-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AVt+nB+YX5UsAkATHpvlTVLl7G2H3m3WH5og0hsPIfmYMVtIEA4FMF7gg8NF2wao RtluBA2F1U5wjV0MonkwXA== 0000912057-97-021509.txt : 19970623 0000912057-97-021509.hdr.sgml : 19970623 ACCESSION NUMBER: 0000912057-97-021509 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19970620 EFFECTIVENESS DATE: 19970620 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAOU SYSTEMS INC CENTRAL INDEX KEY: 0001003989 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 330284454 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-8 SEC ACT: 1933 Act SEC FILE NUMBER: 333-29745 FILM NUMBER: 97627774 BUSINESS ADDRESS: STREET 1: 5120 SHOREHAM PL CITY: SAN DIEGO STATE: CA ZIP: 92122 BUSINESS PHONE: 6196462996 MAIL ADDRESS: STREET 1: 5120 SHOREHAM PL CITY: SAN DIEGO STATE: CA ZIP: 92122 S-8 1 FORM S-8 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1997 REGISTRATION STATEMENT NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------- DAOU SYSTEMS, INC. (Exact name of registrant as specified in its charter) DELAWARE 330284454 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5120 SHOREHAM PLACE SAN DIEGO, CALIFORNIA 92122 (619) 452-2221 (Address and telephone number, including area code, of principal executive offices) ---------------------- 1996 STOCK OPTION PLAN (Full title of the plans) ---------------------- DANIEL J. DAOU PRESIDENT DAOU SYSTEMS, INC. 5120 SHOREHAM PLACE SAN DIEGO, CALIFORNIA 92122 (619) 452-2221 (Name, address and telephone number, including area code, of agent for service) ---------------------- THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IMMEDIATELY UPON FILING WITH THE SECURITIES AND EXCHANGE COMMISSION. ---------------------- CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF TO BE REGISTERED REGISTERED (1) PER UNIT (2) PRICE (1)(2) REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock, $0.001 par value per share.................... 1,367,925 $10.69 $14,628,234 $4,433 - ----------------------------------------------------------------------------------------------------------------------------------- (1) This Registration Statement shall also cover any additional shares of Common Stock which become issuable by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration which results in an increase in the number of the Registrant's outstanding shares of Common Stock. (2) Estimated solely for the purposes of calculating the registration fee in accordance with Rule 457(h). The proposed maximum aggregate offering price is based on (i) the aggregate price of $7,592,562 at which the 824,210 options currently outstanding may be exercised and (ii) an assumed offering price of $12.94 per share for the remaining 543,715 shares of Common Stock covered by this Registration Statement. - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE. DAOU Systems, Inc. (the "Registrant") hereby incorporates by reference into this Registration Statement the following documents previously filed with the Securities and Exchange Commission (the "Commission"): (i) The Registrant's Registration Statement on Form SB-2, filed with the Commission on December 18, 1996, as amended, Registration Statement No. 333-18155 (the "SB-2 Registration Statement"), under the Securities Act of 1933, as amended (the "Securities Act"). (ii) The description of the Common Stock contained in the Registrant's Form 8-A, dated January 29, 1997 and filed pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for registration of the Common Stock, including any amendment or report filed for the purpose of updating such description. (iii) The Registrant's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1997, filed with the Commission on April 23, 1997. All documents filed by the Registrant pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Registration Statement and prior to the filing of a post-effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference into this Registration Statement and to be a part hereof from the date of filing of such documents. ITEM 4. DESCRIPTION OF SECURITIES. Not applicable. ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL. Not applicable. ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law permits a corporation to indemnify its directors, officers, employees and other agents in terms sufficiently broad to permit indemnification (including reimbursement for expenses) under certain circumstances for liabilities arising under the Securities Act. II-1 The Registrant's Certificate of Incorporation and Bylaws provide for the indemnification of directors and officers to the fullest extent permitted by the Delaware General Corporation Law and authorize the indemnification by the Registrant of other officers, employees and other agents as set forth in the Delaware General Corporation Law. The Registrant has entered into indemnification agreements with its directors and executive officers, in addition to the indemnification provided for in the Registrant's Bylaws. ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED. Not applicable. ITEM 8. EXHIBITS. -------- 4.1* -- Registrant's Amended and Restated Certificate of Incorporation. 4.2* -- Registrant's Bylaws. 4.3* -- Specimen Stock Certificate. 5.1 -- Opinion of Baker & McKenzie. 23.1 -- Consent of Ernst & Young LLP, independent auditors. 23.2 -- Consent of Baker & McKenzie -- Included in Exhibit 5.1. 