights and powers equal to the voting
rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this Corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of Series 1
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
(b) The holders of a majority of the outstanding
Series 1 Preferred Stock shall be entitled to elect one (1) Class III director
of the Corporation at each election of such directors.
6. Conversion Rights. The holders of the Series 1
-------------------
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. Each share of Series 1 Preferred
----------------
Stock shall be convertible, at the option of the holder thereof, at any time
after the Series 1 Purchase Date and prior to the close of business on the
business day immediately preceding any purchase by the Corporation of such share
of Series 1 Preferred Stock pursuant to Section 4, at the office of the
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the Series
1 Original Issue Price plus all accrued and unpaid dividends thereon by the
Series 1 Conversion Price applicable to such share (determined as hereafter
provided) in effect on the date the certificate is surrendered for conversion.
The initial Series 1 Conversion Price per share for shares of Series 1 Preferred
Stock shall be the Series 1 Original Issue Price. The Series 1 Conversion Price
for the Series 1 Preferred Stock shall be subject to adjustment as set forth in
Section 6(d).
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(b) Automatic Conversion. Each share of Series 1
---------------------
Preferred Stock shall automatically be converted into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the Series
1 Original Issue Price plus all accrued and unpaid dividends thereon by the
Series 1 Conversion Price at the time in effect immediately upon the earlier of
(i) the date, which shall be no sooner than one year from the date the Series 1
Preferred Stock is first issued, on which the last sale price of the Common
Stock traded through The Nasdaq National Market has been at least five times the
Series 1 Conversion Price in effect on such date for thirty (30) consecutive
trading days, with a minimum average trading volume per day of two percent (2%)
of the number of issued and outstanding shares of Common Stock not held by
affiliates of the Corporation or (ii) the date immediately prior to the closing
of any merger, consolidation, reorganization, or sale of all or substantially
all of the Corporation's assets pursuant to which the then outstanding Common
Stock is converted into or exchanged for cash and/or fully-registered marketable
securities at a price per share at least equal to five times the Series 1
Conversion Price (as defined in Section 6 hereof) in effect immediately
preceding such transaction.
(c) Mechanics of Conversion. Before any holder of
-------------------------
Series 1 Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Series 1 Preferred Stock, and shall give written notice by mail, postage
prepaid, to the Corporation at its principal corporate office, of the election
to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series 1 Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series 1 Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date.
(d) Adjustments to Series 1 Conversion Price for
--------------------------------------------------
Certain Dilutive Issues; Splits and Combinations. The Series 1 Conversion Price
------------------------------------------------
shall be subject to adjustment from time to time as follows:
(i) Stock Issuances.
---------------
(A) If the Corporation shall issue, after
the Series 1 Purchase Date, any Series 1 Additional Stock (as defined below)
without consideration or for a consideration per share less than $1.70 (subject
to adjustment for stock splits, stock dividends, combinations or other
recapitalizations of the Series 1 Preferred Stock) or the fair market value per
share of such Series 1 Additional Stock (as determined in accordance with
Section 3(c)) (the "Fair Market Price") in effect immediately prior to the
-------------------
issuance of such Series 1 Additional Stock, then, and in each such case, the
Series 1 Conversion Price in effect immediately prior to each such issuance
shall forthwith be adjusted as follows:
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(1) If the issuance is for less than
$1.70 per share, then the Series 1 Conversion Price in effect immediately prior
to each such issuance shall be adjusted to a price determined by multiplying
such Series 1 Conversion Price by a fraction, the numerator of which shall be
equal to the sum of (a) the number of shares of Common Stock outstanding
immediately prior to such issuance (including shares of Common Stock deemed to
be issued pursuant to Sections 6(d)(i)(E)(1) or 6(d)(i)(E)(2)) plus (b) the
number of shares of Common Stock that the aggregate consideration received by
this Corporation for such issuance would purchase at 56.67% of the Series 1
Conversion Price in effect immediately prior to such issuance (determined in
accordance with Section 6(d)(i)(E)); and the denominator of which shall be equal
to the sum of (x) the number of shares of Common Stock outstanding immediately
prior to such issuance (including shares of Common Stock deemed to be issued
pursuant to Sections 6(d)(i)(E)(1) or 6(d)(i)(E)(2)) plus (y) the number of
shares of such Series 1 Additional Stock.
