SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------
FORM 10-Q
(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended April 4, 1998
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Transition Period From to .
Commission File Number: 0-23633
---------
1-800 CONTACTS, INC.
(Exact name of registrant as specified in its certificate)
Delaware 87-0571643
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
13751 S. Wadsworth Park Drive, Suite D-140
Draper, UT 84020
- ------------------------------------------ --------------------------
(Address of principal executive offices) (Zip Code)
(801) 572-8225
------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
As of May 19, 1998, the Registrant has 6,430,568 shares of Common
Stock, par value $0.01 per share outstanding.
<PAGE>
1-800 CONTACTS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Condensed Balance Sheets as of April 4, 1998 (unaudited)
and December 31, 1997 . . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Operations for the 13 Weeks Ended
April 4, 1998 (unaudited) and the Three Months Ended
March 31, 1997 (unaudited) . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Stockholders' Equity for the 13 Weeks
Ended April 4, 1998 (unaudited) . . . . . . . . . . . . . . . 5
Condensed Statements of Cash Flows for the 13 Weeks Ended
April 4, 1998 (unaudited) and the Three Months Ended
March 31, 1997 (unaudited) . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Financial Statements. . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . 13
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 13
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
1-800 CONTACTS, INC.
CONDENSED BALANCE SHEETS
ASSETS
<CAPTION>
April 4, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,264,867 $ --
Inventories 5,475,106 4,811,855
Prepaid advertising 1,221,364 127,696
Deferred income tax asset 13,055 --
Other current assets 222,533 54,968
------------ ------------
Total current assets 24,196,925 4,994,519
DEFERRED ADVERTISING COSTS 3,268,231 1,705,695
PROPERTY AND EQUIPMENT, net: 638,738 562,503
OTHER ASSETS 421,804 518,347
------------ ------------
Total assets $ 28,525,698 $ 7,781,064
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ -- $ 1,055,640
Notes payable to stockholders -- 1,370,000
Current portion of capital lease obligation 27,182 23,532
Accounts payable 4,228,117 3,762,158
Accrued liabilities 555,959 300,439
Unearned revenue 160,897 104,272
------------ ------------
Total current liabilities 4,972,155 6,616,041
------------ ------------
LONG-TERM LIABILITIES:
Notes payable to stockholders -- 243,788
Capital lease obligation, less current portion 58,055 66,877
Deferred income tax liability 966,963 --
------------ ------------
Total long-term liabilities 1,025,018 310,665
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock 64,306 46,595
Additional paid-in capital 22,971,890 93,688
Retained earnings (deficit) (507,671) 1,286,220
Notes receivable from stockholders -- (572,145)
------------ ------------
Total stockholders' equity 22,528,525 854,358
------------ ------------
Total liabilities and stockholders' equity $ 28,525,698 $ 7,781,064
============ ============
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
3
<PAGE>
<TABLE>
1-800 CONTACTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
13 Weeks Three Months
Ended Ended
April 4, March 31,
1998 1997
------------ ------------
<S> <C> <C>
NET SALES $ 10,429,304 $ 2,845,989
------------ ------------
COST OF GOODS SOLD 6,628,913 1,858,340
------------ ------------
Gross profit 3,800,391 987,649
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,137,926 777,538
------------ ------------
INCOME FROM OPERATIONS 662,465 210,111
------------ ------------
OTHER (EXPENSE) INCOME:
Interest expense (73,633) (4,103)
Interest income 143,869 --
Other, net 10,000 --
------------ ------------
Total other, net 80,236 (4,103)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 742,701 206,008
PROVISION FOR INCOME TAXES (953,908) --
------------ ------------
NET INCOME (LOSS) $ (211,207) $ 206,008
============ ============
PER SHARE INFORMATION:
Basic and diluted net income (loss) per common share $ (0.04) $ 0.04
============ ============
PRO FORMA INFORMATION:
Income before provision for income taxes 742,701 206,008
Provision for income taxes (278,337) (79,313)
------------ ------------
Net income $ 464,364 $ 126,695
============ ============
Basic and diluted net income per common share $ 0.08 $ 0.03
============ ============
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
4
<PAGE>
<TABLE>
1-800 CONTACTS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
For the 13 Weeks Ended April 4, 1998
(Unaudited)
<CAPTION>
Notes
Common Stock Additional Retained Receivable
-------------------------- Paid-in Earnings From
Shares Amount Capital (Deficit) Stockholders Total
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C>
BALANCE, December 31, 1997 4,659,469 $ 46,595 $ 93,688 $ 1,286,220 $ (572,145) $ 854,358
Advances to stockholders -- -- -- -- (27,544)
Distributions to stockholders, net -- -- -- (1,582,684) 599,689 (982,995)
Sale of common stock,
net of offering costs 2,213,750 22,138 24,773,775 -- -- 24,795,913
Repurchase of common stock (442,651) (4,427) (1,895,573) -- -- (1,900,000)
Net loss -- -- -- (211,207) -- (211,207)
----------- ------------ ------------ ------------ ------------ ------------
BALANCE, April 4, 1998 6,430,568 $ 64,306 $ 22,971,890 $ (507,671) $ -- $ 22,528,525
=========== ============ ============ ============ ============ ============
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
5
<PAGE>
<TABLE>
1-800 CONTACTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) In Cash And Cash Equivalents
<CAPTION>
13 Weeks Three Months
Ended Ended
April 4, March 31,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (211,207) $ 206,008
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 63,536 24,756
Deferred income taxes 953,908 --
Changes in operating assets and liabilities:
Inventories (663,251) 69,833
Prepaid advertising (1,093,668) (28,800)
Other current assets (167,565) 1,848
Deferred advertising costs (1,562,536) (242,650)
Accounts payable 465,959 323,215
Accrued liabilities 255,520 48,904
Unearned revenue 56,625 47,617
----------- -----------
Net cash provided by (used in) operating activities (1,902,679) 450,731
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in notes receivable from stockholders (27,544) (65,221)
Purchase of property and equipment (131,030) (162,081)
Deposits (287,396) --
----------- -----------
Net cash used in investing activities (445,970) (227,302)
----------- -----------
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
6
<PAGE>
<TABLE>
1-800 CONTACTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) In Cash And Cash Equivalents
<CAPTION>
13 Weeks Three Months
Ended Ended
April 4, March 31,
1998 1997
------------ ------------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock, net of underwriting discounts and commissions 25,734,844 --
Stock offering costs (563,733) --
Stock repurchase (1,900,000) --
Net repayments on line of credit (1,055,640) --
Borrowings from stockholders -- 40,000
Principal payments on notes payable to stockholders (1,613,788) --
Principal payments on notes payable for distributions to stockholders, net (982,995) --
Principal payments on long-term debt -- (25,236)
Principal payments on capital lease (5,172) (3,131)
Repayment of bank overdraft -- (68,543)
------------ ------------
Net cash provided by (used in) financing activities 19,613,516 (56,910)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 17,264,867 166,519
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -- --
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,264,867 $ 166,519
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 199,645 $ 11,294
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the period ended April 4, 1998, the Company distributed $1,582,684 to its
S Corporation stockholders. This distribution (net of notes receivable from
stockholders of $599,689) was in the form of promissory notes, totaling
$982,995, issued by the Company. The promissory notes were paid in full during
the period ended April 4, 1998.
