Charter Rev 3.docx

Charter Rev 3.docx

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CharterRev3

Thissampledocumentistheworkproductofacoalitionofattorneyswhospecializeinventurecapitalfinancings,workingundertheauspicesoftheNVCA.SeetheNVCAwebsiteforalistoftheWorkingGroupmembers.Thisdocumentisintendedtoserveasastartingpointonly,andshouldbetailoredtomeetyourspecificrequirements.Thisdocumentshouldnotbeconstruedaslegaladviceforanyparticularfactsorcircumstances.Notethatthissamplepresentsanarrayof（oftenmutuallyexclusive）optionswithrespecttoparticulardealprovisions.

AMENDEDANDRESTATED

CERTIFICATEOFINCORPORATION

PreliminaryNotes

General.

TheCertificateofIncorporationisakeydocumentproducedinconnectionwithaventurecapitalportfolioinvestment.Amongotherthings,theCorporation’sCertificateofIncorporationestablishestherights,preferences,privilegesandrestrictionsofeachclassandseriesoftheCorporation’sstock.

NoImpairmentClause.

Itisnotuncommonforcounseltotheinvestorstoincludea“noimpairment”clauseintheirCertificateofIncorporationdrafts.A“noimpairment”clauseisabroadandgeneralprovisionthatprohibitstheCorporationfromacting（orfailingtoact）inawaythatwouldcircumventtheexpressandspecificprovisionsoftheCertificateofIncorporation.AlthoughDelawarecourtsnarrowlyconstrue“noimpairment”clauses,suchprovisionscanbedangerous,bothtotheCorporationandtothecontrollinginvestors,becausetheycangiverisetoclaimsofviolationbydisgruntledminorityinvestorslookingforsomegroundsonwhichtobaseaclaim,intheabsenceofanyspecificprotectiveprovisionsintheCharter.Inaddition,ifappropriateattentionispaidtothespecific,substantiveprovisionsoftheCertificateofIncorporation,thereisnoneedforavaguecatch-all.Accordingly,thedraftersintentionallydidnotincludea“noimpairment”clauseinthisform.

Pay-to-PlayProvision.

ThisCertificateofIncorporationalsoincludestwoalternative“pay-to-play”provisions,pursuanttowhichPreferredStockinvestorsarepenalizediftheyfailtoinvesttoaspecifiedextentincertainfutureroundsoffinancing.OneoftheprovisionsconvertssomeoralloftheSeriesAPreferredStockheldbynon-participatinginvestorsintoCommonStock.ThealternativeprovisionconvertssomeoralloftheSeriesAPreferredStockheldbynon-participatinginvestorsintoanewseriesofPreferredStock（SeriesA-1PreferredStock）identicaltotheSeriesAPreferredStockbutwithnoanti-dilutionprotectionandnofurtherpay-to-playprovision.

Inordertoeffecttheconversionofnon-participatingSeriesAPreferredStockintoaSeriesA-1PreferredStock,itwillgenerallybenecessarytofileaCertificateofDesignationswiththeDelawareSecretaryofStateauthorizingtheSeriesA-1PreferredStock.TheCertificateofDesignationsmaynoteffectanychangeinthetermsoftheSeriesAPreferred,butrathermayonlylayerthenewseriesontopoftheexistingseries.Hence,forpurposesofeffectingapay-to-playprovisionofthisvariety,wehaveincludedlanguageinthedividendandliquidationsectionsthatcontemplatesthatanewseriesmightbeadded（pursuanttotheblankcheckprovisions）thatisonparitywithorjuniortotheSeriesAPreferredStock.

ChoiceofJurisdiction.

ThisformissetupforaportfoliocompanyincorporatedinDelaware.Delawareisgenerallythepreferredjurisdictionforincorporationofventure-backedcompaniesformanyreasons,including:

1.theDelawareGeneralCorporationLaw（the“DGCL”）isamodern,currentandinternationallyrecognizedandcopiedcorporationstatutewhichisupdatedannuallytotakeintoaccountnewbusinessandcourtdevelopments;

2.Delawareoffersawell-developedbodyofcaselawinterpretingtheDGCL,whichfacilitatescertaintyinbusinessplanning;

3.theDelawareCourtofChanceryisconsideredbymanytobethenation'sleadingbusinesscourt,wherejudgesexpertinbusinesslawmattersdealwithbusinessissuesinanimpartialsetting;and

4.Delawareoffersanefficientanduser-friendlySecretaryofState'sofficepermitting,amongotherthings,promptcertificationoffilingsofcorporatedocuments.

PleasenotethefollowingspecialconsiderationsiftheCorporationislocatedinCalifornia,eventhoughincorporatedinDelaware:

ConsiderationsforCorporationwithCaliforniaOperations.

