U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] Annual report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1998
[ ] Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to
------------ ------------
Commission File Number: 000-23039
ORALABS HOLDING CORP.
--------------------------------------------
(Name of small business issuer in its charter)
Colorado 14-1623047
------------------------------ -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2901 South Tejon Street, Englewood, Colorado 80110
-------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number: (303) 783-9499
---------------
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities to be registered under Section 12(g) of the Act:
Common Shares, par value $0.001 per share
-----------------------------------------
(Title of class)
- - --------------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $7,090,016
As of March 25, 1999, the aggregate market value of common stock held by
non-affiliates of the Registrant, computed by reference to the last trade of the
common stock on that date, was approximately $4,512,165. (Issuers involved in
bankruptcy proceedings during the past five years) Check whether the issuer has
filed all documents and reports required to be filed by Section 12, 13 or 15(d)
of the Exchange Act after the distribution of securities under a plan confirmed
by a court. Yes _______ No _______
(Applicable only to corporate registrants)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of March 22, 1999, there were
9,160,755 shares of common stock outstanding.
Documents incorporated by reference. Portions of the Company's definitive Proxy
Statement to be mailed to stockholders in connection with the Annual Meeting of
Stockholders of the Company to be held on May 27, 1999 (the "1998 Definitive
Proxy Statement"), which will be filed with the Commission not later than 120
days after the end of the fiscal year to which this report relates, are
incorporated by reference in Part III hereof.
Transitional Small Business Disclosure Format (Check one): Yes No X
-----
<PAGE>
PART I
Item 1. Description of Business.
Business Development. On May 1, 1997, OraLabs, Inc., a privately held
company, became a wholly-owned subsidiary of SSI Capital Corp. (the predecessor
of the Company). SSI Capital Corp. subsequently merged with OraLabs Holding
Corp., with OraLabs Holding Corp. becoming the surviving company. As a result of
these transactions, the Company is the sole stockholder of OraLabs, Inc.
At the time that OraLabs, Inc. became a subsidiary of the Company, the
Company was only engaged in seeking a suitable business to be the subject of an
acquisition or merger transaction. The Company was not then engaged in any
operating business and had not been engaged in an operating business for at
least five (5) years. The business in which the Company had been involved was
totally unrelated to that of the Company's subsidiary.
The following discussion, insofar as it is for time periods prior to May 1,
1997, will, in effect, be about the business of OraLabs, Inc. (which may be
referred to as the "Subsidiary"), as SSI Capital Corp. was not then engaging in
any substantive business. The term "Company" or "OraLabs" will mean OraLabs
Holding Corp., successor to SSI Capital Corp.
The Subsidiary was formed in 1990 for the purposes of manufacturing and
distributing tooth-whitening products. The name of the Subsidiary was originally
AmWhite Labs, Incorporated, which was changed in April 1994 to OraLabs, Inc. In
1992 the Subsidiary's flagship product, Ice Drops(R), a breath drop product sold
in a small plastic bottle, was introduced as an alternative to breath sprays and
candy breath mints. In 1995 the Company introduced its brand of breath sprays
under the Ice Drops(R) name. This impulse-priced product was distributed
substantially under the same distribution network established for the Ice
Drops(R) breath drops. The Subsidiary sought to have both products displayed at
checkout counters and in convenience stores to be positioned as consumer impulse
purchases.
In 1996 the Subsidiary introduced a line of lip balms sold in a patented
mini-size package, in furtherance of the Subsidiary's consumer impulse marketing
strategy. In addition, three new SPF-30 sun block lip balms were introduced. In
1997 OraLabs introduced its extreme sour drops, which are a line of liquid sour
candy drops packaged in the same small bottle as the traditional Ice Drops(R).
The product was developed to capitalize upon what the Subsidiary believed was a
growing market for sour, tart, hard candies being purchased by pre-teens and
teenagers.
In 1997 the Company also introduced a line of sore throat sprays and zinc
sprays under the brand name Zinc-7(TM). The goal of the Company was to create a
line of VitaSpray brand products to include a pocket size sore throat spray as
well as spray vitamins. The Company ceased production and development of the
entire line in 1998.
2
<PAGE>
In 1998 the Company introduced a line of nutritional supplements with
initial distribution into General Nutrition Centers. Throughout the year, the
product line grew to include MSM, Glucosamine+MSM, 5-HTP, vitamin E oils and
healthybears(TM) (vitaminized gummy bears).
The Company does business in approximately 25 international markets and the
Company is actively seeking to expand its international distribution. The
Company is currently supplying numerous airlines and hotels with its products,
including a specially packaged mouthwash, as part of those businesses' amenity
programs.
Business of the Company.
------------------------
Principal Products, Their Markets and Distribution. The general business
done by the Company is to produce and sell consumer products relating to oral
care, lip care and nutritional supplements. The Company's products are currently
sold in over 50,000 retail outlets in all 50 states as well as in 25 foreign
countries. The products are sold through wholesale distributors as well as by
direct sale to mass retailers, grocery stores, convenience stores and drug
stores. The principal products produced by the Company can be categorized into
three groups: breath fresheners, including liquid drops under the brand name Ice
Drops(R), as well as sour drops; lip balm products under the names Ice Drops(R)
and Liprageous(R) as well as under private label names; and a line of
nutritional supplements and related products consisting of MSM, Glucosamine+MSM,
5-HTP, vitamin E oils and healthybears(TM)
The Company's strategy for its breath freshener and lip balm products has
been to develop and sell products which the Company believes are niche products
that can be differentiated from products of its competitors. The marketing
strategy includes capitalizing on the distribution network that currently
carries one or more of the Company's products, and building upon the business
relationships that have been established. With respect to the nutritional
supplements, the Company's marketing strategy is to identify and market cutting
edge products with broad consumer appeal. The new products will tend to be those
which the Company then expects to soon be more widely known to the public due to
new research, media coverage or other publicity.
The Company's products and packaging have been conceptualized and developed
in-house. The Company's breath freshener and lip balm products are marketed from
and packaged at the Company's manufacturing facility in Englewood, Colorado.
Most packaging, filling and automated manufacturing equipment has been designed,
built and maintained by the Company's own staff. This allows the Company to
rapidly introduce and manufacture new products, reducing lengthy lead times and
some of the cost of capital expenditures associated with some new product
introductions. It also allows the Company to test new products before committing
capital to full-scale manufacturing endeavors. To produce the Company's
nutritional supplements, the Company typically buys some or all of the raw
materials and contracts with third parties to produce the final products.
3
<PAGE>
OraLabs entered the private label category in the fourth quarter of 1997.
The Company's initial private label customers included Rite-Aid (including
Thrifty and Payless) and Sally's Beauty Supply. The Company also produces
products for other retailers and marketing companies who market the products
under their own brand names. The Company also does some contract packaging for
its breath spray products. These contracts have helped establish the Company as
a private label manufacturer and helps to provide a platform from which to grow
the private label business.
Products Discontinued in 1998. In 1997, the Company introduced a line of
sore throat sprays and zinc sprays under the brand name Zinc-7(TM). The
substantial portion of all of the shipments was to one customer, and after the
cough and cold season ended in March-April 1998, the Company accepted the return
of most of those sales (see Management's Discussion and Analysis-Results of
Operations). Although the Company determined that a variety of factors was
responsible for the poor sales of the products, the Company made the decision to
cease production of that product line.
In early 1998, the Company tested a proposed line of spray vitamins by
conducting focus groups, test marketing and product samplings. As a result of
these efforts, the Company determined not to proceed with that product line.
However, in the course of that product research, the Company began developing
alternative products to use as an entree into the nutritional supplement market,
as discussed in the next section.
Products Launched in 1998. In 1998, the Company began selling dietary
supplements and related products in the nutritional supplement market. The
nutritional supplement market not only contains branded and generic products
such as simple vitamins and minerals, but also includes more complex products
such as combinations of a wide variety of vitamin, mineral and herbal products
as well as sports nutrition and meal supplements. The nutritional supplement
category is large and growing with an estimated $12.7 billion in sales in 1997
according to the Nutrition Business Journal. The Company entered this market
with four types of products: MSM, Glucosamine+MSM, 5-HTP and vitaminized gummy
bears.
The Company's encapsulated products consist of MSM, Glucosamine+MSM and
5-HTP. To make these products, the Company buys the raw materials and provides
the materials and labels to an encapsulator for production and packaging. The
products are then shipped by the Company. Among other things, MSM is intended to
combat pain associated with allergies, arthritis and strained muscles or joints
while the Glucosamine+MSM aims to further relieve symptoms of joint pains,
muscle pains and arthritis. These products are sold through a variety of the
Company's customers.
The Company's 5-HTP supplements, which are intended to relieve symptoms of
such conditions as insomnia and headaches, were initially sold to a single
customer. Sales of the product did not meet the Company's expectations, and as a
result the Company has $623,184 worth of inventory of the raw materials for this
product (see Management's Discussion and Analysis-Liquidity and Capital
Resources). The Company has not yet determined whether to attempt to sell the
raw material to other wholesalers or to remarket the product elsewhere.
4
<PAGE>
The Company's healthybears(TM) consist of gummy bears fortified with single
vitamins or multiple vitamins, which are sold through a variety of the Company's
distributors, or are fortified with minerals which are currently sold solely
through GNC Nutrition Centers. The Company purchases the candy bears and
contracts out the formulation of the products and the packaging.
Other Business. In April 1998, OraLabs, Inc. entered into a Contract for
Services with Top Form Brands, Inc. ("Top Form"), a corporation owned solely by
the Company's President. Under the contract, OraLabs provides warehousing,
shipping and accounting services for products sold on a wholesale basis by Top
Form. The Company has the personnel and warehousing capacity necessary to handle
the services required by Top Form without an increase in the Company's fixed
costs. The Company is paid a fixed price per case of product warehoused and
shipped by the Company, and the Company believes that the price is fair to the
Company. Revenue under the Contract consisted of approximately 7.6% of the
Company's 1998 revenues (see Certain Relationships and Related Transactions in
the Company's 1998 Definitive Proxy Statement).
In 1998, the Company licensed the right to sell a product known as Sure
Squeeze, which is a squeegee-like device that slides onto the end of a tube
(such as a toothpaste tube) to allow all of the toothpaste (or other contents of
the tube) to be dispensed. The product was initially sold to Wal-Mart but now is
also being sold to other retailers.
Competitive Business Conditions. Competition for all of the Company's
products is very significant. With respect to the Company's breath freshening
products, direct competitors who manufacture liquid or spray breath products
consist of less than five. The Company believes that its primary competitive
products are Binaca(R) and Sweet Breath(R). However, if one considers candy
breath mints as competition for the same group of products, the Company believes
that there are more than 50 competitors.
With respect to the Company's lip balm products, the Company believes that
approximately 70% of the market is controlled by three dominant competitors (who
sell Chapstick(R), Blistex(R) and Carmex), and the balance of the market
consists of more than 50 different companies.
With respect to nutrition products, competition in this industry is very
broad based. Manufacturers and marketers include tiny start-ups, major drug
manufacturers and Fortune 100 companies. The vast size of the market makes it
possible for many niche marketers as well as the major manufacturers to be
successful, although there appears to be some consolidation within the industry.
The retail environment is made up of mass retail customers and the health food
industry retailers. In addition there are many multi level marketers and direct
sellers supplying nutritional supplements.
The Company has sought to anticipate competition for its breath
freshener and lip balm products by the distinguishing size and packaging of its
products, as well as by competing with respect to pricing. The Company has been
allowed a utility patent and a design patent for the container for its Ice
Drops(R) brand lip balms. The Company believes that for some of its products,
its smaller size and lower price than that of its competitors is an advantage to
the Company. However, other factors such as a competitor's greater brand
recognition or preferable product placement of a competitor's products at retail
locations may nullify or reduce whatever competitive advantage the Company's
products have.
5
<PAGE>
Sources and Availability of Raw Materials. In general, the sources and
availability of materials used by the Company in its business are fairly
widespread, and the Company believes that it could obtain secondary sources of
raw materials to the extent that an existing business relationship terminates.
Dependence Upon a Single Customer. The Company does not believe that its
business with respect to any particular product or products is dependent upon
any single customer.
Patents, Trademarks, Licenses, Franchises and Concessions. Although
there can be no assurance of proprietary protection respecting pending patents
and trademarks held by the Company (see, "Cautionary Statement Regarding
Forward-Looking Statements, No Assurance of Proprietary Protection"), and
although the Company intends to vigorously seek to enforce and protect its
proprietary rights, the Company does not believe that the loss of any such
proprietary right would in and of itself, adversely affect the Company in a
material manner.
Seasonality. The demand for the Company's lip balm products tends to
increase during the cold weather months, but the inclusion of sunblock in some
of the lip balm products may tend to even out sales during the year.
Practices of the Company in the Industry. The Company's typical
practices with respect to all of its products is to keep adequate inventory on
hand for shipments within a two to three week period, and the Company generally
extends credit on purchases for a term of 30 days after shipment. The Company
does not formally provide a right of customers to return merchandise. However,
the Company believes that it is a common practice in the industry, and the
Company subscribes to such practice on a case-by-case basis, to permit a
retailer who has not sold all of the goods it has purchased within a reasonable
time, to ask the Company to accept a return of the unsold merchandise.
Government Regulation. The Company's breath freshener and lip balm
products are not subject to burdensome governmental regulation (see Cautionary
Statement on Governmental Regulation below). However, the manufacturing,
packaging, labeling, advertising, distribution and sale of the Company's
nutritional supplements are subject to regulation by one or more governmental
agencies, the most active of which is the Food and Drug Administration ("FDA"),
which regulates those products under the Federal Food, Drug, and Cosmetic Act
("FDCA") and regulations promulgated thereunder. These products are also subject
to regulation by the Federal Trade Commission ("FTC") ,the Consumer Product
Safety Commission ("CPSC"), the United States Department of Agriculture ("USDA")
and the Environmental Protection Agency ("EPA"). The Company's activities are
also regulated by various agencies of the states, localities and foreign
countries to which the Company distributes its products and in which the
Company's products are sold. The FDCA has been amended several times with
6
<PAGE>
respect to dietary supplements, most recently by the Nutrition Labeling and
Education Act of 1990 ("NLEA";) and the Dietary Supplement Health and Education
Act of 1994 ("DSHEA").
The DSHEA provides certain regulatory benefits for the nutritional
supplement industry. Prior to its passage, some supplements had been classified
as food additives which could subject them to a review process by the FDA prior
to approval for sale. Now, products defined as dietary supplements under the
DSHEA are regulated similarly to food, so much of the special regulatory
clearance is eliminated. In addition, claims about how a supplement affects the
structure or function of the body may be made (although any statement made must
also state that the product is not intended to diagnose, treat, cure or prevent
any disease).
The FTC, which exercises jurisdiction over the advertising of nutritional
and dietary supplements under the Federal Trade Commission Act, has in the past
several years instituted enforcement actions against several nutritional
supplement companies alleging false and misleading advertising of certain
products. These enforcement actions have resulted in the payment of fines and/or
consent decrees by certain of the companies involved. The FTC continues to
monitor advertising with respect to nutritional and dietary supplements. The
Company has not been the subject of any FTC inquiries or actions.
Research and Development Expenses. The Company has not expended a
material amount of its resources on research and development activities.
Costs and Expenses of Compliance With Environmental Laws. The Company
does not have any material amount of cost related to environmental regulations
and the Company does not expect to incur material expenses for that purpose in
fiscal year 1999.
Number of Employees. The approximate number of employees hired by the
Company as of the end of fiscal year 1998 was 80.
Item 2. Description of Property.
The Company's headquarters are located in an office-warehouse building of
approximately 16,000 square feet located in Englewood, Colorado, which the
Company leases from the Company's President. The property includes the executive
offices of the Company, as well as the Company's manufacturing facilities and a
portion of its warehouse facilities. The Company's lease expires in September
2000, and the Company believes that its rental rate is comparable to that which
would be charged by an unaffiliated landlord. The Company also leases an
additional approximate 18,000 square feet of warehouse space in a building
located near the Company's headquarters, which is leased from an entity solely
owned by the Company's President. The lease expires in June 2003, and the
7
<PAGE>
Company believes that its rental rate is comparable to that which would be
charged by an unaffiliated landlord. (See "Certain Relationships and Related
Transactions" incorporated by reference to the 1998 Definitive Proxy Statement.)
The Company does not believe that it would be difficult to locate
comparable space for its business operations at such time as either of the
leases expires.
Item 3. Legal Proceedings.