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
7
<PAGE>
1-800 CONTACTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. PRESENTATION OF CONDENSED FINANCIAL STATMENTS
The accompanying condensed financial statements have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These condensed financial statements reflect all adjustments
(consisting only of normal recurring adjustments), which in the opinion of
management, are necessary to present fairly the results of operations of the
Company for the periods presented. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's Registration Statement on Form S-1
(registration number is 333-41055).
The results of operations for the period ended April 4, 1998 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. CHANGE IN ACCOUNTING PERIOD
Effective January 1, 1998, the Company changed from a calendar year end
to a 52/53 week year ending on the Saturday nearest to December 31. Due to this
change, the first quarter of 1998 represents 13 weeks and 3 days, covering the
period January 1, 1998 to April 4, 1998. The remaining quarters for the fiscal
year 1998 will each be 13 weeks.
NOTE 3. INITIAL PUBLIC OFFERING
During February 1998, the Company completed its initial public offering
of common stock. In connection therewith, the Company issued 2,213,750 shares of
common stock, which included 288,750 shares issued pursuant to the underwriters'
over-allotment option. The proceeds received from the offering, net of
underwriting commissions and offering costs, totaled approximately $24,796,000.
NOTE 4. S CORPORATION DISTRIBUTIONS
Immediately prior to the consummation of its initial public offering,
the Company entered into an agreement to distribute to its existing stockholders
an amount equal to the Company's retained earnings from its formation date
through the date of the termination of the Company's S Corporation status. The
distribution (net of notes receivable from stockholders of $599,689) was in the
form of promissory notes, totaling $982,995, issued by the Company. These
promissory notes were paid in full during the period ended April 4, 1998.
NOTE 5. INCOME TAXES AND PRO FORMA INFORMATION
Effective February 9, 1998 the Company's S Corporation election was
terminated. As a result, the Company recorded a net deferred tax liability and
the related deferred tax provision of approximately $791,000 for the tax effect
of the differences between financial statement and income tax basis of assets
and liabilities that existed at the termination date of the S Corporation
election.
The pro forma net income presents the pro forma effects on historical
net income adjusted for a pro forma provision for income taxes. The pro forma
provision for income taxes has been determined assuming the Company had been
taxed as a C Corporation for federal and state income tax purposes.
8
<PAGE>
NOTE 6. NET INCOME PER COMMON SHARE
Basic net income per common share ("Basic EPS") excludes dilution and
is computed by dividing net income by the weighted-average number of common
shares outstanding during the period. Diluted net income per common share
("Diluted EPS") reflects the potential dilution that could occur if stock
options or other common stock equivalents were exercised or converted into
common stock.
The pro forma Basic and Diluted EPS gives effect to the pro forma
effects on historical net income adjusted for a pro forma provision for income
taxes assuming the Company had been taxed as a C Corporation for federal and
state income tax purposes. In addition, it takes into consideration the shares
deemed to be outstanding at the initial public offering price of $12.50 per
share, sufficient to fund the S Corporation distribution of approximately
$983,000 (see Note 4).
The following is a reconciliation of the numerator and denominator used
to calculate Basic and Diluted EPS:
<TABLE>
<CAPTION>
Quarter Ended April 4, 1998 Quarter Ended March 31, 1997
---------------------------------------- ----------------------------------------
Income Per-Share Income Per-Share
(Loss) Shares Amount (Loss) Shares Amount
------------- ------------ ------------- ------------- ------------ -------------
Historical:
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ (211,207) 5,649,263 $ (0.04) $ 206,008 4,659,469 $ 0.04
Effect of stock options 9,369
------------- ------------ ------------- ------------- ------------ -------------
Diluted EPS $ (211,207) 5,649,263 $ (0.04) $ 206,008 4,668,838 $ 0.04
============= ============ ============= ============= ============ =============
Pro Forma:
Basic EPS $ 464,364 5,649,263 $ 0.08 $ 126,695 4,659,469 $ 0.03
Effect of stock options 59,422 9,369
Assumed distribution 78,640
------------- ------------ ------------- ------------- ------------ -------------
Diluted EPS $ 464,364 5,708,685 $ 0.08 $ 126,695 4,747,478 $ 0.03
</TABLE>
NOTE 7. ADVERTISING COSTS
The Company capitalizes certain direct-mail advertising costs and
amortizes those costs over the period for which the revenues are generated in
accordance with Statement of Position ("SOP") 93-7. Based upon the Company's
past direct-response information, the Company amortizes those costs over a 12
month period. The Company recorded direct-response advertising expense of
approximately $1,876,000 and $362,000 for the quarters ended April 4, 1998 and
March 31, 1997, respectively. The Company expenses all other advertising costs
when the advertising takes place. These advertising costs totaled approximately
$127,000 and $3,000 for the quarters ended April 4, 1998 and March 31, 1997,
respectively.
NOTE 8. LEGAL MATTERS
Subsequent to April 4, 1998, a claim against the Company by a former
applicant was settled. The settlement amount was recorded in the quarter ended
April 4, 1998.
From time to time the Company is involved in legal matters generally
incidental to its business. It is the opinion of management, after discussion
with legal counsel, that the ultimate dispositions of these matters will not
have a material impact on the financial condition, liquidity or results of
operations of the Company.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The Company is a rapidly growing direct marketer of replacement contact
lenses. The Company was formed in February 1995 and is the successor to the mail
order business founded by the Company's Vice President of Operations in March
1991. Since its formation, the Company has experienced significant growth in
revenues and net income. The Company's net sales have grown rapidly from $2.8
million in the first quarter of 1997 to $10.4 million in the first quarter of
1998.
Prior to consummation of its initial public offering ("IPO") in
February 1998, the Company operated as an S corporation and, as a result, had
not been subject to federal or certain state income taxes. In connection with
the consummation of the IPO, the Company revoked its S Corporation status,
became subject to federal and state income taxes, and recognized a
non-recurring, non-cash charge to earnings of approximately $791,000 to record
deferred income taxes for the tax effect of cumulative temporary differences
between financial and tax reporting.
Effective January 1, 1998, the Company changed from a calendar year end
to a 52/53 week year ending on the Saturday nearest to December 31. Due to this
change, the first quarter of 1998 represents 13 weeks and 3 days, covering the
period January 1, 1998 to April 4, 1998. The remaining quarters for the fiscal
year 1998 will each be 13 weeks.
Quarter-to-quarter comparisons are impacted by the timing of the
mailing of the Company's advertisements within and between quarters.
Approximately 40% of the revenue related to a particular mailing is generated
within 60 to 90 days after such mailing. The Company engages in an ongoing
mailing campaign. The volume of mailings may vary in different quarters and from
year-to-year depending on the Company's assessment of prevailing market
opportunities. The Company expects to begin advertising through radio and
television in the second quarter of 1998. The costs of such advertising will be
expensed as incurred and not capitalized like its direct-mailing advertising
costs. As a result, quarter-to-quarter comparisons will be impacted by the
timing of such radio and television advertisements.
The sale and delivery of contact lenses is generally governed by state
laws and regulations. The Company sells to customers in nearly all 50 states and
each sale is likely to be subject to the laws of the state where the customer is
located. The Company's operating practice is to attempt to obtain a valid
prescription from each of its customers or his/her eye care practitioner. If the
Company is unable to obtain a copy of or verify the customer's prescription, the
Company's practice is to ship the lenses to the customer, based on the
information that the customer has provided. The Company retained legal counsel
to identify and summarize the applicable laws of each of the states in which the
Company generates material sales. The Company compared its operations to the
applicable requirements of the laws contained in such summaries. Based on such
comparison, the Company estimates that approximately one-third of its net sales
appeared to conform to the requirements of applicable state laws and
regulations.
