SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
333-6440
(Commission file number)
Q-SEVEN SYSTEMS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
UTAH 87-0567618
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
MITTELSTRASSE 11-13 011-49-2173-39220
40789 MONHEIM, GERMANY (Issuer's Telephone Number)
(Address of Principal Executive
Offices)
FROHNKAMP 18
40789 MONHEIM, GERMANY
(Former Address of Issuer)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
SHARES OUTSTANDING
CLASS AT NOVEMBER 1, 1999
----- -------------------
COMMON STOCK 12,500,000
$0.001 PAR VALUE PER SHARE
THIS REPORT OMITS ITEM 1 (FINANCIAL STATEMENTS) AND CERTAIN PARTS OF ITEM 2
(MANAGEMENT'S DISCUSSION AND ANALYSIS) OF PART I AS WELL AS EXHIBIT 27.1
(FINANCIAL DATA SCHEDULE) PURSUANT TO RULE 12b-25(b)(i) UNDER THE EXCHANGE ACT.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
[TO BE PROVIDED]
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Recent Developments. During the third quarter of 1999, Q-Seven Systems,
Inc. (the "Company" or "Q-Seven") completed the development and testing of its
main server and the first release of the online gaming module which is part of
Q-Seven's User Management Software (the "Software"). The Software is a
modularized suite offering users a system for the backend administration of
various types of e-commerce sites on the Internet, including online gaming,
adult entertainment, and online shopping. In addition, the Company has developed
plans with respect to an online auction module and currently expects to commence
in November 1999 the software engineering in connection with this project.
From September 14 through September 16, 1999, Q-Seven attended the World
Gaming Congress and Expo in Las Vegas, the world's largest gambling exhibition,
where it presented the newly developed online gaming module of the Software.
Contacts made by Q-Seven during the congress in Las Vegas led to discussions and
negotiations with potential new customers. However, Q-Seven has not yet entered
into any specific agreements as a result of such discussions and negotiations.
Accordingly, these new contacts had no impact on Q-Seven's revenues in this
quarter, and there can be no assurances that they will ever have such an impact.
In early October 1999, Q-Seven completed the installation of the first
casino program for one of its clients. This required the extraction of data
previously collected on the client's online gambling site.
On October 29, 1999, Q-Seven filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form 8-A to register
its Common Stock under Section 12(g) of the Securities Exchange Act of 1934.
[RESULTS OF OPERATIONS -- TO BE PROVIDED]
[LIQUIDITY AND CAPITAL RESOURCES -- TO BE PROVIDED]
2
<PAGE>
Year 2000. Many currently installed computer systems and software products
are coded to accept only two digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. These date code fields
will need to distinguish 21st century dates from 20th century dates and, as a
result, many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements.
The Company, earlier this year, completed assessing the Year 2000 issue.
During the third quarter of 1999, the Company has not incurred material costs in
the analysis of the Year 2000 issue, and management currently does not believe
that the cost of any additional actions will have a material effect on the
Company's results of operations or financial condition. Management currently
believes that the Company's systems and products are Year 2000 compliant in all
material respects; however, those systems and products may contain undetected
errors or defects with Year 2000 date functions that may result in material
costs. Although management is not aware of any material operational issues or
costs associated with preparing the Company's systems and products for the Year
2000, the Company may experience serious unanticipated negative consequences
(such as significant downtime for one or more of the servers operated by X-Real,
the Company's subsidiary that operates six adult entertainment websites) or
material costs caused by undetected errors or defects in the technology used in
Q-Seven's systems and products, which could have a material adverse effect on
the Company's business, results of operation and financial condition.
In addition, the Company utilizes third-party equipment, software and
content, including non-information technology systems ("non-IT systems"), such
as the Company's telephone system, that might not be Year 2000 compliant. The
Company has not yet developed a plan to assess whether these third parties are
adequately addressing the Year 2000 issue and whether any of the Company's
non-IT systems have material Year 2000 compliance problems. The cost of
developing and implementing such a plan may itself be material. Failure of such
third-party equipment, software or content to operate properly with regard to
the year 2000 and thereafter could require the Company to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
the Company's business, results of operation, and financial condition.