24.1 -- Power of Attorney -- Reference is made to page II-4 of this Registration Statement. 99.1 -- DAOU Systems, Inc. 1996 Stock Option Plan, as amended. - ------------------------- * Incorporated by reference from the Registrant's SB-2 Registration Statement. ITEM 9. UNDERTAKINGS. A. The undersigned Registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act, (ii) to reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement, and (iii) to include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; II-2 provided, however, (x) that clauses (1)(i) and (1)(ii) shall not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference into this Registration Statement; (2) that, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold upon the termination of the Registrant's 1996 Stock Option Plan. B. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. C. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8, and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on this 20th day of June, 1997. DAOU SYSTEMS, INC. By: /s/ DANIEL J. DAOU ---------------------------------- Daniel J. Daou President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Georges J. Daou, Daniel J. Daou and Fred C. McGee, as his attorney-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming his or her signature as it may be signed by said attorney-in-fact to any and all amendments to this Registration Statement. In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on June 20, 1997. SIGNATURE TITLE --------- ----- /s/ GEORGES J. DAOU Chief Executive Officer and - ------------------------------------------ Chairman of the Board (Principal Georges J. Daou Executive Officer) /s/ DANIEL J. DAOU President and Director - ------------------------------------------ Daniel J. Daou /s/ FRED C. McGEE Senior Vice President, Chief - ------------------------------------------ Financial Officer and Secretary Fred C. McGee (Principal Financial and Accounting Officer) /s/ DAVID W. JAHNS Director - ------------------------------------------ David W. Jahns /s/ BERNARD F. McDONAGH Director - ------------------------------------------ Bernard F. McDonagh /s/ JOHN H. MORAGNE Director - ------------------------------------------ John H. Moragne II-4 EXHIBIT INDEX 4.1* -- Registrant's Amended and Restated Certificate of Incorporation. 4.2* -- Registrant's Bylaws. 4.3* -- Specimen Stock Certificate. 5.1 -- Opinion of Baker & McKenzie. 23.1 -- Consent of Ernst & Young LLP, independent auditors. 23.2 -- Consent of Baker & McKenzie -- Included in Exhibit 5.1. 24.1 -- Power of Attorney -- Reference is made to page II-4 of this Registration Statement. 99.1 -- DAOU Systems, Inc. 1996 Stock Option Plan, as amended. - ----------------- * Incorporated by reference from the Registrant's SB-2 Registration Statement. EX-5.1 2 OPINION OF BAKER June 20, 1997 DAOU Systems, Inc. 5120 Shoreham Place San Diego, California 92122 Ladies and Gentlemen: We have examined the Registration Statement on Form S-8 to be filed by you with the Securities and Exchange Commission on or about June 20, 1997, in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 1,367,925 shares of the Company's Common Stock (the "Shares") reserved for issuance under the Company's 1996 Stock Option Plan (the "Plan"). As your legal counsel, we have examined the Company's Certificate of Incorporation and Bylaws, the written Plan, records of corporate proceedings with respect to the Plan and such documents as we have deemed necessary in connection with the issuance of the Shares. Based upon the foregoing examinations and upon applicable laws, we are of the opinion that upon the receipt by the Company of full payment for the Shares in accordance with the terms and conditions of the Plan, the Shares, when offered and sold in the manner provided for in the Registration Statement, will be legally issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to said Registration Statement and further consent to the use of our name wherever appearing in said Registration Statement and amendments thereto. Very truly yours, BAKER & MCKENZIE /s/ BAKER & MCKENZIE EX-23.1 3 CONSENT OF E & Y EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to the 1996 Stock Option Plan of DAOU Systems, Inc. of our report dated January 14, 1997 with respect to the financial statements of DAOU Systems, Inc. included in its Registration Statement No. 333-18155 (Form SB-2) for the year ended December 31, 1996, filed with the Securities and Exchange Commission. San Diego, California June 18, 1997 EX-99.1 4 STOCK OPTION PLAN AMENDMENT NO. 2 TO DAOU SYSTEMS, INC. 1996 STOCK OPTION PLAN 1. PURPOSE. The Plan is intended to provide to officers, directors, key Employees and Consultants of the Corporation an opportunity to acquire a proprietary interest in the Corporation, to encourage such key individuals to remain in the employ of or to contract with the Corporation, and to attract and retain new Employees, Consultants and directors with outstanding qualifications. Pursuant to the Plan, the Corporation may grant to officers, directors, Consultants and key Employees of the Corporation options to purchase shares of Common Stock upon such terms and conditions as provided herein. 2. DEFINITIONS. (a) "AFFILIATE" means any corporation (other than the Corporation) in an unbroken chain of corporations that includes the Corporation if each of such corporations, other than the last corporation in the chain, owns at least 50% of the total voting power of one of the other corporations. (b) "BOARD" means the Board of Directors of the Corporation. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means the committee appointed by the Board to administer the Plan, or if no such committee is appointed, the Board. (e) "COMMON STOCK" means the voting common stock of the Corporation. (f) "CONSULTANT" means any person who, or any employee of any firm which, is engaged by the Company or any Affiliate to render consulting services and is compensated for such consulting services, and any non-employee director of the Company whether compensated for such services or not. (g) "CORPORATION" means DAOU Systems, Inc., a Delaware corporation. (h) "EFFECTIVE DATE" means January 1, 1996. (i) "EMPLOYEE" means any individual who is employed, within the meaning of Section 3401 of the Code and the regulations thereunder, by the Corporation or by any Affiliate. For purposes of the Plan and only for purposes of the Plan, and in regard to Nonstatutory Stock Options but not for Incentive Stock Options, a Consultant or director of the Corporation or any Affiliate will be deemed to be an Employee, and service as a Consultant or director with the Corporation or any Affiliate will be deemed to be employment, but no Incentive Stock Option will be granted to a Consultant or director who is not an employee of the Corporation or any Affiliate within the meaning of Section 3401 of the Code and the regulations thereunder. In the case of a non-employee director or Consultant, the provisions governing when a termination of employment has occurred for purposes of the Plan will be set forth in the written Stock Option Agreement between the Optionee and the Corporation, or, if not so set forth, the Committee will have the discretion to determine when a termination of "employment" has occurred for purposes of the Plan. (j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (k) "EXERCISE PRICE" means the price per Share at which an Option may be exercised, as determined by the Committee and as specified in the Optionee's stock option agreement. (l) "FAIR MARKET VALUE" means the value of each Share as determined by the Board, subject to the limitations of Section 260.140.50 of Title 10 of the California Code of Regulations. (m) "INCENTIVE STOCK OPTION" means an Option of the type described in Section 422(b) of the Code. (n) "JOINT ESCROW INSTRUCTIONS" means joint escrow instructions entered into between an Optionee and the Corporation in such form as may be approved by the Committee from time to time. (o) "NONEMPLOYEE DIRECTOR" shall mean a member of the Board who (i) is not currently an officer or Employee of the Corporation or a parent or Subsidiary of the Corporation, (ii) has not received compensation for serving as a Consultant or in any other non-director capacity or had an interest in any transaction with the Corporation or a parent or Subsidiary of the Corporation that would exceed the $60,000 threshold for which disclosure would be required under Item 404(a) of Regulation S-K, or (iii) has not been engaged through another party in a business relationship with the Corporation which would be disclosable under Item 404(b) of Regulation S-K. If the Board determines that compliance with Section 162(m) of the Code is desirable, then the term "Nonemployee Director" shall also be interpreted to satisfy the definition of "outside director" under Section 162(m) and applicable regulations issued pursuant thereto. (p) "NONSTATUTORY STOCK OPTION" means an Option of the type not described in Sections 422(b) or 423(b) of the Code. (q) "OPTION" means an option to purchase Common Stock granted pursuant to the Plan. (r) "OPTIONEE" means any person who holds an Option pursuant to the Plan. 2 (s) "PLAN" means the DAOU Systems, Inc. 1996 Stock Option Plan, as amended from time to time. (t) "PURCHASE PRICE" means at any particular time the Exercise Price times the number of Shares for which an Option is being exercised. (u) "SHARE" means one share of authorized Common Stock. 3. ADMINISTRATION. (a) THE COMMITTEE. The Plan shall be administered by the Committee. The Committee shall consist only of Nonemployee Directors of the Corporation and shall have at least two members. The Committee shall meet such other requirements as may be established from time to time by the Securities and Exchange Commission for plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act. The Board may appoint a separate committee of the Board, composed of one or more directors of the Corporation who need not be Nonemployee Directors, who may administer the Plan with respect to Employees or Consultants who are not officers or directors of the Corporation or incoming new directors of the Corporation, may grant Options under the Plan to such persons and may determine the timing, number of Shares subject to such Options and other terms of such grants. (b) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the Committee will have the authority, in its discretion and on behalf of the Corporation: (i) to grant Options; (ii) to determine the Exercise Price per Share of Options to be granted; (iii) to determine the Employees to whom, and the time or times at which, Options will be granted and the number of Shares for which an Option will be exercisable; (iv) to interpret the Plan; (v) to prescribe, amend, and rescind rules and regulations relating to the