Charter Rev 3.docx

1、Charter Rev 3This sample document is the work product of a coalition of attorneys who specialize in venture capital financings, working under the auspices of the NVCA. See the NVCA website for a list of the Working Group members. This document is intended to serve as a starting point only, and shoul

2、d be tailored to meet your specific requirements. This document should not be construed as legal advice for any particular facts or circumstances. Note that this sample presents an array of (often mutually exclusive) options with respect to particular deal provisions.AMENDED AND RESTATEDCERTIFICATE

3、OF INCORPORATIONPreliminary NotesGeneral. The Certificate of Incorporation is a key document produced in connection with a venture capital portfolio investment. Among other things, the Corporations Certificate of Incorporation establishes the rights, preferences, privileges and restrictions of each

4、class and series of the Corporations stock.No Impairment Clause. It is not uncommon for counsel to the investors to include a “no impairment” clause in their Certificate of Incorporation drafts. A “no impairment” clause is a broad and general provision that prohibits the Corporation from acting (or

5、failing to act) in a way that would circumvent the express and specific provisions of the Certificate of Incorporation. Although Delaware courts narrowly construe “no impairment” clauses, such provisions can be dangerous, both to the Corporation and to the controlling investors, because they can giv

6、e rise to claims of violation by disgruntled minority investors looking for some grounds on which to base a claim, in the absence of any specific protective provisions in the Charter. In addition, if appropriate attention is paid to the specific, substantive provisions of the Certificate of Incorpor

7、ation, there is no need for a vague catch-all. Accordingly, the drafters intentionally did not include a “no impairment” clause in this form. Pay-to-Play Provision. This Certificate of Incorporation also includes two alternative “pay-to-play” provisions, pursuant to which Preferred Stock investors a

8、re penalized if they fail to invest to a specified extent in certain future rounds of financing. One of the provisions converts some or all of the Series A Preferred Stock held by non-participating investors into Common Stock. The alternative provision converts some or all of the Series A Preferred

9、Stock held by non-participating investors into a new series of Preferred Stock (Series A-1 Preferred Stock) identical to the Series A Preferred Stock but with no anti-dilution protection and no further pay-to-play provision. In order to effect the conversion of non-participating Series A Preferred S

10、tock into a Series A-1 Preferred Stock, it will generally be necessary to file a Certificate of Designations with the Delaware Secretary of State authorizing the Series A-1 Preferred Stock. The Certificate of Designations may not effect any change in the terms of the Series A Preferred, but rather m

11、ay only layer the new series on top of the existing series. Hence, for purposes of effecting a pay-to-play provision of this variety, we have included language in the dividend and liquidation sections that contemplates that a new series might be added (pursuant to the blank check provisions) that is

12、 on parity with or junior to the Series A Preferred Stock. Choice of Jurisdiction. This form is set up for a portfolio company incorporated in Delaware. Delaware is generally the preferred jurisdiction for incorporation of venture-backed companies for many reasons, including:1. the Delaware General

13、Corporation Law (the “DGCL”) is a modern, current and internationally recognized and copied corporation statute which is updated annually to take into account new business and court developments;2. Delaware offers a well-developed body of case law interpreting the DGCL, which facilitates certainty i

14、n business planning;3. the Delaware Court of Chancery is considered by many to be the nations leading business court, where judges expert in business law matters deal with business issues in an impartial setting; and4. Delaware offers an efficient and user-friendly Secretary of States office permitt

15、ing, among other things, prompt certification of filings of corporate documents.Please note the following special considerations if the Corporation is located in California, even though incorporated in Delaware:Considerations for Corporation with California Operations.Section 2115 of the California

16、Corporations Code provides that certain provisions of California corporate law are applicable to foreign corporations (e.g., one incorporated in Delaware), to the exclusion of the law of the state of incorporation, if more than half of the corporations shareholders and more than half its business (a

17、 defined formula based on property, payroll and sales) are located in California. As a result, some companies based in California may be subject to certain provisions of the California corporate law despite being incorporated in another state, such as Delaware (although, as noted below, it is not cl