3
<PAGE>
The Company has not yet fully developed a comprehensive contingency plan to
address situations that may result if the Company is unable to achieve Year 2000
readiness of its critical operations. The cost of developing and implementing
such a plan may itself be material.
Forward-Looking Statements. The Company has made certain forward-looking
statements in this report. They use such words as "may," "will," "expect,"
"believe," "plan" and other similar terminology. These statements reflect
management's current expectations and involve a number of risks and
uncertainties. Actual results could differ materially due to the success of
operating initiatives, advertising and promotional efforts, Year 2000 compliance
efforts, as well as changes in: global and local business and economic
conditions; currency exchange and interest rates; labor and other operating
costs; political or economic instability in local markets; competition; consumer
preferences, spending patterns and demographic trends; legislation and
government regulation; and accounting policies and practices.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Amendment of By-Laws. The Company, on November 12, 1999 by unanimous
written consent of the Board of Directors, amended its By-Laws and inserted a
new Section 12 in Article II of the By-Laws regarding the transaction of
business at shareholders' meetings. For a complete understanding of the new
by-law provision, please read the By-Laws, as amended, which are attached hereto
as Exhibit 3.2 and incorporated herein by reference.
4
<PAGE>
2000 Annual Meeting of Shareholders. Nominations for Director may be made
only by the Board of Directors or by a shareholder entitled to vote who has
delivered written notice to the Secretary of the Company not earlier than 120
days, and not later than 90 days, prior to the Company's annual meeting.
No business may be brought before an annual meeting of the shareholders
except as specified in the notice of the meeting or as otherwise properly
brought before the meeting by or at the direction of the Board of Directors or
by a shareholder entitled to vote who has delivered written notice to the
Secretary of the Company not earlier than 120 days, and not later than 90 days,
prior to the Company's annual meeting.
These requirements are separate and apart from and in addition to the
Commission's requirements that a shareholder must meet in order to have a
shareholder proposal included in the Company's proxy statement under Rule 14a-8
of the Securities Exchange Act of 1934. For purposes of the Company's annual
meeting of shareholders expected to be held on May 15, 2000, any shareholder who
wishes to submit a proposal for inclusion in the Company's proxy materials must
submit such proposal to the Secretary of the Company on or before December 15,
1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
3.1 Articles of Incorporation, as amended: Incorporated herein
by reference to Exhibit 3.1 to the Report on Form 10-QSB for
the quarter ended June 30, 1999.
3.2 By-laws, as amended.*
3.3 Form of Stock Certificate: Incorporated herein by reference
to Exhibit 3.3 to the Registration Statement on Form 8-A,
filed on October 29, 1999.
10.1 License Agreement between Q-Seven Systems GmbH and Q-Seven
Nevada: Incorporated herein by reference to Exhibit 10.1 to
the Report on Form 10-QSB for the quarter ended June 30,
1999.
5
<PAGE>
27.1 Financial Data Schedule.**
- ----------
* Filed herewith.
** To be provided.
(b) Reports on Form 8-K
On November 15, 1999, the Registrant filed with the Commission an amendment
to its report on Form 8-K, which was originally filed with the Commission on
June 8, 1999, to amend and restate certain financial statements that were filed
as exhibits to such report.
6
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant
caused this request to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: November 15, 1999 /s/ Philipp Kriependorf
____________________________
Philipp Kriependorf
President
Date: November 15, 1999 /s/ Philip Kamp
____________________________
Philip Kamp
Vice President and Treasurer
7
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
3.1 Articles of Incorporation, as amended: Incorporated herein
by reference to Exhibit 3.1 to the report on Form 10- QSB
for the period ended June 30, 1999.
3.2 By-laws, as amended.*
3.3 Form of Stock Certificate: Incorporated herein by reference
to Exhibit 3.3 to the Registration Statement on Form 8-A,
filed on October 29, 1999.
