OCULAR SCIENCES INC /DE/, 424B3, 1997-08-08

OCULAR SCIENCES INC /DE/
424B3, 1997-08-08
OPHTHALMIC GOODS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-27421

PROSPECTUS

7,200,000 Shares

OCULAR SCIENCE LOGO

OCULAR SCIENCES, INC.

COMMON STOCK
------------------------

OF THE 7,200,000 SHARES OF COMMON STOCK BEING OFFERED, 3,600,000 SHARES ARE
BEING SOLD BY THE COMPANY AND 3,600,000
SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING
STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF SHARES
BY THE SELLING STOCKHOLDERS. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. SEE "UNDERWRITERS" FOR A DISCUSSION
OF THE FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------

THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "OCLR."
------------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 8 HEREOF.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

PRICE $16 1/2 A SHARE
------------------------

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Per Share................. $16.500 $1.155 $15.345 $15.345
Total(3).................. $118,800,000 $8,316,000 $55,242,000 $55,242,000
</TABLE>

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

(2) Before deducting expenses payable by the Company estimated at $1,080,000.

(3) Certain of the Selling Stockholders have granted to the Underwriters an
option, exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 1,080,000 additional Shares at the price to public less
underwriting discounts and commissions for the purpose of covering
overallotments, if any. If the Underwriters exercise such option in full,
the total price to public, underwriting discounts and commissions, proceeds
to Company and proceeds to Selling Stockholders will be $136,620,000,
$9,563,400, $55,242,000 and $71,814,600, respectively. See "Underwriters."
------------------------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to the approval of certain legal
matters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
counsel for the Underwriters. It is expected that delivery of the Shares will be
made on or about August 8, 1997 at the offices of Morgan Stanley & Co.
Incorporated, New York, N.Y., against payment therefor in same day funds.
------------------------

MORGAN STANLEY DEAN WITTER

BEAR, STEARNS & CO. INC.

COWEN & COMPANY
August 4, 1997
<PAGE> 2

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
<PAGE> 3

NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING STOCKHOLDER OR BY
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE ANY SUCH OFFER
OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------

UNTIL AUGUST 30, 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 8
Use of Proceeds....................................................................... 19
Dividend Policy....................................................................... 19
Capitalization........................................................................ 20
Dilution.............................................................................. 21
Selected Consolidated Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 23
Business.............................................................................. 32
Management............................................................................ 50
Certain Transactions.................................................................. 57
Principal and Selling Stockholders.................................................... 60
Description of Capital Stock.......................................................... 62
Shares Eligible for Future Sale....................................................... 64
Underwriters.......................................................................... 65
Legal Matters......................................................................... 66
Experts............................................................................... 66
Additional Information................................................................ 67
Index to Consolidated Financial Statements............................................ F-1
</TABLE>

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

The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by an independent certified
public accounting firm and quarterly reports for the first three quarters of
each year containing unaudited consolidated financial information.
------------------------

Biomedics(R), Clinasoft(R), Edge(R), Procon(R), Mediflex(R), UltraFlex(R),
Hydron(R), Hydron(R) ProActive(R), Versa-Scribe(R), Echelon(R), 7/14(R),
Hydrovue(R) and Ultra T(R) are registered trademarks of the Company. The
Company's logo, Hydron Biomedics 38(TM), Hydron Biomedics 55(TM), Clinasoft
55(TM), Mediflex 55(TM), UltraFlex 7/14 38(TM), UltraFlex 7/14 55(TM), Edge
III(TM), Edge III XT(TM), Edge III Thin(TM) and Edge III 55(TM) are trademarks
of the Company. This Prospectus also includes trademarks of companies other than
the Company, which trademarks are the property of their respective owners.

3
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Prospectus. Except as otherwise noted herein,
information in this Prospectus assumes (i) no exercise of the Underwriters'
overallotment option, (ii) the conversion of all outstanding shares of Series A
Preferred Stock of the Company ("Preferred Stock") into shares of Common Stock
of the Company, (iii) the reincorporation of the Company in Delaware which
occurred in July 1997 and (iv) a two-for-one split of the Company's Common Stock
effected on August 4, 1997. Unless the context otherwise requires, the term
"Company" when used herein shall mean Ocular Sciences, Inc., a Delaware
corporation, its California predecessor and its subsidiaries.

THE COMPANY

Ocular Sciences is a rapidly growing manufacturer and marketer of soft
contact lenses. The Company manufactures a broad line of soft contact lenses for
annual and disposable replacement regimens. The Company believes that its lens
designs provide wearers with a higher level of comfort and greater ease of
handling than those of its leading competitors. The Company's manufacturing
technologies permit consistent, cost-effective reproduction of these designs,
allowing the Company to offer its lenses at competitive prices. In addition, the
Company has implemented marketing strategies designed to assist eyecare
practitioners, both in independent practice and in retail chains, in retaining
their patients and monitoring their patients' ocular health, thereby providing a
significant incentive for practitioners to prescribe the Company's lenses.
Furthermore, the Company has continuously focused on lowering its
non-manufacturing costs, or "cost-to-serve," enabling it to increase its
profitability and its flexibility to reduce prices. To minimize its
cost-to-serve, the Company utilizes a telemarketing sales force and directs its
marketing efforts toward eyecare practitioners rather than consumers.

Industry analysts estimate that approximately 50% of the world's population
need some type of vision correction. In the United States alone, over 130
million people require some form of vision correction. The United States
currently represents the world's largest market for contact lenses, with
approximately 26 million people, or 20% of those requiring vision correction,
wearing contact lenses according to estimates by industry analysts. The soft
contact lens market is characterized by increasing lens consumption. The number
of soft contact lenses sold in the United States has increased at a compound
annual growth rate of approximately 20% from 1985 to 1995, according to Health
Products Research, a market research firm, largely as a result of the
introduction in 1988 of soft contact lenses for disposable replacement regimens.
This increase in unit sales has provided manufacturing economies of scale that,
together with heightened competition among eyecare practitioners, has led to
significant reductions in average retail prices for soft contact lenses. Despite
the decline in per unit prices, wearers' annual expenditures for lenses have
increased as they have shifted to more frequent replacement regimens. The
Company believes that sales in many international markets will grow at faster
rates than the United States market and that this growth will be driven
principally by an increase in the number of contact lens wearers, which
currently is significantly lower than that in the United States, as the
availability of low-priced soft contact lenses increases.

The Company believes, based on a 1994 study sponsored by the American
Academy of Ophthalmology and management's recent experience in the eyecare
industry, that the eyecare profession suffers from a surplus of practitioners
and believes that the resulting competitive pressure has been exacerbated by the
increased prevalence of retail optical chains and mass merchandisers that
provide eyecare services. The typical eyecare practitioner in both the private
practice and retail chain channels depends heavily on sales of products, such as
contact lenses and eyeglasses. The Company believes, based on a 1996 industry
survey, that the typical optometric practice realizes approximately two-thirds
of its revenue from sales of optical products, such as contact lenses and
eyeglasses. Since the need for vision correction is chronic, repeat sales of
contact lenses can provide the practitioner with a recurring, predictable
revenue base. However, with the advent of disposable replacement regimens and
the availability of nationally advertised lens brands through many competing
channels of distribution, including mail-order and pharmacies, the prescribing
practitioner risks losing recurring sales to alternate distribution channels.

4
<PAGE> 5

strategy to address the needs of eyecare practitioners. The Company markets its
lenses solely to eyecare practitioners, both in private practice and in retail
optical chains, rather than to consumers. The Company believes that focusing on
the eyecare practitioner, who strongly influences the selection of the brand of
contact lenses worn by the patient, is critical to its ability to market contact
lenses successfully. The Company does not sell to mail-order companies,
pharmacies or other distribution channels that do not provide the eyecare
services necessary to maintain overall ocular health.

Over the last five years, the Company has established itself as a leader in
the spherical, non-specialty annual replacement segment of the United States
market with a market share estimated at 25% in 1996, based on unit sales. Since
its introduction of lenses for weekly disposable replacement regimens in 1993,
the Company has steadily increased its share of this growing market, reaching
approximately 8% of total unit sales in the United States during the second half
of 1996, based on data published by the Contract Lens Institute. The Company's
overall unit sales have increased at a compound annual growth rate of
approximately 81% since 1992, primarily due to increased sales of its lenses for
weekly disposable replacement regimens. During the same period, while the
overall average selling prices of all of the Company's lenses declined 50%, the
Company reduced its per unit production costs by approximately 64% by spreading
its relatively fixed manufacturing and operating costs over higher production
volumes, and by improving its manufacturing and packaging processes. As a
result, from 1992 to 1996, the Company's net sales and operating income
(excluding non-recurring charges in 1992) have increased at compound annual
growth rates of approximately 53% and 100%, respectively, while its operating
margins improved from 6.6% to 19.3%. The Company expects that the overall
average selling price that it realizes across its products will continue to
decline over time and does not expect there to be significant growth in its
sales of lenses for annual replacement. The Company does not believe that its
recent net sales and operating income growth rates are indicative of its
long-term growth rates.

STRATEGY

The Company believes that, by continuing to pursue its strategy focused on
addressing the needs of the eyecare practitioner, it will be well-positioned to
increase its sales and its share of the growing disposable lens market segment.
The principal elements of the Company's strategy include:

Focus Marketing on Eyecare Practitioners. The Company's sales and
marketing efforts are directed at eyecare practitioners because the
practitioner strongly influences the brand of lenses purchased by the
patient. The Company advertises and promotes its products solely to
practitioners rather than to consumers. In addition, the Company does not
sell its lenses to mail-order companies, pharmacies and other distribution
channels that do not provide the eyecare services necessary to confirm lens
fit and monitor ocular health. By bar-coding each disposable unit shipped,
the Company can identify any diversion of its lenses to non-eyecare
practitioner channels. The Company structures its branding and marketing
strategies so that the patient will be more likely to refill prescriptions
from the practitioner or retail chain from whom he or she received the
initial prescription. As a result, the Company believes that it assists
eyecare practitioners in retaining patient reorders and improves
practitioners' ability to monitor their patients' ongoing ocular health,
thereby providing a significant incentive for practitioners to prescribe
the Company's lenses.

