-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SlSmfXeyg5UPkziXk+ATj3DrbSeZ12C4RX5Ve4piqZY+6nzJIccuDVcdIKmhfUkn Mr/XUao4EeBPMhBoEOklWw== 0000891618-98-005014.txt : 19981123 0000891618-98-005014.hdr.sgml : 19981123 ACCESSION NUMBER: 0000891618-98-005014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRIDEX CORP CENTRAL INDEX KEY: 0001006045 STANDARD INDUSTRIAL CLASSIFICATION: 3845 IRS NUMBER: 770210467 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27598 FILM NUMBER: 98753866 BUSINESS ADDRESS: STREET 1: 1212 TERRA BELLA AVENUE CITY: MOUNTAIN VIEW STATE: CA ZIP: 95034-1824 BUSINESS PHONE: 6509404700 MAIL ADDRESS: STREET 1: 1212 TERRA BELLA AVENUE CITY: MOUNTAIN VIEW STATE: CA ZIP: 95034-1824 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 3, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to Commission File Number: 0-27598 IRIDEX CORPORATION (Exact name of registrant as specified in its charter) Delaware 77-0210467 - - --------------------------------- ---------------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 1212 TERRA BELLA AVENUE MOUNTAIN VIEW, CALIFORNIA 94043-1824 (Address of principal executive offices, including zip code) (650) 940-4700 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes [X] No [ ]; (2) Yes [X ] No [ ] The number of shares of Common Stock, $.01 par value, issued and outstanding as of November 10, 1998 was 6,506,010. 2 IRIDEX CORPORATION Table of Contents
Page ---- PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Condensed Consolidated Balance Sheets as of October 3, 1998 and December 31, 1997 3 Condensed Consolidated Statements of Income for the three months and nine months ended October 3, 1998 and September 30, 1997 4 Condensed Consolidated Statements of Cash Flows for the nine months ended October 3, 1998 and September 30, 1997 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 17 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 17 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18 ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 18 ITEM 5. OTHER INFORMATION 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18 SIGNATURE 19 INDEX TO EXHIBITS 20
-2- 3 IRIDEX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
OCTOBER 3, DECEMBER 31, 1998 1997 -------- -------- ASSETS (unaudited) * Current assets: Cash and cash equivalents $ 2,425 $ 9,900 Available-for-sale securities 7,695 3,588 Accounts receivable, net 7,503 6,057 Inventories 6,823 3,976 Prepaids and other current assets 409 451 Deferred income taxes 550 550 -------- -------- Total current assets 25,405 24,522 Property and equipment, net 2,350 2,133 Intangible assets 44 -- Deferred income taxes 31 31 -------- -------- Total assets $ 27,830 $ 26,686 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 923 $ 752 Accrued expenses 1,551 2,051 Capital lease obligations 2 3 -------- -------- Total current liabilities 2,476 2,806 -------- -------- Stockholders' equity: Common Stock 65 65 Additional paid-in capital 21,794 21,552 Unrealized holding gains (losses) on available-for-sale securities 7 (2) Retained earnings 3,488 2,265 -------- -------- Total stockholders' equity 25,354 23,880 -------- -------- Total liabilities and stockholders' equity $ 27,830 $ 26,686 ======== ========
- - ---------------------- *Derived from the 1997 audited financial statements. The accompanying notes are an integral part of these condensed consolidated financial statements. -3- 4 IRIDEX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED ------------------------- --------------------------- October 3, September 30, October 3, September 30, 1998 1997 1998 1997 -------- -------- -------- -------- Sales $ 5,200 $ 4,641 $ 17,074 $ 12,317 Cost of sales 2,650 1,987 7,627 5,267 -------- -------- -------- -------- Gross profit 2,550 2,654 9,447 7,050 -------- -------- -------- -------- Operating expenses: Research and development 725 422 1,948 1,314 Selling, general and administrative 1,892 1,458 6,027 4,182 -------- -------- -------- -------- Total operating expenses 2,617 1,880 7,975 5,496 -------- -------- -------- -------- Income (loss) from operations (67) 774 1,472 1,554 Other income, net 132 157 380 472 -------- -------- -------- -------- Income before provision for income taxes 65 931 1,852 2,026 Provision for income taxes (22) (335) (629) (731) -------- -------- -------- -------- Net income $ 43 $ 596 $ 1,223 $ 1,295 ======== ======== ======== ======== Net income per common share $ 0.01 $ 0.09 $ 0.19 $ 0.20 ======== ======== ======== ======== Net income per common share - assuming dilution $ 0.01 $ 0.09 $ 0.18 $ 0.19 ======== ======== ======== ======== Shares used in per common share calculation 6,485 6,427 6,473 6,390 ======== ======== ======== ======== Shares used in per common share - assuming dilution calculation 6,703 6,849 6,797 6,719 ======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. -4- 5 IRIDEX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED ---------------------------- OCTOBER 3, SEPTEMBER 30, ----------- ------------- 1998 1997 ----------- ------------- Cash flows from operating activities: Net income $ 1,223 $ 1,295 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 507 261 Provision for doubtful accounts (20) 10 Changes in operating assets and liabilities: Accounts receivable (1,426) (108) Inventories (2,847) (1,402) Prepaids and other current assets 42 (361) Accounts payable 171 491 Accrued expenses (500) (272) -------- -------- Net cash used in operating activities (2,850) (86) -------- -------- Cash flows from investing activities: Purchases of available-for-sale securities (7,670) (4,790) Proceeds from sale and maturity of available-for-sale securities 3,572 1,621 Purchase of intangible assets (44) -- Acquisition of property and equipment (724) (1,679) -------- -------- Net cash used in investing activities (4,866) (4,848) -------- -------- Cash flows from financing activities: Payment on capital lease obligations (1) (5) Issuance of common stock, net 242 237 -------- -------- Net cash provided by financing activities 241 232 -------- -------- Net (decrease) in cash and cash equivalents (7,475) (4,702) Cash and cash equivalents at beginning of period 9,900 14,107 -------- -------- Cash and cash equivalents at end of period $ 2,425 $ 9,405 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. -5- 6 IRIDEX CORPORATION CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The condensed consolidated financial statements at October 3, 1998 and for the three and nine month periods then ended are unaudited (except for the balance sheet information as of December 31, 1997, which is derived from the Company's audited financial statements) and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report on Form 10-K and Form 10-Q, which were filed with the Securities and Exchange Commission on March 31, 1998 and August 17, 1998, respectively. The results of operations for the three and nine month periods ended October 3, 1998 are not necessarily indicative of the results for the year ending January 2, 1999, or any future interim period. 2. RECLASSIFICATIONS Certain prior quarters and year amounts have been reclassified to conform with the current year presentation. The reclassification had no impact on previously reported income from operations or net income. 3. INVENTORIES COMPRISE: (IN THOUSANDS)
OCTOBER 3, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) Raw materials and work in progress $4,236 $2,579 Finished goods 2,587 1,397 ------ ------ Total inventories $6,823 $3,976 ====== ======
4. COMPUTATION OF NET INCOME PER COMMON SHARE AND PER COMMON SHARE - ASSUMING DILUTION Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," and the provisions of the Securities and Exchange Commission Staff Accounting Bulletin No. 98 and, accordingly, all prior periods have been restated. Net income per common share is computed using the weighted average number of shares of common stock outstanding. Net income per common share-assuming dilution is computed using the weighted average number of shares of common stock and dilutive Common equivalent shares from stock options. The Company has determined that no incremental shares should be included in the computations of earnings per share in accordance with Staff Accounting Bulletin No. 98. -6- 7 In accordance with the disclosure requirements of SFAS No. 128, a reconciliation of the numerator and denominator of net income per common share and net income per common share-assuming dilution is provided as follows (in thousands, except per share amounts):