10.1 License Agreement between Q-Seven Systems GmbH and Q-Seven
Nevada: Incorporated herein by reference to Exhibit 10.1 to
the report on Form 10- QSB for the period ended June 30,
1999.
27.1 Financial Data Schedule.**
- ----------
* Filed herewith.
** To be provided.
8
EXHIBIT 3.2
BY-LAWS
OF
DOWNSTREAM INCORPORATED
"DSI"
(now known as Q-Seven Systems, Inc.)
<PAGE>
TABLE OF CONTENTS
ARTICLE I. OFFICES............................................................1
ARTICLE II. SHAREHOLDERS......................................................1
Annual Meeting.................................................................1
Special Meeting................................................................1
Place of Meeting...............................................................1
Notice of Meeting..............................................................2
Closing of Transfer Books or Fixing of Record Date.............................2
Voting Lists...................................................................2
Quorum.........................................................................2
Proxies........................................................................3
Voting of Shares...............................................................3
Voting of Shares by Certain Holders............................................3
Informal Action by Shareholders................................................3
Transaction of Business at Shareholders' Meetings..............................3
ARTICLE III. BOARD OF DIRECTORS...............................................4
Elimination of Directors' Liability............................................4
General Powers.................................................................4
Number, Tenure and Qualifications..............................................4
Regular Meetings...............................................................5
Special Meetings...............................................................5
Meeting by Telephone...........................................................5
Notice.........................................................................5
Quorum.........................................................................5
Manner of Acting...............................................................5
Vacancies......................................................................5
Removals.......................................................................6
Resignation....................................................................6
Compensation...................................................................6
Presumption of Assent..........................................................6
Chairman.......................................................................6
ARTICLE IV. OFFICERS..........................................................6
Number.........................................................................6
Election and Term of Office....................................................6
Resignations...................................................................7
Removal........................................................................7
Vacancies......................................................................7
The President..................................................................7
The Vice-President.............................................................7
The Secretary..................................................................7
The Treasurer..................................................................8
Assistant Secretaries and Assistant Treasurers.................................8
-i-
<PAGE>
Salaries.......................................................................8
Other Officers.................................................................8
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS..............................8
Contracts......................................................................8
Loans..........................................................................8
Checks Drafts, Etc.............................................................8
Deposits.......................................................................9
ARTICLE VI. INDEMNIFICATION...................................................9
Indemnification................................................................9
Determination..................................................................9
General Indemnification.......................................................10
Advances......................................................................10
Scope of Indemnification......................................................10
Insurance.....................................................................10
ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER......................10
Certificates for Shares.......................................................10
Transfer of Shares............................................................11
Consideration for Shares......................................................11
Registered Shareholders.......................................................11
ARTICLE VIII. FISCAL YEAR....................................................11
ARTICLE IX. DIVIDENDS........................................................11
ARTICLE X. CORPORATE SEAL....................................................11
ARTICLE XI. WAIVER OF NOTICE.................................................12
ARTICLE XII. AMENDMENTS......................................................12
ARTICLE XIII. PROCEDURE FOR CONDUCTING MEETING...............................12
-ii-
<PAGE>
ARTICLE I. OFFICES
The principal office of the corporation in the State of Utah shall be
located in Salt Lake City. The corporation may have such other offices, either
within or without the State of Utah, as the Board of Directors may designate or
as the business of the corporation may require from time to time.
The registered office of the corporation required by the Utah Revised
Business Corporation Act to be maintained in the State of Utah may be, but need
not be, identical with the principal office in the State of Utah, and the
address of the registered office may be changed from time to time by the Board
of Directors.
