1 800 CONTACTS INC, 424B4, 1998-02-10

1 800 CONTACTS INC
424B4, 1998-02-10
OPTICAL INSTRUMENTS & LENSES

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<PAGE> 1
Registration Statement No. 333-41055
Filed pursuant to 424(b)(4)

2,200,000 SHARES

1-800 CONTACTS LOGO

COMMON STOCK

Of the 2,200,000 shares of Common Stock, par value $.01 per share ("Common
Stock"), offered hereby (the "Offering"), 1,925,000 shares are being offered by
1-800 CONTACTS, INC., a Delaware corporation (the "Company"), and 275,000 shares
are being offered by the Selling Stockholder (as defined). See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from the
sale of any shares of Common Stock by the Selling Stockholder. Prior to the
Offering, there has been no public market for the Common Stock of the Company.
See "Underwriting" for information relating to the factors considered in
determining the initial public offering price of the Common Stock.

The Company's Common Stock has been approved for inclusion on the Nasdaq
National Market System under the symbol "CTAC."

SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............. $12.50 $0.875 $11.625 $11.625
- --------------------------------------------------------------------------------------------------
Total(3).............. $27,500,000 $1,925,000 $22,378,125 $3,196,875
==================================================================================================
</TABLE>

(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting estimated expenses of $750,000, which will be paid by the
Company.

(3) The Company and the Selling Stockholder have granted to the Underwriters an
option, exercisable within 30 days hereof, to purchase up to an aggregate of
330,000 additional shares of Common Stock at the price to the public, less
underwriting discounts and commissions, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Stockholder will be $31,625,000, $2,213,750, $25,734,844 and
$3,676,406 respectively. See "Underwriting."
------------------
At the request of the Company, up to 100,000 shares offered in the Offering
have been reserved for sale to directors, officers and employees of the Company
and certain members of their families at the initial public offering price. The
shares of Common Stock are offered by the Underwriters, subject to prior sale,
when, as and if issued to and accepted by them. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject any order in whole
or in part. It is expected that delivery of the shares of Common Stock will be
made against payment therefor at the offices of McDonald & Company Securities,
Inc. or through the facilities of The Depository Trust Company on or about
February 13, 1998.
MCDONALD & COMPANY MORGAN KEEGAN & COMPANY, INC.
SECURITIES, INC.
The date of this Prospectus is February 9, 1998
<PAGE> 2

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS
AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

PICTURES ILLUSTRATING A CALL CENTER AGENT TAKING AN ORDER; A PANORAMIC VIEW OF
THE COMPANY'S CALL CENTER; AND COPIES OF THE MATERIALS THE COMPANY USES TO
ADVERTISE AND DELIVER ITS PRODUCTS
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto included elsewhere in this Prospectus, including the information
contained under the heading "Risk Factors" beginning on page 5. Unless otherwise
stated, the information contained in this Prospectus: (i) assumes no exercise of
the Underwriters' over-allotment option; (ii) reflects the reincorporation of
the Company from Utah to Delaware and the associated changes to the Company's
charter and by-laws in connection with such reincorporation; (iii) reflects a
414.175-for-one stock split to be accomplished in connection with the
reincorporation; and (iv) gives effect to the exercise by the Company of an
option to repurchase a portion of the Company's outstanding common stock upon
completion of the Offering. See "Certain Transactions" and "Description of
Capital Stock." Unless otherwise stated in this Prospectus, references to the
"Company" shall mean 1-800 CONTACTS, INC. and its predecessors.

THE COMPANY

1-800 CONTACTS, INC. (the "Company") is a rapidly growing direct marketer
of replacement contact lenses. Through its easy-to-remember, toll-free telephone
number, "1-800 CONTACTS" (1-800-266-8228), the Company sells substantially all
of the most popular brands of contact lenses, including those manufactured by
Johnson & Johnson, CIBA Vision, Wesley Jessen/Barnes-Hind, Bausch & Lomb and
CooperVision. The Company's high volume, cost-efficient operations, supported by
its proprietary management information system, enable it to offer its products
at competitive prices while delivering a high level of customer service. As a
result of its extensive inventory, the Company is generally able to ship
approximately 80% of its orders within 24 hours of receipt. The Company believes
that it offers consumers an attractive alternative for obtaining replacement
contact lenses in terms of price, convenience and speed of delivery. The
Company's net sales have grown rapidly, from approximately $3.6 million in 1996
to approximately $21.1 million in 1997 and its net income has grown from
approximately $348,000 in 1996 to approximately $1.0 million in 1997.

The Company markets its products through a national advertising campaign.
As compared to other direct marketers of replacement contact lenses, the Company
believes that its toll-free telephone number, 1-800 CONTACTS, affords it a
significant competitive advantage in generating consumer awareness and repeat
business. The Company believes, based primarily upon an article in Inc.
magazine, that "vanity" numbers, like 1-800 CONTACTS, generate higher response
rates than traditional 1-800 numbers. After the Company first began using the
1-800 CONTACTS number in July 1995, net sales per advertising dollar increased
by over 20%. The Company believes its marketing strategy, combined with the
higher response rates attributable to the 1-800 CONTACTS telephone number,
allows the Company to acquire new customers at a lower average cost per
customer. The Company spent approximately $4.8 million (including the
capitalized portion thereof) on advertising in 1997, and plans to use a
significant portion of the net proceeds from this Offering to increase its sales
and marketing activities. The Company's experience has been that increases in
advertising expenditures have had a direct and immediate impact on the growth of
net sales. The Company believes that the planned increase in advertising
activities will enable it to attract significant numbers of new customers.

The Company operates within the large and growing contact lens industry. In
1996, sales of contact lenses in the United States totaled approximately $2.5
billion and, according to industry analysts, the U.S. market for contact lenses
is expected to grow by approximately 10% per year through the year 2000. This
anticipated growth is due largely to the shift in the contact lens market away
from traditional soft lenses, which generally are replaced on an annual basis,
to disposable lenses, which are replaced on a daily, weekly or bi-weekly basis.
Over the last decade, the contact lens industry has experienced significant
changes in the ways in which contact lenses are sold to consumers in the United
States. Driven primarily by the growing popularity of commodity-like contact
lens products, such as disposable lenses, direct marketers of contact lenses
have emerged as an attractive alternative to more traditional providers, such as
eye care practitioners and retail optical chains. The Company estimates that
direct marketers accounted for approximately 5% of contact lenses sales in the
United States during 1996. The Company believes that consumers are increasingly
seeking the convenience, speed and home delivery that can be provided by direct
marketers of replacement contact lenses.

1
<PAGE> 4

The Company's sales and marketing efforts, combined with its focus on
delivering a high level of customer service, have built a loyal customer base.
Historically, each $1.00 of sales to new customers has generated approximately
$0.78 of reorder sales within 12 months. During December 1997, approximately
$1.0 million of the Company's net sales were to repeat customers, compared to
net sales to repeat customers of approximately $123,000 in December 1996. The
Company's proprietary management information system creates a customer profile
containing prescription information, address and payment history, which allows a
repeat sale to the customer to be made in approximately one-third the time of a
sale to a new customer. The shorter call duration of a repeat order is more
convenient for the customer and more profitable for the Company. The Company
believes that as more wearers switch to disposable contact lenses, its ability
to attract and retain its customers will play an integral role in the Company's
continued growth.

COMPETITIVE STRENGTHS

The Company attributes its success in the direct marketing segment of the
contact lens industry and its significant opportunities for growth to several
competitive strengths, including the following:

- Proprietary Management Information System. The Company believes that
the operating efficiency resulting from its proprietary management
information system is largely responsible for average sales per employee
being approximately three to five times higher than its largest direct
marketing competitor.

- Customer Service. Delivering high quality, consistent customer service
has been a cornerstone of the Company's strategy since its inception,
and the Company believes that consistently providing every customer with
prompt and courteous service throughout their relationship with the
Company increases the Company's ability to attract and retain customers.

- Extensive Inventory; Convenient, Rapid Delivery. The Company stocks a
large inventory of contact lenses from which it can ship approximately
80% of its orders within 24 hours of receipt and intends to use a
portion of the net proceeds from the Offering to invest in additional
inventory.

- Competitive Pricing. The Company believes that its prices are generally
25% lower than prices typically charged by eye care practitioners and
comparable to those charged by large retail optical chains and mass
merchandisers, who generally do not offer the convenience of telephone
ordering and home delivery.

GROWTH STRATEGY

The Company believes that it has significant opportunities to attract and
retain new customers and increase sales through several strategic initiatives,
including the following:

- Expand Sales and Marketing Activities. Following the Offering, the
Company plans to significantly expand its sales and marketing activities
to attract new customers and increase sales to existing customers. The
Company's experience has been that increases in advertising expenditures
have had a direct and immediate impact on the growth of net sales.

- Continue to Deliver High Level of Customer Service. Historically, each
$1.00 of sales to new customers has generated $0.78 of reorder sales
within 12 months. The Company expects its sales to repeat customers to
continue to grow as the contact lens market continues to shift towards
disposable contact lenses, and consumers increase the frequency with
which they replace their contact lenses.

- Leverage Existing Infrastructure. To support anticipated growth, the
Company has expended considerable resources in establishing proprietary
management information and telecommunication systems and operating and
distribution facilities that have the capacity to handle the Company's
contemplated sales growth for the foreseeable future with minimal
additional capital expenditures.

2
<PAGE> 5

The Company was incorporated under the laws of the State of Utah in
February 1995 and will be reincorporated under the laws of the State of Delaware
prior to the completion of the Offering. The Company is the successor to the
business founded by the Company's Vice President of Operations in March 1991.
The Company's principal executive office is located at 13751 South Wadsworth
Park Drive, Suite D-140, Draper, Utah 84020 and its telephone number is (801)
572-8225. The Company maintains a website on the Internet at
www.1800contacts.com. The Company's website and the information contained
therein shall not be deemed to be part of this Prospectus.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company..... 1,925,000 shares(1)
Common Stock offered by the Selling
Stockholder........................... 275,000 shares(1)
Common Stock outstanding after the
Offering.............................. 6,141,818 shares(2)
Use of Proceeds......................... The net proceeds to be received by the Company from
the Offering will be used: (i) to fund additional
sales and marketing activities; (ii) to increase
inventory; (iii) to repay certain existing
indebtedness; (iv) to fund the S Corporation
Distribution (as defined) of approximately $0.9
million; (v) to repurchase approximately 442,651
shares of Common Stock from an existing stockholder
of the Company for $1.9 million; and (vi) any
remaining net proceeds for general corporate
purposes, including working capital. The
anticipated uses of the net proceeds are subject to
change due to the actual circumstances of operating
the Company's business. Pending such uses, the
Company currently plans to invest the net proceeds
in investment grade, short-term, interest-bearing
securities. See "Use of Proceeds," "S Corporation
Matters" and "Certain Transactions."
Nasdaq National Market Symbol........... CTAC
</TABLE>

- ---------------
(1) Does not include the Underwriters' over-allotment option granted by the
Company and the Selling Stockholder for an aggregate of 330,000 shares of
Common Stock.
(2) Does not include 211,140 shares of Common Stock issuable upon the exercise
of outstanding options granted to certain members of management or an
additional 310,000 shares of Common Stock available for future issuance to
employees or non-employee Directors under the Stock Option Plan (as
defined). See "Management--Incentive Stock Option Plan."

RISK FACTORS

Prospective investors should carefully consider the factors set forth under
"Risk Factors," as well as the other information set forth in this Prospectus
before making an investment in the Common Stock offered hereby. Such risk
factors include, among others, that: (i) the Company has experienced rapid
growth and has a limited operating history; (ii) a substantial portion of the
Company's sales do not comply with applicable state laws and regulations; (iii)
the Company currently purchases a substantial portion of its products from
unauthorized distributors, such as large optical retail chains with excess
inventory, and purchased from a single distributor approximately 27%, 40% and
21% of its inventory in 1995, 1996 and 1997, respectively, and purchased
approximately 40% of its inventory from another distributor in 1997; (iv) the
Company is dependant upon its telephone and management information systems; (v)
the retail sale of contact lenses is highly competitive;

3
<PAGE> 6

(vi) the Company is dependent upon the continued contributions of key management
personnel; (vii) upon completion of the Offering, the existing stockholders of
the Company (the "Existing Stockholders") will control approximately 64% of the
aggregate voting power of the Company; (viii) the direct marketing industry is
experiencing technological changes in marketing methods; and (ix) the Company
does not have and cannot acquire any property rights to the 1-800 CONTACTS
telephone number under the applicable regulations of the Federal Communications
Commission (the "FCC").

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR(1) ---------------------------------
------------------------------------------------- FEBRUARY 1, 1995
YEAR ENDED YEAR ENDED ONE MONTH ENDED TO YEAR ENDED
DECEMBER 31, DECEMBER 31, JANUARY 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1995 1996
------------ ------------ --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $151,026 $212,584 $21,552 $587,918 $ 3,628,296
Gross profit..................... 48,784 95,258 8,483 232,452 1,412,990
Selling, general and
administrative expenses........ 46,899 78,584 9,369 317,898 1,041,312
Income (loss) from operations.... 1,885 16,674 (886) (85,446) 371,678
Net income (loss)(2)............. $ 1,885 $ 16,674 $ (886) $(94,551) $ 348,363
======== ======= ======== ============ ===========
PRO FORMA STATEMENT OF OPERATIONS DATA:
Pro forma net income (loss)(3)... $(58,149) $ 214,243
============ ===========
Pro forma basic net income per
common share...................
Pro forma diluted net income per
common share(4)................
Supplemental pro forma diluted
net income per common
share(5).......................

YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C<C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $ 21,115,314
Gross profit..................... 7,090,791
Selling, general and
administrative expenses........ 5,945,221
Income (loss) from operations.... 1,145,570
Net income (loss)(2)............. $ 1,032,408
============
PRO FORMA STATEMENT OF OPERATIONS
Pro forma net income (loss)(3)... $ 634,931
============
Pro forma basic net income per
common share................... $ 0.14
============
Pro forma diluted net income per
common share(4)................ $ 0.13
============
Supplemental pro forma diluted
net income per common
share(5)....................... $ 0.15
============
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(6) ADJUSTED(7)
------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......... $ (1,621,522) $(2,335,597) $ 17,523,938
Total assets...................... 7,781,064 7,781,064 24,125,686
Total debt (including current
portion)........................ 2,759,837 2,759,837 90,409
Stockholders' equity (deficit).... 854,358 (456,583) 19,271,542
</TABLE>

- ---------------
(1) The term "Predecessor" is used herein to refer to the historical financial
and operating data of the Discount Lens Club.
(2) For all periods indicated, the Company has operated as an S corporation and
has not been subject to federal and certain state income taxes.
(3) Pro forma net income reflects historical net income less pro forma income
taxes. Pro forma income taxes are provided at an assumed 38.5% effective
income tax rate, as if the Company had been a C corporation rather than an S
corporation for the above periods. Prior to the closing of this Offering,
the Company's S corporation status will terminate; at that date, the Company
will record a non-recurring, non-cash charge to earnings to recognize
deferred income taxes in accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS 109"). See "S Corporation Matters."
(4) Pro forma diluted net income per share is based on the weighted average
shares of Common Stock and Common Stock equivalents outstanding, including
actual shares outstanding and shares deemed to be outstanding. The shares
deemed to be outstanding include the number of shares being offered by the
Company hereby sufficient to fund an assumed S corporation distribution of
approximately $714,075 at December 31, 1997 (based on the amount of retained
earnings at December 31, 1997 of $1,286,220, net of notes receivable due
from stockholders of the Company of $572,145). Common Stock equivalents were
determined using the treasury stock method.
(5) Supplemental pro forma diluted net income per common share gives effect to
the elimination of interest expense, net of tax and the additional shares of
Common Stock considered to be outstanding as a result of the repayment of
$2.7 million of indebtedness from the proceeds of the Common Stock offered
by the Company at the initial public offering price of $12.50 per share.
(6) Gives effect to: (i) an assumed distribution of retained earnings of
$1,286,220 to the Company's stockholders upon the termination of the
Company's S corporation status; (ii) the repayment of notes receivable due
from stockholders of $572,145; and (iii) the recording of a deferred income
tax liability of $596,866 that would be recorded upon termination of the
Company's S corporation status in accordance with SFAS 109. See "S
Corporation Matters" and "Certain Transactions."
(7) As adjusted to reflect the sale of 1,925,000 million shares of Common Stock
offered by the Company hereby at the initial public offering price of $12.50
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."

4
<PAGE> 7

RISK FACTORS

This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act").
Also, documents subsequently filed by the Company with the Securities and
Exchange Commission (the "Commission") will contain forward-looking statements.
Such forward-looking statements are based on the beliefs of the Company's
management as well as on assumptions made by and information currently available
to the Company at the time such statements were made. When used in this
Prospectus, the words "anticipate," "believe," "estimate," "expect," "intends"
and similar expressions, as they relate to the Company are intended to identify
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below, the matters set forth or incorporated in the Prospectus generally
and certain economic and business factors, some of which may be beyond the
control of the Company. The Company cautions the reader, however, that the risk
factors described below may not be exhaustive. The safe harbor for
forward-looking statements provided by Section 27A of the Securities Act is not
applicable to limit the Company's liability for sales made in this Offering. In
analyzing an investment in the Common Stock offered hereby, prospective
investors should carefully consider, along with the other matters referred to
herein, the risk factors described below.

RISKS RELATED TO RAPID GROWTH AND LIMITED OPERATING HISTORY

Since its formation in February 1995, the Company has experienced rapid
growth, with net sales increasing from approximately $588,000 for the eleven
month period ended December 1995 to approximately $21.1 million in 1997. The
Company's ability to compete effectively and to manage future growth, if any,
will require the Company to continue to improve its financial and management
controls, reporting systems and procedures on a timely basis and to expand,
train and manage its employee base. It is anticipated that additional
experienced management will need to be added to meet the demands of expanded
operations. There can be no assurance that such additional management will be
attracted and retained, or that the existing and new management will be able to
implement such systems effectively or on a timely basis or to manage future
expansion successfully. The failure or inability to do so could have a material
adverse affect on the Company's business, financial condition and results of
operations.

The Company has a limited operating history. The Company was formed in
February 1995 as the successor to the business founded by the Company's Vice
President of Operations in March 1991. As a result, there is only limited
financial information and operating information available for a potential
investor to evaluate an investment in the Common Stock. As the Company expands
its operations to meet the anticipated demand for its products, there can be no
assurance that the Company will be able to realize or sustain growth in the
future comparable to that it has experienced since its formation or that the
Company will remain profitable in the future.

RISKS RELATED TO THE LACK OF COMPLIANCE WITH CERTAIN STATE LAWS AND REGULATIONS

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, it
is the Company's practice to ship the lenses to the customer, based on the
information that the customer has provided. In addition, neither the Company nor
any of its employees is a licensed or registered dispenser of contact lenses in
any states other than California and Texas.

5
<PAGE> 8

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 in 1997 appeared to conform to the
requirements of applicable state laws and regulations. Any action brought
against the Company based on its failure to comply with applicable state laws
and regulations could result in significant fines to the Company, the Company
being prohibited from making sales in a particular state and/or the Company
being required to comply with such laws. Such required compliance could result
in: (i) increased costs to the Company; (ii) the loss of a substantial portion
of the Company's customers for whom the Company is unable to obtain or verify
their prescription; and (iii) the inability to sell to customers at all in a
particular state if the Company cannot comply with such state's laws. The
occurrence of any of the above results could have a material adverse effect on
the Company's ability to sell contact lenses and to continue to operate
profitably. Furthermore, there can be no assurance that states will not enact or
impose laws or regulations that prohibit mail order dispensing of contact lenses
or otherwise impair the Company's ability to sell contact lenses and continue to
operate profitably. The Company has not obtained an opinion of counsel with
regard to its compliance with applicable state laws and regulations, and
information contained herein regarding the Company's compliance with applicable
state laws and regulations should not be construed as being based on an opinion
of counsel.

In June 1997, the Company received notice from the Georgia State Board of
Dispensing Opticians (the "Georgia Board") that the Georgia Board considers
sales by the Company in Georgia to be in violation of Georgia law, which
requires face-to-face delivery of contact lenses. However, the Georgia Board did
not recommend that action be taken at that time, but reserved the right to
pursue future violations by the Company. In November 1997, the Company received
notice from the State of New Mexico Board of Examiners in Optometry (the "New
Mexico Board") that the New Mexico Board considers sales by the Company in New
Mexico to be in violation of New Mexico law and ordering the Company to cease
and desist selling contact lenses in New Mexico. The Company has not taken any
actions in response to such notices. Sales to customers in these two states in
1997 were less than 3% of the Company's net sales for that period. See
"Business -- Government Regulation."