On January 22, 1999, a proceeding was commenced in the District Court for
Arapahoe County, Colorado by Bryan Simmons against the Company, its operating
subsidiary and the Company's President. The suit arises from Mr. Simmons' former
status as an independent contractor and, later, an employee of OraLabs Inc. In
the lawsuit Mr. Simmons claims commissions based upon sales of certain products
of the Company and he also appears to assert claims for finder's fees with
respect to transactions that have not occurred. The Company has filed its answer
with respect to some of the claims, has filed counterclaims against Mr. Simmons
and has moved to dismiss some of the claims. The Company believes that the
claims are without merit, that the likelihood of an unfavorable outcome to the
Company is small, and the Company intends to contest the case vigorously.
Except for that lawsuit, the Company is not a party to any material pending
legal proceedings to which either it or its subsidiary is a party or of which
any of its property is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
8
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) (i) Market Price of and Dividends on the Company's Common Stock. For
many years prior to closing the transaction by which the Company acquired its
wholly-owned subsidiary, OraLabs, Inc., there was no established public trading
market for the Company's common stock. Approximately in September 1997, the
common stock of the Company began to be traded on the OTC Bulletin Board. Since
April 28, 1998, the common stock of the Company has traded on the NASDAQ
SmallCap Market under the symbol OLAB.
The following sets forth the range of high and low bid information for the
Company's common stock for the third and fourth quarters of fiscal year 1997.
The source of such information for the third and fourth quarters of fiscal year
1997 and for January 1998 through April 27, 1998 (the last day the stock traded
on the OTC Bulletin Board) is an OTC Bulletin Board Quarterly Quote Summary
prepared by NASDAQ Trading and Market Services, while the source of the
information for the balance of 1998 is as reported by NASDAQ.
Reported High Bid Reported Low Bid
----------------- ----------------
Third quarter, fiscal 1997 $3.00 $2.50
Fourth quarter, fiscal 1997 $4.50 $2.75
First quarter, fiscal 1998 $4.75 $4.125
Second quarter, fiscal 1998 $4.875 $4.25
Third quarter, fiscal 1998 $4.688 $2.00
Fourth quarter, fiscal 1998 $3.50 $1.25
The quotations reflect inter-dealer prices, without adjustment for retail
mark-up, mark-down or commission and may not necessarily present actual
transactions.
(ii) Recent Sales of Unregistered Securities. Pursuant to the terms of
a Consulting Compensation Agreement with an independent party, the Company
issued 16,664 shares of common stock to that party in consideration for its
consulting services. The shares were issued in equal monthly installments
commencing in September 1998. The balance of 8,336 shares of common stock
issuable under the Agreement were issued to the consultant during the first
quarter of fiscal year 1999. The issuance of the shares was exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act")
pursuant to Section 4(2) thereof, and the certificates for the issued shares
contain the legend denominating the shares as "restricted securities" under the
Act.
In June 1998, the Company issued 5,000 options to each of two
non-employee members of the board of directors of the Company under the
Company's 1997 Non-Employee Directors' Option Plan. The transactions were exempt
from the registration requirements of the Act pursuant to Sections 4(6) and 4(2)
of the Act. The options vest in four equal installments over a period of four
years, with each option having an exercise price of $4.25 per share.
9
<PAGE>
(b) As of March 3, 1999, there were approximately 928 record holders
of the common stock of the Company.
(c) The Company has not paid any cash dividends and it is not intended
that any cash dividends will be paid in the foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Results of Operations. For the period ending December 31, 1998 as compared with
the period ending December 31, 1997.
- - --------------------------------------------------------------------------------
Product sales decreased approximately $209,000 or 3%. The Company's returns and
allowances increased approximately $299,000. The Company recorded approximately
$690,000 in returns and allowances for 1998, substantially from cough and cold
product returns. The Company does not anticipate any material cough and cold
returns in 1999 and customers who returned the products have remained customers
of the Company through purchases of the Company's lip care and oral care product
lines.
Services income increased approximately $537,000. In April 1998, the Company
entered into a management agreement with a company owned by the Company's
president. The Company receives a fee for providing certain receiving, shipping
and accounting services. Revenue is recognized as product is shipped. At
December 31, 1998, the Company recognized revenue of approximately $537,000
under this agreement.
Gross profit decreased approximately $270,000. Excluding services income from
revenue, the gross profit from product sales decreased approximately $806,000,
or from 52% to 41% of product sales. Gross profits are down considerably for the
Company's products that are packaged on blister cards (i.e., "carded sales")due
to downward pressure on selling prices caused by competition. Specifically, 1998
carded - sales of $1,053,273 yielded a gross profit of $262,752 or 25%, versus
1997 carded-sales(excluding cough and cold products, which were substantially
returned) of $1,403,804 which yielded a gross profit of $576,478 or 41%.
Additionally, profit margins decreased due to increased overhead costs. Overhead
costs absorbed in 1998 were up approximately $200,000 which was distributed to
the various product lines. The increase was a result of adding additional rent,
utilities and other costs associated with adding additional warehouse space.
General and administrative expenses increased approximately $269,000. The
Company's administrative salaries increased approximately $139,000, of which
approximately $94,000 was to the President under the employment agreement and
the balance of approximately $45,000 was predominantly for additional staffing.
Consulting increased approximately $37,000, with dimished consulting anticipated
for 1999. Research and development increased approximately $42,000 due to the
VitaSpray line that the Company investigated but decided against selling.
Depreciation increased $34,186 due to fixed asset additions of $303,614.
Property insurance increased $14,235 due to the additional building, increased
inventory and equipment.
Other expenses decreased $263,656. $340,000 was recorded for stock issued for
services in 1997, while in 1998 stock issued for services was $42,702 and
miscellaneous expenses attributable to being a public company was $33,642. Stock
issued for services in 1997 was to two employees of the Company's subsidiary for
services in the amount of $340,000 and is a non-recurring item. The employees'
services were in the areas of human resources and investor relations, which the
Company was required to address as part of preparing for its entry into the
public marketplace.
Net income decreased by $309,094 as explained by the above activities.
10
<PAGE>
Liquidity and Capital Resources.
- - --------------------------------
Balance Sheet as of December 31, 1998 Compared to December 31, 1997.
Cash decreased approximately $675,000 substantially as a net effect of the
following activities.
Accounts receivable increased approximately $439,000. One of our largest
customers had our account on hold in the amount of $261,000 for computer
processing errors that have been resolved in 1999, and two new Company accounts
established in the last quarter of 1998 were given extended terms.
Inventory increased approximately $1,363,000 due primarily to an increase in
nutritional supplements ($870,000); sore throat sprays ($180,000); and work in
process for orders ($139,000). The supplements had some anticipated large orders
that did not occur. Management expects to sell this inventory through a renewed
sales effort. The sore throat sprays were from returns and will be sold or
disposed of by the end of 1999. The work in process was all for orders to be
shipped.
Accounts payable increased approximately $551,000, substantially due to customer
credits booked to accounts payable (for returns of cough and cold products)
against future sales. Of the $551,000, the three accounts with the largest
credits as of December 31, 1998 were approximately $393,000, $28,000 and $24,000
respectively.
Trends. In 1998, the Company broadened its product base through its line of
nutritional supplements and broadened its lip care product line. The Company
intends to continue to expand its range of products so that it will become less
reliant on any individual product.
We expect continued growth for international sales, with current distribution to
25 countries reflected in sales for 1998 of $1,087,622 as compared to $909,588
for 1997, an approximate 20% increase. Our oral care and lip care products are
the only products currently sold internationally. Domestically, we anticipate
growth in 1999 to be dominated by the lip care and nutritional supplements
product lines while maintaining no more than modest growth in our oral care
product lines due to competitive pressures. The oral care product line is
holding ground in the breath freshener products while we anticipate continued
growth with our sour drops products. The lip care has been enhanced by the
addition of our Liprageous(R) brand, which has already been accepted by such
large store chains as Kmart and Rite Aid.
The nutritional supplements, with sales of $497,986 in 1998, look to see growth
through an increased array of products with increased exposure from exhibiting
at key trade shows and with sales staffing specific to the nutritional
supplement category.
Impact of Inflation.
- - --------------------
The Company's financial condition has not been affected by
the modest inflation of the recent past. The Company believes that revenues will
not be materially affected by inflation. The Company's lip care and oral care
products are primarily very low cost, impulse items (under $0.99 cents to
consumers) and the nutritional supplements are a small part (7% of revenues) in
a category that is on a growth trend.
11
<PAGE>
Year 2000.
- - ----------
Many computer systems were written using two digits rather than four
to define the applicable year. As a result, those computer programs have time
sensitive software that recognizes a date using "00" as the year 1900 rather
than the year 2000. This could cause a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company utilizes software vendors for its computer program applications. The
installation of a year 2000 compliant version of the Company's financial,
inventory, and production software was completed during the fourth quarter of
1998. The Company has also completed an assessment of its internal personal
computer network, which is expected to be year 2000 compliant by the end of
April 1999. Updating telephones, facsimile machines and labeling equipment for
year 2000 was completed during the fourth quarter of 1998. The voice mail system
is scheduled to be year 2000 compliant by the end of April 1999.
The Company does not believe that the cost of becoming year 2000 compliant will
be material to the financial condition of the Company. To date the Company has
incurred minor expenses, primarily for assessment of the year 2000 issue,
development of a modification plan, and the installation of a year 2000
compliant version of its financial, inventory, and production software.
The cost of the project and the dates on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates.
However, there can be no guarantee that these estimates will be achieved.
Failure to be year 2000 compliant in a timely fashion could have a material
adverse effect on the Company's operations and financial condition.
Our suppliers and customers who could adversely effect our business have been
surveyed for Year 2000 compliance. All of our material business partners have
stated that either they have or will achieve Year 2000 compliance. The Company
has not determined the extent to which the Company may be impacted by third
parties' systems, which may not be year 2000 compliant. Accordingly, the year
2000 computer issue may create risk for the Company from third parties with whom
the Company deals. There can be no assurance that the systems of other companies
with whom the Company deals with will be timely converted, or that any such
failure to convert by another company could not have an adverse effect on the
Company. The Company intends during the second fiscal quarter to resurvey those
suppliers and customers who had previously advised us that they were not yet
year 2000 compliant, and the Company will then determine if a contingency plan
needs to be formulated.
12
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS:
The provisions of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act") provide companies with a "safe harbor" when making forward-looking
statements. This "safe harbor" encourages companies to provide prospective
information about their companies without fear of litigation. The Company wishes
to take advantage of this "safe harbor" and is including this section in its
Annual Report on Form 10-KSB in order to do so. All statements in this Form
10-KSB that are not historical facts, including without limitation statements
about management's expectations for any period beyond the fiscal year ended
December 31, 1998, are forward-looking statements and involve various risks and
uncertainties, many of which are beyond the control of the Company, and any one
of which, or a combination of which, could materially reflect the results of the
Company's operations and whether forward-looking statements made by the Company
ultimately prove to be accurate.
The following discussion outlines certain risk factors that in the future
could affect the Company's results and cause them to differ materially from
those that may be set forth in any forward-looking statement made by or on
behalf of the Company. The Company cautions the reader, however, that this list
of risk factors and others discussed elsewhere in this report may not be
exhaustive.
Competition. The businesses in which the Company is engaged are highly
competitive and are engaged in to a large extent by companies which are
substantially larger and have significantly greater resources than the Company.
Although the Company believes that its Ice Drops(R) brand of liquid breath
freshener drops has achieved some measure of name recognition, to a large extent
the Company does not have the capital resources, marketing and distribution
networks, manufacturing facilities, personnel, product name recognition or
advertising budget of the larger companies. The industries in which the Company
competes experience consolidations of competitors from time to time and the
Company's business could be adversely affected by such activities. There can be
no assurance that the Company will be able to compete successfully in the
future.
13
<PAGE>
Unproven Markets for Certain of the Company's Products. The Company only
began selling its nutritional supplement products recently. The nutritional
supplement industry is influenced by products that become popular due to
changing consumer tastes and media attention. While the Company believes that
there is a market for its products, it has no prior history with these
supplements and therefore cannot be assured that the products will be accepted
or competitive in the marketplace in the long term, or that if accepted, that
part of the Company's business will be profitable.
Product Liability Insurance. Because the Company manufactures and
sells certain products designed to be ingested, it faces the risk that materials
used for the final products may be contaminated with substances that may cause
sickness or other injury to persons who have used the products. Although the
Company maintains standards designed to prevent such events, certain portions of
the process of product development, including the production, harvesting,
storage and transportation of raw materials, along with the handling,
transportation and storage of finished products delivered to consumers, are not
within the control of the Company. Furthermore, sickness or injury to persons
may occur if products manufactured by the Company are ingested in dosages which
exceed the dosage recommended on the product label or are otherwise misused. The
Company cannot control misuse of its products by consumers or the marketing,
distribution and resale of its products by its customers. With respect to
product liability claims in the United States, the Company has $1 million per
occurrence and $2 million in aggregate liability insurance. In addition, if
claims should exceed $2 million, the Company has excess umbrella liability
insurance of up to an additional $1 million. However, there can be no assurance
that such insurance will continue to be available, or if available, will be
adequate to cover potential liabilities. The Company generally does not obtain
contractual indemnification from parties supplying raw materials or marketing
its products and, in any event, any such indemnification is limited by its terms
and, as a practical matter, to the creditworthiness of the indemnifying party.
Dependence on Key Personnel. The Company's future success depends in large
part on the continued service of its key personnel. In particular, the loss of
the services of Gary Schlatter, its President and Chief Executive Officer, could
have a material adverse effect on the operations of the Company. The Company's
subsidiary has an employment agreement with Mr. Schlatter which expires on April
30, 2000. The Company's future success and growth also depends on its ability to
continue to attract, motivate and retain highly qualified employees. There can
be no assurance that the Company will be able to do so.
Government Regulation. The manufacturing, processing, formulation,
packaging, labeling and advertising of some of the Company's products are
subject to regulation by one or more federal agencies and under various laws
(see Description of Business-Government Regulation above). There can be no
assurance that the scope of such regulations will not change or otherwise cause
an increase in the expenses and resources of the Company which must be applied
to complying with such regulations. As an example, the Company's sun-block lip
balms are considered a "drug" by the FDA. If the FDA were to conclude that any
of the Company's products determined to be a "drug" violate FDA rules or
regulations, the FDA may seek to restrict or remove such products from the
market. Such action may be taken against the Company and any entity which
14
<PAGE>
manufactures products for the Company. As an additional example, regulations
concerning good manufacturing practices with respect to nutritional supplements
could have an adverse impact upon the cost or methods of producing the products.
The Company's business is also regulated by various agencies of the states
and localities in which the Company's products are sold and governmental
regulations in foreign countries where the Company sells or may seek to commence
sales. Such regulations could prevent or delay entry into a market or prevent or
delay the introduction of Company products. For example, the growth of
international sales is expected to be slowed by the long process of registering
new products.
The Company may be subject to additional laws or regulations administered
by the FDA or other federal, state or foreign regulatory authorities, the repeal
or amendment of laws or regulations or more stringent interpretations of current
laws or regulations, from time to time in the future. The Company is unable to
predict the nature of such future laws, regulations, interpretations or
applications, nor can it predict what effect additional governmental regulations
or administrative orders, when and if promulgated, would have on its business in
the future. They could, however, require reformulation of certain products to
meet new standards, recall or discontinuance of certain products not able to be
reformulated, imposition of additional record keeping requirements, expanded
documentation of the properties of certain products, expanded or different
labeling and scientific substantiation. Any or all such requirements could have
a material adverse effect on the Company's results of operations and financial
condition.
Managing Growth. The Company experienced a period of significant growth
during fiscal years ended December 31, 1997 and 1996. Significant growth did not
occur in fiscal year 1998, but it could occur again the future, especially if
the Company acquires one or more other companies with revenues comparable to or
greater than those of the Company. Such growth has placed, and could continue to
place, a strain on the Company's management, customer service and support
operations, sales and administrative personnel and other resources. The
Company's ability to manage continued growth may require the Company to expand
its operating, management, information and financial systems, all of which may
increase its operating expenses or otherwise strain the Company's resources. If
the Company is unsuccessful in managing growth, if such growth should occur,
there could be a material adverse effect on the Company. In addition, the loss
of a significant number of customers, or a significant reduction in purchase
volume by or financial difficulty of such customers, for any reason, could have
a material adverse effect on the Company. Successful management of growth, if it
occurs, will require the Company to improve its financial controls, operating
procedures and management information systems, and to train, motivate and manage
its employees.
Dependence Upon Significant Distributors and Retailers. No customer
accounted for more than ten percent (10%) of the Company's gross revenues in
1998. The Company had over 1,200 purchasing customers in fiscal 1998 and
believes that the loss of revenues from any customer could gradually be
replaced, but there could be adverse effects upon the Company's business until
those revenues are replaced.
