U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB/A-2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
Commission File Number: 0-50009
UTAH 87-0285238 ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1280 Bison, Suite B9-596, Newport Beach, CA 92660 ------------------------------------------- ---------- (Address of principal executive Offices) (Zip Code) |
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which to be so registered each class is to be registered N/A N/A ------- ------- |
Securities to be registered under Section 12(g) of the Act:
TABLE OF CONTENTS PART I. Item 1. Description of Business. . . . . . . . . . . . . . . . . . . . .3 Item 2. Plan of Operations . . . . . . . . . . . . . . . . . . . . . . .9 Item 3. Description of Property. . . . . . . . . . . . . . . . . . . . 12 Item 4. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . 12 Item 5. Directors, Executive Officers, Promoters and Control Persons. . . . . . . . . . . . . . . . . . . . . . 14 Item 6. Executive Compensation . . . . . . . . . . . . . . . . . . . . 17 Item 7. Certain Relationships and Related Transactions . . . . . . . . 18 Item 8. Description of Securities. . . . . . . . . . . . . . . . . . . 19 PART II. Item 1. Market Price of and Dividends on the Company's Common Equity and Other Shareholder Matters. . . . . . . . . . 22 Item 2. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 23 Item 3. Changes in and Disagreements with Accountants. . . . . . . . . 23 Item 4. Recent Sales of Unregistered Securities. . . . . . . . . . . . 23 Item 5. Indemnification of Directors and Officers. . . . . . . . . . . 25 PART F/S Index to Financial Statements. . . . . . . . . . . . . . . . . 29 PART III. Item 1. Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . 46 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 47 |
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY OF THE COMPANY
Pacific Health Care Organization, Inc. (the "Company") was incorporated under the laws of the state of Utah on April 17, 1970 under the name Clear Air, Inc. The Company was organized and authorized to pursue any lawful purpose or purposes. The Company amended its Articles of Incorporation on September 26, 2000, to effect a seventy-five for one reverse split, and to change the authorized common stock to 50,000,000 shares, par value of $0.001. The Company later amended its Articles of Incorporation on October 30, 2000, changing its name to Immunoclin International, Inc. Due to complications in the proposed business, the Company again amended its Articles of Incorporation on January 31, 2001, changing its name to Pacific Health Care Organization, Inc. In connection with the January 2001 name change, a new board of directors was put in place and new management was subsequently appointed.
The Company has had limited business operations since the early 1990's, has not generated any significant revenues and was for the last three years has been primarily engaged in searching for business opportunities until 2001 Management believes that the Company has identified a significant opportunity within the Workers' Compensation industry in the State of California.
On February 26, 2001, the Company acquired Medex Healthcare, Inc. ("Medex"), a California corporation organized March 4, 1994, in a share for share exchange in which the Company acquired all of the outstanding shares of Medex in exchange for 6,500,000 shares of the Company. The acquisition of Medex by the Company was accounted for as a reverse acquisition, with Medex being considered the accounting acquirer. Medex had limited operations and was primarily engaged in making application for California State licenses to operate as a Health Care Organization for the three years prior to the acquisition. Medex is now a wholly owned subsidiary of the Company. In addition, the Company formed Workers Compensation Assistance, Inc. ("WCA"), a California corporation on August 14, 2001, which is also a wholly owned subsidiary. WCA does not have any operations to date, and the principal business of the Company is the business of Medex.
INDUSTRY BACKGROUND
The California legislature passed Assembly Bill 110 ("AB 110" or the "bill") in July of 1993 and later deregulated the premiums paid by employers for Workers' Compensation insurance. These two events have given rise to the business of the Company.
AB 110 was a collaboration of efforts from both employers and organizations, such as plaintiffs' attorneys who represent injured workers, in an effort to curtail employers from leaving California due to escalating Workers' Compensation costs. The bill addresses the problem of rising medical costs associated with poor quality care to the injured worker. Two of the major problems with the existing system, as identified by the legislature, were fraud and the lack of a managed care program that allowed control of the quality of medical care of an injured worker beyond thirty days. As a result, the bill created a new health care delivery body to solve the unique medical and legal issues of Workers' Compensation. These new entities are called Health Care Organizations ("HCO"). The HCOs are networks of health care professionals specializing in the treatment of workplace injuries and in back-to-work rehabilitation and training. An HCO does not waive the statutory obligation of companies to either possess workers' compensation insurance or qualify as self- insured.
HCOs were created to appeal to employees, while providing substantial savings to employers. This is accomplished by providing high quality medical care and increasing the length of time employers are involved in the medical care provided to injured workers. The increased length in control is designed to decrease the incidence of fraudulent claims and disability awards and is also based upon the notion that if there is more control over medical treatment there will be more control over costs, and subsequently, more control over getting injured workers back on the job. This increase in control is intended to reduce the costs of claims and thereby reduce workers' compensation premiums.
In addition, the legislature requires that employers who use HCOs give employees a choice of HCOs or managed care physicians for treatment. It is anticipated that this will increase quality and give employees a fair say in their treatment.
Prior to the passing of the bill, premiums paid by employers were fixed by law at a rate that was only dependent upon the occupation of the workers covered under the policy. An additional measure enacted by the California legislature deregulated the premiums paid by employers. This encouraged competition for market share of the Workers' Compensation insurance business. The increased competition initially drove premiums down to levels which were not sustainable. In response, insurers have hiked insurance premiums. Drastically rising premiums are forcing employers to search for alternative Workers' Compensation programs such as the HCOs created by AB 110.
CERTIFICATION PROCESS
All applications for HCO license certification are processed by the California Department of Industrial Relations ("DIR"). The application process is time consuming and requires descriptions of applicant's organization and planned methods of operation.
The applicant for the HCO licence must develop a contracted network of providers for all of the necessary medical services that injured workers may need. This network must be developed to the satisfaction of the DIR. Given the wide range of medical providers needed over a large geographical area, this is a significant undertaking. The network of providers must be under contract with the HCO applicant and be willing to provide the various services in their specialty. All contracts must be approved by the DIR so as to assure the best of care will be provided to the injured worker.
Next, the HCO applicant must develop committees of providers that will ensure the injured worker receives the best of care. This requirement includes the development of Quality Assurance, Utilization, Work Safety, Educational and Grievance committees.
Finally, an HCO applicant must demonstrate to the DIR's satisfaction that it has the resources necessary to manage and administer a large network of providers. To establish the HCO applicant's ability to administer a network, it requires the applicant to furnish the details of its operating system to the DIR in writing.
The Company's wholly owned subsidiary Medex received its first HCO license on March 15, 1997, for its network of primary care providers. Medex later received a second HCO license on October 10, 2000, for its network of primary and specialized care providers.
BUSINESS OF THE COMPANY
The principle business of the Company is that of its wholly owned subsidiary Medex. Medex is in the business of managing and administering Health Care Organizations. As mentioned previously, these HCOs are networks of medical providers established to serve the Workers' Compensation industry. The California legislature mandated that if an employer contracts services from an HCO, the injured workers must be given a choice between at least two HCOs. The Company recognized early on that two HCO certifications are necessary to be competitive. Instead of aligning with a competitor, the Company elected to go through the lengthy application process with the DIR twice and has subsequently received certification to operate two separate HCOs. The Company anticipates this requirement is to be eliminated on January 1, 2004 which may reduce the competitive advantage of having two HCO licenses.
Through the two licenses to operate HCOs, the Company offers the injured worker a choice of enrolling in an HCO with a network managed by primary care providers requiring a referral to specialists or a second HCO where injured workers do not need any prior authorization to be seen and treated by specialists.
The two HCO certifications obtained by the Company cover seven counties in Southern California containing over nine million workers, approximately 52% of the State's workforce. This geographical area has a multi-billion dollar annual medical and indemnity Workers' Compensation cost. The two HCO networks have contracted with over 2,700 providers, 62 hospitals, 200 pharmacies, rehabilitation centers and other ancillary services making the Company's HCOs capable of providing comprehensive medical services throughout this region. The Company is developing these networks and further extending its Workers' Compensation business into a statewide entity.
The Company is currently in discussions with brokers of health insurance and with representatives of larger employers. Based on potential cost savings to employers and the large workforce in the seven counties where the Company is licensed, approximately nine million workers, the Company expects that a significant number of employers will sign contracts with the Company to provide services. The Company expects the amount per enrollee it will charge employers will likely vary based upon factors such as employer history and exposure to risk; for instance a construction company would likely pay more than a payroll service company. In addition, employers who have thousands of enrollees are more likely to get a discount. Because of the relatively new HCO market, and even though the
Company makes every effort to charge a sufficient enrollee fee to cover costs and to make a profit, however, there is no assurance that the Company will always properly evaluate the risks associated with each employer or charge sufficient enrollee fees to cover its operational costs and/or be profitable. The Company carefully analyses each employer prior to quoting an enrollee fee. In the event the Company charges per enrollee fees that are inadequate to cover operational costs, then the Company may not be able to continue business operations.
The Company does not anticipate large capital expenditures. Rather, it has contracted with many medical providers, and therefore, equipment such as x-ray machines are not paid for by the Company. The Company will have fixed costs such as liability insurance and other usual costs of running an office.
PHYSICIANS
The Company strives to select physicians known for excellence and experience in providing Workers' Compensation care. Two of the Company's founders have been active in the southern California medical community for many years, and as a result, the Company has been able to recruit physicians with superlative credentials and reputations.
The Company has also recruited physicians and allied health workers who reflect the ethnic and cultural diversity of California, thus enabling injured workers to readily find a physician who speaks their native tongue. The Company has contracts with over 300 primary care Hispanic physicians, 175 primary care African-American physicians, and many other minority physicians. The Company believes this is a benefit for injured workers and will assist in ensuring a prompt return to the workplace. To date, the Company has contracted with approximately 2,700 physicians.
HCO Committees
The Company has organized seven committees in compliance with AB 110 to provide the best possible care to injured workers. The following briefly describes each committee:
HOSPITALS
The Company has been successful in creating relationships with some of the premier medical centers of Southern California. The relationships established with medical centers are not for access or service as they provide access and service to all. Rather, these relationships are maintained by the Company to provide services to the Company's HCO enrollees.
ANCILLARY SERVICES
The Company has contracted a full range of ancillary services to cover all requirements of the California Department of Corporations and Department of Industrial Relations. This includes interpreter services, ambulances, physical therapy, occupational therapy, pharmacies and much more. The ancillary services are vital to ensure there is a complete network capable of independently providing all care that may be necessary.
COMPETITION
Although the Company is one of the first commercial enterprises capable of offering HCO services, there are new companies that are currently setting up similar services as those being offered by the Company. Many of these competitors may have greater financial, research and marketing experience and resources than the Company, and will represent substantial long-term competition. In California there are currently sixteen certified health care organization licenses (two of which belong to the Company) issued to approximately ten companies. This translates into nine direct competitors, with Comp Partners being the largest.
The Company plans to gain a competitive advantage by marketing itself as a legal medical organization not just a medical company. The Company's CEO and Medical Director are both attorneys. In addition, the Company is the only HCO that owns a network of providers as opposed to leasing a network. The Company believes this is advantageous because they can market a direct relationship with providers rather than relying on third party relationships.
EMPLOYEES
The Company, through its subsidiary, currently has five full time employees and ten part-time employees. In addition, the officers and directors work on a part time, as needed, basis with no commitment for full time employment. Over the next twelve months, the Company anticipates hiring additional employees as needed and as revenues and operations warrant.
REPORTS TO SECURITY HOLDERS
ITEM 2: MANAGEMENTS DISCUSSION & ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
The Company has limited liquidity and capital resources. The Company and it's financial statements have been issued with a going concern opinion. As such, the Company does not currently possess a financial institution source of financing and the Company cannot be certain that it's existing sources of cash will be adequate to meet its liquidity requirements.
The Company's future capital requirements will depend on its ability
to successfully implement its business plan and other factors, including
(i) the ability of the Company to maintain its existing customer base and
to expand its customer base, and (ii) overall financial market conditions
where the Company might seek potential investors.
As of March 31, 2004, the Company had cash on hand of $429,189, compared to $217,556 at March 31, 2003. At December 31, 2003, the Company had cash on hand of $398,352 compared to $201,875 at the December 31, 2002, year end. The increases of $211,633 and $196,477 in cash on hand respectively is due to additional revenue generated from the Company's growing customer base. Because of the conversion of debt to equity, management believes that cash on hand and anticipated revenues will be sufficient to cover operating costs over the next twelve months. Therefore, the Company does not anticipate needing to find other sources of capital at this time. If the Company's revenues, however, are less than anticipated the Company will need to find other sources of capital to continue operations. The Company would then seek additional capital in the form of debt and/or equity. While the Company believes that it is capable of raising additional capital, there is no assurance that the Company will be successful in locating other sources of capital on favorable terms or at all.
RESULTS OF OPERATIONS
Workers' compensation costs in California have continued to remain excessive which has continued to motivate employers to search for ways to control this cost. Due to the high workers' compensation costs, and the Company's marketing efforts, revenues have increased from $244,635 for the quarter ended March 31, 2003 to $430,643 for the same period of 2004. While the Company believes that revenues will continue to increase, it also believes that expenses will correspondingly increase at a similar rate. The expenses incurred in the quarter ended March 31, 2003 totaled $215,587, with $124,603 of said expenses being salaries and wages. For the same period of 2004 expenses increased to $395,711 while salaries and wages increased to $160,280. The additional expenses, including the increase in salaries and wages, were incurred in order to meet the increase in demand for services compared to the previous period.
The Company generated $1,097,930 in revenue for the year ended December 31, 2003, compared to revenue of $653,427 for the same period of 2002. During the year ended December 31, 2003, the Company generated revenue from approximately 51 employers representing approximately 73,700 enrollees compared to ten employers and approximately 13,000 enrollees during the year ended December 31, 2002. The Company realized a net income of $57,973 for the fiscal year ended December 31, 2003, compared to a net loss of $35,262 during fiscal 2002. As revenues increased, however, the expenses incurred in providing HCO services also increased from $689,257 during the year ended December 31, 2002, to $1,040,071 for the same period 2003. The increased revenue and the realization of net income in 2003 is primarily the result of increased demand for HCO services as a result of escalating workers' compensation costs in California. The Company anticipates demand for its service will remain strong through 2004 and therefore management believes revenues and expenses will continue to increase at a similar pace to that of 2003 over the next twelve months.
PLAN OF OPERATIONS
As mentioned previously, the business of the Company is that of its wholly owned subsidiary Medex. Over the next twelve months the Company plans to focus its efforts on increasing enrollment in the Medex HCOs throughout southern California. The Company is currently in discussions with approximately 40 businesses and has distributed marketing packets to over 100 potential customers. The Company will maintain and continue to establish relationships with doctors, nurses and other ancillary services who have experience in the workers' compensation industry. These relationships are vital to the success of the Company as these people and services will help up keep costs down by ensuring proper care.
Due to escalating workers' compensation costs in the State of California and the HCO's ability to assist employers to control and reduce this cost, management believes that additional California employers may contract the services of an HCO. The Company is actively positioning itself to contract as many employers as possible. Any additional employees enrolled will also cause costs and expenses to proportionately increase. The Company has expanded the executive offices and plans to hire additional employees as they are needed to meet any increase in enrollment.