RISKS RELATED TO SUPPLY ARRANGEMENTS

Historically, substantially all of the major manufacturers of contact
lenses have refused to sell lenses directly to direct marketers, including the
Company, and have sought to prohibit their distributors from doing so. As a
result, the Company currently purchases a substantial portion of its products
from unauthorized distributors, such as large optical retail chains with excess
inventory. The Company is aware that at least one large manufacturer of contact
lenses has begun to put tracking codes on its products in an effort to identify
distributors who are selling to direct marketers. The Company is not an
authorized dealer for the majority of the products which it sells. In addition,
the price the Company pays for certain of its products is sometimes higher than
that paid by eye care practitioners, retail chains and mass merchandisers, who
are able to buy directly from the manufacturers. Furthermore, in order to help
ensure adequate supply, the Company generally carries a higher level of
inventory than if it were able to purchase directly from contact lens
manufacturers. There can be no assurance that the Company will be able to obtain
sufficient quantities of contact lenses at competitive prices in the future to
meet the existing or anticipated demand for its products. Any such inability
would have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company purchased from a single distributor approximately 27%, 40% and
21% of its inventory in 1995, 1996 and 1997, respectively, and purchased
approximately 40% of its inventory from another distributor in 1997. The Company
believes that neither of these suppliers is authorized by contact lens
manufacturers to distribute their products. In the event that this supplier
could no longer supply the Company with contact lenses, there can be no
assurance that the Company could secure other adequate sources of supply, or
that such supply could be obtained on terms as favorable to the Company as its
current supply, which could adversely affect the Company by increasing its costs
or, in the event adequate replacement supply can not be secured, reducing its
net sales.

6
<PAGE> 9

DEPENDENCE ON TELEPHONE AND MANAGEMENT INFORMATION SYSTEMS

The Company's success depends, in part, on its ability to provide prompt,
accurate and complete service to its customers on a competitive basis, and to
purchase and promote products, manage inventory, ship products, manage sales and
marketing and maintain efficient operations through its telephone and
proprietary management information systems. A significant disruption in its
telephone or management information systems could adversely affect the Company's
relations with its customers and its ability to manage its operations. From time
to time, the Company has experienced temporary interruptions in its telephone
service as a result of the technical problems experienced by its long-distance
carrier. In 1997, the Company experienced four interruptions, which lasted on
average approximately three hours each. There can be no assurance that similar
interruptions will not occur in the future or that such interruptions would not
have a material adverse effect on the Company's business, financial condition
and results of operations. Furthermore, there can be no assurance that extended
or repeated reliance on the Company's back-up computer system would not have a
material adverse effect on the Company's business, financial condition and
results of operations.

RISKS RELATED TO COMPETITION AND ALTERNATIVE TECHNOLOGIES

The retail sale of contact lenses is a highly competitive and fragmented
industry. The Company's principal competitors include ophthalmologists and
optometrists in private practice and retail chain stores, which the Company
believes collectively accounted for approximately 70% of all contact lens sales
in 1996. The Company also competes with national optical chains, such as Cole
National Corporation, LensCrafters and National Vision Association and mass
merchandisers, such as Wal-Mart, Sam's and Costco, which the Company believes
accounted for approximately 25% of all contact lens sales in 1996. The Company
also competes with other direct marketers of contact lenses, one of which, Lens
Express, Inc., is larger than the Company. The Company may face increased
competition in the future from new entrants in the direct marketing business,
which may include national optical chains and mass merchandisers, some of which
may have significantly greater resources than the Company. In addition, many of
the Company's competitors, including most eye care practitioners, national
optical chains and mass merchandisers, have direct supply arrangements with
contact lens manufacturers, which in some cases affords such competitors with
better pricing terms and access to supply. In light of such intense competition,
there can be no assurance that the Company will be able to maintain its current
market position or realize its anticipated growth.

The Company also encounters competition from manufacturers of eyeglasses
and from alternative technologies, such as surgical refractive procedures
(including new refractive laser procedures such as PRK, or photo refractive
keratectomy, and LASIK, or laser in situ keratomileusis). If surgical refractive
procedures become increasingly accepted as an effective and safe technique for
permanent vision correction, they could substantially reduce the demand for
contact lenses by enabling patients to avoid the ongoing cost and inconvenience
of contact lenses. Accordingly, there can be no assurance that these procedures,
or other alternative technologies that may be developed in the future, will not
cause a substantial decline in the number of contact lens wearers and thus have
a material adverse effect on the Company's business, financial condition and
results of operations.

DEPENDENCE ON KEY EXECUTIVES

The Company is dependent to a large degree on the services of its senior
management team, particularly Jonathan C. Coon and John F. Nichols, the
Company's President and Vice President, Operations, respectively. Prior to the
completion of the Offering, Messrs. Coon and Nichols will enter into employment
agreements with the Company. The loss of any of its key executives could have a
material adverse effect on the Company. The Company's ability to manage its
anticipated growth will depend on its ability to identify, hire and retain
highly skilled management and technical personnel. Competition for such
personnel is intense. As a result, there can be no assurance that the Company
will be successful in attracting and retaining such personnel, and the failure
to attract such personnel could have a material adverse affect on the Company's
business, financial condition and results of operations. See "Management."

7
<PAGE> 10

CONTROL BY PRINCIPAL STOCKHOLDERS

Upon completion of the Offering, the Existing Stockholders will own
3,941,818 shares of Common Stock and control approximately 64% of the aggregate
voting power of the Company, which will allow such stockholders, in the event
that they act together, to control substantially all actions taken by the
stockholders of the Company, including the election of directors. Such
concentration of ownership could also have the effect of delaying, deterring or
preventing a change in control of the Company that might otherwise be beneficial
to stockholders and may also discourage acquisition bids for the Company and
limit the amount certain investors may be willing to pay for shares of the
Common Stock. See "Management," and "Principal and Selling Stockholders."

RISKS RELATED TO TECHNOLOGICAL CHANGES IN DIRECT MARKETING INDUSTRY

The Company expects that the direct marketing industry will be affected by
technological changes in marketing methods, such as on-line catalogs and
Internet shopping. The Company believes its success will depend, in part, on its
ability to adapt to new technologies and to respond to competitors' actions in
these areas. Adapting to new technologies could require significant capital
expenditures by the Company. There can be no assurance that the Company will
remain competitive in response to such technological changes.

INTELLECTUAL PROPERTY MATTERS

The Company believes that a large portion of its success is attributable to
the competitive advantage it enjoys as a result of its toll-free telephone
number (1-800 CONTACTS). Under applicable rules and regulations of the FCC, the
Company does not have and cannot acquire any property rights to this telephone
number. There can be no assurance that the Company will be able to retain the
use of the 1-800 CONTACTS telephone number. The loss of the right to use the
1-800 CONTACTS number would have a material adverse effect on the Company's
business, financial condition and results of operations.

COST OF POSTAGE AND SHIPPING

The Company ships its products to customers by United States mail and other
overnight delivery and surface services. The Company generally invoices the
costs of delivery and parcel shipments directly to customers as separate
shipping and handling charges. Any increases in shipping rates or postal rates
(paid by the Company to deliver its advertising) could have an adverse effect on
the Company's operating results as the Company may not be able to effectively
pass such increases on to its customers. The United States Postal Service has
recently requested approval for an increase in postal rates which would average
4.5% for all domestic services, which, if approved, is expected to be effective
in June 1998. Similarly, strikes or other service interruptions by such shippers
could adversely affect the Company's ability to market or deliver its products
on a timely basis. See "Business--Customers and Marketing."

STATE SALES TAX COLLECTION

At present, the Company does not collect sales or other similar taxes in
respect of sales and shipments of its products. However, various states have
sought to impose state sales tax collection obligations on out-of-state direct
marketing companies such as the Company. A successful assertion by one or more
states that the Company should have collected or be collecting sales taxes on
the sale of its products could result in additional costs and administrative
expenses to the Company and corresponding price increases to its customers,
which could adversely affect the Company's business, financial condition and
results of operations.

PRODUCT LIABILITY EXPOSURE

The Company faces an inherent risk of exposure to product liability claims
in the event that the use of the products it sells results in personal injury.
Although the Company has not experienced any losses due to product liability
claims, there can be no assurance that it will not experience such losses in the
future. The Company maintains insurance against product liability claims, but
there can be no assurance that such coverage will be adequate to cover any
liabilities that the Company may incur, or that such insurance will continue to
be available on terms acceptable to the Company. A successful claim brought
against the Company in excess of available

8
<PAGE> 11

insurance coverage, or any claim that results in significant adverse publicity
against the Company, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Legal
Proceedings."

ABSENCE OF PRIOR PUBLIC MARKET; SUBSTANTIAL DILUTION

Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock was determined by
negotiations among the Company and the Representatives (as defined herein) and
may not be indicative of the market price for shares of the Common Stock after
the Offering. For a description of factors considered in determining the initial
public offering price, see "Underwriting." There can be no assurance that an
active trading market for the Common Stock will develop or if developed, that
such market will be sustained. The market price for shares of the Common Stock
is likely to be volatile and may be significantly affected by such factors as
quarter-to-quarter variations in the Company's results of operations, news
announcements, changes in general market conditions for contact lenses,
regulatory actions, adverse publicity regarding the Company or the industry in
general, changes in financial estimates by securities analysts and other
factors. In addition, broad market fluctuation and general economic and
political conditions may adversely affect the market price of the Common Stock,
regardless of the Company's actual performance. There can be no assurance that
the market price of the Common Stock will not decline below the initial public
offering price.

Because the initial public offering price is substantially higher than the
book value per share of Common Stock, purchasers of the Common Stock in the
Offering will be subject to immediate and substantial dilution of $9.66 per
share. In addition, pursuant to certain provisions of the Company's restated
certificate of incorporation (the "Restated Certificate"), the Company has the
authority to issue additional shares of Common Stock and shares of one or more
series of voting Preferred Stock. The issuance of such shares could result in
the dilution of voting power of the shares of Common Stock purchased in the
Offering. See "Dilution" and "Description of Capital Stock."

ABSENCE OF DIVIDENDS

Following the completion of this Offering, the Company intends to retain
all future earnings for use in its business and, therefore, does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future. See
"Dividend Policy."

POTENTIAL ADVERSE IMPACT FROM SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company expects to have 6,141,818
shares of Common Stock outstanding. Of these shares, the 2,200,000 shares of
Common Stock (2,530,000 shares if the Underwriters' overallotment option is
exercised in full) sold in the Offering will be freely tradeable without
restriction under the Securities Act, except any such shares which may be
acquired by an "affiliate" of the Company. Subject to certain 180-day "lock up"
agreements described herein, approximately 3,941,818 shares of Common Stock will
be eligible for sale in the public market, subject to compliance with the resale
volume limitations and other restrictions of Rule 144 under the Securities Act,
beginning 90 days after the date of this Prospectus. Future sales of the shares
of Common Stock held by the Existing Stockholders could have a material adverse
effect on the price of the Common Stock. See "Shares Eligible for Future Sale."

ANTI-TAKEOVER PROVISIONS COULD DELAY OR PREVENT A CHANGE IN CONTROL

Certain provisions of the Restated Certificate and the Company's by-laws
(the "By-laws") may inhibit changes in control of the Company not approved by
the Company's Board of Directors. These provisions include: (i) a classified
Board of Directors; (ii) a prohibition on stockholder action through written
consents; (iii) a requirement that special meetings of stockholders be called
only by the Board of Directors; (iv) advance notice requirements for stockholder
proposals and nominations; (v) limitations on the ability of stockholders to
amend, alter or repeal the By-laws; and (vi) the authority of the Board of
Directors to issue without stockholder approval preferred stock with such terms
as the Board of Directors may determine. The Company will also be afforded the
protections of Section 203 of the Delaware General Corporation Law, which could
have similar effects. See "Description of Capital Stock."

9
<PAGE> 12

RISKS RELATING TO FORWARD-LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking
statements include statements regarding the Company's marketing plans,
expectations concerning growth in the market, certain financial projections and
the planned use of proceeds. Actual results could differ from those projected in
any forward-looking statements. The forward-looking statements are made as of
the date of this Prospectus and the Company assumes no obligation to update such
forward-looking statements, or to update the reasons why actual results may
differ from those projected in the forward-looking statements. Numerous factors,
including without limitation factors mentioned in this Risk Factors section,
many of which are beyond the control of management of the Company, could cause
future results to differ substantially from those contemplated in such
forward-looking statements. The safe harbor for forward-looking statements
provided by Section 27A of the Securities Act and Section 21E of the Exchange
Act is not applicable to limit the Company's liability for sales made in this
Offering.

THE COMPANY

The Company was incorporated under the laws of the State of Utah in
February 1995 and will be reincorporated under the laws of the State of Delaware
prior to completion of the Offering. The Company is the successor to the
business founded by the Company's Vice President of Operations in March 1991.
The Company's principal executive office is located at 13751 South Wadsworth
Park Drive, Suite D-140, Draper, Utah 84020 and its telephone number is (801)
572-8225.

S CORPORATION MATTERS

Since its inception, the Company has been a corporation subject to taxation
under Subchapter S of the Internal Revenue Code of 1986, as amended. As a
result, the taxable income of the Company has been taxed, for Federal (and some
state) income tax purposes, directly to the Company's stockholders rather than
to the Company.

On the closing date of this Offering, the Company will elect to terminate
its S corporation status. As a result, the Company's earnings through the date
of termination of the Company's S corporation status generally will be taxed for
federal and state income tax purposes directly to the Existing Stockholders who
were the only stockholders of the Company prior to the closing of this Offering.
Subsequent to the termination of its S corporation status, the Company will be
subject to federal and state income taxes on its earnings.

Effective the day preceding the closing date of this Offering, the Company
will declare a distribution to the Existing Stockholders in an amount equal to
the Company's retained earnings from its formation through the date immediately
preceding the date of termination of the Company's S corporation status (the "S
Corporation Distribution"). If the Company's S corporation status had terminated
as of December 31, 1997, the amount of the S Corporation Distribution would have
been approximately $714,075 (net of notes receivable due from stockholders of
the Company). The actual amount of the S Corporation Distribution is estimated
to be approximately $0.9 million, reflecting undistributed earnings through the
date preceding the anticipated closing date of this Offering (net of notes
receivable due from stockholders of the Company). It is currently anticipated
that the S Corporation Distribution will be funded out of the net proceeds of
this Offering. See "Use of Proceeds" and "Certain Transactions."

Purchasers of Common Stock in this Offering will not receive any of the S
Corporation Distribution.

Immediately prior to the consummation of the Offering, the Existing
Stockholders and the Company intend to enter into an S corporation termination,
tax allocation and indemnification agreement (the "Agreement for Distribution of
Retained Earnings and Tax Indemnification") relating to the S Corporation
Distribution to such stockholders and indemnification arrangements among such
stockholders and the Company for certain tax liabilities.

10
<PAGE> 13

Upon termination of its S corporation status, the Company will become
subject to income taxation and in connection therewith, the Company will record
deferred income taxes in accordance with SFAS 109. If the Company's S
corporation status had been terminated at December 31, 1997, the amount of the
charge to earnings would have been approximately $597,000.

USE OF PROCEEDS

The net proceeds to the Company from the Offering (after deducting
applicable underwriting discounts and estimated expenses payable by the Company)
are estimated to be approximately $21.6 million. The Company expects to use: (i)
approximately $10.0 million to fund additional sales and marketing activities;
(ii) approximately $3.0 million to increase inventory; (iii) approximately $3.3
million for the repayment of debt; (iv) approximately $0.9 million to fund the S
Corporation Distribution; (v) $1.9 million to exercise an option to purchase
442,651 shares of Common Stock from an existing stockholder of the Company; and
(vi) any remaining net proceeds for general corporate purposes, including
working capital. The anticipated uses of the net proceeds are subject to change
due to the actual circumstances of operating the Company's business. Pending
such uses, the Company currently plans to invest the net proceeds in investment
grade, short-term, interest-bearing securities. See "Certain Transactions."

Approximately $1.6 million of the indebtedness expected to be repaid by the
Company out of the net proceeds of the Offering was borrowed from a stockholder
of the Company pursuant to a line of credit and two promissory notes, all of
which bear interest at the prime interest rate plus 2%. The line of credit
provides for maximum borrowings of $250,000 and matures in February 1999.
Initial borrowings under the two promissory notes were $250,000 and $1.1 million
and such promissory notes mature in September 1998 and July 1998, respectively.
The remainder of the indebtedness being repaid was incurred under the Credit
Facility (as defined), which bears interest at the lender's prime interest rate
plus 1.5% and matures on July 31, 1998.

The Company will not receive any of the proceeds from the sale of the
shares by the Selling Stockholder.

DIVIDEND POLICY

The Company anticipates that all of its future earnings will be retained to
finance the expansion of its business and, subsequent to the payment of the S
Corporation Distribution, does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future. Any future determination to pay
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other factors, the Company's results of operations, financial
condition, capital requirements and contractual restrictions. In addition, the
Credit Facility (as defined) prohibits the Company from paying any cash
dividends on the Common Stock after the termination of the Company's S
corporation status.

11
<PAGE> 14

CAPITALIZATION

The following table sets forth: (i) the actual capitalization of the
Company as of December 31, 1997; (ii) the pro forma capitalization of the
Company as of such date, giving effect to the payment of the S Corporation
Distribution and the recording of approximately $597,000 of deferred income tax
liabilities resulting from the termination of S corporation status; and (iii)
such pro forma capitalization, as adjusted to give effect to the sale by the
Company of 1,925,000 shares of Common Stock pursuant to the Offering and the
application of the net proceeds to the Company therefrom as described under "Use
of Proceeds." This table should be read in conjunction with the financial
statements of the Company and notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Short-term obligations:
Line of credit...................................... $1,055,640 $1,055,640 $ --
Notes payable to stockholders....................... 1,370,000 1,370,000 --
Current portion of capital lease obligation......... 23,532 23,532 23,532
---------- --------- -----------
Total short-term obligations..................... $2,449,172 $2,449,172 $ 23,532
========== ========= ===========
Long-term obligations:
Notes payable to stockholders....................... $ 243,788 $ 243,788 $ --
Capital lease obligation, less current portion...... 66,877 66,877 66,877
---------- --------- -----------
Total long-term obligations......................... 310,665 310,665 66,877
========== ========= ===========
Stockholders' equity:
Preferred Stock, $0.01 par value, 1,000,000 shares
authorized, no shares issued or outstanding...... -- -- --
Common Stock, $0.01 par value, 20,000,000 shares
authorized; 4,659,469 shares issued on an actual
and a pro forma basis; and 6,584,469 shares
issued on a pro forma as adjusted basis (1)(2)... 46,595 46,595 65,845
Additional paid-in capital.......................... 93,688 93,688 21,702,563
Retained earnings (deficit)......................... 1,286,220 (596,866) (596,866)
Notes receivable from stockholders.................. (572,145) -- --
Treasury stock, 442,651 shares at cost (3).......... -- -- (1,900,000)
---------- --------- -----------
Total stockholders' equity (deficit)............. 854,358 (456,583) 19,271,542
---------- --------- -----------
Total capitalization........................ $1,165,023 $ (145,918) $19,338,419
========== ========= ===========
</TABLE>

- ---------------

(1) Reflects the sale by the Company of 1,925,000 shares of Common Stock in the
Offering less the Underwriters' discount and the estimated expenses of the
Offering.

(2) Does not include 211,140 shares of Common Stock issuable upon the exercise
of outstanding options granted to certain members of management or an
additional 310,000 shares of Common Stock available for future issuance
under the Stock Option Plan (as defined). See "Management -- Incentive Stock
Option Plan."

(3) Reflects the repurchase of an aggregate of 442,651 shares of Common Stock by
the Company from an existing stockholder of the Company for $1.9 million.
See "Certain Transactions."

12
<PAGE> 15

DILUTION

As of December 31, 1997, the pro forma deficit in the Company's net
tangible book value was approximately $2.6 million, or $0.57 per share after
giving effect to (i) the payment of the S Corporation Distribution and (ii) the
recording of approximately $597,000 of deferred income tax liabilities resulting
from the termination of the S corporation election. After giving effect to the
Offering and the application of the net proceeds therefrom as set forth under
"Use of Proceeds," the pro forma net tangible book value of the Company as of
December 31, 1997, would be $17.5 million or $2.84 per share. This represents an
immediate increase in net tangible book value per share of $3.41 per share to
the Existing Stockholders and an immediate dilution of $9.66 per share to new
investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share............................ $12.50
Pro forma net tangible book value per share before the
Offering(1)...................................................... $(0.57)
Increase per share attributable to payments by new investors....... 3.41
------
Adjusted pro forma net tangible book value per share after the
Offering......................................................... 2.84
------
Dilution per share to new investors(2)............................. $ 9.66
======
</TABLE>

- ---------------

(1) The Company's pro forma deficit in net tangible book value per share of
Common Stock is determined by dividing the Company's deficit in tangible net
worth at December 31, 1997 of approximately $2.6 million by the aggregate
number of shares of Common Stock outstanding.

(2) Dilution is determined by subtracting pro forma, as adjusted, net tangible
book value per share after the Offering from the initial public offering
price per share.

The following table summarizes, on a pro forma basis, as of December 31,
1997, the difference between the Existing Stockholders and the new investors
with respect to the number of shares of Common Stock purchased (or to be
purchased) from the Company, the total consideration paid (or to be paid) and
the average price per share paid (or to be paid) by the Existing Stockholders
and new investors, before deducting the estimated offering expenses and
underwriting discounts and commissions:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(3)......... 4,216,818 68.7% $ 140,283 0.6% $ 0.03
New investors(4)................. 1,925,000 31.3 24,062,500 99.4 12.50
--------- ----- ------------ -----
Total............................ 6,141,818 100.0% $ 24,202,783 100.0%
========= ===== ============ =====
</TABLE>

- ---------------

(3) Does not include 211,140 shares of Common Stock issuable upon the exercise
of outstanding options granted to certain members of management or an
additional 310,000 shares of Common Stock available for future issuance
under the Stock Option Plan (as defined). See "Management -- Incentive Stock
Option Plan."