15
<PAGE>
Dependence Upon Third Party Suppliers. With respect to some of the
Company's products, the product itself is formulated and supplied to the Company
by third party vendors, and the Company then packages the products for sale. For
other products, the Company provides some or all of the raw materials and a
third party completes preparation of the product and/or its packaging. Should
these relationships terminate, or should these parties be otherwise unable to
perform their obligations on terms satisfactory to the Company, the Company
would be required to establish relationships with substitute parties. Although
the Company believes that it can do so, there can be no assurance that this will
be the case, in which case there could be a material adverse effect upon the
Company.
No Assurance of Proprietary Protection. The Company has been allowed two
patents. The Company also holds several domestic and international trade marks
and has several applications pending. Certain aspects of the Company's business,
although not the subject of patents, include formulations and processes
considered to be proprietary in nature. There can be no assurance that any such
"proprietary" information will not be appropriated or that the Company's
competitors will not independently develop products that are substantially
equivalent or superior to the Company's. Even if the pending patents are issued
to the Company, there can be no assurance that the Company would be able to
successfully defend its patents or trademarks against claims from or use by
competitors, and there can be no assurance that the Company will be able to
obtain patent or trademark protection for any new products. In addition, in the
event that any of the Company's products are determined to infringe upon the
patents or proprietary rights of others, the Company could be required to modify
its products or obtain licenses for the manufacture or sale of the products, or
could be prohibited from selling the products.
No Assurance of Scientific Proof. The Company's nutritional supplement
products are intended to provide relief of certain symptoms or to otherwise aid
in the health of the consumers. If scientific data were to conclude that the
products do not do so, or if for any other reason the Company's products were
not viewed by the public as providing any meaningful benefit, there could be a
material adverse effect upon the sales of the products.
Item 7. Financial Statements.
Financial Statements meeting the requirements specified in Item 7 of Form
10-KSB follow the signature page and are listed in Item 13 of this Annual Report
on Form 10-KSB.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Effective December 29, 1998, the firm of Ehrhardt Keefe Steiner & Hottman
P.C. was retained as the Company's independent auditors and the firm of former
auditors, Schumacher & Associates, Inc. was dismissed. In addition, on May 12,
1997, shortly after the time of the completion of the merger transaction by
which OraLabs, Inc. (the Company's subsidiary) became a wholly-owned subsidiary
16
<PAGE>
of SSI Capital Corp. (the predecessor of the Company), the auditors retained by
SSI Capital Corp. were dismissed and replaced with Schumacher & Associates,
Inc., which had then been the independent auditors for OraLabs, Inc. In both
cases, the firm of auditors being dismissed have not rendered a report on the
Company's financial statements which contained an adverse opinion or disclaimer
of opinion, or was modified as to uncertainty, audit scope, or accounting
principles, and there were no disagreements between the Company and its former
accountant on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. These transactions were
previously reported on Forms 8-K filed on January 4, 1999 and May 14, 1997.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act of the Registrant.
The following table identifies each of the Company's directors and
executive officers, indicating the principal occupation or employment of each
such person and the name and principal business of any organization by which
such person is so employed:
<TABLE>
<CAPTION>
Name of Director or Principal Occupation Name and Business
Individual Executive Officer or Employment of Employer
---------- ----------------- ------------- -----------
<S> <C> <C> <C>
Gary H. Schlatter Director and Executive President of Company's OraLabs, Inc.
Officer Subsidiary
Suzan M. Schlatter Director Secretary of Company's OraLabs, Inc.
Subsidiary
Allen R. Goldstone Director Consultant Creative Business
Strategies, Inc.;
Business
Consulting
Firm
Michael I. Friess Director Attorney Michael Friess
Emile Jordan Executive Officer Comptroller of Company's OraLabs, Inc.
Subsidiary
</TABLE>
The balance of the information required for this Item is incorporated
herein by reference to the 1998 Definitive Proxy Statement.
Item 10. Executive Compensation.
The information required for this item is incorporated herein by reference
to the 1998 Definitive Proxy Statement.
17
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information required for this item is incorporated herein by
reference to the 1998 Definitive Proxy Statement.
Item 12. Certain Relationships and Related Transactions.
The information required for this item is incorporated herein by
reference to the 1998 Definitive Proxy Statement.
18
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as a part of this Form 10-K
immediately following the signature pages:
1. Consolidated Financial Statements (OraLabs Holding Corp. and
Consolidated Subsidiaries):
Independent Auditor's Report
Consolidated Balance Sheet - December 31, 1998
Consolidated Statements of Operations for
the years ended December 31, 1998 and
December 31, 1997
Consolidated Statement of Stockholders' Equity
from December 31, 1996 through December 31, 1998
Consolidated Statements of Cash Flows for
the years ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements
2. Exhibits required to be filed are listed below:
Certain of the following exhibits are hereby
incorporated by reference pursuant to Rule
12(b)-32 as promulgated under the Securities
and Exchange Act of 1934, as amended, from
the reports noted below:
19
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
3.1(i)(1) Articles of Incorporation
3.1(ii)(2) Amended and Restated Bylaws
3.1(ii)(5) Second Amended and Restated Bylaws
4(2) Specimen Certificate for Common Stock
10.1(2) 1997 Stock Plan
10.2(2) 1997 Non-Employee Directors' Option Plan
10.3(3) Amended and Restated Employment Agreement Between the Company's
Subsidiary and Gary Schlatter
10.4(2) Initial Stock Option Grant to Michael Friess under 1997 Non-Employee
Directors' Option Plan
10.5(i)(2) Lease Agreement Between the Company's Subsidiary and Gary Schlatter
(September 1, 1995)
10.5(ii(5) Business Lease Between the Company and 2780 South Raritan, LLC,
(July 1, 1998)
10.6(2) Sublease Agreement Between the Company's Subsidiary and Modern
Plastics, Inc.
10.7(2) Employment Agreement Between the Company's Subsidiary and Allen R.
Goldstone, with accompanying termination agreement
10.8(2) Employment Agreement Between the Company's Subsidiary and Sanford
Schwartz, with accompanying termination agreement
10.9(4) Merger Agreement and Plan of Reorganization Between the Company's
Subsidiary, SSI Capital Corp., Oralmerge, Inc., et al.
10.10(5) Contract for Services effective April 1, 1998 between OraLabs, Inc. and
Top Form Brands, Inc.
11 No statement re: computation of per share earnings is required since such
computation can be clearly determined from the material contained in this
Annual Report on Form 10-KSB.
21(2) List of Subsidiaries of the Company
23.1(5) Consent of Independent Public Accountants (Ehrhardt Keefe Steiner & Hottman P.C.)
23.2(5) Consent of Independent Public Accountants (Schumacher & Associates, Inc.)
27(5) Financial Data Schedule for OraLabs Holding Corp. and Consolidated
Subsidiaries
</TABLE>
- - ------------------
1 Incorporated herein by reference to Exhibit C of the Definitive Information
Statement filed by the Company's predecessor, SSI Capital Corp., on July
24, 1997.
2 Incorporated herein by reference to the Company's Form 10-K filed for
fiscal year 1997.
3 Incorporated herein by reference to Exhibit B of the Form 8-K filed by the
Company's predecessor, SSI Capital Corp., on May 14, 1997.
4 Incorporated herein by reference to Exhibit A of the Form 8-K filed by the
Company's predecessor, SSI Capital Corp., on May 14, 1997.
5 Filed herewith.
(b) A Form 8-K was filed in January 1999 for the reporting date of December
29, 1998, respecting the dismissal of the Company's former independent auditors
and the retention of the firm of Ehrhardt Keefe Steiner & Hottman P.C. as the
Company's independent auditors.
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ORALABS HOLDING CORP.
By: /s/ Gary H. Schlatter
--------------------------------------
Gary H. Schlatter, President
By: /s/ Emile Jordan
--------------------------------------
Emile Jordan, Chief Financial Officer
Date: March 31, 1999
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gary H. Schlatter Director, President, March 31, 1999
- - ------------------------- Chief Executive Officer
Gary H. Schlatter
/s/ Allen R. Goldstone Director March 31, 1999
- - -------------------------
Allen R. Goldstone
/s/ Suzan M. Schlatter Director March 31, 1999
- - -------------------------
Suzan M. Schlatter
21
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Table of Contents
-----------------
Page
----
Independent Auditors' Report..............................................F - 1
Independent Auditors' Report .............................................F - 2
Consolidated Financial Statements
Consolidated Balance Sheet.......................................F - 3
Consolidated Statements of Operations............................F - 4
Consolidated Statement of Stockholders' Equity...................F - 5
Consolidated Statements of Cash Flows............................F - 6
Notes to Consolidated Financial Statements................................F - 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Oralabs Holding Corp. and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Oralabs Holding
Corp. and Subsidiaries as of December 31, 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Oralabs Holding
Corp. and Subsidiaries as of December 31, 1998 and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
February 24, 1999
Denver, Colorado
F-1
<PAGE>
REORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
-------------------------------------------------
The Board of Directors
Oralabs Holding Corp.
We have audited the consolidated statements of income, changes in stockholders'
equity and cash flows of Oralabs Holding Corp. and Consolidated Subsidiaries for
the year ended December 31, 1997. 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.
Those standards require that we plan and perform an audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit inclludes 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 significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations, changes in
stockholders' equity and cash flows of Oralabs Holding Corp. and Consolidated
Subsidiaries for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Schumacher & Associates, Inc.
------------------------------------
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
February 24, 1998
F - 2
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1998
Assets
Current assets
Cash and cash equivalents $ 348,979
Accounts receivable, net of
allowance for doubtful accounts
of $33,007 1,125,425
Inventory (Note 2) 1,962,137
Deferred income taxes (Note 10) 58,060
Prepaid expenses 125,242
----------
Total current assets 3,619,843
Property and equipment at cost, net (Note 3) 431,403
----------
Total assets $4,051,246
==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 858,866
Accrued liabilities 197,190
Income taxes payable (Note 10) 106,294
----------
Total current liabilities 1,162,350
Deferred tax liability (Note 10) 17,941
----------
Total liabilities 1,180,291
----------
Commitments and contingencies (Notes 4, 5, 8 and 13)
Stockholders' equity (Note 9)
Preferred stock, $.001 par value,
1,000,000 shares authorized;
none issued and outstanding --
Common stock, $.001 par value;
100,000,000 shares authorized;
9,142,419 issued and outstanding 9,142
Additional paid-in capital 1,179,309
Retained earnings 1,682,504
----------
Total stockholders' equity 2,870,955
----------
Total liabilities and stockholders' equity $4,051,246
==========
See notes to consolidated financial statements.
F - 3
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
December 31,
--------------------------
1998 1997
----------- -----------
Revenue
Product sales $ 6,553,331 $ 6,762,361
Services income (Note 4) 536,685 --
Cost of sales 3,853,959 3,256,794
----------- -----------
Gross profit 3,236,057 3,505,567
----------- -----------
Operating expenses
Engineering 110,286 101,022
Selling and marketing 848,419 788,294
General and administrative 929,713 660,654
Other 76,344 340,000
----------- -----------
Total operating expenses 1,964,762 1,889,970
----------- -----------
Net operating income 1,271,295 1,615,597
Other income (expense)
Interest and other income 41,080 34,750
----------- -----------
Total other income (expense) 41,080 34,750
----------- -----------
Net income before provision for income taxes 1,312,375 1,650,347
Provision for income taxes (Note 10)
Current 473,211 483,180
Deferred 20,605 (67,816)
Pro forma -- 107,330
----------- -----------
493,816 522,694
----------- -----------
Net income (pro forma for 1997) $ 818,559 $ 1,127,653
=========== ===========
Basic income per common share
(pro forma for 1997) $ .09 $ .13
=========== ===========
Weighted average shares outstanding
(pro forma for 1997) 9,126,621 8,707,362
=========== ===========
Diluted income per share
(pro forma for 1997) $ .09 $ .12
=========== ===========
Diluted weighted average shares
outstanding (pro forma for 1997)
9,486,436 9,064,353
=========== ===========
See notes to consolidated financial statements.
F - 4
<PAGE>
<TABLE>
<CAPTION>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
From December 31, 1996 through December 31, 1998
Preferred Stock Common Stock Additional
------------------- -------------------- Paid-in Retained
Shares Amount Shares Amount Capital
Earnings Total
------- ------- --------- ------- -----------
- - ------------ -----------
<S> <C> <C> <C> <C> <C>
<C> <C>
Balance December 31, 1996 - $ - 7,458,784 $ 7,459 $ 137,457 $
622,688 $ 767,604
Reorganization/additional
paid-in capital - - 999,771 1,000 160,849
- - - 161,849
Common stock issued for cash - - 325,000 325 324,675
- - - 325,000
Reclassification of undistributed
S Corporation earnings - - - - 171,786
(171,786) -
Common stock issued for
services - - 340,000 340 339,660
- - - 340,000
Distributions - - - - -
(714,610) (714,160)
Net income - - - - -
1,127,653 1,127,653
----- -------- ----------- ------- -----------
- - ------------ -----------
Balance at December 31, 1997 - - 9,123,555 9,124 1,134,427
863,945 2,007,496
Common stock options
exercised - - 2,200 2 2,198
- - - 2,200
Common stock issued
for services - - 16,664 16 42,684
- - - 42,700
Net income - - - - -
818,559 818,559
----- -------- ----------- ------- -----------
- - ------------ -----------
Balance at December 31, 1998 - $ - 9,142,419 $ 9,142 $ 1,179,309 $
1,682,504 $ 2,870,955
===== ======== =========== ======= ===========
============ ===========
See notes to consolidated financial statements.
F - 5
</TABLE>
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
December 31,
--------------------------
1998 1997
----------- -----------
Cash flows from operating activities
Net income $ 818,559 $ 1,127,653
----------- -----------
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities
Depreciation 86,943 52,757
Deferred taxes 27,697 --
Stock issued for services 42,700 340,000
Changes in assets and liabilities
Accounts payable 550,941 183,666
Accrued expenses (51,750) (294,199)
Accounts receivable (438,757) 51,770
Inventory (1,362,867) --
Income taxes payable (13,292) (148,286)
Other current assets (33,379) (72,634)
----------- -----------
(1,191,764) 113,074
----------- -----------
Net cash (used in) provided by
operating activities (373,205) 1,240,727
----------- -----------
Cash flows from investing activities
Investment in property and equipment (303,614) (109,767)
----------- -----------
Net cash (used in) investing activities (303,614) (109,767)
----------- -----------
Cash flows from financing activities
Stock issued and additional paid-in capital 2,200 486,849
Distributions -- (714,610)
----------- -----------
Net cash (used in) financing activities 2,200 (227,761)
----------- -----------
Net increase (decrease) in cash
and cash equivalents (674,619) 903,199
Cash and cash equivalents, beginning of period 1,023,598 120,399
----------- -----------
Cash and cash equivalents, end of period $ 348,979 $ 1,023,598
=========== ===========
Supplemental disclosures of
cash flow information:
Cash paid for income taxes
was $346,695 (1998) and
$470,924 (1997)
See notes to consolidated financial statements
F - 6
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
- - --------------------------------------------------------------------
Oralabs Holding Corp. (the "Company") a Colorado corporation was formed during
June 1997. SSI Capital Corp. (SSI) a New York Corporation was incorporated on
January 30, 1981. Effective August 22, 1997, SSI was merged into the Company and
the outstanding shares of SSI were converted to shares of the Company on a one
for two basis. All references to common stock in the Company's financial
statements have been retroactively adjusted for the merger and the one for two
reduction in shares outstanding.
Oralabs, Inc. (ORALABS), a Colorado corporation was incorporated on August 10,
1990. ORALABS is in the business of manufacturing and distributing lip balm,
fresh breath and other products. ORALABS is a wholly owned subsidiary of the
Company.
Principles of Consolidation
- - ---------------------------
The consolidated financial statements include the accounts of ORALABS and the
accounts of SSI since the date of the reverse acquisition and the accounts of OL
Sub Corp. (an inactive entity) since inception. All intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
- - -------------------------
For purposes of the statements of cash flows, the Company considers all
short-term securities purchased with an original maturity of three months or
less to be cash equivalents.
Advertising Costs
- - -----------------
The Company expenses advertising expenses as incurred. Total advertising costs
of $77,120 and $68,709 for December 31, 1998 and 1997, respectively, were
expensed to operations.
Inventories
- - -----------
Inventories consist of raw materials, work in process, and finished goods which
are carried at the lower of average cost or market value. Cost is determined
using the average cost method.
Research and Development
- - ------------------------
Research and development costs related to new product lines are expensed as
incurred. Total research and development costs of $53,472 and $11,378 for
December 31, 1998 and 1997, respectively were expensed to operations.