Employ Unique Brand Segmentation by Channel. The high-volume use of
lenses for disposable replacement regimens has resulted in increased
mass-market advertising of competing products and intensified competition
across distribution channels. Unlike its larger competitors, which promote
nationally advertised consumer brands across multiple distribution
channels, the Company advertises and promotes its lenses for disposable
replacement regimens under specific brand names for the private practice
channel and other brand names for the retail chain channel. The Company
also provides private label brands for its larger customers. Branding by
distribution channel creates brand exclusivity and allows practitioners to
differentiate lenses sold by them from lenses sold through competing
channels, providing them with a greater ability to retain their patients'
prescription refill business. The Company believes that, as a result, its
channel-specific branding has become increasingly valuable to eyecare
practitioners. By promoting the repeat purchase of lenses from the
prescribing practitioner, the Company believes that its marketing
strategies increase patient satisfaction and thereby encourage long-term
loyalty to its products, while also motivating practitioners to prescribe
its lenses.

Produce Superior Performing Products. The Company believes that its
contact lenses are superior in performance to those of its major
competitors in terms of comfort and ease of handling. The

5
<PAGE> 6

Company's advanced dry cast molding process and sophisticated lens designs
maximize wearers' comfort and improve shape retention of lenses, making
them easier for wearers to handle. In addition, the Company's lenses are
designed and manufactured to provide fitting characteristics similar to
competitors' lenses. In general, this interchangeability enables the
practitioner to switch a patient to the Company's lenses without extensive
refitting time. These advantages enable the Company to market its lenses to
eyecare practitioners for both existing and new contact lens wearers.

Emphasize Low-Cost Efficient Manufacturing. With the growth of the
high-volume disposable market segment, low-cost, scalable manufacturing has
become increasingly important. The Company's dry cast molding technology
allows it to manufacture high-quality lenses efficiently. With dry cast
molding, the Company has been able to reduce its manufacturing costs per
lens by approximately 64% over the last three years while increasing its
production volumes by approximately 470%. The Company believes that the
increased unit volumes resulting from the growing disposable lens market
and continued investment in automation and capacity will enable it to
further reduce per unit production costs and increase production volumes.

Minimize Cost-to-Serve. A substantial portion of the Company's costs
consists of the costs required to sell and market lenses and to take and
fill an order. The Company focuses on lowering these non-manufacturing
costs, or "cost-to-serve," in order to increase its profitability and its
flexibility to reduce prices. The Company's primary means of minimizing
cost-to-serve are its use of telemarketing rather than a traditional direct
sales organization and its use of advertising targeted to practitioners
rather than to consumers. This strategy differentiates the Company from its
competitors, and the Company believes that the cost of its average sales
call is substantially lower than that of its competitors that rely on field
sales representatives, as the Company's inside sales personnel can make
more calls per day at a lower annual cost per salesperson. In addition,
unlike its leading competitors, which market their products to consumers
through expensive mass-media campaigns, the Company controls its operating
expenses by directing its marketing solely to the eyecare practitioners who
prescribe contact lenses. In addition, the Company is investing in
increased automation in its distribution operations in order to maintain
its low cost-to-serve.

Expand Internationally Through Strategic Relationships. The Company
believes that many international markets for soft contact lenses will grow
at faster rates than the United States market and that this growth will be
driven by increased availability of low-priced disposable lenses in
developed markets such as Europe, Japan and Canada and by increased
disposable income in emerging markets such as Asia and Latin America.
However, many markets outside the United States do not have the level of
demand necessary for local manufacturers to achieve the economies of scale
required for low-cost lens production. Consistent with its strategy of
minimizing cost-to-serve, the Company's international growth strategy is to
establish strategic distribution and marketing relationships with regional
optical companies, such as the contact lens division of the Carl Zeiss
Company in Europe and Seiko Contactlens, Inc. in Japan, to capitalize on
their existing market presence, customer relationships and local
infrastructure. The Company believes that, as a result, it can target
growing international markets effectively without significant investment in
direct operations.

BACKGROUND

The Company was founded in 1985 and was principally a distributor of
contact lenses until 1992. In September 1992, the Company began manufacturing
operations by acquiring Precision Lens Laboratories Ltd. ("PLL"), a United
Kingdom-based company and, until the acquisition, the primary supplier of the
Company's lenses. This acquisition provided the Company with the facilities and
technology to manufacture high-quality contact lenses. In October 1992, the
Company acquired the contact lens business of Allergan, Inc. in North and South
America, which had been operating under the name American Hydron ("American
Hydron"). This acquisition provided the Company with a significantly expanded
customer base, an additional line of contact lens products and a manufacturing
facility in Puerto Rico.
------------------------

The Company was incorporated under the name O.S.I. Corporation in
California in 1985 and was reincorporated in Delaware in July 1996. The
Company's principal executive offices are located at 475 Eccles Avenue, South
San Francisco, California 94080, and its telephone number is (650) 583-1400.

6
<PAGE> 7

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered:
By the Company.............................. 3,600,000 shares
By the Selling Stockholders................. 3,600,000 shares
Total............................... 7,200,000 shares(1)
Common Stock to be outstanding after the
offering.................................... 20,426,326 shares(1)(2)
Use of proceeds............................... Repayment of $23.1 million of indebtedness
and certain accrued liabilities outstanding
as of June 30, 1997, expansion and
automation of manufacturing facilities and
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol................. OCLR
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Net sales.......................... $16,548 $38,533 $48,503 $68,087 $90,509 $38,850 $52,969
Gross profit....................... 4,722 13,860 25,950 41,267 53,956 22,923 32,549
Total operating expenses........... 5,732 15,377 17,492 26,015 36,521 17,054 22,047
Income (loss) from operations(3)... (1,010) (1,517) 8,458 15,252 17,435 5,869 10,502
Net income (loss) applicable to
common stockholders.............. (2,894) (4,509) 4,955 8,708 10,094 3,219 6,719
Pro forma net income per
share(4)......................... $ 0.52 $ 0.35
Shares used in computing pro forma
net income per share(4).......... 19,527 19,554
OTHER DATA:
Lenses sold for disposable
replacement regimens as a
percentage of total lenses
sold............................. 15.2% 19.1% 53.0% 73.4% 83.5% 81.9% 88.3%
Depreciation and amortization...... $ 400 $1,775 $2,137 $ 2,578 $ 4,904 $1,963 $3,525
Capital expenditures............... 1,049 2,489 2,153 13,558 12,256 7,273 6,022
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------------
AS
ACTUAL ADJUSTED(5)
------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash........................... $ 4,473 $ 35,572
Working capital...................................................... 3,957 49,565
Total assets......................................................... 74,409 105,508
Total debt........................................................... 20,312 3,916
Stockholders' equity................................................. 30,487 84,649
</TABLE>

- ---------------
(1) Assumes the Underwriters' overallotment option is not exercised.

(2) Based on the number of shares outstanding as of June 30, 1997 after giving
effect to the conversion of all outstanding Preferred Stock into Common
Stock. Excludes 3,079,694 shares of Common Stock issuable upon the exercise
of options outstanding as of such date under the Company's 1989 Stock Option
Plan (the "1989 Plan") and the Company's 1992 Officers and Directors Stock
Option Plan (the "1992 Plan"). The Company expects that John D. Fruth, its
President, will exercise options to purchase 1,280,000 shares of Common
Stock under the 1992 Plan prior to consummation of this offering. See
"Management -- Employee Benefit Plans" and Note 10 of Notes to Consolidated
Financial Statements.

(3) Loss from operations for 1992 and 1993 includes non-recurring charges of
$2.1 million and $4.4 million, respectively, related to writedowns in the
carrying value of certain assets purchased in connection with the Company's
acquisition of American Hydron.

(4) For an explanation of the determination of the number of shares used in
computing pro forma net income per share, see Note 2 of Notes to
Consolidated Financial Statements.

(5) Adjusted to reflect the sale by the Company of 3,600,000 shares of Common
Stock offered hereby and the anticipated application of the net proceeds
therefrom, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company. See "Use of Proceeds"
and "Capitalization."

7
<PAGE> 8

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in such forward-looking
statements. Factors that may cause such a difference include, but are not
limited to, those discussed below, in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Prospectus.