(2) If the issuance is for less than
the Fair Market Price immediately prior to such issuance, then such Series 1
Conversion Price shall forthwith (except as otherwise provided in this Section
6(d)) be adjusted to a price determined by multiplying such Series 1 Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance (including shares of
Common Stock deemed to be issued pursuant to Sections 6(d)(i)(E)(1) or
6(d)(i)(E)(2)) plus the number of shares of Common Stock that the aggregate
consideration received by this Corporation (determined in accordance with
Section 6(d)(i)(E)) for such issuance would purchase at the Fair Market Price
immediately prior to such issuance; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
(including shares of Common Stock deemed to be issued pursuant to Sections
6(d)(i)(E)(1) or 6(d)(i)(E)(2)) plus the number of shares of such Series 1
Additional Stock.
(3) If the issuance is for less than
$1.70 per share and the Fair Market Price immediately prior to such issuance,
then the adjustment paragraph resulting in the lower Series 1 Conversion Price
shall control.
(B) No adjustment of the Series 1 Conversion
Price shall be made in an amount less than one cent per share, provided that any
adjustments that are not required to be made by reason of this sentence shall be
carried forward and shall be either taken into account in any subsequent
adjustment made prior to three (3) years from the date of the event giving rise
to the adjustment being carried forward, or shall be made at the end of three
(3) years from the date of the event giving rise to the adjustment being carried
forward. Except to the limited extent provided for in Sections 6(d)(i)(E)(4) and
6(d)(i)(E)(5), no adjustment of such Series 1 Conversion Price pursuant to this
Section 6(d)(i) shall have the effect of increasing the Series 1 Conversion
Price above the Series 1 Conversion Price in effect immediately prior to such
adjustment.
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(C) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Corporation in connection with the
issuance and sale thereof.
(D) In the case of the issuance of the
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
mutually determined by the Board of Directors and the holders of the majority of
the shares of the Series 1 Preferred Stock then outstanding or, if the Board of
Directors and the holders of the majority of the shares of Series 1 Preferred
Stock then outstanding shall fail to agree, at the Corporation's expense by an
appraiser chosen by the Board of Directors of the Corporation and reasonably
acceptable to the holders of a majority of the shares of Series 1 Preferred
Stock then outstanding.
(E) In the case of the issuance (whether
before, on or after the Series 1 Purchase Date) of options to purchase or rights
to subscribe for Common Stock, securities by their terms convertible into,
exchangeable or exercisable for Common Stock or options to purchase or rights to
subscribe for such convertible, exchangeable or exercisable securities
(collectively, "Other Securities"), the following provisions shall apply for all
purposes of this Section 6(d)(i) and Section 6(d)(ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Sections 6(d)(i)(C) and 6(d)(i)(D)), if any, received by the Corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of, or in exchange or
exercise (assuming the satisfaction of any conditions to convertibility or
exchangeability, including, without limitation, the passage of time, but without
taking into account potential antidilution adjustments) for, any such
convertible or exchangeable or exercisable securities or upon the exercise of
options to purchase or rights to subscribe for such convertible or exchangeable
or exercisable securities and subsequent conversion or exchange or exercise
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account potential
antidilution adjustments) upon the conversion, exchange or exercise of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in Sections 6(d)(i)(C) and
6(d)(i)(D)).
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(3) In the event of any change in the
number of shares of Common Stock deliverable or in the consideration payable to
the Corporation upon exercise of such options or rights or upon conversion of or
in exchange for such convertible or exchangeable or exercisable securities,
including, but not limited to, a change resulting from the antidilution
provisions thereof, the Series 1 Conversion Price, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such
options or rights, the termination of any such rights to convert, exchange or
exercise or the expiration of any options or rights related to such convertible,
exchangeable or exercisable securities, the Series 1 Conversion Price, to the
extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities that remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor pursuant to
Sections 6(d)(i)(E)(1) and 6(d)(i)(E)(2) shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in either
Section 6(d)(ii)(E)(3) or 6(d)(i)(E)(4).