Plan; (vi) to determine the terms and provisions of each Option granted and, with the consent of the holder thereof, modify or amend each Option; (vii) to accelerate or defer, with the consent of the Optionee, the exercise date of any Option; (viii) to authorize any person to execute on behalf of the Corporation any instrument required to effectuate the grant of an Option previously granted by the Committee; 3 (ix) with the consent of the Optionee, to reprice, cancel, and regrant, or otherwise adjust the Exercise Price of an Option previously granted by the Committee; and (x) to make all other determinations deemed necessary or advisable for the administration of the Plan. (c) BOARD'S DETERMINATION OF FAIR MARKET VALUE. The Board will have the authority to determine, upon review of relevant information, the Fair Market Value of the Common Stock, subject to the provisions of the Plan and irrespective of whether the Board has appointed a Committee to administer the Plan. The Board may delegate this authority to the Committee. (d) COMMITTEE'S INTERPRETATION OF THE PLAN. The interpretation and construction by the Committee of any provision of the Plan or of any Option granted hereunder will be final and binding on all parties claiming an interest in an Option granted under the Plan. No member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Option. (e) COMMITTEE PROCEDURES. The Committee shall designate one of its members as chairman. The Committee may hold meetings at such times and places as it shall determine. The acts of a majority of the Committee's members present at meetings at which a quorum exists, or acts reduced to or approved in writing by all of the Committee's members, shall be valid acts of the Committee. 4. PARTICIPATION. (a) ELIGIBILITY. The Optionees will be such persons as the Committee may select from among the Employees, provided that Consultants are not eligible to receive Incentive Stock Options. (b) TEN PERCENT SHAREHOLDERS. Any Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Corporation or any Affiliate will not be eligible to receive an Option unless: (i) the Exercise Price of the Shares subject to such Option when granted is at least 110% of the Fair Market Value of such Shares, and (ii) such Option by its terms is not exercisable after the expiration of five years from the date of grant. (c) STOCK OWNERSHIP. For purposes of SECTION 4(b), in determining stock ownership, an Employee will be considered as owning the stock owned, directly or indirectly, by or for his or her brothers and sisters, spouse, ancestors, and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust will be considered as being 4 owned proportionately by or for its shareholders, partners, or beneficiaries, respectively. Stock with respect to which such Employee holds an Option will be counted in the determination of stock ownership for purposes of the above SECTION 4(b). (d) OUTSTANDING STOCK. For purposes of SECTION 4(b), the term "outstanding stock" will include all stock actually issued and outstanding immediately after the grant of the Option to the Optionee but will not include any share for which an Option is exercisable by any person. 5. SHARES. (a) SHARES SUBJECT TO THIS PLAN. The aggregate number of Shares which may be issued upon exercise of Options under the Plan will not exceed One Million Three Hundred Sixty-Seven Thousand Nine Hundred Twenty-Five (1,367,925) shares of Common Stock, subject to adjustment pursuant to SECTION 9. (b) OPTIONS NOT TO EXCEED SHARES AVAILABLE. The number of Shares for which an Option is exercisable at any time will not exceed the number of Shares remaining available for issuance under the Plan. If any Option expires or is terminated, the number of Shares for which such Option was exercisable may be made exercisable pursuant to other Options under the Plan. The limitations established by this SECTION 5(b) will be subject to adjustment in the manner provided in SECTION 9 upon the occurrence of an event specified therein. 6. TERMS AND CONDITIONS OF OPTIONS. (a) STOCK OPTION AGREEMENTS. Options will be evidenced by written stock option agreements between the Optionee and the Corporation in such form as the Committee will from time to time determine. No Option or purported Option will be a valid and binding obligation of the Corporation unless so evidenced in writing. (b) NUMBER OF SHARES. Each stock option agreement will state the number of Shares for which the Option is exercisable and will provide for the adjustment thereof in accordance with SECTION 9. Each stock option agreement will also specify whether the option is a Nonstatutory Stock Option or an Incentive Stock Option. (c) VESTING. An Optionee may not exercise his or her Option for any Shares until the Option, in regard to such Shares, has vested. Each stock option agreement will include a vesting schedule which will show when the Option becomes exercisable, provided each Option will vest at a rate of at least 20% per year over a period of five years with the first 20% becoming exercisable on the first anniversary of the date when the Options were granted. The vesting schedule will not impose upon the Corporation or any Affiliate any obligation to retain the Optionee in its employ or under contract for any period or otherwise change the employment-at-will status of an Optionee who is an Employee. 