Intense Competition. The market for soft contact lenses is intensely
competitive and is characterized by decreasing prices for many products. The
Company's products compete with products offered by a number of larger companies
including the Vistakon division of Johnson & Johnson ("Johnson & Johnson"),
Ciba-Geigy Corporation ("Ciba-Geigy"), Bausch & Lomb, Inc. ("Bausch & Lomb") and
Wesley Jessen VisionCare, Inc. ("Wesley Jessen"). Most of the Company's
competitors have substantially greater financial, manufacturing, marketing and
technical resources, greater market penetration and larger manufacturing volumes
than the Company. Among other things, these advantages may afford the Company's
competitors greater ability to manufacture large volumes of lenses, reduce
product prices and influence customer buying decisions. The Company believes
that certain of its competitors are expanding, or are planning to expand, their
manufacturing capacity, and are implementing new, more automated manufacturing
processes, in order to support anticipated increases in volume. As many of the
costs involved in producing contact lenses are relatively fixed, if a
manufacturer can increase its volume, it can generally reduce its per unit costs
and thereby increase its flexibility to reduce prices. In addition, competitors
may reduce prices to achieve the sales volumes necessary to utilize their
increased capacity. Price reductions by competitors could make the Company's
products less competitive, and there can be no assurance that the Company would
be able to reduce its prices in response. The Company's ability to respond to
competitive pressures by decreasing its prices without adversely affecting its
gross margins and operating results will depend on its ability to decrease its
costs per lens. Any significant decrease in the Company's costs per lens will
depend, in part, on the Company's ability to increase its sales volume and
production capacity. There can be no assurance that the Company will be able to
continue to increase its sales volume or reduce its per unit production costs.
In response to competition, the Company may also increase cooperative
merchandising allowances or otherwise increase spending, which may adversely
affect its business, financial condition and results of operations. The failure
of the Company to respond to competitive pressures, and particularly price
competition, in a timely manner would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Manufacturing Capacity Constraints; Risks Associated with Expansion and
Automation of Manufacturing Operations."

The market for contact lenses is shifting from lenses marketed for annual
replacement regimens, where the Company has significant experience and a leading
market position, to lenses for disposable replacement regimens, where the
Company is less experienced and has a significantly smaller market share. The
disposable lens segment is particularly competitive and price-sensitive and is
currently dominated by the Acuvue product produced by Johnson & Johnson. The
Company believes that the per unit production costs of Johnson & Johnson and
certain of the Company's other competitors are currently lower than those of the
Company. A significant price reduction by Johnson & Johnson or certain of the
Company's other competitors could limit or reduce the Company's market share in
the disposable lens segment and, as a result, could materially adversely affect
the Company's business, financial condition and results of operations. In
addition, the lenses currently offered in the United States by the Company in
the disposable lens segment are marketed for weekly and monthly replacement
regimens. Certain of the Company's competitors have introduced lenses for daily
replacement at lower prices than their current weekly and bi-weekly disposable
lenses. The Company's ability to enter and to compete effectively in the market
for daily disposable lenses will depend in large part upon the Company's ability
to expand its production capacity and reduce its per unit production costs.
Additionally, as contact lenses for different replacement regimens are often
similar, the ability of competitors to reduce their per unit costs for daily
disposable lenses may also permit them to reduce their costs for lenses marketed
for other replacement regimens. Such reductions, if not matched by the Company,
could significantly adversely impact the Company's ability to compete over a
much broader level of products. See "-- Dependence on Single Product Line; Need
to Increase Sales of Lenses for Disposable Replacement Regimens."

8
<PAGE> 9

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

Manufacturing Capacity Constraints; Risks Associated with Expansion and
Automation of Manufacturing Operations. The Company's success will depend upon
its ability to increase its production volume on a timely basis while
maintaining product quality and lowering per unit production costs.
Manufacturers often encounter difficulties in increasing production volumes,
including problems involving delays, quality control and shortages of qualified
personnel. Any significant increase in production volume will require that the
Company increase its manufacturing capacity.

The Company intends to add new, highly automated production lines at its
facilities in the United Kingdom and Puerto Rico to increase its manufacturing
capacity and reduce its per unit manufacturing costs. However, there can be no
assurance that the Company will be able to implement these automated lines on a
timely basis or that the new automated lines will operate as efficiently as
expected. The Company could encounter significant difficulties in implementing
these automated lines. For example, suppliers could miss their equipment
delivery schedules, the efficiency of the new production lines could improve
less rapidly than expected, if at all, or the equipment or processes could
require redesigning after installation. In addition, these new production lines
will involve processes and equipment with which the Company and its personnel
are not experienced. Difficulties experienced by the Company in automating its
manufacturing facilities could impair the Company's ability to reduce its per
unit production costs and to compete in the disposable lens market and,
accordingly, could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the installation of
these highly automated production lines in Puerto Rico could increase the
Company's tax rate if it results in a significant reduction in the Company's
labor costs in Puerto Rico in relation to its Puerto Rican earnings.

The Company currently expects to invest approximately $44.0 million in
capital expenditures on automated production lines in the United Kingdom and
Puerto Rico through the year 2000. The Company intends to finance such capital
expenditures with approximately $22.0 million of the net proceeds of this
offering and with net cash (if any) from operations. If net cash from operations
is insufficient to fund such expenditures, the Company intends to utilize
borrowings under its credit facilities. No assurances can be given as to the
availability of such net cash from operations or borrowings, and if such funds
are not available, the Company could be required to curtail the installation of
the automated lines.

The Company is currently experiencing space constraints at its Puerto Rican
facility, which is now operating at or near capacity. As a result, the Company
is in the process of negotiating a lease for a new, larger facility to be
constructed to the Company's specifications. There can be no assurance that the
Company will be able to secure this space in a timely manner, if at all. If
space is secured, the facility must be constructed, and the Company will be
required to develop and install production lines that comply with applicable
laws including the Federal Food, Drug and Cosmetic Act (the "FDC Act") and
requirements of the U.S. Food and Drug Administration (the "FDA") pertaining to
current good manufacturing practices ("GMP"). Before any new facility for
manufacturing contact lenses can begin production, it must be inspected by the
FDA for compliance with GMP, and the inspection and approval process could
significantly delay the Company's ability to begin production in this new
facility. The development and construction of a new manufacturing facility is
subject to significant risks and uncertainties, including cost estimation errors
and overruns, construction delays, weather problems, equipment delays or
shortages, production start-up problems and other factors. As many of such
factors are beyond the Company's control, the Company cannot predict the length
of any such delays, which could be substantial. Accordingly, while the Company
expects to begin construction of the new facility during the third quarter of
1997, there can be no assurances as to when it will complete

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<PAGE> 10

construction and commence production. Given the long lead times associated with
constructing a new facility which can involve up to 18 months of development and
construction, as well as delays while seeking FDA approval, the Company will
incur substantial cash expenditures before production of commercial volumes of
contact lenses is achieved at its planned new facility in Puerto Rico.
Furthermore, the Company's development of a new facility will result in new
fixed and operating expenses, including substantial increases in depreciation
expense that will increase the Company's cost of sales. If revenue levels do not
increase sufficiently to offset these new expenses, the Company's operating
results could be materially adversely affected. There can be no assurance that
the Company will not encounter unforeseen difficulties, costs or delays in
constructing and equipping the new manufacturing facility in Puerto Rico, in
relocating operations to the new facility or in commencing production at the new
facility. Any such difficulties or delays would limit the Company's ability to
increase production volume and lower per unit costs (and consequently prices),
would limit the Company's ability to compete in the disposable lens market and,
accordingly, could have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company has in the past experienced, and may in the future experience,
delays in its ability to fill customer orders for certain products on a timely
basis because of limits on its production capacity. Significant delays in
filling orders over an extended period would damage customer relations, which
would materially adversely affect the Company's business, financial condition
and results of operations. The production schedules for each of the Company's
products are based on forecasts of customer demand for such products, and the
Company has only limited ability to modify short-term production schedules. If
the Company were to underestimate materially the demand for any of its products,
it would not be able, on a short-term basis, to satisfy such demand fully. The
ability of the Company to estimate demand may be less precise during periods of
rapid growth or with respect to new products. The failure of the Company to
forecast its requirements accurately could lead to inventory shortages or
surpluses that could adversely affect results of operations and lead to
fluctuations in quarterly operating results. See "Business -- Manufacturing."

Risk of Trade Practice Litigation; Changes in Trade Practices. The contact
lens industry has been the subject of a number of class action and government
lawsuits and government investigations in recent years. In December 1996, over
twenty states sued three of the Company's largest competitors, as well as
certain eyecare practitioners and trade organizations. The suit alleges, among
other things, a conspiracy among such persons to violate antitrust laws by
refusing to sell contact lenses to mail-order and other non-practitioner contact
lens providers, so as to reduce competition in the contact lens industry. A
similar lawsuit was filed by the State of Florida in 1994 and may go to trial in
1997, and several similar class action lawsuits were also filed in 1994. It has
recently been announced that one of the defendants in such suits has agreed to
settle the lawsuits as to itself by agreeing to sell contact lenses to
mail-order and other alternative distribution channels, and to make substantial
cash and product rebates available to consumers. See "Business -- Sales and
Marketing." In an unrelated matter, one of the Company's largest competitors was
sued in a class action lawsuit brought in the Federal District Court in the
Northern District of Alabama in 1994 (the "Alabama Lawsuit"). This suit alleged
that the defendant engaged in fraudulent and deceptive practices in the
marketing and sale of contact lenses by selling identical contact lenses, under
different brand names and for different replacement regimens, at different
prices. The defendant subsequently modified certain of its marketing practices
and ultimately settled the lawsuit in August 1996 by making substantial cash and
product payments available to consumers. See "Business -- Products." Although
the Company has not been named in any of the foregoing lawsuits, the Company
from time to time receives claims or threats similar to those brought against
its competitors, and in one circumstance a suit was filed against the Company
making allegations similar to those made in the Alabama Lawsuit, which suit was
dismissed without prejudice for non-substantive reasons. There can be no
assurance that the Company will not face similar actions relating to its
marketing and pricing practices or other claims or lawsuits in the future. The
defense of any such action, lawsuit or claim could result in substantial expense
to the Company and significant diversion of attention and effort by the
Company's management personnel. There can be no assurance that any such lawsuit
would be settled or decided in a manner favorable to the Company, and a
settlement or adverse decision in any such action, lawsuit or claim could have a
material adverse effect on the Company's business, financial condition and
results of operations.