10
<PAGE>
Results of Operations
13 Weeks Ended April 4, 1998 Compared to Three Months Ended March 31, 1997
The following table presents the Company's results of operations
expressed as a percentage of net sales:
<TABLE>
<CAPTION>
13 Weeks Three Months
Ended Ended
April 4, March 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 63.6 65.3
----------------- -----------------
Gross profit 36.4 34.7
Selling, general and administrative expenses 30.1 27.3
----------------- -----------------
Income from operations 6.3 7.4
Other (expense) income, net 0.8 (0.1)
----------------- -----------------
Income before provision for income taxes 7.1 7.3
Pro forma provision for income taxes (2.6) (2.8)
----------------- -----------------
Pro forma net income 4.5% 4.5%
================= =================
</TABLE>
Net sales. Net sales for the quarter ended April 4, 1998 increased $7.6
million, or 266%, to $10.4 million from $2.8 million for the quarter ended
December 31, 1997. This increase was primarily attributable to higher sales
volumes resulting from the acquisition of new customers through additional sales
and marketing efforts and from reorders from a growing customer base.
Gross profit. Gross profit as a percentage of sales increased to 36.4%
for the quarter ended April 4, 1998 from 34.7% for the quarter ended March 31,
1997. This increase is largely due to a decrease in inventory procurement cost.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the quarter ended April 4, 1998 increased $2.4
million, or 304%, from the quarter ended December 31, 1997. As a percentage of
net sales, selling, general and administrative expenses increased to 30.1% in
the first quarter of 1998 from 27.3% in the 1997 period. The increases in
expense and as a percentage of net sales are due to the increase in sales and
marketing activity and the related increase in expenditures necessary to support
the increased sales. Advertising as a percentage of sales was 19.2% in the first
quarter of 1998 as compared to 12.8% for the first quarter of 1997.
Other (expense) income, net. For the quarter ended April 4, 1998, other
(expense) income increased to $80,236 from $(4,103) for the quarter ended March
31, 1997. This increase is due to interest income from funds received in the
initial public offering of common stock in excess of the interest expense
incurred prior to the initial public offering.
Income taxes. The pro forma provision for income taxes has been
determined assuming the Company had been taxed as a C Corporation for federal
and state income tax purposes. The Company anticipates that its future effective
income tax rate will be approximately 38%.
Liquidity and Capital Resources
The Company has historically funded its growth through a combination of
funds generated from operations and borrowings. During February 1998, the
11
<PAGE>
Company completed its initial public offering of common stock. In connection
therewith, the Company issued 2,213,750 shares of common stock, which included
288,750 shares pursuant to the underwriters' over-allotment option. The proceeds
received from the offering, net of underwriting commissions and offering costs,
totaled approximately $24.8 million. The Company uses funds to enhance growth
through increased advertising expenditures and to increase inventory levels in
anticipation of future sales.
For the quarters ended April 4, 1998 and March 31, 1997, net cash
provided by (used in) operations was approximately $(1,903,000) and $451,000,
respectively. In 1998, cash was used primarily to fund increases in inventory
and advertising assets (prepaid advertising and deferred advertising). These
increases were partially offset by increases in accounts payable, accrued
liabilities and net income before provision for deferred income taxes. In 1997,
cash used to fund the increase in advertising assets was more than offset by
cash provided through increases in accounts payable, accrued liabilities and net
income, and a decrease in inventory.
The Company used approximately $446,000 and $227,000 for investing
activities for the quarters ended April 4, 1998 and March 31, 1997,
respectively. The amounts related to capital expenditures and increases in notes
receivable from shareholders. The Company received payment in full on the notes
receivable during the period ended April 4, 1998, as the notes were netted with
the S Corporation distribution paid during the period. The amount related to
capital expenditures for the 1998 and 1997 periods were approximately $418,000
(including approximately $287,000 in deposits) and $162,000, respectively. The
Company anticipates additional capital expenditures for infrastructure such as
expanded and improved operating facilities, and expanded and upgraded
telecommunications and management information systems.
For the 1998 period, the Company had approximately $19.6 million
provided by financing activities, resulting from net proceeds received from its
initial public offering, offset by repayments of debt, distributions to
stockholders and repurchase of stock. For the 1997 period, the Company used
approximately $57,000 in financing activities, including debt payments and
repayment of a bank overdraft, offset by borrowings from stockholders.
In August 1997, the Company established a revolving credit facility to
provide for working capital requirements and other corporate purposes (the
"Credit Facility"). The Company amended the Credit Facility in January 1998. As
a result, the Credit Facility provided for borrowings equal to the lesser of
$3.0 million or 50% of eligible inventory, declining to the lesser of $1.5
million or 50% of eligible inventory upon completion of a successful initial
public offering of $10 million or more. The scheduled maturity of the Credit
Facility is July 31, 1998. The Credit Facility bears interest at a floating rate
equal to the lender's prime interest rate plus 1.5% (10% at April 4, 1998). As
of April 4, 1998, the Company had no outstanding borrowings under the Credit
Facility. The Credit Facility is secured by substantially all of the Company's
assets and contains financial covenants customary for this type of financing.
The Company is moving into its new call center during June and July of
1998 and expects to incur some additional labor and other costs associated with
the move. In addition, to ease the transition to the new call center, the
Company will maintain and pay for both facilities for about two months.
The Company believes that its cash on hand after the IPO, together with
cash generated from operations, will be sufficient to support current operations
and future growth through fiscal 1998. The Company may be required to seek
additional sources of funds for accelerated growth or continued growth after
that point, and there can be no assurance that such funds will be available on
satisfactory terms. Failure to obtain such financing could delay or prevent the
Company's planned growth, which could adversely affect the Company's business,
financial condition and results of operations.
As a result of state regulatory requirements, the Company's liquidity,
capital resources and results of operations may be negatively impacted in the
future if the Company incurs increased costs or fines, is prohibited from
selling its products in a particular state(s) or experiences losses of a
substantial portion of the Company's customers for whom the Company is unable to
obtain or verify a prescription due to the enforcement of requirements by state
regulatory agencies.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Subsequent to April 4, 1998, a claim against the Company by a former
applicant was settled. The settlement amount was recorded in the quarter ended
April 4, 1998.
From time to time the Company is involved in legal matters generally
incidental to its business. It is the opinion of management, after discussion
with legal counsel, that the ultimate dispositions of these matters will not
have a material impact on the financial condition, liquidity or results of
operations of the Company.
Item 2. Changes in Securities and Use of Proceeds
(b) Use of Proceeds from Registered Securities.
A Registration Statement on Form S-1 (File No. 333-41055) (the
"Registration Statement") registering shares of the Company's Common Stock, par
value $0.01 per share, filed in connection with the Company's IPO, was declared
effective by the Securities and Exchange Commission on February 9, 1998. The IPO
commenced on the effective date and terminated after all the securities
registered under such Registration Statement were sold.
Pursuant to the Registration Statement, the Company sold 2,213,750
shares of Common Stock (including 288,750 shares sold pursuant to the
underwriter's over-allotment option) for its own account, for an aggregate
offering price of $27,671,875, and 316,250 shares of Common Stock (including
41,250 shares sold pursuant to the underwriter's over-allotment option) for the
account of the selling stockholder for an aggregate offering price of
$3,953,125. The managing underwriters of the IPO were McDonald & Company
Securities, Inc. and Morgan Keegen & Company, Inc.