(4) Sales of Common Stock by the Selling Stockholder in the Offering will reduce
the number of shares held by the Existing Stockholders to 3,941,818, or
approximately 64% of the outstanding Common Stock after the Offering, and
will increase the number of shares held by new investors to 2,200,000 shares
of Common Stock, or approximately 36% of the outstanding Common Stock after
the Offering.

13
<PAGE> 16

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

The financial data as of and for the years ended December 31, 1993 and 1994
and the one month period ended January 1, 1995 are derived from the financial
statements of the Predecessor. The financial data as of and for the eleven month
period ended December 31, 1995 and the years ended December 31, 1996 and 1997
have been derived from the audited financial statements of the Company, which
are included as part of this Prospectus. The selected financial data below
should be read in conjunction with the financial statements and the notes
thereto of the Predecessor and the Company included elsewhere in this Prospectus
and "Management's Discussion and Analysis of Results of Operations and Financial
Condition."

<TABLE>
<CAPTION>
PREDECESSOR(1) COMPANY
----------------------------------------- ------------------------------------------
YEAR YEAR ONE MONTH FEBRUARY 1, YEAR YEAR
ENDED ENDED ENDED 1995 TO ENDED ENDED
DECEMBER 31, DECEMBER 31, JANUARY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1995 1996 1997
------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $151,026 $212,584 $21,552 $587,918 $3,628,296 $21,115,314
Costs of sales.............. 102,242 117,326 13,069 355,466 2,215,306 14,024,523
-------- -------- ------- -------- ---------- -----------
Gross profit................ 48,784 95,258 8,483 232,452 1,412,990 7,090,791
Selling, general and
administrative expenses... 46,899 78,584 9,369 317,898 1,041,312 5,945,221
-------- -------- ------- -------- ---------- -----------
Income (loss) from
operations................ 1,885 16,674 (886) (85,446) 371,678 1,145,570
Other expenses, net......... -- -- -- (9,105) (23,315) (113,162)
-------- -------- ------- -------- ---------- -----------
Net income (loss)(2)........ $ 1,885 $ 16,674 $ (886) $(94,551) $ 348,363 $ 1,032,408
======== ======== ======= ======== ========== ===========
PRO FORMA STATEMENT OF
OPERATIONS DATA:
Pro forma (provision)
benefit for income
taxes..................... $ 36,402 $ (134,120) $ (397,477)
Pro forma net income
(loss)(3)................. (58,149) 214,243 634,931
======== ========== ===========
Pro forma basic net income
per common share.......... $ 0.14
===========
Pro forma diluted net income
per common share(4)....... $ 0.13
===========
Supplemental pro forma
diluted net income per
common share(5)........... $ 0.15
===========
BALANCE SHEET DATA (AT THE
END OF PERIOD):
Working capital (deficit)... $ 7,476 $ 13,449 $11,762 $(12,093) $ (204,080) $(1,621,522)
Total assets................ 20,651 25,574 23,687 243,845 1,156,646 7,781,064
Total debt (including
current portion).......... -- -- -- 207,864 370,705 2,759,837
Stockholders' equity
(deficit)................. 18,046 22,818 21,032 (28,412) 146,359 854,358
</TABLE>

- ---------------
(1) The historical financial and operating data of the Predecessor was derived
from the historical financial and operating data of the Discount Lens Club.

(2) For all periods indicated, the Company has operated as an S corporation and
has not been subject to federal and certain state income taxes.

(3) Pro forma net income reflects historical net income less pro forma income
taxes. Pro forma income taxes are provided at an assumed 38.5% effective
income tax rate, as if the Company had been a C corporation rather than an S
corporation for the above periods. Prior to the closing of this Offering,
the Company's S corporation status will terminate; at that date, the Company
will record a non-recurring, non-cash charge to earnings to recognize
deferred income taxes in accordance with SFAS 109. See "S Corporation
Matters."

(4) Pro forma diluted net income per share is based on the weighted average
shares of Common Stock and Common Stock equivalents outstanding, including
actual shares outstanding and shares deemed to be outstanding. The shares
deemed to be outstanding represent the number of shares being offered by the
Company hereby sufficient to fund an assumed S corporation distribution of
approximately $714,075 at December 31, 1997 (based on the amount of retained
earnings at December 31, 1997 of $1,286,220, net of notes receivable due
from stockholders of the Company of $572,145). Common Stock equivalents were
determined using the treasury stock method.

(5) Supplemental pro forma diluted net income per common share gives effect to
the elimination of interest expense, net of tax and the additional shares of
Common Stock considered to be outstanding as a result of the repayment of
$2.7 million of indebtedness from the proceeds of the Common Stock offered
by the Company at the initial public offering price of $12.50 per share.

14
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
"Selected Historical and Pro Forma Financial Data" and the Company's financial
statements and notes thereto included elsewhere in this Prospectus.

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
approximately $3.6 million in 1996 to approximately $21.1 million in 1997 and
its net income has grown from approximately $348,000 in 1996 to approximately
$1.0 million in 1997.

During 1995, 1996 and 1997, the Company hired additional management
personnel and invested significant resources in infrastructure improvements such
as expanded operating facilities, enhanced telecommunications equipment and
upgrading its proprietary management information system to support its customer
service and marketing programs. Key components of the infrastructure investment
consisted of expanded operating facilities, a new, higher capacity telephone
switch and the purchase of software and corresponding hardware upgrades to the
Company's proprietary management information system.

Quarter-to-quarter comparisons are impacted by the timing of the mailing of
the Company's advertisements. 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 has operated as an S corporation and, as a result has not been
subject to federal or certain state income taxes. Prior to the consummation of
this Offering, the Company will become subject to federal and state income taxes
and will recognize an estimated non-recurring, non-cash charge to earnings to
record deferred income taxes for the tax effect of cumulative temporary
differences between financial and tax reporting. If the Company's S corporation
status had been terminated at December 31, 1997, the amount of this charge to
earnings would have been approximately $597,000. See "S Corporation Matters."

The Company sells a variety of brands of contact lenses, all with varying
gross margins. Accordingly, the Company's overall gross margin is affected by
its product mix. Historically, the Company's overall gross margin has been
positively impacted by the sale of manufacturers' promotional products, which
the Company is generally able to sell at higher gross margins than the Company's
other products. The recent rapid growth in the Company's net sales has resulted
in these sales representing a smaller percentage of the Company's overall sales.
As a result, the Company's overall gross margin has decreased in recent periods.
Gross margins on specific products, however, have remained relatively constant
over such periods. The Company's overall gross margin over the last four
quarters has remained relatively constant.

15
<PAGE> 18

RESULTS OF OPERATIONS

The following table presents the Company's results of operations expressed
as a percentage of net sales:

<TABLE>
<CAPTION>
COMBINED THE COMPANY
-------- -----------------
YEAR ENDED DECEMBER 31,
------------------------------
1995(1) 1996 1997
-------- ------- -----
<S> <C> <C> <C>
Net sales...................................................... 100.0% 100.0% 100.0%
Cost of sales.................................................. 60.5 61.1 66.4
------ ------ ------
Gross profit................................................... 39.5 38.9 33.6
Selling, general and administrative expenses................... 53.7 28.7 28.2
------ ------ ------
Income (loss) from operations.................................. (14.2) 10.2 5.4
Other (expense) income, net.................................... (1.5) (0.6) (0.5)
------ ------ ------
Net income (loss).............................................. (15.7)% 9.6% 4.9%
====== ====== ======
</TABLE>

- ---------------

(1) The combined results of operations for the year ended December 31, 1995 were
prepared based on the combined historical results of (i) the Company for the
eleven month period from February 1,1995 through December 31, 1995 and (ii)
the historical results of operations of the Discount Lens Club for the one
month period ending January 31, 1995. The financial results of the Company
may not be comparable to those of the Predecessor due to changes in the
Company's operations that were implemented by Mr. Coon at the time he joined
the Company.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Net sales. Net sales for the year ended December 31, 1997 increased $17.5
million, or approximately 482%, to $21.1 million from $3.6 million for the year
ended December 31, 1996. This increase was primarily attributable to higher
sales volumes due to additional sales and marketing activities.

Gross profit. Gross profit for the year ended December 31, 1997 increased
$5.7 million, or approximately 402%, to $7.1 million from $1.4 million in the
comparable 1996 period. Gross profit margin decreased to 33.6% for the year
ended December 31, 1997 from 38.9% in the comparable period. The Company's gross
profit margin for the year ended December 31, 1996 was positively impacted by
the sale of manufacturers' promotional products, which generally have higher
margins.

Selling, general and administrative expenses. Selling, general and
administrative expenses for the year ended December 31, 1997 increased by $4.9
million, or approximately 471%, to $5.9 million from $1.0 million for the year
ended December 31, 1996 due to the increase in sales and marketing activity and
the related increase in expenditures necessary to support the increased sales.
As a percentage of net sales, selling, general and administrative expenses
decreased to 28.2% in the 1997 period from 28.7% in the 1996 period. This
decrease is largely due to the fixed nature of many such expenses, including
rent, salaries, depreciation and certain equipment costs.

Income from operations. Income from operations for the year ended December
31, 1997 increased by $773,892 to $1.1 million from $371,678 for the year ended
December 31, 1996. This increase was primarily attributable to increased product
sales.

Other (expense) income, net. Other (expense) income for the year ended
December 31, 1997 decreased by $89,847 to $(113,162) from $(23,315) for the year
ended December 31, 1996. This decrease was primarily attributable to an increase
in interest expense due to increased borrowings by the Company from one of its
stockholders and under the Credit Facility, offset partially by an increase in
other income primarily due to an increase in interest income from stockholders'
notes receivable.

16
<PAGE> 19

YEAR ENDED DECEMBER 31, 1996 COMPARED TO COMBINED YEAR ENDED DECEMBER 31, 1995

Net sales. Net sales for the year ended December 31, 1996 increased by $3.0
million, or approximately 495%, to $3.6 million from $609,470 for the combined
year ended December 31, 1995. This increase was primarily attributable to higher
sales volumes due to increased sales and marketing activities.

Gross profit. Gross profit in 1996 increased by $1.2 million, or
approximately 486%, to $1.4 million from $240,935 in 1995. Gross profit margin
decreased to 38.9% in 1996 from 39.5% in the prior year. This decrease was
attributable to a change in product mix.

Selling, general and administrative expenses. Selling, general and
administrative expenses for the year ended December 31, 1996 increased by
$714,045, or 218%, to $1.0 million from $327,267 for the comparable period in
1995. This increase was the result of the increase in sales and marketing
activity and the related increase in expenditures necessary to support the
increased sales. As a percentage of net sales, selling, general and
administrative expenses decreased to 28.7% in 1996 from 53.7% in 1995. This
reduction was primarily the result of certain fixed expenses, including rent,
salaries, depreciation and certain equipment costs, being allocated over an
increased sales base.

Income from operations. Income from operations for the year ended December
31, 1996 increased by $458,010 to $371,678 from $(86,332) for the year ended
December 31, 1995. This increase was due to increased product sales.

Other (expense) income, net. Other (expense) income for the year ended
December 31, 1996 decreased by $14,210 to $(23,315) from $(9,105) for the year
ended December 31, 1995. This decrease was primarily attributable to an increase
in interest expense due to increased borrowings by the Company from a
stockholder of the Company.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically funded its growth through a combination of
funds generated from operations and borrowings. Working capital requirements
generally precede the realization of sales on a monthly basis. The Company uses
funds generated from operations and borrowings to increase inventory levels in
anticipation of future sales realization. The Company's supply arrangements
generally require the Company to pay cash upon delivery of inventory. As a
result, the Company is generally unable to rely on standard trade credit
arrangements in purchasing its inventory, which would ordinarily permit the net
amount due to be paid within 30 days of shipment of ordered merchandise. In
addition, in order to help ensure sufficient supply, the Company generally
carries a higher level of inventory than if it were able to purchase directly
from contact lens manufacturers. See "Risk Factors -- Risks Related to Supply
Arrangements."

Net cash provided by (used in) operating activities was $(91,051), $114,275
and $(1,022,313) in 1995, 1996 and 1997, respectively. In 1996, approximately
$386,000 and $394,000 was used to finance increases in inventories and deferred
advertising costs, respectively, while $476,000 was provided by increases in
accounts payable and accrued liabilities related primarily to inventory
purchases and advertising expenditures. In 1997, approximately $4.3 million and
$1.3 million was used to finance increases in inventories and deferred
advertising costs, respectively, while $3.5 million was provided by increases in
accounts payable and accrued liabilities related primarily to inventory
purchases and advertising expenditures.

Net cash used in investing activities, principally related to capital
expenditures for infrastructure improvements and increases in notes receivable
from stockholders, was approximately, $46,690, $408,584 and $903,078 in 1995,
1996 and 1997, respectively.

Capital expenditures for infrastructure improvements such as expanded
operating facilities, upgrades in telecommunications and management information
systems were $32,546 in 1995, $174,992 in 1996 and $488,244 in 1997. The Company
presently anticipates that capital expenditures in 1998 will be approximately
$300,000.

17
<PAGE> 20

Net cash provided by financing activities for fiscal 1995, 1996 and 1997
was $139,017, $291,384 and $1,925,391, respectively. These amounts primarily
represent borrowings from a stockholder of the Company and borrowings under the
Credit Facility.

Immediately prior to the consummation of the Offering, the Company will
make the S Corporation Distribution to the Existing Stockholders. Based on the
present estimate of the closing date, the Company estimates that the S
Corporation Distribution will be approximately $0.9 million (net of notes
receivable due from stockholders of the Company) and will be paid from a portion
of the net proceeds of the Offering. The Agreement for Distribution of Retained
Earnings and Tax Indemnification will provide for indemnification of the Company
and the Existing Stockholders which could result in payments to or from the
Company following the consummation of this Offering. See "S Corporation
Matters."

In August 1997, the Company established a revolving credit facility to
provide for working capital borrowings and other corporate purposes (the "Credit
Facility"). The Company amended the Credit Facility in January 1998. As a
result, the Credit Facility currently provides for borrowings equal to the
lesser of $3.0 million or 50% of eligible inventory. The maximum borrowings
under the Credit Facility decreases to the lesser of $2.75 million on January
31, 1998, $2.25 million on February 28, 1998, $1.75 million on March 31, 1998
and $1.0 million on April 30, 1998 or 50% of eligible inventory at each of the
respective dates. The Credit Facility permits borrowings of the lesser of $1.5
million or 50% of eligible inventory on April 30, 1998 and thereafter in the
event that the Company receives at least $10.0 million in net proceeds from the
Offering. The Credit Facility has a scheduled maturity on July 31, 1998 and
bears interest at a floating rate equal to the lender's prime interest rate plus
1.5% (10% at December 31, 1997). As of December 31, 1997, outstanding borrowings
under the Credit Facility totaled approximately $1.1 million. 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 believes that its available cash after this Offering, together
with cash flow from operations, will be sufficient to support current operations
and future growth at least 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. See "Risk Factors -- Risks Related to the Lack of
Compliance with Certain Laws and Regulations."

SEASONALITY

The Company does not believe that seasonality has had a material effect on
the Company's operations for the three years ended December 31, 1997.

INFLATION

The Company does not believe that inflation has had a material effect on
the Company's operations for the three years ended December 31, 1997.

YEAR 2000 ISSUE

The Company has reviewed all of its current computer applications with
respect to the year 2000 issue. The Company believes all of its applications are
substantially year 2000 compliant and that any additional costs with respect to
year 2000 compliance will not be material to the Company. The Company is
currently unable to determine the effects of year 2000 compliance by its
vendors.

18
<PAGE> 21

BUSINESS

OVERVIEW

The Company is a rapidly growing direct marketer of replacement contact
lenses. Through its easy-to-remember, toll-free telephone number, "1-800
CONTACTS" (1-800-266-8228), the Company sells substantially all of the most
popular brands of contact lenses, including those manufactured by Johnson &
Johnson, CIBA Vision, Wesley Jessen/Barnes-Hind, Bausch & Lomb and CooperVision.
The Company's high volume, cost-efficient operations, supported by its
proprietary management information system, enable it to offer its products at
competitive prices while delivering a high level of customer service. As a
result of its extensive inventory, the Company is generally able to ship
approximately 80% of its orders within 24 hours of receipt. The Company believes
that it offers consumers an attractive alternative for obtaining replacement
contact lenses in terms of price, convenience and speed of delivery. The
Company's net sales have grown rapidly, from approximately $3.6 million in 1996
to approximately $21.1 million in 1997 and its net income has grown from
approximately $348,000 in 1996 to approximately $1.0 million in 1997.

The Company markets its products through a national advertising campaign.
As compared to other direct marketers of replacement contact lenses, the Company
believes that its toll-free telephone number, 1-800 CONTACTS, affords it a
significant competitive advantage in generating consumer awareness and repeat
business. The Company believes, based primarily upon an article in Inc.
Magazine, that "vanity" numbers, like 1-800 CONTACTS, generate higher response
rates than traditional 1-800 numbers. After the Company first began using the
1-800 CONTACTS number in July 1995, net sales per advertising dollar increased
by over 20%. The Company believes its marketing strategy, combined with the
higher response rates attributable to the 1-800 CONTACTS telephone number,
allows the Company to acquire new customers at a lower average cost per
customer. The Company spent approximately $4.8 million (including the
capitalized portion thereof) on advertising in 1997, and plans to use a
significant portion of the net proceeds from this Offering to increase its sales
and marketing activities. The Company's experience has been that increases in
advertising expenditures have had a direct and immediate impact on the growth of
net sales. The Company believes that the planned increase in advertising
activities will enable it to attract significant numbers of new customers.

The Company's sales and marketing efforts, combined with its focus on
delivering a high level of customer service, have built a loyal customer base.
Historically, each $1.00 of sales to new customers has generated approximately
$0.78 of reorder sales within 12 months. During December 1997, approximately
$1.0 million of the Company's net sales were to repeat customers, compared to
net sales to repeat customers of approximately $123,000 in December 1996. The
Company's proprietary management information system creates a customer profile
containing prescription information, address and payment history, which allows a
repeat sale to the customer to be made in approximately one-third the time of a
sale to a new customer. The ease of placing additional orders is convenient for
the customer and is more profitable to the Company due to the lower costs
associated with repeat sales as compared to initial sales. The Company believes
that as more wearers switch to disposable lenses, its ability to attract and
retain its customers will play an integral role in the Company's continued
growth.

INDUSTRY OVERVIEW

Industry analysts estimate that over 50% of the United States' population
needs some form of corrective eyewear and that there are nearly 154 million
people in the United States who currently use some form of corrective eyewear.
Contact lenses have become a convenient, cost effective alternative to
eyeglasses and the number of contact lens wearers is expected to increase as
technology further improves the convenience, comfort and fit of contact lenses.
As a result, the contact lens market is large and growing. In 1996, sales of
contact lenses in the United States totaled approximately $2.5 billion and,
according to industry analysts, the U.S. market for contact lenses is expected
to grow approximately 10% per year through the year 2000. This growth is due
largely to the shift in the contact lens market away from traditional soft
lenses, which generally are replaced on an annual basis, to disposable lenses,
which are replaced on a daily, weekly, or bi-weekly basis. Since 1991, the
number of contact lens wearers in the United States has increased by 4.2% per
year while expenditures per wearer have increased by 6.5% per year as
conventional users have shifted to more costly specialty and disposable lenses.

19
<PAGE> 22

While the market for hard contact lenses has been relatively flat since 1991
with approximately 6 million U.S. wearers, the number of people wearing soft
contact lenses has grown at a compound annual growth rate of 5.9% since that
time.

Traditionally, contact lenses were almost exclusively sold to consumers by
either ophthalmologists or optometrists (referred to herein collectively as "eye
care practitioners"). Eye care practitioners would typically supply a patient
with his or her initial pair of contact lenses in connection with providing the
patient an eye examination and all replacement lenses, regardless of whether the
patient was given or required another eye examination. Because the initial
fitting of contact lenses requires a prescription written by an eye care
practitioner, the initial sale of contact lenses still takes place primarily in
this manner. Over the last decade, however, a number of alternative sellers of
replacement contact lenses have emerged, including direct marketers. The Company
estimates that direct marketers accounted for approximately 5% of contact lens
sales in the United States during 1996.

The Company believes that increased consumer awareness of the benefits of
the direct marketing of contact lenses will lead to further growth of direct
marketing. Purchasing replacement contact lenses from a direct marketer offers
the convenience of shopping at home, rapid home delivery, quick and easy
telephone ordering and competitive pricing. In addition, the growth in
popularity of disposable contact lenses, which require patients to purchase
replacement lenses more frequently, has contributed to the growth of the direct
marketing channel. The direct marketing industry continues to grow as many
retail customers have migrated towards the convenience and service offered by
home shopping and the Company expects the direct marketing segment of the
contact lens industry to grow in tandem with the growth in the direct marketing
industry as a whole.