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<PAGE> 11

In addition to the foregoing lawsuits, there is substantial federal and
state governmental regulation related to the prescribing of contact lenses.
These regulations relate to who is permitted to prescribe and fit contact
lenses, the prescriber's obligation to provide prescriptions to its patients,
the length of time a prescription is valid, the ability or obligation of
prescribers to prescribe lenses by brand rather than by generic equivalent or
specification, and other matters. Although these regulations primarily affect
contact lens prescribers, and not manufacturers or distributors of lenses such
as the Company, changes in these regulations, or their interpretation or
enforcement, could adversely affect the effectiveness of the Company's marketing
strategy to eyecare practitioners, most notably the effectiveness of the
Company's channel-specific and private label branding strategies. See
"Business -- Strategy." Additionally, given the Company's strategic emphasis on
focusing its marketing efforts on eyecare practitioners, the Company may be more
vulnerable than its competitors to changes in current trade practices. Finally,
although cost controls or other requirements imposed by third party health-care
payors such as insurers and health maintenance organizations have not
historically had a significant effect on contact lens prices or distribution
practices, this could change in the future, and could adversely affect the
Company's business, financial condition and results of operations. Adverse
regulatory or other decisions affecting eyecare practitioners, or material
changes in the selling and prescribing practices for contact lenses, could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."

Dependence on Single Product Line; Need to Increase Sales of Lenses for
Disposable Replacement Regimens. All of the Company's net sales to date have
been attributable to the Company's sale of soft contact lenses. Should the
demand for the Company's soft contact lenses decline due to increased
competitive pressures, changes in consumer preferences, the inability of the
Company to respond to reduced prices by its competitors, the advent of
alternative technologies for correcting vision or other factors, the Company's
business, financial condition and results of operations would be materially
adversely affected.

A substantial portion of the Company's net sales to date (and, through
1994, a majority of the Company's net sales) have been attributable to the
Company's sales of soft contact lenses for annual replacement regimens. The U.S.
market for contact lenses for annual replacement regimens has been marked by
reduced overall demand in recent years. The Company expects that this segment of
the market for contact lenses for annual replacement regimens will continue to
contract in its major geographic markets as the market for contact lenses for
disposable replacement regimens continues to expand. The Company, a relatively
recent entrant in the market for lenses for disposable replacement regimens,
introduced its first product marketed for weekly replacement in September 1993.
The Company's success depends on both continued growth of this market and
increased penetration of this market by the Company's products. As the number of
wearers of contact lenses in the U.S. has not grown significantly in recent
years, and has decreased in some periods, increased market penetration by the
Company will require that wearers of competing products switch to the Company's
products. The Company anticipates that prices for its products targeted for
disposable replacement regimens will decline in the future. There can be no
assurance that the Company's contact lenses for disposable replacement regimens
will achieve widespread consumer acceptance, or that net sales or net income
from the sale of the Company's lenses for disposable replacement regimens will
be sufficient to offset the decline in the Company's net sales or net income
from its contact lenses for annual replacement regimens, which have higher
prices and gross margins. Any such failure to achieve market acceptance or to
capture a significant share of the disposable contact lens market segment would
impair the Company's ability to reduce its per unit production costs and would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Intense Competition," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Products" and "Business -- Competition."

Risk of New Products and Technological Change. The Company does not
allocate substantial resources to new product development and has historically
leveraged or licensed the technology developments of others. The Company
believes that many of its competitors have invested, and will continue to
invest, substantial amounts in developing new products and technologies, and
there can be no assurance that the Company's competitors do not have or will not
develop new products and technologies that could render the Company's products
less competitive. For example, Johnson & Johnson has recently introduced lenses
for disposable replacement regimens with an ultraviolet light inhibitor, which
could increase the appeal of its products. The

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<PAGE> 12

Company intends to develop a similar feature, but has only recently begun the
design process and no assurance can be given as to when or whether the Company
will be able to offer this feature. In addition, it has been reported that
Ciba-Geigy and others are seeking to develop lenses based on new polymers that
may significantly increase the period over which the lens may be left in the
eye. There can be no assurance that the Company will be able to sufficiently
utilize technology developed by third parties in order to remain competitive.
Any failure by the Company to stay current with its competitors with regard to
new product offerings and technological changes and to offer products that
provide performance that is at least comparable to competing products would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "-- Dependence on Single Product Line; Need to
Increase Sales of Lenses for Disposable Replacement Regimens" and
"Business -- Research and Development."

Fluctuations in Operating Results; Seasonality; Decreasing Average Sales
Prices. The Company's quarterly operating results have varied significantly in
the past and are likely to vary significantly in the future based upon a number
of factors. The Company's quarterly results can be affected significantly by
pricing changes by the Company or its competitors, the Company's ability to
increase manufacturing capacity efficiently and to reduce per unit manufacturing
costs, the time and costs involved in expanding existing distribution channels
and establishing new distribution channels, discretionary marketing and
promotional expenditures such as cooperative merchandising allowances paid to
the Company's customers, timing of the introduction of new products by the
Company or its competitors, inventory shortages, timing of regulatory approvals
and other factors. The Company's customers generally do not have long-term
commitments to purchase products and products are generally shipped as orders
are received. Consequently, quarterly sales and operating results depend
primarily on the volume and timing of orders received during the quarter, which
are difficult to forecast. A significant portion of the Company's operating
expenses are relatively fixed, and planned expenditures are based on sales
forecasts. If sales levels fall below expectations, operating results are likely
to be materially adversely affected. In particular, net income may be
disproportionately affected because only a small portion of the Company's
expenses varies with net sales in the short term. In response to competition,
the Company may reduce prices, increase cooperative merchandising allowances or
otherwise increase marketing expenditures, and such responses may adversely
affect the Company's business, financial condition and results of operations.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Further, it is
likely that in some future quarter the Company's net sales or operating results
will be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would likely be materially
adversely affected.

The Company's historical sales have exhibited significant seasonality, with
the third and fourth quarters having the highest net sales in any year and the
first quarter of the following year having lower net sales than the preceding
two quarters. The Company believes that the seasonality of its quarterly results
is primarily due to consumer buying habits. The Company believes that the
historical increases in sales of its products in the third and fourth quarters
have been due to late summer (back-to-school) purchases by consumers and to
higher traffic in the fourth quarter through malls and mass merchandisers with
optical outlets. The Company further believes that the historical decline in the
first quarter has been due to reduced consumer buying in the post-holiday
season. In addition, due to the relatively high proportion of the Company's
fixed costs to its total costs, the Company's level of profitability has
historically increased significantly with increasing sales volumes, resulting in
disproportionately better results in the second half of each year. There can be
no assurance that these patterns will not continue in future years although the
pattern may be somewhat less pronounced if the Company continues to increase the
proportion of sales represented by more frequently replaced lenses for
disposable replacement regimens.

The Company expects that the overall average selling price that it realizes
across its products will decline over time because of (i) shifts in the
Company's product mix from lenses for annual replacement regimens to lenses for
disposable replacement regimens and, within its disposable lenses, to lenses
that are replaced more frequently, (ii) decreases in the prices of lenses for
disposable replacement regimens and (iii) increases in products sold
internationally through distributors at prices lower than direct sales prices in
the United States. The Company does not expect there to be significant growth in
its sales of lenses for annual replacement.

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<PAGE> 13

Accordingly, the Company will need to continue to reduce its per unit production
costs through increased automation, increased volume and reduced packaging costs
in order to improve, or even to maintain, its gross margins, and the Company
does not believe that its recent net sales and operating income growth rates are
indicative of the Company's long-term growth rates. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

Risks Relating to International Operations; Need to Increase Sales in
International Markets. In 1995, 1996 and the first six months of 1997, the
Company's international sales represented 17.6%, 18.1% and 20.5%, respectively,
of the Company's net sales. In addition, a substantial portion of the Company's
products are manufactured in the United Kingdom. As a result, the Company's
business is subject to the risks generally associated with doing business
abroad, such as foreign consumer preferences, disruptions or delays in
shipments, changes in currency exchange rates, longer accounts receivable
payment cycles and greater difficulties in collecting accounts receivable,
foreign tax laws or tariffs, political unrest and changing economic conditions
in countries in which the Company's products are sold or manufacturing
facilities are located. These factors, among others, could adversely affect the
Company's ability to sell its products in international markets, as well as its
ability to manufacture its products. If any such factors were to render the
conduct of business in a particular country undesirable or impractical, there
could be a material adverse effect on the Company's business, financial
condition and results of operations. The Company and its representatives, agents
and distributors are also subject to the laws and regulations of the foreign
jurisdictions in which they operate or in which the Company's products are sold.
The regulation of medical devices in a number of jurisdictions, particularly in
the European Union, continues to develop, and there can be no assurance that new
laws or regulations will not have a material adverse effect on the Company's
business, financial condition and results of operations.

A substantial portion of the Company's sales and expenditures is collected
or paid in currencies other than the U.S. dollar. Therefore, the Company's
operating results are affected by fluctuations in foreign currency exchange
rates. Although the impact of exchange rate fluctuations on the Company's
results of operations have not been material in the past three years, there can
be no assurance that in the future exchange rate movements will not have a
material adverse effect on the Company's sales, gross profit, operating expenses
or foreign currency exchange gains and losses. In the six months ended June 30,
1997, the Company had an exchange gain of $59,000, primarily relating to changes
in exchange rates between the U.S. dollar and the U.K. pound sterling.