Three Months Ended Nine Months Ended --------------------------- ------------------------------- October 3, September 30, October 3, September 30, 1998 1997 1998 1997 ---- ---- ---- ---- (unaudited) (unaudited) (unaudited) (unaudited) Numerator -- Net income per common share and per common share -- assuming dilution Net income ................................................. $ 43 $ 596 $1,223 $1,295 ====== ====== ====== ====== Denominator -- Net income per common share Weighted average common stock outstanding .............. 6,485 6,427 6,473 6,390 ------ ------ ------ ------ Net income per common share ................................ $ .01 $ .09 $ .19 $ .20 ====== ====== ====== ====== Denominator -- Net income per common share -- assuming dilution Weighted average common stock outstanding ................ 6,485 6,427 6,473 6,390 Effect of dilutive securities Weighted average common stock options .................... 218 422 324 329 Total weighted average stock and options outstanding ....... 6,703 6,849 6,797 6,719 ====== ====== ====== ====== Net income per common share -- assuming dilution ........... $ .01 $ .09 $ .18 $ .19 ====== ====== ====== ======
During the three months ended October 3, 1998 and September 30, 1997, options to purchase 612,791 and 21,782 shares, respectively, at weighted average exercise prices of $7.92 and $14.04 per share, respectively, were outstanding, but were not included in the computations of net income per common share-assuming dilution because the exercise price of the related options exceeded the market price of the common shares. These options could dilute earnings per share in future periods. 5. ADOPTED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 (SFAS 130), reporting comprehensive income. This statement establishes requirements for disclosure of comprehensive income, with reclassification of earlier financial statements for comparative purposes. Comprehensive income generally represents all changes in stockholders' equity except those resulting from investments or contributions by stockholders. SFAS No. 130, which is effective for interim periods beginning after December 15, 1997, has been adopted by the Company. However, comprehensive income is insignificant for all periods presented and, accordingly, no additional disclosures have been presented in the accompanying financial statements. -7- 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations contains trend analysis and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those set forth in such forward-looking statements as a result of the factors set forth under "Factors Affecting Operating Results" and other risks detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and Form 10-Q filed with the Securities and Exchange Commission and detailed from time to time in the Company's reports filed with the Securities and Exchange Commission. RESULTS OF OPERATIONS The following table sets forth the percentage of net sales of certain items in the Company's income statement for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------------- -------------------------------- OCTOBER 3, SEPTEMBER 30, OCTOBER 3, SEPTEMBER 30, 1998 1997 1998 1997 ------- ------- ------- ------- Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 51.0 42.8 44.7 42.8 Gross profit 49.0 57.2 55.3 57.2 Operating expenses: Research and development 13.9 9.1 11.4 10.7 Sales, general and administrative 36.4 31.4 35.3 33.9 ------- ------- ------- ------- Total operating expenses 50.3 40.5 46.7 44.6 ------- ------- ------- ------- Income (Loss) from operations (1.3) 16.7 8.6 12.6 Other income, net 2.5 3.4 2.2 3.8 ------- ------- ------- ------- Income before provision for income taxes 1.2 20.1 10.8 16.4 Provision for income taxes (0.4) (7.3) (3.6) (5.9) ------- ------- ------- ------- Net income 0.8% 12.8% 7.2% 10.5% ======= ======= ======= =======
Sales. Sales increased 12% to $5.2 million for the three months ended October 3, 1998 from $4.6 million for the three months ended September 30, 1997. Sales increased 39% to $17.1 million for the nine months ended October 3, 1998 from $12.3 million for the nine months ended September 30, 1997. The growth in sales was primarily attributable to increased unit volume as the Company expanded its product offerings and broadened its customer base. Domestic sales of $3.4 million accounted for 65% of sales for the three months ended October 3, 1998 compared to $1.9 million or 40% of sales in the comparable 1997 period. The increase in domestic sales was attributable primarily to sales of ophthalmology products. In addition, increased domestic sales resulted in higher average selling prices as domestic sales are primarily sold by employee sales representatives at higher average selling prices than to the Company's international distributors. International sales of $1.8 million in the three months ended October 3, 1998 decreased from $2.8 million in the comparable 1997 period. The decrease in international sales was primarily attributable to a reduction in sales to many Asian region countries which continue to experience economic uncertainty. The Company expects lower sales from -8- 9 many countries in the Asia region to continue through the end of 1998 and next year. The Company expects revenues from international sales to continue to account for a substantial portion of its sales. There can be no assurance that further economic uncertainty in the Asia region and other factors discussed above will not have a material adverse effect on the Company's business, financial condition or results of operations. Gross Profit. The Company's gross profit decreased 4% to $2.6 million for the three months ended October 3, 1998 from $2.7 million for the three months ended September 30, 1997. For the nine months ended October 3, 1998, the Company's gross profit increased 34% to $9.4 million as compared to $7.1 million for the comparable period in 1997. Gross profit as a percentage of net sales for the three months ended October 3, 1998 decreased to 49.0%, compared to 57.2% for the three months ended September 30, 1997, due primarily to proportionately higher overhead costs of production. In addition, ongoing competitive pressure on the prices of the Company's products resulted in a decline in average selling prices. The Company's newer products such as the OcuLight GLx will cost more to build due to advances in technology but are expected to be sold with higher average selling prices. The Company expects to begin shipping the OcuLight GLx in the fourth quarter of 1998. The Company intends to continue its efforts to reduce the cost of components and the costs associated with new product introductions, and expects its gross profit to continue to fluctuate due to changes in the relative proportions of domestic and international sales, costs associated with additional new product introductions, pricing, volumes and a variety of other factors. Research and Development. Research and development expenses increased by 72% to $0.7 million for the three months ended October 3, 1998 from $0.4 million for the three months ended September 30, 1997, and increased as a percentage of net sales to 14% for the three months ended October 3, 1998 from 9% of net sales for the comparable prior year three-month period ended September 30, 1997. For the nine months ended October 3, 1998, research and development expenses increased 48% to $2.0 million as compared to $1.3 million for the nine months ended September 30, 1997. The increase in absolute dollars in research and development expenses during this period was primarily attributable to an increase in personnel as the Company continued to strengthen its product development efforts. The Company expects these expenses for research and development to continue to increase in absolute dollars during the remainder of 1998 in connection with new product development activities. Sales, General and Administrative. Sales, general and administrative expenses increased by 30% to $1.9 million for the three months ended October 3, 1998 from $1.5 million for the three months ended September 30, 1997, and increased as a percentage of net sales to 36% for the three months ended October 3, 1998 from 31% for the comparable prior year three-month period. For the nine months ended October 3, 1998, sales, general and administrative expenses increased by 44% to $6.0 million from $4.2 million for the nine months ended September 30, 1997. The increase in absolute dollars in sales, general and administrative expenses was primarily due to the hiring of additional sales, marketing and administrative employees to address new opportunities and support expanding unit volumes. Furthermore, the increase in domestic sales caused an associated increase in direct selling expenses due to certain selling costs that vary directly with the level of sales. In addition, during the three months ended October 3, 1998, the Company completed full scale implementation of a new company-wide enterprise resource planning ("ERP") system. The Company expects sales, general and administrative expenses to continue to increase during the balance of 1998 to support the increasing unit shipment volumes, additional sales employees and promotional activities. Income Taxes. The Company's effective tax rate for the three and nine months ended October 3, 1998 was 34%. This rate differs from the federal statutory rate primarily due to state income taxes, offset by the utilization of tax credits, non-taxable available-for-sale security investments