ARTICLE II. SHAREHOLDERS
SECTION 1. ANNUAL MEETING. Unless otherwise designated by the Board of
Directors, the annual meeting of the shareholders shall be held on the first
Friday in the month of May in each year, beginning with the year 1997, at the
hour of 10:00 a.m. for the purpose of electing directors and for the transaction
of such other business as may come before the meeting. If the day fixed for the
annual meeting shall be a legal holiday in the State of Utah, such meeting shall
be held on the next succeeding business day. If the election of directors shall
not be held on the day designated herein or any annual meeting of the
shareholders, or at any adjournment thereof, the Board of Directors shall cause
the election to be held at a special meeting of the shareholders as soon
thereafter as is convenient.
SECTION 2. SPECIAL MEETING. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President, the Chairman of the Board of Directors or by the Board of
Directors, and shall be called by the President at the request of the holders of
not less than ten percent (10%) of all outstanding shares of the corporation
entitled to vote at the meeting.
SECTION 3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Utah, as the place of meeting for
any annual meeting or for any special meeting called by the Board of Directors.
A waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Utah, as the place
for the holding of such meeting. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be the principal office
of the corporation in the State of Utah.
SECTION 4. NOTICE OF MEETING. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall, unless otherwise prescribed by statute,
be delivered not less than ten (10) nor more than fifty (50) days before the
date of the meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to
<PAGE>
be delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid.
SECTION 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten days immediately preceding such meeting. In lieu of
closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than fifty (50) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of shareholders, is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
SECTION 6. VOTING LISTS. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at each meeting of shareholders or any adjournment
thereof, arranged in alphabetical order, with the address of and the number of
shares held by each. Such list shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes thereof.
SECTION 7. QUORUM. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
SECTION 8. PROXIES. At all meetings of shareholders, a shareholder may vote
in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
-2-
<PAGE>
SECTION 9. VOTING OF SHARES. Each outstanding share entitled to vote shall
be entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders, unless provided otherwise in the corporation's Articles of
Incorporation.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares outstanding in the
name of another corporation may be voted by such officer, agent or proxy as the
by-laws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock held by the corporation, nor those held by
another corporation if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 11. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
SECTION 12. TRANSACTION OF BUSINESS AT SHAREHOLDERS' MEETING
(a) Transaction of Business at Annual Meeting. Business transacted at an
annual meeting of shareholders may include all such business as may properly
come before the meeting. Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the shareholders may
be made at an annual meeting of shareholders: (i) pursuant to the corporation's
notice of meeting; (ii) by or at the direction of the Board of Directors; or
(iii) by any shareholder who was a shareholder of record at the time of giving
of notice of the meeting, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 12(a).
For nominations or other business to be properly brought before an annual
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for shareholder action. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not earlier than the close of business on
the 120th day nor later than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
shareholder to be timely must be so delivered no earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a shareholder's notice as described above. Such shareholder's
notice shall set forth: (i) as to each person whom the shareholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
emended (the "Exchange Act"), and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (ii) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (A) the name
and address of such shareholder, as they appear on the corporation's books, and
of such beneficial owner and (B) the class and number of shares of the
corporation which are owned beneficially and of record by such shareholder and
such beneficial owner.
(b) Transaction of Business at Special Meeting. Business transacted at a
special meeting of the shareholders shall be limited to the purposes set forth
in the notice of the special meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of shareholders at which
directors are to be elected pursuant to the corporation's notice of meeting: (i)
by or at the direction of the Board of Directors; or (ii) provided that the
Board of Directors has determined that directors shall be elected at such
meeting, by any shareholder of the corporation who is a shareholder of record at
the time of giving of notice of the meeting, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section
12(b).
In the event the corporation calls a special meeting of shareholders for
the purpose of electing one or more directors to the Board of Directors, any
such shareholder may nominate a person or persons, as the case may be, for
election to such position or positions as specified in the corporation's notice
of meeting, if the shareholder's notice required by this Section 12 of Article
II shall be delivered to the Secretary at the principal executive offices of the
corporation not earlier than the close of business on the 120th day prior to
such special meeting and not later than the close of business on the later of
the 90th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a shareholder's
notice as described above. Such shareholder's notice shall set forth: (i) as to
each person whom the shareholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Exchange Act and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (ii) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made,
(A) the name and address of such shareholder, as they appear on the
corporation's books, and of such beneficial owner and (B) the class and number
of shares of the corporation which are owned beneficially and of record by such
shareholder and such beneficial owner.