Section2115oftheCaliforniaCorporationsCodeprovidesthatcertainprovisionsofCaliforniacorporatelawareapplicabletoforeigncorporations（e.g.,oneincorporatedinDelaware）,totheexclusionofthelawofthestateofincorporation,ifmorethanhalfofthecorporation'sshareholdersandmorethanhalfits"business"（adefinedformulabasedonproperty,payrollandsales）arelocatedinCalifornia.Asaresult,somecompaniesbasedinCaliforniamaybesubjecttocertainprovisionsoftheCaliforniacorporatelawdespitebeingincorporatedinanotherstate,suchasDelaware（although,asnotedbelow,itisnotclearthatcourtswillapplySection2115ifthelawofthejurisdictionofincorporationisinconsistentwiththeprovisionsofSection2115）.Section2115doesnotapplytopubliccompanieslistedontheNewYorkStockExchange,theAmericanStockExchange,ortheNASDAQNationalMarket.

OneprovisionoftheCaliforniaCorporationsCodethatappliestosuch"quasi-California"corporationsisSection708,whichrequiresthatshareholdersbepermittedtocumulatevotesintheelectionofdirectors.However,Section2115doesnotrequirecorporationstosetforththisrightintheirarticlesorbylaws,andmostSiliconValleycompaniesthataresubjecttoSection2115donotdoso.UnderDelawarelaw,acorporationmustincludeaprovisioninitsCertificateofIncorporationinordertoallowcumulativevoting（seeSection214oftheDGCL）.Therefore,shouldastockholderchoosetoexerciseitsrighttocumulatevotesunderSections2115and708oftheCaliforniaCorporationsCode,thecorporationmayfinditselfforcedtochoosebetweenviolatingthoseprovisionsifitdeniescumulativevoting,orviolatingSection214oftheDGCLifitallowsit.CurrentCaliforniacaselawenforcesashareholder'srightstocumulatevotesinthissituation,relyingonthelanguageofSection2115statingthatthecitedprovisionsoftheCaliforniaCodeapply"totheexclusionofthelawofthejurisdictioninwhich[thecorporation]isincorporated."SeeWilsonv.Louisiana-PacificResources,Inc.（138Cal.App.3d216（1983））.However,arecentDelawarecase,VantagePointVenturePartners1996v.Examen（Del.2005）,heldthattheprovisionsofSection2115oftheCaliforniaCorporationCode,insofarastheypurporttoregulatewhatstockholdervoteisrequiredtoapproveacorporateaction,areinapplicabletoaDelawarecorporation,regardlessofthecorporation’sCaliforniacontacts.

Anotherprovisionapplicabletosuch"quasi-California"corporationsistherestrictionondistributionstoshareholdersunderSection500ffoftheCaliforniaCorporationsCode.CaliforniaCorporationsCodeSection166defines"distributionstoshareholders"toincludealltransfersofcashorpropertytoshareholderswithoutconsideration,includingdividendspaidtoshareholders（exceptstockdividends）,andtheredemptionsorrepurchasesofstockbyacorporationoritssubsidiary（subjecttocertainexclusions,suchastherepurchaseofstockheldbyemployees）.Theconsequenceofthisbroaddefinitionisthatdividends,stockrepurchases,andstockredemptionsareallsubjecttothesametestsandrestrictions.UnlikeDelawarelaw,whichgenerallypermitscompaniestopaydividendsormakeredemptionsaslongastheCorporationissolventfollowingthetransaction,CalifornialawprohibitssuchpaymentsunlesstheCorporationmeetscertainmechanicaltests（inparticular,thatcurrentassetsequalatleast125%ofcurrentliabilities）.Asaresult,quasi-CaliforniacompaniesmaybeprecludedbyCalifornialawfrommakingarequireddividendorredemptionpayment,eventhoughsuchapaymentwouldbepermissibleunderDelawarelaw.UnderCaliforniaCorporationsCodeSection316（a）

（1）,alsoapplicableto"quasi-California"corporations,directorsareliabletothecorporationforillegaldistributionsiftheyactedwillfullyornegligentlywithrespecttosuchadistribution.

ThelimitationsondirectorandofficerindemnificationunderSection317oftheCaliforniaCorporationsCodearealsoapplicabletoa“quasi-California”corporation.CounselmaywanttotailorindemnificationprovisionstoreflectCalifornialawsothatallpartieshaveconsistentexpectationswithregardtoindemnificationofofficersanddirectors.

Finally,Section1001,1101,Chapter12and13oftheCaliforniaCorporationsCodewouldalsoapplyto“quasi-California”corporations.Thesesectionsdealwithmergers,reorganizations,andassetsales,includingvotingrightsandtheapplicationofCaliforniadissenters’rights.Californiamayrequireclassvotesonsaletransactions,sopartiesshouldconsiderwhetheradditionalvotingagreementsareappropriatetosecureapossibleCommonStockclassvoteinsuchatransaction.Additionally,incontrasttoDelawarelaw,Californialawwillgrantdissenters’rightsinconnectionwiththesaleofassetsinexchangeforstockofanacquiringCorporation.Furthermore,Californialawwillrequireafairnessopinioninconnectionwithcertaininterestedpartytransactions,sothepartiesshouldtakeparticularcareifamerger,reorganizationorassetsaleinvolvesapotentiallyinterestedparty.

AMENDEDANDRESTATED

CERTIFICATEOFINCORPORATION

OF

[_________]

（PursuanttoSections242and245ofthe

GeneralCorporationLawoftheStateofDelaware）

[____________],a