and tax benefits from the Company's foreign sales corporation. -9- 10 LIQUIDITY AND CAPITAL RESOURCES At October 3, 1998, the Company's primary sources of liquidity included cash and cash equivalents and available-for-sale securities of $10.1 million. During the nine months ended October 3, 1998, the Company used $2.9 million in operating activities. Uses of cash included increases in inventories of $2.8 million and accounts receivables of $1.4 million, and decreases in accrued expenses of $0.5 million offset by net income of $1.2 million, depreciation of $0.5 million and increases in accounts payable of $0.2 million. The increase in inventory is primarily due to increased finished goods inventory and raw materials for newer products such as the OcuLight GLx. The Company used $4.9 million in investing activities during the nine months ended October 3, 1998, primarily from the net purchase of $4.1 million of available-for-sale securities and by the acquisition of $0.8 million of property and equipment and intangible assets. Net cash provided by financing activities during the nine months ended October 3, 1998 was $0.2 million, which consisted primarily of proceeds from the issuance of stock. The Company believes that, based on current estimates, its current cash and cash equivalents, and available-for-sale securities will be sufficient to meet its anticipated cash requirements through 1999. YEAR 2000 COMPLIANCE The Company uses a significant number of computer software programs and operating systems in its internal operations, including applications for various financial, business and administrative functions. In addition, many of the Company's suppliers use similar applications. These applications may contain source code that is unable to properly interpret calendar years beginning with the upcoming year 2000. Systems that do not properly recognize such date-sensitive information may fail or create erroneous results. Because there are no internal calendars embedded in any of the Company's products, the Company does not anticipate any problems with its products related to the Year 2000 problem. Based on information currently available to the Company, the Company believes that its internal systems currently are, or will be by such time as is necessary to avoid a material adverse impact on the Company, Year 2000 compliant. Also based on information thus far available to the Company, the Company does not believe that it will incur expenditures in dealing with Year 2000 issues that will have a material adverse effect on the financial condition of the Company. In addition to the risks from failure of the Company's own internal systems, the Company may also be exposed to risks from computer systems of parties with whom the Company transacts business. For example, if the internal systems of one of the Company's key suppliers developed problems such that the supplier could not deliver parts to the Company on a timely basis, the Company's financial condition could be materially adversely affected. The Company intends to work with its suppliers to ascertain what actions, if any, are needed. The Company does not expect additional costs for problems related to the Year 2000 problem to exceed $100,000. There can be no assurances, however, that unknown costs necessary to update the Company's systems or address potential system interruptions of the Company's or its suppliers' systems will not have a material adverse effect on the Company's business, financial condition or results of operations. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and Related Information. This statement establishes standards for disclosure about operating segments in annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supersedes Statement of Financial Accounting Standards No. 14, Financial Reporting for Segments of a Business Enterprise. The new standard -10- 11 becomes effective for fiscal years beginning after December 15, 1997, and requires that comparative information from earlier years be restated to conform to the requirements of this standard. The Company is evaluating the requirements of SFAS 131 and the effects, if any, on the Company's current reporting and disclosures. FACTORS THAT MAY AFFECT FUTURE RESULTS Continued Market Acceptance of the Company's Products. The Company currently markets visible and invisible light semiconductor-based photocoagulator medical laser systems to the ophthalmic market and a visible light semiconductor-based photocoagulator medical laser system to the dermatological market. The Company believes that continued and increased sales, if any, of these medical laser systems is dependent upon the continued market acceptance of these products. Medical equipment purchasing decisions and continued market acceptance of the Company's products may in turn depend on opinions of medical professionals, performance and price, product and treatment familiarity, procedure reimbursement economics and other factors. The Company believes that recommendations by ophthalmologists and dermatologists as to the use of semiconductor-based laser systems is essential for the continued market acceptance of the Company's products. Such medical professionals may not recommend these laser systems or related treatments unless they conclude, based on clinical data and other factors, that the performance of these laser systems and treatments are a beneficial alternative to competing technologies and treatments. Favorable recommendations from such medical professionals is particularly important to the Company because the ophthalmic and dermatological communities historically have used more established visible light, argon gas or other ion-based photocoagulation laser systems. The Company's semiconductor-based laser systems are relatively new to the marketplace. The Company's infrared laser systems deliver invisible light to provide additional and, in some instances, improved treatments. Because many ophthalmologists and dermatologists have been trained in medical school using visible argon gas or other ion-based laser systems, they may be reluctant or unwilling to convert to semiconductor-based or infrared laser systems. In addition, ophthalmic procedures are typically reimbursed by third party payers who are increasingly scrutinizing the level of reimbursement for treatment procedures. Furthermore, changes in government legislation or regulation could effect reimbursement levels. A reduction in the level of reimbursement for treatments administered with the Company's ophthalmic products would negatively impact the saleability of such products. Dermatological procedures are typically paid for by the treated patient. Any reduction in the perceived value of such treatments would reduce the price level that dermatologists can charge and would negatively impact the saleability of such products. There can be no assurance that the Company's medical laser systems will continue to be accepted by the market. The failure of medical professionals to recommend the Company's laser systems, the introduction of improved alternative technologies or treatments, the reluctance or unwillingness of ophthalmologists or dermatologists to convert to semiconductor-based laser systems or to infrared laser systems, or reductions in treatment reimbursements would negatively impact the market acceptance of the Company's products. Any significant decline in market acceptance of the Company's products would have a material adverse effect on the Company's business, results of operations and financial condition. Competition. Competition in the market for devices used for ophthalmic and dermatological treatments is intense and may increase. This market is also characterized by rapid technological innovation and change, and the Company's products could be rendered obsolete as a result of future innovations. The Company's competitive position depends on a number of factors including product performance, characteristics and functionality, ease of use, scalability, durability and cost. In addition to other companies that manufacture photocoagulators, the Company's products compete with pharmaceutical treatments, other technologies and other surgical techniques. The Company's principal competitors in ophthalmology are Coherent, Inc., Nidek, Inc. ("Nidek"), Carl Zeiss, Inc. ("Zeiss"), Alcon International ("Alcon"), Keeler Instruments, Inc. ("Keeler") and HGM Medical Laser Systems, Inc. ("HGM"). Of these companies, most currently offer a semiconductor-based laser system in -11- 12 ophthalmology. The Company's principal competitors in dermatology are Laserscope and HGM, neither of which currently offers a semiconductor-based laser system in dermatology. Other competitors have substantially greater financial, engineering, product development, manufacturing, marketing and technical resources than the Company. Such companies may also have greater name recognition than the Company, broader product offerings and long-standing customer relationships. In addition, there can be no assurance that