ITEM 3: DESCRIPTION OF PROPERTY
PROPERTY & FACILITIES
The Company's executive offices are located in Newport Beach, California. The Company's subsidiary Medex leases approximately 3,504 square feet of office space in Long Beach, California. Under the terms of the lease Medex is required to pay $6,189.70 per month through February of 2004, $6,307.20 from March of 2004 through February of 2005 and $6,482.40 from March of 2005 through February of 2006. There is no provision in the lease for extension or renewal but the Company anticipates it will be able to renew or secure other office space on similar terms if it is required to do so. The Company does not anticipate needing any additional office space in the next twelve months. If the need arises, the Company believes it will be able to secure additional office space on acceptable terms. The Company does not own or lease any other property.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The term "beneficial owner" refers to both the power of investment and the right to buy and sell shares of PHCO. It also refers to rights of ownership or the right to receive distributions from PHCO and proceeds from the sale of PHCO shares. Since these rights may be held or shared by more than one person, each person who has a beneficial ownership interest in shares is deemed to be the beneficial owners of the same shares because there is shared power of investment or shared rights of ownership.
Type of Amount & Nature of Security Name and Address Beneficial Ownership % of Class --------- ---------------------------- -------------------- ---------- Common Tom Kubota (1) (2) 2,153,931 13.9% 51 Harbor Ridge Drive Newport Beach, CA 92260 Common Nanko Investments (2) 1,702,305 11.0% 51 Harbor Ridge Drive Newport Beach, CA 92260 Common Donald Hellwig (1) 3,000 0% 6266 Morley Avenue Los Angeles, CA 90056 Common Rudy LaRusso (1) 300,000 1.9% 218 Homewood Road Los Angeles, CA 90049 12 |
Common Peter G. Alexakis 1,083,333 7.0% 2001 Santa Monica Blvd Suite 1190W Santa Monica, CA 90404 Common Tom Roush (1) 1,083,333 7.0% 20457 Kesley St Canyon Country, CA 91351 Common Marvin Teitelbaum 1,083,333 7.0% 354 Homewood Road Los Angeles, CA 90049 Common William Rifkin 1,083,333 7.0% 11820 Mayfield Ave #106 Brentwood, CA 90049 Common Janet Zand 1,083,333 7.0% 1505 Rockcliff Road Austin, TX 78796 Common Donald P. Balzano (3) 1,083,335 7.0% 5422 Michelle Drive Torrance, CA 90503 Common Manfred Heeb 1,445,982 9.4% Meierhofstr Point 121 Treisen, Liechtenstein Fl-9495 Common Amafin Trust 1,500,000 9.7% Meierhofstr Point 121 Treisen, Liechtenstein Fl-9495 Common Eurifa Anstalt 900,000 5.8% Meierhofstr Point 121 Treisen, Liechtenstein Fl-9495 Common Auric Stiftung 1,500,000 9.7% PO Box 83 Aeulestrasse 5 Vaduz, Liechtenstein Fl-9490 ------------------------------------------------------------------------------------ All officers and directors 3,540,264 22.9% as a group (4 persons) ==================================================================================== Total Beneficial Ownership 14,307,913 92.7% ------------------------------------------------------------------------------------ |
(1) Officers and/or directors of PHCO.
(2) Tom Kubota is the president of Nanko Investments, Inc., and
therefore shares held by Nanko Investments, Inc., are counted as shares
owned by Tom Kubota.
(3) Mr. Balzano is the CEO of Medex Healthcare, Inc., a wholly owned
subsidiary of the Company.
CHANGE IN CONTROL
To the knowledge of the management, there are no present arrangements or pledges of the Company's securities that may result in a change in control of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth the Company's directors, executive officers, promoters and control persons, their ages, and all offices and positions held within PHCO. Directors are elected for a period of one year and thereafter serve until their successor is duly elected by the stockholders and qualified. Officers and other employees serve at the will of the Board of Directors.
Name Age Position Management Since ---------------- ----- -------------------- ---------------- Tom Kubota 64 President, Director September 2000 Donald Hellwig 62 CFO November 2003 Rudy LaRusso 66 Secretary, Director September 2000 Tom Rousch 47 Director April 2003 |
The following sets forth certain biographical information relating to the Company's Officers and Directors.
Tom Kubota, age 64 . Mr. Kubota has thirty years of experience in the investment banking, securities and corporate finance field. He held the position of Vice President at Drexel Burnham Lambert; at Stem, Frank, Meyer and Fox; and at Cantor Fitzgerald. Mr. Kubota is the president of Nanko Corporation, which specializes in capital formation services for high technology and natural resources companies. He has expertise in counseling emerging public companies and has previously served as a director of both private and public companies. For the last five years, Mr. Kubota has been primarily engaged in running his consulting firm Nanko Investments, Inc.
Donald C. Hellwig, age 62. Mr. Hellwig has been primarily engaged as a self-employed accountant for the last fifteen years working with various businesses and high net worth individuals. Mr. Hellwig received an Associates of Arts in 1961 from Santa Monica City College and a Bachelors of Science degree from UCLA in 1964 in Business Administration with an emphasis in accounting. Prior to being self employed Mr. Hellwig held various positions with several companies such as Chief Accountant at Continental Airlines and the Manager of Accounting at Flying Tiger Lines.
Rudy LaRusso, age 66 . Mr. La Russo graduated from Dartmouth College where he was awarded the Rafer Johnson Award, an annual award presented to a top scholar-athlete. He also attended the Amos Tuck Business School. He served as Vice President of Chanco Medical Industries and subsequently the CEO of Carex International Inc., an operator of convalescent hospitals. For the last five years he has primarily served as President of La Russo & Assoc., Inc., where he directs his consulting firm in investment advice for professional athletes and development stage companies.
Tom Roush, age 47. Mr. Roush graduated from Ohio Wesleyan University in 1978 with a Bachelors of Arts in history and communications. For the last four years Mr. Roush has been principally engaged as an account manager for a software company. Prior to that Mr. Roush served as the CEO of Medex Healthcare, Inc., a wholly owned subsidiary of the Company.
KEY EMPLOYEES/ADVISORS
Donald P Balzano. CEO of Medex Healthcare, Inc. (wholly owned subsidiary of the Company). Mr. Balzano is a graduate of the UCLA School of Law and is a member of the State Bar of California. From 1979 through 1990 he was the president of Western Medical Review and Care Resources, Inc. From 1990 through 1995 he founded Balzano & Associates which focused on medical and legal delivery systems for workers' compensation programs and he held the position of vice president and general counsel for Keenan & Associates where he was responsible for corporate legal activity and for creation of a workers' compensation defense attorney and managed medical care program. From 1996-2001 Mr. Balzano served as the president and CEO of Priority CompNet, a California workers' compensation health care organization. Mr. Balzano has been with the Company since 2001. He has brought a unique combination of legal and medical expertise to the Company.
INVOLVEMENT IN LEGAL PROCEEDINGS
To the knowledge of management, during the past five years, no present or former director, executive officer or person nominated to become a director or an executive officer of the Company:
(1) filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
(2) was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations or other minor offenses);
(3) was the subject of any order, judgement or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting, the following activities;
(i) acting as a future commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, associated person of any of the foregoing, or as an investment advisor, underwriter, broker or dealer in securities, or as an affiliate person, director or employee of any investment company, of engaging in or continuing any conduct or practice in connection with such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;
(4) was the subject of any order, judgement, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described above under this Item, or to be associated with persons engaged in any such activity;
(5) was found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been subsequently reversed, suspended, or vacated;
(6) was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated.
ITEM 6. EXECUTIVE COMPENSATION.
The following chart sets forth the compensation paid by the Company to each Officer and Director and its other most highly compensated executive officers whose total salary and bonus exceeded $100,000.00 for the last two fiscal years, and the planned compensation during the remainder of the current fiscal year. No officer or director had a salary and bonus during the fiscal years ended December 31, 2003, 2002 or 2001 that exceeded $100,000.00 for services rendered in all capacities to the Company.
SUMMARY COMPENSATION TABLE Annual Compensation Long Term Compensation Awards Payouts Other Restr All Name and Annual icted Other Principal Bonus Compen Stock Options LTIP Compen Position Year Salary $ sation Awards /SARs Payout sation ----------- ----- -------- ------- ------- ------- ------- ------- ------- Tom Kubota 2003 $ 3,700 $ -0- $ -0- $ -0- $ -0- $ -0- $ 9,600 (1) President 2002 -0- -0- -0- -0- -0- -0- -0- Director 2001 -0- 23,000 35,000 1,754 -0- -0- -0- (2) Donald Hellwig 2003 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- CFO 2002 -0- -0- -0- -0- -0- -0- -0- 2001 -0- -0- -0- -0- -0- -0- -0- Rudy LaRusso 2003 $ 3,700 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- Secretary 2002 -0- -0- -0- -0- -0- -0- -0- Director 2001 -0- -0- -0- 330 -0- -0- -0- Peter Alexakis 2003 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- Former Director 2002 700 -0- -0- -0- -0- -0- -0- 2001 -0- -0- -0- -0- -0- -0- -0- Donald Balzano 2003 $132,000 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- CEO of Company 2002 104,000 -0- -0- -0- -0- -0- -0- Subsidiary Medex 2001 -0- -0- -0- -0- -0- -0- -0- Doug Hikawa 2003 $100,000 $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- VP of Company 2002 70,000 -0- -0- -0- 50,000 -0- -0- (3) Subsidiary Mexex 2001 -0- -0- -0- -0- -0- -0- -0- |
(1) This amount represent medical insurance premiums.
(2) Tom Kubota provided consulting services to the Company through Nanko Investments, Inc., his private consulting business. This amount represents funds paid by the Company to Nanko Investments, Inc. These services were provided on terms at least as favorable as could have been negotiated with an independent third party.
(3) Doug Hikawa was granted stock options to purchase up to 50,000 shares of restricted common stock in August of 2002 pursuant to the Company's stock option plan. 50% or 25,000 of the options granted vested upon the date of grant and an additional 25% of the options granted vested on the one year anniversary of the grant. The remaining 25% of the options granted will vest on the two year anniversary of the date of grant. The options are exercisable at $.05 per share. None of Mr. Hikawa's options have been exercised to date.
No other compensation has been paid directly or accrued to any other officer or director of the Company to date. The Company has no policy for compensating its directors for attendance at Board of Directors meetings or for other services as directors.
Compensation of officers and directors is determined by the Company's Board of Directors and is not subject to shareholder approval. The Company has no retirement, pension, or benefit plan at the present time, however, the Board of Directors may adopt plans as it deems to be reasonable under the circumstances.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENT
The Company has no employment agreements with its employees or executive officers. In the past three years no executive officer has received any amounts in connection with an executive officer's resignation, retirement, or other termination. No executive officer received any amounts in the last three years in connection with a change in control of the Company or a change in the executive officer's responsibilities after a change in control. Because the Company has no employment agreements in place its business could be adversely affected if certain key employees could not be retained.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Through the end of June 2003, the Company's president allowed the Company to utilize approximately 300 square feet of his office space at no charge. The Company is no longer using this space.
The Company does not anticipate engaging in any additional significant dealings with affiliates. If, however, there are dealings with related parties in the future, the Company will attempt to deal on terms competitive in the market and on the same terms that either party would deal with a third person.
ITEM 8. DESCRIPTION OF SECURITIES
DESCRIPTION OF COMMON STOCK.
The Company is presently authorized to issue 50,000,000 shares of $.001 par value common stock and currently has approximately 15,427,732 shares issued and outstanding as of December 31, 2002. The Company has reserved from its authorized but unissued shares a sufficient number of shares of common stock for issuance of the common stock underlying warrants and options of the Company.
The holders of common stock are entitled to equal dividends and distributions, per share, with respect to the common stock when, as and if declared by the Board of Directors from funds legally available therefor. No holder of any shares of common stock has a pre-emptive right to subscribe for any securities of the Company nor are any common shares subject to redemption or convertible into other securities of the Company. Upon liquidation, dissolution or winding up of the Company, and after payment of creditors and preferred stockholders, if any, the assets will be divided pro-rata on a share-for-share basis among the holders of the shares of common stock. All shares of common stock now outstanding are fully paid, validly issued and non-assessable. Each share of common stock is entitled to one vote with respect to the election of any director or any other matter upon which shareholders are required or permitted to vote. Holders of the Company's common stock do not have cumulative voting rights, so that the holders of more than 50% of the combined shares voting for the election of directors may elect all of the directors, if they choose to do so and, in that event, the holders of the remaining shares will not be able to elect any members to the Board of Directors. The former Medex Healthcare, Inc. (a wholly owned subsidiary of the Company) shareholders, consisting of five individuals, have entered into a Voting Trust Agreement which limits their common stock voting rights from February of 2001 through February of 2004. This Voting Trust Agreement restricts the former Medex Healthcare, Inc., shareholders to electing one director.
WARRANTS
The Company currently has issued approximately 807,964 warrants ("Warrants") comprised of 408,982 A Warrants and 408,982 B Warrants. Each A Warrant represents the right to purchase one share of restricted common stock of the Company at an exercise price of $3.00 per share for a period through August of 2006. Each B Warrant represents the right to purchase one share of restricted common stock of the Company at an exercise price of $6.00 per share also for a period through August of 2006. The exercise price and the number of shares issuable upon exercise of the Warrants are subject to adjustment in certain events such as a dividend on shares of common stock, subdivisions or combinations of the common stock or similar events. The Warrants do not contain provisions protecting against dilution resulting from the issuance or sale of additional shares of common stock for less than the exercise price of the Warrants or the current market price of the Company's securities.
Holders of Warrants may exercise their Warrants for the purchase of shares of restricted common stock of the Company only if the purchase of such shares is exempt from federal registration requirements and qualified for sale, or deemed to be exempt from qualification, under applicable state securities law. Although the Company believes that exercise of Warrants will be exempt from federal registration requirements pursuant to Rule 506 of Regulation D, there is no assurance that valid state qualification/exemption will be available for such exercise, particularly if warrant holders reside in states where the Warrants were not initially offered and sold by the Company. In such event, warrant holders would have no opportunity to exercise the Warrants.
Furthermore, the outstanding Warrants are redeemable or callable, in whole or in part, at the option of the Company, upon not fewer than 30 days notice, at a redemption price equal to $0.01 per Warrant at any time. Although the Company would not normally do so, in the event it calls for redemption of the Warrants at a time when exercise is not possible or is impractical, warrant holders would be compelled to accept the nominal redemption price of $0.01 per warrant. If exercise of the Warrants is qualified or exempt from qualification, and the Company should call for redemption, warrant holders would have a minimum of 30 days in which to decide whether to exercise their Warrants, after which they would have to accept the redemption price.
Holders of Warrants will be entitled to notice in the event of (a) the granting by the Company to all holders of its common stock of rights to purchase any share of capital stock or any other rights or (b) any reclassification of the common stock, any consolidation of the Company with, or merger of the Company into any other entity or merger of any other entity into the Company (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of any outstanding share of common stock), or any sale or transfer of all or substantially all of the assets of the Company.