5 (d) LAPSE OF OPTIONS. Each stock option agreement will state the time or times when the Option covered thereby lapses and becomes unexercisable in part or in full. An Option will lapse on the earliest of the following events (unless otherwise determined by the Committee and reflected in an option agreement): (i) The tenth anniversary of the date of grant of the Option; (ii) The first anniversary of the Optionee's death; (iii) The first anniversary of the date when the Optionee ceases to be an Employee due to Total and Permanent Disability (within the meaning of Section 22(e)(3) of the Code); (iv) On the date provided in SECTION 6(h)(i), unless with respect to a Nonstatutory Stock Option, the Committee otherwise extends such period before the applicable expiration date; (v) On the date provided in SECTION 9 for a transaction described in such section; (vi) The date the Optionee files or has filed against him or her a petition in bankruptcy; or (vii) The expiration date specified in the Optionee's stock option agreement. (e) EXERCISE PRICE. Each stock option agreement will state the Exercise Price for the Shares for which the Option is exercisable. Subject to SECTION 4(b), the Exercise Price of an Incentive Stock Option and a Nonstatutory Stock Option will, when granted, be not less than 100% and 85% of the Fair Market Value of the Shares for which the Option is exercisable, respectively, and not less than the par value of the Shares. (f) MEDIUM AND TIME OF PAYMENT. The Purchase Price will be payable in full in cash upon the exercise of an Option but the Committee may allow the Optionee to pay the Purchase Price: (i) by surrendering Shares, in good form for transfer, owned by the Optionee for more than 12 months and which have a Fair Market Value on the date of exercise equal to the Purchase Price; or (ii) in any combination of such consideration or such other consideration and method of payment for the issuance of Shares to the extent permitted under applicable law as long as the sum of the consideration so paid equals the Purchase Price. 6 The Committee or a stock option agreement may prescribe requirements with respect to the exercise of Options, including the submission by the Optionee of such forms and documents as the Committee may require and the delivery by the Optionee of cash sufficient to satisfy applicable withholding requirements. The Committee may vary the exercise requirements and procedures from time to time to facilitate, for example, the broker-assisted exercise of Options. (g) NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, the Option will be exercisable only by the Optionee or the Optionee's conservator or legal representative and will not be assignable or transferable except pursuant to a qualified domestic relations order as defined by the Code. In the event of the Optionee's death, the Option will not be transferable by the Optionee other than by will or the laws of descent and distribution. (h) TERMINATION OF EMPLOYMENT OTHER THAN BY DEATH OR DISABILITY. (i) If an Optionee ceases to be an Employee for any reason other than his or her death or disability, the Optionee will have the right, subject to the provisions of this SECTION 6, to exercise any Option held by the Optionee for 30 days after his or her termination of employment, but not beyond the otherwise applicable term of the Option and only to the extent that on such date of termination of employment the Optionee's right to exercise such Option had vested. (ii) For purposes of this SECTION 6(h), the employment relationship will be treated as continuing intact while the Optionee is an active employee of the Corporation or any Affiliate, or is on military leave, sick leave, or other bona fide leave of absence to be determined in the sole discretion of the Committee. The preceding sentence notwithstanding, in the case of an Incentive Stock Option, employment will be deemed to terminate on the date that the Optionee ceases active employment with the Corporation or any Affiliate, unless the Optionee's reemployment rights are guaranteed by statute or contract. (i) DEATH OF OPTIONEE. If an Optionee dies while an Employee, or after ceasing to be an Employee but during the period while he or she could have exercised an Option under SECTION 6(h), any Option granted to the Optionee may be exercised, to the extent it had vested at the time of death and subject to the Plan, at any time within 12 months after the Optionee's death, by the executors or administrators of his or her estate or by any person or persons who acquire the Option by will or the laws of descent and distribution, but not beyond the otherwise applicable term of the Option. (j) DISABILITY OF OPTIONEE. If an Optionee ceases to be an Employee due to becoming totally and permanently disabled within the meaning of Section 22(e)(3) of the Code, any Option granted to the Optionee may be exercised to the extent it had vested at the time of cessation and, subject to the Plan, at any time within 12 months after the Optionee's termination of employment, but not beyond the otherwise applicable term of the Option. (k) RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an Optionee, will have no rights as a shareholder of the Corporation with respect to any Shares for which his or her 7 Option is exercisable until the date of the issuance of a stock certificate for such Shares. No adjustment will be made for dividends, ordinary or extraordinary or whether in