F - 7
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- - --------------------------------------------------------------------------------
Property and Equipment
- - ----------------------
Property and equipment is stated at cost. Depreciation is provided using the
straight-line method for financial reporting purposes at rates based on the
following estimated useful lives:
Years
-----
Machinery and equipment 5-7
Leasehold improvements 5
Revenue Recognition
- - -------------------
The Company recognized revenue in accordance with the criteria set forth in SFAS
48. Revenue is recognized as product is shipped net of estimated returns.
Income Taxes
- - ------------
Prior to completion of the business combination, the Company had elected to be
taxed under Subchapter S of the Internal Revenue Service Code. The election was
automatically terminated effective May 1, 1997. The 1997 statement of operations
reflect pro forma information which present pro forma income taxes as if
computed at the statutory rate.
The Company calculates and records the amount of taxes payable or refundable
currently or in future years for temporary differences between the consolidated
financial statement basis and income tax basis based on the current enacted tax
laws. Temporary differences are differences between the tax basis of assets and
liabilities and their reported amounts in the consolidated financial statements
that will result in taxable or deductible amounts in future years.
Use of Estimates
- - ----------------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reporting amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
- - ------------------------
The Company has elected to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options in the accompanying statements
of operations is measured as the excess, if any, of the fair market value of the
Company's stock at the measurement date over the amount the employee must pay to
acquire the stock.
F - 8
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- - --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncements
- - -----------------------------------------
In September 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), which establishes
standards for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income, be reported in a financial statement that is displayed
with the same prominence as other financial statements. Currently the Company's
only component, which would comprise comprehensive income, is its results of
operations.
Also, in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131), which supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
SFAS No.'s 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997, and require comparative information for
earlier periods to be restated.
In February of 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" (SFAS No. 132), which supercedes SFAS No.'s 87, 88, and 106. SFAS No.
132 addresses disclosure only and is effective for fiscal years beginning after
December 15, 1997. Restatement of disclosures for prior periods is required. The
adoption of SFAS No. 132 will have no current impact on the Company's financial
statements, as no prior disclosures under SFAS No. 87, 88, or 106 were
applicable.
In June of 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities"(SFAS No.
133). SFAS No. 133 addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15,1999. Initial application of SFAS No. 133
shall be as of the beginning of an entity's fiscal quarter, on that date,
hedging relationships shall be designated anew and documented under the
provisions of this statement. The adoption of SFAS No. 133 shall not be
retroactively applied. This statement currently has no impact on the financial
statements of the Company, as the Company does not hold any derivative
instruments or participate in any hedging activities.
F - 9
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- - --------------------------------------------------------------------------------
Earnings Per Share
- - ------------------
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standard No. 128. Basic earnings per share is computed
based on the weighted average number of common shares outstanding. Diluted
earnings per share is computed based on the weighted average number of common
shares plus potential dilutive common shares outstanding which include common
stock options granted under the Company's stock option plans.
Reclassifications
- - -----------------
Certain items in the 1997 financial statements have been reclassified with the
1998 presentation.
Concentration of Business and Credit Risk
- - -----------------------------------------
The Company is engaged primarily in the manufacture and sale of lip balm, breath
and other products throughout North America and Internationally. The potential
for severe financial impact can result from negative effects of economic
conditions within the market or geographic area. Since the Company's business is
principally in one area, this concentration of operations results in an
associated risk and uncertainty. Since the Company's products are inexpensive,
the potential negative effect of changes in economic conditions are less than
would be expected for higher priced products of other industries.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and accounts
receivable. As of December 31, 1998, the Company had no significant
concentrations of credit risk, other than the Company had $304,642 invested in a
money market fund. While the underlying investment securities of the fund are
guaranteed by the U.S. government, the shares of the fund are not guaranteed and
therefore are considered to be a concentration of credit risk. (See Note 6)
Note 2 - Inventories
- - --------------------
Inventories consisted of the following:
December 31,
1998
----------------
Raw materials $ 1,668,550
Work-in-process and finished goods 293,587
----------------
$ 1,962,137
================
F - 10
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 - Property and Equipment
- - -------------------------------
Property and equipment consisted of the following:
December 31,
1998
----------------
Machinery and equipment $ 577,292
Leasehold improvements 111,545
----------------
688,837
Less accumulated depreciation (257,434)
$ 431,403
================
Note 4 - Transaction with Related Party
- - ---------------------------------------
The Company leases office and warehouse space owned by the Company's president.
In April 1998, Oralabs Holding Corp. entered into a management agreement with a
company owned by Oralabs Holding Corp.'s president. Oralabs Holding Corp.
receives a fee for providing certain receiving, shipping and accounting
services. Revenue is recognized as product is shipped. At December 31, 1998,
Oralabs Holding Corp. recognized revenue of $536,685 under this agreement and
amount due from the related party was $27,664.
Note 5 - Operating Lease
- - ------------------------
The Company leases office and manufacturing facilities under separate operating
leases for buildings owned by the Company's president. The Company also leases
two vehicles under operating lease agreements. Total rent payments on all leases
totals approximately $15,359 per month.
Year Ending December 31, Amount
------------------------ ------
1999 $ 178,944
2000 155,156
2001 111,156
2002 102,039
2003 49,500
--------------
$ 596,795
==============
Rent expense under these operating leases totaled $122,652 and $73,153 during
the years ended December 31, 1998 and 1997, respectively.
F - 11
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 6 - Significant Customers and Suppliers
- - --------------------------------------------
For the year ended December 31, 1998, the Company had purchases of $675,000 and
$571,066 from two suppliers accounting for 18% and 15% of total purchases. The
Company had accounts receivable of $261,176 and $115,604 from two customers
representing 23% and 10% of accounts receivable at December 31, 1998. The
Company had one customer that accounted for 13% or $879,107 of gross sales
during the year ended December 31, 1997.
Note 7 - Line-of-Credit
- - -----------------------
The Company entered into a line-of-credit agreement with a bank in the amount of
$750,000 which expires May 1999. As of December 31, 1998, the Company had
available the entire $750,000 unused line-of-credit. The initial interest rate
was 7.5% per annum to be adjusted periodically based on 1.0% under the banks
index rate. The line-of-credit is collateralized by a first lien on all of the
Company's business assets.
Note 8 - Business Combination
- - -----------------------------
Effective May 1, 1997, SSI and ORALABS completed a business combination whereby
ORALABS became a wholly-owned subsidiary of SSI. Prior to the business
combination, SSI had 874,771 shares of common stock outstanding. An additional
125,000 shares were issued to the two largest shareholders of SSI and one
additional individual upon closing the business combination. Effective January
1, 1997 ORALABS issued shares of its common stock to two individuals for
services which were exchanged for 340,000 shares of SSI on May 1, 1997. Also on
May 1, 1997, 7,458,784 shares of SSI were issued for the ownership of ORALABS.
As a result of these transactions, ORALABS became a wholly-owned subsidiary of
SSI. Since the former controlling shareholders of ORALABS owned approximately
85% of SSI after the business combination, the transaction has been accounted
for as a reverse acquisition. The net monetary assets of SSI at the time of the
reverse acquisition of approximately $161,849 have been accounted for as
issuance of stock and additional paid-in capital.
Note 9 - Stock Options
- - ----------------------
In 1997, the Company adopted an incentive stock option plan for employees. Under
this plan, the board approved a program to grant certain employees the right to
purchase common stock of the Company for $1.00 per share. The options vest on an
annual basis. As of December 31, 1998, the Company had 497,800 incentive options
outstanding under this plan, each with exercise price of $1.00 per share.
F - 12
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9 - Stock Options (continued)
- - ----------------------------------
In September 1997, the Company adopted a Non-Employee Directors' Option Plan.
The Board approved a program to grant certain directors the right to purchase
common stock of the Company. The options vest on an annual basis. As of December
31, 1998, the Company had 30,000 options outstanding under this plan, of which
20,000 options may be exercised at the price of $1.00 per share and 10,000 may
be exercised at the price of $4.25 per share. During 1998, 10,000 options were
granted by the Company.
The following is a summary of options and warrants granted:
Exercise Price
Options Per Share
------- --------------
Outstanding December 31, 1997 520,000 $ 1.00
Options granted 10,000 4.25
Options exercised (2,200) 1.00
------- -------------
Outstanding December 31, 1998 527,800 $ 1.00 - 4.25
======= =============
The Company has the following stock options and warrants outstanding at December
31, 1998:
Non-
Options Exercise Expiration Exercisable Exercisable
Outstanding Price Date Options Options
----------- ----- -------------- ----------- -----------
20,000 $ 1.00 September 2002 15,000 5,000
10,000 4.25 June 2003 10,000 -
186,000 1.00 April 2007 62,000 124,000
51,000 1.00 June 2007 40,800 10,200
260,800 1.00 August 2007 210,400 50,400
--------- ------- --------- ----------
527,800 338,200 189,600
========= ========= ==========
Weighted average
information $ 1.06 99.0 months
========
F - 13
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9 - Stock Options (continued)
- - ----------------------------------
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation".
Accordingly, no compensation cost has been recognized using the fair value
approach for stock options and warrants granted pursuant to employee plans. Had
compensation cost for the Company's stock options and warrants been determined
based on the fair value at the grant date for awards in 1997 and 1998 consistent
with the provisions of SFAS No. 123, the Company's net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below:
Years Ended
December 31,
---------------------------
1998 1997
------- ---------
Net income - as reported 818,559 1,127,653
Net income - pro forma 796,469 1,026,204
Earnings per share - as reported .09 .13
Earnings per share - pro forma .08 .12
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: dividend yield and expected volatility of 62% and
0%; discount rate of 5.45% and 5.5%; and expected lives of 4 years for 1998 and
1997, respectively.
Note 10 - Income Taxes
- - ----------------------
Deferred tax liabilities and assets are determined based on the difference
between the financial statement assets and liabilities and tax basis assets and
liabilities using the tax rates in effect for the year in which the differences
occur. The measurement of deferred tax assets is reduced, if necessary, by the
amount of any tax benefits that based on available evidence, are not expected to
be realized.
The components of the provision for income tax expense are as follows:
December 31,
--------------------------------
1998 1997
----------- -----------
Current $ 473,211 $ 590,510
Deferred 20,605 (67,816)
----------- -----------
$ 493,816 $ 522,694
=========== ===========
F - 14
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 - Income Taxes (continued)
- - ----------------------------------
The deferred income tax assets and liabilities result primarily from differing
depreciation and amortization periods of certain assets, provision for doubtful
accounts, provision for product returns and allowances, and the recognition of
certain expenses for financial statement purposes and not for tax purposes.
The net current and long-term deferred tax liabilities in the accompanying
balance sheet include the following items:
December 31,
1998
----------------
Current deferred tax asset $ 58,060
Current deferred tax liability -
----------------
$ 58,060
================
Long-term deferred tax asset $ -
Long-term deferred tax liability 17,941
----------------
$ 17,941
================
Rate Reconciliation
- - -------------------
The reconciliation of income tax expense by applying the Federal Statutory rates
to the Company's effective income tax rate is as follows:
December 31,
-------------------------------
1998 1997
---------- ----------
Federal statutory rate 34.0% 34.0%
State tax on income, net of federal
income tax benefit 5.0 5.0
Nondeductible expenses .4 .2
Other - deferred (1.8) (7.5)
---------- ----------
37.6% 31.7%
========== ==========
Prior to completion of the business combination, the Company had elected to be
taxed under Subchapter S of the Internal Revenue Code. The election was
automatically terminated effective May 1997 and as a result, no provision for
income tax was recorded prior to May 1, 1997.
F - 15
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 11 - Earnings Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator)
----------- -------------
<S> <C> <C> <C>
Net income $ 818,559
Basic EPS
Weighted average beginning
shares outstanding - 9,123,555
Weighted average option shares issued - 669
Weighted average shares issued for services
- 2,397
------------- -----------
Income available to common stockholders 818,559 9,126,621 $ .09
=======
Effect of Dilutive Common Stock
Options 359,815
Diluted EPS
Income available to common stockholders plus
assumed conversions $ 818,559 9,486,436 $ .09
============= =========== =======
</TABLE>
Note 12 - Export Sales
- - ----------------------
All of the Company's business is transacted in U.S. dollars and the Company had
no foreign currency translation adjustments. Export sales for the years ended
December 31, 1998 and 1997 were $1,087,622 and $909,588 or 17% and 14% of
product sales, respectively.
Note 13 - Contingencies
- - -----------------------
Litigation
- - ----------
There is a lawsuit against the Company which, in the opinion of management
and supported by advice from counsel, will not result in any material adverse
effect on the financial position of the Company.
F - 16
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
3.1(i)(1) Articles of Incorporation
3.1(ii)(2) Amended and Restated Bylaws
3.1(ii)(5) Second Amended and Restated Bylaws
4(2) Specimen Certificate for Common Stock
10.1(2) 1997 Stock Plan
10.2(2) 1997 Non-Employee Directors' Option Plan
10.3(3) Amended and Restated Employment Agreement Between the Company's
Subsidiary and Gary Schlatter
10.4(2) Initial Stock Option Grant to Michael Friess under 1997 Non-Employee
Directors' Option Plan
10.5(i)(2) Lease Agreement Between the Company's Subsidiary and Gary Schlatter
(September 1, 1995)
10.5(ii(5) Business Lease Between the Company and 2780 South Raritan, LLC,
(July 1, 1998)
10.6(2) Sublease Agreement Between the Company's Subsidiary and Modern
Plastics, Inc.
10.7(2) Employment Agreement Between the Company's Subsidiary and Allen R.
Goldstone, with accompanying termination agreement
10.8(2) Employment Agreement Between the Company's Subsidiary and Sanford
Schwartz, with accompanying termination agreement
10.9(4) Merger Agreement and Plan of Reorganization Between the Company's
Subsidiary, SSI Capital Corp., Oralmerge, Inc., et al.
10.10(5) Contract for Services effective April 1, 1998 between OraLabs, Inc. and
Top Form Brands, Inc.
11 No statement re: computation of per share earnings is required since such
computation can be clearly determined from the material contained in this
Annual Report on Form 10-KSB.
21(2) List of Subsidiaries of the Company
23.1(5) Consent of Independent Public Accountants (Ehrhardt Keefe Steiner & Hottman P.C.)
23.2(5) Consent of Independent Public Accountants (Schumacher & Associates, Inc.)
27 Financial Data Schedule for OraLabs Holding Corp. and Consolidated
Subsidiaries
</TABLE>
- - ------------------
1 Incorporated herein by reference to Exhibit C of the Definitive Information
Statement filed by the Company's predecessor, SSI Capital Corp., on July
24, 1997.
2 Incorporated herein by reference to the Company's Form 10-K filed for
fiscal year 1997.
3 Incorporated herein by reference to Exhibit B of the Form 8-K filed by the
Company's predecessor, SSI Capital Corp., on May 14, 1997.
4 Incorporated herein by reference to Exhibit A of the Form 8-K filed by the
Company's predecessor, SSI Capital Corp., on May 14, 1997.
5 Filed herewith.
(b) A Form 8-K was filed in January 1999 for the reporting date of December
29, 1998, respecting the dismissal of the Company's former independent auditors
and the retention of the firm of Ehrhardt Keefe Steiner & Hottman P.C. as the
Company's independent auditors.
Exhibit 3.1(ii)
Table of Contents
Article Page
I. Offices ....................................... 1
II. Shareholders .................................. 1
III. Board of Directors ............................ 8
IV. Officers and Agents ........................... 13
V. Stock ......................................... 15
VI. Indemnification of Certain Persons ............ 16
VII. Miscellaneous ................................. 20
SECOND AMENDED AND RESTATED BYLAWS
OF
ORALABS HOLDING CORP.
ARTICLE I
Offices
-------
The principal office of the corporation shall be designated from time to
time by the corporation and may be within or outside of Colorado.
The corporation may have such other offices, either within or outside
Colorado, 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 Colorado Business
Corporation Act to be maintained in Colorado may be, but need not be, identical
with the principal office, 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. (i) The annual meeting of the shareholders shall
be held on a date and at a time fixed by the board of directors of the
corporation (or by the president in the absence of action by the board of
directors). At each annual meeting, (a) directors shall be elected from the
persons who are nominated in accordance with the procedures set forth in Article
III, Section 16 below and (b) any proper business shall be conducted which has
been submitted in accordance with the procedures set forth in paragraph (iii) of
this Section 1.If the election of directors is not held on the day fixed as
provided herein for any annual meeting of the shareholders, or 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 it may conveniently be held.