The Company's continued growth is dependent on the expansion of
international sales of its products. This expansion will involve operations in
markets with which the Company is not experienced and there can be no assurance
that the Company will be successful in capturing a significant portion of these
markets for contact lenses. In addition, the Company will not be able to market
and sell its products in certain international markets, such as Japan, until it
obtains regulatory approval. The failure of the Company to increase its
international sales substantially could have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company will depend on distributors to market and sell its contact
lenses and, in some cases, to obtain necessary regulatory approvals in a number
of international markets, including Europe and Japan. There can be no assurance
that these distributor relationships will be successful, that other existing
distributor relationships will be maintained or that any disruptions in such
relationships will not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Sales and
Marketing."

Uncertain Ability to Manage Growth; Risks Associated with Implementation of
New Management Information Systems. The Company has experienced rapid growth in
recent years. Continued rapid growth may place a significant strain on
management, operational infrastructure, working capital and financial and
management control systems. Growth in the Company's business has required, and
is expected to continue to require, significant personnel management and other
infrastructure resources. The Company's ability to manage any future growth
effectively will require it to attract, train, motivate and manage new employees
successfully, to integrate new employees into its overall operations and to
continue to improve its operational,

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<PAGE> 14

financial and management information systems. The Company is in the process of
replacing its management information systems. The new systems will significantly
affect many aspects of the Company's business, including its manufacturing,
sales and marketing, and accounting functions, and the successful implementation
of these systems will be important to facilitate future growth. Implementation
of the new management information systems could cause significant disruption in
operations. If the Company is not successful in implementing its new systems or
if the Company experiences difficulties in such implementation, the Company
could experience problems with the delivery of its products or an adverse impact
on its ability to access timely and accurate financial and operating
information. See "Business -- Employees."

Risks Associated with Interruption of Manufacturing Operations. The Company
manufactures substantially all of the products it sells. As a result, any
prolonged disruption in the operations of the Company's manufacturing
facilities, whether due to technical or labor difficulties, destruction of or
damage to any facility or other reasons, could have a material adverse effect on
the Company's business, financial condition and results of operations. In this
regard, one of the Company's principal two manufacturing facilities is located
in Puerto Rico and is thus exposed to the risks of damage from hurricanes. To
date, hurricanes have not materially affected the Company's operations in Puerto
Rico. However, if this facility were to be out of production for an extended
period, the Company's business, financial condition and results of operation
would be materially adversely affected. See "Business -- Manufacturing."

Dependence on Trademarks, Patent Licenses and Trade Secrets; Risk of
Intellectual Property Infringement. The Company has numerous trademark
registrations in the United States, Europe and other foreign countries. The
Company believes that its trademarks have significant value and are instrumental
to its ability to create and sustain demand for its products and to implement
its channel-based branding strategy. The Company believes that there are no
currently pending challenges to the use or registration of any of the Company's
material trademarks. There can be no assurance, however, that the Company's
trademarks do not or will not violate the proprietary rights of others, that
they would be upheld if challenged or that the Company would, in such an event,
not be prevented from using its trademarks, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

From time to time, the Company discovers products in the marketplace that
infringe on trademark rights held by the Company. If the Company is unsuccessful
in challenging a third party's trademark infringement, continued sales of such
product could adversely affect the Company's marketing strategy, which relies
heavily on the Company's proprietary trademarks, and could have a material
adverse effect on the Company's business, financial condition and results of
operations.

The Company currently relies on a licensed patent for a significant element
of the dry cast molding technology used in the production of its products. This
license is non-exclusive, and therefore this patented process may be licensed to
the Company's competitors. Also, the patent owners have a significant interest
in a United Kingdom company that competes with the Company in certain markets
and that was, until recently, contractually prohibited from selling lenses in
the United States. See "Certain Transactions -- OSL Acquisition and Related
Litigation." The Company also relies on non-exclusive licenses to certain design
patents for its toric and bifocal contact lenses, and these licenses limit the
Company's sales of products using the licensed technology to the Americas. The
Company owns no patents and has no patent applications pending. Certain of the
Company's competitors have significant patent portfolios. To the extent the
Company desires or is required to obtain additional licenses to patents or
proprietary rights of others, there can be no assurance that any such licenses
will be available on terms acceptable to the Company, if at all. The inability
of the Company to obtain any of these licenses could result in an inability to
make or sell products or reductions or delays in the introduction of new
products to meet consumer preferences. Any such prohibitions, reductions or
delays in the introduction of such products could have a material adverse effect
on the Company's business, financial condition and results of operations.

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<PAGE> 15

such breach or that the Company's trade secrets and other intellectual property
will not otherwise become known or independently developed by others and thereby
become unprotected. Furthermore, no assurance can be given that competitors will
not independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's proprietary technology or
that the Company can meaningfully protect its rights in unpatented proprietary
technology.

The defense and prosecution of intellectual property suits and related
administrative proceedings are both costly and time-consuming. Litigation may be
necessary 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. Any litigation or administrative proceedings will likely result in
substantial expense to the Company and significant diversion of effort by the
Company's technical and management personnel. The prosecution and defense of
intellectual property rights, as with any lawsuit, are inherently uncertain and
carry no guarantee of success. The protection of intellectual property in
certain foreign countries is particularly uncertain. An adverse determination in
litigation or administrative proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties, require
the Company to seek licenses from third parties, prevent the Company from
selling its products or require the Company to modify its products. Although
patent and intellectual property disputes regarding medical devices are often
settled through licensing and similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that any necessary licenses would be
available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling its
products, and such events would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Trademarks, Trade Secrets and Patent Licenses."

Risks of Regulatory Action. The Company's products and manufacturing
facilities are subject to stringent regulation by the FDA and by various
governmental agencies for the states and localities in which the Company's
products are manufactured and/or sold, as well as by governmental agencies in
certain foreign countries in which the Company's products are manufactured
and/or sold. Pursuant to the FDC Act, and the regulations promulgated
thereunder, the FDA regulates the preclinical and clinical testing, manufacture,
labeling, distribution, sale, marketing, advertising and promotion of medical
devices such as contact lenses. The process of obtaining FDA and other required
regulatory clearances or approvals can be lengthy, expensive and uncertain.
Failure to comply with applicable regulatory requirements can result in, among
other things, fines, suspensions or withdrawals of regulatory clearances or
approvals, product recalls, operating restrictions (including suspension of
production and distribution), product seizures and criminal prosecution. In
addition, governmental regulations may be established that could prevent or
delay regulatory clearances or approval of the Company's products. Delays in
receiving necessary United States or foreign regulatory clearances or approvals,
failure to receive clearances or approvals, or the loss of previously received
clearances or approvals could have a material adverse effect on the Company's
business, financial condition and results of operations.

In general, the FDC Act requires that a new medical device be cleared by
the FDA prior to introducing such product to the United States market through
the submission of a Section 510(k) Pre-Market Notification (a "510(k)
notification") or approved by the FDA prior to introducing such product to the
market through the submission of a Pre-Market Approval Application (a "PMA").
The process of obtaining clearance of a 510(k) notification typically takes five
to twelve months without clinical data, or twelve to eighteen months or more if
clinical data are required to be included in the notification, but it may take
longer, and 510(k) clearance may never be obtained. Approval through the PMA
process, which likewise may never be obtained, generally takes at least eighteen
to twenty-four months and can take substantially longer, is more expensive and
requires the submission of extensive preclinical and clinical data and
manufacturing information, among other things. The soft contact lenses currently
marketed by the Company have received FDA clearance through the 510(k) process
or approval through the PMA process. In addition, the Company has made
modifications to its products that the Company believes do not require the
submission of new 510(k) notifications or PMA supplements. There can be no
assurance, however, that the FDA will agree with any of the Company's
determinations not to submit new 510(k) notifications or PMA supplements for
these changes, that the FDA will not require the Company to cease sales and
distribution while seeking clearances of 510(k)

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<PAGE> 16

notifications and approvals of PMA supplements for the changes, or that such
clearances and approvals, if required, will be obtained in a timely manner or at
all. In addition, there can be no assurance that any future products developed
by the Company or any modifications to current products will not require
additional clearances or approvals from the FDA, or that such approvals, if
necessary, will be obtained in a timely manner or at all.

The Company's manufacturing facilities are subject to periodic GMP and
other inspections by the FDA. In March 1996, the Company received a warning
letter from the FDA regarding certain procedures used in manufacturing products
at its facilities in Puerto Rico. The Company has taken steps to address the
FDA's concerns, and, after reinspecting the facilities, the FDA notified the
Company that its concerns were satisfactorily addressed. There can be no
assurance that the Company will be found in compliance with GMP requirements in
future inspections by regulatory authorities, and noncompliance with GMP
requirements could result in the cessation or reduction of the Company's
production volume, which would have a material adverse effect on the Company's
business, financial condition and results of operations.

Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. These laws and
regulations range from simple product registration requirements in some
countries to complex clearance and production controls in others. Some countries
have historically permitted human studies earlier in the product development
cycle than regulations in the United States permit. Other countries have
requirements similar to those of the United States. This disparity in the
regulation of medical devices may result in more rapid product clearance in
certain countries than in the United States, while approvals in countries such
as Japan may require longer periods than in the United States. These differences
may also affect the efficiency and timeliness of international market
introduction of the Company's products, and there can be no assurance that the
Company will be able to obtain regulatory approvals or clearances for its
products in foreign countries in a timely manner or at all. See "Business --
Government Regulation."