currency, securities, or other property, distributions, or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in SECTION 9. (l) MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. Within the limitations of the Plan, the Committee may modify, extend or renew outstanding Options or accept the cancellation of outstanding Options for the granting of new Options in substitution therefor. Notwithstanding the preceding sentence, no modification of an Option will, without the consent of the Optionee, alter or impair any rights or obligations under any Option previously granted. (m) RULE 16b-3. Options granted to persons who are subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3 promulgated thereunder and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to the Plan's transactions; provided, however, that this provision shall not apply if, at the time of such option grant, the Plan, as it relates to such grant, is not administered by a Committee consisting solely of Nonemployee Directors. (n) OTHER PROVISIONS. The stock option agreements authorized under the Plan may contain such other provisions which are not inconsistent with the terms of the Plan, including, without limitation, restrictions upon the exercise of the Option, as the Committee will deem advisable. 7. $100,000 PER YEAR LIMITATION ON VESTING OF ISOs. To the extent that the Fair Market Value of Shares (determined for each Share as of the date of grant of the Option covering such Share) subject to Options granted under the Plan (or any other plan of the Corporation or any Affiliate), which are designated as Incentive Stock Options and which become exercisable by an Optionee for the first time during a single calendar year, exceeds $100,000, the Options (or portion thereof) covering such Shares will be recharacterized (to the extent of such excess over $100,000) as a Nonstatutory Stock Option. In determining which Option(s) will be treated as Nonstatutory Stock Options under the preceding sentence, the Options will be taken into account in the order granted, with the result that a later granted Option will be recharacterized as a Nonstatutory Stock Option prior to such recharacterization of a previously granted Option. 8. TERM OF PLAN. Options may be granted pursuant to the Plan until a date no more than ten (10) years from the date when the Plan is adopted or the date when the Plan is approved by the shareholders of the Corporation, whichever is earlier, and all Options which are outstanding on such date will remain in effect until they are exercised or expire by their respective terms. 9. RECAPITALIZATION, TAKEOVERS, AND LIQUIDATIONS. (a) REORGANIZATIONS. The number of Shares covered by the Plan, as provided in SECTION 5, and the number of Shares for which each Option is exercisable will be proportionately 8 adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, a reverse stock split, the payment of a stock dividend, recapitalization, combination or reclassification of the Corporation's stock or any other event which results in an increase or decrease in the number of issued Shares effected without receipt of consideration by the Corporation, and the Exercise Price will be proportionately increased in the event the number of Shares subject to such Option are decreased and will be proportionately decreased in the event the number of Shares subject to such Option are increased. For the purposes of this SECTION 9(a), the conversion of any convertible securities of the Corporation will not be deemed to have been "effected without receipt of consideration." Adjustments will be made by the Board, whose determination in that respect will be final, binding and conclusive. Except as expressly provided in the Plan, no issuance by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, will affect, and no adjustment by reason thereof will be made with respect to, the number or price of Shares subject to an Option. (b) LIQUIDATION. In the event of the dissolution or liquidation of the Corporation, each Option will terminate immediately prior to the consummation of such action. The Committee will notify the Optionee not less than 15 days prior to the proposed consummation of a pending dissolution or liquidation, and such Option will be exercisable as to all Shares which are vested prior to expiration until immediately prior to the consummation of such action. (c) MERGER. In the event of (i) a proposed merger of the Corporation with or into another corporation, as a result of which the Corporation is not the surviving corporation and (ii) the Option is not assumed or an equivalent option substituted by the successor corporation or a parent or subsidiary of the successor corporation, then in such case the Option will terminate immediately prior to the consummation of such transaction. The Committee will notify the Optionee not less than 15 days prior to the proposed consummation of such transaction, and the Option will be exercisable as to all Shares which are vested prior to expiration and until immediately prior to the consummation of such transaction. (d) DETERMINATION BY COMMITTEE. All adjustments described in this SECTION 9 will be made by the Committee, whose determination will be conclusive and binding on all persons. (e) LIMITATION ON RIGHTS OF OPTIONEE. Except as expressly provided in this SECTION 9, no Optionee will have any rights by reason of any payment of any stock dividend, stock split or