(ii) "Series 1 Additional Stock" shall mean any
---------------------------
shares of Common Stock or Other Securities issued (or deemed to have been issued
pursuant to Section 6(d)(i)(E)) by this corporation after the Series 1 Purchase
Date other than:
(A) shares of Common Stock issued pursuant
to a transaction described in Section 6(d)(iii) hereof;
(B) shares of Common Stock or Other
Securities issuable or issued to employees, consultants or directors of this
corporation pursuant to a stock option plan or stock purchase plan approved by
the Board of Directors of the Corporation on or prior to the Series 1 Purchase
Date;
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(C) shares of Common Stock issued to Baylor
College of Medicine or assignees in connection with the sale of software
licenses by the Corporation in the Houston, Texas market through December 31,
2002;
(D) shares of Common Stock or Other
Securities issuable or issued in consideration for services rendered to the
Corporation or its subsidiaries (other than shares issuable or issued pursuant
to Section 6(d)(ii)(B)), in an aggregate amount not to exceed 200,000 shares per
annum;
(E) shares of Common Stock or Other
Securities issuable or issued in connection with acquisitions, business
combinations or strategic alliances, including corporate partnering agreements,
in each case not to exceed 500,000 shares in the aggregate;
(F) shares of Common Stock or Other
Securities the issuance of which has been approved in writing by the holders of
at least the majority of the then outstanding shares of Series 1 Preferred
Stock;
(G) shares of Common Stock issuable upon (i)
the conversion of the Series 1 Preferred Stock, (ii) the exercise of the
warrants, dated the Series 1 Purchase Date, issued to holders of Series 1
Preferred Stock, (iii) the exercise of the warrant, dated February 15, 2000,
issued to Lazard Frere & Co. LLC, not to exceed 32,300 shares in the aggregate
(subject to adjustment for stock dividends, splits or combinations or other
recapitalizations); (iv) the exercise of the warrants, dated September 3, 1999,
issued to America Online, Inc., not to exceed 727,911 shares in the aggregate
(subject to adjustment for stock dividends, splits or combinations or other
recapitalizations) or (v) the exercise of the warrant, dated September 14, 1999,
issued to Stoel Rives LLP, not to exceed 10,000 shares (subject to adjustment
for stock dividends, splits, combinations or other recapitalizations); or
(H) shares of Common Stock issued pursuant
to Sections 2.3 and 2.4 of the Stock Purchase Agreement, dated April 17, 2000,
between the Corporation and the founders of AnywhereMD.com, Inc. (including
pursuant to employment agreements of even date therewith between the Corporation
and such founders), not to exceed 600,000 shares in the aggregate (subject to
adjustment for stock dividends, splits or combinations or other
recapitalizations);
(iii)If the Corporation at any time or from time
to time after the Series 1 Purchase Date fixes a record date for a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
------------------------
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, and in each such case as of such record date (or the
date of such dividend distribution, split or subdivision if no record date is
fixed), the Series 1 Conversion Price shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Series 1 Preferred Stock shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.
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(iv) If the number of shares of Common Stock
outstanding at any time after the Series 1 Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, and in each such
case following the record date of such combination, the Series 1 Conversion
Price shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.
(e) Recapitalizations. If at any time or from time to time
-----------------
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 6 or in Section 3), provision shall be made so that the holders of
the Series 1 Preferred Stock shall be entitled to receive in exchange for the
Series 1 Preferred Stock a security identical to (and not less favorable to such
holders than) the Series 1 Preferred Stock. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 6
with respect to the rights of the holders of the Series 1 Preferred Stock after
the recapitalization to the end that the provisions of this Section 6 (including
adjustment of the Series 1 Conversion Price then in effect and the number of
shares receivable upon conversion of the Series 1 Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(f) No Impairment. This Corporation will not, by amendment
-------------
of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 6 and in the taking of all
such action as may be necessary or appropriate in order to protect the Series 1
Conversion Rights against impairment.
(g) No Fractional Shares and Certificate as to
--------------------------------------------------
Adjustments.