(c) General. Only such persons who are nominated in accordance with the
procedures set forth in this Section 12 of Article II shall be eligible to serve
as directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 12 of Article II. The chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meting was made or proposed, as the
case may be, in accordance with the procedures set forth in this Section 12 of
Article II and, if any proposed nomination or business is not in compliance with
this Section 12 of Article II, to declare that such defective proposal or
nomination shall be disregarded, unless otherwise provided by any applicable
law.
For purposes of this Section 12 of Article II, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national new service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section 12 of Article II,
a shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 12 of Article II. Nothing in this Section 12 of Article II
shall be deemed to affect any rights of: (i) the shareholders to request
inclusion of proposals in the corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act; or (ii) the holders of any series of Preferred
Stock to elect directors under specified circumstances.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. ELIMINATION OF DIRECTORS' LIABILITY.
1. The directors of the corporation are not liable to the corporation or to
its shareholders for monetary damages for any action taken or any failure to
take any action as a director, except liability for:
(a) the amount of a financial benefit received by a director to which
he/she is not entitled;
-3-
<PAGE>
(b) an intentional infliction of harm on the corporation or the
shareholders;
(c) a violation of Utah Code Ann. ss. 16-10a-842; or
(d) an intentional violation of criminal law.
2. If the Utah Revised Business Corporation Act is amended after approval
by the shareholders of this Article to authorize corporation action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Utah Revised Business Corporation Act, as so amended,
and without the necessity for further shareholder action in respect thereof.
3. Any repeal or modification of this Article by the shareholders of the
corporation shall not adversely affect any right or protection of a director of
the corporation hereunder in respect of any act or omission occurring prior to
the time of such repeal or modification.
SECTION 2. GENERAL POWERS. The business and affairs of the corporation
shall be managed by its Board of Directors. The Board of Directors may designate
a committee or committees consisting of not less than two directors, which
committee or committees shall have and may exercise all of the authority
designated to it or them by the Board of Directors; but, the designation of such
committees and the delegation thereto of authority shall not operate to relieve
the Board of Directors or any member thereof of any responsibility imposed upon
it or him by law.
SECTION 3. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of
the corporation shall be not less than one (1) nor more than nine (9) as
determined, from time to time, by the Board of Directors.
Each Director shall hold office until the next annual meeting of
shareholders and until his successor shall have been elected and qualified.
Directors need not be residents of the State of Utah or shareholders of the
corporation. The Board of Directors may elect from its own number a Chairman of
the Board, who shall preside at all meetings of the Board of Directors, and
shall perform such other duties as may be prescribed from time to time by the
Board of Directors.
SECTION 4. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this by-law immediately after, and at
the same place as, the annual meeting of shareholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Utah, for the holding of additional regular meetings without other
notice than such resolution.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the President or the Chairman of the Board of
Directors or any two Directors. The person or persons authorized to call special
meetings of the Board of Directors may fix any place, either within or without
the State of Utah, as the place for holding any special meeting of the Board of
Directors called by them.
-4-
<PAGE>
SECTION 6. MEETING BY TELEPHONE. Members of the Board of Directors or any
committee designated by the Board may participate in a meeting of the Board as
committee by means of conference telephone or similar communications equipment
by which all persons participating in the meeting can hear each other, and
participation in a meeting under this section shall constitute presence in
person at the meeting.
SECTION 7. NOTICE. Notice of any special meeting shall be given at least
two days previously thereto by written notice delivered personally or mailed to
each Director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice be given by telegram such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any Director may waive notice of any meeting. The attendance
of a Director at a meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 8. QUORUM. A majority of the number of Directors fixed by Section
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than such majority is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time
without further notice.
SECTION 9. MANNER OF ACTING. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. Any action which may be taken at a meeting of the Directors may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the Directors.