reverse stock split or any other increase or decrease in the number of shares of stock of any class, or by reason of any reorganization, consolidation, dissolution, liquidation, merger, exchange, split-up or reverse split-up, or spin-off of assets or stock of another corporation. Any issuance by the Corporation of Shares, Options or securities convertible into Shares or Options will not affect, and no adjustment by reason thereof will be made with respect to, the number or Exercise Price of the Shares for which an Option is exercisable. Notwithstanding the foregoing, if the Corporation enters into a transaction affecting the Corporation's capital stock or distributions to the holders of its capital stock for which a revision in the terms of each Option is not required pursuant to this SECTION 9, the Committee will have the right, but not the obligation, to revise the terms of each Option in a manner that the Committee, in its sole discretion, deems fair and reasonable given the 9 transaction involved. If necessary or appropriate in connection with such transaction, the Committee may declare that any Option will terminate as of a date fixed by the Committee and give each Optionee the right to exercise his or her Option in whole or in part, including exercise as to Shares to which the Option would not otherwise be exercisable. (f) NO RESTRICTION ON RIGHTS OF CORPORATION. The grant of an Option will not affect or restrict in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its business or assets. 10. SECURITIES LAW REQUIREMENTS. (a) LEGALITY OF ISSUANCE. No Share will be issued upon the exercise of any Option unless and until the Corporation has determined that: (i) The Corporation and the Optionee have taken all actions required to exempt the issuance of the Shares from the registration requirements under the Securities Act of 1933, as amended (the "ACT"), or the Corporation and the Optionee will determine that the registration requirements of the Act do not apply to such exercise; (ii) Any applicable listing requirement of any stock exchange on which the Common Stock is listed has been satisfied; and (iii) Any other applicable provision of state or Federal law has been satisfied. (b) RESTRICTIONS ON TRANSFER; REPRESENTATIONS OF OPTIONEE; LEGENDS. Regardless of whether the offering and sale of Shares has been registered under the Act or has been registered or qualified under the securities laws of any state, the Corporation may impose restrictions upon the sale, pledge, or other transfer of such Shares, including the placement of appropriate legends on stock certificates, if, in the judgment of the Corporation and its counsel, such restrictions are necessary or desirable in order to achieve compliance with the provisions of the Act, the securities laws of any state, or any other law. If the sale of Shares is not registered under the Act and the Corporation will determine that the registration requirements of the Act apply to such sale, but an exemption is available which requires an investment representation or other representation, the Optionee will be required, as a condition to purchasing Shares by exercise of his or her Option, to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, except in compliance with the Act, and to make such other representations as are deemed necessary or appropriate by the Corporation and its counsel. Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Act applies will bear a restrictive legend substantially in the following form and such other restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law: 10 "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION UNDER THE ACT AND/OR QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR WITHOUT AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED." Any determination by the Corporation and its counsel in connection with any of the matters set forth in this SECTION 10 will be conclusive and binding on all persons. (c) REGISTRATION OR QUALIFICATION OF SECURITIES. The Corporation may, but will not be obligated to, register or qualify the sale of Shares under the Act or any other applicable law. In connection with any such registration or qualification, the Corporation will provide each Optionee with such information required pursuant to all applicable laws and regulations. (d) EXCHANGE OF CERTIFICATES. If, in the opinion of the Corporation and its counsel, any legend placed on a stock certificate representing Shares issued hereunder is no longer required, the Optionee or the holder of such certificate will be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend. 11. EXERCISE OF UNVESTED OPTIONS. The Committee may grant to any Optionee the right to exercise any Option prior to the complete vesting of such Option. Without limiting the generality of the foregoing, the Committee may provide that if an Option is exercised prior to having completely vested, the Shares issued upon such exercise will remain subject to vesting at the same rate as under the Option so exercised and will be subject to a right, but not an obligation, of repurchase by the Corporation with respect to all unvested Shares if the Optionee ceases to be an Employee for any reason. For the purposes of facilitating the enforcement of any such right of repurchase, at the request of the Committee, the Optionee will enter into the Joint Escrow Instructions with the Corporation and deliver every certificate for his or her unvested Shares with a stock power executed in blank by the Optionee and by the Optionee's spouse, if required for transfer. 