Historically, sales of contact lenses by direct marketers have been impeded
by eye care practitioners and contact lens manufacturers. Many eye care
practitioners have been reluctant to provide patients with a copy of their
prescription or to release such information to direct marketers upon request,
thereby prohibiting such patients from purchasing lenses from a direct marketer.
In addition, substantially all of the major manufacturers of contact lenses have
historically refused to sell contact lenses directly to direct marketing
companies and have sought to prohibit their distributors from doing so. These
traditional barriers to the direct marketing of contact lenses may be reduced or
eliminated in the future. The Federal Trade Commission (the "FTC") has recently
solicitated comments regarding whether eye care practitioners should be required
to release contact lens prescriptions to their patients. In addition, the
Attorneys General for 28 states have joined in a lawsuit against the major
contact lens manufacturers and certain eye care practitioners and their trade
associations alleging that the manufacturers' policy not to sell to direct
marketers was adopted in conspiracy with eye care practitioners to eliminate
alternative channels of trade from the contact lens market. See "--Government
Regulation," and "--Purchasing and Principal Suppliers."

COMPETITIVE STRENGTHS

The Company attributes its success in the direct marketing segment of the
contact lens industry and its significant opportunities for growth to several
competitive strengths, including the following:

- 1-800 CONTACTS Telephone Number. The Company believes that its
easy-to-remember, toll-free telephone number, 1-800 CONTACTS, affords it
a significant competitive advantage over other direct marketers of
contact lenses in its ability to generate consumer awareness in a
cost-effective manner. The Company believes, based upon an independent
source, that "vanity" numbers, like 1-800 CONTACTS, generate higher
response rates than traditional 1-800 numbers. After the Company first
began using the 1-800 CONTACTS number in July 1995, net sales per
advertising dollar increased by over 20%. The Company believes that it
enjoys a higher customer retention rate and higher response rate due in
large part to the top-of-the-mind awareness generated by the 1-800
CONTACTS telephone number.

- Proprietary Management Information System. The Company believes that the
operating efficiency resulting from its proprietary management
information system gives it a significant competitive advantage over
other direct marketers. The Company believes this system is largely
responsible for average sales per employee being approximately three to
five times higher than its largest direct marketing competitor. The

20
<PAGE> 23

Company believes that this system is capable of supporting the Company's
anticipated sales growth in the foreseeable future.

- Customer Service. The Company believes that it provides better customer
service to replacement lens purchasers than traditional contact lens
distributors. Delivering high quality, consistent customer service has
been a cornerstone of the Company's strategy since its inception. The
Company's teleservice agents are trained to provide efficient and
accurate order entry and are able to provide each customer with real time
product availability information and the estimated delivery date for
their lenses. In addition, the Company's teleservice agents are trained
and authorized to handle all customer service issues, including accepting
product returns and issuing refunds, if appropriate. The Company believes
that consistently providing every customer with prompt and courteous
service throughout their relationship with the Company increases the
Company's ability to attract and retain customers.

- Extensive Inventory; Convenient, Rapid Delivery. The Company stocks a
large inventory of lenses from which it can ship approximately 80% of its
orders within 24 hours and intends to use a portion of the net proceeds
from the Offering to invest in additional inventory. Customers generally
receive their lenses from the Company in one to five business days after
shipping, depending on whether the customer chooses standard delivery or
pays an additional charge for delivery by an overnight courier. The
Company believes that its extensive inventory allows it to deliver lenses
to a customer quicker, on average, than eye care practitioners or optical
chains, which generally have smaller inventories and place orders for
lenses on a less frequent basis than the Company. In addition, lenses
ordered from the Company are delivered directly to the home or office of
the customer; a service which most eye care practitioners, optical chains
and discount stores do not offer.

- Competitive Pricing. The Company believes that its high volume,
cost-efficient operations allow it to maintain a pricing advantage over
many of the traditional contact lens providers. The Company believes that
its prices are generally 25% lower than prices typically charged by eye
care practitioners and comparable to those charged by large retail
optical chains and mass merchandisers, who generally do not offer the
convenience of telephone ordering and home delivery. Unlike many of its
competitors, the Company does not charge any membership fees for its
services and instead relies upon its customer service and rapid delivery
to retain customers.

GROWTH STRATEGY

The Company believes that it has significant opportunities to attract and
retain new customers and increase sales through several strategic initiatives,
including the following:

- Expand Sales and Marketing Activities. Following the Offering, the
Company plans to significantly expand its sales and marketing activities
to attract new customers and increase sales to existing customers. The
Company has spent approximately $4.8 million (including the capitalized
portion thereof) for advertising in 1997, an increase of approximately
460% from 1996. The Company has traditionally marketed its products
through direct mail, cooperative mailings and free standing inserts in
newspapers. Following the Offering, the Company intends to increase the
frequency of these activities and to begin advertising in media it has
not previously utilized, including magazines, traditional newspaper
advertisements, radio and television. The Company's experience has been
that increases in advertising expenditures have had a direct and
immediate impact on the growth of net sales. Based primarily on response
rates attributable to the 1-800 CONTACTS telephone number, the Company
believes that increasing its sales and marketing activities will allow it
to attract significant numbers of new customers.

- Continue to Deliver High Level of Customer Service. The Company has
built a loyal customer base due largely to its focus on delivering a high
level of customer service. Historically, each $1.00 of sales to new
customers has generated $0.78 of reorder sales within 12 months.
Approximately $1.0 million of the Company's sales in December 1997 were
to repeat customers, compared to sales to repeat customers of
approximately $123,000 in December 1996. The Company expects its sales to
repeat customers to continue to grow as the contact lens market continues
to shift towards disposable lenses, and consumers

21
<PAGE> 24

increase the frequency with which they replace their lenses. The Company
believes that the key to retaining its customers is to provide a
competitive price and convenient delivery while providing superior
customer service. The Company expends significant resources to train its
teleservice agents not only to provide accurate product information and
efficient order entry, but also to handle all customer service issues,
including product returns and refunds, if appropriate. The Company's
proprietary management information system creates a customer profile
containing prescription information, address and payment information
which allows a sale to a repeat customer to be made in approximately
one-third the time of a sale to a new customer. The shorter call duration
of a repeat order is more convenient for the customer and more profitable
for the Company.

- Leverage Existing Infrastructure. To support anticipated growth, the
Company has expended considerable resources in establishing its
infrastructure. The Company believes that its current proprietary
management information and telecommunication systems and its operating
and distribution facilities have the capacity to handle the Company's
contemplated sales growth for the foreseeable future with minimal
additional capital expenditures. As a result, the Company believes that
it has the opportunity to improve its operating margins by leveraging its
existing infrastructure through increased sales.

- Capitalize on Favorable Industry Trends. According to industry analysts,
the number of soft contact lens wearers in the United States has
increased from 19 million in 1990 to over 25 million in 1996 and are
projected to increase by approximately 5% annually through the year 2000
as soft contact lenses continue to gain popularity and the number of
14-to-25 year olds (the prime age group for new lens wearers) increases.
Growth in the contact lens industry is also attributable to the ongoing
shift among wearers of conventional lenses to more frequently replaced
disposable lenses. Direct marketing is well suited to provide a cost
effective, convenient way to replace disposable lenses. The Company
believes that sales by direct marketers account for approximately 5% of
all contact lens sales in the United States, but account for
approximately 10% of all disposable contact lens sales in the United
States. The Company believes that it provides the most convenient way for
consumers to replace their lenses and that the Company's business will
continue to grow in tandem with the disposable lens market.

PRODUCT OFFERINGS

Contact lenses can be divided into two categories: soft lenses, which
represent approximately 80% of U.S. wearers, and hard lenses (primarily rigid
gas permeable ("RGP")), which represent approximately 20% of U.S. wearers. There
are three principal wearing regimes for soft contact lenses: conventional,
disposable and planned replacement. Conventional lenses are designed to be worn
indefinitely, but are typically replaced after 12 to 24 months. Disposable soft
contact lenses were introduced in the late 1980s based on the concept that
changing lenses on a more regular basis was important to comfort, convenience,
maintaining healthy eyes and patient compliance. Disposable lenses are changed
as often as daily and up to every two weeks, depending on the product. Planned
replacement lenses are designed to be changed as often as every two weeks and up
to every three months and currently represent a small portion of the overall
soft lens market.

The Company is a direct marketer of replacement contact lenses and does not
manufacture contact lenses nor provide eye examinations or related services to
its customers. The Company offers substantially all of the soft and hard contact
lenses produced by the leading contact lens manufacturers, including Johnson &
Johnson, CIBA Vision, Wesley Jessen/Barnes-Hind, Bausch & Lomb and CooperVision.
The Company stocks a large inventory of lenses from which it can ship
approximately 80% of its orders within 24 hours and intends to use a portion of
the net proceeds of the Offering to invest in additional inventory. The Company
believes that its ability to maintain a large inventory of contact lenses
provides it with a competitive advantage over eye care practitioners, optical
chains and discount stores and serves as an effective barrier of entry to
potential entrants in the direct marketing of contact lenses.

In July 1997, the Company was approved as an authorized distributor of CIBA
Vision. Approximately 23% of the Company's sales in 1997 were derived from the
sales of products manufactured by CIBA Vision. The Company's products are
delivered in the same sterile, safety sealed containers in which the lenses were
packaged by the manufacturer. From time to time, the Company purchases contact
lenses that were labeled as "samples"

22
<PAGE> 25

by the manufacturer. Such lenses are sometimes offered by the Company to
customers as part of promotional programs at reduced prices.

CUSTOMERS AND MARKETING

The Company's customers are located principally throughout the United
States. The percentage of the Company's customers that are located in each state
is approximately equal to the percentage of the United States' population which
resides in such state, with the largest concentration of the Company's customers
residing in California. During 1997, the Company shipped approximately 248,000
orders, as compared to approximately 43,000 orders during 1996, an increase of
approximately 477%. The Company strives to deliver a high level of customer
service in an effort to establish a loyal customer base.

The Company utilizes a focused, closely managed and monitored marketing
strategy. The Company continually researches and analyzes new ways in which to
advertise the Company's products. After identifying an attractive potential new
advertisement or advertising medium, the Company commits to such advertising for
an initial test period. The response generated by such advertising is monitored
and analyzed by the Company, and a decision to commit significant resources to a
particular advertisement or advertising medium is made only if the Company is
satisfied with the response rates it has generated. After the initial testing
period, the Company continues to closely monitor its advertising in order to
identify and react to trends in consumer response patterns and adjust its
marketing strategy accordingly.

The majority of contact lens wearers are between the ages of 18 and 39. In
addition, 65% of all contact lens wearers are women and contact lens wearers
generally have higher incomes than eyeglass wearers. The Company is able to
target its advertising to lens wearers in these key demographic groups, as well
as certain other persons based on other important demographics, through its
national advertising campaign utilizing various types of print media, including
direct and cooperative mailings and free standing inserts.

Direct-Mailing. The Company uses direct-mail to advertise its products to
selected groups of consumers. The Company utilizes mailing lists obtained from
both private and public sources to target its advertisements specifically to
contact lens wearers.

Cooperative Mailings. The Company advertises its products in cooperative
mail programs sponsored by the leading cooperative mail companies in the United
States. This advertising medium permits the Company to target consumers in
specific zip codes according to age, income and other important demographics.

Free Standing Inserts. From time to time, the Company advertises its
products through free standing inserts, which are typically glossy
advertisements included inside the comic section of the Sunday paper. The
Company uses this advertising medium due to its ability to reach a large
audience in a cost-effective manner. The Company utilizes these inserts to
supplement its direct and cooperative mailing programs.

Following the Offering, the Company plans to significantly expand its sales
and marketing activities to attract new customers and increase sales to existing
customers. The Company plans to increase its use of direct mailings, cooperative
mailings and free standing inserts, as well as begin advertising in mediums not
previously utilized, including magazines, traditional newspaper advertisements,
radio and television.

During the first month after the Company acquired and activated the 1-800
CONTACTS telephone number, the Company generated approximately 2,000 calls and
$38,000 in additional sales without advertising the number. As a result of the
proliferation of 1-800 numbers in recent years, the Company believes that it
continues to receive new business from customers who simply call 1-800 CONTACTS
as a result of their expectation that a contact lens seller will use such a
number. In addition, the Company believes that it benefits from the advertising
of other direct marketers as a result of customers forgetting the competitors
telephone number and contacting the Company instead.

The Company also markets its products through its website on the Internet.
Although sales generated by its website have been immaterial to date, the
Company believes that the Internet offers an attractive opportunity to increase
sales in a cost-effective manner. The Company expects to contribute additional
resources to upgrading its

23
<PAGE> 26

website in an effort to increase revenues generated from its website. The
Company's website is located at www.1800contacts.com. The Company's website and
the information contained therein shall not be deemed to be a part of this
Prospectus.

MANAGEMENT INFORMATION SYSTEM

The Company has developed a proprietary management information system that
integrates the Company's order entry and order fulfillment operations. The
Company believes that this system enables it to operate efficiently and provide
enhanced customer service. The key features of this management information
system are its ability to: (i) continually monitor and track the Company's
inventory levels; (ii) rapidly process credit card orders; (iii) increase the
speed of the shipping process with integrated and automated shipping functions;
and (iv) increase accuracy through the scanning of each order prior to shipment
to ensure it contains the correct lenses and the correct quantity of lenses.

The management information system provides the Company's teleservice agents
with real-time product availability information through a point-to-point
satellite connection with the Company's shipping facilities, which information
is immediately updated as lenses are shipped. The management information system
also has an integrated direct connection for processing credit card payments
which allows the agent to charge the customer's card and ensure that a valid
card number and authorization have been received in approximately six to fifteen
seconds while the agent is on the phone with the customer. Teleservice agents
also have access to records of all prior contact with a customer, including the
customer's address, prescription information, order history and payment history
and notes of any prior contact with the customer made by phone, fax or mail.
Based on product availability provided by the management information system, the
teleservice agent provides the customer with an estimated date of delivery of
their lenses. If a customer's order will not be shipped by the promised delivery
date, the management information system notifies the agent who entered the
order, and any information explaining the delay, and the agent then contacts the
customer to inform them of the delay.

After an order has been entered into the management information system by a
teleservice agent, it is sent to the Company's shipping facility via a
point-to-point satellite connection. After the shipping facility receives the
order, the invoice for the order is printed. The invoice for each order contains
the type and quantity of the lenses, as well as a shipping label for the order.
Tracking, manifesting, billing and other shipping functions are integrated into
the Company's management information system so that all necessary bar codes and
tracking information for shipment via independent couriers is printed directly
on the Company's shipping label, and separate labeling or a separate computer is
not needed to ship packages via independent couriers.

After the invoice for an order is printed at the Company's shipping
facility, the order is pulled from inventory and scanned to ensure that the
prescription and quantity of each item matches the order in the Company's
management information system. Audible notices inform the shipping agent of any
errors in the order. After the order has been scanned for accuracy, the
management information system updates the Company's inventory level, the order
is placed in a box produced by the Company's automated box folder and is sent to
an automatic sealer. After the package leaves the sealer, another scanner reads
the bar code on the shipping label to determine which method of shipment is
being used, adds the package to the appropriate carrier's manifest and directs
the appropriate hydraulic diverter to push the package into the appropriate
carrier's shipping bin. The Company's automated packaging system is capable of
folding, moving, scanning, sealing and shipping over 10,000 orders during a
twelve hour shift.

The Company has installed a battery powered back-up system capable of
supporting its entire call center, computer room, and phone switch. This system
is further supported by a generator capable of supporting the Company's entire
operation for a period of five days. All critical data is simultaneously written
to a series of back-up drives throughout the day and at the end of the day the
Company's data is transmitted by satellite to an offsite location. There can be
no assurance that the Company's back-up system will sufficient to prevent an
interruption in the Company's operations in the event of disruption in the
Company's management information system and an extended disruption in the
management information system could adversely affect the Company's business,
financial condition and results of operations.

24
<PAGE> 27

OPERATIONS

The primary components of the Company's operations include its
teleservices, order entry and customer service and distribution and fulfillment.

Teleservices, Order Entry and Customer Service. The Company provides its
customers with toll-free telephone access to its teleservice agents. The
Company's call center generally operates from 6:00 a.m. to 8:00 p.m. (MST)
Monday through Friday and 8:00 a.m. to 3:30 p.m. (MST) on Saturday. During
non-business hours, a recorded message informs customers of the Company's hours
of operations. The Company's orders are received by phone, mail, facsimile and
electronic mail. Teleservice agents process orders directly into the Company's
proprietary management information system, which provides customer order history
and information, product specifications, product availability, expected shipping
date and order number. Teleservice agents are provided with a sales script and
are trained to provide information about promotional items. Additionally,
teleservice agents are trained to provide customer service and are authorized to
resolve all customer service issues, including accepting returns and issuing
refunds, as appropriate. In 1997, the total of customer returns, exchanges and
customer service credits was approximately 1.8% of gross sales.

The Company believes its customers are particularly sensitive to the way
merchants and salespeople communicate with them. The Company strives to hire
energetic, service-oriented teleservice agents who can understand and relate to
customers. Teleservice agents participate in a training program, which includes
a mentor system for working with more experienced personnel. After training,
teleservice agents are monitored to review performance and are re-trained
periodically.

The Company recently installed a new telephone system. In its current
facility, the Company has the capacity to handle up to 19,000 calls per day. The
Company believes that it processes telephone orders on average in less time than
its competitors, which allows each teleservice agent to handle a greater number
of orders per day.

The laws in most states require that contact lenses be sold pursuant to a
valid prescription. The Company's operating practice is to attempt to obtain a
valid prescription from each of its customers or his/her eyecare practitioner.
Customers may mail a copy of their prescription with their order or send it to
the Company via facsimile. Upon receipt of a prescription from a patient, the
prescription is filed by the Company and the prescription information, including
the expiration date, is entered into the Company's proprietary management
information system. If the Company is unable to obtain a copy of or verify the
customer's prescription, it is the Company's practice to ship the lenses to the
customer, based on the information that the customer has provided. See "Risk
Factors -- Risks Related to the Lack of Compliance with Certain State Laws and
Regulations."

Distribution and Fulfillment. Approximately 80% of the Company's orders
are shipped within 24 hours. Customers generally receive orders within one to
five business days after shipping, depending upon the method of delivery chosen
by the customer. A shipping and handling fee is charged on each customer order,
except those orders received by mail with an enclosed check. Customers have the
option of having their order delivered by overnight courier for an additional
$4.00 charge. The Company's management information system automatically
determines the anticipated delivery date for each order.

The Company uses an integrated packing and shipping system via an on-line
connection to the Company's management information system. This system monitors
the in-stock status of each item ordered, processes the order and generates
warehouse selection tickets and packing slips for order fulfillment operations.
The Company's management information system is specifically designed with a
number of quality control features to help ensure the accuracy of each order.

PURCHASING AND PRINCIPAL SUPPLIERS

25
<PAGE> 28

contact lenses has begun to put tracking codes on its products in an effort to
identify distributors who are selling to direct marketers. In June 1994, the
Attorney General for the State of Florida, acting on behalf of disposable
contact lens consumers in that State, filed an anti-trust action against Johnson
& Johnson, CIBA Vision, Bausch & Lomb and certain eye care practitioners and
their trade associations alleging, among other things, that the contact lens
manufacturers' policy not to sell to mail order distributors and others was
adopted in conspiracy with eye care practitioners as the result of pressure by
eye care practitioners in order to eliminate alternative channels of trade from
the disposable lens market (the "Florida Action").

In December 1996, the Attorney General for the State of New York, on behalf
of itself and the Attorney Generals for approximately 21 other States, filed a
substantially similar action naming three major manufacturers of soft contact
lenses as well as several optometrists and their trade associations as
defendants (the "New York Action"). Six additional States have joined the New
York Action since it was filed and the Florida Action and the New York Action
have been consolidated and are currently pending in the United States District
Court for the Eastern District of New York (the "Attorney General Action").
Based upon public filings made in the Attorney General Action, the Company
believes that one defendant, CIBA Vision Corporation, has entered into a
proposed settlement agreement pursuant to which it has agreed to pay $5 million
into a settlement fund, agreed to provide rebates and coupons to consumers and
agreed to begin to sell soft contact lenses to direct marketers. Since this
settlement agreement was announced, the Company has become an authorized
distributor of CIBA Vision's contact lenses and can purchase such lenses at
wholesale level prices.

As a result of the manufacturers' refusal to sell to direct marketers,
other than with respect to CIBA Vision products, the Company is not an
authorized dealer for any of the products which it sells. In addition, the price
which the Company pays for certain of its products is sometimes higher than
those paid by eye care practitioners, retail chains and mass merchandisers, who
are able to buy directly from the manufacturers of such lenses. Although the
Company has been able to obtain most contact lens brands at competitive prices
in sufficient quantities on a regular basis, there can be no assurance that the
Company will not encounter difficulties in the future, particularly in light of
the Company's anticipated growth. The inability of the Company to obtain
sufficient quantities of contact lenses at competitive prices would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Risks Related to Supply
Arrangements."

Although the Company seeks to reduce its reliance on any one supplier by
establishing relationships with a number of distributors and other sources, the
Company purchased from a single distributor approximately 27%, 40% and 21% of
its inventory in 1995, 1996 and 1997, respectively, and purchased approximately
40% of its inventory from another distributor in 1997. The Company believes that
neither of these suppliers is authorized by contact lens manufacturers to
distribute their products. The Company does not have written agreements with any
of its suppliers. The Company continually seeks to establish new relationships
with potential suppliers in order to be able to obtain adequate inventory at
competitive prices.