SECTION 10. VACANCIES. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining Directors
though less than a quorum of the Board of Directors. A Director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of Directors by the shareholders.
SECTION 11. REMOVALS. Directors may be removed at any time without cause by
vote of the shareholders holding a majority of the shares outstanding and
entitled to vote. Such vacancy shall be filled by the directors then in office,
though less than a quorum, and any person so designated or appointed shall hold
office until the next annual meeting or until his successor is duly elected and
qualified; provided that any directorship to be filled by reason of removal by
the shareholders may be filled by election by the shareholders at the meeting at
which the director is removed. No reduction of the authorized number of
directors shall have the effect of removing any director prior to the expiration
of his term of office.
SECTION 12. RESIGNATION. A director may resign at any time by delivering
written notification thereof to the President or Secretary of the corporation.
Resignation shall become
-5-
<PAGE>
effective upon its acceptance by the Board of Directors; provided, however, that
if the Board of Directors has not acted thereon within ten (10) days after the
date of its delivery, the resignation shall be deemed accepted upon the tenth
day.
SECTION 13. COMPENSATION. By resolution of the Board of Directors, each
Director may be paid his 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 other
capacity and receiving compensation therefor.
SECTION 14. PRESUMPTION OF ASSENT. A Director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
SECTION 15. CHAIRMAN. The Board of Directors may elect from its own number
a Chairman of the Board, who shall preside at all meetings of the Board of
Directors, and shall perform such other duties as may be prescribed from time to
time by the Board of Directors.
ARTICLE IV. OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a President,
one or more Vice-Presidents (the number thereof to be determined by the Board of
Directors), a Secretary and a Treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors. Any two or more
offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided.
SECTION 3. RESIGNATIONS. Any corporate officer may resign at any time by
delivering a written resignation either to the corporate President or to the
corporate Secretary. Unless otherwise specified therein, such resignation shall
take effect upon delivery.
SECTION 4. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever in its judgment, the best interests of the corporation will
be served thereby,
-6-
<PAGE>
but any such removal shall be without prejudice to the contract rights, if any,
of the person so removed. Election or appointment of an officer or agent shall
not of itself create contract rights.
SECTION 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 6. THE PRESIDENT. The President shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall when present, preside at all meetings of
the shareholders and of the Board of Directors, unless the Directors have
designated a Chairman in accordance with Section, of these By-Laws. He may sign,
with the Secretary or any other proper officer of the corporation thereunto
authorized by the Board of Directors, certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the corporation,
or shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of President and such other
duties as may be prescribed by the Board of Directors from time to time.
SECTION 7. THE VICE-PRESIDENT. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice-President (or in the
event there be more than one Vice-President, the Vice-Presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election) shall 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; and shall
perform such other duties as from time to time may be assigned to him by the
President or by the Board of Directors.
SECTION 8. THE SECRETARY. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these ByLaws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep a
register of the post office address of each shareholder; (e) 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; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
SECTION 9. THE TREASURER. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; (b)
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositories as shall be selected in
accordance with the provisions of Article.
-7-
<PAGE>
SECTION 10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice-President certificates for shares of the corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall, respectively, if required by the
Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
SECTION 11. SALARIES. The salaries of the officers shall be fixed from time
to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
corporation.
SECTION 12. OTHER OFFICERS. Other officers shall perform such duties and
have such powers as may be assigned to them by the Board of Directors.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as the Board of Directors may
select.
ARTICLE VI. INDEMNIFICATION
SECTION 1. INDEMNIFICATION. The corporation shall indemnify its directors,
officers, employees, fiduciaries and agents to the full extent permitted by the
Utah Revised Business Corporation Act or any successor statute. In particular,
and not in derogation of the generality of the foregoing, except as provided in
this section, the corporation shall indemnify an
-8-
<PAGE>
individual made a party to a proceeding because he/she is or was a director,
against liability incurred in the proceeding if:
(a) his/her conduct was in good faith;
(b) he/she reasonably believed that his/her conduct was in, or at
least not opposed to, the corporation's best interests; and
(c) in the case of any criminal proceeding, he/she had no reasonable
cause to believe his conduct was unlawful.