Except as described above, the holders of the Warrants have no rights as stockholders of the Company, including the right to vote, until they exercise their Warrants.
DESCRIPTION OF STOCK OPTIONS.
The Board of Directors of the Company have adopted the PHCO 2002 Stock Option Plan (the "Plan") allowing the Company to offer key employees, officers, directors, consultants and sales representatives, an opportunity to acquire a proprietary interest in the Company. The various types of incentive awards which may be provided under the Stock Option Plan will enable the Company to respond to changes in compensation practices, tax laws, accounting regulations and the size and diversity of its business. To date the Company has issued approximately 85,000 options pursuant to the Plan. The total number of shares reserved and available for distribution under the Plan is 1,000,000 shares. These shares underlie the options issued by the Company pursuant to the Plan. The option holders will not be protected against dilution if the Company issues additional shares in the future. Neither the options, nor the shares underlying the option have preemptive rights.
In the case of any reclassification, change, consolidation, merger, sale or conveyance of our shares to another corporation, the Company will make adequate provision whereby the registered holder of any outstanding option will have the right thereafter to receive an exercise of the options immediately prior to the reclassification, change, consolidation, merger, sale or conveyance of the Company shares.
Other provisions of the options are set forth below. This information is subject to the provisions of the Plan and the Stock Option Certificates representing the options. The following information is a summary of the PHCO 2002 Stock Option Plan and is qualified by reference to the plan.
1. The shares underlying the Options offered pursuant to the Plan are subject to the same rights and restrictions as other shares.
2. Once an option is granted, it may not be called by the Company.
3. The options may not be sold prior to six months from the date of the grant of the related award without our prior approval.
4. Unless exercised within the time provided for exercise, the options will automatically expire.
5. The exercise price per share purchasable under a stock option shall be determined by the Committee at the time of grant and may not be less that 100% of Fair Market Value of the shares, provided however, that the exercise price of an Incentive Stock Option granted to a 10% Stockholder shall not be less than 110% of the Fair Market Value of the shares.
6. There is no minimum number of shares which must be purchased upon exercise of the option.
7. The option holders, in certain instances, are protected against dilution of their interest represented by the underlying shares upon the occurrence of stock dividends, stock splits, reclassifications and mergers.
TRANSFER AGENT.
The Company's transfer agent and registrar is Pacific Stock Transfer Company, 500 East Warm Springs Road, Suite 240, Las Vegas, Nevada 89119, phone number 702-361-3033.
PART II
Item 1. Market Price of and Dividends on Registrants Common Equity and Other Shareholder Matters.
The Company's shares are currently traded on the Pink Sheets under the symbol "PHCO". The Company plans to apply for a listing on the Over-the- Counter Bulletin Board ("OTCBB") in the next twelve months. The Company currently has 15,427,732 shares outstanding held by approximately 1,080 shareholders. The following table shows the historical bid and ask price data for PHCO:
BID PRICES ASK PRICES HIGH LOW HIGH LOW ------- ------- ------- ------- 2003 First Quarter $.05 $.05 $1.01 $1.01 Second Quarter .05 .05 1.01 1.01 Third Quarter .06 .05 1.01 1.01 Fourth Quarter .16 .06 1.01 1.01 2002 First Quarter .45 .45 1.01 1.01 Second Quarter .45 .15 1.15 1.01 Third Quarter 2.00 1.75 2.25 2.25 Fourth Quarter 1.75 .45 2.25 1.00 |
The above quotations, as provided by the Pink Sheets, LLC., represent prices between dealers and do not include retail markup, markdown or commission. In addition, these quotations do not represent actual transactions.
Approximately 884,214 of the Company's unissued common shares are subject to outstanding options or warrants to purchase, or securities convertible into, common equity of the Company. Of the 15,427,732 outstanding shares of common stock approximately 13,434,944 are restricted common shares of the Company and approximately 154,277 shares are eligible for resale pursuant to Rule 144 every 90 days. The Company has no agreements to register shares on behalf of shareholders currently holding unregistered securities. The Company has not paid, nor declared, any dividends since its inception and does not intend to declare any such dividends in the foreseeable future. The Company's ability to pay dividend is subject to limitations imposed by Utah law. Under Utah law, dividends may be paid to the extent that the corporation's assets exceed it liabilities and it is able to pay its debts as they become due in the usual course of business.
ITEM 2. LEGAL PROCEEDINGS.
A complaint was filed in Orange County Superior Court by plaintiffs Marvin Teitelbaum, a shareholder of the Company, and Peter Alezakis, a shareholder of the Company and former director (collectively "Plaintiffs") on or about April 7, 2004 against the Company's president Tom Kubota, secretary Rudy LaRusso and the Company (collectively "Defendants"). The action seeks cancellation of a stock issuance, an order for Mr. Kubota to pay the Company $150,000 and other damages to be determined based upon allegations that Defendants breached various fiduciary duties. The Company believes that the claims by plaintiffs are without merit. Defendants have retained the services of The Williams Law Firm, PC, of Newport Beach, California, to represent them in this matter and intend to contest the case vigorously.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On or about September 28, 2000, the Company issued 426,667 restricted common shares to Tom Kubota. The shares were not publicly offered. The shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The Company received $32,000 cash for the shares.
On or about January 30, 2001, the Company issued 700,000 common shares to Mid-Mountain Investments, LLC. The shares were not publicly offered. The shares were issued pursuant to an exemption from registration under Rule 504 of Regulation D of the Securities Act of 1933. The Company received $25,000 cash for the shares.
On or about April 5, 2001, the Company issued 50,000 restricted common shares to Ronald L. Poulton in exchange for services. The shares were not publicly offered. The shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The Company received no cash for the shares.
On or about April 5, 2001, the Company issued 1,754,305 restricted common shares to Nanko Investments, Inc., in exchange for services. The shares were not publicly offered. The shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The Company received no cash for the shares.
On or about April 5, 2001, the Company issued 330,000 restricted common shares to Rudy LaRusso in exchange for services. The shares were not publicly offered. The shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The Company received no cash for the shares.
On or about April 5, 2001, the Company issued 6,500,000 restricted common shares to five persons in a share for share exchange pursuant to a reorganization agreement. The shares were not publicly offered. The shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The Company received no cash for the shares.
On or about April 30, 2001, the Company issued 63,000 restricted common shares, A Warrants to purchase an additional 63,000 restricted common shares and B Warrants to purchase an additional 63,000 restricted common shares to five persons pursuant to subscriptions received from a private offering. The shares were not publicly offered. The shares and warrants were issued pursuant to an exemption from registration under Rule 506 of Regulation D of the Securities Act of 1933. The Company received approximately $63,000 cash for the shares.
In August of 2002, the Company issued approximately 845,982 restricted common shares, A Warrants to purchase an additional 345,982 restricted common shares and B Warrants to purchase an additional 345,982 restricted common shares to Manfred Heeb to resolve debt in the amount of $345,982. The shares were not publicly offered. The shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The Company converted outstanding debt in the amount of $345,982 in exchange for the shares and warrants.
In August of 2002, the Company granted options to purchase approximately 85,000 restricted common shares of the Company to four employees. 50% of the options vested upon grant, 25% will vest on the first annual anniversary of the grant date and the remaining 25% will vest on the second annual anniversary of the grant date. The exercise price of the options is $0.05 and they expire five years from the grant date.
In October of 2002, the Company issued approximately 4,500,000 restricted common shares to four entities in exchange for services. The shares were not publicly offered. The shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The Company received no cash for the shares.
The Company has not issued any securities since the fiscal year ended
December 31, 2002. The Company has, however, received a notice of stock
option exercise from Kathie Liboon, an employee of Medex at the time of
notification, and therefore the Company is currently processing this notice
of exercise. The Company expects to issue Laboon 18,750 restricted common
shares in reliance upon an exemption from registration provided under
Section 4(2) of the Securities Act of 1933 as amended. The Company
received $937.50 from the exercise of the stock option.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The statutes, charter provisions, bylaws, contracts or other arrangements under which controlling persons, directors or officers of the registrant are insured or indemnified in any manner against any liability which they may incur in such capacity are as follows:
The Company's Articles of Incorporation and Bylaws limit liability of and indemnify its Officers and Directors to the full extent permitted by the Utah Revised Business Corporation Act ("Utah Act").
Under the Utah Act, a Utah corporation has the authority to indemnify officers and directors:
(1) Except as provided in Subsection (4), a corporation may indemnify an individual made party to a proceeding because he is or was a director, against liability incurred in the proceeding if:
(a) his conduct was in good faith; and
(b) he reasonably believed that his conduct was in, or not opposed to, the corporation's best interests; and
(c) in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful.
(2) A director's conduct with respect to any employee benefit plan for a purpose he reasonably believed to be in or not opposed to the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of Subsection (1)(b).
(3) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct described in this section.
(4) A corporation may not indemnify a director under this section:
(a) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or
(b) in connection with any other proceeding charging that the director derived an improper personal benefit, whether or not involving action in his official capacity, in which proceeding he was adjudged liable on the basis that he derived an improper personal benefit.
(5) Indemnification permitted under this section in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding.
In accordance with the Utah Act indemnification may also be provided as follows:
(1) an officer of the corporation is entitled to mandatory indemnification, and is entitled to apply for court-ordered indemnification, in each case to the extent as a director.
(2) the corporation may indemnify and advance expenses to an officer, employee, fiduciary, or agent of the corporation to the same extent as to a director; and
(3) a corporation may also indemnify and advance expenses to an officer, employee, fiduciary, or agent who is not a director to a greater extent, if not inconsistent with public policy, and if provided for by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract.
PART F/S
PACIFIC HEALTHCARE ORGANIZATION, INC.
Financial Statements
(In U.S. Dollars)
March 31, 2004
(Unaudited)
and
December 31, 2003 and 2002
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . 29 Balance Sheet for March 31, 2004 (Unaudited) December 31, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . 30 Statement of Operations for the Three Months Ended March 31, 2004 (Unaudited) and the Years Ended December 31, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . 32 Statement of Stockholders' Equity from January 1, 2002 to March 31, 2004 (Unaudited). . . . . . . . . . . . . . . . . . . . . 33 Statement of Cash Flows for the Three Months Ended March 31, 2004 (Unaudited) and the Years Ended December 31, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . 34 Notes to the Financial Statements . . . . . . . . . . . . . . . . . 35 |
/Letterhead/
To the Board of Directors
Pacific Healthcare Organization, Inc.
We have audited the accompanying balance sheets of Pacific Healthcare Organization, as of December 31, 2003 and 2002, and the related statements of income, retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards, in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Pacific Healthcare Organization, Inc., as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles, in the United States of America.
/S/ Chisholm, Bierwolf & Nilson, LLC Chisholm, Bierwolf & Nilson, LLC Bountiful, Utah June 21, 2004 |
PACIFIC HEALTHCARE ORGANIZATION, INC.
Balance Sheets
March December December 31, 2004 31, 2003 31, 2002 ------------ ------------ ------------ (Unaudited) Assets Current Assets -------------- Cash & Cash Equivalents $ 429,189 $ 398,352 $ 201,875 Accounts Receivable 129,975 120,734 42,581 Prepaid Expenses 25,455 24,166 9,896 ------------ ------------ ------------ Total Current Assets 584,619 543,252 254,352 Property & Equipment (Note 5) -------------------- Computer Equipment 60,922 55,830 41,927 Furniture & Fixtures 24,766 24,766 7,082 ------------ ------------ ------------ Total Property & Equipment 85,688 80,596 49,009 Less: Accumulated Depreciation (37,702) (32,124) (14,848) ------------ ------------ ------------ Net Property & Equipment 47,986 48,472 34,161 ------------ ------------ ------------ Total Assets $ 632,605 $ 591,724 $ 288,513 ============ ============ ============ |
Continued
PACIFIC HEALTHCARE ORGANIZATION, INC.
Balance Sheets
March December December 31, 2004 31, 2003 31, 2002 ------------ ------------ ------------ (Unaudited) Liabilities & Stockholders' Equity Current Liabilities ------------------- Accounts Payable $ 29,004 $ 16,993 $ 3,600 Accrued Expenses 168,861 139,920 75,514 Unearned Revenue 129,987 165,001 - ------------ ------------ ------------ Total Current Liabilities 327,852 321,914 79,114 Stockholders' Equity (Note 8) -------------------- Preferred Stock; 5,000,000 Shares Authorized at $0.001 Par Value; Zero Shares Issued and Outstanding - - - Common Stock; 50,000,000 Shares Authorized at $0.001 Par Value; 15,427,732, 15,427,732 and 15,408,982 Shares Issued and Outstanding, Respectively 15,428 15,428 15,409 Additional Paid In Capital 449,964 449,964 447,545 Additional Paid In Capital - Warrants 122,694 122,694 122,694 Accumulated (Deficit) (283,333) (318,276) (376,249) ------------ ------------ ------------ Total Stockholders' Equity 304,753 269,810 209,399 ------------ ------------ ------------ Total Liabilities & Stockholders' Equity $ 632,605 $ 591,724 $ 288,513 ============ ============ ============ |
The accompanying notes are an integral part of the financial statements.
PACIFIC HEALTHCARE ORGANIZATION, INC.
Statement of Operations
For the Three Months Ended March 31, 2004 and 2003 and the Years Ended December 31, 2003 and 2002
March March December December 31, 2004 31, 2003 31, 2003 31, 2002 ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) Revenues $ 430,643 $ 244,635 $ 1,097,930 $ 653,427 -------- ------------ ------------ ------------ ------------ Expenses -------- Depreciation 5,578 3,644 17,276 12,639 Consulting Fees 57,462 9,800 84,081 271,968 Salaries & Wages 160,280 124,603 501,109 148,427 Professional Fees 50,996 7,373 84,492 64,725 Insurance 17,331 14,384 74,141 31,678 Employment Enrollment 37,939 18,000 94,200 56,552 General & Administrative 66,125 37,783 184,772 103,268 ------------ ------------ ------------ ------------ Total Expenses 395,711 215,587 1,040,071 689,257 ------------ ------------ ------------ ------------ Income (Loss) from Operations 34,932 29,048 57,859 (35,830) Other Income (Expenses) ----------------------- Interest Income 11 57 114 568 ------------ ------------ ------------ ------------ Total Other Income (Expenses) 11 57 114 568 ------------ ------------ ------------ ------------ Income (Loss) Before Taxes 34,943 29,105 57,973 (35,262) Tax Expense - - - - ------------ ------------ ------------ ------------ Net Income (Loss) $ 34,943 $ 29,105 $ 57,973 $ (35,262) ============ ============ ============ ============ Income (Loss) Per Share ----------------------- Basic $ 0.00 $ 0.00 $ 0.00 $ 0.00 Diluted 0.00 0.00 0.00 0.00 Weighted Average Shares Outstanding ----------------------------------- Basic 15,427,732 15,408,982 15,413,670 11,540,493 Diluted 15,427,732 15,408,982 15,413,670 11,540,493 |
The accompanying notes are an integral part of these financial statements.
PACIFIC HEALTHCARE ORGANIZATION, INC.