COMPETITION

The retail sale of contact lenses is a highly competitive and fragmented
industry. Traditionally, contact lenses were almost exclusively sold to
customers by eye care practitioners in connection with providing them an eye
examination. Competition for patients and the revenue related to providing them
contact lenses significantly increased as optical chains and large discount
retailers began providing optical services and has further intensified with the
entry of direct marketers such as the Company. The Company believes that the eye
care profession suffers from a surplus of eye care practitioners, and that the
resulting competitive pressure has been exacerbated by the increased prevalence
of retail optical chains, mass merchandisers and direct marketers. Consequently,
the competition amongst eye care practitioners to acquire customers and the
competition to provide replacement lenses to such customers has intensified.

The Company's principal competitors include ophthalmologists and
optometrists in private practice, which collectively accounted for approximately
70% of all contact lens sales in 1996. The Company also competes with national
optical chains, such as Cole National Corporation, LensCrafters and National
Vision Association and mass merchandisers, such as Wal-Mart, Sam's and Costco,
which accounted for approximately 25% of all contact

26
<PAGE> 29

lens sales in 1996. The Company also competes with other mail-order contact lens
distributors, one of which, Lens Express, Inc., is larger than the Company. The
Company may face increased competition in the future from new entrants in the
direct marketing business, which may include national optical chains and mass
merchandisers, some of which may have significantly greater resources than the
Company.

The Company believes that many of its competitors, including most eye care
practitioners, national optical chains and mass merchandisers, have direct
supply arrangements with contact lens manufacturers, which in some cases affords
such competitors with better pricing terms and access to supply. In addition,
some of the competitors are significantly larger and have significantly greater
resources than the Company. The Company believes that the principal basis of
competition in the industry include price, product availability, customer
service and consumer awareness.

GOVERNMENT REGULATION

Federal Regulation. Contact lenses are regulated by the FDA as "medical
devices." The FDA classifies medical devices as Class I, Class II or Class III
and regulates them to varying degrees, with Class I medical devices subject to
the least amount of regulation and Class III medical devices subject to the most
stringent regulations. RGP and soft contact lenses are classified as Class II
medical devices if intended only for daily wear, and as Class III medical
devices if intended for extended wear. These regulations generally apply only to
manufacturers of contact lenses, and therefore do not directly impact the
Company. Federal regulations also require the labels on "medical devices" to
contain adequate instructions for their safe and proper use. However, there is
an exemption from this requirement for medical devices the use of which is not
safe except under the supervision of a practitioner licensed by law to direct
the use of such device. Devices which fall in this exception must contain as
part of their labeling the statement "Caution: Federal law restricts this device
to sale by or on the order of ," the blank to be filled in with the
word physician or other practitioner authorized by the law of the state in which
the practitioner practices to use or order the use of the device. The Company
believes that this exception is often misconstrued as being a federal
requirement that the device be sold only pursuant to a prescription. The FDA
considers contact lenses to qualify for this labeling exemption, however, there
is no federal law that requires that contact lenses be sold only pursuant to a
prescription.

State Regulation. Because there is no applicable federal law that
regulates the distribution of contact lenses, the sale and delivery of contact
lenses to the consumer is subject to state laws and regulations. The Company
sells to customers in almost all of the 50 states and each sale is likely to be
subject to the laws of the state where the customer is located. The laws and
regulations governing the sale and delivery of contact lenses vary from state to
state, but generally can be classified in five categories: (i) laws that require
contact lenses only be dispensed pursuant to a prescription; (ii) laws that
require the dispenser to be licensed by the state as an optometrist,
ophthalmologist or other professional authorized to dispense lenses; (iii) laws
that require lenses be dispensed only in a face-to-face transaction; (iv) laws
with requirements that are unclear or do not specifically address the sale and
delivery of contact lenses; and (v) laws that the Company believes place no
restrictions on the dispensing of replacement contact lenses. Many of the states
requiring that contacts be dispensed in face-to-face meetings or by a person
licensed by such state to dispense lenses also require that lenses only be
dispensed pursuant to a valid prescription.

The laws and regulations in a significant number of states, including most
of the states wherein a large portion of the Company's sales are concentrated,
require that contact lenses only be sold to a consumer pursuant to a valid
prescription. In some states, satisfying this prescription requirement obligates
the dispenser only to verify the customer's prescription with the customer's
prescriber, while other states specifically require that a written prescription
be obtained before providing the lenses to the customer. The Company's operating
practice is to attempt to obtain a valid prescription from each of its customers
or his/her eyecare practitioner. If the customer does not have a copy of his/her
prescription, the Company attempts to contact the customer's doctor to obtain a
copy of, or verify the customer's prescription. If the Company is unable to
obtain a copy of or verify the customer's prescription, it is the Company's
practice to complete the sale and ship the lenses to the customer based on the
prescription information provided by the customer. The Company retains copies of
the written prescriptions that it receives and maintains records of its
communications with the customer's prescriber.

27
<PAGE> 30

The Company's ability to comply with state laws and regulations requiring a
valid prescription is hampered because the Company's customers are often unable
to get a copy of their prescription. The Company believes that optometrists,
ophthalmologists and other contact lens prescribers have historically refused to
release copies of a patient's contact lens prescription to the patient. In
addition, such providers have refused to release or verify prescriptions at the
request of mail order companies. Federal law requires prescribers to release
prescriptions for eyeglasses to a patient, but the issue of whether or not a
prescriber must release a contact lens prescription to the patient, or at the
patients request, is currently governed by state law. There are approximately 22
states that require contact lens prescribers to release the prescriptions for
contact lenses to the patient. However, even in states with a mandatory release
law, the Company believes that many prescribers continue to refuse to release
prescriptions to their patients or to mail order contact lens distributors,
including the Company.

In addition to requiring a valid prescription, a substantial number of
states also require that contact lenses only be dispensed by a person licensed
to do so under that state's laws. A dispenser may be required to be licensed as
an optometrist, ophthalmologist, optician, ophthalmic dispenser or contact lens
dispenser, depending on which state the customer is located in. Neither the
Company nor any of its employees is a licensed or registered dispenser of
contact lenses in any states other than California and Texas. The laws in a
small number of states effectively prohibit the sale of contacts through the
mail by requiring that a person licensed under that state's law to dispense
contacts be in personal attendance at the place of sale. In addition, there are
several states in which the laws and regulations do not specifically address the
issue of who may dispense contact lenses or are unclear with respect to the
requirements for dispensing lenses. Generally, these laws are older and were
written before mail order and other distributors began selling contact lenses.
Lastly, the Company believes that the laws in a small number of states do not
require that replacement contact lenses be dispensed pursuant to a prescription
or only by a professional licensed in such state.

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 upon such comparison, the Company estimates
that approximately one-third of its net sales in 1997 appeared to conform to the
requirements of applicable state laws and regulations. Any action brought
against the Company based on its failure to comply with applicable state laws
and regulations could result in significant fines to the Company, the Company
being prohibited from making sales in a particular state and/or the Company
being required to comply with such laws. Such required compliance could result
in: (i) increased costs to the Company; (ii) the loss of a substantial portion
of the Company's customers for whom the Company is unable to obtain or verify
their prescription; and (iii) the inability to sell to customers at all in a
particular state if the Company cannot comply with such state's laws. The
occurrence of any of the above results could have a material adverse effect on
the Company's ability to sell contact lenses and to continue to operate
profitably. Furthermore, there can be no assurance that states will not enact or
impose laws or regulations that prohibit mail order dispensing of contact lenses
or otherwise impair the Company's ability to sell contact lenses and continue to
operate profitably. The Company has not obtained an opinion of counsel with
regard to its compliance with applicable state laws and regulations, and
information contained herein regarding the Company's compliance with applicable
state laws and regulations should not be construed as being based on an opinion
of counsel.

An FTC rule adopted in 1978 requires eye care practitioners to provide
their patients with a copy of their eyeglass prescription (the "Prescription
Release Rule"). The Prescription Release Rule was adopted based on a finding by
the FTC that consumers were being deterred from comparison shopping for
eyeglasses because eye care practitioners refused to release prescriptions. In
April 1997, the FTC published a request for comments regarding the Prescription
Release Rule with respect to whether the rule should be expanded to require the
release of contact lens prescriptions, whether consumers have historically been
able to get their contact lens prescriptions upon request and whether the
refusal to release contact lens prescriptions has benefits justifying such
refusal. The FTC undertook a similar review in 1985 and again in 1995, both
times concluding that the rule should not be expanded to require the release of
contact lens prescriptions. The deadline for submitting comments to the FTC was
September 2, 1997.

In June 1997, the Company received notice from the Georgia Board that the
Georgia Board considers sales by the Company in Georgia to be in violation of
Georgia law, which requires face-to-face delivery of contact

28
<PAGE> 31

lenses. However, the Georgia Board did not recommend any action be taken at that
time, but reserved the right to pursue future violations by the Company. In
November 1997, the Company received notice from the New Mexico Board that the
New Mexico Board considers sales by the Company in New Mexico to be in violation
of New Mexico law and ordering the Company to cease and desist selling contact
lenses in New Mexico. The Company has not taken any actions in response to such
notices. Sales to customers in these two states in 1997 were less than 3% of the
Company's net sales for that period. The Company has never been subject to any
proceedings brought by any state to force the Company to comply with such
state's laws or to fine the Company for failure to comply with such laws.

INTELLECTUAL PROPERTY

The Company conducts its business under the trade name and service marks
"1-800 CONTACTS." The Company has taken steps to register and protect these
marks and believes that such marks have significant value and are an important
factor in the marketing of its products. The Company leases certain assets,
including the right to use the 1-800 CONTACTS telephone number, from an
individual pursuant to a non-cancelable lease. The lease expires in June 2000,
at which time the Company has the option to purchase such assets for $17,500.
However, under applicable FCC rules and regulations, the Company does not have
and cannot acquire any property rights to the telephone number. The Company does
not expect to lose the right to use the 1-800 CONTACTS number, however, there
can be no assurance in this regard. The loss of the right to use the 1-800
CONTACTS number would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company has
obtained the rights to 1-888 CONTACTS and the cellular and international
equivalents for the 1-800 CONTACTS phone number, however, like the 1-800
CONTACTS number, the Company does not have and cannot acquire any property
rights in these telephone numbers. See "Risk Factors -- Intellectual Property
Matters."

PROPERTIES

All of the Company's management and telephone operations are conducted
through 5,600 square feet of leased space located in Draper, Utah, a suburb of
Salt Lake City. The lease relating to this facility expires in 2002. The Company
intends to relocate to a new and expanded facility located adjacent to its
existing facility in May 1998 and the Company's current landlord has agreed to
release the Company from its current lease without significant penalty. The new
facility is expected to consist of 23,000 square feet. The lease on the new
facility is expected to be for a term of approximately seven years.

As of November 1, 1997, the Company began utilizing approximately 4,500
square feet of leased warehouse space. This warehouse facility is located
approximately two miles from the Company's operations facilities. In January
1998, the Company entered into a new lease with respect to its warehouse space
which provides for an increase of the Company's leased space to 9,988 square
feet. This lease expires in January 2000 and may be renewed at the Company's
option for four additional six month periods.

LEGAL PROCEEDINGS

A former job applicant has recently notified the Company of his intention
to bring a claim against the Company in the Third Judicial Court for Salt Lake
City, Utah, alleging fraud and breach of contract in connection with the
Company's decision not to hire him as chief operating officer and alleging
damages in excess of $500,000 on each claim. The Company believes that this
threatened action is without merit and intends to vigorously pursue its defense.
In addition, the Company is, from time to time, a party to claims and litigation
that arise in the normal course of business. Management believes that the
ultimate outcome of these claims and litigation, including the action threatened
by the former job applicant, will not have a material adverse effect on the
financial position or results of operations of the Company.

EMPLOYEES

As of December 31, 1997, the Company employed 57 persons, of which 37 were
engaged in sales related activities, 12 were engaged in distribution related
activities and 8 were engaged in administrative and accounting functions. None
of the Company's employees is covered by a collective bargaining agreement. The
Company believes its relationship with its employees to be good.

29
<PAGE> 32

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth certain information with respect to the
Directors, executive officers and certain key employees of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Jonathan C. Coon....................... 27 President and Director
John F. Nichols........................ 37 Vice President, Operations and Director
Scott S. Tanner........................ 37 Chief Financial Officer and Director
Robert G. Hunter....................... 30 Controller
Craig A. Heesch........................ 39 Manager, Network Administration
S. Todd Witzel......................... 27 Manager, Management Information Systems
Donald A. Yacktman..................... 52 Director
Stephen A. Yacktman.................... 27 Director
E. Dean Butler......................... 53 Director
</TABLE>

JONATHAN C. COON is a co-founder of the Company and currently serves as
President of the Company and Director. Mr. Coon received his Bachelor's Degree
from Brigham Young University in 1994 and has substantially completed studies
for an MBA at Brigham Young University. Mr. Coon has five years of experience in
the contact lens industry.

JOHN F. NICHOLS is a co-founder of the Company and currently serves as Vice
President, Operations and Director. Mr. Nichols is a certified optician in the
State of California and was the owner of the Discount Lens Club from 1991 until
February 1995. Mr. Nichols worked with Bausch & Lomb as a Senior Sales
Representative from 1989 to 1991.

SCOTT S. TANNER has served as the Chief Financial Officer and a Director of
the Company since November 1997. Prior to joining the Company, Mr. Tanner served
as the Chief Financial Officer of Country Club Foods, Inc., a Utah-based snack
food manufacturer and distributor, from 1995 to 1997. Prior thereto, Mr. Tanner
served in various management positions at Apple Computer, Inc. from 1988 to 1995
and worked at Peat, Marwick & Mitchell & Co. in San Francisco from 1984 to 1986.
Mr. Tanner received a Bachelor's Degree from Stanford University and a MBA from
Harvard University. Mr. Tanner served as an executive officer of Country Club
Foods, Inc. at the time it filed a voluntary petition under chapter 11 of the
United States Bankruptcy Code in November 1995.

ROBERT G. HUNTER has served as the Controller of the Company since November
1997. Prior to joining the Company, Mr. Hunter served as an auditor with
Hawkins, Cloward & Simister LC from November 1993 to 1997 and with Arthur
Andersen LLP from April 1992 to November 1993. Mr. Hunter is a Certified Public
Accountant. Mr. Hunter graduated summa cum laude with a Bachelor's Degree from
Brigham Young University, where he also earned a Masters of Accountancy Degree.

CRAIG A. HEESCH has served as the Company's Network Administrator since
November 1997. From February 1997 through November 1997, Mr. Heesch was retained
as a consultant to the Company. From 1993 through 1997, Mr. Heesch owned and
operated a computer consulting business, was an authorized Novell reseller and
is a certified Novell technician. Mr. Heesch received a Bachelor's Degree in
Computer Science from the University of Utah.

S. TODD WITZEL has served as the Company's Manager, Management Information
Systems since October 1996. Prior to joining the Company, Mr. Witzel worked for
Access Software as a programmer, where he helped develop Access' management
information systems, from 1994 to 1996.

DONALD A. YACKTMAN has served as a Director of the Company since February
1996. Mr. Yacktman is the President and Chief Investment Officer of Yacktman
Asset Management Co., which manages approximately $1.6

30
<PAGE> 33

billion, including more than $1 billion in two equity mutual funds. Prior to
founding his own firm, Mr. Yacktman served as the senior portfolio manager with
Selected Financial Services, Inc. from April 1982 until March 1992 and was a
portfolio manager and a partner with Stein Roe & Farnham from 1974 to 1982. Mr.
Yacktman was named "Portfolio Manager of the Year" by Morningstar in 1991 and
has been featured in articles in several newspapers and magazines and is a
frequent guest on radio and television investment programs. Mr. Yacktman holds a
Bachelor's Degree, magna cum laude in economics from the University of Utah and
an MBA with distinction from Harvard University.

STEPHEN A. YACKTMAN has served as a Director of the Company since February
1996. Mr. Yacktman is currently a Vice President at Yacktman Asset Management
Co. where he has been employed since 1993. Mr. Yacktman's responsibilities
include portfolio management, stock analysis and trading. Mr. Yacktman holds a
Bachelor's Degree in economics and an MBA from Brigham Young University.

E. DEAN BUTLER has served as a Director of the Company since January 1998.
Mr. Butler currently serves as Vice Chairman of Grand Vision, the largest retail
optical group in Europe. In 1988, Mr. Butler founded Vision Express in Europe,
which merged with the French retail group, GPS, to form Grand Vision in late
1997. In 1983, Mr. Butler founded LensCrafters and served as its Chief Executive
Officer until 1988. Prior to 1983, Mr. Butler was employed by Procter & Gamble
in various marketing positions since 1969.

Directors of the Company are currently elected annually by its stockholders
to serve during the ensuing year or until their respective successors are duly
elected and qualified. Executive officers of the Company are duly elected by the
Board of Directors to serve until their respective successors are elected and
qualified. Donald A. Yacktman is Stephen A. Yacktman's father. There are no
other family relationships between any of the Directors or executive officers of
the Company.

The Company anticipates that one additional Director not otherwise
affiliated with the Company or any of its stockholders will be elected by the
Board of Directors following the completion of the Offering. Prior to the
completion of the Offering, the Board of Directors will be divided into three
classes, as nearly equal in number as possible, with each Director serving a
three year term and one class being elected at each year's annual meeting of
stockholders. Mr. Tanner and Mr. Nichols will be in the class of directors whose
term expires at the 1999 annual meeting of the Company's stockholders. Mr.
Stephen Yacktman and Mr. Butler will be in the class of directors whose term
expires at the 2000 annual meeting of the Company's stockholders. Mr. Coon and
Donald Yacktman will be in the class of directors whose term expires at the 2001
annual meeting of the Company's stockholders. At each annual meeting of the
Company's stockholders, successors to the class of directors whose term expires
at such meeting will be elected to serve for three year terms and until their
respective successors are elected and qualified.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation paid
or accrued for the years ended December 31, 1996 and 1997, to the Company's
President and Vice President, Operations (the "Named Executives"). None of the
Company's other executive officers earned more than $100,000 in compensation
during the years ended December 31, 1996 and 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($)(B)
- ------------------------------------------------- ---- --------- ------------------
<S> <C> <C> <C>
Jonathan C. Coon................................. 1997 $ 105,042 $ 13,440
President(a) 1996 37,417 --
John F. Nichols
Vice President, Operations..................... 1997 110,625 10,580
</TABLE>

- ---------------
(a) Mr. Coon's salary was increased to $80,000 per annum effective February 1,
1997 and to $120,000 per annum effective June 1, 1997.

(b) Reflects payments made by the Company to such Named Executives for medical
costs and health insurance.

31
<PAGE> 34

EMPLOYMENT AGREEMENTS

Immediately prior to the completion of the Offering, Mr. Coon and Mr.
Nichols will enter into employment agreements with the Company (each, an
"Employment Agreement"), pursuant to which Mr. Coon will agree to serve as the
President of the Company for a period of three years and Mr. Nichols will serve
as Vice President, Operations of the Company for a period of three years.
Pursuant to their respective Employment Agreement, Mr. Coon and Mr. Nichols will
receive: (i) an annual base salary equal to at least $120,000 and $120,000,
respectively, (ii) an annual bonus up to 50% of their annual base salary (upon
the Company achieving certain operating targets) and (iii) certain fringe
benefits. If Mr. Coon's or Mr. Nichols' employment is terminated for any reason
prior to the termination of such agreement other than for Cause (as defined
therein) or their resignation, they will be entitled to receive their base
salary and fringe benefits for 12 months following such termination in addition
to 50% of their bonus for the year in which their employment was terminated if
the termination is during the first six months of the year or 100% if such
termination was during the last six months of the year. Mr. Coon and Mr. Nichols
will agree not to compete with the Company for a period of two years following
their termination of employment with the Company and not to disclose any
confidential information at any time without the prior written consent of the
Company.

The Company will also enter into three-year employment agreements with each
of Messrs. Tanner, Hunter, Heesch and Witzel immediately prior to the completion
of the Offering. Such employment agreements will have terms similar to those of
Messrs. Coon and Nichols described above (other than annual base salary, bonus
levels and severance periods).

DIRECTOR COMPENSATION

Directors of the Company currently do not receive a salary or an annual
retainer for their services. The Company expects, however, that non-employee
directors appointed to the Board after the completion of the Offering and not
otherwise affiliated with the Company or its stockholders will be paid an annual
cash retainer of $10,000 and will be reimbursed for all reasonable expenses
incurred in attending Board meetings.

COMMITTEES OF THE BOARD OF DIRECTORS

Prior to the Offering, the Company did not have any committees of its Board
of Directors. On February 9, 1998, the Board of Directors established both an
audit committee and a compensation committee. Messrs. Donald A. Yacktman,
Stephen A. Yacktman and E. Dean Butler were appointed to serve on each
committee.

The audit committee will be responsible for making recommendations to the
Board of Directors regarding the selection of independent auditors, reviewing
the results and scope of the audit and other services provided by the Company's
independent accountants and reviewing and evaluating the Company's audit and
control functions.