Product Liability; Insurance. The Company has in the past been, and
continues to be, subject to product liability claims and lawsuits, and the
Company's Canadian subsidiary is currently a defendant in one such lawsuit,
filed by an individual in 1997 in the Province of Ontario, Canada, alleging that
the Company's lenses injured the plaintiff's cornea and seeking damages of
500,000 Canadian dollars plus interest and costs. Because contact lenses are
medical devices, the Company faces an inherent risk of exposure to product
liability claims in the event that the use of its products results in personal
injury. The Company also faces the possibility that defects in the design or
manufacture of its products might necessitate a product recall. From time to
time, the Company has received, and may in the future receive, complaints of
significant patient discomfort, including corneal complications, while using the
Company's contact lenses. In certain cases, the reasons for the problems have
never been established. In addition, on two occasions, in 1995 and 1997, the
Company has recalled certain of its products due to labeling errors. Although
the Company has not experienced material losses to date due to product liability
claims or product recalls, there can be no assurance that the Company will not
experience such losses in the future, that insurance coverage will be adequate
to cover such losses, or that insurance coverage will be available on acceptable
terms or at all. A product liability or other judgment against the Company in
excess of the Company's insurance coverage or a product recall could have a
material adverse effect upon the Company's business, financial condition and
results of operations. See "Business -- Product Liability and Insurance."

Environmental Regulations. Federal, state and local regulations impose
various controls on the storage, handling, discharge and disposal of certain
substances used in the Company's manufacturing processes and on the Company's
facilities. The Company believes that its activities conform to present
governmental regulations applicable to its current operations and facilities,
including those related to environmental, land use, public utility utilization
and fire code matters. There can be no assurance that such governmental
regulations will not in the future impose the need for additional capital
equipment or other process requirements upon the Company or restrict the
Company's ability to expand its operations. The adoption of such measures or any
failure by the Company to comply with applicable environmental and land use
regulations or to restrict the discharge of hazardous substances could subject
the Company to future liability or could cause its manufacturing operations to
be curtailed or suspended.

16
<PAGE> 17

Dependence on Key Personnel. The Company is dependent upon a limited number
of key management and technical personnel. The Company's future success will
depend in part upon its ability to attract and retain highly qualified
personnel. The Company competes for such personnel with other companies,
academic institutions, government entities and other organizations. There can be
no assurance that the Company will be successful in retaining or hiring
qualified personnel. The loss of any of the Company's senior management or other
key research, clinical, regulatory, or sales and marketing personnel,
particularly to competitors, could have a material adverse effect on the
Company's business, financial condition and results of operations. In
particular, the loss of John D. Fruth, the Company's founder and President,
could have a material adverse effect on the Company. See "Business -- Employees"
and "Management."

Control by Existing Stockholders. After the offering contemplated hereby,
the directors, officers and principal stockholders of the Company will, in the
aggregate, beneficially own approximately 62.1% of the Company's outstanding
Common Stock (approximately 57.3% if the Underwriters' overallotment option is
exercised in full). As a result, these stockholders, acting together, will
possess voting control of the Company, giving them the ability, among other
things, to elect the Company's Board of Directors and approve significant
corporate transactions. Such control could have the effect of delaying,
deferring or preventing a change in control of the Company. See "Principal and
Selling Stockholders."

Certain Anti-Takeover Provisions. Upon completion of this offering, the
Company's Board of Directors will have the authority to issue up to 4,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing flexibility in connection with
possible financings or acquisitions or other corporate purposes, could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company. The Company has no current plans to
issue shares of Preferred Stock. The Company's Bylaws and indemnity agreements
provide that the Company will indemnify officers and directors against losses
they may incur in legal proceedings resulting from their service to the Company.
Further, the Company's charter documents contain a provision eliminating the
ability of the Company's stockholders to take action by written consent
effective upon the closing of this offering. This provision is designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal
and to render the use of stockholder written consents unavailable as a tactic in
a proxy fight. However, such provision could have the effect of discouraging
others from making tender offers for the Company's shares, thereby inhibiting
increases in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provision also may have the effect of
preventing changes in the management of the Company. In addition, Section 203 of
the Delaware General Corporation Law, to which the Company is subject, restricts
certain business combinations with any "interested stockholder" as defined by
such statute. The statute may delay, defer or prevent a change in control of the
Company. See "Description of Capital Stock."

Shares Eligible for Future Sale; Registration Rights. Sales of a
substantial number of shares of Common Stock in the public market following this
offering could adversely affect the market price for the Company's Common Stock.
The number of shares of Common Stock available for sale in the public market is
limited by restrictions under the Securities Act of 1933, as amended (the
"Securities Act") and by lock-up agreements under which the holders of such
shares have agreed not to sell or otherwise dispose of any of their shares for a
period of 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated. However, Morgan Stanley & Co.
Incorporated may, in its sole discretion and at any time without notice, release
all or any portion of the securities subject to lock-up agreements. In the
absence of any early release from lock-up agreements by Morgan Stanley & Co.
Incorporated, substantially all of the outstanding shares of Common Stock other
than the 7,200,000 shares offered hereby will become eligible for sale 180 days
after the date of this Prospectus. In addition, the Company intends to register
on or promptly after the effective date of this offering a total of 5,658,988
shares of Common Stock reserved for issuance under the Company's stock option
plans. Further, upon expiration of the lock-up agreements referred to above,
holders of approximately 12,323,120 shares of Common Stock will be entitled to
certain registration rights

17
<PAGE> 18

with respect to such shares. If such holders, by exercising their registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have a material adverse effect on the market price for
the Company's Common Stock, and could adversely affect the Company's ability to
raise capital. See "Description of Capital Stock -- Registration Rights" and
"Shares Eligible for Future Sale."

No Prior Trading Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock of the Company,
and there can be no assurance that an active trading market will develop or
that, if one does develop, it will be maintained. The initial public offering
price, which has been established by negotiations between the Company, the
Selling Stockholders and the representatives of the Underwriters based upon a
number of factors, may not be indicative of prices that will prevail in the
trading market. See "Underwriters" for a discussion of the factors considered in
determining the initial public offering price. The market price of the shares of
Common Stock is likely to be highly volatile and may be significantly affected
by factors such as actual or anticipated fluctuations in the Company's operating
results or those of its competitors, competitive factors, new products offered
by the Company or its competitors, developments with respect to patents or
proprietary rights, conditions and trends in its industry and other related
industries, regulatory actions, adoption of new accounting standards, changes in
financial estimates by securities analysts, general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that may adversely affect the market
price of the Company's Common Stock. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against that company. Such
litigation, if brought against the Company, could result in substantial costs
and a diversion of management's attention and resources. See "Underwriters."

Immediate and Substantial Dilution. Investors participating in this
offering will incur immediate, substantial dilution in the amount of $12.79. To
the extent that options to purchase the Company's Common Stock are exercised,
there will be further dilution. See "Dilution."

18
<PAGE> 19

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,600,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$54.2 million, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company. The Company will not receive
any of the proceeds from the sale of Common Stock by the Selling Stockholders.
See "Principal and Selling Stockholders."

The Company intends to use approximately $22.0 million of the net proceeds
of this offering for expansion and automation of its manufacturing facilities.
See "Risk Factors -- Manufacturing Capacity Constraints; Risks Associated with
Expansion and Automation of Manufacturing Operations." In addition, the Company
expects to use a portion of the net proceeds to repay all of the debt
outstanding under the Company's Credit Agreement (the "Comerica Credit
Agreement") with Comerica Bank-California (approximately $13.5 million at June
30, 1997 and $11.5 million at July 31, 1997) and $2.9 million to repay
subordinated debt owed to John D. Fruth, the Company's President. As of June 30,
1997, the effective interest rate on the indebtedness under the Comerica Credit
Agreement was approximately 8.2% per annum. The amount outstanding under the
Comerica Credit Agreement was incurred on October 30, 1996 and utilized to repay
previously outstanding indebtedness. The debt owed to John D. Fruth was borrowed
from July 1986 to March 1990 to meet certain short-term operating cash
requirements, and bears interest at the prime rate plus 3%. This debt is due
upon the earlier of the consummation of this offering and November 1997. See
"Certain Transactions -- Loans from Mr. Fruth." The Company is also obligated,
upon the closing of this offering, to pay the remaining $6.7 million owed
pursuant to the settlement agreement in certain recent litigation in the United
Kingdom and California. See "Certain Transactions -- OSL Acquisition and Related
Litigation." The Company intends to use the remaining net proceeds of
approximately $11.1 million for other general corporate purposes, including
working capital. Pending such uses, the net proceeds of this offering will be
invested in short-term, interest-bearing, investment grade securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock, and the payment of cash dividends on its Common Stock is prohibited under
the Comerica Credit Agreement. Since January 31, 1993, the Company has paid
cumulative dividends quarterly on its Preferred Stock at the rate of $0.6975 per
share per annum. Upon the closing of this offering, all outstanding shares of
Preferred Stock will be converted into shares of Common Stock. The Company
currently expects to retain all future earnings for use in the operation and
expansion of its business and does not anticipate paying any cash dividends on
its capital stock in the foreseeable future.

19
<PAGE> 20

CAPITALIZATION

The following table sets forth, as of June 30, 1997, the capitalization of
the Company and the capitalization of the Company as adjusted to give effect to
(i) the conversion of all outstanding shares of Preferred Stock into shares of
Common Stock upon the closing of this offering, (ii) the sale of the 3,600,000
shares of Common Stock offered by the Company hereby and (iii) the application
of the net proceeds therefrom, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion:
Borrowings under the Comerica Credit Agreement(1).................... $13,501 $ --
Borrowings from John D. Fruth(2)..................................... 2,895 --
Note payable(1)...................................................... 1,973 1,973
Capital lease obligations and other(1)............................... 1,943 1,943
------- -------
Total long-term debt, including current portion................... 20,312 3,916
------- -------
Stockholders' equity:
Preferred stock, $0.001 par value; 4,000,000 shares authorized;
118,168 shares issued and outstanding, actual(3); none issued or
outstanding, as adjusted.......................................... 1 --
Common stock, $0.001 par value; 80,000,000 shares authorized;
16,589,990 shares issued and outstanding, actual; 20,426,326
shares issued and outstanding, as adjusted(4)..................... 16 20
Additional paid-in capital........................................... 8,457 62,616
Retained earnings.................................................... 22,299 22,299
Cumulative translation adjustment.................................... (286) (286)
------- -------
Total stockholders' equity........................................ 30,487 84,649
------- -------
Total capitalization............................................ $50,799 $88,565
======= =======
</TABLE>

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

(1) See Note 6 of Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

(2) John D. Fruth is the President of the Company. See Note 12 of Notes to
Consolidated Financial Statements.