In connection with the IPO, the Company incurred expenses of
$2,875,962, including underwriting discounts and commissions of $1,937,031 and
other expenses of $938,931. After such expenses, the Company's net proceeds from
the IPO were approximately $24.8 million. Since completion of the IPO, through
April 4, 1998, the approximate amounts of net offering proceeds used by the
Company were as follows: (i) $1.0 million for the payment of the S Corporation
distribution, net of notes receivable from stockholders, (which was paid to the
shareholders who were shareholders of the Company prior to the IPO, some of whom
are directors and officers of the Company); (ii) $3.0 million for the repayment
of debt (a portion of which was repaid to a director of the Company); (iii) $1.9
million to exercise an option to purchase 442,651 shares of Common Stock from a
director of the Company and (iv) $1.6 million for operations and capital
expenditures.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Pursuant to Section 228 of the General Corporation Law of the State of
Delaware, on February 9, 1998, the stockholders of the Company, by written
consent without a meeting, adopted resolutions:
1. Approving the Agreement and Plan of Merger whereby the Company was
merged with and into its present corporation, 1-800 CONTACTS, INC.,
a Utah corporation, and in connection with the merger the
adjustment of the number of shares of common stock of the Company
to be outstanding after the IPO.
13
<PAGE>
2. Approving the Amended and Restated Certificate of Incorporation and
the Amended and Restated By-Laws of the Company.
3. Approving the appointment of Arthur Andersen LLP to serve as the
Company's outside independent public accounting firm for the
Company's 1998 fiscal year.
4. Approving a form of Indemnification Agreement for directors and
officers of the Company.
5. Approving the adoption of the 1-800 CONTACTS, INC. 1998 Stock
Option Incentive Plan.
6. Electing as directors the following persons: (i) Scott S. Tanner
and John F. Nichols to serve until the annual meeting of
stockholders in 1999, (ii) E. Dean Butler and Stephen A. Yacktman
to serve until the annual meeting of stockholders in 2000 and (iii)
Jonathan C. Coon and Donald A. Yacktman to serve until the annual
meeting of stockholders in 2001.
Votes cast for the above matters: 11,250 against: 0 abstaining: 0
Item 5. Other Information
From time to time the Company receives notices, inquiries or other
correspondence from states or its regulatory bodies charged with overseeing the
sale of contact lenses. The Company's practice is to review such notices with
legal counsel to determine the appropriate response on a case-by-case basis. It
is the opinion of management, after discussion with legal counsel, that the
Company is taking the appropriate steps to address the various notices received.
To date, no formal complaints have been filed against the Company concerning its
business practices.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibit Index
Exhibit No. Description of Exhibit
----------- ----------------------
3.1(i) Restated Certificate of Incorporation of the
Company.
3.1(ii) Restated By-Laws of the Company.
27.1 Financial Data Schedule.
(B) No reports on Form 8-K were filed by the Registrant during the
13 weeks ended April 4, 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
1-800 CONTACTS, INC.
Dated: May , 1998 By:
-- -----------------------------------
Name: Jonathan C. Coon
Title: President & Chief Executive Officer
By:
-----------------------------------
Name: Scott S. Tanner
Title: Chief Financial Officer
15
RESTATED CERTIFICATE OF INCORPORATION
OF
1-800 CONTACTS, INC.
ARTICLE I - Name
----------------
The name of the corporation is 1-800 CONTACTS, INC.
(hereinafter referred to as the "Corporation").
-------------
ARTICLE II - Registered Office
------------------------------
The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle 19805. The name of the registered agent of the Corporation at that
address is Corporation Service Company.
ARTICLE III - Purpose
---------------------
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "Delaware General Corporation
Law").
ARTICLE IV - Capital Stock
--------------------------
Part A. General. The maximum number of shares of capital stock
that the Corporation is authorized to have outstanding at any one time is
21,000,000 shares, consisting of: (i) 1,000,000 shares of Preferred Stock, par
value $0.01 per share (the "Preferred Stock") and (ii) 20,000,000 shares of
Common Stock, par value $0.01 per share (the "Common Stock").
Part B. Preferred Stock. Authority is hereby expressly vested
in the Board of Directors of the Corporation, subject to the provisions of this
ARTICLE IV and to the limitations prescribed by law, to authorize the issuance
from time to time of one or more series of Preferred Stock. The authority of the
Board of Directors with respect to each series shall include, but not be limited
to, the determination or fixing of the following by resolution or resolutions
adopted by the affirmative vote of a majority of the total number of the
Directors then in office:
<PAGE>
(1) The designation of such series;
(2) The dividend rate of such series, the conditions and dates
upon which such dividends shall be payable, the relation which such dividends
shall bear to the dividends payable on any other class or classes or series of
the Corporation's capital stock and whether such dividends shall be cumulative
or non-cumulative;
(3) Whether the shares of such series shall be subject to
redemption for cash, property or rights, including securities of any other
corporation, by the Corporation or upon the happening of a specified event and,
if made subject to any such redemption, the times or events, prices, rates,
adjustments and other terms and conditions of such redemptions;
(4) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(5) Whether or not the shares of such series shall be
convertible into, or exchangeable for, at the option of either the holder or the
Corporation or upon the happening of a specified event, shares of any other
class or classes or of any other series of the same class of the Corporation's
capital stock and, if provision be made for conversion or exchange, the times or
events, prices, rates, adjustments and other terms and conditions of such
conversions or exchanges;
(6) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(7) The rights of the holders of the shares of such series
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(8) The provisions as to voting, optional and/or other special
rights and preferences, if any, including, without limitation, the right to
elect one or more Directors.
Part C. Common Stock. Except as otherwise provided by the
Delaware General Corporation Law or this Restated Certificate of Incorporation
(the "Restated Certificate"), the holders of Common Stock (i) subject to the
rights of holders of any series of Preferred Stock, shall share ratably in all
dividends payable in cash, stock or otherwise and other distributions, whether
in respect of liquidation or dissolution (voluntary or involuntary) or otherwise
and (ii) are subject to all the powers, rights, privileges, preferences and
priorities of any series of Preferred Stock as provided herein or in any
resolution or resolutions adopted by the Board of Directors pursuant to
authority expressly vested in it by the provisions of Part B of this ARTICLE IV.
2
<PAGE>
(1) The Common Stock shall not be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same class of the Corporation's capital stock.
(2) No holder of Common Stock shall have any preemptive,
subscription, redemption, conversion or sinking fund rights with respect to the
Common Stock, or to any obligations convertible (directly or indirectly) into
stock of the Corporation whether now or hereafter authorized.
(3) Except as otherwise provided by the Delaware General
Corporation Law, or the Restated Certificate and subject to the rights of
holders of any series of Preferred Stock, all of the voting power of the
stockholders of the Corporation shall be vested in the holders of the Common
Stock, and each holder of Common Stock shall have one vote for each share held
by such holder on all matters voted upon by the stockholders of the Corporation.
ARTICLE V - Existence
---------------------
The Corporation is to have perpetual existence.
ARTICLE VI - By-laws
--------------------
In furtherance and not in limitation of the powers conferred
by the Delaware General Corporation Law, the Board of Directors of the
Corporation is expressly authorized to make, alter, amend, change, add to or
repeal the By-laws of the Corporation by the affirmative vote of a majority of
the total number of Directors then in office. Any alteration or repeal of the
By-laws of the Corporation by the stockholders of the Corporation shall require
the affirmative vote of at least a majority of the voting power of the then
outstanding shares of capital stock of the Corporation entitled to vote on such
alteration or repeal, subject to ARTICLE IX hereof and ARTICLE VII of the
Corporation's By-laws.