<PAGE>
(ii) A shareholder may apply to the district court in the county in
Colorado where the corporation's principal office is located or, if the
corporation has no principal office in Colorado, to the district court of the
county in which the corporation's registered office is located to seek an order
that a shareholder meeting be held (a) if an annual meeting was not held within
six months after the close of the corporation's most recently ended fiscal year
or fifteen months after its last annual meeting, whichever is earlier, or (b) if
the shareholder participated in a proper call of or proper demand for a special
meeting and notice of the special meeting was not given within thirty days after
the date of the call or the date the last of the demands necessary to require
calling of the meeting was received by the corporation pursuant to C.R.S. ss.
7-107-102(1)(b), or the special meeting was not held in accordance with the
notice.
(iii) Only proper business which has been submitted in accordance with the
following procedures shall be conducted at the annual meeting. Submissions of
proper business to be conducted at the annual meeting may be made at such
meeting by or at the direction of the Board of directors, by any committee or
persons appointed by the Board of directors or by any shareholder of the
corporation who complies with the notice procedures set forth in this paragraph.
Such submissions of proper business by any shareholder shall be made pursuant to
timely notice in writing to the Secretary of the corporation. To be timely, a
shareholder's notice shall be delivered to, or mailed and received at, the
principal business offices of the corporation not less than sixty (60) days in
advance of the date of the corporation's proxy statement released to
shareholders in connection with the previous year's annual meeting of
shareholders, except that if no annual meeting was held in the previous year or
there was no proxy statement released to shareholders in connection with the
previous year's annual meeting, the notice shall be delivered to, or mailed and
received at, the principal business offices of the corporation not less than
sixty (60) days prior to the date of the upcoming annual meeting. Such
shareholder's notice to the Secretary shall set forth (a) a description of the
proper business submitted for consideration at the annual meeting and the
reasons for conducting such business at the meeting, and if such business
includes a proposal to amend the bylaws of the corporation, the language of the
proposed amendment, (b) the name and record address of the shareholder giving
the notice, (c) the class and number of shares of capital stock of the
corporation which are beneficially owned by the shareholder, and (d) any
material interest of the shareholder in the business. No proper business shall
be conducted at the annual meeting unless submitted in accordance with the
procedures set forth herein. The Chairman of the Board shall, if the facts
warrant, determine and declare to the meeting that a submission of proper
business was not made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the defective
submission shall be disregarded.
Section 2. Special Meetings. Unless otherwise prescribed by statute,
special meetings of the shareholders may be called for any purpose by the
president or by the board of directors. The president shall call a special
meeting of the shareholders if the corporation receives one or more written
demands for the meeting, stating the purpose or purposes for which it is to be
held, signed and dated by holders of shares representing at least ten percent of
all the votes entitled to be cast on any issue proposed to be considered at the
meeting.
Section 3. Place of Meeting. The board of directors may designate any
place, either within or outside Colorado, as the place for any annual meeting or
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 outside Colorado, as the place for such meeting. If no
designation is made, or if a special meeting is called other than by the board,
the place of meeting shall be the principal office of the corporation.
-2-
<PAGE>
Section 4. Notice of Meeting. Written notice stating the place, date, and
hour of the meeting shall be given not less than ten nor more than sixty days
before the date of the meeting, except (i) that if the number of authorized
shares is to be increased, at least thirty days' notice shall be given, or (ii)
if any other longer notice period is required by the Colorado Business
Corporation Act. Notice of a special meeting shall include a description of the
purpose or purposes of the meeting. Notice of an annual meeting need not include
a description of the purpose or purposes of the meeting except the purpose or
purposes shall be stated with respect to (i) an amendment to the articles of
incorporation of the corporation, (ii) a merger or share exchange in which the
corporation is a party and, with respect to a share exchange, in which the
corporation's shares will be acquired, (iii) a sale, lease, exchange or other
disposition, other than in the usual and regular course of business, of all or
substantially all of the property of the corporation or of another entity which
this corporation controls, in each case with or without the goodwill, (iv) a
dissolution of the corporation, or (v) any other purpose for which a statement
of purpose is required by the Colorado Business Corporation Act. Notice shall be
given personally or by mail, private carrier, telegraph, teletype,
electronically transmitted facsimile or other form of wire or wireless
communication by or at the direction of the president, the secretary, or the
officer or persons calling the meeting, to each shareholder of record entitled
to vote at such meeting. If mailed and if in a comprehensible form, such notice
shall be deemed to be given and effective when deposited in the United States
mail, addressed to the shareholder at his address as it appears in the
corporation's current record of shareholders, with postage prepaid. If notice is
given other than by mail, and provided that such notice is in a comprehensible
form, the notice is given and effective on the date received by the shareholder.
If requested by the person or persons lawfully calling such meeting, the
secretary shall give notice thereof at corporate expense. No notice need be sent
to any shareholder if three successive notices mailed to the last known address
of such shareholder have been returned as undeliverable until such time as
another address for such shareholder is made known to the corporation by such
shareholder. In order to be entitled to receive notice of any meeting, a
shareholder shall advise the corporation in writing of any change in such
shareholder's mailing address as shown on the corporation's books and records.
When a meeting is adjourned to another date, time or place, notice need not
be given of the new date, time or place if the new date, time or place of such
meeting is announced before adjournment at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
which may have been transacted at the original meeting. If the adjournment is
for more than 120 days, or if a new record date is fixed for the adjourned
meeting, a new notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting as of the new record date.
A shareholder may waive notice of a meeting before or after the time and
date of the meeting by a writing signed by such shareholder. Such waiver shall
be delivered to the corporation for filing with the corporate records. Further,
by attending a meeting either in person or by proxy, a shareholder waives
objection to lack of notice or defective notice of the meeting unless the
shareholder objects at the beginning of the meeting to the holding of the
meeting or the transaction of business at the meeting because of lack of notice
or defective notice. By attending the meeting, the shareholder also waives any
objection to consideration at the meeting of a particular matter not within the
purpose or purposes described in the meeting notice unless the shareholder
objects to considering the matter when it is presented.
Section 5. Fixing of Record Date. For the purpose of determining
shareholders entitled to (i) notice of or vote at any meeting of shareholders or
any adjournment thereof, (ii) receive distributions or share dividends, or (iii)
demand a special meeting, or to make a determination of shareholders for any
other proper purpose, the board of directors may fix a future date as the record
date for any such determination of shareholders, such date in any case to be not
-3-
<PAGE>
more than seventy days, and, in case of a meeting of shareholders, not less than
ten days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed by the
directors, the record date shall be the date on which notice of the meeting is
mailed to shareholders, or the date on which the resolution of the board of
directors providing for a distribution is adopted, as the case may be. When a
determination of shareholders entitled to vote at any meeting of shareholders is
made as provided in this Section, such determination shall apply to any
adjournment thereof 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.
Notwithstanding the above, the record date for determining the shareholders
entitled to take action without a meeting or entitled to be given notice of
action so taken shall be the date a writing upon which the action is taken is
first received by the corporation. The record date for determining shareholders
entitled to demand a special meeting shall be the date of the earliest of any of
the demands pursuant to which the meeting is called.
Section 6. Voting Lists. The secretary shall make, at the earlier of ten
days before each meeting of shareholders or two business days after notice of
the meeting has been given, a complete list of the shareholders entitled to be
given notice of such meeting or any adjournment thereof. The list shall be
arranged by voting groups and within each voting group by class or series of
shares, shall be in alphabetical order within each class or series, and shall
show the address of and the number of shares of each class or series held by
each shareholder. For the period beginning the earlier of ten days prior to the
meeting or two business days after notice of the meeting is given and continuing
through the meeting and any adjournment thereof, this list shall be kept on file
at the principal office of the corporation, or at a place (which shall be
identified in the notice) in the city where the meeting will be held. Such list
shall be available for inspection on written demand by any shareholder
(including for the purpose of this Section 6 any holder of voting trust
certificates) or his agent or attorney during regular business hours and during
the period available for inspection. The original stock transfer books shall be
prima facie evidence as to the shareholders entitled to examine such list or to
vote at any meeting of shareholders.
Any shareholder, his agent or attorney may copy the list during regular
business hours and during the period it is available for inspection, provided
(i) the shareholder has been a shareholder for at least three months immediately
preceding the demand or holds at least five percent of all outstanding shares of
any class of shares as of the date of the demand, (ii) the demand is made in
good faith and for a purpose reasonably related to the demanding shareholder's
interest as a shareholder, (iii) the shareholder describes with reasonable
particularity the purpose and the records the shareholder desires to inspect,
(iv) the records are directly connected with the described purpose, and (v) the
shareholder pays a reasonable charge covering the costs of labor and material
for such copies, not to exceed the estimated cost of production and
reproduction.
Section 7. Recognition Procedure for Beneficial Owners. The board of
directors may adopt by resolution a procedure whereby a shareholder of the
corporation may certify in writing to the corporation that all or a portion of
the shares registered in the name of such shareholder are held for the account
of a specified person or persons. The resolution may set forth (i) the types of
nominees to which it applies, (ii) the rights or privileges that the corporation
will recognize in a beneficial owner, which may include rights and privileges
other than voting, (iii) the form of certification and the information to be
contained therein, (iv) if the certification is with respect to a record date,
the time within which the certification must be received by the corporation, (v)
the period for which the nominee's use of the procedure is effective, and (vi)
-4-
<PAGE>
such other provisions with respect to the procedure as the board deems necessary
or desirable. Upon receipt by the corporation of a certificate complying with
the procedure established by the board of directors, the persons specified in
the certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the registered holders of the number of shares specified in
place of the shareholder making the certification.
Section 8. Quorum and Manner of Acting. A majority of the votes entitled to
be cast on a matter by a voting group shall constitute a quorum of that voting
group for action on the matter. If less than a majority of such votes are
represented at a meeting, a majority of the votes so represented may adjourn the
meeting from time to time without further notice, for a period not to exceed 120
days for any one adjournment. If a quorum is present at such adjourned meeting,
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, unless the meeting is
adjourned and a new record date is 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 vote of a greater number or voting by classes is required by law or
the articles of incorporation.
Section 9. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy by signing an appointment form or similar writing, either personally or
by his duly authorized attorney-in-fact. A shareholder may also appoint a proxy
by transmitting or authorizing the transmission of a telegram, teletype, or
other electronic transmission providing a written statement of the appointment
to the proxy, a proxy solicitor, proxy support service organization, or other
person duly authorized by the proxy to receive appointments as agent for the
proxy, or to the corporation. The transmitted appointment shall set forth or be
transmitted with written evidence from which it can be determined that the
shareholder transmitted or authorized the transmission of the appointment. The
proxy appointment form or similar writing shall be filed with the secretary of
the corporation before or at the time of the meeting. The appointment of a proxy
is effective when received by the corporation and is valid for eleven months
unless a different period is expressly provided in the appointment form or
similar writing.
Any complete copy, including an electronically transmitted facsimile, of an
appointment of a proxy may be substituted for or used in lieu of the original
appointment for any purpose for which the original appointment could be used.
Revocation of a proxy does not affect the right of the corporation to
accept the proxy's authority unless (i) the corporation had notice that the
appointment was coupled with an interest and notice that such interest is
extinguished is received by the secretary or other officer or agent authorized
to tabulate votes before the proxy exercises his authority under the
appointment, or (ii) other notice of the revocation of the appointment is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. Other notice of
revocation may, in the discretion of the corporation, be deemed to include the
appearance at a shareholders' meeting of the shareholder who granted the proxy
and his voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
-5-
<PAGE>
The corporation shall not be required to recognize an appointment made
irrevocable if it has received a writing revoking the appointment signed by the
shareholder (including a shareholder who is a successor to the shareholder who
granted the proxy) either personally or by his attorney-in-fact, notwithstanding
that the revocation may be a breach of an obligation of the shareholder to
another person not to revoke the appointment.
Subject to Section 11 and any express limitation on the proxy's authority
appearing on the appointment form, the corporation is entitled to accept the
proxy's vote or other action as that of the shareholder making the appointment.
Section 10. Voting of Shares. Each outstanding share of common stock shall
be entitled to one vote, except in the election of directors, and each
fractional share shall be entitled to a corresponding fractional vote on each
matter submitted to a vote at a meeting of shareholders. Each outstanding share
of preferred stock shall have no voting rights except as expressly stated by the
Board of directors when it specifies the preferences, rights and limitations of
any such preferred shares, or as required by law. Cumulative voting shall not be
permitted in the election of directors or for any other purpose. Each record
holder of common stock shall be entitled to vote in the election of directors
and shall have as many votes for each of the shares owned by him as there are
directors to be elected and for whose election he has the right to vote.
At each election of directors, that number of candidates equaling the
number of directors to be elected, having the highest number of votes cast in
favor of their election, shall be elected to the board of directors.
Except as otherwise ordered by a court of competent jurisdiction upon a
finding that the purpose of this Section would not be violated in the
circumstances presented to the court, the shares of the corporation are not
entitled to be voted if they are owned, directly or indirectly, by a second
corporation, domestic or foreign, and the first corporation owns, directly or
indirectly, a majority of the shares entitled to vote for directors of the
second corporation except to the extent the second corporation holds the shares
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 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.
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 to
give it effect as the act of the shareholder if:
-6-
<PAGE>
(i) the shareholder is an entity and the name signed purports to be that of
an officer or agent of the entity;
(ii) 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;
(iii) 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;
(iv) 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;
(v) two or more persons are the shareholder as co-tenants or fiduciaries
and the name signed purports to be the name of at least one of the co-tenants or
fiduciaries, and the person signing appears to be acting on behalf of all the
co-tenants or fiduciaries; or
(vi) 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 this Section 11.
The corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the secretary or other office 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.
Neither the corporation nor its officers nor any 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 this Section is
liable in damages for the consequences of the acceptance or rejection.
Section 12. Informal Action by Shareholders. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a written consent (or counterparts thereof) that sets forth the
action so taken is signed by all of the shareholders entitled to vote with
respect to the subject matter thereof and received by the corporation. Such
consent shall have the same force and effect as a unanimous vote of the
shareholders and may be stated as such in any document. Action taken under this
Section 12 is effective as of the date the last writing necessary to effect the
action is received by the corporation, unless all of the writings specify a
different effective date, in which case such specified date shall be the
effective date for such action. If any shareholder revokes his consent as
provided for herein prior to what would otherwise be the effective date, the
action proposed in the consent shall be invalid. The record date for determining
shareholders entitled to take action without a meeting is the date the
corporation first receives a writing upon which the action is taken.
Any shareholder who has signed a writing describing and consenting to
action taken pursuant to this Section 12 may revoke such consent by a writing
signed by the shareholder describing the action and stating that the
shareholder's prior consent thereto is revoked, if such writing is received by
the corporation before the effectiveness of the action.
-7-
<PAGE>
Section 13. Meetings by Telecommunication. Any or all of the shareholders
may participate in an annual or special shareholders' meeting by, or the meeting
may be conducted through the use of, any means of communication by which all
persons participating in the meeting may hear each other during the meeting. A
shareholder participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE III
Board of Directors
------------------
Section 1. General Powers. 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 its board of directors, except as otherwise
provided in the Colorado Business Corporation Act or the articles of
incorporation.
Section 2. Number, Qualifications and Tenure. The number of directors of
the corporation shall be fixed from time to time by the board of directors,
within a range of no less than three or more than nine, but no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. A director shall be a natural person who is eighteen years
of age or older. A director need not be a resident of Colorado or a shareholder
of the Corporation.
Directors shall be elected at each annual meeting of shareholders. Each
director shall hold office until the next annual meeting of shareholders
following his election and thereafter until his successor shall have been
elected and qualified. Directors shall be removed in the manner provided by the
Colorado Business Corporation Act. The members of the board may either designate
one member of the board as its Chairman or elect to operate without a Chairman.
Section 3. Vacancies. Any director may resign at any time by giving written
notice to the corporation. Such resignation shall take effect at the time the
notice is received by the corporation unless the notice specifies a later
effective date. Unless otherwise specified in the notice of resignation, the
corporation's acceptance of such resignation shall not be necessary to make it
effective. Any vacancy on the board of directors may be filled by the
affirmative vote of a majority of the shareholders or the board of directors. If
the directors remaining in office constitute fewer than a quorum of the board,
the directors may fill the vacancy by the affirmative vote of a majority of all
the directors remaining in office. If elected by the directors, the director
shall hold office until the next annual shareholders' meeting at which directors
are elected. If elected by the shareholders, the director shall hold office for
the unexpired term of his predecessor in office; except that, if the director's
predecessor was elected by the directors to fill a vacancy, the director elected
by the shareholders shall hold office for the unexpired term of the last
predecessor elected by the shareholders.
Section 4. Regular Meetings. A regular meeting of the board of directors
shall be held without notice 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 outside Colorado, for the holding of
additional regular meetings without other notice.
-8-
<PAGE>
Section 5. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the president or at the request of any two
directors (or one director if there are then less than three (3) persons serving
as directors). The person or persons authorized to call special meetings of the
board of directors may fix any place, either within or outside Colorado, as the
place for holding any special meeting of the board of directors called by them,
provided that no meeting shall be called outside the State of Colorado unless a
majority of the board of directors has so authorized.