(3) See Note 9 of Notes to Consolidated Financial Statements.

(4) Excludes (i) 3,079,694 shares of Common Stock issuable at a weighted average
exercise price of $1.76 per share upon exercise of stock options outstanding
as of June 30, 1997 under the 1989 Plan and 1992 Plan, (ii) 2,279,294 shares
of Common Stock reserved for future issuance under the 1997 Equity Incentive
Plan, (iii) 300,000 shares of Common Stock reserved for future issuance
under the 1997 Directors Stock Option Plan and (iv) 400,000 shares of Common
Stock reserved for future issuance under the 1997 Employee Stock Purchase
Plan. See "Management -- Director Compensation," "Management -- Employee
Benefit Plans," "Description of Capital Stock" and Notes 10 and 16 of Notes
to Consolidated Financial Statements.

20
<PAGE> 21

DILUTION

The pro forma net tangible book value of the Company as of June 30, 1997
was approximately $21.7 million or $1.29 per share of Common Stock. "Pro forma
net tangible book value" per share represents the amount of total tangible
assets less total liabilities, divided by the number of shares of Common Stock
then outstanding (giving pro forma effect to the conversion of all
then-outstanding shares of Preferred Stock into shares of Common Stock). After
giving effect to the sale by the Company of the 3,600,000 shares of Common Stock
offered by the Company hereby (after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company), the
Company's pro forma net tangible book value as of June 30, 1997 would have been
approximately $75.8 million, or $3.71 per share of Common Stock. This represents
an immediate increase in pro forma net tangible book value of $2.42 per share to
existing stockholders and an immediate dilution of $12.79 per share to new
investors purchasing shares of Common Stock in this offering. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share.................... $16.50
Pro forma net tangible book value per share at June 30,
1997.................................................. $ 1.29
Increase in pro forma net tangible book value per share
attributable to new investors......................... 2.42
------
Pro forma net tangible book value per share after
offering................................................. 3.71
------
Dilution per share to new public investors................. $12.79
======
</TABLE>

The following table summarizes, on a pro forma basis, as of June 30, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing stockholders and by new public investors purchasing shares in this
offering (before deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company):

<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
-------------------- --------------------- AVERAGE
NUMBER(1) PERCENT AMOUNT PERCENT PRICE PER SHARE
---------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1).... 16,826,326 82.4% $ 8,098,000 12.0% $ 0.48
New public
investors(1)....... 3,600,000 17.6 59,400,000 88.0 16.50
---------- ----- ----------- -----
Total...... 20,426,326 100.0% $67,498,000 100.0%
========== ===== =========== =====
</TABLE>

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

(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares of Common Stock held by existing stockholders to 13,226,326, or
approximately 64.8% of the total shares of Common Stock outstanding
immediately after this offering, and will increase the number of shares of
Common Stock held by new investors to 7,200,000, or 35.2% of the total
number of shares of Common Stock outstanding immediately after this
offering. See "Principal and Selling Stockholders."

The foregoing computations assume no exercise of stock options outstanding
as of June 30, 1997. As of June 30, 1997, there were options outstanding to
purchase a total of 3,079,694 shares of Common Stock at a weighted average
exercise price of $1.76 per share. To the extent that any of these options are
exercised, there will be further dilution to new public investors. See
"Management -- Director Compensation," "Management -- Employee Benefit Plans"
and Notes 10 and 16 of Notes to Consolidated Financial Statements.

21
<PAGE> 22

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus. The selected data
presented below under the captions "Consolidated Statement of Operations Data"
and "Consolidated Balance Sheet Data" for, and as of the end of, each of the
years in the five-year period ended December 31, 1996 are derived from the
consolidated financial statements of the Company, which consolidated financial
statements have been audited by KPMG Peat Marwick LLP, independent certified
public accountants. The consolidated financial statements as of December 31,
1995 and 1996, and for each of the years in the three-year period ended December
31, 1996, and the report thereon, are included elsewhere in this Prospectus. The
consolidated balance sheet data as of June 30, 1997, and consolidated statement
of operations data for the six months ended June 30, 1996 and 1997, are derived
from unaudited consolidated financial statements included elsewhere in this
Prospectus that have been prepared on the same basis as the audited consolidated
financial statements, and, in the opinion of management, contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's consolidated operating results and financial
position. The consolidated operating results for the six months ended June 30,
1997 are not necessarily indicative of the results to be expected for any other
interim period or any future fiscal year.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................ $16,548 $38,533 $48,503 $68,087 $90,509 $38,850 $52,969
Cost of sales........................................ 11,826 24,673 22,553 26,820 36,553 15,927 20,420
------- ------- ------- ------- ------- ------- -------
Gross profit....................................... 4,722 13,860 25,950 41,267 53,956 22,923 32,549
Selling and marketing expenses....................... 2,035 4,122 6,405 11,728 18,101 8,241 11,972
General and administrative expenses.................. 3,697 10,509 11,087 14,287 18,420 8,813 10,075
Reorganization costs................................. -- 746 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations(1)................... (1,010) (1,517) 8,458 15,252 17,435 5,869 10,502
Interest expense..................................... (841) (3,328) (3,128) (3,024) (3,216) (1,556) (949)
Interest income...................................... -- 65 123 280 132 69 67
Other (expense) income, net.......................... (288) (1) (416) 151 (186) 156 37
------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes......................... (2,139) (4,781) 5,037 12,659 14,165 4,538 9,657
Income taxes......................................... (755) 368 -- (3,869) (3,989) (1,278) (2,897)
------- ------- ------- ------- ------- ------- -------
Net income (loss).................................. (2,894) (4,413) 5,037 8,790 10,176 3,260 6,760
Preferred stock dividends............................ -- (96) (82) (82) (82) (41) (41)
------- ------- ------- ------- ------- ------- -------
Net income (loss) applicable to common
stockholders..................................... $(2,894) $(4,509) $ 4,955 $ 8,708 $10,094 $ 3,219 $ 6,719
======= ======= ======= ======= ======= ======= =======
Pro forma net income per share(2).................... $ 0.52 $ 0.35
======= =======
Shares used in computing pro forma net income per
share(2)........................................... 19,527 19,554
======= =======
OTHER DATA:
Lenses sold for disposable replacement regimens as a
percentage of total lenses sold.................... 15.2% 19.1% 53.0% 73.4% 83.5% 81.9% 88.3%
Depreciation and amortization........................ $ 400 $1,775 $2,137 $ 2,578 $ 4,904 $1,963 $3,525
Capital expenditures................................. 1,049 2,489 2,153 13,558 12,256 7,273 6,022
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------- AS OF
1992 1993 1994 1995 1996 JUNE 30, 1997
------- ------- ------- ------- ------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash............. $ 5,197 $ 3,774 $ 9,639 $ 5,346 $ 5,541 $ 4,473
Working capital........................................ 19,251 13,957 17,305 11,913 15,118 3,957
Total assets........................................... 35,892 32,191 35,645 50,874 63,503 74,409
Total debt............................................. 26,077 24,772 22,863 22,911 22,740 20,312
Stockholders' equity (deficit)......................... 4,096 (403) 4,447 13,292 23,889 30,487
</TABLE>

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

(1) Loss from operations for 1992 and 1993 includes non-recurring charges of
$2.1 million and $4.4 million, respectively, related to writedowns in the
carrying value of certain assets purchased in connection with the Company's
acquisition of American Hydron.

(2) For an explanation of the determination of the number of shares used in
computing pro forma net income per share, see Note 2 of Notes to
Consolidated Financial Statements.

22
<PAGE> 23

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

The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. The following discussion contains forward-looking statements. The
Company's actual results may differ significantly from those projected in the
forward-looking statements. Factors that might cause future actual results to
differ materially from the Company's recent results or those projected in the
forward-looking statements include, but are not limited to, those discussed in
"Risk Factors" and below. The Company assumes no obligation to update the
forward-looking statements or such factors.

OVERVIEW

The Company's products compete in both the disposable and annual
replacement segments of the soft contact lens market. Since the Company was
incorporated in 1985, its strategy has been to market high-quality contact
lenses to eyecare practitioners at competitive prices using a low cost-to-serve
operating structure. Until 1992, the Company was principally a distributor of
contact lenses. In September 1992, the Company became an integrated contact lens
company by acquiring the primary supplier of its lenses, Precision Lens
Laboratories Ltd. ("PLL"), a United Kingdom-based company now called Ocular
Sciences Ltd. ("OSL"). In connection with the acquisition, PLL entered into a
royalty-bearing patent license with certain of the prior owners of PLL related
to the cast molding of contact lenses and agreed to supply lenses to Aspect
Vision Care Ltd. ("AVCL"), a United Kingdom-based contact lens distributor
controlled by certain of such owners. This license provided the Company with the
technology to manufacture high-quality contact lenses at significantly lower per
unit production costs than it could previously achieve. In connection with these
agreements, PLL agreed not to sell certain contact lenses covered by these
agreements to third parties in the United Kingdom and to pay an additional
royalty for certain sales to contact lens manufacturers, and AVCL agreed not to
sell such lenses in North and South America. See "Certain Transactions -- OSL
Acquisition and Related Litigation."