3
<PAGE>
ARTICLE VII - Stockholders and Directors
----------------------------------------
Part A. Stockholder Action. Election of Directors need not be
by written ballot unless the By-laws of the Corporation so provide. Subject to
any rights of holders of any series of Preferred Stock, from and after the date
on which the Common Stock of the Corporation is registered pursuant to the
Exchange Act, (i) any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected in lieu thereof by
any consent in writing by such stockholders, (ii) special meetings of
stockholders of the Corporation may be called only by either the Board of
Directors pursuant to a resolution adopted by the affirmative vote of the
majority of the total number of Directors then in office or by the chief
executive officer of the Corporation and (iii) advance notice of stockholder
nominations of persons for election to the Board of Directors of the Corporation
and of business to be brought before any annual meeting of the stockholders by
the stockholders of the Corporation shall be given in the manner provided in the
By-laws of the Corporation.
Part B. Number of Directors and Term of Office. Subject to any
rights of holders of any series of Preferred Stock to elect additional Directors
under specified circumstances, the number of Directors which shall constitute
the Board of Directors of the Corporation shall be fixed from time to time in
the manner set forth in the By-laws of the Corporation. The Directors of the
Corporation shall be divided into three classes: Class I, Class II and Class
III. Membership in each class shall be as nearly equal in number as possible.
The term of office of the initial Class I Directors shall expire at the annual
election of Directors by the stockholders of the Corporation in 1999, the term
of office of the initial Class II Directors shall expire at the annual election
of Directors by the stockholders of the Corporation in 2000 and the term of
office of the initial Class III Directors shall expire at the annual election of
Directors by the stockholders of the Corporation in 2001, or thereafter when
their respective successors in each case are elected by the stockholders and
qualified, subject however, to prior death, resignation, retirement,
disqualification or removal from office for cause. At each succeeding annual
election of Directors by the stockholders of the Corporation beginning in 1999,
the Directors chosen to succeed those whose terms then expire shall be
identified as being of the same class as the Directors they succeed and shall be
elected for a term expiring at the third succeeding annual election of Directors
by the stockholders of the Corporation, or thereafter when their respective
successors in each case are elected by the stockholders and qualified. If the
number of Directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of Directors in each class as
nearly equal as possible, and any additional Director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
shall a decrease in the number of Directors shorten the term of any incumbent
Director.
Part C. Removal and Resignation. No Director may be removed
from office without cause and without the affirmative vote of the holders of a
4
<PAGE>
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of Directors voting
together as a single class; provided, however, that if the holders of any class
or series of capital stock are entitled by the provisions of this Restated
Certificate (it being understood that any references to this Restated
Certificate shall include any duly authorized certificate of designation) to
elect one or more Directors, such Director or Directors so elected may be
removed without cause only by the vote of the holders of a majority of the
outstanding shares of that class or series entitled to vote. Any Director may
resign at any time upon written notice to the Corporation.
Part D. Vacancies and Newly Created Directorships. Subject to
any rights of holders of any series of Preferred Stock to fill such newly
created Directorships or vacancies, any newly created Directorships resulting
from any increase in the authorized number of Directors and any vacancies in the
Board of Directors resulting from death, resignation, disqualification or
removal from office for cause shall, unless otherwise provided by law or by
resolution approved by the affirmative vote of a majority of the total number of
Directors then in office, be filled only by resolution approved by the
affirmative vote of a majority of the total number of Directors then in office.
Any Director so chosen shall hold office until the next election of the class
for which such Director shall have been chosen, and until his successor shall
have been duly elected and qualified, unless he shall resign, die, become
disqualified or be removed for cause.
ARTICLE VIII - General Provisions
---------------------------------
Part A. Dividends. The Board of Directors shall have authority
from time to time to set apart out of any assets of the Corporation otherwise
available for dividends a reserve or reserves as working capital or for any
other purpose or purposes, and to abolish or add to any such reserve or reserves
from time to time as said Board may deem to be in the interest of the
Corporation; and said Board shall likewise have power to determine in its
discretion, except as herein otherwise provided, what part of the assets of the
Corporation available for dividends in excess of such reserve or reserves shall
be declared in dividends and paid to the stockholders of the Corporation.
Part B. Issuance of Stock. The shares of all classes of stock
of the Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the Board of Directors of the
Corporation, provided that shares of stock having a par value shall not be
issued for a consideration less than such par value, as determined by the Board.
At any time, or from time to time, the Corporation may grant rights or options
to purchase from the Corporation any shares of its stock of any class or classes
to run for such period of time, for such consideration, upon such terms and
conditions, and in such form as the Board of Directors may determine. The Board
of Directors shall have authority, as provided by law, to determine that only a
part of the consideration which shall be received by the Corporation for the
shares of its stock which it shall issue from time to time, shall be capital;
5
<PAGE>
provided, however, that, if all the shares issued shall be shares having a par
value, the amount of the part of such consideration so determined to be capital
shall be equal to the aggregate par value of such shares. The excess, if any, at
any time, of the total net assets of the Corporation over the amount so
determined to be capital, as aforesaid, shall be surplus. All classes of stock
of the Corporation shall be and remain at all times nonassessable.
The Board of Directors is hereby expressly authorized, in its
discretion, in connection with the issuance of any obligations or stock of the
Corporation (but without intending hereby to limit its general power so to do in
other cases), to grant rights or options to purchase stock of the Corporation of
any class upon such terms and during such period as the Board of Directors shall
determine, and to cause such rights to be evidenced by such warrants or other
instruments as it may deem advisable.
Part C. Inspection of Books and Records. The Board of
Directors shall have power from time to time to determine to what extent and at
what times and places and under what conditions and regulations the accounts and
books of the Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
Part D. Location of Meetings, Books and Records. Except as
otherwise provided in the By-laws, the stockholders of the Corporation and the
Board of Directors may hold their meetings and have an office or offices outside
of the State of Delaware and, subject to the provisions of the laws of said
State, may keep the books of the Corporation outside of said State at such
places as may, from time to time, be designated by the Board of Directors.
ARTICLE IX - Amendments
-----------------------
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate in the manner now or
hereinafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding anything contained in this Restated Certificate to
the contrary, Parts A, B and C of ARTICLE IV, ARTICLE VII, ARTICLE X, and this
ARTICLE IX of this Restated Certificate shall not be altered, amended or
repealed and no provision inconsistent therewith shall be adopted without the
affirmative vote of the holders of at least 66 2/3% of the voting power of the
then outstanding shares of capital stock of the Corporation entitled to vote on
such alteration, amendment or repeal, voting together as a single class (other
than any alteration or amendment to Part A of ARTICLE IV that increases the
authorized number of shares of Preferred Stock, or Common Stock).
6
<PAGE>
ARTICLE X - Liability
---------------------
Part A. Limitation of Liability.
------- ------------------------
(1) To the fullest extent permitted by the Delaware General
Corporation Law as it now exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), and except as otherwise provided in the Corporation's By-laws, no
Director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages arising from a breach of fiduciary duty owed
to the Corporation or its stockholders.