The compensation committee will make recommendations regarding the
Company's employee stock option plan and decisions concerning salaries and
incentive compensation for executive officers, key employees and consultants of
the Company.

The Board of Directors may also create other committees, including an
executive committee and a nominating committee.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION

Prior to the Offering, the Company did not have a compensation committee.
The compensation arrangements for Mr. Coon and Mr. Nichols were established by
Mr. Donald Yacktman pursuant to arrangements established at the time of Mr.
Yacktman's investment in the Company.

STOCK OPTIONS

As of the date of this Prospectus, the Company has granted options to
purchase an aggregate of 211,140 shares of Common Stock to certain members of
management (including Mr. Butler). Such options vest in three

32
<PAGE> 35

equal installments beginning on the first anniversary of the grant date and have
an average exercise price of $8.59 per share. The options have a term of ten
years. In the event that the optionee ceases to be employed by the Company for
any reason (i) any portion of the option that was not vested at that time will
expire and (ii) any portion of the option that was vested will expire 90 days
after such termination date. Under such option agreements, the Company has the
right to repurchase at fair market value the shares of Common Stock issuable
upon the exercise of such options (the "Option Shares") in the event the
optionee ceases to be employed by the Company. In addition, the option
agreements: (i) restrict the transfer of the Option Shares, subject to certain
exceptions and (ii) require each optionee to consent to a sale of the Company
approved by the holders of a majority of the shares of Common Stock held by the
Existing Stockholders. The repurchase right and foregoing restrictions terminate
upon an initial public offering in which the Company receives net proceeds of at
least $10.0 million.

INCENTIVE STOCK OPTION PLAN

Prior to the completion of this Offering, the Company will establish the
1-800 CONTACTS, INC. Incentive Stock Option Plan (the "Stock Option Plan"). A
maximum of 310,000 shares of Common Stock, subject to adjustment, have been
initially authorized for the granting of stock options under the Stock Option
Plan. To date, no options have been granted pursuant to the Stock Option Plan.
Options granted under the Stock Option Plan may be either "incentive stock
options," which qualify for special tax treatment under the Internal Revenue
Code, or nonqualified stock options. The purposes of the Stock Option Plan are
to advance the interests of the Company and stockholders by providing employees
of the Company with an additional incentive to continue their efforts on behalf
of the Company, as well as to attract to the Company people of experience and
ability. The Stock Option Plan is intended to comply with Rule 16b-3 of the
Exchange Act.

It is expected that all officers, directors and other employees of the
Company or its subsidiaries will be eligible to participate under the Stock
Option Plan, as deemed appropriate by the Compensation Committee of the Board of
Directors. Eligible employees will not pay any cash consideration to the Company
to receive the options. The Stock Option Plan will be administered by the
Compensation Committee of the Board of Directors. The exercise price for
incentive stock options must be no less than the fair market value of the Common
Stock on the date of grant. The exercise price of nonqualified stock options is
not subject to any limitation based upon the then current market value of the
Common Stock. Options will expire no later than the tenth anniversary of the
date of grant. An option holder will be able to exercise options from time to
time, subject to vesting. Options will vest immediately upon death or disability
of a participant and upon certain change of control events. Upon termination for
cause or at will by the Company, the unvested portion of the options will be
forfeited. Subject to the above conditions, the exercise price, duration of the
options and vesting provisions will be set by the Compensation Committee of the
Board of Directors in its discretion.

On February 9, 1998, the Board of Directors authorized the grant of options
to purchase an aggregate of 5,000 shares of Common Stock to certain employees of
the Company under the Stock Option Plan. The exercise price of these options is
$12.50 per share and these options will vest in equal installments over a
three-year period.

33
<PAGE> 36

PRINCIPAL AND SELLING STOCKHOLDERS

The table below sets forth certain information regarding the equity
ownership of the Company (a) as of December 31, 1997 (except as otherwise noted)
and (b) immediately following the Offering by: (i) each person or entity who
beneficially owns five percent or more of the Common Stock; (ii) each Director
and the Named Executives; (iii) all Directors and executive officers of the
Company as a group; and (iv) Jonathan C. Coon (the "Selling Stockholder").
Unless otherwise stated, each of the persons named in the table has sole voting
and investment power with respect to the securities beneficially owned by it or
him as set forth opposite its or his name. Beneficial ownership of the Common
Stock listed in the table has been determined in accordance with the applicable
rules and regulations promulgated under the Exchange Act.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED
OFFERING AFTER THE OFFERING(1)
--------------------- NUMBER ---------------------
NUMBER OF SHARES NUMBER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES PERCENT OFFERED OF SHARES PERCENT
- ------------------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Jonathan C. Coon(2)(3)............... 2,768,669 65.7% 275,000 2,493,669 40.6%
John F. Nichols(2)................... 931,894 22.1 -- 931,894 15.2
Donald A. Yacktman(4)(5)............. 256,477 6.1 -- 256,477 4.2
Stephen A. Yacktman(6)............... 232,766 5.5 -- 232,766 3.8
Scott S. Tanner(7)................... -- -- -- -- --
E. Dean Butler(8).................... -- -- -- -- --
All Directors and executive officers
as a group (7 persons)............. 4,189,806 99.4 275,000 3,914,806 63.8
</TABLE>

- ---------------

* Represents less than one percent.

(1) Assumes no exercise of the Underwriters' over-allotment option and does not
give effect to any purchases, if any, by such persons named in the table in
the Offering.

(2) The address of such person is the executive offices of the Company.

(3) Includes: (i) 931,894 shares of Common Stock that Mr. Coon will acquire from
Mr. Nichols for an aggregate of $1.5 million upon the exercise of a stock
option granted to Mr. Coon from Mr. Nichols in February 1996 and (ii) an
aggregate of 95,975 shares held by Mr. Coon's children. Also reflects the
disposition by gift of an aggregate of 20,800 shares by Mr. Coon on February
9, 1998.

(4) Reflects the exercise of an option by the Company to repurchase an aggregate
of 442,651 shares of Common Stock held by such stockholder for approximately
$1.9 million. The Company will exercise such option upon completion of the
Offering. See "Use of Proceeds" and "Certain Transactions."

(5) Such shares are held of record by The Yacktman Family Trust, of which Mr.
Yacktman's wife serves as trustee. The address of Mr. Yacktman and such
trust is c/o Yacktman Asset Management Co., 303 West Madison Street,
Chicago, Illinois 60606.

(6) The address of such person is c/o Yacktman Asset Management Co., 303 West
Madison Street, Chicago, Illinois 60606.

(7) Does not include 47,986 shares of Common Stock that can be acquired through
the exercise of stock options, none of which are currently exercisable.

(8) Does not include 71,979 shares of Common Stock that can be acquired through
the exercise of stock options, none of which are currently exercisable.

CERTAIN TRANSACTIONS

LOANS TO EXECUTIVE OFFICERS

As of December 31, 1997, the Company had outstanding loans to Messrs. Coon
and Nichols, each an executive officer of the Company, an aggregate of $340,615
and $231,530, respectively, evidenced by a promissory note due on demand. The
note provides for the payment of interest calculated at a rate equal to the
prime rate (8.5% at December 31, 1997). These loans will be repaid in connection
with the S Corporation Distribution. See "S Corporation Matters."

34
<PAGE> 37

LOANS FROM CERTAIN STOCKHOLDERS

In February 1996, the Company entered into a credit agreement with Mr.
Donald Yacktman, a Director of the Company, that provides for maximum borrowings
of $250,000. This loan bears interest at the prime interest rate plus 2%,
matures in February 1999 and, if not repaid in full by February 1999, may be
converted into 15% of the Company's Common Stock at the option of Mr. Yacktman.

In May 1997, Mr. Yacktman subsequently loaned an additional $250,000 to the
Company, which was repaid prior to September 30, 1997. Also in May 1997, the
Company borrowed $600,000 from Mr. Yacktman under a short-term promissory note
due in November 1997. In July 1997, the Company repaid $100,000 under such note
and refinanced the remaining $500,000 and borrowed an additional $600,000 from
Mr. Yacktman under a new short-term promissory note. The new short-term
unsecured promissory note bears interest at the prime interest rate plus 2% and
matures on July 30, 1998. In consideration for entering into this note, the
Company agreed to modify the option that it holds to repurchase a portion of the
Common Stock held by Mr. Yacktman. Under the revised terms of the option, the
Company has the right to repurchase an aggregate of 442,651 of Mr. Yacktman's
shares for $1.9 million.

In September 1997, the Company borrowed $250,000 from Mr. Yacktman under a
short-term unsecured promissory note. This note accrues interest at the prime
interest rate plus 2% and is due in September 1998. In addition, for every month
that this note remains outstanding a fee of $5,000 is added to the outstanding
balance.

During the years ended December 31, 1997 and 1996, the Company's largest
outstanding indebtedness to Mr. Yacktman was approximately $1.6 million and
$305,000, respectively. All of the Company's outstanding indebtedness to Mr.
Yacktman will be repaid out of the net proceeds of the Offering. See "Use of
Proceeds."

REPURCHASE OF STOCK FROM FORMER DIRECTOR

In February 1996, the Company redeemed all shares of the Company's Common
Stock then held by Mr. Steve Gibson, a former Director of the Company, which
shares represented twenty percent of the Company's Common Stock then
outstanding. The purchase price of such redeemed shares was $240,000 in cash.
Mr. Gibson resigned as a Director of the Company in February 1996.

TAX INDEMNIFICATION AGREEMENT

Prior to completion of the Offering, the Company will enter into the
Agreement for Distribution of Retained Earnings and Tax Indemnification with the
Existing Stockholders. The Agreement for Distribution of Retained Earnings and
Tax Indemnification will provide for, among other things, the indemnification of
the Existing Stockholders for any losses or liabilities with respect to any
additional taxes (including interest, penalties and legal fees) and the
repayment to the Company of amounts received as refunds, resulting from the
Company's operations during the period in which it was an S corporation. No
amounts are currently payable, or anticipated to be payable, or receivable or
anticipated to be receivable under the Agreement for Distribution of Retained
Earnings and Tax Indemnification.

S CORPORATION DISTRIBUTION

Effective February 1, 1995, the Company elected to be treated as an S
corporation for federal income tax purposes. As a result, for the period the
Company was an S corporation, the Company paid no federal income tax. Taxable
income of the Company was taxable to its Existing Stockholders. The Company will
terminate its S corporation status prior to the closing of the sale of shares
offered hereby and will distribute to the Existing Stockholders the balance of
its previously undistributed earnings through that date. The purchasers of
shares in this Offering will not receive any of these distributions. See "S
Corporation Matters."

STOCK REPURCHASE OPTION

In connection with Mr. Donald Yacktman's investment in the Company in
February 1996, the Company was granted an option, exercisable at any time prior
to February 1, 2001, to repurchase an aggregate of 465,947 shares of Common
Stock held by Mr. Donald Yacktman (10% percent of the Company's outstanding
Common Stock prior to the Offering), at an aggregate purchase price of $2.0
million. In connection with entering in to a promissory note with Mr. Donald
Yacktman in July 1997, the Company canceled a portion of this option and the

35
<PAGE> 38

number of shares now subject to repurchase by the Company pursuant to the option
is 442,651 (9.5% of the Company's outstanding Common Stock prior to the
Offering), at an aggregate purchase price of $1.9 million. The Company expects
to exercise this option concurrently with the completion of the Offering. See
"Use of Proceeds."

DESCRIPTION OF CAPITAL STOCK

GENERAL MATTERS

At the time of the Offering, the total amount of authorized capital stock
of the Company will consist of 20,000,000 shares of Common Stock, par value
$0.01 per share, and 1,000,000 shares of preferred stock, par value $0.01 per
share (the "Serial Preferred Stock"). Upon completion of the Offering, 6,141,818
shares of Common Stock will be issued and outstanding (6,430,568 shares if the
Underwriters' over-allotment is exercised in full) and no shares of Serial
Preferred Stock will be issued and outstanding. The discussion herein describes
the Company's capital stock, the Restated Certificate and By-laws as anticipated
to be in effect upon consummation of the Offering. The following summary of
certain provisions of the Company's capital stock describes all material
provisions of, but does not purport to be complete and is subject to, and
qualified in its entirety by, the Restated Certificate and the By-laws of the
Company that are included as exhibits to the Registration Statement of which
this Prospectus forms a part and by the provisions of applicable law.

The Restated Certificate and By-laws will contain certain provisions that
are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and which may have the effect of delaying,
deferring or preventing a future takeover or change in control of the Company
unless such takeover or change in control is approved by the Board of Directors.

COMMON STOCK

The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered by the Company will be upon payment therefor, validly
issued, fully paid and nonassessable. Subject to the prior rights of the holders
of any Serial Preferred Stock, the holders of outstanding shares of Common Stock
are entitled to receive dividends out of assets legally available therefor at
such time and in such amounts as the Board of Directors may from time to time
determine. See "Dividend Policy." The shares of Common Stock are not convertible
and the holders thereof have no preemptive or subscription rights to purchase
any securities of the Company. Upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive pro rata the
assets of the Company which are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
any holders of Serial Preferred Stock then outstanding. Each outstanding share
of Common Stock is entitled to one vote on all matters submitted to a vote of
stockholders. There is no cumulative voting.

The Company's Common Stock has been approved for inclusion on the Nasdaq
National Market under the symbol "CTAC."

SERIAL PREFERRED STOCK

The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of shares of
Serial Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Serial Preferred Stock would reduce the
amount of funds available for the payment of dividends on shares of Common
Stock. Holders of shares of Serial Preferred Stock may be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding-up of
the Company before any payment is made to the holders of shares of Common Stock.
Under certain circumstances, the issuance of shares of Serial Preferred Stock
may render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management. Upon the affirmative vote of
a majority of the total number of directors then in office, the Board of
Directors of the Company, without stockholder approval, may issue shares of
Serial Preferred Stock with voting and conversion rights which could adversely
affect the holders of shares of Common Stock. Upon consummation of the Offering,
there will be no shares of Serial Preferred Stock outstanding, and the Company
has no present intention to issue any shares of Serial Preferred Stock.

36
<PAGE> 39

CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS

The Restated Certificate provides for the Board of Directors to be divided
into three classes, as nearly equal in number as possible, serving staggered
terms. Approximately one-third of the Board of Directors will be elected each
year. See "Management." Under the Delaware General Corporation Law, directors
serving on a classified board can only be removed for cause. The provision for a
classified board could prevent a party who acquires control of a majority of the
outstanding voting stock from obtaining control of the Board of Directors until
the second annual stockholders meeting following the date the acquiror obtains
the controlling stock interest. The classified board provision could have the
effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company and could increase the
likelihood that incumbent directors will retain their positions.

The Restated Certificate provides that stockholder action can be taken only
at an annual or special meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The Restated Certificate and the By-laws provides
that, except as otherwise required by law, special meetings of the stockholders
can only be called pursuant to a resolution adopted by a majority of the Board
of Directors or by the Chief Executive Officer of the Company. Stockholders will
not be permitted to call a special meeting or to require the Board of Directors
to call a special meeting.

The By-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company, including
proposed nominations of persons for election to the Board of Directors.

Stockholders at an annual meeting may only consider proposals or
nominations specified in the notice of meeting or brought before the meeting by
or at the direction of the Board of Directors or by a stockholder who was a
stockholder of record on the record date for the meeting, who is entitled to
vote at the meeting and who has given to the Company's Secretary timely written
notice, in proper form, of the stockholder's intention to bring that business
before the meeting. Although the By-laws do not give the Board of Directors the
power to approve or disapprove stockholder nominations of candidates or
proposals regarding other business to be conducted at a special or annual
meeting, the By-laws may have the effect of precluding the conduct of certain
business at a meeting if the proper procedures are not followed or may
discourage or defer a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company.

The Restated Certificate and By-laws provide that the affirmative vote of
holders of at least 66 2/3% of the total votes eligible to be cast in the
election of directors is required to amend, alter, change or repeal certain of
their provisions. This requirement of a super-majority vote to approve
amendments to the Restated Certificate and By-laws could enable a minority of
the Company's stockholders to exercise veto power over any such amendments.

CERTAIN PROVISIONS OF DELAWARE LAW

Following the consummation of the Offering, the Company will be subject to
the "Business Combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction which
the person became an "interested stockholder," unless (i) the transaction is
approved by the Board of Directors prior to the date the "interested
stockholder" obtained such status; (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder," owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned by
(a) persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) on or subsequent to such date the "business combination" is
approved by the Board of Directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder." A
"business combination" is defined to include mergers, asset sales

37
<PAGE> 40

and other transactions resulting in financial benefit to a stockholder. In
general, an "interested stockholder" is a Person who, together with affiliates
and associates, owns (or within three years, did own) 15% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or other
takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Restated Certificate limits the liability of Directors to the fullest
extent permitted by the Delaware General Corporation Law. In addition, the
Restated Certificate will provide that the Company shall indemnify Directors and
officers of the Company to the fullest extent permitted by such law. The Company
anticipates entering into indemnification agreements with its current Directors
and executive officers prior to the completion of the Offering and any new
Directors or executive officers following such time.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering there has been no market for the Common Stock of the
Company. The Company can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of significant amounts
of the Common Stock in the public market, or the perception that such sales may
occur, could adversely affect prevailing market prices. See "Risk
Factors--Shares Eligible for Future Sale."

Upon completion of the Offering, the Company expects to have 6,141,818
shares of Common Stock outstanding. Of the shares outstanding after the
Offering, the 2,200,000 shares of Common Stock (2,530,000 shares if the
Underwriters' over-allotment is exercised in full) sold in the Offering will be
freely tradeable without restriction under the Securities Act, except for any
such shares which may be acquired by an "affiliate" of the Company (an
"Affiliate"), as that term is defined in Rule 144 promulgated under the
Securities Act ("Rule 144"), which shares will be subject to the volume
limitations and other restrictions of Rule 144 described below. An aggregate of
3,941,818 shares of Common Stock held by Existing Stockholders of the Company
upon completion of the Offering will be "restricted securities" (as that phrase
is defined in Rule 144) and may not be resold in the absence of registration
under the Securities Act or pursuant to an exemption from such registration,
including among others, the exemption provided by Rule 144 under the Securities
Act.

In general, under Rule 144 as currently in effect, beginning ninety days
after the date of this Prospectus, if a period of at least one year has elapsed
since the later of the date the "restricted securities" were acquired from the
Company or the date they were acquired from an Affiliate, then the holder of
such restricted securities (including an Affiliate) is entitled to sell in the
public market a number of shares within any three-month period that does not
exceed the greater of 1% of the then outstanding shares of the Common Stock
(approximately 61,418 shares immediately after the Offering) or the average
weekly reported volume of trading of the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding such sale. Under Rule 144, the
holder may only sell such shares through "brokers' transactions" or in
transactions directly with a "market maker" (as such terms are defined in Rule
144). Sales under Rule 144 are also subject to certain requirements regarding
providing notice of such sales and the availability of current public
information concerning the Company. Affiliates may sell shares not constituting
restricted shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year holding period. Under Rule
144(k), if a period of at least two years has elapsed between the later of the
date restricted securities were acquired from the Company or the date they were
acquired from an Affiliate, as applicable, a holder of such restricted
securities who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to sell
the shares in the public market without regard to the volume limitations and
other restrictions described above. Beginning 90 days after the date of this
Prospectus, approximately 3,941,818 shares of Common Stock will be eligible for
sale in the public market pursuant to Rule 144, subject to the volume
limitations and other restrictions described above.

38
<PAGE> 41

Notwithstanding the foregoing, the Company's executive officers, Directors
and the Existing Stockholders, who own in aggregate approximately 3,941,818
shares of Common Stock have agreed that, without the prior consent of the
Representatives (as defined), they will not (i) directly or indirectly, sell,
offer to sell, grant any option for the sale of or otherwise dispose of any
shares of Common Stock or securities or rights convertible into or exercisable
or exchangeable for Common Stock (except through gifts to persons who agree in
writing to be bound by such restrictions) or (ii) make any demand for or
exercise any right with respect to the registration of any Common Stock or other
such securities, for a period of 180 days after the date of this Prospectus,
other than (i) the sale to the Underwriters of the shares of Common Stock under
the Underwriting Agreement (as defined) or (ii) the issuance by the Company of
shares of Common Stock upon the exercise of an options sold or granted pursuant
to an existing benefit plan of the Company and outstanding on the date of this
Prospectus.

39
<PAGE> 42

UNDERWRITING

Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement") among the Company and the Selling Stockholder and
each of the Underwriters named below, the Company and the Selling Stockholder
have agreed to sell to the Underwriters, and each of the Underwriters severally
and not jointly has agreed to purchase from the Company and the Selling
Stockholder, the number of shares of Common Stock set forth opposite its name
below.