Section 6. Notice. Notice of any special meeting shall be given at least
two days prior to the meeting by written notice either personally delivered or
mailed to each director at his business address, or by notice transmitted by
telegraph, telex, electronically transmitted facsimile or other form of wire or
wireless communication. If mailed, such notice shall be deemed to be given and
to be effective on the earlier of (i) three days after such notice is deposited
in the United States mail, properly addressed, with postage prepaid, or (ii) the
date shown on the return receipt, if mailed by registered or certified mail
return receipt requested. If notice is given by telex, electronically
transmitted facsimile or other similar form of wire or wireless communication,
such notice shall be deemed to be given and to be effective when sent, and with
respect to a telegram, such notice shall be deemed to be given and to be
effective when the telegram is delivered to the telegraph company. If a director
has designated in writing one or more reasonable addresses or facsimile numbers
for delivery of notice to him, notice sent by mail, telegraph, telex,
electronically transmitted facsimile or other form of wire or wireless
communication shall not be deemed to have been given or to be effective unless
sent to such addresses or facsimile numbers, as the case may be.
A director may waive notice of a meeting before or after the time and date
of the meeting by a writing signed by such director. Such waiver shall be
delivered to the corporation for filing with the corporate records. Further, a
director's attendance at or participation in a meeting waives any required
notice to him of the meeting unless at the beginning of the meeting, or promptly
upon his later arrival, the director 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. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need to be specified in the
notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by the board
of directors pursuant to Section 2 or, if no number is fixed, a majority of the
number in office immediately before the meeting begins, shall constitute a
quorum for the transaction of business at any meeting of the board of directors.
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, for a
period not to exceed sixty days at any one adjournment.
Section 8. 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.
Section 9. Compensation. By resolution of the board of directors, any
director may be paid any one or more of the following: his expenses, if any, of
attendance at meetings of the board and of committees and subcommittees of the
board, a fixed sum for attendance at each such meeting, a stated salary as
director, or such other compensation as the corporation and the director may
reasonably agree upon. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
-9-
<PAGE>
Section 10. Presumption of Assent. A director of the corporation who is
present at a meeting of the board of directors or committee or subcommittee of
the board at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless (i) the director objects at the
beginning of the meeting, or promptly upon his arrival, to the holding of the
meeting or the transaction of 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 his dissent or abstention as to any specific
action taken be entered in the minutes of the meeting, or (iii) the director
causes written notice of his dissent or abstention as to any specific action to
be received by the presiding officer of the meeting before its adjournment or by
the corporation promptly after the adjournment of the meeting. A director may
dissent to a specific action at a meeting, while assenting to others. The right
to dissent to a specific action taken at a meeting of the board of directors or
a committee or subcommittee of the board shall not be available to a director
who voted in favor of such action.
Section 11. Committees and Subcommittees. Committees of the board shall
consist of an Audit Committee as described in Section 12 of these bylaws as well
as an executive committee and one or more other committees and/or subcommittees.
Each committee and subcommittee shall have such powers and responsibilities as
may be established for the same in these bylaws and such other powers and
responsibilities as may be delegated to such committee by the board. To the
extent provided in these bylaws or in the board's resolution, each committee
and/or subcommittee shall have all the authority of the board of directors,
except that no such committee or subcommittee shall have the authority to (i)
authorize distributions, (ii) approve or propose to shareholders actions or
proposals required by the Colorado Business Corporation Act to be approved by
shareholders, (iii) fill vacancies on the board of directors or any committee or
subcommittee thereof, (iv) amend articles of incorporation, (v) adopt, amend or
repeal the bylaws, (vi) approve a plan of merger not requiring shareholder
approval, (vii) authorize or approve the reacquisition of shares unless pursuant
to a formula or method prescribed by the board of directors, or (viii) authorize
or approve the issuance or sale of shares, or contract for the sale of shares or
determine the designations and relative rights, preferences and limitations of a
class or series of shares, except that the board of directors may authorize a
committee or subcommittee or officer to do so within limits specifically
prescribed by the board of directors. The committee or subcommittee shall then
have full power within the limits set by the board of directors to adopt any
final resolution setting forth all preferences, limitations and relative rights
of such class or series and to authorize an amendment of the articles of
incorporation stating the preferences, limitations and relative rights of a
class or series for filing with the Secretary of State under the Colorado
Business Corporation Act.
The Chairman of the board, if any (or if none, by resolution adopted by a
majority of all the directors in office when the action is taken), shall have
the power, subject to the approval of the board, to: (i) appoint any director to
membership on any committee or subcommittee who shall be willing to serve on the
same and (ii) remove any person from membership on any committee or subcommittee
without cause. The Chairman of the board, if any, subject to the approval of the
board, shall reappoint the membership of the committees and subcommittees at
each annual meeting of the board and any person's membership on any committee or
subcommittee shall automatically terminate at each annual meeting of the board
unless such person shall be reappointed to such membership at such annual
meeting. A person's membership on any committee or subcommittee shall
automatically terminate when such person ceases to be a director of the
corporation.
Sections 4, 5, 6, 7, 8 and 12 of Article III, which govern meetings,
notice, waiver of notice, quorum, voting requirements and action without a
meeting of the board of directors, shall apply to committees, subcommittees and
their members appointed under this Section 11. Each committee shall keep regular
minutes of its meetings and report the same to the Board of directors when
required.
-10-
<PAGE>
Neither the designation of any such committee or subcommittee, the
delegation of authority to such committee or subcommittee, nor any action by
such committee or subcommittee pursuant to its authority shall alone constitute
compliance by any member of the board of directors or a member of the committee
or subcommittee in question with his responsibility to conform to the standard
of care set forth in Article III, Section 14 of these bylaws.
Section 12. Audit Committee. The corporation shall have a standing Audit
Committee which shall be deemed created under and pursuant to the provisions of
Section 11 of these bylaws. The board shall have the power to establish the
number of membership positions on the Audit Committee from time to time and to
change the number of membership positions on such committee from time to time.
The members of the Audit Committee shall be determined by the Chairman of the
board, if any, subject to the approval of the board, provided that the majority
of the members of the Audit Committee shall be independent directors.
The Audit Committee shall: (i) recommend to the board annually a firm of
independent public accountants to act as auditors for the corporation and its
subsidiaries to be included in the corporation's consolidated financial
statements; (ii) review with the auditors in advance the scope of their annual
audit for the corporation, (iii) review with the auditors and the management
from time to time, the accounting principles, policies, and practices of the
corporation and its reporting policies and practices for the corporation; (iv)
review with the auditors annually the results of their audit for the
corporation; (v) review from time to time with the auditors and the internal
financial personnel the adequacy of the accounting, financial and operating
controls for the corporation; and (vi) exercise such other authority which shall
from time to time be delegated to the committee by the board or which the
committee shall deem reasonably related to any authority expressly delegated to
the committee in or pursuant to this Section. 12.
Section 13. Informal Action by Directors. Any action required or permitted
to be taken at a meeting of the directors or any committee or subcommittee
designated by the board of directors may be taken without a meeting if a written
consent (or counterparts thereof) that sets forth the action so taken is signed
by all of the directors entitled to vote with respect to the action taken. Such
consent shall have the same force and effect as a unanimous vote of the
directors or committee or subcommittee members and may be stated as such in any
document. Unless the consent specifies a different effective date, action taken
under this Section 12 is effective at the time the last director signs a writing
describing the action taken, unless, before such time, any director has revoked
his consent by a writing signed by the director and received by the president or
the secretary of the corporation.
Section 14. Telephonic Meetings. The board of directors may permit any
director (or any member of a committee or subcommittee designated by the board)
to participate in a regular or special meeting of the board of directors or a
committee or subcommittee thereof through the use of any means of communication
by which all directors participating in the meeting can hear each other during
the meeting. A director participating in a meeting in this manner is deemed to
be present in person at the meeting.
Section 15. Standard of Care. A director shall perform his duties as a
director, including without limitation his duties as a member of any committee
of the board, in good faith, in a manner he reasonably believes to be in the
best interests of the corporation, and with the care an ordinarily prudent
-11-
<PAGE>
person in a like position would exercise under similar circumstances. In
performing his duties, a director shall be entitled to rely on information,
opinions, reports or statements, including financial statements and other
financial data, in each case prepared or presented by the person herein
designated. However, he shall not be considered to be acting in good faith if he
has knowledge concerning the matter in question that would cause such reliance
to be unwarranted. A director shall not be liable to the corporation or its
shareholders for any action he takes or omits to take as a director if, in
connection with such action or omission, he performs his duties in compliance
with this Section 14.
The designated persons on whom a director is entitled to rely are (i) one
or more officers or employees of the corporation whom the director reasonably
believes to be reliable and competent in the matters presented, (ii) legal
counsel, public accountant, or other person as to matters which the director
reasonably believes to be within such person's professional or expert
competence, or (iii) a committee or subcommittee of the board of directors on
which the director does not serve if the director reasonably believes the
committee or subcommittee merits confidence.
Section 16. Nomination of Directors. Subject to the rights, if any, of the
holders of shares of preferred stock then outstanding, if any, only persons who
are nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
directors of the corporation made be made at a meeting of shareholders by or at
the direction of the Board of directors, by any nominating or other committee or
person appointed by the Board, or by any shareholder of the corporation entitled
to vote for the election of directors at the meeting who complies with the
notice procedures set forth in this Section 16. Such nominations, other than
those made by or at the direction of the Board or by any nominating or other
committee or person appointed by the Board, shall be made pursuant to timely
notice in writing to the Secretary of the corporation. To be timely, a
shareholder's notice shall be delivered to, or mailed and received at, the
principal business offices of the corporation by no later than the same
deadlines specified in Article II, Section 1(iii), just as if the notice were
submitting proper business to be conducted at an annual meeting. Such
shareholder's notice to the Secretary shall set forth (i) as to each person whom
the shareholder proposes to nominate for election or reelection as a director,
(a) the name, age, business address and residence address of the person, (b) the
principal occupation or employment of the person and his or her employment
history for the most recent five years (c) the class and number of shares of
capital stock of the corporation which are beneficially owned by the person, (d)
the consent of the person to serve as a director if so elected, and (e) any
other information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to the rules and
regulations under the Securities Exchange Act of 1934, as amended; and (ii) as
to the shareholder giving the notice (a) the name and record address of the
shareholder, (b) the class and number of shares of capital stock of the
corporation which are beneficially owned by the shareholder, (c) a description
of all arrangements or understandings between the shareholder and each nominee
and any other person or persons pursuant to which the nomination or nominations
are to be made by the shareholder, and (d) a representation that the shareholder
is a holder of record of stock of the corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice. The corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the corporation to determine the eligibility of such proposed nominee to
serve as director of the corporation or for use in the preparation of materials
used for the solicitation of proxies for the election of directors. The Chairman
of the Board shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the foregoing procedure, and
if he should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
-12-
<PAGE>
ARTICLE IV
Officers and Agents
-------------------
Section 1. General. The officers of the corporation shall be a president,
one or more vice presidents, a secretary, and a controller, each of whom shall
be a natural person eighteen years of age or older. The board of directors or an
officer or officers authorized by the board may appoint such other officers and
assistants as they may consider necessary. The board of directors or the officer
or officers authorized by the board shall from time to time determine the
procedure for the appointment of officers, their term of office, their authority
and duties and their compensation. One person may hold more than one office. In
all cases where the duties of any officer, agent or employee are not prescribed
by the bylaws or by the board of directors, such officer, agent or employee
shall follow the orders and instructions of the president of the corporation.
Section 2. Appointment and Term of Office. The officers of the corporation
shall be appointed from time to time as determined by the board of directors. If
any officer or officers are to be appointed by another officer or officers of
the corporation, such appointments shall be made as soon as conveniently may be.
Each officer shall hold office until the first of the following occurs: his
successor shall have been duly appointed and qualified, his death, his
resignation, or his removal in the manner provided in Section 3.
Section 3. Resignation and Removal. An officer may resign at any time by
giving written notice of resignation to the corporation. The resignation is
effective when the notice is received by the corporation unless the notice
specifies a later effective date.
Any officer or agent may be removed at any time with or without cause by
the board of directors or an officer or officers authorized by the board. Such
removal does not affect the contract rights, if any, of the corporation or of
the person so removed. The appointment of an officer or agent shall not in
itself create contract rights.
Section 4. Vacancies. A vacancy in any office, however occurring, may be
filled by the board of directors, or by the officer or officers authorized by
the board, for the unexpired portion of the officer's term. If an officer
resigns and his resignation is made effective at a later date, the board of
directors, or officer or officers authorized by the board, may permit the
officer to remain in office until the effective date and may fill the pending
vacancy before the effective date if the board of directors or officer or
officers authorized by the board provide that the successor shall not take
office until the effective date. In the alternative, the board of directors or
officer or officers authorized by the board of directors may remove the officer
at any time before the effective date and may fill the resulting vacancy.
Section 5. President. Subject to the direction and supervision of the board
of directors, the president shall have general and active control of its affairs
and business and general supervision of its officers, agents and employees.
Unless otherwise directed by the board of directors, the president shall attend
in person or by substitute appointed by him, or shall execute on behalf of the
corporation written instruments appointing a proxy or proxies to represent the
corporation, at all meetings of the shareholders of any other corporation in
which the corporation holds any stock. On behalf of the corporation, the
president may in person or by substitute or proxy execute written waivers of
notice and consents with respect to any such meetings. At all such meetings and
otherwise, the president, in person or by substitute or proxy, may vote the
stock held by the corporation, execute written consents and other instruments
with respect to such stock, and exercise any and all rights and powers incident
to the ownership of said stock, subject to the instructions, in any, of the
-13-
<PAGE>
board of directors. The president shall have custody of the controller's bond,
if any. The president shall have such additional authority and duties as are
appropriate and customary for the office of president and chief executive
officer, except as the same may be expanded or limited by the board of directors
from time to time.
Section 6. Vice Presidents. The vice presidents shall assist the president
and shall perform such duties as may be assigned to them by the president or by
the board of directors. In the absence of the president, the vice president, if
any (or, if more than one, the vice presidents in the order designated by the
board of directors, of if the board makes no such designation, then the vice
president designated by the president, or if neither the board nor the president
makes any such designation, the senior vice president as determined by first
election of that office), shall have the powers and perform the duties of the
president.
Section 7. Secretary. The secretary shall (i) prepare and maintain as
permanent records the minutes of the proceedings of the shareholders and the
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 by a committee of
the board of directors in place of the board of directors on behalf of the
corporation, and a record of all waivers of notice of meetings of shareholders
and of the board of directors or any committee thereof, (ii) see that all
notices are duly given in accordance with the provisions of these bylaws and as
required by law, (iii) serve as custodian of the corporate records and of the
seal of the corporation and affix the seal to all documents when authorized by
the board of directors, (iv) keep at the corporation's registered office or
principal place of business a record containing the names and addresses of all
shareholders in a form that permits preparation of a list of shareholders
arranged by voting group and by class or series of shares within each voting
group, that is alphabetical within each class or series and that shows the
address of, and the number of shares of each class or series held by, each
shareholder, unless such a record shall be kept at the office of the
corporation's transfer agent or registrar, (v) maintain at the corporation's
principal office the originals or copies of the corporation's articles of
incorporation, bylaws, minutes of all shareholders' meetings and records of all
action taken by shareholders without a meeting for the past three years, all
written communications within the past thee years to shareholders as a group or
to the holders of any class or series of shares as a group, a list of the names
and business addresses of the current directors and officers, a copy of the
corporation's most recent corporate report filed with the Secretary of State,
and financial statements showing in reasonable detail the corporation's assets
and liabilities and results of operations for the last three years, (vi) have
general charge of the stock transfer books of the corporation, unless the
corporation has a transfer agent, (vii) authenticate records of the corporation,
and (viii) 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. Assistant secretaries, if any, shall
have the same duties and powers, subject to supervision by the secretary. The
directors and/or shareholders may however respectively designate a person other
than the secretary or assistant secretary to keep the minutes of their
respective meetings. The board of directors may appoint the person serving as
vice president and general counsel to act as the secretary of the corporation.
Any books, records, or minutes of the corporation may be in written form or
in any form capable of being converted into written form within a reasonable
time.