12. AMENDMENT OF THE PLAN. The Board or the Committee may, from time to time, terminate, suspend or discontinue the Plan, in whole or in part, or revise or amend the Plan in any respect whatsoever including, but not limited to, the adoption of any amendment(s) deemed necessary or advisable to qualify the Options under rules and regulations promulgated by the 11 Securities and Exchange Commission with respect to Employees who are subject to the provisions of Section 16 of the Exchange Act or to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option granted thereunder, without approval of the shareholders of the Corporation, but without the approval of the Corporation's shareholders, no such revision or amendment will: (a) Increase the number of Shares subject to the Plan, other than any increase pursuant to SECTION 9; (b) Materially modify the requirements as to eligibility for participation in the Plan; (c) Materially increase the benefits accruing to Optionees under the Plan; (d) Extend the term of the Plan; or (e) Amend this SECTION 12 to defeat its purpose. No amendment, termination or modification of the Plan will affect any Option theretofore granted in any material adverse way without the consent of the Optionee. 13. APPLICATION OF FUNDS. The proceeds received by the Corporation from the sale of Common Stock pursuant to the exercise of an Option will be used for general corporate purposes. 14. APPROVAL OF SHAREHOLDERS. The Plan will be subject to approval by the affirmative vote of the holders of a majority of all classes of the outstanding shares present and entitled to vote at the first meeting of shareholders of the Corporation following the adoption of the Plan or by written consent, and in no event later than one year following the Effective Date. Prior to such approval, Options may be granted but will not be exercisable. Any amendment described in SECTION 12.(a) to (d) will also be subject to approval by the Corporation's shareholders. 15. WITHHOLDING OF TAXES. In the event the Corporation or an Affiliate determines that it is required to withhold federal, state, or local taxes in connection with the exercise of an Option or the disposition of Shares issued pursuant to the exercise of an Option, the Optionee or any person succeeding to the rights of the Optionee, as a condition to such exercise or disposition, may be required to make arrangements satisfactory to the Corporation or the Affiliate to enable it to satisfy such withholding requirements. Alternatively the Corporation may issue or transfer Shares net of the number of Shares sufficient to satisfy withholding tax requirements. For withholding tax purposes, the Shares will be valued on the date the withholding obligation is incurred. 16. RIGHTS AS AN EMPLOYEE. Neither the Plan nor any Option granted pursuant thereto will be construed to give any person the right to remain in the employ of the Corporation or any Affiliate, or to affect the right of the Corporation or any Affiliate to terminate such individual's 12 employment at any time with or without cause. The grant of an Option will not entitle the Optionee to, or disqualify the Optionee from, participation in the grant of any other Option under the Plan or participation in any other benefit plan maintained by the Corporation or any Affiliate. 17. DISAVOWAL OF REPRESENTATIONS, UNDERTAKINGS, OR CREATION OF IMPLIED RIGHTS. In adopting and maintaining the Plan and granting options hereunder, neither the Corporation nor any Affiliate makes any representations or undertakings with respect to the initial qualification or treatment of Options under federal or state tax or securities laws. The Corporation and each Affiliate expressly disavows the creation of any rights in Employees, Optionees, or beneficiaries of any obligations on the part of the Corporation, any Affiliate or the Committee, except as expressly provided herein. 18. INSPECTION OF RECORDS. Copies of the Plan, records reflecting each Optionee's Option(s), and any other documents and records which an Optionee is entitled by law to inspect will be open to inspection by the Optionee and his or her duly authorized representative at the office of the Committee at any reasonable business hour. 19. INFORMATION TO OPTIONEES. Each Optionee will be provided with such information regarding the Corporation as the Committee from time to time deems necessary or appropriate; provided however, that each Optionee will at all times be provided with such information as is required to be provided from time to time pursuant to applicable regulatory requirements, including, but not limited to, the requirement in Section 260.140.46 of Title 10 of the California Code of Regulations of annual financial statements, or any applicable successor regulation, and any other applicable requirements of the Securities and Exchange Commission, the California Department of Corporations, and other state securities agencies. 20. EXECUTION. To record the adoption of the Plan by the Board effective as of June 17, 1997, the Corporation has caused its authorized officer to execute the same. DAOU SYSTEMS, INC., a Delaware corporation By: /s/DANIEL J. DAOU -------------------------------------- Daniel J. Daou, President 13 -----END PRIVACY-ENHANCED MESSAGE-----