(2) Any repeal or modification of the foregoing paragraph by
the stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
Part B. Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is otherwise involved
(including involvement as a witness) in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding"), by reason of
the fact that he or she is or was a Director or officer of the Corporation or,
while a Director or officer of the Corporation, is or was serving at the request
of the Corporation as a Director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (an "indemnitee"),
whether the basis of such proceeding is alleged action in an official capacity
as a Director or officer or in any other capacity while serving as a Director or
officer, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability and loss (including attorneys' fees, judgments, fines, excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith and such indemnification shall continue
as to an indemnitee who has ceased to be a Director, officer, employee or agent
and shall inure to the benefit of the indemnitee's heirs, executors and
administrators; provided, however, that, except as provided in Part C of this
ARTICLE X with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation. The right
to indemnification conferred in this Part B of this ARTICLE X shall be a
contract right and shall include the obligation of the Corporation to pay the
expenses incurred in defending any such proceeding in advance of its final
disposition (an "advance of expenses"); provided, however, that, if and to the
extent that the Delaware General Corporation Law requires, an advance of
expenses incurred by an indemnitee in his or her capacity as a Director or
officer (and not in any other capacity in which service was or is rendered by
7
<PAGE>
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking (an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this Part B
or otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same or
lesser scope and effect as the foregoing indemnification of Directors and
officers.
Part C. Procedure for Indemnification. Any indemnification of
a Director or officer of the Corporation or advance of expenses under Part B of
this ARTICLE X shall be made promptly, and in any event within forty-five days
(or, in the case of an advance of expenses, twenty days), upon the written
request of the Director or officer. If a determination by the Corporation that
the Director or officer is entitled to indemnification pursuant to this ARTICLE
X is required, and the Corporation fails to respond within sixty days to a
written request for indemnity, the Corporation shall be deemed to have approved
the request. If the Corporation denies a written request for indemnification or
advance of expenses, in whole or in part, or if payment in full pursuant to such
request is not made within forty-five days (or, in the case of an advance of
expenses, twenty days), the right to indemnification or advances as granted by
this ARTICLE X shall be enforceable by the Director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of expenses where the undertaking required pursuant to
Part B of this ARTICLE X, if any, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct. The procedure for indemnification of other employees and agents for
whom indemnification is provided pursuant to Part B of this ARTICLE X shall be
the same procedure set forth in this Part C for Directors or officers, unless
otherwise set forth in the action of the Board of Directors providing
indemnification for such employee or agent.
8
<PAGE>
Part D. Insurance. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation or was serving at the
request of the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss asserted against him or her and incurred by him or
her in any such capacity, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
Part E. Service for Subsidiaries. Any person serving as a
Director, officer, employee or agent of another corporation, partnership,
limited liability company, joint venture or other enterprise, at least 50% of
whose equity interests are owned by the Corporation (a "subsidiary" for this
ARTICLE X) shall be conclusively presumed to be serving in such capacity at the
request of the Corporation.
Part F. Reliance. Persons who after the date of the adoption
of this provision become or remain Directors or officers of the Corporation or
who, while a Director or officer of the Corporation, become or remain a
Director, officer, employee or agent of a subsidiary, shall be conclusively
presumed to have relied on the rights to indemnity, advance of expenses and
other rights contained in this ARTICLE X in entering into or continuing such
service. The rights to indemnification and to the advance of expenses conferred
in this ARTICLE X shall apply to claims made against an indemnitee arising out
of acts or omissions which occurred or occur both prior and subsequent to the
adoption hereof.
Part G. Non-Exclusivity of Rights. The rights to
indemnification and to the advance of expenses conferred in this ARTICLE X shall
not be exclusive of any other right which any person may have or hereafter
acquire under this Restated Certificate or under any statute, by-law, agreement,
vote of stockholders or disinterested Directors or otherwise.
Part H. Merger or Consolidation. For purposes of this ARTICLE
X, references to the "Corporation" shall include, in addition to the resulting
Corporation, any constituent Corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
Directors, officers and employees or agents, so that any person who is or was a
Director, officer, employee or agent of such constituent Corporation, or is or
was serving at the request of such constituent Corporation as a Director,
officer, employee or agent of another Corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this ARTICLE X
with respect to the resulting or surviving Corporation as he or she would have
with respect to such constituent Corporation if its separate existence had
continued.
9
<PAGE>
ARTICLE XI - Business Combinations
----------------------------------
The Corporation expressly elects to be governed by Section 203
of the Delaware General Corporation Law.
* * * * *
10
BY-LAWS
OF
1-800 CONTACTS, INC.
A Delaware Corporation
(Adopted as of February 11, 1998)
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of 1-800 CONTACTS,
INC. (the "Corporation") in the State of Delaware shall be located at 1013
Centre Road, in the City of Wilmington, Delaware, County of New Castle 19805.
The name of the Corporation's registered agent at such address shall be
Corporation Service Company. The registered office and/or registered agent of
the Corporation may be changed from time to time by action of the Board of
Directors.
Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Annual Meeting. An annual meeting of the stockholders shall
be held each year within 150 days after the close of the immediately preceding
fiscal year of the Corporation or at such other time specified by the Board of
Directors for the purpose of electing Directors and conducting such other proper
business as may come before the annual meeting. At the annual meeting,
stockholders shall elect Directors and transact such other business as properly
may be brought before the annual meeting pursuant to Section 11 of ARTICLE II
hereof.
Section 2. Special Meetings. Special meetings of the stockholders may
only be called in the manner provided in the Restated Certificate of
Incorporation.
Section 3. Place of Meetings. The Board of Directors may designate any
place, either within or without the State of Delaware, as the place of meeting
<PAGE>
for any annual meeting or for any special meeting. If no designation is made, or
if a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the Corporation. If for any reason any annual
meeting shall not be held during any year, the business thereof may be
transacted at any special meeting of the stockholders.
Section 4. Notice. Whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the Board of Directors, the chairman of the board, the president or the
secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the Corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares
of capital stock entitled to vote, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders, except as
otherwise provided by the General Corporation Law of the State of Delaware or by
the Restated Certificate of Incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place. When a specified item of business requires a vote by
a class or series (if the Corporation shall then have outstanding shares of more
than one class or series) voting as a class or series, the holders of a majority
of the shares of such class or series shall constitute a quorum (as to such
class or series) for the transaction of such item of business.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
2
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taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or of the
Restated Certificate of Incorporation a different vote is required, in which
case such express provision shall govern and control the decision of such
question, or (ii) the subject matter is the election of Directors, in which case
Section 2 of ARTICLE III hereof shall govern and control the approval of such
subject matter.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware, the Restated Certificate of
Incorporation of the Corporation or any amendments thereto or these By-laws,
every stockholder shall at every meeting of the stockholders be entitled to (i)
one vote in person or by proxy for each share of common stock held by such
stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the stockholders,
and before any voting commences, all proxies filed at or before the meeting
shall be submitted to and examined by the secretary or a person designated by
the secretary, and no shares may be represented or voted under a proxy that has
been found to be invalid or irregular.
Section 11. Business Brought Before an Annual Meeting. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
brought before the meeting by or at the direction of the Board of Directors or
(iii) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
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stockholder must have given timely notice thereof in writing to the secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public announcement of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the date on which such notice of the date of
the annual meeting was mailed or such public announcement was made. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting, (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder and (iv) any material interest
of the stockholder in such business. Notwithstanding anything in these By-laws
to the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this section. The presiding officer
of an annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this section; if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted. For purposes of this section,
"public announcement" shall mean disclosure in a press release reported by Dow
Jones News Service, Associated Press or a comparable national news service.
Nothing in this section shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
ARTICLE III
-----------
Directors
---------
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. In
addition to such powers as are herein and in the Restated Certificate of
Incorporation expressly conferred upon it, the Board of Directors shall have and
may exercise all the powers of the Corporation, subject to the provisions of the
laws of Delaware, the Restated Certificate of Incorporation and these By-laws.