other medical companies, academic and research institutions or others will not develop new technologies or therapies, including medical devices, surgical procedures or pharmacological treatments and obtain regulatory approval for products utilizing such techniques that are more effective in treating the ophthalmic and dermatological conditions targeted by the Company or are less expensive than the Company's current or future products. Moreover, there can be no assurance that the Company's technologies and products would not be rendered obsolete by such developments. Any such developments could have a material adverse effect on the business, financial condition and results of operations of the Company. Risks of Manufacturing and Dependence on Key Manufacturers and Suppliers. The manufacture of the Company's infrared and visible light semiconductor-based photocoagulator medical laser systems and the related delivery devices is a highly complex and precise process which requires the integration of components with unique characteristics. Accordingly, problems may occur in the manufacture of the Company's products which could prevent shipping of some products or could result in reduced bookings, manufacturing rework costs, delays in collecting accounts receivable, additional service and warranty costs and a decline in the Company's competitive position. There can be no assurance that the Company will be able to continue to manufacture its existing products or future products on a cost-effective and timely basis. Although the Company assembles critical subassemblies as well as the final product at its facility in Mountain View, California, the Company relies on third parties to manufacture substantially all of the components used in its products. There are risks associated with the use of independent manufacturers, availability of or delays in obtaining adequate supplies of components such as optics and laser diodes and potentially reduced control of quality, production costs and the timing of delivery. The Company has qualified two or more sources for most of the components used in its products. However, certain of the Company's products remain significantly dependent on sole source suppliers. Certain diodes purchased from SDL, Inc. ("SDL") were not readily available from other suppliers until the second quarter of 1997. During 1996 and the first quarter of 1997, the Company experienced delays in its manufacturing of the OcuLight GL because of the inability of SDL to deliver components in volume and on a timely basis. The Company continues to work with this supplier to ensure such difficulties do not recur. During the first quarter of 1997, the Company qualified Opto Power as a second source of this diode component. Because laser diode components are extremely complex and difficult to manufacture, there can be no assurance that the Company's suppliers of such components will be able to deliver components in sufficient quantities to meet the Company's requirements on a timely basis. Similar manufacturing issues or delays in the delivery of other key components of the Company's products could also have a material adverse impact on the Company. The Company does not have long-term or volume purchase agreements with any of its suppliers and currently purchases components on a purchase order basis. No assurance can be given that these components will be available in the quantities required by the Company, on reasonable terms, or at all. Establishing its own capabilities to manufacture these components would require significant scale-up expenses and additions to facilities and personnel and could significantly decrease the Company's profit margins. The Company's inability to obtain components as required at a reasonable cost, or at all, would have a material adverse affect on the Company's business, results of operations and financial condition. Dependence on International Sales. The Company derives, and expects to continue to derive, a large portion of its revenue from international sales. In 1997 and 1996, the Company's international sales were $9.4 million and $6.1 million, representing 52% and 50%, respectively, of total sales. In addition, for the three months ended October 3, 1998 and September 30, 1997, the Company's international sales were $1.8 million and -12- 13 $2.8 million, representing 35% and 60% respectively, of total sales. A large portion of the Company's revenues will continue to be subject to the risks associated with international sales, including fluctuations in foreign currency exchange rates, shipping delays, generally longer receivables collection periods, changes in applicable regulatory policies, international monetary conditions, domestic and foreign tax policies, trade restrictions, duties and tariffs, and economic and political instability. The recent currency devaluation in many Asian countries has had the effect of significantly increasing the purchase price of the Company's products to the Company's distributors and their customers in that region. Conversely, because certain of the Company's competitors are based in Asia, the currency devaluations may put additional downward pressures on the average selling prices of the Company's products. Product sales were lower for the affected Asian region during the first nine months of 1998 and the fourth quarter of 1997 primarily as a result of the currency devaluation problem. The Company expects lower sales to the Asian region to continue into 1999. However, the Company also expects revenues from international sales to continue to account for a substantial portion of its sales. Accordingly, if the Asian economic difficulties are prolonged, worsen or otherwise negatively impact the salability of the Company's product or if other government certifications become required, these difficulties could negatively impact the Company's business, results of operations, and financial condition. While these currency and government approval factors and other factors listed above have been mitigated by product sales in other regions and in the United States, there can be no assurance that continuance or reoccurrence of the factors discussed above will not have a material adverse effect on the Company's business, financial condition or results of operations. Quarterly Fluctuations in Operating Results. Although the Company has been profitable on an annual and quarterly basis for the last five years, the Company's sales and operating results have varied substantially on a quarterly basis, and such fluctuations are expected to continue in future periods. The Company's operating results are affected by a number of factors, many of which are beyond the Company's control. Factors contributing to these fluctuations include the timing of the introduction and market acceptance of new products or product enhancements by the Company and its competitors, the timing of receiving government approvals or certification, the cost and availability of components and subassemblies, changes in pricing by the Company and its competitors, the timing of the development and market acceptance of new applications for the Company's products, the relatively long and highly variable sales cycle for the Company's products to hospitals, other health care institutions and governmental agencies, fluctuations in economic and financial market conditions, such as the recent currency devaluation in Asia, and resulting changes in customers' or potential customers' budgets and increased product development costs. For example, the Company's gross profits as a percentage of sales have generally declined in part as a result of increased competition which has led to decreases in average selling prices, particularly with respect to the Company's older products. Any inability to obtain adequate quantities of the critical components used in the system products would adversely impact the Company's ability to ship the OcuLight SL, SLx, GL and GLx and the DioLite 532. In addition to these factors, the Company's quarterly results have been and are expected to continue to be affected by seasonal factors. For example, domestic sales often decline slightly prior to the meeting of the American Academy of Ophthalmology in the fourth quarter of the year. The Company manufactures its products to forecast rather than to outstanding purchase orders, and products are typically shipped shortly after receipt of a purchase order. While backlog increased in 1997, it decreased during the nine months ending October 3, 1998. The Company does not expect significant backlog in the future and the amount of backlog at any particular date is generally not indicative of its future level of sales. Although the Company's manufacturing procedures are designed to assure rapid response to customer orders, they may in certain instances create a risk of excess or inadequate inventory levels if orders do not match forecasts. The Company's expense levels are based, in part, on expected future sales. If sales levels in a particular quarter do not meet