-----------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series 1 Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series 1
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
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Page 90 of 92 Pages
(ii) Upon the occurrence of each adjustment or
readjustment of the Series 1 Conversion Price pursuant to this Section 6, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series 1 Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series 1 Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Series 1 Conversion Price at the time in effect, and (C)
the number of shares of Common Stock and the amount, if any, of other property
that at the time would be received upon the conversion of a share of Series 1
Preferred Stock.
(h) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series 1 Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series 1 Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series 1 Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite stockholder approval of any necessary
amendment to this certificate.
(i) Notices. Any notice required by the provisions of
-------
this Section 6 to be given to the holders of shares of Series 1 Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation.
7. Protective Provisions. So long as 2,966,666 shares of
----------------------
Series 1 Preferred Stock are outstanding (subject to adjustment for stock
dividends, splits or combinations or other recapitalizations), the Corporation
shall not without first obtaining the approval, by vote or written consent
(which consent need not be unanimous and may be obtained without a shareholders'
meeting), of the holders of at least a majority of the then outstanding shares
of Series 1 Preferred Stock:
(a) authorize any voluntary liquidation under
applicable bankruptcy legislation, any dissolution, liquidation or winding up of
the Corporation or any deemed dissolution, liquidation or winding up within the
meaning of Section 3(b);
(b) effect or taking any action to facilitate any
transaction or series of transactions resulting in the disposition of more than
50% of the voting power of the Corporation;
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Page 91 of 92 Pages
(c) authorize any merger, acquisition or consolidation
with any other corporation or joint venture involving consideration (determined
in accordance with Section 3(c)) in excess of $5,000,000;
(d) declare or pay any dividends or other
distributions on the Corporation's capital stock (other than a dividend payable
solely in shares in Common Stock or a dividend accruing pursuant to Section 2(b)
hereof) or redeem, purchase or otherwise acquire any share or shares of
Preferred Stock (except as provided in Section 4) or Common Stock; provided,
however, that this restriction shall apply neither to the repurchase of shares
of Common Stock from employees, officers, directors, consultants or other
persons performing services for the Corporation or any subsidiary pursuant to
agreements under which the Corporation has the option to repurchase such shares
at cost or at cost upon the occurrence of certain events, such as the
termination of employment;
(e) permit any subsidiary to issue and sell securities
having a fair market value (as determined in accordance with Section 3(c)) in
excess of $5,000,000;
(f) sell more than $5,000,000 in its assets in a
single or series of related transactions or create or suffer to be imposed any
lien, mortgage, security interest or other charge on or against more than
$5,000,000 of assets;
(g) incur any indebtedness for borrowed money in
excess of $5,000,000 in aggregate principal amount;
(h) redeem, purchase or otherwise acquire any
indebtedness of the Corporation (unless such indebtedness is otherwise due in
accordance with its terms);
(i) authorize any transactions with any affiliates
(other than wholly-owned subsidiaries of the Corporation); or
(j) amend or repeal any provision of the Corporation's
Articles of Incorporation or Restated Bylaws if such action would adversely
affect the relative rights, preferences and privileges of the Series 1 Preferred
Stock (including, without limitation, (A) the authorization, creation or
issuance of any Senior Capital Stock or Parity Capital Stock or any obligation
or security convertible into or exchangeable into, or evidencing a right to
purchase, shares of any class or series of Senior Capital Stock or Parity
Capital Stock, (B) the increase of the directors on the Corporation's Board of
Directors to a number greater than 12, or (C) the designation and issuance after
the Series 1 Purchase Date of any additional shares of Series 1 Preferred
Stock).
8. Status of Converted Stock. If any shares of Series 1
---------------------------
Preferred Stock are converted pursuant to Section 6 hereof, the shares so
converted shall be canceled and shall not be issuable by the Corporation."
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3. The amendment to the Articles was approved by the Board of
Directors of the Corporation on December 20, 2000. Shareholder approval was not
required.
Dated: January 4, 2001.
MEDICALOGIC/MEDSCAPE, INC.
By:
----------------------------------------
Printed Name: Mark Boulding
Title: Secretary and Executive Vice President
17