Section 2. Number, Election and Term of Office. Subject to any rights
of the holders of any series of Preferred Stock to elect additional Directors
under specified circumstances, the number of Directors which shall constitute
the Board of Directors shall be fixed from time to time by resolution adopted by
the affirmative vote of a majority of the total number of Directors then in
office. The Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote in
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the election of Directors; provided that, whenever the holders of any class or
series of capital stock of the Corporation are entitled to elect one or more
Directors pursuant to the provisions of the Restated Certificate of
Incorporation of the Corporation (including, but not limited to, for purposes of
these By-laws, pursuant to any duly authorized certificate of designation), such
Directors shall be elected by a plurality of the votes of such class or series
present in person or represented by proxy at the meeting and entitled to vote in
the election of such Directors. The Directors shall be elected and shall hold
office only in the manner provided in the Restated Certificate of Incorporation.
Section 3. Removal and Resignation. No Director may be removed from
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock
entitled to vote generally in the election of Directors voting together as a
single class; provided, however, that if the holders of any class or series of
capital stock are entitled by the provisions of the Restated Certificate of
Incorporation (it being understood that any references to the Restated
Certificate of Incorporation shall include any duly authorized certificate of
designation) to elect one or more Directors, such Director or Directors so
elected may be removed without cause only by the vote of the holders of a
majority of the outstanding shares of that class or series entitled to vote. Any
Director may resign at any time upon written notice to the Corporation.
Section 4. Vacancies. Vacancies and newly created directorships
resulting from any increase in the total number of Directors may be filled only
in the manner provided in the Restated Certificate of Incorporation.
Section 5. Nominations.
(a) Only persons who are nominated in accordance with the
procedures set forth in these By-laws shall be eligible to serve as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders (i) by or at the direction of the Board
of Directors or (ii) by any stockholder of the Corporation who was a stockholder
of record at the time of giving of notice provided for in this By-law, who is
entitled to vote generally in the election of Directors at the meeting and who
shall have complied with the notice procedures set forth below in Section 5(b).
(b) In order for a stockholder to nominate a person for
election to the Board of Directors of the Corporation at a meeting of
stockholders, such stockholder shall have delivered timely notice of such
stockholder's intent to make such nomination in writing to the secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation (i) in
the case of an annual meeting, not less than 60 nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is changed by more than 30
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days from such anniversary date, notice by the stockholder to be timely must be
so received not later than the close of business on the 10th day following the
earlier of the day on which notice of the date of the meeting was mailed or
public disclosure of the meeting was made, and (ii) in the case of a special
meeting at which Directors are to be elected, not later than the close of
business on the 10th day following the earlier of the day on which notice of the
date of the meeting was mailed or public disclosure of the meeting was made.
Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election as a Director at such meeting all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a Director if elected); (ii) as to the stockholder giving the
notice (A) the name and address, as they appear on the Corporation's books, of
such stockholder and (B) the class and number of shares of the Corporation which
are beneficially owned by such stockholder and also which are owned of record by
such stockholder; and (iii) as to the beneficial owner, if any, on whose behalf
the nomination is made, (A) the name and address of such person and (B) the
class and number of shares of the Corporation which are beneficially owned by
such person. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a Director shall furnish to the secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee.
(c) No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
section. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this section, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded. A
stockholder seeking to nominate a person to serve as a Director must also comply
with all applicable requirements of the Exchange Act, and the rules and
regulations thereunder with respect to the matters set forth in this section.
Section 6. Annual Meetings. The annual meeting of the Board of
Directors shall be held without other notice than this By-law immediately after,
and at the same place as, the annual meeting of stockholders.
Section 7. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the Board of Directors. Special meetings of the Board of Directors may be called
by the chairman of the board, the president (if the president is a Director) or,
upon the written request of at least a majority of the Directors then in office,
the secretary of the Corporation on at least 24 hours notice to each Director,
either personally, by telephone, by mail or by telecopy.
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Section 8. Chairman of the Board, Quorum, Required Vote and
Adjournment. The Board of Directors shall elect, by the affirmative vote of a
majority of the total number of Directors then in office, a chairman of the
board, who shall preside at all meetings of the stockholders and Board of
Directors at which he or she is present and shall have such powers and perform
such duties as the Board of Directors may from time to time prescribe. If the
chairman of the board is not present at a meeting of the stockholders or the
Board of Directors, the president (if the president is a Director and is not
also the chairman of the board) shall preside at such meeting, and, if the
president is not present at such meeting, a majority of the Directors present at
such meeting shall elect one of their members to so preside. A majority of the
total number of Directors then in office shall constitute a quorum for the
transaction of business. Unless by express provision of an applicable law, the
Restated Certificate of Incorporation or these By-laws a different vote is
required, the vote of a majority of Directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors. If a quorum shall
not be present at any meeting of the Board of Directors, the Directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Committees. The Board of Directors may, by resolution passed
by a majority of the total number of Directors then in office, designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation, which to the extent provided in such resolution or these
By-laws shall have, and may exercise, the powers of the Board of Directors in
the management and affairs of the Corporation, except as otherwise limited by
law. The Board of Directors may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors upon request.
Section 10. Committee Rules. Each committee of the Board of Directors
may fix its own rules of procedure and shall hold its meetings as provided by
such rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the Board of Directors, of such committee is or are
absent or disqualified, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
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Section 11. Communications Equipment. Members of the Board of Directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
Section 12. Waiver of Notice and Presumption of Assent. Any member of
the Board of Directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 13. Action by Written Consent. Unless otherwise restricted by
the Restated Certificate of Incorporation, any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of such board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the Corporation shall be elected by
the Board of Directors and shall consist of a chairman of the board, a chief
executive officer, a president, one or more vice-presidents, a secretary, a
chief financial officer and such other officers and assistant officers as may be
deemed necessary or desirable by the Board of Directors. Any number of offices
may be held by the same person, except that neither the chief executive officer
nor the president shall also hold the office of secretary. In its discretion,
the Board of Directors may choose not to fill any office for any period as it
may deem advisable, except that the offices of president and secretary shall be
filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
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Board of Directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the Board of
Directors may be removed by the Board of Directors at its discretion, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise may be filled by the
Board of Directors.
Section 5. Compensation. Compensation of all executive officers shall
be approved by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a Director of the
Corporation; provided however, that compensation of all executive officers may
be determined by a committee established for that purpose if so authorized by
the unanimous vote of the Board of Directors.
Section 6. Chairman of the Board. The chairman of the board shall
preside at all meetings of the stockholders and of the Board of Directors and
shall have such other powers and perform such other duties as may be prescribed
to him or her by the Board of Directors or provided in these By-laws.
Section 7. Vice-Chairman of the Board. Whenever the chairman of the
board in unable to serve, by reason of sickness, absence, or otherwise, the
vice-chairman shall have the powers and perform the duties of the chairman of
the board. The vice-chairman shall have such other powers and perform such other
duties as may be prescribed by the chairman of the board, the board of directors
or these By-laws.
Section 8. Chief Executive Officer. The chief executive officer shall
have the powers and perform the duties incident to that position. Subject to the
powers of the Board of Directors and the chairman of the board, the chief
executive officer shall be in the general and active charge of the entire
business and affairs of the Corporation, and shall be its chief policy making
officer. The chief executive officer shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or provided in
these By-laws. The chief executive officer is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. Whenever the president is unable to serve, by reason of
sickness, absence or otherwise, the chief executive officer shall perform all
the duties and responsibilities and exercise all the powers of the president.