Statement of Stockholders' Equity
From January 1, 2002 to March 31, 2004
Accumulated Preferred Stock Common Stock Paid In Earnings Shares Amount Shares Amount Capital (Deficit) -------- ------- ----------- -------- --------- ---------- Balance, January 1, 2002 - $ - 10,063,000 $10,063 $174,803 $(340,987) Conversion of Note Payable at $.70 Per Share - - 345,982 346 241,842 - A Warrants Issued at $.20 Per Warrant; B Warrants at $.10 Per Share - - - - 103,794 - Contributed Capital - - - - 4,800 - Shares Issued for Services at $.01 Per Share - - 500,000 500 4,500 - Shares Issued for Services at $.01 Per Share - - 4,500,000 4,500 40,500 - Net Loss for the Year Ended December 31, 2002 - - - - - (35,262) -------- ------- ----------- -------- --------- ---------- Balance, December 31, 2002 - - 15,408,982 15,409 570,239 (376,249) Exercise of Stock Option at $.05 Per Share - - 18,750 19 919 - Contributed Capital - - - - 1,500 - Net Income for the Year Ended December 31, 2003 - - - - - 57,973 -------- ------- ----------- -------- --------- ---------- Balance, December 31, 2003 - - 15,427,732 15,428 572,658 (318,276) Net Income for the Period Ended March 31, 2004 (Unaudited) - - - - - 34,943 -------- ------- ----------- -------- --------- ---------- Balance, March 31, 2004 (Unaudited) - $ - 15,427,732 $15,428 $572,658 $(283,333) ======== ======= =========== ======== ========= ========== |
The accompanying notes are an integral part of these financial statements.
PACIFIC HEALTHCARE ORGANIZATION, INC.
Statement of Cash Flows
For the Three Months Ended March 31, 2004 and 2004 (Unaudited) and the Years Ended December 31, 2003 and 2002
March March December December 31, 2004 31, 2003 31, 2003 31, 2002 --------- --------- --------- --------- (Unaudited) Cash Flows from Operating Activities ------------------------------------ Net Income (Loss) $ 34,943 $ 29,105 $ 57,973 $(35,262) Adjustments to Reconcile Net Income to Net Cash: Contributed Services - 750 1,500 4,800 Depreciation 5,578 3,644 17,276 12,639 Shares Issued for Services - - - 50,000 Changes in Operating Assets & Liabilities: (Increase) Decrease in Prepaid Expenses (1,289) (4,327) (14,270) (3,722) (Increase) Decrease in Accounts Receivable (9,241) (36,053) (78,153) (42,581) Increase (Decrease) in Accounts Payable 12,011 6,149 13,393 3,600 Increase (Decrease) in Accrued Expenses 28,941 26,380 64,406 75,514 Increase (Decrease) in Unearned Revenue (35,014) - 165,001 - --------- --------- --------- --------- Net Cash Provided by Operating Activities 35,929 25,648 227,126 64,988 Cash Flows from Investing Activities ------------------------------------ Purchase of Computer Equipment (5,092) (9,967) (13,903) (24,726) Purchase of Furniture & Fixtures - - (17,684) (2,523) --------- --------- --------- --------- Net Cash Used by Investing Activities (5,092) (9,967) (31,587) (27,249) Cash Flows from Financing Activities ------------------------------------ Proceeds from Exercise of Stock Option - - 938 - --------- --------- --------- --------- Net Cash Provided by Financing Activities - - 938 - Increase (Decrease) in Cash 30,837 15,681 196,477 37,739 --------- --------- --------- --------- Cash at Beginning of Period 398,352 201,875 201,875 164,136 --------- --------- --------- --------- Cash at End of Period $429,189 $217,556 $398,352 $201,875 ========= ========= ========= ========= Supplemental Cash Flow Information ---------------------------------- Interest $ - $ - $ - $ - Taxes - - - - |
The accompanying notes are an integral part of these financial statements.
PACIFIC HEALTHCARE ORGANIZATION, INC.
Notes to Financial Statements
For the Period January 1, 2004 to March 31, 2004 (Unaudited) and the years ended December 31, 2003 and 2002
Pacific Health Care Organization, Inc., was incorporated under the laws of the state of Utah on April 17, 1970 under the name Clear Air, Inc. On September 25, 2000, the Company changed its name to Pacific Health Care Organization, Inc. On February 26, 2001, the Company acquired Medex Healthcare, Inc. ("Medex"), a California corporation organized March 4, 1994, in a share for share exchange in which the Company acquired all of the outstanding shares of Medex in exchange for 6,500,000 shares of the Company. The acquisition of Medex by the Company was accounted for as a reverse acquisition, and therefore Medex was considered the accounting acquirer. The financial statements, contained herein, are those of Medex Healthcare, Inc., for all periods presented.
Continued
PACIFIC HEALTHCARE ORGANIZATION, INC.
Notes to Financial Statements
For the Period January 1, 2004 to March 31, 2004 (Unaudited) and the years ended December 31, 2003 and 2002
Weighted Income Average (Loss) Shares Per-Share Numerator (Denominator) Amount ------------ ------------ ------------ For the three months ended: March 31, 2004 (unaudited) Basic EPS Income (loss) to common stockholders $ 34,943 15,427,732 $ 0.00 ============ ============ ============ For the year ended December 31 2003: Basic EPS Income (loss) to common stockholders $ 57,973 15,413,670 $ 0.00 ============ ============ ============ For the year ended December 31 2002: Basic EPS Income (loss) to common stockholders $ (35,262) 11,540,493 $ 0.00 ============ ============ ============ |
Continued
PACIFIC HEALTHCARE ORGANIZATION, INC.
Notes to Financial Statements
For the Period January 1, 2004 to March 31, 2004 (Unaudited) and the years ended December 31, 2003 and 2002
The Company utilizes the liability method of accounting of income taxes. Under the liability method, deferred income tax assets and liabilities are provided based on the difference between the financial statements and tax basis of assets and liabilities measured by the currently enacted tax rates in effect for the years in which these differences are expected to reverse. Deferred tax expense or benefit is the result of changes in deferred tax assets and liabilities.
In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION TRANSITION AND DISCLOSURE AN AMENDMENT OF FAS 123. SFAS NO. 148 AMENDS SFAS NO. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock- based employee compensation. This Statement also amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in interim financial information. SFAS No. 148 is effective for annual and interim periods beginning after December 15, 2002. The adoption of the interim disclosure provisions of SFAS No. 148 did not have an impact on the Company's financial position, results of operations or cash flows. The Company is currently evaluating whether to adopt the fair value based method of accounting for stock-based employee compensation in accordance with SFAS No. 148 and its resulting impact on the Company's consolidated financial statements.
Continued
PACIFIC HEALTHCARE ORGANIZATION, INC.
Notes to Financial Statements
For the Period January 1, 2004 to March 31, 2004 (Unaudited) and the years ended December 31, 2003 and 2002
In January 2003, the Emerging Issues Task Force ("EITF") issued EITF Issue No. 00-21, ACCOUNTING FOR REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES. This consensus addresses certain aspects of accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities, specifically, how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. EITF Issue No. 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003, or entities may elect to report the change in accounting as a cumulative-effect adjustment. The adoption of EITF Issue No. 00-21 did not have a material impact on the Company's consolidated financial statements.
In January 2003, the FASB issued Interpretation ("FIN") No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES. Until this interpretation, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN No. 46 requires a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns. FIN No. 46 is effective for reporting periods ending after December 15, 2003. The adoption of FIN No. 46 did not have an impact on the Company's consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 will not have an impact on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS No. 150 changes the accounting guidance for certain financial instruments that, under previous guidance, could be classified as equity or "mezzanine" equity by now requiring those instruments to be reported as liabilities. SFAS No. 150 also requires disclosure relating to the terms of those instruments and settlement alternatives. SFAS No. 150 is generally effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have an impact on the Company's consolidated financial statements.
Continued
PACIFIC HEALTHCARE ORGANIZATION, INC.
Notes to Financial Statements
For the Period January 1, 2004 to March 31, 2004 (Unaudited) and the years ended December 31, 2003 and 2002
Depreciation Accumulated Cost Expense Depreciation -------------------------- -------------------------- -------------------------- March December December March December December March December December Assets 31, 2004 31, 2003 31, 2002 31, 2004 31, 2003 31, 2002 31, 2004 31, 2003 31, 2002 -------- -------- -------- -------- -------- -------- -------- -------- -------- (Unaudited) (Unaudited) (Unaudited) Computer Equipment $60,922 $55,830 $41,927 $ 4,694 $14,447 $11,792 $32,653 $27,959 $13,512 Furniture & Fixtures 24,766 24,766 7,082 885 2,829 847 5,050 4,165 1,336 -------- -------- -------- -------- -------- -------- -------- -------- -------- Totals $85,688 $80,596 $49,009 $5,578 $17,276 $12,639 $37,702 $32,124 $14,848 ======== ======== ======== ======== ======== ======== ======== ======== ======== |
Continued
PACIFIC HEALTHCARE ORGANIZATION, INC.
Notes to Financial Statements
For the Period January 1, 2004 to March 31, 2004 (Unaudited) and the years ended December 31, 2003 and 2002
The Company has incurred losses that can be carried forward to offset future earnings if conditions of the Internal Revenue Codes are met. These losses are as follows:
Year of Loss Amount Expiration Date -------------- --------- ----------------- 2000 $ 44,590 2020 2001 296,397 2021 2002 35,262 2022 2003 - - 2004 - - |
March December December 31, 2004 31, 2003 31, 2002 ----------- ----------- ----------- (Unaudited) Current Tax Asset Value of Net Operating Loss Carryforwards at Current Prevailing Federal Tax Rate $ 85,000 $ 95,483 $ 112,874 Evaluation Allowance (85,000) (95,483) (112,874) ----------- ----------- ----------- Net Tax Asset $ - $ - $ - =========== =========== =========== Current Income Tax Expense $ - $ - $ - Deferred Income Tax Benefit - - - |
The Company has remaining cumulative net operating loss carryforwards at March 31, 2004 of $283,333 to be offset against future earnings.
An amendment to the lease was entered into on January 29, 2003 and commenced March 1, 2003, wherein the rentable square feet increased to 3,504 and the expiration date of the lease extended to February 28, 2006. The monthly lease payments also increased to $4,133 during the early months of the lease, to $6,482 at its expiration. A lease deposit of $6,174 was required prior to signing. The space the Company is leasing is sufficiently large enough to accommodate all of its administrative needs.
Continued
PACIFIC HEALTHCARE ORGANIZATION, INC.
Notes to Financial Statements
For the Period January 1, 2004 to March 31, 2004 (Unaudited) and the years ended December 31, 2003 and 2002
Total Lease Commitments; Year Amount --------- ---------------------------------------- March 31, December 31, December 31, 2004 2003 2002 ------------ ------------ ------------ (Unaudited) 2003 $ - $ - $ 41,543 2004 56,647 75,451 75,451 2005 77,438 77,438 77,438 2006 12,965 12,965 12,965 2007 - - - 2008 - - - ------------ ------------ ------------ Total $ 147,050 $ 165,854 $ 217,397 ============ ============ ============ |
Rent expense for the period ended March 31, 2004 (unaudited) and the years ended December 31, 2003 and 2002 was $18,804, $61,832 and $24,862, respectively.
During the 2002 year, the Company issued 5,000,000 shares of common stock in exchange for consulting services rendered. The cost of services has been charged to operations. Capital stock and related additional paid-in capital have been increase by $5,000 and $45,000 respectively.
During 2003, a shareholder of the Company exercised their stock option in the Company. The Company issued 18,750 shares of common stock at a exercise price of $.05 per share. Common stock and related additional paid-in capital have been increased by $19 and $919, respectively.
Continued
PACIFIC HEALTHCARE ORGANIZATION, INC.
Notes to Financial Statements
For the Period January 1, 2004 to March 31, 2004 (Unaudited) and the years ended December 31, 2003 and 2002
March 31, December 31, December 31, 2004 2003 2002 ------------ ------------ ------------ (Unaudited) Customer A 14% 14% 20% Customer B 13% 14% - |
March 31, December 31, December 31, 2004 2003 2002 ------------ ------------ ------------ (Unaudited) Employment Enrollment Fees $ 125,200 $ 94,200 $ 56,552 Compensated Absences 42,611 27,647 18,962 Other Accruals 1,050 18,073 - ------------ ------------ ------------ Total $ 168,861 $ 139,920 $ 75,514 ============ ============ ============ |
summary of activity follows; 2002 Stock Option Plan Weighted Average Number Exercise of Shares Price ----------- ---------- Outstanding at January 1, 2002 - $ - Granted 85,000 .05 Exercised - - Canceled - - ----------- ---------- Outstanding at December 31, 2002 85,000 .05 ----------- ---------- Granted - - Exercised (18,750) .05 Canceled - - Outstanding at December 31, 2003 66,250 .05 ----------- ---------- Continued 42 |
PACIFIC HEALTHCARE ORGANIZATION, INC.
Notes to Financial Statements
For the Period January 1, 2004 to March 31, 2004 (Unaudited) and the years ended December 31, 2003 and 2002
2002 Stock Option Plan Weighted Average Number Exercise of Shares Price ----------- ---------- Outstanding at January 1, 2004 66,250 $ .05 ----------- ---------- Granted - - Exercised - - Canceled - - ----------- ---------- Exercisable at March 31, 2004(unaudited) 66,250 $ .05 =========== ========== |
In accordance with SFAS 123, "Accounting for Stock-Based Compensation", no option expense was recognized for the period ended March 31, 2004 (unaudited) and the years ended December 31, 2003 and 2002, since the exercise price of the options was equal to, or greater than, the market value of the Company's common stock.
The fair value of the option grant was established at the date of grant using the Black-Sholes option pricing model with the following weighted average assumptions;
March 31, December 31, December 31, 2004 2003 2002 ------------ ------------ ------------ (Unaudited) Risk-free interest rate 3.0% 3.0% 3.0% Dividend yield 0% 0% 0% Volatility 0% 0% 0% Average expected term (years to exercise date) 1/2 1/2 1/2 ------------ ------------ ------------ |
Employee stock options outstanding and exercisable under this plan as of March 31, 2004 (unaudited) and December 31, 2003 are:
Stock Option Plan
Weighted Weighted Average Weighted Range Average Remaining Average of Exercise of Exercise Contractual of Exercise Price Options Price Life (Years) Options Price ------------ ---------- ------------ ------------ ---------- ------------ 2004 $ .05 66,250 $ .05 3.42 66,250 $ .05 2003 .05 66,250 .05 3.58 66,250 .05 2002 .05 85,000 .05 4.58 85,000 .05 |
Continued
PACIFIC HEALTHCARE ORGANIZATION, INC.
Notes to Financial Statements
For the Period January 1, 2004 to March 31, 2004 (Unaudited) and the years ended December 31, 2003 and 2002
The financial statements for the three months ended March 31, 2004 was taken from the books and records of the Company without audit. However, such information reflects all adjustments which are in the opinion of management, necessary to properly reflect the results of the three months ended March 31, 2004, and are of a normal, recurring nature. The information presented is not necessarily indicative of the results from operations expected for the full fiscal year.