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
McDonald & Company Securities, Inc................................... 607,500
Morgan Keegan & Company, Inc......................................... 607,500
Allen & Company, Inc................................................. 45,000
BT Alex Brown Inc.................................................... 45,000
Cowen & Co........................................................... 45,000
Credit Lyonnais Securities Inc....................................... 45,000
Donaldson, Lufkin & Jenerette Securities Corp........................ 45,000
A.G. Edwards & Sons, Inc............................................. 45,000
Goldman Sachs & Co................................................... 45,000
Hambecht & Quist LLC................................................. 45,000
Morgan Stanley Co. Inc............................................... 45,000
CIBC Oppenheimer Corp................................................ 45,000
PaineWebber Incorporated............................................. 45,000
Prudential Securities Inc............................................ 45,000
Schroders............................................................ 45,000
Advest Inc........................................................... 25,000
J.C. Bradford & Co................................................... 25,000
Crowell, Weedon & Co................................................. 25,000
Dain Rauscher Inc.................................................... 25,000
Hanifen, Imhoff Inc.................................................. 25,000
Hilliard Lyons Inc................................................... 25,000
Ladenburg, Thalmann & Co. Inc........................................ 25,000
Legg Mason Wood Walker Inc........................................... 25,000
The Ohio Company..................................................... 25,000
Parker/Hunter Inc.................................................... 25,000
Pennsylvania Merchant Group Ltd...................................... 25,000
Piper Jaffray Inc.................................................... 25,000
Raymond James & Associates, Inc...................................... 25,000
Seidler Companies, Inc. (The)........................................ 25,000
Sutor & Co........................................................... 25,000
Wit Capital Corp..................................................... 25,000
---------
Total...................................................... 2,200,000
=========
</TABLE>

McDonald & Company Securities, Inc. and Morgan Keegan & Company, Inc. are
acting as representatives (the "Representatives") of the several Underwriters.

The Underwriting Agreement provides that the obligation of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to the approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all shares of the
Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.

The Underwriters propose initially to offer the shares of Common Stock
directly to the public at the initial public offering price set forth on the
cover page hereof and to certain dealers at a price that represents a concession
not in excess of $0.52 per share of Common Stock under the public offering
price. The Underwriters

40
<PAGE> 43

may allow, and such dealers may reallow, a concession not in excess of $0.10 per
share of Common Stock to the other Underwriters or to certain other dealers. The
public offering price and the other selling terms may be changed by the
Representatives of the initial public offering.

The Company and the Selling Stockholder have granted to the Underwriters an
option, exercisable at any time during the 30-day period from the date of this
Prospectus, to purchase up to an aggregate of 330,000 additional shares of
Common Stock at the public offering price set forth on the cover page hereof
less underwriting discount. The Underwriters may exercise such option to
purchase additional shares solely for the purpose of covering over-allotments,
if any, incurred in connection with the sale of the Common Stock offered hereby.
To the extent such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase a number of additional shares
proportionate to such Underwriter's initial amount reflected in the preceding
table.

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock has been
determined by negotiation between the Company and the Representatives. Among the
factors considered in determining the public offering price were the history of,
and the prospects for, the Company's business and the industry in which it
competes, an assessment of the Company's management, its past and present
operations, its past and present earnings and the trend of such earnings, the
prospects for earnings of the Company, the present state of the Company's
development, the general condition of the securities markets at the time of the
Offering and the price-earnings ratios and market price of securities of
comparable companies at the time of the Offering. There can be no assurance that
an active trading market will develop for the Common Stock or that the Common
Stock will trade in the public market subsequent to the Offering at or above the
initial public offering price.

The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters against certain liabilities, including certain liabilities
under the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.

The Underwriters have informed the Company that they do not expect to
confirm sales of any accounts over which they exercise discretionary authority.

At the request of the Company, the Underwriters have reserved up to 100,000
shares of Common Stock for sale at the initial public offering price to
Directors, officers, certain employees and business associates of the Company.
The number of shares of Common Stock available to the general public will be
reduced to the extent these persons purchase the reserved shares. Any reserved
shares of Common Stock that are not so purchased by such employees at the
closing of the Offering will be offered by the Underwriters to the general
public on the same term as the other shares in the Offering.

The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of such transactions.

Neither the Company nor the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

The Company and its executive officers, Directors and the Existing
Stockholders have agreed that, without the prior consent of Representatives,
they will not (i) directly or indirectly, sell, offer to sell, grant any option
for the sale of or otherwise dispose of any shares of Common Stock or securities
or rights convertible into or

41
<PAGE> 44

exercisable or exchangeable for Common Stock (except through gifts to persons
who agree in writing to be bound by such restrictions) or (ii) make any demand
for or exercise any right with respect to the registration of any Common Stock
or other such securities, for a period of 180 days after the date of this
Prospectus, other than (a) the sale to the Underwriters of the shares of Common
Stock under the Underwriting Agreement or (b) the issuance by the Company of
shares of Common Stock upon the exercise of an options sold or granted pursuant
to an existing benefit plan of the Company and outstanding on the date of this
Prospectus.

EXPERTS

The financial statements of the Company and the Predecessor included in
this Prospectus and elsewhere in the Registration Statement to the extent and
for the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Kirkland & Ellis, Chicago, Illinois (a partnership which includes
professional corporations). Certain legal matters will be passed upon for the
Underwriters by Squire, Sanders & Dempsey L.L.P., Cleveland, Ohio.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the Common
Stock being offered in the Offering. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which are omitted as permitted by the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are not
necessarily complete; with respect to any such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. For
further information about the Company and the securities offered hereby,
reference is made to the Registration Statement and to the financial statements,
schedules and exhibits filed as a part thereof.

Upon completion of the Offering, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports and other information with the Commission. The Registration
Statement, the exhibits and schedules forming a part thereof and the reports and
other information filed by the Company with the Commission in accordance with
the Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following regional offices of the
Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material or any part thereof may also be obtained by
mail from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates or accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements and to make available quarterly reports
containing unaudited summary financial information for the first three fiscal
quarters of each fiscal year.

42
<PAGE> 45

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of December 31, 1996 and 1997....................................... F-3
Statements of Operations for the eleven months ended December 31, 1995 and the years
ended December 31, 1996 and 1997.................................................... F-5
Statements of Stockholders' Equity (Deficit) for the eleven months ended December 31,
1995 and the years ended December 31, 1996 and 1997................................. F-6
Statements of Cash Flows for the eleven months ended December 31, 1995 and the years
ended December 31, 1996 and 1997.................................................... F-7
Notes to Financial Statements......................................................... F-9

PREDECESSOR
Report of Independent Public Accountants.............................................. F-18
Statements of Operations and Owner's Capital for the year ended
December 31, 1994 and the one month period ended January 31, 1995................... F-19
Statements of Cash Flows for the year ended December 31, 1994 and
the one month period ended January 31, 1995......................................... F-20
Notes to Financial Statements......................................................... F-21
</TABLE>

F-1
<PAGE> 46

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO 1-800 CONTACTS, INC.:

We have audited the accompanying balance sheets of 1-800 CONTACTS, INC. (a
Utah S Corporation) as of December 31, 1996 and 1997 and the related statements
of operations, stockholders' equity (deficit) and cash flows for the period from
inception (February 1, 1995) to December 31, 1995 and for the years ended
December 31, 1996 and 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 1-800 CONTACTS, INC. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the period from inception (February 1, 1995) to December 31, 1995, and for
the years ended December 31, 1996 and 1997 in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Salt Lake City, Utah
January 14, 1998

F-2
<PAGE> 47

1-800 CONTACTS, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................................ $ -- $ -- $ --
Inventories......................................... 475,410 4,811,855 4,811,855
Prepaid expenses and other.......................... 9,023 182,664 182,664
---------- ---------- ----------
Total current assets............................. 484,433 4,994,519 4,994,519
---------- ---------- ----------
DEFERRED ADVERTISING COSTS............................ 394,297 1,705,695 1,705,695
---------- ---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Office and computer equipment....................... 217,212 630,186 630,186
Leasehold improvements.............................. -- 75,270 75,270
---------- ---------- ----------
217,212 705,456 705,456
Less -- accumulated depreciation and amortization... (25,617) (142,953) (142,953)
---------- ---------- ----------
Net property and equipment....................... 191,595 562,503 562,503
---------- ---------- ----------
OTHER ASSETS.......................................... 86,321 518,347 518,347
---------- ---------- ----------
Total assets..................................... $1,156,646 $7,781,064 $7,781,064
========== ========== ==========
</TABLE>

The accompanying notes to financial statements
are an integral part of these balance sheets.

F-3
<PAGE> 48

1-800 CONTACTS, INC.

BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Line of credit...................................... $ -- $1,055,640 $1,055,640
Current portion of capital lease obligation......... 17,731 23,532 23,532
Current portion of long-term debt................... 31,200 -- --
Notes payable to stockholders....................... -- 1,370,000 1,370,000
Accounts payable.................................... 471,294 3,762,158 3,762,158
Accrued liabilities................................. 63,800 300,439 300,439
Unearned revenue.................................... 35,945 104,272 104,272
Bank overdraft...................................... 68,543 -- --
Distributions payable to stockholders............... -- -- 714,075
---------- ---------- ----------
Total current liabilities........................ 688,513 6,616,041 7,330,116
---------- ---------- ----------
LONG-TERM LIABILITIES:
Notes payable to stockholders....................... 205,000 243,788 243,788
Long-term debt, less current portion................ 24,671 -- --
Capital lease obligation, less current portion...... 92,103 66,877 66,877
Deferred income taxes............................... -- -- 596,866
---------- ---------- ----------
Total long-term liabilities...................... 321,774 310,665 907,531
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 5)

STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.01 par value, 20,000,000 shares
authorized, 4,659,469 shares issued and
outstanding...................................... 46,595 46,595 46,595
Additional paid-in capital.......................... 93,688 93,688 93,688
Retained earnings (deficit)......................... 253,812 1,286,220 (596,866)
Notes receivable from stockholders.................. (247,736) (572,145) --
---------- ---------- ----------
Total stockholders' equity (deficit)............. 146,359 854,358 (456,583)
---------- ---------- ----------
Total liabilities and stockholders' equity....... $1,156,646 $7,781,064 $7,781,064
========== ========== ==========
</TABLE>

The accompanying notes to financial statements
are an integral part of these balance sheets.

F-4
<PAGE> 49

1-800 CONTACTS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FEBRUARY 1,
1995 TO YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1995 1996 1997
------------ ---------- -----------
<S> <C> <C> <C>
NET SALES............................................ $ 587,918 $3,628,296 $21,115,314
COST OF GOODS SOLD................................... 355,466 2,215,306 14,024,523
-------- ---------- ----------
Gross profit.................................... 232,452 1,412,990 7,090,791
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 317,898 1,041,312 5,945,221
-------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS........................ (85,446) 371,678 1,145,570
-------- ---------- ----------
OTHER (EXPENSE) INCOME:
Interest expense................................... (9,105) (26,175) (161,520)
Other, net......................................... -- 2,860 48,358
-------- ---------- ----------
Total other, net................................ (9,105) (23,315) (113,162)
-------- ---------- ----------
NET INCOME (LOSS).................................... $ (94,551) $ 348,363 $ 1,032,408
======== ========== ==========
PRO FORMA INFORMATION (unaudited)
Income before pro forma (provision) benefit for
income taxes.................................... $ (94,551) $ 348,363 $ 1,032,408
(Provision) benefit for income taxes............... 36,402 (134,120) (397,477)
-------- ---------- ----------
PRO FORMA NET INCOME (LOSS).......................... $ (58,149) $ 214,243 $ 634,931
======== ========== ==========
PRO FORMA PER SHARE INFORMATION:
Basic net income per common share.................. $ 0.14
==========
Diluted net income per common share................ $ 0.13
==========
</TABLE>

The accompanying notes to financial statements
are an integral part of these statements.

F-5
<PAGE> 50

1-800 CONTACTS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RETAINED RECEIVABLE
--------------------- PAID-IN EARNINGS FROM
SHARES AMOUNT CAPITAL (DEFICIT) STOCKHOLDERS TOTAL
---------- ------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization........... 4,141,750 $41,418 $ 11,365 $ -- $ -- $ 52,783
Sale of common stock............. 517,719 5,177 22,323 -- -- 27,500
Advances to stockholders......... -- -- -- -- (14,144) (14,144)
Net loss......................... -- -- -- (94,551) -- (94,551)
--------- -------- --------- ---------- --------- --------
BALANCE, December 31, 1995......... 4,659,469 46,595 33,688 (94,551) (14,144) (28,412)
Repurchase of common stock....... (931,894) (9,319) (230,681) -- -- (240,000)
Sale of common stock............. 931,894 9,319 290,681 -- -- 300,000
Advances to stockholders......... -- -- -- -- (233,592) (233,592)
Net income....................... -- -- -- 348,363 -- 348,363
--------- -------- --------- ---------- --------- --------
BALANCE, December 31, 1996......... 4,659,469 46,595 93,688 253,812 (247,736) 146,359
Advances to stockholders......... -- -- -- -- (324,409) (324,409)
Net income....................... -- -- -- 1,032,408 -- 1,032,408
--------- -------- --------- ---------- --------- --------
BALANCE, December 31, 1997......... 4,659,469 $46,595 $ 93,688 $1,286,220 $ (572,145) $ 854,358
========= ======== ========= ========== ========= ========
</TABLE>

The accompanying notes to financial statements
are an integral part of these statements.

F-6
<PAGE> 51

1-800 CONTACTS, INC.

STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH

<TABLE>
<CAPTION>
FEBRUARY 1,
1995 TO YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1995 1996 1997
------------ ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ (94,551) $ 348,363 $ 1,032,408
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization...................... 16,811 46,044 150,933
Other.............................................. -- -- 20,000
Loss on retirement of fixed assets................. -- 1,834 --
Changes in operating assets and liabilities:
Inventories..................................... (78,455) (385,892) (4,336,445)
Prepaid expenses and other...................... 1,500 (8,423) (173,641)
Deferred advertising costs...................... -- (394,297) (1,311,398)
Accounts payable................................ 50,066 421,228 3,290,864
Accrued liabilities............................. 9,368 54,432 236,639
Unearned revenue................................ 4,959 30,986 68,327
-------- ---------- ----------
Net cash provided by (used in) operating
activities................................. (90,302) 114,275 (1,022,313)
-------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in notes receivable from
stockholders.................................... (14,144) (233,592) (324,409)
Purchase of property and equipment................. (32,546) (174,992) (488,244)
Deposits on equipment.............................. -- -- (40,425)
Purchase of intangible assets...................... -- -- (50,000)
-------- ---------- ----------
Net cash used in investing activities......... (46,690) (408,584) (903,078)
-------- ---------- ----------
</TABLE>

The accompanying notes to financial statements
are an integral part of these statements.

F-7
<PAGE> 52

1-800 CONTACTS, INC.

STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH

<TABLE>
<CAPTION>
FEBRUARY 1,
1995 TO YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1995 1996 1997
------------ ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock............................... $ 52,500 $ 300,000 $ --
Stock repurchase................................... -- (240,000) --
Stock offering costs............................... -- -- (375,198)
Net borrowings on line of credit................... -- -- 1,055,640
Borrowings from stockholders....................... 25,000 365,000 1,800,000
Payments on notes payable to stockholders.......... (5,000) (180,000) (411,212)
Proceeds from issuance of long-term debt........... 86,000 -- --
Principal payments on long-term debt............... (8,412) (21,717) (55,871)
Principal payments on capital lease obligation..... (10,171) (442) (19,425)
Bank overdraft..................................... -- 68,543 (68,543)
-------- ---------- ----------
Net cash provided by financing activities....... 139,917 291,384 1,925,391
-------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...................... 2,925 (2,925) --
CASH AT BEGINNING OF PERIOD.......................... -- 2,925 --
-------- ---------- ----------
CASH AT END OF PERIOD................................ $ 2,925 $ -- $ --
======== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............................. $ 4,276 $ 18,984 $ 42,699
</TABLE>

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the period ended December 31, 1995, the Company entered into a capital
lease for a toll-free telephone number totaling $120,447.

Upon inception of the Company, the stockholders contributed furniture and
equipment, inventory and supplies totaling $14,620, $11,063 and $2,100,
respectively.

The accompanying notes to financial statements
are an integral part of these statements.

F-8
<PAGE> 53

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND ORGANIZATION OF BUSINESS

1-800 CONTACTS, INC., (the "Company") was incorporated in the state of Utah
in February 1995. The Company is a direct marketer of replacement contact lenses
in the United States. The Company sells contact lenses primarily through its
toll-free telephone number.

REGULATORY COMPLIANCE

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 laws and regulations relating to the delivery and sale of contact
lenses vary from state to state, but can generally be classified into five
categories: (i) laws that require contact lenses only be dispensed pursuant to a
valid prescription, (ii) laws that require the dispenser to be licensed by the
state as an optometrist, ophthalmologist or other professional authorized to
dispense lenses, (iii) laws that require lenses be dispensed only in a
face-to-face transaction, (iv) laws with requirements that are unclear or do not
specifically address the sale and delivery of contact lenses; and (v) laws that
the Company believes place no restrictions on the dispensing of replacement
contact lenses. The Company's operating practice is to attempt to obtain a
prescription from its customers or his/her eye care practitioner. If the
customer does not have a copy of his/her prescription, the Company attempts to
contact the customer's doctor to obtain a copy of, or verify the customer's
prescription. If the Company is unable to obtain a copy of, or verify the
customer's prescription, it is the Company's practice to complete the sale and
ship the lenses to the customer, based on the prescription information provided
by the customer. As a result, certain sales made by the Company violate the
applicable statute or regulation in the state in which the customer is located.
Any action brought against the Company based on its violation of such state laws
and regulations could result in fines to the Company and/or the required
compliance with such laws. Such required compliance could result in (i)
increased costs to the Company, (ii) the loss of a substantial portion of the
Company's customers for whom the Company is unable to obtain or verify their
prescription and (iii) the inability to sell to customers at all in a particular
state if the Company cannot comply with such state's laws. The occurrence of any
of the above results could have a material adverse effect on the Company's
ability to sell contact lenses and continue to operate profitably. Furthermore,
there can be no assurance that states will not enact or impose laws or
regulations that prohibit mail order dispensing of contact lenses or otherwise
impair the Company's ability to sell contact lenses and continue to operate
profitably.

In June 1997, the Company received notice from the Georgia State Board of
Dispensing Opticians (the "Georgia Board") that the Georgia Board considers
sales by the Company in Georgia to be in violation of Georgia law, which
requires face-to-face delivery of contact lenses. However, the Georgia Board did
not recommend any action be taken at that time, but reserved the right to pursue
future violations by the Company. In November 1997, the Company received notice
from the State of New Mexico Board of Examiners in Optometry (the "New Mexico
Board") that the New Mexico Board considers sales by the Company in New Mexico
to be in violation of New Mexico law and ordering the Company to cease and
desist selling contact lenses in New Mexico. The Company has not taken any
actions in response to such notices. Sales to customers in these two states in
1997 were less than 3% of the Company's net sales for that period.

SOURCES OF SUPPLY

F-9
<PAGE> 54

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

practitioners, retail chains and mass merchandisers, who are able to buy
directly from the manufacturers. There can be no assurance that the Company will
be able to obtain sufficient quantities of contact lenses at competitive prices
in the future to meet the existing or anticipated demand for its products. Any
such inability would have a material adverse effect on the Company's business,
financial position and results of operations.

Although the Company seeks to reduce its reliance on any one supplier by
establishing relationships with a number of distributors and other sources, the
Company purchased from a single distributor approximately 40 percent and 21
percent of its contact lens inventory in 1996 and 1997, respectively. The
Company also purchased from another distributor 40 percent of its contact lens
inventory in 1997. The Company continually seeks to establish new relationships
with potential suppliers in order to be able to obtain adequate inventory at
competitive prices. In the event that this supplier could no longer supply the
Company with contact lenses, there can be no assurance that the Company could
secure other adequate sources of supply, or that such supply could be obtained
on terms no less favorable to the Company than its current supply, which could
adversely affect the Company by increasing its costs or, in the event adequate
replacement supply cannot be secured, reducing its net sales.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Sales are recognized at the time of shipment to the customer. Payment for
the product is generally received prior to shipment. As a result, unearned
revenue represents amounts received from customers for which shipment has not
occurred. Shipping and handling fees are included as part of net sales. The
related freight costs associated with shipping products to customers are
included as a component of cost of goods sold.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

INVENTORIES

Inventories consist of contact lenses and are recorded at the lower of cost
(using the first-in, first-out method) or market.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives ranging from three to
seven years. Leasehold improvements are amortized over the term of the lease.
Major additions and improvements are capitalized, while costs for minor
replacements, maintenance and repairs that do not increase the useful life of an
asset are expensed as incurred. Upon retirement or other disposition of property
and equipment, the cost and related accumulated depreciation or amortization are
removed from the accounts. The resulting gain or loss is reflected in income.

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 capitalizes direct-mail advertising
costs on a cost-pool-by-cost-pool approach and amortizes those costs over a 12
month period, which is the period during which the future benefits are expected
to be received. Approximately 73 percent of capitalized costs are amortized over

F-10
<PAGE> 55

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

the first six months after the advertisement. Accordingly, deferred advertising
costs are amortized in proportion to the expected future benefits to be
received. The Company recorded direct-response advertising expense of
approximately $420,300 and $3,411,000 for the years ended December 31, 1996 and
1997, respectively.

At each balance sheet date, the Company evaluates the realizability of
amounts reported as assets by comparing the carrying amounts of such assets to
the estimated remaining future net revenues (revenues less direct costs)
expected to result from the advertisement. To the extent the carrying amounts
exceed the remaining future net revenues, the excess is recorded as advertising
expense in the current period.