Section 8. Controller. The controller shall be the principal financial
officer of the corporation, shall have the care and custody of all funds,
securities, evidences of indebtedness and other personal property of the
corporation and shall deposit the same in accordance with the instructions of
the board of directors. He shall receive and give receipts and acquittances for
money paid in on account of the corporation, and shall pay out of the
-14-
<PAGE>
corporation's funds on hand all bills, payrolls and other just debts of the
corporation of whatever nature upon maturity. He shall perform all other duties
incident to such office and, upon request of the board, shall make such reports
to it as may be required at any time. He shall, if required by the board, give
the corporation a bond in such sums and with such sureties as shall be
satisfactory to the board, conditioned upon the faithful performance of his
duties and for the restoration to the corporation of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation. He shall have such other powers and
perform such other duties as may from time to time be prescribed by the board of
directors or the president.
The controller shall also be the principal accounting officer of the
corporation. He shall prescribe and maintain the methods and systems of
accounting to be followed, keep complete books and records of account as
required by the Colorado Business Corporation Act, prepare and file all local,
state and federal tax returns, prescribe and maintain an adequate systems 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.
Section 9. Treasurer. The treasurer, if any, shall serve as an assistant to
the controller and shall perform the duties of the controller to the extent the
board so designates.
ARTICLE V
Stock
-----
Section 1. Certificates. The board of directors shall be authorized to
issue any of its classes of shares with or without certificates. The fact that
the shares are not represented by certificates shall have no effect on the
rights and obligations of shareholders. If the shares are represented by
certificates, such shares shall be represented by consecutively numbered
certificates signed, either manually or by facsimile, in the name of the
corporation by one or more persons designated by the board of directors. In case
any officer who has signed or whose facsimile signature has been placed upon
such certificate shall have ceased to be such officer before such certificate is
issued, such certificate may nonetheless be issued by the corporation with the
same effect as if he were such officer at the date of its issue. Certificates of
stock shall be in such form and shall contain such information consistent with
law as shall be prescribed by the board of directors. If shares are not
represented by certificates, within a reasonable time following the issue or
transfer of such shares, the corporation shall send the shareholder a complete
written statement of all of the information required to be provided to holders
of uncertificated shares by the Colorado Business Corporation Act.
Section 2. Consideration for Shares. Certificated or uncertified shares
shall not be issued until the shares represented thereby are fully paid. 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 or other securities of the
corporation. Future services shall not constitute payment or partial payment for
shares of the corporation. The promissory note of a subscriber or an affiliate
of a subscriber shall not constitute payment or partial payment for shares of
the corporation unless the note is negotiable and is secured by collateral,
other than the shares being purchased, having a fair market value at least equal
to the principal amount of the note. For purposes of this Section 2, "promissory
note" means a negotiable instrument on which there is an obligation to pay
independent of collateral and does not include a non-recourse note.
-15-
<PAGE>
Section 3. Lost Certificates. In case of the alleged loss, destruction or
mutilation of a certificate of stock, the board of directors may direct the
issuance of a new certificate of stock, the board of directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as the board may prescribe. The board of directors may in
its discretion require an affidavit of lost certificate and/or a bond in such
form and amount and with such surety as it may determine before issuing a new
certificate.
Section 4. Transfer of Shares. Upon surrender to the corporation or to a
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and receipt of such documentary stamps as may be required by law and
evidence of compliance with all applicable securities laws and other
restrictions, the corporation shall issue a new certificate to the person
entitled thereto, and cancel the old certificate. Every such transfer of stock
shall be entered on the stock books of the corporation which shall be kept at
its principal office or by the person and the place designated by the board of
directors.
Except as otherwise expressly provided in Article II, Sections 7 and 11,
and except for the assertion of dissenters' rights to the extent provided in
Article 113 for the Colorado Business Corporation Act, the corporation shall be
entitled to treat the registered holder of any shares of the corporation as the
owner thereof for all purposes, and the corporation shall not be bound to
recognize any equitable or other claim to, or interest in, such shares or rights
deriving from such shares on the part of any person other than the registered
holder, including without limitation any purchaser, assignee or transferee of
such shares or rights deriving from such shares, unless and until such other
person becomes the registered holder of such shares, whether or not the
corporation shall have either actual or constructive notice of the claimed
interest of such other person.
Section 5. Transfer Agent, Registrars and Paying Agents. The board may at
its discretion appoint one or more transfer agents, registrars and agents for
making payment upon any class of stock, bond, debenture or other security of the
corporation. Such agents and registrars may be located either within or outside
Colorado. They shall have such rights and duties and shall be entitled to such
compensation as may be agreed.
ARTICLE VI
Indemnification of Certain Persons
----------------------------------
Section 1. Definitions. The following definitions shall apply to the terms
as used in this Article:
a. "Corporation" includes this corporation and any domestic or foreign
predecessor entity of the corporation in a merger, or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
b. "Director" means an individual who is or was a director of the
corporation and an individual who, while a director of the corporation, is or
was serving at the corporation's request as a director, officer, partner,
trustee, employee, or agent of any other foreign or domestic corporation or of
any partnership, joint venture, trust, other enterprise or person, or employee
benefit plan. A director shall be considered to be serving an employee benefit
plan at the corporation's request if his or her duties to the corporation also
impose duties on or otherwise involve services by him or her to the plan or to
participants in or beneficiaries of the plan. "Director" includes, unless the
context otherwise requires, the estate or personal representative of a director.
-16-
<PAGE>
c. "Expenses" includes attorneys fees.
d. "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expense incurred with respect to a proceeding.
e. "Official capacity," when used with respect to a director, means
the office of director in the corporation, and, when used with respect to a
person other than a director, means the office in the corporation held by the
officer or the employment or agency relationship undertaken by the employee or
agent on behalf of the corporation. "Official capacity" does not include service
for any other foreign or domestic corporation or for any partnership, joint
venture, trust, other enterprise, or employee benefit plan.
f. "Party" includes a person who was, is, or is threatened to be made
a named defendant or respondent in a proceeding.
g. "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
and whether formal or informal.
Section 2. Indemnification for Liability.
a. Except as provided in paragraph d. of this Section 2, the
corporation shall indemnify against liability incurred in any proceeding any
person made a party to the proceeding because he or she is or was a director or
officer if: (i) he or she conducted himself or herself in good faith; (ii) he or
she reasonably believed: (a) in the case of conduct in his or her official
capacity with the corporation, that his or her conduct was in the corporation's
best interests, or (b) in all other cases, that his or her conduct was at least
not opposed to the corporation's best interests; and (iii) in the case of any
criminal proceeding, he or she had no reasonable cause to believe his or her
conduct was unlawful.
b. A director's or officer's conduct with respect to an employee
benefit plan for a purpose he or she reasonably believed to be in the interests
of the participants in or beneficiaries of the plan is conduct that satisfies
the requirements of this Section 2. A director's or officer's conduct with
respect to an employee benefit plan for a purpose that he or she did not
reasonably believe to be in the interests of the participants in or
beneficiaries of the plan shall be deemed not to satisfy the requirements of
this Section 2.
c. The termination of any proceeding by judgment, order, settlement,
or conviction, or upon a plea of nolo contendere or its equivalent, is not of
itself determinative that the person did not meet the standard of conduct set
forth in paragraph a. of this Section 2.
d. The corporation may not indemnify a director or officer under this
Section 2 either: (i) in connection with a proceeding by or in the right of the
corporation in which the director or officer was adjudged liable to the
corporation; or (ii) in connection with any proceeding charging improper
personal benefit to the director or officer, whether or not involving action in
his or her official capacity, in which he or she was adjudged liable on the
basis that personal benefit was improperly received by him or her.
-17-
<PAGE>
e. Indemnification permitted under this Section 2 in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
Section 3. Mandatory Indemnification.
a. Except as limited by these bylaws, the corporation shall be
required to indemnify a director or officer of the corporation who was wholly
successful, on the merits or otherwise, in defense of any proceeding to which he
or she was a party because the person is or was a director or officer, against
reasonable expenses incurred by him or her in connection with the proceeding.
b. Except as otherwise limited by these bylaws, a director or officer
who is or was a party to a proceeding may apply for indemnification to the court
conducting the proceeding or to another court of competent jurisdiction. On
receipt of an application, the court, after giving any notice the court
considers necessary, may order indemnification in the following manner:
(i) If it determines the director or officer is entitled to
mandatory indemnification, the court shall order indemnification under paragraph
a. of this Section 3, in which case the court shall also order the corporation
to pay the director's or officer's reasonable expenses incurred to obtain
court-ordered indemnification.
(ii) If it determines that the director or officer is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not he or she met the standard of conduct set forth in
paragraph a. of Section 2 of this Article or was adjudged liable in the
circumstances described in paragraph d. of Section 2 of this Article, the court
may order such indemnification as the court deems proper; except that the
indemnification with respect to any proceeding in which liability shall have
been adjudged in the circumstances described in paragraph d. of Section 2 of
this Article is limited to reasonable expenses incurred.
c. Notwithstanding Section 3(b) above in this Article, no person shall
be entitled to be reimbursed for any expense incurred in connection with a court
proceeding to obtain court-ordered indemnification unless such person has first
made a reasonable application to the corporation for indemnification, and the
corporation has either unreasonably denied such application or, through no fault
of the applicant, has been unable to consider such application within a
reasonable time.
Section 4. Limitation on Indemnification.
a. The corporation may not indemnify a director or officer under
Section 2 of this Article unless authorized in the specific case after a
determination has been made that indemnification of the director or officer is
permissible in the circumstances because he or she has met the standard of
conduct set forth in paragraph a. of Section 2 of this Article.
b. The determination required to be made by paragraph a. of this
Section 4 shall be made (i) by the board of directors by a majority vote of a
quorum, which quorum shall consist of directors not parties to the proceeding;
or (ii) if a quorum cannot be obtained, by a majority vote of a committee of the
board designated by the board, which committee shall consist of two or more
directors not parties to the proceeding; except that directors who are parties
to the proceeding may participate in the designation of directors for the
committee.
-18-
<PAGE>
c. If the quorum cannot be obtained or the committee cannot be
established under paragraph b. of this Section 4, or even if a quorum is
obtained or a committee designated if such quorum or committee so directs, the
determination required to be made by paragraph a. of this Section 4 shall be
made: (i) by independent legal counsel selected by a vote of the board of
directors or the committee in the manner specified in subparagraph (i) or (ii)
of paragraph b. of this Section 4 or, if a quorum of the full board cannot be
obtained and a committee cannot be established, by independent legal counsel
selected by a majority vote of the full board; or (ii) by the shareholders.
d. Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible; except that, if the determination that
indemnification is permissible is made by independent legal counsel,
authorization of indemnification and evaluation as to reasonableness of expenses
shall be made by the body that selected said counsel.
Section 5. Advance of Expenses.
a. The corporation may pay for or reimburse the reasonable expenses
incurred by a director, officer, employee or agent who is a party to a
proceeding in advance of final disposition of the proceeding if:
(i) The director, officer, employee or agent furnishes the
corporation a written affirmation of his or her good faith belief that he or she
has met the standard of conduct described in subparagraph (i) of paragraph a. of
Section 2 of this Article;
(ii) The director, officer, employee or agent furnishes the
corporation a written undertaking, executed personally or on his or her behalf,
to repay the advance if it is determined that he or she did not meet such
standard of conduct; and
(iii) A determination is made that the facts then known to those
making the determination would not preclude indemnification under this Article.
b. The undertaking required by subparagraph (ii) of paragraph a. of
this Section 5 shall be an unlimited general obligation of the director,
officer, employee or agent, but need not be secured and may be accepted without
reference to financial ability to make repayment.
c. Determinations and authorizations of payments under this Section
shall be made in the manner specified under Section 4 of this Article.
Section 6. Reimbursement of Witness Expenses. The sections of this Article
do not limit the corporation's authority to pay or reimburse expenses incurred
by a director in connection with his or her appearance as a witness in a
proceeding at a time when he or she has not been made a named defendant or
respondent in the proceeding.
Section 7. Insurance for Indemnification. The corporation may purchase and
maintain insurance on behalf of a person who is or was a director, officer,
employee, fiduciary, or agent of the corporation or who, while a director,
-19-
<PAGE>
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 any other foreign or domestic corporation or of
any partnership, joint venture, trust, other enterprise, or employee benefit
plan against any liability asserted against or incurred by him or her in any
such capacity or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under the provisions of this Article. Any such insurance may be procured from
any insurance company designated by the board of directors of the corporation,
whether such insurance company is formed under the laws of Colorado or
elsewhere, including any insurance company in which the corporation has equity
or any other interest, through stock or otherwise.
Section 8. Notice of Indemnification. Any indemnification of or advance of
expenses to a director in accordance with this Article, if arising out of a
proceeding by or on behalf of the corporation, shall be reported in writing to
the shareholders with or before the notice of the next shareholders' meeting.
Section 9. Indemnification of Officers, Employees and Agents of the
Corporation. The board of directors may indemnify and advance expenses to an
officer, employee or agent of the corporation who is not a director of the
corporation to the same or greater extent as to a director if such
indemnification and advance expense payment is provided for in the Articles of
Incorporation, these bylaws, by resolution of the shareholders or directors or
by contract, in a manner consistent with the Colorado Business Corporation Act.
ARTICLE VII
Miscellaneous
-------------
Section 1. Seal. The corporate seal of the corporation shall be circular in
form and shall contain the name of the corporation and the words, "Seal,
Colorado."
Section 2. Fiscal Year. The fiscal year of the corporation shall be as
established by the board of directors.
Section 3. Amendments. The board of directors shall have power, to the
maximum extent permitted by the Colorado Business Corporation Act, to make,
amend and repeal the bylaws of the corporation at any regular or special meeting
of the board unless the shareholders, in making, amending or repealing a
particular bylaw, expressly provide that the directors may not amend or repeal
such bylaw. The shareholders also shall have the power to make, amend or repeal
the bylaws of the corporation at any annual meeting or at any special meeting
called for that purpose.
Section 4. Gender. The masculine gender is used in these bylaws as a matter
of convenience only and shall be interpreted to include the feminine and neuter
genders as the circumstances indicate.
Section 5. Conflicts. In the event of any irreconcilable conflict between
these bylaws and either the corporation's articles of incorporation or
applicable law, the latter shall control.
Section 6. Receipt of Notices by the Corporation. Notices, shareholder
writings consenting to action, and other documents or writings shall be deemed
to have been received by the corporation when they are actually received: (i) at
the registered office of the corporation in Colorado; (ii) at the principal
office of the corporation (as that office is designated in the most recent
document filed by the corporation with the Secretary of State for Colorado
designating a principal office) addressed to the attention of the secretary of
-20-
<PAGE>
the corporation; (iii) by the secretary of the corporation wherever the
secretary may be found; or (iv) by any other person authorized from time to time
by the board of directors or the president to receive such writings, wherever
such person is found.
Section 7. Definitions. Except as otherwise specifically provided in these
bylaws, all terms used in these bylaws shall have the same definition as in the
Colorado Business Corporation Act.
Certificate of Secretary
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of the corporation;
and
(2) That the foregoing bylaws constitute the bylaws of said corporation as
duly adopted by the board of directors of the corporation as of
December 28, 1998.
In Witness Whereof, I have hereunto subscribed my name this 22 of February,
1999.
/s/ Suzan M. Schlatter
----------------------------------
Suzan M. Schlatter, Secretary
-21-
Exhibit 10.5(ii)
BUSINESS LEASE
This lease, dated July 1, 1998, is between 2780 SOUTH RARITAN, LLC, as
Landlord, and ORALABS, INC., as Tenant.
In consideration of the payment of the rent and the performance of the
covenants and agreements by the Tenant set forth herein, the Landlord does
hereby lease to the Tenant the following described premises situate in Arapahoe
County, in the State of Colorado; the address of which is 2780 S. Raritan
Street, Englewood, Colorado.
Said premises, with all the appurtenances, are leased to the Tenant from
the date of July 1, 1998, until the date of June 30, 2003 at and for a rental
for the full term of $495,000.00, payable in monthly installments of $8,250.00,
(based upon $5.50 per square foot per annum for the premises consisting of
18,000 square feet) in advance, on the 1st day of each calendar month during the
term of this lease, payable at 2901 S. Tejon St., Englewood, Colorado 80110,
without notice.
THE TENANT, IN CONSIDERATION OF THE LEASING OF THE PREMISES AGREES AS FOLLOWS:
1. To pay the rent for the premises above-described.
2. To keep the improvements upon the premises, including sewer connections,
plumbing, wiring and glass in good repair, all at Tenant's expense, and at the
expiration of this lease to surrender the premises in as good a condition as
when the Tenant entered the premises, loss by fire, inevitable accident, and
ordinary wear excepted. To keep all sidewalks on and around the premises free
and clear of ice and snow, and to keep the entire exterior premises free from
all litter, dirt, debris and obstructions; to keep the premises in a clean and
sanitary condition as required by the ordinances of the city and county in which
the property is situate.
3. To sublet no part of the premises, and not to assign the lease or any
interest therein without the written consent of the Landlord, which consent
shall not be unreasonably withheld.