PART III
ITEM 1. INDEX AND DESCRIPTION OF EXHIBITS
Exhibit Number Title of Document Location ------- ----------------------------------------- ------------ 3.1 Articles of Incorporation and amendments Incorporated by reference to Form 10-SB filed on September 19, 2002 3.2 Bylaws Attached hereto 4.1 PHCO 2002 Stock Option Plan Incorporated by reference to Form 10-SB filed on September 19, 2002 10.1 HCO Service Agreement Incorporated by reference to Form 10-KSB filed on December 18, 2003 21.1 Subsidiaries of Registrant Incorporated by reference to Form 10-SB filed on September 19, 2002 |
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf, thereunto duly authorized.
PACIFIC HEALTH CARE ORGANIZATION, INC.
Date: July 7, 2004 /S/ Tom Kubota -------------------------------------- Tom Kubota Chief Executive Officer Date: July 7, 2004 /S/ Donald C. Hellwig -------------------------------------- Donald C. Hellwig Chief Financial Officer |
BYLAWS
OF
PACIFIC HEALTH CARE ORGANIZATION, INC.
A Utah Corporation
INDEX TO BYLAWS
OF
PACIFIC HEALTH CARE ORGANIZATION, INC.
Page ARTICLE I - Offices Section 1.01 Business Offices. . . . . . . . . . . . . . . . . . . . . .1 Section 1.02 Principal Office. . . . . . . . . . . . . . . . . . . . . .1 Section 1.03 Registered Office . . . . . . . . . . . . . . . . . . . . .1 ARTICLE II - Shareholders Section 2.01 Annual Meeting. . . . . . . . . . . . . . . . . . . . . . .1 Section 2.02 Special Meetings. . . . . . . . . . . . . . . . . . . . . .2 Section 2.03 Place of Meetings . . . . . . . . . . . . . . . . . . . . .2 Section 2.04 Notice of Meetings. . . . . . . . . . . . . . . . . . . . .2 Section 2.05 Fixing of Record Date . . . . . . . . . . . . . . . . . . .3 Section 2.06 Shareholder List for Meetings . . . . . . . . . . . . . . .4 Section 2.07 Shareholder Quorum and Voting Requirements. . . . . . . . . . . . . . . . . . . . . . . .4 Section 2.08 Increasing Quorum or Voting Requirements. . . . . . . . . . . . . . . . . . . . . . . .5 Section 2.09 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . .5 Section 2.10 Voting of Shares. . . . . . . . . . . . . . . . . . . . . .6 Section 2.11 Corporation's Acceptance of Votes . . . . . . . . . . . . .6 Section 2.12 Action Without a Meeting. . . . . . . . . . . . . . . . . .7 Section 2.13 Meetings by Telecommunication . . . . . . . . . . . . . . .8 Section 2.14 Voting Trusts and Agreements. . . . . . . . . . . . . . . .8 Section 2.15 Voting for Directors. . . . . . . . . . . . . . . . . . . .9 Section 2.16 Maintenance of Records and Shareholder Inspection Rights . . . . . . . . . . . . . . . . . . . . .9 Section 2.17 Financial Statements and Share Information . . . . . . . . . . . . . . . . . . . . . . . 10 Section 2.18 Dissenters' Rights. . . . . . . . . . . . . . . . . . . . 10 Section 2.19 Shares Held by Nominees . . . . . . . . . . . . . . . . . 10 ARTICLE III - Board of Directors Section 3.01 General Powers. . . . . . . . . . . . . . . . . . . . . . 11 Section 3.02 Number, Tenure and Qualifications . . . . . . . . . . . . 11 Section 3.03 Resignation . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.04 Removal . . . . . . . . . . . . . . . . . . . . . . . . . 11 ii |
Section 3.05 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 3.06 Regular Meetings. . . . . . . . . . . . . . . . . . . . . 12 Section 3.07 Special Meetings. . . . . . . . . . . . . . . . . . . . . 12 Section 3.08 Place of Meetings -- Meetings by Telephone . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 3.09 Notice of Meetings. . . . . . . . . . . . . . . . . . . . 13 Section 3.10 Waiver of Notice. . . . . . . . . . . . . . . . . . . . . 13 Section 3.11 Quorum and Manner of Acting . . . . . . . . . . . . . . . 13 Section 3.12 Action Without a Meeting. . . . . . . . . . . . . . . . . 14 Section 3.13 Altering Quorum or Voting Requirements. . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.14 Compensation. . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.15 Committees. . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.16 Standards of Conduct. . . . . . . . . . . . . . . . . . . 15 Section 3.17 Limitation of Liability . . . . . . . . . . . . . . . . . 16 Section 3.18 Liability for Unlawful Distributions. . . . . . . . . . . 16 Section 3.19 Conflicting Interest Transactions . . . . . . . . . . . . 16 ARTICLE IV - Officers Section 4.01 Number and Qualifications . . . . . . . . . . . . . . . . 17 Section 4.02 Appointment and Term of Office. . . . . . . . . . . . . . 17 Section 4.03 Removal and Resignation of Officers . . . . . . . . . . . 17 Section 4.04 Authority and Duties. . . . . . . . . . . . . . . . . . . 17 Section 4.05 Surety Bonds. . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.06 Compensation. . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE V - Standards of Conduct for Officers and Directors Section 5.01 Standards of Conduct. . . . . . . . . . . . . . . . . . . 19 Section 5.02 Reliance on Information and Reports . . . . . . . . . . . 20 Section 5.03 Limitation on Liability . . . . . . . . . . . . . . . . . 20 ARTICLE VI - Indemnification Section 6.01 Indemnification of Directors. . . . . . . . . . . . . . . 20 Section 6.02 Advance Expenses for Directors. . . . . . . . . . . . . . 21 Section 6.03 Indemnification of Officers, Employees, Fiduciaries, and Agents . . . . . . . . . . . . . . . . . 21 Section 6.04 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 6.05 Scope of Indemnification. . . . . . . . . . . . . . . . . 22 Section 6.06 Other Rights and Remedies . . . . . . . . . . . . . . . . 23 Section 6.07 Severability. . . . . . . . . . . . . . . . . . . . . . . 23 iii |
ARTICLE VII - Stock Section 7.01 Issuance of Shares. . . . . . . . . . . . . . . . . . . . 23 Section 7.02 Certificates for Shares; Shares Without Certificates. . . . . . . . . . . . . . . . . . . 23 Section 7.03 Restrictions on Transfer of Shares Permitted . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 7.04 Acquisition of Shares by the Corporation . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE VIII - Amendments to Bylaws Section 8.01 Authority to Amend. . . . . . . . . . . . . . . . . . . . 25 Section 8.02 Bylaw Changing Quorum or Voting Requirement for Shareholders. . . . . . . . . . . . . . . 26 Section 8.03 Bylaw Changing Quorum or Voting Requirement for Directors . . . . . . . . . . . . . . . . 26 ARTICLE IX - Miscellaneous Section 9.01 Corporate Seal. . . . . . . . . . . . . . . . . . . . . . 26 Section 9.02 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 26 |
BYLAWS
OF
PACIFIC HEALTH CARE ORGANIZATION, INC.
ARTICLE I
Offices
SECTION 1.01 BUSINESS OFFICES. The corporation may have such offices, either within or outside Utah, as the Board of Directors may from time to time determine or as the business of the corporation may from time to time require.
SECTION 1.02 PRINCIPAL OFFICE. The principal office of the corporation shall be located at any place either within or outside Utah as may be designated in the most recent document on file with the Utah Department of Commerce, Division of Corporations and Commercial Code (the "Division") providing information regarding the principal office of the corporation. The corporation shall maintain at its principal office a copy of such corporate records as may be required by Section 1601 of the Utah Revised Business Corporation Act ("the "Act") and Section 2.16 of these bylaws.
SECTION 1.03 REGISTERED OFFICE. The registered office of the corporation required by Section 501 of the Act to be maintained in Utah shall be the registered office as originally so designated in the corporation's articles of incorporation or subsequently designated as the corporation's registered office in the most recent document on file with the Division providing such information. The corporation shall maintain a registered agent at the registered office, as required by Section 501 of the Act. The registered office and registered agent may be changed from time to time as provided in Sections 502 and 503 of the Act.
ARTICLE II
Shareholders
SECTION 2.01 ANNUAL MEETING. The annual meeting of shareholders shall be held each year on a date and at a time designated by the Board of Directors. In the absence of such designation, the annual meeting of shareholders shall be held on the second Monday of February in each year at 10:00 a.m. However, if the day fixed for the annual meeting is a legal holiday in Utah, then the meeting shall be held at the same time and place on the next succeeding business day. At the meeting, directors shall be elected and any other proper business may be transacted. If the election of directors shall not be held on the day designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a meeting of the shareholders as soon thereafter as may be convenient. Failure to hold an annual meeting as required by these bylaws shall not affect the validity of any corporate action or work a forfeiture or dissolution of the corporation. (Section 701 of the Act).
SECTION 2.02 SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the Board of Directors, by the Chairman of the Board, by the President of the corporation, by any two directors of the corporation, or by such other officers or persons as may be authorized by these Bylaws to call a special meeting, or by the holders of shares representing at least ten percent (10%) of all of the votes entitled to be cast on any issue proposed to be considered at the meeting, all in accordance with Section 702 of the Act.
SECTION 2.03 PLACE OF MEETINGS. Each annual or special meeting of the shareholders shall be held at such place, either within or outside Utah, as may be designated by the Board of Directors. In the absence of any such designation, meetings shall be held at the principal office of the corporation. (Sections 701 and 702 of the Act)
SECTION 2.04 NOTICE OF MEETINGS.
(a) REQUIRED NOTICE. The corporation shall give notice to shareholders of the date, time, and place of each annual and special meeting of shareholders no fewer than ten (10) nor more than sixty (60) days before the meeting date, in accordance with the requirements of Sections 103 and 705 of the Act. Unless otherwise required by law or the articles of incorporation, the corporation is required to give the notice only to shareholders entitled to vote at the meeting. The notice requirement will be excused under certain circumstances with respect to shareholders whose whereabouts are unknown, as provided in Section 705(5) of the Act.
If the proposed corporate action creates dissenters' rights, the notice must be sent to all shareholders of the corporation as of the applicable record date, whether or not they are entitled to vote at the meeting (Section 1320(1) of the Act).
(b) CONTENTS OF NOTICE. The notice of each special meeting must include a description of the purpose or purposes for which the meeting is called (see Section 702(4) of the Act). Except as provided in this Section 2.04(b), or as otherwise required by the Act, other applicable law, or the articles of incorporation, notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called.
If a purpose of any shareholder meeting is to consider: (1) a proposed
amendment to the articles of incorporation (Section 1003(4) of the Act);
(2) a plan of merger or share exchange (Section 1103(4) of the Act); (3)
the sale, lease, exchange or other disposition of all, or substantially all
of the corporation's property (Section 1202(5) of the Act); (4) the
dissolution of the corporation (Section 1402(4) of the Act); or (5) the
removal of a director (Section 808(4) of the Act), the notice must so state
and be accompanied by a copy or summary of the transaction documents, as
set forth in the above-referenced sections of the Act.
If the proposed corporate action creates dissenters' rights, the notice must state that shareholders are, or may be, entitled to assert dissenters' rights, and must be accompanied by a copy of Part 13 of the Act (see Section 1320(1) of the Act).
(c) ADJOURNED MEETING. If any annual or special meeting of
shareholders is adjourned to a different date, time or place, then subject
to the requirements of the following sentence notice need not be given of
the new date, time and place if the new date, time and place are announced
at the meeting before adjournment. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date for the
adjourned meeting is or must be fixed under Section 707 of the Act and
Section 2.05 of these bylaws, notice of the adjourned meeting must be given
pursuant to the requirements of paragraph 2.04(a) of these bylaws to
shareholders of record entitled to vote at the meeting, as provided in
Section 705(4)(b) of the Act.
(d) WAIVER OF NOTICE. A shareholder may waive notice of any meeting (or any other notice required by the Act, the articles of incorporation or these bylaws) by a writing signed by the shareholder entitled to the notice, which is delivered to the corporation (either before or after the date and time stated in the notice as the date and time when any action will occur), for inclusion in the minutes or filing with the corporation records. A shareholder's attendance at a meeting: (a) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting because of lack of notice or defective notice; and (b) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. (Section 706 of the Act).
Section 2.05 FIXING OF RECORD DATE. For the purpose of determining
shareholders of any voting group entitled to: (i) notice of or to vote at
any meeting of shareholders or any adjournment thereof; (ii) take action
without a meeting; (iii) demand a special meeting; (iv) receive payment of
any distribution or share dividend; or (v) take any other action, the board
of directors may fix in advance a date as the record date (as defined in
Section 102(28) of the Act) for one or more voting groups. As provided in
Section 707(3) of the Act, a record date fixed pursuant to such section may
not be more than 70 days prior to the date on which the particular action
requiring such determination of shareholders is to be taken. If no record
date is otherwise fixed by the board as provided herein, then the record
date for the purposes set forth below shall be the close of business on the
dates indicated:
(a) With respect to a determination of shareholders entitled to notice of and to vote at an annual or special meeting of shareholders, the day before the first notice is delivered to shareholders (see Section 707(2) of the Act);
(b) With respect to a determination of shareholders entitled to demand a special meeting of shareholders pursuant to Section 702(1)(b) of the Act, the later of (i) the earliest date of any of the demands pursuant to which the meeting is called, and (ii) the date that is sixty days prior to the date the first of the written demands pursuant to which the meeting is called is received by the corporation (see Section 702(2) of the Act);
(c) With respect to a determination of shareholders entitled to a
share dividend, the date the board authorizes the share dividend (see
Section 623(3) of the Act);
(d) With respect to a determination of shareholders entitled to take
action without a meeting (pursuant to Section 2.12 of these bylaws and
Section 704 of the Act) or entitled to be given notice of an action so
taken, the date the first shareholder delivers to the corporation a writing
upon which the action is taken (see Section 704(6) of the Act); and
(e) With respect to a determination of shareholders entitled to a distribution (other than one involving a purchase or reacquisition of shares for which no record date is necessary), the date the board of directors authorizes the distribution (see Section 640(2) of the Act).
A determination of shareholders entitled to notice of or to vote at any meeting of shareholders is effective for any adjournment of the meeting unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting (see Section 707(4) of the Act).
Section 2.06 SHAREHOLDER LIST FOR MEETINGS. The officer or agent having charge of the stock transfer books for shares of the corporation shall prepare a list of the names of all shareholders entitled to be given notice of, and to vote at, each meeting of shareholders, in compliance with the requirements of Section 720 of the Act. The list must be arranged by voting group and within each voting group by class or series of shares. The list must be in alphabetical order within each class or series of shares and must show the address of, and the number of shares held by, each shareholder. The shareholder list must be available for inspection by any shareholder, beginning on the earlier of (i) ten days before the meeting for which the list was prepared, or (ii) two business days after notice of the meeting is given, and continuing through the meeting and any adjournments thereof. The list must be available at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting is to be held. A shareholder or a shareholder's agent or attorney is entitled on written demand to the corporation, and subject to the provisions of Sections 720, 602 and 1603 of the Act, to inspect and copy the list during regular business hours, during the period it is available for inspection. The list is to be available at the meeting for which it was prepared, and any shareholder or any shareholder's agent or attorney is entitled to inspect the list at any time during the meeting for any purpose germane to the meeting. The shareholder list is to be maintained in written form or in another form capable of conversion into written form within a reasonable time (see Section 1601(4) of the Act).