expectations, the Company may be unable to adjust operating expenses quickly enough to compensate for the shortfall, and the Company's results of operations may be adversely affected. In addition, the Company has historically made a significant portion of each quarter's product shipments near the end of the quarter. If that pattern continues, even short delays in shipment of products at the end of a quarter could have a material adverse effect on results -13- 14 of operations for such quarter. As a result of the above factors, sales for any future quarter are not predictable with any significant degree of accuracy and operating results in any period should not be considered indicative of the results to be expected for any future period. There can be no assurance that the Company will remain profitable in the future or that operating results will not vary significantly. Dependence on Development of New Products and New Applications. The Company's future success is dependent upon, among other factors, its ability to develop, obtain regulatory approval, manufacture and introduce on a timely and cost-effective basis as well as successfully sell and achieve market acceptance of new products and applications and enhanced versions of existing products. The extent of, and rate at which, market acceptance and penetration are achieved by future products, is a function of many variables, including price, safety, efficacy, reliability, marketing and sales efforts, the development of new applications for these products and general economic conditions affecting purchasing patterns. Even if the Company's products achieve clinical acceptance, there can be no assurance that the Company can successfully manage the introduction of such products into the ophthalmic, dermatological or other markets. The Company expects to begin shipping the OcuLight GLx in the fourth quarter of 1998. The failure of the Company to successfully develop and introduce new products or enhanced versions of existing products could have a material adverse effect on the Company's business, operating results and financial condition. The Company is seeking to expand the market for its existing and new products by working with clinicians and third parties to identify new applications for its products, validating new procedures which utilize its products and responding more effectively to new procedures. There can be no assurance that the Company's efforts to develop new applications for its products will be successful, that it can obtain regulatory approvals to use its products in new clinical applications in a timely manner, or at all, or gain satisfactory market acceptance for such new applications. Failure to develop and achieve market acceptance of new applications or new products would have a material adverse effect on the Company's business, results of operations and financial condition. Management of Growth. With the introduction of new products, the Company has recently experienced, and may continue to experience growth in production, the number of employees, the scope of its business, its operating and financial systems and the geographic area of its operations. This growth has resulted in new and increased responsibilities for management personnel and has placed and continues to place a significant strain upon the Company's management, operating, inventory and financial systems and resources. To accommodate recent growth and to compete effectively and manage future growth, if any, the Company has been required to continue to implement and improve operational, financial and management information systems, procedures and controls and to expand, train, motivate and manage its work force. The Company implemented a new enterprise resource planning ("ERP") system to run the Company's business transaction processes. The installation and implementation of this new system was completed in the third quarter of 1998. The transition to the ERP system is a highly complex and technical process, and it is not uncommon for companies engaged in such a transition to experience unexpected delays and technical problems. There can be no assurance that the Company has successfully implemented the ERP system, and difficulties encountered after the implementation process could have a material adverse effect on the Company's business, results of operations and financial condition. The Company's future success will depend on the successful implementation of these systems as well as on the ability of its current and future executive officers to operate effectively, both independently and as a group. There can be no assurance that the Company's personnel, systems, procedures and controls will be adequate to support the Company's existing and future operations. Any failure to implement and improve the Company's operational, financial and management systems or to expand, train, motivate or manage employees could have a material adverse effect on the Company's business, results of operations and financial condition. Dependence on Collaborative Relationships. The Company has entered into collaborative relationships with academic medical centers and physicians in connection with the research and development and clinical testing of its products. The Company plans to collaborate with third parties to develop and commercialize -14- 15 existing and new products. In May 1996, the Company executed an agreement with Miravant Medical Technologies ("Miravant"), formerly known as PDT, Inc.,a maker of photodynamic drugs, under which the Company and Miravant have collaborated to develop a device that emits a laser beam to activate a photodynamic drug developed by Miravant to achieve a desired therapeutic result in the treatment of age-related macular degeneration. The development, clinical testing and regulatory approval of this new photodynamic system will require three to five years and significant financial and other resources. There can be no assurance that this collaborative development effort will continue or that it will result in the successful development and introduction of a photodynamic system. The Company believes that these current and future relationships are important because they may allow the Company greater access to funds, to research, development and testing resources and to manufacturing, sales and distribution resources. However, the amount and timing of resources to be devoted to these activities are not within the Company's control. There can be no assurance that such parties will perform their obligations as expected or that the Company's reliance on others for clinical development, manufacturing and distribution of its products will not result in unforeseen problems. Further, there can be no assurance that the Company's collaborative partners will not develop or pursue alternative technologies either on their own or in collaboration with others, including the Company's competitors, as a means of developing or marketing products for the diseases targeted by the collaborative programs and by the Company's products. The failure of any current or future collaboration efforts could have a material adverse effect on the Company's ability to introduce new products or applications and therefore could have a material adverse effect on the Company's business, results of operations and financial condition. Patents and Proprietary Rights. The Company's success and ability to compete is dependent in part upon its proprietary information. The Company relies on a combination of patents, trade secrets, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect its intellectual property rights. The Company files patent applications to protect technology, inventions and improvements that are significant to the development of its business. The Company has been issued six United States patents on the technologies related to its products and processes. There can be no assurance that any of the Company's patent applications will issue as patents, that any patents now or hereafter held by the Company will offer any degree of protection, or that the Company's patents or patent applications will not be challenged, invalidated or circumvented in the future. Moreover, there can be no assurance that the Company's competitors, many of which have substantial resources and have made substantial investments in competing technologies, will not seek to apply for and obtain patents that will prevent, limit or interfere with the Company's ability to make, use or sell its products either in the United States or in international markets. In addition to patents, the Company relies on trade secrets and proprietary know-how which it seeks to protect, in part, through proprietary information agreements with employees, consultants and other parties. The Company's proprietary information agreements with its employees and consultants contain industry standard provisions requiring such individuals to assign to the Company without additional consideration any inventions conceived or reduced to practice by them while employed or