4. To use the premises only as manufacturing and warehouse and to use the
premises for no purposes prohibited by the laws of the United States or the
State of Colorado, or of the ordinances of the city or town in which said
premises are located, and for no improper or questionable purposes whatsoever,
and to neither permit nor suffer any disorderly conduct, noise or nuisance
having a tendency to annoy or disturb any persons occupying adjacent premises.
5. To neither hold nor attempt to hold the Landlord liable for any injury
or damage, either proximate or remote, occurring through or caused by the
repairs, alterations, injury or accident on or to the premises, or adjacent
premises, or other parts of the above premises not herein demised, or by reason
of the negligence or default of the owners or occupants thereof or any other
person, nor to hold the Landlord liable for any injury or damage occasioned by
defective electric wiring, or the breakage or stoppage of plumbing or sewerage
upon said premises or upon adjacent premises, whether breakage or stoppage
results from freezing or otherwise; to neither permit nor suffer said premises,
or the walls or floors thereof, to be endangered by overloading, nor said
premises to be used for any purpose which would render the insurance thereon
void or the insurance risk more hazardous, nor make any alterations in or
changes in, upon, or about said premises without first obtaining the written
consent of the Landlord therefor, but to permit the Landlord to place a "For
Rent" sign upon the leased premises at any time after sixty (60) days before the
end of this lease.
6. To allow the Landlord to enter upon the premises at any reasonable hour.
<PAGE>
IT IS EXPRESSLY UNDERSTOOD AND AGREED BETWEEN LANDLORD AND TENANT AS FOLLOWS:
7. All charges for water and water rents are to be paid by Tenant. All
charges for heating and lighting are to be paid by Tenant. Janitorial services
are to be paid by Tenant. Tenant pays all expenses. Tenant pays all taxes and
all costs relating to ownership of the building.
8. No assent, express or implied, to any breach of any one or more of the
agreements hereof shall be deemed or taken to be a waiver of any succeeding or
other breach.
9. If, after the expiration of this lease, the Tenant shall remain in
possession of the premises and continue to pay rent without a written agreement
as to such possession, then such tenancy shall be regarded as a month-to-month
tenancy, at a monthly rental, payable in advance, equivalent to the last month's
rent paid under this lease, and subject to all the terms and conditions of this
lease.
10. If the premises are left vacant and any part of the rent reserved
hereunder is not paid, then the Landlord may, without being obligated to do so,
and without terminating this lease, retake possession of the said premises and
rent the same for such rent, and upon such conditions as the Landlord may think
best, making such changes and repairs as may be required, giving credit for the
amount of rent so received less all expenses of such changes and repairs, and
the Tenant shall be liable for the balance of the rent herein reserved until the
expiration of the term of this lease.
11. The Landlord acknowledges receipt of a deposit in the amount of $(none)
to be held by the Landlord for the faithful performance of all of the terms,
conditions and covenants of this lease. The Landlord may apply the deposit to
cure any default under the terms of this lease and shall account to the Tenant
for the balance. The Tenant may not apply the deposit hereunder to the payment
of the rent reserved hereunder or the performance of other obligations.
12. At the Landlord's option, it shall be deemed a breach of this lease if
the Tenant defaults (a) in the payment of the rent or any other monetary
obligation herein; or (b) in the performance of any other term or condition of
this lease. The Landlord may elect to cure such default and any expenses of
curing may be added to the rent and shall become immediately due and payable.
In the event that the Landlord elects to declare a breach of this lease,
the Landlord shall have the right to give the Tenant three (3) days written
notice requiring payment of the rent or compliance with other terms or
provisions of the lease, or delivery of the possession of the premises. In the
event any default remains uncorrected after three (3) days written notice, the
Landlord, at Landlord's option, may declare the term ended, repossess the
premises, expel the Tenant and those claiming through or under the Tenant and
remove the effects of the Tenant, all without being deemed guilty in trespass or
of a forcible entry and detainer and without prejudice to any other remedies to
which the Landlord may be entitled. If at any time this lease is terminated
under this paragraph, the Tenant agrees to peacefully surrender the premises to
the Landlord immediately upon termination, and if the Tenant remains in
possession of the premises, the Tenant shall be deemed guilty of unlawful
detention of the premises. The Landlord shall be entitled to recover from the
Tenant all damages by reason of the Tenant's default, including but not limited
to the cost to recover and repossess the premises, the expenses of reletting,
necessary renovation and alteration expenses, commissions and the rent for the
balance of the term of this lease.
13. In the event the premises shall become untenantable on account of
damage by fire, flood or act of God, this lease may be thereupon terminated and
the rent apportioned to the date of the occurrence of such damage.
14. In the event of any dispute arising under the terms of this lease, or
in the event of non-payment of any sums arising under this lease and in the
event the matter is turned over to an attorney, the party prevailing in such
dispute shall be entitled, in addition to other damages or costs, to receive
reasonable attorneys' fees from the other party.
2
<PAGE>
15. In the event any payment required hereunder is not made within (10)
days after the payment is due, a late charge
in the amount of five percent (5%) of the payment will be paid by the Tenant.
16. In the event of a condemnation or other taking by any governmental
agency, all proceeds shall be paid to the Landlord hereunder, the Tenant waiving
all right to any such payments.
17. This lease is made with the express understanding and agreement that in
the event the Tenant becomes insolvent, the Landlord may declare this lease
ended, and all rights of the Tenant hereunder shall terminate and cease.
18. The Landlord and the Tenant further agree.
SHOULD ANY PROVISION of this lease violate any federal, state or local law
or ordinance, that provision shall be deemed amended to so comply with such law
or ordinance, and shall be construed in a manner so as to comply.
This lease shall be binding on the parties, their personal representatives,
successors and assigns.
When used herein, the singular shall include the plural, and the use of any
gender shall apply to both genders.
Attest:
2780 SOUTH RARITAN, LLC
By: /s/ Gary Schlatter
-----------------------------
Gary Schlatter, Manager
Attest:
---------------------------- -----------------------------
ORALABS, INC.
By: /s/ Allen Goldstone
------------------------
Allen Goldstone, Director
GUARANTEE
For value received I hereby guarantee the payment of the rent and the
performance of the covenants and agreements by the Tenant in the within lease
covenanted and agreed, in manner and form as in said lease provided.
Dated:
--------------------------------
- - --------------------------------------- ------------------------------------
ASSIGNMENT AND ACCEPTANCE
For value received __________________________________________________,
assignor, hereby assigns all right, title and interest in and to the within
lease unto ____________________ ________________, assignee, the heirs,
successors and assigns of the assignee, with the express understanding and
agreement that the said assignor shall be and remain liable for the full payment
of the rent reserved and the performance of all the covenants and agreements
made in said lease by the Tenant therein named, and will pay said rent and fully
perform said covenants and agreements in case said assignee shall fail so to do;
and in consideration of this assignment, the said assignee hereby assumes and
agrees to make all the payments and perform all the covenants and agreements
contained in said lease, by the Tenant therein agreed to be made and performed.
Dated:
-------------------------------
- - --------------------------------------- --------------------------------
3
<PAGE>
CONSENT OF ASSIGNMENT
Consent to the assignment of the within lease to
____________________________________ ______________ is hereby given, on the
express condition, however, that the assignor shall remain liable for the prompt
payment of the rent and performance of the covenants on the part of the Tenant
as herein mentioned, and that no further assignment of said lease or sub-letting
of the premises or any part thereof shall be made without further written assent
first had thereto.
Dated:
---------------------------
- - --------------------------------- -----------------------------------
LANDLORD'S ASSIGNMENT
In consideration of One Dollar, in hand paid, I hereby transfer, assign and
set over to ___________________________________________________________ and
assign my interest in the within lease, and the rent therein reserved.
Dated:
------------------------------
- - ------------------------------------- -----------------------------
4
Exhibit 10.10
CONTRACT FOR SERVICES
This Contract for Services (the "Contract") is effective as of April 1,
1998, and is made by and between TOP FORM BRANDS INC., a Colorado corporation
("Top Form") and ORALABS, INC., a Colorado corporation ("OraLabs").
W I T N E S S E T H:
WHEREAS, Top Form is engaged in the business of the wholesale distribution
of pseudoephedrine (the "Product"); and
WHEREAS, Top Form has entered into and is expected to continue to enter
into contracts for the manufacture, packaging and distribution of the Product,
but Top Form does not possess warehouse space or personnel necessary to receive
the product and deliver it for shipment; and
WHEREAS, OraLabs is engaged in the business of manufacture and distribution
of certain health care products and as such has facilities available for taking
receipt of various products and preparing products for shipment, and has
employees skilled in those matters; and
WHEREAS, Top Form desires to receive warehousing and shipping services from
OraLabs and the parties have agreed on the terms thereof as specified in this
instrument.
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the adequacy and sufficiency of which is
acknowledged by the parties, the parties agree as follows:
1. Independent Contractor. Top Form hereby retains OraLabs in its capacity
as an independent contractor to perform warehousing and shipping services for
the benefit of Top Form in accordance with the terms of this Contract.
2. Services to be Provided. OraLabs agrees to provide to Top Form, upon
request, the following services (the "Services") to be rendered by the internal
staff of OraLabs:
(i) Receive the Product ordered by Top Form in quantities specified by
Top Form from time to time, provided that in no event may Top Form order
quantities of the Product which would require OraLabs to obtain additional
warehouse space to that being leased by OraLabs as OraLabs may determine from
time to time in its sole discretion;
(ii) Deliver the Product to shipping companies approved by Top Form
from time to time, as specified in written notices from Top Form to OraLabs; and
<PAGE>
(iii) Provide Top Form with accounting services related to such
receiving and shipping of Product as requested by Top Form from time to time.
3. Fee for Services. Top Form agrees to pay to OraLabs a fee for its
services in an amount equal to $50 per case of Product (each case containing 144
bottles) received by OraLabs from manufacturers who are delivering the Product
to OraLabs for the benefit of Top Form. OraLabs shall have no obligation to
advance any costs or fees on behalf of Top Form, and all costs of shipment of
the product shall be for the account of Top Form except as may otherwise be
required by the shipping company. To the extent that OraLabs does advance any
out-of-pocket costs on behalf of Top Form, Top Form shall promptly reimburse
OraLabs for such costs upon Top Form receiving a bill for such costs from
OraLabs. After the end of each calendar month, OraLabs shall provide a written
invoice to Top Form, specifying the amount of fees and costs (if any) owing with
respect to such calendar month, and Top Form shall pay to OraLabs the amount due
within ten (10) days after Top Form's receipt of the invoice. As additional
consideration for payment of the foregoing fees by Top Form, OraLabs agrees to
release and relinquish to Top Form all rights, if any, which OraLabs has to the
name "Top Form."
4. Original Term. The original term of this Contract shall be one (1) year
from the date first stated above. If not terminated in writing by either party
at least thirty (30) days prior to the end of the original term, then this
Contract shall remain in effect subject to the right of either party to
terminate the Contract upon giving the other party at least thirty (30) days'
written notice of termination of the Contract. Notwithstanding the preceding
sentences of this paragraph, OraLabs shall also have the right to terminate this
Contract at any time prior to the end of the initial one (1) year term, upon
giving written notice of such termination to Top Form at least thirty (30) days
prior to the stated termination date.
5. Limitation of Liability. In providing its Services hereunder, neither
OraLabs nor any officer, director, employee or agent of OraLabs shall be liable
to Top Form for any error of judgment or mistake of law, or for any loss
incurred by Top Form in connection with the matters to which this Contract
relates, except with respect to a loss resulting from wilful misfeasance, bad
faith or gross negligence on the part of OraLabs, its officers, directors,
employees or agents.
6. Indemnification of OraLabs by Top Form. Top Form shall indemnify and
hold harmless OraLabs and its officers, directors, employees and agents from and
against any and all losses, liabilities, claims, damages, costs and expenses
(including attorneys' fees and other expenses of litigation) to which any of
such parties may become subject which arise out of the Services performed by
OraLabs, provided that such indemnity shall not protect any such party against
any matter which arises by reason of wilful misfeasance, bad faith or gross
negligence of such party.
7. OraLabs' Employees. All personnel through whom OraLabs performs any of
its duties under this Contract shall be paid solely by OraLabs and none of such
persons shall be deemed employees or agents of Top Form for any purpose. As an
illustration of the foregoing but not as a limitation thereof, OraLabs shall be
2
<PAGE>
solely responsible for the payment and withholding of all taxes with respect to
wages arising from OraLabs' provision of the Services.
8. No Partnership. OraLabs and Top Form each have separate and independent
rights and obligations under this Contract. The relationship between the parties
established by this Contract is limited to that of OraLabs serving as an
independent contractor to Top Form. Notwithstanding any other provision of this
Contract, nothing contained in this Contract shall be construed as creating,
forming or constituting any partnership, joint venture, merger or consolidation
of Top Form and OraLabs for any purpose or in any respect. It is expressly
understood and agreed to by the parties that OraLabs shall have no authority to
act for, represent or bind Top Form or any affiliate thereof in any manner
whatsoever, except as may be agreed to expressly by the parties in writing from
time to time.
9. Complete Agreement. This Contract between the parties constitutes the
entire agreement and understanding of the parties hereto, and supersedes any and
all previous agreements and understandings, whether oral or written, between the
parties, with respect to the matters set forth in this Contract.
10. Notices. Any notice or communication permitted or required under this
Contract shall be in writing and shall only be deemed sufficiently given if hand
delivered or sent by United States mail, postage prepaid, certified mail, return
receipt requested, to the address of the party as set forth below, or to such
other address as either party may notify the other in writing:
If to OraLabs: 2901 South Tejon Street
Englewood, Colorado 80110
If to Top Form: c/o Gary Schlatter
4835 South Gaylord Street
Englewood, Colorado 80110
Any notice properly given hereunder shall be deemed given when personally
delivered, as evidenced by a written receipt, or one business day after deposit
with the United States Postal Service, if mailed in the manner set forth above.
11. Successors and Assigns. This Contract shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors,
legal representatives and assigns. Notwithstanding the foregoing, neither party
may assign this Contract without the prior written consent of the other party,
which may be withheld in its sole discretion.
12. Amendment and Modification. Neither this Contract nor any provision
hereof may be changed, waived, discharged or terminated other than by an
agreement in writing signed by both parties.
3
<PAGE>
13. Governing Law. This Contract shall be governed by and construed and
interpreted in accordance with the laws of the State of Colorado, without giving
effect to conflict of law principles.
TOP FORM BRANDS INC.
By: /s/ Gary Schlatter
-----------------------------------
Gary Schlatter, President
ORALABS, INC.
By: /s/ Allen R. Goldstone
-----------------------------------
Allen R. Goldstone, Authorized Director
4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference of our report on Oralabs
Holding Corp. dated February 24, 1999 in the Registration Statement on Form S-8,
as included in the Oralabs Holding Corp.'s Form 10-KSB for the year ended
December 31, 1998 and to all references to our firm included in such
Registration Statement.
March 29, 1999
- - ----------------
Denver, Colorado
/s/ Ehrhardt Keefe Steiner & Hottman P.C.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
We hereby consent to the incororation by reference of our report on OraLabs
Holding Corp. dated February 24, 1998 in the Registration Statement on Form S-8,
as included in the OraLabs Holding Corp's Form 10-KSB for the year ended
December 31, 1998 and to all references to our firm included in such
Registration Statement.
/s/ Schumacher & Associates, Inc.
-----------------------------------
Schumacher & Associates, Inc.
March 31, 1999
Denver, Colorado
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 348,979 1,023,598
<SECURITIES> 0 0
<RECEIVABLES> 1,158,432 720,438
<ALLOWANCES> 33,007 33,770
<INVENTORY> 1,962,137 599,270
<CURRENT-ASSETS> 3,619,843 2,469,215
<PP&E> 688,837 385,222
<DEPRECIATION> 257,434 170,490
<TOTAL-ASSETS> 4,051,246 2,683,947
<CURRENT-LIABILITIES> 1,162,350 676,451
<BONDS> 0 0
0 0
0 0
<COMMON> 9,142 9,124
<OTHER-SE> 2,861,813 1,998,372
<TOTAL-LIABILITY-AND-EQUITY> 4,051,246 2,683,947
<SALES> 6,553,331 6,762,361
<TOTAL-REVENUES> 7,131,096 6,797,111
<CGS> 3,853,959 3,256,794
<TOTAL-COSTS> 5,818,721 5,146,764
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,312,375 1,650,347
<INCOME-TAX> 493,816 522,694
<INCOME-CONTINUING> 818,559 1,127,653
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 818,559 1,127,653
<EPS-PRIMARY> .09 .13
<EPS-DILUTED> .09 .12
</TABLE>