Section 2.07 SHAREHOLDER QUORUM AND VOTING REQUIREMENTS. If the articles of incorporation or the Act provides for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group.
Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of such shares exists with respect to that matter. Unless the articles of incorporation, a bylaw adopted pursuant to Section 2.08 hereof, or the Act provide otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that group for action on that matter.
If the articles of incorporation or the Act provides for voting by two or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately. One voting group may vote on a matter even though another voting group entitled to vote on the matter has not voted.
Once a share is represented for any purpose at a meeting, including the purpose of determining that a quorum exists, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of the meeting, unless a new record date is or must be set for the adjourned meeting.
If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action, unless the articles of incorporation, a bylaw adopted pursuant to Section 2.08 hereof, or the Act requires a greater number of affirmative votes. (See Sections 725 and 726 of the Act). Those matters as to which the Act provides for a special voting requirement, typically requiring the vote of a majority of all votes entitled to be cast, or a majority of all voting shares within each voting group which is entitled to vote separately, include certain amendments to the articles of incorporation, mergers, sales of substantially all corporate assets, and dissolution of the corporation.
Section 2.08 INCREASING QUORUM OR VOTING REQUIREMENTS. As specified in
Section 727 of the Act, the articles of incorporation may provide for a
greater quorum or voting requirement for shareholders, or voting groups of
shareholders, than is provided for by the Act. An amendment to the articles
of incorporation that changes or deletes a greater quorum or voting
requirement must meet the same quorum
requirement and be adopted by the same vote and voting groups required to
take action under the quorum and voting requirements then in effect.
Pursuant to Section 1021 of the Act, if authorized by the articles of
incorporation, the shareholders may adopt, amend, or repeal a bylaw that
fixes a greater quorum or voting requirement for shareholders, or voting
groups of shareholders, than is required by the Act. Any such action is
subject to the provisions of Part 7 of the Act. A bylaw that fixes a
greater quorum or voting requirement for shareholders as set forth in the
preceding sentence may not be adopted, amended, or repealed by the board of
directors.
Section 2.09 PROXIES. At all meetings of shareholders, a shareholder may vote in person or by proxy. A shareholder may appoint a proxy by signing an appointment form, either personally or by the shareholder's attorney-in fact, or by any of the other means set forth in Section 722 of the Act. A proxy appointment is valid for eleven months unless a longer period is expressly provided in the appointment form. The effectiveness and revocability of proxy appointments are governed by Section 722 of the Act.
Section 2.10 VOTING OF SHARES. Unless otherwise provided in the articles of incorporation, in Section 721 of the Act, or other applicable law, each outstanding share, regardless of class, is entitled to one vote, and each fractional share is entitled to a corresponding fractional vote, on each matter voted on at a shareholders' meeting. Only shares are entitled to vote.
Except as otherwise provided by specific court order as contemplated by Section 721(2) of the Act, shares of this corporation are not entitled to be voted or to be counted in determining the total number of outstanding shares eligible to be voted if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and this corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation. The prior sentence shall not limit the power of the corporation to vote any shares, including its own shares, held by it in a fiduciary capacity. Redeemable shares are not entitled to be voted after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares.
Section 2.11 CORPORATION'S ACCEPTANCE OF VOTES. If the name signed on a vote, consent, waiver, proxy appointment, or proxy appointment revocation corresponds to the name of a shareholder, the corporation, if acting in good faith, is entitled to accept the vote, consent, waiver, proxy appointment, or proxy appointment revocation and give it effect as the act of the shareholder, as provided in Section 724 of the Act.
If the name signed on a vote, consent, waiver, proxy appointment, or proxy appointment revocation does not correspond to the name of a shareholder, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, proxy appointment, or proxy appointment revocation and give it effect as the act of the shareholder if:
(a) the shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;
(b) the name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment, or proxy appointment revocation;
(c) the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment, or proxy appointment revocation;
(d) the name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, proxy appointment, or proxy appointment revocation;
(e) two or more persons are the shareholder as cotenants or fiduciaries and the name signed purports to be the name of- at least one of the cotenants or fiduciaries and the person signing appears to be acting on behalf of all cotenants or fiduciaries; or
(f) the acceptance of the vote, consent, waiver, proxy appointment, or proxy appointment revocation is otherwise proper under rules established by the corporation that are not inconsistent with the provisions of Section 724 of the Act.
If shares are registered in the names of two or more persons, whether fiduciaries, members of a partnership, cotenants, husband and wife as community property, voting trustees, persons entitled to vote under a shareholder voting agreement or otherwise, or if two or more persons, including proxyholders, have the same fiduciary relationship respecting the same shares, then unless the secretary of the corporation or other officer or agent entitled to tabulate votes is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the effects set forth in Section 724(3) of the Act.
The corporation is entitled to reject a vote, consent, waiver, proxy appointment, or proxy appointment revocation if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder.
The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, proxy appointment, or proxy appointment revocation in good faith and in accordance with the standards of Section 724 of the Act are not liable in damages to the shareholder for the consequences of the acceptance or rejection.
Corporate action based on the acceptance or rejection of a vote, consent, waiver, proxy appointment, or proxy appointment revocation under this section and Section 724 of the Act is valid unless a court of competent jurisdiction determines otherwise.
Section 2.12 ACTION WITHOUT A MEETING. Unless otherwise provided in
the articles of incorporation, and subject to the provisions of Section 704
of the Act, any action required or permitted to be taken at a meeting of
the shareholders may be taken without a meeting and without prior notice,
if one or more consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding shares having no less than
the minimum number of votes that would be necessary to authorize or take
the action at a meeting at which all shares entitled to vote thereon were
present and voted. Unless the written consents of all shareholders
entitled to vote have been obtained, notice of any shareholder approval
without a meeting shall be given at least ten days before the consummation
of the action authorized by the approval. Such notice shall meet the
requirements of, and be delivered to all shareholders identified in,
Section 704(2) of the Act.
Any shareholder giving a written consent, or the shareholder's proxyholder, personal representative or transferee may revoke a consent by a signed writing describing the action and stating that the shareholder's prior consent is revoked, if the writing is received by the corporation prior to the effectiveness of the action, as provided in Section 704(3) of the Act.
An action taken by written consent of the shareholders as provided herein is not effective unless all written consents on which the corporation relies for the taking of the action are received by the corporation within a sixty day period. An action so taken is effective as of the date the last written consent necessary to effect the action is received by the corporation, unless all of the written consents necessary to effect the action specify a later date as the effective date of the action, in which case the later date shall be the effective date of the action.
Unless otherwise provided in these bylaws, the written consents may be received by the corporation by electronically transmitted facsimile or other form of communication providing the corporation with a complete copy thereof, including a copy of the signature thereto.
Notwithstanding the other provisions of this bylaw, directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors.
As set forth in Section 2.05(d) above, if not otherwise determined as permitted by the Act and these bylaws, the record date for determining shareholders entitled to take action without a meeting or entitled to be given notice of any action so taken is the date the first shareholder delivers to the corporation a writing upon which the action is taken.
An action taken by written consent of the shareholders as provided herein has the same effect as action taken at a meeting of shareholders, and may be so described in any document.
SECTION 2.13 MEETINGS BY TELECOMMUNICATION. As permitted by Section 708 of the Act, unless otherwise provided in these bylaws, any or all of the shareholders may participate in an annual or special meeting of shareholders by, or the meeting may be conducted through the use of, any means of communication by which all persons participating in the meeting can hear each other during the meeting. A shareholder participating in a meeting by this means is considered to be present in person at the meeting.
SECTION 2.14 VOTING TRUSTS AND AGREEMENTS. Voting trusts and agreements may be entered into among the shareholders in compliance with the requirements of Sections 730, 731 and 732 of the Act.
SECTION 2.15 VOTING FOR DIRECTORS. Unless otherwise provided in the articles of incorporation or the Act, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present, in accordance with the requirements and procedures set forth in Section 728 of the Act. Cumulative voting is permitted only if specifically provided in the articles of incorporation.
SECTION 2.16 MAINTENANCE OF RECORDS AND SHAREHOLDER INSPECTION RIGHTS.
(a) CORPORATE RECORDS. As required by Section 1601 of the Act, the corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, a record of all actions taken on behalf of the corporation by a committee of the board of directors in place of the board of directors, and a record of all waivers of notices of meetings of shareholders, meetings of the board of directors, or any meetings of committees of the board of directors. The corporation shall also maintain appropriate accounting and shareholder records as required by the statute. The corporation shall keep at its principal office those corporate records and documents identified in Section 1601(5) of the Act and listed in the following paragraph.
(b) INSPECTION RIGHTS OF RECORDS REQUIRED AT PRINCIPAL OFFICE. Pursuant to Section 1602(1) of the Act, a shareholder or director of the corporation (or such person's agent or attorney) who gives the corporation written notice of the demand at least five business days before the proposed inspection date, has the right to inspect and copy, during regular business hours, any of the following records, all of which the corporation is required to keep at its principal office:
(i) its articles of incorporation as then in effect;
(ii) its bylaws as then in effect;
(iii) the minutes of all shareholders' meetings, and records of all actions taken by shareholders without a meeting, for the past three years;
(iv) all written communications within the past three years to shareholders as a group or to the holders of any class or series of shares as a group;
(v) a list of the names and addresses of its current officers and directors;
(vi) its most recent annual report delivered to the Division; and
(vii) all financial statements prepared for periods ending during the last three years that a shareholder could request under Section 1605 of the Act.
(c) CONDITIONAL INSPECTION RIGHTS. In addition to the inspection rights set forth in paragraph (b) above, as provided in Section 1602(2) of the Act, a shareholder or director of the corporation (or such person's agent or attorney) who gives the corporation a written demand in good faith and for a proper purpose at least five business days before the requested inspection date, and describes in the demand with reasonable particularity the records proposed to be inspected and the purpose of the inspection, is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation:
(i) excerpts from minutes of meetings of, and from actions taken by, the shareholders, the board of directors, or any committees of the board of directors, to the extent not subject to inspection under paragraph (b) of this Section 2.16;
(ii) accounting records of the corporation; and
(iii) the record of shareholders (compiled no earlier than the date of the demand for inspection).
For the purposes of paragraph (c), a proper purpose means a purpose reasonably related to the demanding party's interest as a shareholder or director. A party may not use any information obtained through the inspection or copying of records permitted by this paragraph (c) for any purposes other than those set forth in a proper demand as described above, and the officers of the corporation are authorized to take appropriate steps to ensure compliance with this limitation.
SECTION 2.17 FINANCIAL STATEMENTS AND SHARE INFORMATION. Upon the written request of any shareholder, the corporation shall mail to the requesting shareholder:
(i) its most recent annual or quarterly financial statements showing in reasonable detail its assets and liabilities and the results of its operations, as required by Section 1605 of the Act; and
(ii) the information specified by Section 625(3) of the Act, regarding the designations, preferences, limitations, and relative rights applicable to each class and series of shares of the corporation, and the authority of the board of directors to determine variations for any existing or future class or series, as required by Section 1606 of the Act.
SECTION 2.18 DISSENTERS' RIGHTS. Each shareholder of the corporation shall have the right to dissent from, and obtain payment of the fair value of shares held by such shareholder in the event of, any of the corporate actions identified in Section 1302 of the Act or otherwise designated in the articles of incorporation, these bylaws, or in a resolution of the board of directors.
SECTION 2.19 SHARES HELD BY NOMINEES. As provided in Section 723 of the Act, the Board of Directors is authorized to establish for the corporation from time to time such procedures as the directors may determine to be appropriate, by which the beneficial owner of shares that are registered in a nominee is recognized by the corporation as a shareholder.
ARTICLE III
Board of Directors
SECTION 3.01 GENERAL POWERS. As provided in Section 801 of the Act,
all corporate powers shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the
direction of, the board of directors, subject to any limitation set forth
in the articles of incorporation or in a shareholder agreement permitted by
Section 732 of the Act.
SECTION 3.02 NUMBER, TENURE AND QUALIFICATIONS. Unless otherwise specifically provided in the articles of incorporation, and subject to the provisions of Section 803 of the Act, the number of directors of the corporation shall be as fixed from time to time by resolution of the board of directors or shareholders, but in no instance shall there be fewer directors than the minimum number required by Section 803 of the Act. At the time of adoption of these bylaws, the articles of incorporation do include provisions relating to the size and composition of the Company's Board of Directors, and such provisions supersede any inconsistent provisions in these bylaws. As provided in the articles of incorporation, and subject to the limitations set forth therein, the corporation's board of directors currently consists of two (2) members, and may be increased up to a maximum of up to seven (7) members.
Each director shall hold office until the next annual meeting of shareholders (unless the articles of incorporation provide for staggering the terms of directors as permitted by Section 806 of the Act) or until removed. However. a director whose term expires shall continue to serve until such director's successor shall have been elected and qualified or until there is a decrease in the authorized number of directors. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director. Unless required by the articles of incorporation, directors do not need to be residents of Utah or shareholders of the corporation.
If the articles of incorporation authorize dividing the shares into classes or series, the articles of incorporation may also authorize the election of all or a specified number or portion of directors by the holders of one or more authorized classes or series of shares, as provided in Section 804 of the Act.
SECTION 3.03 RESIGNATION. Any director may resign at any time by giving a written notice of resignation to the corporation. A director's resignation is effective when the notice is received by the corporation, or on such later date as may be specified in the notice of resignation. (Section 807 of the Act).
SECTION 3.04 REMOVAL. The shareholders may remove one or more directors at a meeting called for that purpose, as contemplated by Section 808 of the Act, if the meeting notice states that a purpose of the meeting is such removal. The removal may be with or without cause unless the articles of incorporation provide that directors may be removed only for cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove the director. If the articles of incorporation provide for cumulative voting for the election of directors, a director may not be removed if a number of votes sufficient to elect the director under such cumulative voting is voted against removal. If cumulative voting is not in effect, a director may be removed only if the number of votes cast to remove the director exceeds the number of votes cast against removal.
SECTION 3.05 VACANCIES. Unless the articles of incorporation provide
otherwise, if a vacancy occurs on the board of directors, including a
vacancy resulting from an increase in the number of directors, the vacancy
may be filled by the shareholders or the board of directors (as provided in
Section 810 of the Act).
If the vacant office was held by a director elected by a voting group of shareholders, only the holders of the shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders.
A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date or otherwise) may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs.
The terms of directors elected to fill vacancies generally expire at the next annual shareholders' meeting. If a new director is elected to fill a vacancy in a position having a term extending beyond the date of the next annual meeting of shareholders, the term of such new director is governed by Section 805(4) of the Act.