retained by the Company, subject to customary exceptions. There can be no assurance that proprietary information agreements with employees, consultant and others will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known to or independently developed by competitors. The laser and medical device industry is characterized by frequent litigation regarding patent and other intellectual property rights and companies in the medical device industry have employed intellectual property litigation to gain a competitive advantage. Numerous patents are held by others, including academic institutions and competitors of the Company. Because patent applications are maintained in secrecy in the United States until patents are issued and are maintained in secrecy for a period of time outside the United States, the Company has not conducted any searches to determine whether the Company's technology infringes any patents or patent -15- 16 applications. The Company has from time to time been notified of, or has otherwise been made aware of claims that it may be infringing upon patents or other proprietary intellectual property owned by others. If it appears necessary or desirable, the Company may seek licenses under such patents or proprietary intellectual property. Although patent holders commonly offer such licenses, no assurance can be given that licenses under such patents or intellectual property will be offered or that the terms of any offered licenses will be reasonable or will not adversely impact the Company's operating results. Any claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, cause shipment delays or require the Company to develop noninfringing technology or to enter into royalty or licensing agreements. Although patent and intellectual property disputes in the medical device area have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. An adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent the Company from manufacturing and selling its products, which would have a material adverse effect on the Company's business, results of operations and financial condition. Conversely, litigation may be necessary to enforce patents issued to the Company, to protect trade secrets or know-how owned by the Company or to determine the enforceability, scope and validity of the proprietary rights of others. Both the defense and prosecution of intellectual property suits or interference proceedings are costly and time consuming. Government Regulation. The medical devices marketed and manufactured by the Company are subject to extensive regulation by the Food and Drug Administration ("FDA") and by foreign and state governments. Pursuant to the FDA Act and the regulations promulgated thereunder, the FDA regulates the design, development, clinical testing, manufacture, labeling, sale, distribution and promotion of medical devices. Before a new device can be introduced into the market, the manufacturer must obtain market clearance through either the 510(k) premarket notification process or the lengthier premarket approval ("PMA") application process. Obtaining these approvals can take a long time and delay the introduction of a product. For example, the introduction of the OcuLight GL in the United States was delayed about three months from the Company's expectations due to the longer than expected time period required to obtain FDA premarket clearance. In addition, the Company's products must comply with the regulatory requirements of each country in which the Company's products are sold. Noncompliance with applicable requirements, including the FDA's quality System Regulations, can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance or premarket approval for devices, withdrawal of marketing approvals, and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed by the Company. The failure of the Company to obtain government approvals or any delays in receipt of such approvals would have a material adverse effect on the Company's business, results of operations and financial condition. Product Liability and Insurance. The Company may be subject to product liability claims in the future. The Company's products are highly complex and are used to treat extremely delicate eye tissue as well as to treat skin conditions primarily on the face. The Company's products are often used in situations where there is a high risk of serious injury or adverse side effects. In addition, although the Company recommends that its disposable products only be used once and so prominently labels these products, the Company believes that certain customers may nevertheless reuse these disposable products. Were such a disposable product not adequately sterilized by the customer between such uses, a patient could suffer serious consequences, possibly resulting in a suit against the Company for damages. Accordingly, the manufacture and sale of medical products entails significant risk of product liability claims. Although the Company maintains product liability insurance with coverage limits of $6.0 million per occurrence and an annual aggregate maximum of $7.0 million, there can be -16- 17 no assurance that the coverage of the Company's insurance policies will be adequate. Such insurance is expensive and in the future may not be available on acceptable terms, if at all. A successful claim brought against the Company in excess of its insurance coverage could have a material adverse effect on the Company's business, results of operations and financial condition. To date, the Company has not experienced any product liability claims. Volatility of Stock Price. The trading price of the Company's Common Stock has been subject to wide fluctuations in response to a variety of factors since the Company's initial public offering in February 1996, including quarterly variations in operating results, announcements of technological innovations or new products by the Company or its competitors, developments in patents or other intellectual property rights, general conditions in the ophthalmic laser industry, revised earning estimates, comments or recommendations issued by analysts who follow the Company, its competitors or the ophthalmic laser industry and general economic and market conditions. Additionally, the stock market in general, and the market for technology stocks in particular, have experienced extreme price volatility in recent years. Volatility in price and volume has had a substantial effect on the market prices of many technology companies for reasons unrelated or disproportionate to the operating performance of such companies. These broad market fluctuations could have a significant impact on the market price of the Common Stock. Year 2000 Compliance. The Company uses a significant number of computer software programs and operating systems in its internal operations, including applications for various financial, business and administrative functions. In addition, many of the Company's suppliers use similar applications. These applications may contain source code that is unable to properly interpret calendar years beginning with the upcoming year 2000. Systems that do not properly recognize such date-sensitive information may fail or create erroneous results. Because there are no internal calendars embedded in any of the Company's products, the Company does not anticipate any problems with its products related to the Year 2000 problem. Based on information currently available to the Company, the Company believes that its internal systems currently are, or will be by such time as is necessary to avoid a material adverse impact on the Company, Year 2000 compliant. Also based on information thus far available to the Company, the Company does not believe that it will incur expenditures in dealing with Year 2000 issues that will have a material adverse effect on the financial condition of the Company. In addition to the risks from failure of the Company's own internal systems, the Company may also be exposed to risks from computer systems of parties with whom the Company transacts business. For example, if the internal systems of one of the Company's key suppliers developed problems such that the supplier could not deliver parts to the Company on a timely basis, the Company's financial condition could be materially adversely affected. The Company intends to work with its suppliers to ascertain what actions, if any, are needed. The Company does not expect additional costs for problems related to the Year 2000 problem to exceed $100,000. There can be no assurances, however, that unknown costs necessary to update the Company's systems or address potential system interruptions of the Company's or its suppliers' systems will not have a material adverse effect on the Company's business, financial condition or results of operations. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. -17- 18 ITEM 3. DEFAULT UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION On October 27, 1998 the Board of Directors approved an amendment to the Company's Bylaws (i) to add an "advance notice" bylaw governing the requirement of prior notice for stockholder proposals being submitted for Annual and Special meeting and (ii) to eliminate the ability of stockholders holding an aggregate of not less than 10% of the Company's stock to call special stockholder meetings. The "advance notice" provision reflects recent amendments to Rules 14a-4 and 14a-8 under the Securities Exchange Act of 1934. The amended and restated Bylaws are attached hereto as Exhibit 3.1. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Amended and Restated Bylaws 27.1 Financial Data Schedule (b) Reports on Form 8-K -18- 19 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IRIDEX CORPORATION (Registrant) Date: November 16, 1998 By: /s/ Robert Kamenski ------------------------- Robert Kamenski Chief Financial Officer (Principal Financial and Principal Accounting Officer) -19- 20 INDEX TO EXHIBITS