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Section 9. The President. The president of the Corporation shall,
subject to the powers of the Board of Directors, the chairman of the board and
the chief executive officer, have general charge of the business, affairs and
property of the Corporation, and control over its officers, agents and
employees. The president shall see that all orders and resolutions of the Board
of Directors are carried into effect. The president is authorized to execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. The president shall have such other powers and perform such
other duties as may be prescribed by the chairman of the board, the chief
executive officer, the Board of Directors or as may be provided in these
By-laws.
Section 10. Vice-Presidents. The vice-president, or if there shall be
more than one, the vice-presidents in the order determined by the Board of
Directors or the chairman of the board, shall, in the absence or disability of
the president, act with all of the powers and be subject to all the restrictions
of the president. The vice-presidents shall also perform such other duties and
have such other powers as the Board of Directors, the chairman of the board, the
chief executive officer, the president or these By-laws may, from time to time,
prescribe. The vice-presidents may also be designated as executive
vice-presidents or senior vice-presidents, as the Board of Directors may from
time to time prescribe.
Section 11. The Secretary and Assistant Secretaries. The secretary
shall attend all meetings of the Board of Directors, all meetings of the
committees thereof and all meetings of the stockholders and record all the
proceedings of the meetings in a book or books to be kept for that purpose or
shall ensure that his or her designee attends each such meeting to act in such
capacity. Under the chairman of the board's supervision, the secretary shall
give, or cause to be given, all notices required to be given by these By-laws or
by law; shall have such powers and perform such duties as the Board of
Directors, the chairman of the board, the chief executive officer, the president
or these By-laws may, from time to time, prescribe; and shall have custody of
the corporate seal of the Corporation. The secretary, or an assistant secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his or her signature. The assistant secretary, or if
there be more than one, any of the assistant secretaries, shall in the absence
or disability of the secretary, perform the duties and exercise the powers of
the secretary and shall perform such other duties and have such other powers as
the Board of Directors, the chairman of the board, the chief executive officer,
the president, or secretary may, from time to time, prescribe.
Section 12. The Chief Financial Officer. The chief financial officer
shall have the custody of the corporate funds and securities; shall keep full
and accurate all books and accounts of the Corporation as shall be necessary or
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desirable in accordance with applicable law or generally accepted accounting
principles; shall deposit all monies and other valuable effects in the name and
to the credit of the Corporation as may be ordered by the chairman of the board
or the Board of Directors; shall cause the funds of the Corporation to be
disbursed when such disbursements have been duly authorized, taking proper
vouchers for such disbursements; and shall render to the Board of Directors, at
its regular meeting or when the Board of Directors so requires, an account of
the Corporation; shall have such powers and perform such duties as the Board of
Directors, the chairman of the board, the chief executive officer, the president
or these By-laws may, from time to time, prescribe. If required by the Board of
Directors, the chief financial officer shall give the Corporation a bond (which
shall be rendered every six years) in such sums and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of the office of chief financial officer and for the restoration
to the Corporation, in case of death, resignation, retirement or removal from
office of all books, papers, vouchers, money and other property of whatever kind
in the possession or under the control of the chief financial officer belonging
to the Corporation.
Section 13. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the Board of Directors.
Section 14. Absence or Disability of Officers. In the case of the
absence or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may by resolution delegate the powers and
duties of such officer to any other officer or to any Director, or to any other
person selected by it.
ARTICLE V
---------
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by
the chairman of the board, the chief executive officer or the president and the
secretary or an assistant secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation. If such a certificate is
countersigned (i) by a transfer agent or an assistant transfer agent other than
the Corporation or its employee or (ii) by a registrar, other than the
Corporation or its employee, the signature of any such chairman of the board,
chief executive officer, president, secretary or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the Corporation, such certificate or certificates may
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nevertheless be issued and delivered as though the person or persons who signed
such certificate or certificates or whose facsimile signature or signatures have
been used thereon had not ceased to be such officer or officers of the
Corporation. All certificates for shares shall be consecutively numbered or
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the Corporation. Shares of stock of the Corporation
shall only be transferred on the books of the Corporation by the holder of
record thereof or by such holder's attorney duly authorized in writing, upon
surrender to the Corporation of the certificate or certificates for such shares
endorsed by the appropriate person or persons, with such evidence of the
authenticity of such endorsement, transfer, authorization and other matters as
the Corporation may reasonably require, and accompanied by all necessary stock
transfer stamps. In that event, it shall be the duty of the Corporation to issue
a new certificate to the person entitled thereto, cancel the old certificate or
certificates and record the transaction on its books. The Board of Directors may
appoint a bank or trust company organized under the laws of the United States or
any state thereof to act as its transfer agent or registrar, or both in
connection with the transfer of any class or series of securities of the
Corporation.
Section 2. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
or his or her legal representative, to give the Corporation a bond sufficient to
indemnify the Corporation against any claim that may be made against the
Corporation on account of the loss, theft or destruction of any such certificate
or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 60 nor less than 10 days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is first given. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Other Purposes. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
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entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than 60 days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 5. Registered Stockholders. Prior to the surrender to the
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 6. Subscriptions for Stock. Unless otherwise provided for in
the subscription agreement, subscriptions for shares shall be paid in full at
such time, or in such installments and at such times, as shall be determined by
the Board of Directors. Any call made by the Board of Directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation.
ARTICLE VI
----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Restated Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, in accordance with applicable law. Dividends may be paid in
cash, in property or in shares of the capital stock, subject to the provisions
of the Restated Certificate of Incorporation. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or any other purpose and the Directors may modify or abolish any
such reserve in the manner in which it was created.
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Section 2. Checks, Drafts or Orders. All checks, drafts or other orders
for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the Board of Directors or a duly
authorized committee thereof.
Section 3. Contracts. In addition to the powers otherwise granted to
officers pursuant to ARTICLE IV hereof, the Board of Directors may authorize any
officer or officers, or any agent or agents, of the Corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is a
Director of the Corporation or its subsidiaries, whenever, in the judgment of
the Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 6. Corporate Seal. The Board of Directors may provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
any other Corporation held by the Corporation shall be voted by the chief
executive officer, the president or a vice-president, unless the Board of
Directors specifically confers authority to vote with respect thereto, which
authority may be general or confined to specific instances, upon some other
person or officer. Any person authorized to vote securities shall have the power
to appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records. The Board of Directors
shall have power from time to time to determine to what extent and at what times
and places and under what conditions and regulations the accounts and books of
the Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
14
<PAGE>
Section 9. Section Headings. Section headings in these By-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these By-laws is or becomes inconsistent with any provision of the Restated
Certificate of Incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these By-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VII
-----------
AMENDMENTS
----------
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter, amend, change, add to or repeal these By-laws by the affirmative
vote of a majority of the total number of Directors then in office. Any
alteration or repeal of these By-laws by the stockholders of the Corporation
shall require the affirmative vote of a majority of the outstanding shares of
the Corporation entitled to vote on such alteration or repeal; provided,
however, that Section 11 of ARTICLE II and Sections 2, 3, 4 and 5 of ARTICLE III
and this ARTICLE VII of these By-laws shall not be altered, amended or repealed
and no provision inconsistent therewith shall be adopted without the affirmative
vote of the holders of at least 66 % of the outstanding shares of the
Corporation entitled to vote on such alteration or repeal.
15
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