SECTION 3.06 REGULAR MEETINGS. Regular meetings of the board of directors may be held without notice of the date, time, place or purposes of the meetings, if the times of such meetings are fixed by resolution of the board of directors. (Section 820 of the Act)
SECTION 3.07 SPECIAL MEETINGS. Special meetings of the board of
directors may be called by or at the request of the president or any two
directors. The person or persons authorized to call special meetings of the
board of directors may fix the time and place of the meetings so called.
(Section 820 of the Act)
SECTION 3.08 PLACE OF MEETINGS -- MEETINGS BY TELEPHONE. The board of directors may hold regular or special meetings in or out of the State of Utah. Unless the articles of incorporation or bylaws provide otherwise, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may hear each other during the meeting (Section 820(2) of the Act).
SECTION 3.09 NOTICE OF MEETINGS. Unless the articles of incorporation, bylaws, or the Act provide otherwise, regular meetings of the board may be held without notice of the date, time, place, or purposes of the meeting. Unless the articles of incorporation or bylaws provide for a longer or shorter period, special meetings of the board of directors must be preceded by at two days' notice of the of the date, time, and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the articles of incorporation, bylaws, or the Act. (Section 822 of the Act)
The giving of notice of any meeting, shall be governed by the rules set forth in Section 103 of the Act.
SECTION 3.10 WAIVER OF NOTICE. Any director may waive notice of any meeting before or after the date of the meeting, as provided in Section 823 of the Act. Except as provided in the next sentence, the waiver must be in writing, signed by the director entitled to the notice, and delivered to the corporation for filing with the corporate records (but delivery and filing are not conditions to its effectiveness). A director's attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting, or promptly upon the director's arrival, objects to holding the meeting or transacting business at the meeting because of lack of notice or defective notice, and does not thereafter vote for or assent to action taken at the meeting.
SECTION 3.11 QUORUM AND MANNER OF ACTING. As set forth in Section 824 of the Act, unless the articles of incorporation or these bylaws establish a different quorum requirement, a quorum of the board of directors consists of a majority of the number of directors fixed or prescribed in accordance with these bylaws, except that if a variable-range board is permitted by these bylaws and no resolution prescribing the exact number within the permitted range is in effect, then a quorum consists of a majority of the number of directors in office immediately before the meeting. The articles of incorporation or bylaws may authorize a quorum of the board of directors to consist of no fewer than one-third of the fixed or prescribed number of directors. Any adjustment of the then applicable quorum requirement is subject to the provisions of Section 1022 of the Act and Section 3.13 of these bylaws.
The affirmative vote of a majority of directors present at a meeting at which a quorum is present when the vote is taken shall be the act of the board of directors, unless the articles of incorporation, bylaws, or the Act require the vote of a greater vote of directors. Any action to change the percentage of directors needed to take action is subject to the provisions of Section 1022 of the Act and Section 3.13 of these bylaws.
As set forth in Section 824(4) of the Act, a director who is present at a meeting of the board of directors when corporate action is taken is considered to have assented to the action taken at the meeting unless:
(i) the director objects at the beginning of the meeting (or promptly upon arrival) to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to any action taken at the meeting;
(ii) the director contemporaneously requests that such directors dissent or abstention as to any specific action be entered into the minutes of the meeting; or
(iii) the director causes written notice of a dissent or abstention as to any specific action to be received by the presiding officer of the meeting before adjournment of the meeting or by the corporation promptly after adjournment of the meeting. The right of dissent or abstention as to a specific action is not available to a director who votes in favor of the action taken.
SECTION 3.12 ACTION WITHOUT A MEETING. Unless the articles of incorporation, these bylaws or the Act provide otherwise, any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if all the directors consent in writing to the action as permitted by Section 821 of the Act. Action is considered to have been taken by such written consents when the last director signs a writing describing the action taken, unless prior to that time any director has revoked a consent by a writing signed by the director and received by an authorized officer of the corporation. An action so taken is effective at the time it is taken, unless the board of directors establishes a different effective date. An action taken by written consent of the directors as described in this section has the same effect as action taken at a meeting of directors and may be described as such in any document.
SECTION 3.13 ALTERING QUORUM OR VOTING REQUIREMENTS. As provided in
Section 1022 of the Act, a bylaw that fixes a greater quorum or voting
requirement for the board of directors than is required by the Act may be
amended or repealed:
(i) if originally adopted by the shareholders, only by the shareholders, unless the bylaw specifically provided that it could be amended by a vote of either the shareholders or the board of directors; or
(ii) if originally adopted by the board of directors, by the shareholders or, unless otherwise provided in the articles of incorporation or bylaws, by the board of directors.
Action by the board of directors to amend or repeal a bylaw that changes the quorum or voting requirement for the board of directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
SECTION 3.14 COMPENSATION. Unless otherwise provided in the articles of incorporation or these bylaws, the board of directors may fix the compensation of directors, as permitted by Section 811 of the Act. Pursuant to this authority, the directors may, by resolution, provide for directors to be paid their expenses, if any, of attendance at each meeting of the board of directors, and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the board of directors or both. No such payment shall preclude any director from serving the corporation in any capacity and receiving compensation therefor.
SECTION 3.15 COMMITTEES.
(a) CREATION OF COMMITTEES. Unless the articles of incorporation or these bylaws provide otherwise, a board of directors may create one or more committees and appoint members of the board of directors to serve on them. Each committee must have one or more members, who serve at the pleasure of the board of directors (Section 825 of the Act).
(b) SELECTION OF COMMITTEE MEMBERS. The creation of a committee and appointment of members to it must be approved by the greater of:
(i) a majority of all the directors in office when the action is taken; or
(ii) the number of directors required by the articles of incorporation or bylaws to take action under Section 824 of the Act and Section 3.11 (including paragraph 3.11(b)) of these bylaws.
(c) REQUIRED PROCEDURES. Sections 820 and 824 of the Act, and Sections 3.06 through 3.11 of these bylaws (but not the special voting and quorum requirements established by paragraph 3.11(b) of these bylaws), which govern meetings, action without meeting, notice, waiver of notice, and quorum and voting requirements of the board of directors, apply to committees and their members as well. Any resolutions adopted by the board of directors in connection with the creation of any committee may establish additional quorum and voting requirements applicable to such committee, including provisions to ensure representation of each of the corporation's investor groups at each meeting of such committee.
(d) AUTHORITY. Unless limited by the articles of incorporation or these bylaws, each committee may exercise those aspects of the authority of the board of directors (as set forth in Section 801 of the Act and Section 3.01 of these bylaws) which the board of directors confers upon such committee in the resolution creating the committee.
(e) IMPACT ON DUTY OF DIRECTORS. The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct described in Section 840 of the Act and referenced in Section 3.16 of these bylaws.
SECTION 3.16 STANDARDS OF CONDUCT. Each director is to discharge such director's duties as a director, including duties as a member of a committee, in compliance with the standards of conduct set forth in Section 840 of the Act and described in Article V of these bylaws.
SECTION 3.17 LIMITATION OF LIABILITY. If not already so provided in the articles of incorporation of this corporation, the corporation, as provided in Section 841 of the Act, may eliminate or limit the liability of directors to the corporation or to its shareholders for monetary damages for any action taken or any failure to take action as a director, by an amendment to its articles of incorporation, or by the adoption of a bylaw or resolution approved by the same percentage of shareholders as would be required to approve an amendment to the articles of incorporation to include such provision. No such provision may eliminate or limit the liability of a director for:
(i) the amount of a financial benefit received by a director to which the director is not entitled;
(ii) an intentional infliction of harm on the corporation or the shareholders;
(iii) an unlawful distribution in violation of the standards set forth in Section 824 of the Act as referenced in Section 3.18 of these bylaws;
(iv) an intentional violation of criminal law; or
(v) liability for any act or omission occurring prior to the date such a provision becomes effective.
SECTION 3.18 LIABILITY FOR UNLAWFUL DISTRIBUTIONS. A director who votes for or assents to a distribution made in violation of the requirements of Section 640 of the Act or the articles of incorporation, and who does not discharge such duties in compliance with the standards of conduct set forth in Section 840 of the Act and referenced in Sections 3.16 and 5.01 of these bylaws, is personally liable to the corporation for the amount by which the distribution exceeds the amount that could have been properly distributed, as provided in Section 842 of the Act.
SECTION 3.19 CONFLICTING INTEREST TRANSACTIONS. Transactions in which a director has a conflicting interest will be handled in accordance with Sections 850 to 853 of the Act. In accordance with such sections, each director's conflicting interest transaction as defined therein, which has not otherwise been established to be fair to the corporation, is to be is to be presented to the shareholders for approval in accordance with Section 853 of the Act, or approved by the directors in compliance with the requirements of Section 822 of the Act.
Directors may take action with respect to a director's conflicting interest transaction by the affirmative vote of a majority of those "qualified directors" (defined in Section 850 of the Act as essentially those directors without conflicting interests with respect to the transaction) on the board of directors or on a duly empowered and constituted committee of the board who voted on the transaction after receipt of the required disclosures (as defined in Sections 850 and 852(2) of the Act). For purposes of such action, a majority of the qualified directors on the board or on the committee, as the case may be, constitutes a quorum. Such action is not affected by the presence or vote of a director who is not a qualified director.
ARTICLE IV
Officers
SECTION 4.01 NUMBER AND QUALIFICATIONS. The officers of the corporation shall be a president, a secretary, a treasurer, each of whom shall be appointed by the board of directors. The corporation may also have such other officers and assistant officers as the board of directors in its discretion may determine, by resolution, to be appropriate, including a chairman of the board, one or more vice-presidents, a controller, assistant secretaries and assistant treasurers. All such officers shall be appointed by the board of directors, except that if specifically authorized by the board of directors, an officer may appoint one or more officers or assistant officers (see Section 830 of the Act). The same individual may simultaneously hold more than one office in the corporation.
SECTION 4.02 APPOINTMENT AND TERM OF OFFICE. The officers of the corporation shall be appointed by the board of directors (or, to the extent permitted by Section 4.01 above, by an officer specifically authorized by the board to make such appointments), for such terms as may be determined by the board of directors. Neither the appointment of an officer nor the designation of a specified term creates or grants to the officer any contract rights, and the board can remove the officer at any time prior to the termination of any term for which the officer may have been appointed. If no other term is specified, officers shall hold office until they resign, die, or until they are removed or replaced in the manner provided in Section 4.03 below, or Section 832 of the Act.
SECTION 4.03 REMOVAL AND RESIGNATION OF OFFICERS. Any officer or agent of the corporation may be removed or replaced by the board of directors at any time with or without cause, as permitted by Section 832 of the Act. The Chief Financial Officer may also be removed by the Chief Executive Officer, or Co-Chairmen of the Board of Directors. The election of a replacement officer shall constitute the removal of the person previously holding such office. An officer may resign at any time by giving written notice of the resignation to the corporation. Resignations shall become effective as provided in Section 832 of the Act. An officer's resignation or removal does not affect the contract rights of the parties, if any (See Section 833 of the Act).
SECTION 4.04 AUTHORITY AND DUTIES. The officers of the corporation shall have the authority and perform the duties specified below and as may be additionally specified by the president, the board of directors or these bylaws (and in all cases where the duties of any officer are not prescribed by the bylaws or by the board of directors, such officer shall follow the orders and instructions of the president), except that in any event each officer shall exercise such powers and perform such duties as may be required by law:
(a) PRESIDENT. The president shall, subject to the direction and supervision of the board of directors,
(i) be the chief executive officer of the corporation and have
general and active control of its affairs and business and general
supervision of its officers, agents and employees; (ii) unless there
is a chairman of the board, preside at all meetings of the
shareholders and the board of directors; (iii) see that all orders and
resolutions of the board of directors are carried into effect; and
(iv) perform all other duties incident to the office of president and
as from time to time may be assigned to the president by the board of
directors. The president may sign, with the secretary or any other
proper officer of the corporation authorized to take such action,
certificates for shares of the corporation. The president may also
sign, subject to such restrictions and limitations as may be imposed
from time to time by the board of directors, deeds, mortgages, bonds,
contracts or other instruments which have been duly approved for
execution.
(b) VICE-PRESIDENTS. The vice-president, if any (or if there is more than one then each vice-president), shall assist the president and shall perform such duties as may be assigned by the president or by the board of directors. The vice-president, if there is one (or if there is more than one then the vice-president designated by the board of directors, or if there be no such designation then the vice-presidents in order of their election), shall, at the request of the president, or in the event of the president's absence or inability or refusal to act, perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president. Any vice-president may sign, with the secretary or an assistant secretary, certificates for shares of the corporation the issuance of which have been authorized by resolution of the board of directors. Vice-presidents shall perform such other duties as from time to time may be assigned to them by the president or by the board of directors. Assistant vice-presidents, if any, shall have such powers and perform such duties as may be assigned to them by the president or by the board of directors.
(c) SECRETARY. The secretary shall: (i) have responsibility for the
preparation and maintenance of minutes of the proceedings of the
shareholders and of the board of directors; (ii) have responsibility for
the preparation and maintenance of the other records and information
required to be kept by the corporation under Section 1601 of the Act and
Section 2.17 of these bylaws; (iii) see that all notices are duly given in
accordance with the provisions of these bylaws or as required by the Act or
other applicable law; (iv) be custodian of the corporate records and of any
seal of the corporation; (v) when requested or required, authenticate any
records of the corporation; (vi) keep a register of the post office address
of each shareholder which shall be furnished to the secretary by such
shareholder; (vii) sign with the president, or a vice-president,
certificates for shares of the corporation, the issuance of which shall
have been authorized by resolution of the board of directors; (viii) have
general charge of the stock transfer books of the corporation, unless the
corporation has a transfer agent; and (ix) in general perform all duties
incident to the office of secretary, including those identified in the Act,
and such other duties as from time to time may be assigned to the secretary
by the president or the board of directors. Assistant secretaries, if any,
shall have the same duties and powers, subject to supervision by the
secretary.
(d) TREASURER. The treasurer shall: (i) be the principal financial officer of the corporation and have responsibility for the care and custody of all its funds, securities, evidences of indebtedness and other personal property and deposit and handle the same in accordance with instructions of the board of directors; (ii) receive and give receipts and acquittances for moneys paid in on account of the corporation, and pay out of funds on hand all bills, payrolls and other just debts of the corporation of whatever nature upon maturity; (iii) unless there is a controller, be the principal accounting officer of the corporation and as such prescribe and maintain the methods and systems of accounting to be followed, keep complete books and records of account, prepare and file all local, state and federal tax returns, prescribe and maintain an adequate system of internal audit and prepare and furnish to the president and the board of directors statements of account showing the financial position of the corporation and the results of its operations; (iv) upon request of the board, make such reports to it as may be required at any time; and (v) perform all other duties incident to the office of treasurer and such other duties as from time to time may be assigned by the board of directors or the president. Assistant treasurers, if any, shall have the same powers and duties, subject to supervision by the treasurer.
SECTION 4.05 SURETY BONDS. The board of directors may require any officer or agent of the corporation to provide to the corporation a bond, in such sums and with such sureties as may be satisfactory to the board, conditioned upon the faithful performance of such individual's duties and for the restoration to the corporation of all books, papers, vouchers, money, securities and other property of whatever kind in such officer's possession or under such officer's control belonging to the corporation.