18、ear that courts will apply Section 2115 if the law of the jurisdiction of incorporation is inconsistent with the provisions of Section 2115). Section 2115 does not apply to public companies listed on the New York Stock Exchange, the American Stock Exchange, or the NASDAQ National Market.One provisio

19、n of the California Corporations Code that applies to such quasi-California corporations is Section 708, which requires that shareholders be permitted to cumulate votes in the election of directors. However, Section 2115 does not require corporations to set forth this right in their articles or byla

20、ws, and most Silicon Valley companies that are subject to Section 2115 do not do so. Under Delaware law, a corporation must include a provision in its Certificate of Incorporation in order to allow cumulative voting (see Section 214 of the DGCL). Therefore, should a stockholder choose to exercise it

21、s right to cumulate votes under Sections 2115 and 708 of the California Corporations Code, the corporation may find itself forced to choose between violating those provisions if it denies cumulative voting, or violating Section 214 of the DGCL if it allows it. Current California case law enforces a

22、shareholders rights to cumulate votes in this situation, relying on the language of Section 2115 stating that the cited provisions of the California Code apply to the exclusion of the law of the jurisdiction in which the corporation is incorporated. See Wilson v. Louisiana-Pacific Resources, Inc. (1

23、38 Cal. App. 3d 216 (1983). However, a recent Delaware case, VantagePoint Venture Partners 1996 v. Examen (Del. 2005), held that the provisions of Section 2115 of the California Corporation Code, insofar as they purport to regulate what stockholder vote is required to approve a corporate action, are

24、 inapplicable to a Delaware corporation, regardless of the corporations California contacts.Another provision applicable to such quasi-California corporations is the restriction on distributions to shareholders under Section 500ff of the California Corporations Code. California Corporations Code Sec

25、tion 166 defines distributions to shareholders to include all transfers of cash or property to shareholders without consideration, including dividends paid to shareholders (except stock dividends), and the redemptions or repurchases of stock by a corporation or its subsidiary (subject to certain exc

26、lusions, such as the repurchase of stock held by employees). The consequence of this broad definition is that dividends, stock repurchases, and stock redemptions are all subject to the same tests and restrictions. Unlike Delaware law, which generally permits companies to pay dividends or make redemp

27、tions as long as the Corporation is solvent following the transaction, California law prohibits such payments unless the Corporation meets certain mechanical tests (in particular, that current assets equal at least 125% of current liabilities). As a result, quasi-California companies may be preclude

28、d by California law from making a required dividend or redemption payment, even though such a payment would be permissible under Delaware law. Under California Corporations Code Section 316(a)(1), also applicable to quasi-California corporations, directors are liable to the corporation for illegal d

29、istributions if they acted willfully or negligently with respect to such a distribution. The limitations on director and officer indemnification under Section 317 of the California Corporations Code are also applicable to a “quasi-California” corporation. Counsel may want to tailor indemnification p

30、rovisions to reflect California law so that all parties have consistent expectations with regard to indemnification of officers and directors.Finally, Section 1001, 1101, Chapter 12 and 13 of the California Corporations Code would also apply to “quasi-California” corporations. These sections deal wi

31、th mergers, reorganizations, and asset sales, including voting rights and the application of California dissenters rights. California may require class votes on sale transactions, so parties should consider whether additional voting agreements are appropriate to secure a possible Common Stock class

32、vote in such a transaction. Additionally, in contrast to Delaware law, California law will grant dissenters rights in connection with the sale of assets in exchange for stock of an acquiring Corporation. Furthermore, California law will require a fairness opinion in connection with certain interested party transactions, so the parties should take particular care if a merger, reorganization or asset sale involves a potentially interested party.AMENDED AND RESTATEDCERTIFICATE OF INCORPORATIONOF_(Pursuant to Sections 242 and 245 of theGeneral Corporation Law of the State of Delaware)_, a