EXHIBIT PAGE 3.1 Amended and Restated Bylaws 27.1 Financial Data Schedule
-20- EX-3.1 2 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.1 AMENDED AND RESTATED BYLAWS OF IRIDEX CORPORATION 2
TABLE OF CONTENTS Page ---- 1.1 ANNUAL MEETINGS...................................................................1 1.2 SPECIAL MEETINGS..................................................................1 1.3 NOTICE OF MEETINGS................................................................1 1.4 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS .........................................................................1 1.5 ADJOURNMENTS......................................................................3 1.6 QUORUM............................................................................3 1.7 ORGANIZATION......................................................................3 1.8 VOTING; PROXIES...................................................................3 1.9 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD...........................4 1.10 LIST OF STOCKHOLDERS ENTITLED TO VOTE.............................................5 1.11 ACTION BY CONSENT OF STOCKHOLDERS.................................................5 ARTICLE II BOARD OF DIRECTORS.......................................................................5 2.1 NUMBER; QUALIFICATIONS............................................................5 2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES.........................................5 2.3 REGULAR MEETINGS..................................................................6 2.4 SPECIAL MEETINGS..................................................................6 2.5 TELEPHONIC MEETINGS PERMITTED.....................................................6 2.6 QUORUM; VOTE REQUIRED FOR ACTION..................................................6 2.7 ORGANIZATION......................................................................6 2.8 INFORMAL ACTION BY DIRECTORS......................................................7 ARTICLE III COMMITTEES...............................................................................8 3.1 COMMITTEES........................................................................8 3.2 COMMITTEE RULES...................................................................8 ARTICLE IV OFFICERS.................................................................................8 4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES...................................................8 4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS...........................................9 ARTICLE V STOCK....................................................................................9 -i-
3
TABLE OF CONTENTS (continued) Page ---- 5.1 CERTIFICATES......................................................................9 5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW CERTIFICATES..................................................................9 ARTICLE VI INDEMNIFICATION.........................................................................10 6.1 THIRD PARTY ACTIONS..............................................................10 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION....................................10 6.3 SUCCESSFUL DEFENSE...............................................................10 6.4 DETERMINATION OF CONDUCT.........................................................11 6.5 PAYMENT OF EXPENSES IN ADVANCE...................................................11 6.6 INDEMNITY NOT EXCLUSIVE..........................................................11 6.7 INSURANCE INDEMNIFICATION........................................................11 6.8 THE CORPORATION..................................................................11 6.9 EMPLOYEE BENEFIT PLANS...........................................................12 6.10 INDEMNITY FUND...................................................................12 6.11 INDEMNIFICATION OF OTHER PERSONS.................................................12 6.12 SAVINGS CLAUSE...................................................................12 6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.........................................................................13 ARTICLE VII MISCELLANEOUS...........................................................................13 7.1 FISCAL YEAR......................................................................13 7.2 SEAL.............................................................................13 7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES.........................................................13 7.4 INTERESTED DIRECTORS; QUORUM.....................................................13 7.5 FORM OF RECORDS..................................................................14 7.6 AMENDMENT OF BY-LAWS.............................................................14 -ii-
4 AMENDED AND RESTATED BYLAWS OF IRIDEX CORPORATION ARTICLE I STOCKHOLDERS 1.1 ANNUAL MEETINGS An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the state of Delaware, as may be designated by resolution of the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. 1.2 SPECIAL MEETINGS Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors, or by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as expressly provided in a resolution of the Board of Directors, include the power to call such meetings. 1.3 NOTICE OF MEETINGS Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the certificate of incorporation or these by-laws, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. 1.4 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS Nominations for the election of directors, and business proposed to be brought before any stockholder meeting 5 may be made by, in the event of an annual or special meeting, the board of directors or proxy committee appointed by the board of directors or, in the event of an annual meeting, by any stockholder entitled to vote in the election of directors generally if such nomination or business proposed is otherwise proper business before such meeting. However, any such stockholder may nominate one or more persons for election as directors at a meeting or propose business to be brought before an annual meeting, or both, only if such stockholder has given timely notice in proper written form of their intent to make such nomination or nominations or to propose such business. To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the Corporation not less than 45 days nor more than 120 days prior to the date on which the Corporation first mailed its proxy materials for the prior year's annual meeting of stockholders; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed (other than as a result of adjournment) by more than 30 days from the anniversary of the previous year's annual meeting, notice by the stockholder to be timely must be delivered not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. To be in proper form, a stockholder's notice to the secretary shall set forth: (1) the name and address of the stockholder who intends to make the nominations or propose the business and, as the case may be, of the person or persons to be nominated or of the business to be proposed; and the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner; (2) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (3) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (4) as to any other business that the stockholder proposes to bring before the annual meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; (5) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and -2- 6 (6) if applicable, the consent of each nominee to serve as director of the corporation if so elected. The chairman of the annual meeting shall refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. 1.5 ADJOURNMENTS Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 1.6 QUORUM Except as otherwise provided by law, the certificate of incorporation or these by-laws, at each meeting of stockholders the presence in person or by proxy of the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 1.4 of these by-laws until a quorum shall attend. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 1.7 ORGANIZATION Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. 1.8 VOTING; PROXIES Except as otherwise provided by the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting -3- 7 of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the corporation. Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors of election unless so determined by the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote thereon which are present in person or by proxy at such meeting. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law, the certificate of incorporation or these by-laws, be decided by the vote of the holders of shares of stock having a majority of the votes which could be cast by the holders of all shares of stock entitled to vote thereon which are present in person or represented by proxy at the meeting. 1.9 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. -4- 8 1.10 LIST OF STOCKHOLDERS ENTITLED TO VOTE The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. Upon the willful neglect or refusal of the directors to produce such a list at any meeting for the election of directors, they shall be ineligible for election to any office at such meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders. 1.11 ACTION BY CONSENT OF STOCKHOLDERS Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE II BOARD OF DIRECTORS 2.1 NUMBER; QUALIFICATIONS The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders. 2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES The Board of Directors shall initially consist of the persons named as directors in the certificate of incorporation, and each director so elected shall hold office until the first annual meeting of stockholders or until his successor is elected and qualified. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors each of whom shall hold office for a term of one year or until his successor is elected and qualified. Any -5- 9 director may resign at any time upon written notice to the corporation. Any newly created directorship or any vacancy occurring in the Board of Directors for any cause may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced or until his successor is elected and qualified. 2.3 REGULAR MEETINGS Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and if so determined notices thereof need not be given. 2.4 SPECIAL MEETINGS Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the President, any Vice President, the Secretary, or by any member of the Board of Directors. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least twenty-four hours before the special meeting. 2.5 TELEPHONIC MEETINGS PERMITTED Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. 2.6 QUORUM; VOTE REQUIRED FOR ACTION At all meetings of the Board of Directors a majority of the whole Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which the certificate of incorporation or these by-laws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. 2.7 ORGANIZATION Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the -6- 10 meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. 2.8 INFORMAL ACTION BY DIRECTORS Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. -7- 11 ARTICLE III COMMITTEES 3.1 COMMITTEES The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. 3.2 COMMITTEE RULES Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these by-laws. ARTICLE IV OFFICERS 4.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES The Board of Directors shall elect a President and Secretary, and it may, if it so determines, choose a Chairman of the Board and a Vice Chairman of the Board from among its members. The Board of Directors may also choose one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the corporation by -8- 12 death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. 4.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS The officers of the corporation shall have such powers and duties in the management of the corporation as may be prescribed by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his duties. ARTICLE V STOCK 5.1 CERTIFICATES Every holder of stock shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President or Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the corporation, certifying the number of shares owned by him in the corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. 5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW CERTIFICATES The corporation may issued a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. -9- 13 ARTICLE VI INDEMNIFICATION 6.1 THIRD PARTY ACTIONS The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director or officer of the corporation, or that such director or officer is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture trust or other enterprise (collectively "Agent"), against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was an Agent (as defined in Section 6.1) against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. 6.3 SUCCESSFUL DEFENSE To the extent that an Agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. -10- 14 6.4 DETERMINATION OF CONDUCT Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that the indemnification of the Agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made (1) by the Board of Directors or an executive committee by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) or if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. 6.5 PAYMENT OF EXPENSES IN ADVANCE Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article VI. 6.6 INDEMNITY NOT EXCLUSIVE The indemnification and advancement of expenses provided or granted pursuant to the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. 6.7 INSURANCE INDEMNIFICATION The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was an Agent of the corporation, or is or was serving at the request of the corpora tion, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. 6.8 THE CORPORATION For purposes of this Article VI, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors and officers, so that any person who is or was a director or Agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, -11- 15 joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation the provisions of Section 6.4) with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. 6.9 EMPLOYEE BENEFIT PLANS For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article VI. 6.10 INDEMNITY FUND Upon resolution passed by the Board, the corporation may establish a trust or other designated account, grant a security interest or use other means (including, without limitation, a letter of credit), to ensure the payment of certain of its obligations arising under this Article VI and/or agreements which may be entered into between the corporation and its officers and directors from time to time. 6.11 INDEMNIFICATION OF OTHER PERSONS The provisions of this Article VI shall not be deemed to preclude the indemnification of any person who is not an Agent (as defined in Section 6.1), but whom the corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware or otherwise. The corporation may, in its sole discretion, indemnify an employee, trustee or other agent as permitted by the General Corporation Law of the State of Delaware. The corporation shall indemnify an employee, trustee or other agent where required by law. 6.12 SAVINGS CLAUSE If this Article or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each Agent against expenses (including attorney's fees), judgments, fines and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated, or by any other applicable law. -12- 16 6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise prided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VII MISCELLANEOUS 7.1 FISCAL YEAR The fiscal year of the corporation shall be determined by resolution of the Board of Directors. 7.2 SEAL The corporate seal shall have the name of the corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. 7.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. 7.4 INTERESTED DIRECTORS; QUORUM No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relationship or interest and as to the contract or -13- 17 transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum: or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. 7.5 FORM OF RECORDS Any records maintained by the corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. 7.6 AMENDMENT OF BY-LAWS These by-laws may be altered or repealed, and new by-laws made, by the Board of Directors, but the stockholders may make additional by-laws and may alter and repeal any by-laws whether adopted by them or otherwise. -14- EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JAN-02-1999 JAN-01-1998 OCT-03-1998 2,425 7,695 7,887 (384) 6,823 25,405 3,788 (1,438) 27,830 2,476 0 0 0 21,859 3,495 27,830 17,074 17,074 7,627 7,627 7,975 0 0 1,852 (629) 0 0 0 0 1,223 .19 .18
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