SECTION 4.06 COMPENSATION. Officers shall receive such compensation for their services as may be authorized or ratified by the board of directors (by a vote meeting the requirements of paragraph 3.11(b) above) and no officer shall be prevented from receiving compensation by reason of the fact that such officer is also a director of the corporation. Appointment as an officer shall not of itself create a contract or other right to compensation for services performed as such officer.
ARTICLE V
Standards of Conduct for Officers and Directors
SECTION 5.01 STANDARDS OF CONDUCT. As provided in Section 840 of the Act, each director is required to discharge his or her duties as a director, including duties as a member of a committee, and each officer with discretionary authority is required to discharge his or her duties under that authority, in a manner consistent with the following standards of conduct:
(i) in good faith;
(ii) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
(iii) in a manner the director or officer reasonably believes is in the best interests of the corporation.
SECTION 5.02 RELIANCE ON INFORMATION AND REPORTS. In discharging his or her duties, a director or officer is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
(i) one or more officers or employees of the corporation whom the director or officer reasonably believes to be reliable and competent in the matters presented;
(ii) legal counsel, public accountants, or other persons as to matters the director or officer reasonably believes are within the person's professional or expert competence; or
(iii) in the case of a director, a committee of the board of directors of which such director is not a member, if the director reasonably believes the committee merits confidence.
A director or officer is not acting in good faith in relying on any such information, opinions, reports or statements if such director or officer has knowledge concerning the matter in question that makes reliance otherwise permitted as set forth above unwarranted.
SECTION 5.03 LIMITATION ON LIABILITY. A director or officer is not
liable for any action taken, or any failure to take any action as an
officer or director, as the case may be, if the duties of the office have
been performed in compliance with the provisions of this Article 5, and
Section 840 of the Act.
ARTICLE VI
Indemnification
SECTION 6.01 INDEMNIFICATION OF DIRECTORS.
(a) PERMITTED INDEMNIFICATION. Pursuant to Section 902 of the Act,
unless otherwise provided in the articles of incorporation as permitted by
Section 909 of the Act, the corporation may indemnify any individual made a
party to a proceeding because such individual is or was a director of the
corporation, against liability incurred in the proceeding if the
corporation has authorized the payment in accordance with Section 906 of
the Act and a determination has been made in accordance with the procedures
set forth in Section 906(2) of the Act that the director has met the
applicable standards of conduct as set forth below and in Section 902 of
the Act:
(i) the individual's conduct was in good faith; and
(ii) the individual reasonably believed that his or her conduct was in, or not opposed to, the corporation's best interests; and
(iii) in the case of any criminal proceeding, the individual had no reasonable cause to believe his or her conduct was unlawful.
(b) LIMITATION ON PERMITTED INDEMNIFICATION. As provided in Section
902(4) of the Act, the corporation shall not indemnify a director under
Section 6.01(a) above:
(i) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or
(ii) in connection with any other proceeding charging that the director derived an improper personal benefit, whether or not involving action in the director's official capacity, in which proceeding the director was adjudged liable on the basis that the director derived an improper personal benefit.
(c) INDEMNIFICATION IN DERIVATIVE ACTIONS LIMITED. Indemnification permitted under Section 6.01(a) and Section 902 of the Act in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding.
(d) MANDATORY INDEMNIFICATION. As set forth in Section 903 of the Act, unless limited by its articles of incorporation, a corporation shall indemnify a director who was successful, on the merits or otherwise, in the defense of any proceeding, or in the defense of any claim, issue, or matter in the proceeding, to which the director was a party because the director is or was a director of the corporation, against reasonable expenses incurred by the director in connection with the proceeding or claim with respect to which the director has been successful.
SECTION 6.02 ADVANCE EXPENSES FOR DIRECTORS. Pursuant to the provisions of Section 904 of the Act, if a determination is made, following the procedures of Section 906(b) of the Act, that a director has met the following requirements; and if an authorization of payment is made, following the procedures and standards set forth in Section 906 of the Act, then unless otherwise provided in the articles of incorporation, the corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding, if:
(i) the director furnishes the corporation a written affirmation of the director's good faith belief that the director has met the applicable standard of conduct described in Section 5.01 of these bylaws and Section 902 of the Act;
(ii) the director furnishes to the corporation a written undertaking, executed personally or on such director's behalf, to repay the advance if it is ultimately determined that the director did not meet the standard of conduct; and
(iii) a determination is made that the facts then known to those making the determination would not preclude indemnification under Sections 901 through 909 of the Act.
SECTION 6.03 INDEMNIFICATION OF OFFICERS. Employees. Fiduciaries. and Agents. Unless otherwise provided in the articles of incorporation, and pursuant to Section 907 of the Act:
(i) an officer of the corporation is entitled to mandatory indemnification under Section 903 of the Act, and is entitled to apply for court-ordered indemnification under Section 905 of the Act, in each case to the same extent as a director;
(ii) the corporation may indemnify and advance expenses to an officer, employee, fiduciary, or agent of the corporation to the same extent as to a director; and
(iii) the corporation may also indemnify and advance expenses to an officer, employee, fiduciary, or agent who is not a director to a greater extent, if not inconsistent with public policy, and if provided for by its articles of incorporation, these bylaws, action of the board of directors, or contract.
SECTION 6.04 INSURANCE. As provided in Section 908 of the Act, the corporation may purchase and maintain liability insurance on behalf of a person who is or was a director, Officer, employee, fiduciary, or agent of the corporation, or who, while serving as a director, officer, employee, fiduciary, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary, or agent of another foreign or domestic corporation or other person, or of an employee benefit plan, against liability asserted against or incurred by such person in that capacity or arising from such person's status as a director, officer, employee, fiduciary, or agent, whether or not the corporation would have power to indemnify such person against the same liability under Article VI of these bylaws or Sections 902, 903 or 907 of the Act. Insurance may be procured from any insurance company designated by the board of directors, whether the insurance company is formed under the laws of this state or any other jurisdiction, including any insurance company in which the corporation has an equity or any other interest through stock ownership or otherwise.
SECTION 6.05 SCOPE OF INDEMNIFICATION. The indemnification and advancement of expenses authorized by this Article VI is intended to permit the corporation to indemnify to the fullest extent permitted by the laws of the State of Utah any and all persons whom it shall have power to indemnify under such laws from and against any and all of the expenses, disabilities, or other matters referred to in or covered by such laws. Any indemnification or advancement of expenses hereunder, unless otherwise provided when the indemnification or advancement of expenses is authorized or ratified, is intended to be applicable to acts or omissions that occurred prior to the adoption of this Article, shall continue as to any party during the period such party serves in any one or more of the capacities covered by this Article, shall continue thereafter so long as the party may be subject to any possible proceeding by reason of the fact that such party served in any one or more of the capacities covered by this Article, and shall inure to the benefit of the estate and personal representatives of such person. Any repeal or modification of this Article or of any Section or provision hereof shall not affect any right or obligations then existing. All rights to indemnification under this Article shall be deemed to be provided by a contract between the corporation and each party covered hereby.
SECTION 6.06 OTHER RIGHTS AND REMEDIES. The rights to indemnification and advancement of expenses provided in this Article VI shall be in addition to any other rights which a party may have or hereafter acquire under any applicable law, contract, order, or otherwise.
SECTION 6.07 SEVERABILITY. If any provision of this Article shall be held to be invalid, illegal or unenforceable for any reason, the remaining provisions of this Article shall not be affected or impaired thereby, but shall, to the fullest extent possible, be construed so as to give effect to the intent of this Article that each party covered hereby is entitled to the fullest protection permitted by law.
ARTICLE VII
Stock
SECTION 7.01 ISSUANCE OF SHARES. Except to the extent any such powers may be reserved to the shareholders by the articles of incorporation, as provided in section 621 of the Act the board of directors may authorize the issuance of shares for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts or arrangements for services to be performed, or other securities of the corporation. The terms and conditions of any tangible or intangible property or benefit to be provided in the future to the corporation, including contracts or arrangements for services to be performed, are to be set forth in writing.
Before the corporation issues shares, the board of directors must determine that the consideration received or to be received for the shares to be issued is adequate.
The board of directors may authorize a committee of the board of directors, or an officer of the corporation, to authorize or approve the issuance or sale, or contract for sale of shares, within limits specifically prescribed by the board of directors.
SECTION 7.02 CERTIFICATES FOR SHARES; SHARES WITHOUT CERTIFICATES.
(a) USE OF CERTIFICATES. As provided in Section 625 of the Act, shares of the corporation may, but need not be, represented by certificates. Unless the Act or another applicable statute expressly provides otherwise, the rights and obligations of shareholders are not affected by whether or not their shares are represented by certificates.
(b) CONTENT OF CERTIFICATES. Certificates representing shares of the corporation must, at a minimum, state on their face:
(i) the name of the corporation, and that it is organized under the laws of Utah;
(ii) the name of the person to whom the certificate is issued; and
(iii) the number and class of shares and the designation of the series, if any, the certificate represents.
If the corporation is authorized to issue different classes of shares or different series within a class, the designations, preferences, limitations, and relative rights applicable to each class, the variations in preferences, limitations, and relative rights determined for each series, and the authority of the board of directors to determine variations for any existing or future class or series, must be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder such information on request in writing and without charge.
Each share certificate must be signed (either manually or by facsimile) by the president or a vice-president and by the secretary or an assistant secretary, or by any two other officers as may be designated in these bylaws or by the board of directors. Each certificate for shares is to be consecutively numbered or otherwise identified.
(c) SHARES WITHOUT CERTIFICATES. As provided in Section 626 of the Act, unless the articles of incorporation or these bylaws provide otherwise, the board of directors may authorize the issuance of some or all of the shares of any or all of its classes or series without certificates. Such an authorization will not affect shares already represented by certificates until they are surrendered to the corporation.
Within a reasonable time after the issuance or transfer of shares without certificates, the corporation shall send the shareholder a written statement of the information required on certificates by Subsections 625(2) and (3) of the Act, as summarized in Section 7.02(b) above.
(d) SHAREHOLDER LIST. The corporation shall maintain a record of the names and addresses of the persons to whom shares are issued, in a form meeting the requirements of Section 1601(3) of the Act.
(e) TRANSFERRING CERTIFICATE SHARES. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed, or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe.
(f) REGISTRATION OF THE TRANSFER OF SHARES. Registration of the transfer of shares of the corporation shall be made only on the stock transfer books of the corporation. In order to register a transfer, the record owner shall surrender the shares to the corporation for cancellation, properly endorsed by the appropriate person or persons with reasonable assurances that the endorsements are genuine and effective. Unless the corporation has established a procedure by which a beneficial owner of shares held by a nominee is to be recognized by the corporation as the owner, the person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.
Section 7.03 RESTRICTIONS ON TRANSFER OF SHARES PERMITTED. As contemplated by Section 627 of the Act, the articles of incorporation, these bylaws, an agreement among shareholders, or and agreement between one or more shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation. A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction or otherwise consented to the restriction.
A restriction on the transfer or registration of transfer of shares may be authorized for any of the purposes set forth in Section 627(3) of the Act. A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section and its existence is noted conspicuously on the front or back of the certificate, or is contained in the information statement required by Section 7.02(c) of these bylaws with regard to shares issued without certificates. Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction.
SECTION 7.04 ACQUISITION OF SHARES BY THE CORPORATION. Subject to the limitations on distributions set forth in Section 640 of the Act and any other restrictions imposed by applicable law, the corporation may acquire its own shares, as authorized by Section 631 of the Act, and shares so acquired constitute authorized but unissued shares.
If the articles of incorporation prohibit the reissuance of acquired shares, the number of authorized shares is reduced by the number of shares acquired by the corporation, effective upon amendment of the articles of incorporation, which amendment may be adopted by the board of directors without shareholder action, as provided in Sections 632(b) and 1002 of the Act. Articles of amendment affecting such an amendment must meet the requirements of Section 631(3) of the Act.
ARTICLE VIII
Amendments to Bylaws
SECTION 8.01 AUTHORITY TO AMEND. As provided in Section 1020 of the Act, and subject to the provisions of Sections 2.08 and 3.11(b) of these bylaws, the corporation's board of directors may amend these bylaws at any time, except to the extent that the articles of incorporation, these bylaws, or the Act reserve such power exclusively to the shareholders, in whole or part. The directors may not adopt, amend or repeal a bylaw that fixes a greater quorum or voting requirement for shareholders. Any such bylaw may be adopted, amended or repealed only by the shareholders as provided in Section 8.02 below.
The corporation's shareholders may amend these bylaws at any time, subject to any limitations set forth in the Act, the Articles of Incorporation or these bylaws.
SECTION 8.02 BYLAW CHANGING QUORUM OR VOTING REQUIREMENT FOR SHAREHOLDERS. If and to the extent authorized by the articles of incorporation, the shareholders may adopt, amend, or repeal a bylaw that fixes a greater quorum or voting requirement for shareholders, or voting groups of shareholders, than is required by the Act. Such action is subject to the provisions of Part 7 of the Act and Section 2.08 of these bylaws.
SECTION 8.03 BYLAW CHANGING QUORUM OR VOTING REQUIREMENT FOR DIRECTORS.
(a) AMENDMENT. A bylaw that fixes a greater quorum or voting requirements for the board of directors than is required by the Act may be amended or repealed as permitted by Section 1022 of the Act and Section 3.13 of these bylaws:
(i) if originally adopted by the shareholders, only by the shareholders, unless otherwise permitted as contemplated by Subsection (b) below; or
(ii) if originally adopted by the board of directors, by the shareholders or unless otherwise provided in the articles of incorporation or these bylaws, by the board of directors.
(b) RESTRICTION ON AMENDMENT. A bylaw adopted or amended by the shareholders that fixes a greater quorum or voting requirement for the board of directors may provide that it may be amended or repealed only by a specified vote of either the shareholders or the board of directors.
(c) REQUIRED VOTE TO AMEND. Action by the board of directors under Subsection (a)(ii) above to amend or repeal a bylaw that changes the quorum or voting requirement for the board of directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
ARTICLE IX
Miscellaneous
SECTION 9.01 CORPORATE SEAL. The board of directors may provide for a corporate seal, to be in such a form as the directors may determine to be appropriate, and any officer of the corporation may, when and as required or as determined to be appropriate, affix or impress the seal, or a facsimile thereof, to or on any instrument or document of the corporation.
SECTION 9.02 FISCAL YEAR. The fiscal year of the corporation shall be December 31.
CERTIFICATE OF ADOPTION OF BYLAWS
OF
PACIFIC HEALTH CARE ORGANIZATION, INC.
The undersigned hereby certifies that he is the duly appointed and acting Secretary of Pacific Health Care Organization, Inc. and that the foregoing bylaws, comprising twenty-six (26) pages, were approved and adopted by a vote of the shareholders of the corporation on December 1, 2000, with the bylaws becoming effective as of December 1, 2000, and a record of such action is maintained in the minute book of the corporation.
Executed effective as of the 1st day of December, 2000.
/s/ Rudy LaRusso -------------------------------- Secretary |