Revenue patterns in the future may be significantly different than those
currently estimated based upon factors such as regulatory action, economic
changes in customers, demographics, an inability to obtain supply adequate to
fulfill orders and other factors which could result in the impairment of
capitalized costs. In that event, the Company may be required to write off some
or all of the capitalized costs and or revise its amortization practices.

The Company expenses all other advertising costs when the advertising takes
place. These advertising costs totalled approximately $106,339, $47,800 and
$75,093 for the periods ended December 31, 1995, 1996 and 1997, respectively.

OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Intangible assets............................................ $120,447 $170,447
Deferred offering costs...................................... -- 375,198
Deposits..................................................... -- 40,425
-------- --------
120,447 586,070
Accumulated amortization..................................... (34,126) (67,723)
-------- --------
$ 86,321 $518,347
======== ========
</TABLE>

Intangible assets consist of amounts paid to secure the rights to the
Company's telephone number and internet address. These costs are amortized over
an estimated life of 5 years. The Company has contractual rights customary to
the industry to use its telephone and internet address. However, under
applicable rules and regulations of the Federal Communications Commission, the
Company does not have and cannot acquire any property rights to the telephone
number. The Company does not expect to lose the right to use the number,
however, there can be no assurance in this regard and such loss would have a
material adverse effect on the Company's results of operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist mainly of cash, short-term
payables, borrowings under a credit line and notes payable. The Company believes
that the carrying amounts approximate fair value.

LONG-LIVED ASSETS

The Company accounts for the impairment of long-lived assets in accordance
with Statement of Financial Accounting Standard ("SFAS") No. 121. This statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If

F-11
<PAGE> 56

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets.

INCOME TAXES

The Company has elected, for federal and state income tax purposes, to
include their taxable income with that of its shareholders (an S Corporation
election). Accordingly, the Company makes no provision for income taxes.

The S Corporation status of the Company will terminate upon consummation of
the offering and the Company will become subject to corporate income taxes (see
Note 9). Upon termination of the Company's S Corporation status, the Company
will recognize deferred income tax assets and liabilities in accordance with
SFAS No. 109, "Accounting for Income Taxes." The resulting adjustment will be
recorded as a deferred income tax provision or benefit for the period in which
the change in status is effective. Had the Company become a C corporation as of
December 31, 1997, a provision for deferred income taxes of approximately
$596,866 would have been recorded, arising from the following temporary
differences:

<TABLE>
<S> <C>
Deferred advertising costs..................................... $636,224
Other.......................................................... (39,358)
--------
$596,866
========
</TABLE>

STOCK-BASED COMPENSATION

The Company accounts for its stock option grants to employees under
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees" and provides the pro forma footnote disclosures required by SFAS
No. 123, "Accounting for Stock Based Compensation."

NOTE 3. LINE OF CREDIT AND LONG-TERM DEBT

LINE OF CREDIT

In August 1997 (subsequently amended on October 1, 1997 and January 5,
1998), the Company entered into a line of credit agreement with a bank providing
for borrowings equal to the lesser of $3,000,000 or 50 percent of eligible
inventory. The maximum borrowings under the amended agreement decrease to the
lesser of $2,750,000 on January 31, 1998, $2,225,000 on February 28, 1998,
$1,750,000 on March 31, 1998, and $1,000,000 on April 30, 1998 or 50 percent of
eligible inventory at each of the respective dates. The agreement allows for the
borrowings to remain at the lesser of $1,500,000 or 50 percent of eligible
inventory on April 30, 1998 and thereafter, in the event the Company raises at
least $10,000,000 from an initial public offering. Borrowings under the
agreement bear interest at the bank's prime rate plus 1.5 percent (10 percent at
December 31, 1997) and are secured by substantially all assets of the Company
and guaranteed by two stockholders of the Company. The agreement expires on July
31, 1998. As of December 31, 1997, outstanding borrowings under the agreement
totalled $1,055,640, which includes checks that had been disbursed to vendors
but not presented to the bank for clearance. Upon presentment to the bank, the
outstanding checks will be funded by the line of credit. At January 5, 1998, the
Company had approximately $1.4 million available under the line of credit.

The agreement contains various affirmative and negative covenants which
require, among other things, restrictions on capital expenditures, restrictions
on additional debt, quarterly pre-tax income, maintenance of working capital and
restrictions on distributions and changes in ownership. As of December 31, 1997,
the Company was not in compliance with the covenants restricting capital
expenditures and additional debt. The bank waived these covenants for the year
ended December 31, 1997 and agreed to allow the terms of the agreement to
continue through the original maturity.

F-12
<PAGE> 57

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

LONG-TERM DEBT

As of December 31, 1996, the Company's long-term debt consisted of two
notes payable with outstanding principal balances totaling $55,871 which were
paid in full as of December 31, 1997.

NOTE 4. NOTES PAYABLE TO STOCKHOLDERS

LONG TERM

In February 1996, the Company entered into a credit agreement with a
stockholder that provides for maximum borrowings of $250,000. The borrowings
accrue interest at the prime rate plus 2 percent (10.5 percent at December 31,
1997). As of December 31, 1996 and 1997, outstanding borrowings totalled
$205,000 and $243,788, respectively. The agreement matures in February 1999 at
which time all unpaid principal and interest is due. In the event of default by
the Company, the stockholder has the right to convert the $250,000 into 698,920
shares of common stock or the applicable proportionate number of shares for
unpaid amounts outstanding less than $250,000.

SHORT TERM

In May 1997, the Company borrowed $250,000 from a stockholder that was
repaid prior to December 31, 1997.

In May 1997, the Company borrowed $600,000 from a stockholder under a
short-term promissory note. The note accrued interest at the prime rate plus 2
percent and was due in November 1997. In July 1997, the Company repaid $100,000
on the note and refinanced the remaining $500,000 plus borrowed an additional
$600,000 from the stockholder under a new short-term promissory note. The total
$1,100,000 unsecured note payable accrues interest at prime plus 2 percent (10.5
percent at December 31, 1997) and is due July 30, 1998. As consideration for
entering into this note, the Company agreed to modify the option it holds to
repurchase the stockholder's common stock. Under the revised terms of the
option, the Company has the right to repurchase 442,651 shares of the
stockholder's common stock for $1,900,000.

In September 1997, the Company borrowed $250,000 from a stockholder under a
short-term, unsecured promissory note. The note accrues interest at prime plus 2
percent (10.5 percent at December 31, 1997) and is due in September 1998. In
addition, for every month the note is outstanding a fee of $5,000 is added to
the outstanding balance and expensed as additional interest. As of December 31,
1997, $20,000 has been added to the balance of the note.

In October 1995, the Company borrowed $25,000 from a stockholder, which
bore interest at 10.75 percent and was repaid in full in February 1996.

As of December 31, 1997, accrued interest on stockholder notes payable
totalled $98,315 and is included in the caption "accrued liabilities" in the
accompanying balance sheet.

NOTE 5. COMMITMENTS AND CONTINGENCIES

LEGAL AND REGULATORY MATTERS

A former applicant has recently notified the Company of his intention to
bring a claim against the Company in the Third Judicial Court for Salt Lake
City, Utah, alleging fraud and breach of contract in connection with the
Company's decision not to hire him as chief operating officer and alleging
damages in excess of $500,000, on each claim. The Company believes that this
threatened action is without merit and intends to vigorously pursue its defense.

From time to time the Company is involved in legal matters generally
incidental to its business. It is the opinion of management, after discussions
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.

See Note 1 for a discussion of regulatory matters.

F-13
<PAGE> 58

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

CAPITAL LEASE OBLIGATION

The Company leases the rights to use its telephone number from an
individual under a capital lease arrangement. At the end of the lease, the
Company has the option to purchase the interest in the telephone number for
$17,500. The minimum future lease payments under the capital lease as of
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ---------------------------------------- --------
<S> <C>
1998........................ $ 32,000
1999........................ 42,000
2000........................ 31,500
--------
Total minimum lease payments............ 105,500
Less amount representing interest....... (15,091)
--------
Present value of minimum lease
payments.............................. 90,409
Less current portion.................... (23,532)
--------
Capital lease obligations, excluding
current portion....................... $ 66,877
========
</TABLE>

OPERATING LEASES

The Company leases office and warehouse facilities and certain equipment
under noncancelable operating leases. Lease expense for the periods ended
December 31, 1995, 1996 and 1997 totalled approximately $14,500, $30,900 and
$88,000, respectively. In November 1997, the Company agreed to occupy office
space in a facility currently under construction. The owner of the new facility
is the same as the lessor on the existing facility and has agreed to allow the
Company to cancel its existing lease by paying a fee estimated to be no greater
than $39,000. The new lease commitment is estimated to commence in May, 1998.
Future minimum lease payments under noncancelable operating leases are as
follows (including expense under the new lease):

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ---------------------------------------- ----------
<S> <C>
1998................ $ 269,204
1999................ 391,942
2000................ 405,742
2001................ 419,542
2002................ 430,048
Thereafter.......... 1,091,925
----------
$3,008,403
==========
</TABLE>

SALES TAX

The Company's direct mail business is located, and all of its operations
are conducted, in the state of Utah. At present, the Company does not collect
sales or other similar taxes. However, various states have sought to impose
state sales tax collection obligations on out-of-state mail-order companies,
such as the Company. The U.S. Supreme Court has held that the various states,
absent Congressional legislation, may not impose tax collection obligations on
an out-of-state mail order company whose only contacts with the taxing state are
the distribution of advertising materials through the mail, and whose subsequent
delivery of purchased goods is by mail or interstate common carriers. The
Company has not received an assessment from any state. The Company anticipates
that any legislative changes, if adopted, would be applied on a prospective
basis.

F-14
<PAGE> 59

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

ADVERTISING COMMITMENTS

The Company has entered into certain noncancelable commitments with
cooperative mail companies that will require the Company to pay approximately
$3,375,000 for direct mail services through December 31, 1998.

NOTE 6. COMMON STOCK TRANSACTIONS

The Company was organized in February 1995 and 4,141,750 shares of common
stock were issued for consideration of $25,000 in cash and contributed assets of
$27,783. During 1995, the Company issued 517,719 shares of common stock to an
existing stockholder for $27,500 in cash.

In February 1996, the Company repurchased 931,894 shares of its outstanding
common stock for $240,000 in cash. Concurrently with the purchase, the Company
sold these shares to new stockholders for $300,000 in cash. The Company has the
right to repurchase 442,651 of these shares for $1,900,000 prior to February 1,
2001 (see Note 4).

NOTE 7. STOCK OPTIONS AND STOCK OPTION PLAN

The Company will establish a nonqualified and incentive stock option plan
in connection with the filing of a Form S-1 Registration Statement. The plan
provides for the issuance of a maximum of 310,000 shares of common stock to
officers, directors and consultants and other key employees. Incentive stock
options and nonqualified options are granted at not less than 100 percent of the
fair market value of the underlying common stock on the date of grant.

Prior to the establishment of the stock option plan, the Company issued
nonqualified stock options to an employee in November 1996 to purchase 47,986
shares of common stock at an exercise price of $3.22. In addition, during the
year ended December 31, 1997, the Company issued nonqualified stock options to
an employee to purchase 4,799 shares of common stock at an exercise price of
$8.16 and nonqualified options to two employees to purchase an aggregate of
67,181 shares at $11 per share. The Company also issued stock options to a
consultant in February 1997 to purchase 19,195 shares of common stock at an
exercise price of $4.70. As of December 31, 1997, 15,995 options were vested and
exercisable with an exercise price of $3.22 per share. All options vest equally
over a three year period.

The Company applies APB No. 25 and related interpretations in accounting
for its stock option grants to employees. Accordingly, no compensation expense
has been recognized for these stock option grants. Had compensation expense for
the Company's employee stock option grants been determined in accordance with
SFAS No. 123, the Company's net income for the years ended December 31, 1996 and
1997, and diluted net income per common share for the year ended December 31,
1997 would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Net income:
As reported(1).......................................... $214,243 $634,931
Pro forma............................................... $211,860 $617,785
Diluted net income per common share:
As reported(1).......................................... $ 0.13
Pro forma............................................... $ 0.13
</TABLE>

- ---------------

(1) Includes the effect of the pro forma adjustments as described in Note 10.

The fair value of each option grant has been estimated on the grant date
using the Black-Scholes option-pricing model with the following assumptions used
for all grants; risk-free interest rate of 6.5 percent, expected stock price
volatility of 0 percent, and an expected life of five years. The weighted
average fair value of options granted in 1996 and 1997 was $0.89 per share and
$2.64 per share, respectively. The weighted average remaining contractual life
of options outstanding as of December 31, 1997 was 9.5 years.

F-15
<PAGE> 60

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8. RELATED PARTY TRANSACTIONS

During 1995, 1996 and 1997, the Company made aggregate loans to two
stockholders totaling $14,144, $226,331 and $289,473, respectively. The loans
are unsecured, bear interest at the prime rate (8.5 percent at December 31,
1997) and are due on demand. Interest income on the loans totalled $7,261 and
$34,936 for the years ended December 31, 1996 and 1997, respectively and is
included in the outstanding balance of the notes receivable. As of December 31,
1996 and 1997, notes receivable from stockholders totalled $247,736 and
$572,145, respectively. The Company anticipates making equity distributions to
the stockholders sufficient to allow for their repayment on these notes. As a
result, these notes have been classified as a reduction in stockholders' equity
in the accompanying financial statements.

See note 4 for a discussion of other related party transactions.

NOTE 9. SUBSEQUENT EVENTS

STOCK SPLIT AND CHANGE IN AUTHORIZED COMMON STOCK

In connection with the filing of an effective Form S-1 Registration
Statement and a reincorporation in the state of Delaware, the Board of Directors
and stockholders will approve a 414.175 for 1 stock split and a change in the
authorized common stock to 20,000,000 shares at $0.01 par value per share. This
stock split and change in authorized common stock have been retroactively
reflected in the accompanying financial statements.

STOCK OPTIONS

In January 1998, the Company granted nonqualified stock options to purchase
71,979 shares of common stock at $11 per share to a director of the Company. The
options vest over a three year period and expire in ten years.

DISTRIBUTIONS TO STOCKHOLDERS

Prior to the consummation of the offering, the Company will enter into an
agreement for distribution of retained earnings and tax indemnification with the
existing stockholders. Pursuant to the agreement, an S Corporation distribution
estimated to be approximately $900,000 (net of notes receivable due from
stockholders of the Company) will be distributed in the form of a promissory
note issued by the Company. The note will be paid in full promptly after the
closing of the offering. The agreement will provide for, among other things, the
indemnification of the existing stockholders for any losses or liabilities with
respect to any additional taxes (including interest, penalties and legal fees)
and the repayment to the Company of amounts received as refunds, resulting from
the Company's operations during the period in which is was an S Corporation. No
amounts are currently payable, or anticipated to be payable, or receivable, or
anticipated to be receivable under the agreement. that the existing stockholders
will be indemnified by the Company with respect to federal and state income tax
liabilities as result of an adjustment to the Company's taxable income which
increases the tax liability to the existing stockholders for taxable periods
ending prior to the termination of the S corporation status. In addition, the
existing stockholders will indemnify the Company with respect to any federal and
state tax liabilities as a result of an adjustment which decreases the existing
stockholders' tax liability for taxable periods ending prior to the termination
of the Company's S corporation status and correspondingly increases the tax
liability of the Company for a taxable period commencing on or after the
termination of the Company's S corporation status.

NOTE 10. UNAUDITED PRO FORMA INFORMATION

BALANCE SHEET

The following unaudited pro forma balance sheet gives effect as of December
31, 1997, to a distribution of $1,286,220, which represents the retained
earnings at that date, the repayment of notes receivable due from

F-16
<PAGE> 61

1-800 CONTACTS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

stockholders of $572,145 as of December 31, 1997, and the recording of an
estimated deferred income tax liability of $596,866 that would be recorded if
the Company terminated its S corporation status at that date.

PRO FORMA PROVISION FOR INCOME TAXES

The unaudited 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
using an effective income tax rate of 38.5 percent for all periods.

PRO FORMA PER SHARE INFORMATION

In accordance with SFAS No. 128 "Earnings per Share," which became
effective December 15, 1997, basic net income per common share was computed by
dividing net income by the weighted average number of common shares outstanding
during the year. Diluted net income per common share takes into consideration
the effects of stock options and the shares deemed to be outstanding which are
being offered by the Company, at the initial public offering price of $12.50 per
share, sufficient to fund an assumed S corporation distribution of approximately
$714,075 at December 31, 1997 (based on the amount of retained earnings net of
notes receivable due from stockholders). For the year ended December 31, 1997,
the components of the weighted average number of common shares outstanding is as
follows:

<TABLE>
<S> <C>
Weighted average number of shares for basic net income per common
shares................................................................ 4,659,469
Stock options......................................................... 35,545
Assumed shares outstanding from expected stockholder distribution..... 57,126
----------
Weighted average number of shares for diluted net income per common
share................................................................. 4,752,140
==========
</TABLE>

F-17
<PAGE> 62

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Discount Lens Club:

We have audited the accompanying statements of operations and owner's
capital and cash flows of Discount Lens Club (a California sole proprietorship)
for the year ended December 31, 1994 and the one month ended January 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and the related cash flows
of Discount Lens Club for the year ended December 31, 1994 and the one month
ended January 31, 1995, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Salt Lake City, Utah
August 13, 1997

F-18
<PAGE> 63

DISCOUNT LENS CLUB

STATEMENTS OF OPERATIONS AND OWNER'S CAPITAL

<TABLE>
<CAPTION>
ONE-MONTH
YEAR ENDED ENDED
DECEMBER 31, JANUARY 31,
1994 1995
------------ -----------
<S> <C> <C>
NET SALES............................................................ $212,584 $21,552
COST OF GOODS SOLD................................................... 117,326 13,069
-------- -------
Gross profit....................................................... 95,258 8,483
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......................... 78,584 9,369
-------- -------
NET INCOME (LOSS).................................................... 16,674 (886)
OWNER'S CAPITAL, beginning of period................................. 18,046 22,818
DISTRIBUTIONS........................................................ (11,902) (900)
-------- -------
OWNER'S CAPITAL, end of period....................................... $ 22,818 $21,032
======== =======
</TABLE>

The accompanying notes to financial statements
are an integral part of these balance sheets.

F-19
<PAGE> 64

DISCOUNT LENS CLUB

STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH

<TABLE>
<CAPTION>
ONE MONTH
YEAR ENDED ENDED
DECEMBER 31, JANUARY 31,
1994 1995
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................. $ 16,674 $ (886)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation.................................................... 1,200 100
Changes in operating assets and liabilities:
Inventories..................................................... (200) 137
Accrued liabilities............................................. 150 (100)
-------- -------
Net cash provided by (used in) operating activities............. 17,824 (749)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to sole proprietor................................... (11,902) (900)
-------- -------
NET INCREASE (DECREASE) IN CASH...................................... 5,922 (1,649)
CASH AT BEGINNING OF PERIOD.......................................... 81 6,003
-------- -------
CASH AT END OF PERIOD................................................ $ 6,003 $ 4,354
======== =======
</TABLE>

The accompanying notes to financial statements
are an integral part of these balance sheets.

F-20
<PAGE> 65

DISCOUNT LENS CLUB

NOTES TO FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS AND ORGANIZATION OF BUSINESS

Discount Lens Club ("DLC"), was formed in the State of California on March
1, 1991. The Company was a direct marketer of replacement contact lenses in the
United States. DLC sold contact lenses primarily by telephone. In February 1995,
DLC ceased operations and contributed certain assets, including mailings lists,
to form 1-800 CONTACTS, Inc.

REVENUE RECOGNITION

Sales were recognized at the time of shipment to the customer.

USE OF ESTIMATES

INCOME TAXES

DLC was formed as a sole proprietorship and includes its income with that
of its sole proprietor. Accordingly, DLC made no provision for income taxes.

F-21
<PAGE> 66
[Graphic illustrating a representative sample of the contact lenses sold
by the Company and a hypothetical comparison of lenses distributed by the
Company and an eyecare practitioner.]

<PAGE> 67

======================================================

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THE PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 1
Risk Factors............................... 5
The Company................................ 10
S Corporation Matters...................... 10
Use of Proceeds............................ 11
Dividend Policy............................ 11
Capitalization............................. 12
Dilution................................... 13
Selected Historical and Pro Forma Financial
Data..................................... 14
Management's Discussion and Analysis Of
Financial Condition and Results of
Operations............................... 15
Business................................... 19
Management................................. 30
Principal and Selling Stockholders......... 34
Certain Transactions....................... 34
Description of Capital Stock............... 36
Shares Eligible for Future Sale............ 38
Underwriting............................... 40
Experts.................................... 42
Legal Matters.............................. 42
Additional Information..................... 42
Index to Financial Statements.............. F-1
</TABLE>

UNTIL MARCH 6, 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

======================================================
======================================================

2,200,000 SHARES

1-800 CONTACTS LOGO

COMMON STOCK

---------------------

PROSPECTUS

---------------------

MCDONALD & COMPANY
SECURITIES, INC.

MORGAN KEEGAN & COMPANY, INC.
February 9, 1998

======================================================