The corporation shall 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 acts in
his/her official capacity, in which proceeding he/she was adjudged liable
on the basis that he/she derived an improper personal benefit. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
the best interest of the corporation, and with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
SECTION 2. DETERMINATION. To the extent that a director, officer, employee
or agent of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorney's fees) which he actually and reasonably incurred in
connection therewith. Any other indemnification under Section not ordered by a
court shall be made by the corporation upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section
hereof. Such determination shall be made either by (a) the Board of Directors by
a majority vote of a quorum consisting of Directors who were not parties to such
action, suit or proceeding, (b) by independent legal counsel in a written
opinion, or (c) by the shareholders by a majority vote of a quorum of
shareholders at any meeting duly called for such purpose.
SECTION 3. GENERAL INDEMNIFICATION. The indemnification and advancement of
expenses provided by this Article may not be construed to be exclusive of any of
the rights to which a person seeking indemnification or advancement of expenses
may be entitled under any by-law, agreement, vote of shareholders or
disinterested directors or otherwise, both as to an action in his official
capacity and as to an action in another capacity while holding office.
-9-
<PAGE>
SECTION 4. ADVANCES. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent that he
shall repay the amount advanced if it is ultimately determined that he is not
entitled to be indemnified by the corporation as authorized by this Article.
SECTION 5. SCOPE OF INDEMNIFICATION. The indemnification and advancement of
expenses authorized by this Article shall apply to all present and future
directors, officers, employees and agents of the corporation and shall continue
as to such persons who cease to be directors, officers, employees, or agents of
the corporation and shall inure to the benefit of the heirs, executors, and
administrators of all such persons and shall be in addition to all other
indemnification and advancement of expenses provided by law.
SECTION 6. INSURANCE. The corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status in any
such capacity, whether or not the corporation would have the power to indemnify
him against any such liability under the provisions of this Article VI or the
laws of the State of Utah, as the same may hereafter be amended or modified.
ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the
corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or Vice-President
and by the Secretary or an Assistant Secretary and sealed with the corporate
seal or a facsimile thereof. The signatures of such officers upon a certificate
may be facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the corporation itself or one of its
employees. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificates 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.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
-10-
<PAGE>
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 3. CONSIDERATION FOR SHARES. The capital stock of the corporation
shall be issued for such consideration as shall be fixed from time to time by
the Board of Directors, but in no event shall such value be less than the par
value of such shares. In the absence of fraud, the determination of the Board of
Directors as to the value of any property or services received in full or
partial payment for shares shall be conclusive.
SECTION 4. REGISTERED SHAREHOLDERS. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in the shares.
ARTICLE VIII. FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of January
and end on the last day of December in each year.
ARTICLE IX. DIVIDENDS
The Board of Directors may, from time to time, declare and the corporation
may pay dividends on its outstanding shares in the manner, and upon the terms
and conditions provided by law and its articles of incorporation.
ARTICLE X. CORPORATE SEAL
The Board of Directors may in its discretion provide a corporate seal.
ARTICLE XI. WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or Director
of the corporation under the provisions of these By-Laws or under the provisions
of the Articles of Incorporation or under the provisions of the Utah Revised
Business Corporation Act, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
Attendance of a Director at any meeting of Directors shall constitute a
waiver of notice of such meeting, except where a Director attends for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
-11-
<PAGE>
ARTICLE XII. AMENDMENTS
These By-Laws may be altered, amended or repealed and new by-laws may be
adopted by the Board of Directors at any regular or special meeting of the Board
of Directors.
ARTICLE XIII. PROCEDURE FOR CONDUCTING MEETING
All shareholder and director meetings shall be conducted in accordance with
the rules and procedures set forth in the most current edition of Roberts' Rules
of Order.