In October 1992, the Company acquired the contact lens business in North
and South America of Allergan, Inc., which had been operating under the name
American Hydron. This acquisition provided the Company with a significantly
expanded customer base, an additional line of contact lens products and a
manufacturing facility in Puerto Rico. The purchase price was $24.5 million,
including acquisition costs of $1.2 million. The transaction and working capital
requirements were financed by the issuance of $5.0 million in Common Stock, $1.0
million in Preferred Stock and $22.7 million in senior secured and senior
subordinated notes and warrants to purchase common stock to the seller and a
separate investor group. The senior secured notes were repaid from bank
borrowings in 1993 and the senior subordinated notes were repaid with borrowings
under the Comerica Credit Agreement, which the Company entered into in October
1996. The Company intends to repay all of the outstanding borrowings under the
Comerica Credit Agreement ($13.5 million as of June 30, 1997) with a portion of
the net proceeds of this offering. See "Use of Proceeds." The American Hydron
acquisition resulted in goodwill and other intangible assets of $3.4 million,
all of which will be fully amortized by the end of 1997. See "Certain
Transactions -- Allergan/American Hydron Acquisition; Galen Financing."

Prior to the summer of 1993, the Company derived a substantial majority of
its sales from lenses for annual replacement regimens and the remainder of its
sales from lenses for monthly disposable replacement regimens. In the third
quarter of 1993, the Company began selling lenses for weekly disposable
replacement regimens. Since that time, substantially all of the Company's growth
in net sales has resulted from sales of lenses for disposable replacement
regimens, primarily weekly disposable replacement regimens. In the first quarter
of 1995, the Company introduced a second line of lenses for weekly disposable
replacement regimens. The Company's lenses for disposable replacement regimens
historically have had lower selling prices and gross margins and are sold in
much greater volumes than its lenses for annual replacement regimens. In the
first six months of 1997, lenses for disposable replacement regimens accounted
for approximately 88.3% of the Company's unit volume and 73.8% of net sales. See
"Risk Factors -- Dependence on Single Product Line; Need to Increase Sales of
Lenses for Disposable Replacement Regimens." The Company's international sales

23
<PAGE> 24

represented 18.1% and 20.5% of the Company's net sales in 1996 and the six
months ended June 30, 1997, respectively, and are growing somewhat faster than
domestic sales as the Company establishes partnering and distributor
relationships abroad. See "Risk Factors -- Risks Relating to International
Operations; Need to Increase Sales in International Markets." In 1996,
approximately 54% of the Company's U.S. net sales came from sales to
ophthalmologists, optometrists and the distributors that sell to such
practitioners, and approximately 46% of the Company's U.S. net sales came from
sales to chain stores and mass merchants.

In May 1994, the Company and OSL commenced a litigation in the United
Kingdom against certain of the persons who sold OSL to the Company, including
Geoffrey and Anthony Galley, AVCL and certain related parties, for actions taken
after the acquisition. Certain of the defendants in that action brought suit
against OSL in a related patent infringement action. The Company also brought an
action in the United States against certain of the individuals that it had sued
in the United Kingdom (these suits, collectively, the "U.K. Litigation"). In
February 1997, the Company entered into a settlement agreement providing for,
among other things, (i) a mutual release and termination of all pending
litigation, (ii) the replacement of the previous patent license with a new,
fully paid, non-exclusive patent license that does not contain any restrictions
on the Company's ability to sell lenses to other contact lens manufacturers,
(iii) the grant by OSL to AVCL and the patent owners of a royalty-free,
non-exclusive license to certain OSL technology, (iv) the termination of OSL's
obligation to supply contact lenses to AVCL and (v) the elimination of the
geographic limitation on OSL's and AVCL's ability to sell certain contact
lenses. In connection with the settlement, the Company paid $3.3 million to the
defendants and agreed to pay an additional $6.7 million upon the earlier of
February 27, 1998 or the sale of the Company's Common Stock in an initial public
offering. The Company has allocated $8.8 million of the total consideration paid
to the defendants to identifiable intangible assets as of the date of the
settlement based on their relative fair market values. See Note 14 of Notes to
Consolidated Financial Statements. The Company plans to amortize these
intangible assets amount over a ten-year period. In connection with the U.K.
Litigation, the Company incurred legal expenses of $549,000, $1.3 million and
$2.5 million in 1994, 1995 and 1996 and $649,000 and $52,000 for the six months
ended June 30, 1996 and 1997, respectively, which are included in the Company's
general and administrative expenses. See "Certain Transactions -- OSL
Acquisition and Related Litigation."

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain line items in the Company's Consolidated
Statements of Income.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 46.5 39.4 40.4 41.0 38.6
----- ----- ----- ----- -----
Gross margin..................... 53.5 60.6 59.6 59.0 61.4
Selling and marketing expenses..... 13.2 17.2 20.0 21.2 22.6
General and administrative
expenses......................... 22.9 21.0 20.3 22.7 19.0
----- ----- ----- ----- -----
Income from operations........... 17.4 22.4 19.3 15.1 19.8
Interest and other expense, net.... (7.0) (3.8) (3.6) (3.4) (1.6)
----- ----- ----- ----- -----
Income before taxes.............. 10.4 18.6 15.7 11.7 18.2
Income taxes....................... -- (5.7) (4.4) (3.3) (5.4)
----- ----- ----- ----- -----
Net income....................... 10.4% 12.9% 11.3% 8.4% 12.8%
===== ===== ===== ===== =====
</TABLE>

Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996

Net Sales. Net sales represents gross sales less volume discounts, trial
set discounts, prompt payment discounts and allowances for sales returns. The
Company recognizes sales upon shipment of products to its customers. Discounts
and allowances for sales returns are accrued at the time sales are recognized.
Net sales increased 36.3% to $53.0 million in the six months ended June 30, 1997
from $38.9 million in the six months

24
<PAGE> 25

ended June 30, 1996. Substantially all of this growth resulted from increased
sales of the Company's lenses marketed for weekly disposable replacement
regimens. Unit sales of the Company's lenses for annual replacement regimens
remained virtually constant between the comparison periods. The prices of each
of the Company's primary products did not decrease significantly between the
comparison periods. However, as a result of a shift in product mix from lenses
marketed for annual replacement to lower priced lenses marketed for disposable
replacement, the Company's overall average selling price declined approximately
11%. The Company expects that the overall average selling price that it realizes
across its products will decline over time because of (i) shifts in the
Company's product mix from lenses for annual replacement regimens to lenses for
disposable replacement regimens and, within its disposable lenses, to lenses
that are replaced more frequently, (ii) decreases in the prices of lenses for
disposable replacement regimens and (iii) increases in products sold
internationally through distributors at prices lower than direct sales prices in
the United States. The Company does not expect there to be significant growth in
its sales of lenses for annual replacement. The Company does not believe that
its net sales growth rate from the six months ended June 30, 1996 to the six
months ended June 30, 1997 is indicative of the Company's long-term sales growth
rate.

Gross Profit. Cost of sales is comprised primarily of the overhead,
material and labor costs of production and packaging, freight and duty,
inventory reserves, royalties to third parties and amortization of certain
intangible assets. A substantial portion of the Company's cost of sales is fixed
and therefore declines as a percentage of net sales as volume increases. Gross
profit increased 42.0% to $32.5 million, or 61.4% of net sales, in the six
months ended June 30, 1997 from $22.9 million, or 59.0% of net sales, in the six
months ended June 30, 1996. The Company's per unit production cost reductions
resulting from manufacturing volume increases and process improvements were
slightly greater than the Company's overall average selling price decline,
resulting in improved margins. The Company anticipates that its overall average
selling price will decline over time and anticipates higher depreciation as a
result of significantly increased investment in property and equipment, which
will increase its cost of sales. Accordingly the Company will need to continue
to reduce its per unit production costs through increased automation, increased
volume and reduced packaging costs in order to improve, or even to maintain, its
gross margins. See "Risk Factors -- Manufacturing Capacity Constraints; Risks
Associated With Expansion and Automation of Manufacturing Operations."

Selling and Marketing Expenses. Selling and marketing expenses are
comprised primarily of cooperative merchandising allowances, salaries,
commissions and benefits for selling and marketing personnel, sample diagnostic
products provided to eyecare practitioners without charge and postage and
freight charges not billed to customers. Cooperative merchandising allowances
are reimbursements made principally to chain stores and mass merchants for items
such as advertising, displays and mailings that are intended to encourage the
fitting and wearing of the Company's lenses for disposable replacement regimens.
These allowances are limited to a percentage of purchases of lenses for
disposable replacement regimens from the Company. Selling and marketing expenses
increased 45.3% to $12.0 million, or 22.6% of net sales, in the six months ended
June 30, 1997 from $8.2 million, or 21.2% of net sales, in the six months ended
June 30, 1996. Nearly half of the dollar increase and substantially all of the
increase in the percentage of net sales resulted from increases in cooperative
merchandising allowances. An additional portion of the dollar increase came from
increased selling and marketing expenses in the United Kingdom and Canada and
increased shipments of diagnostic lenses to eyecare practitioners without
charge. The Company expects that it will continue to increase cooperative
merchandising allowances as a percentage of net sales in order to seek further
market share increases and, as a result, that selling and marketing expenses
will increase as a percentage of net sales.

General and Administrative Expenses. General and administrative expenses
are comprised primarily of salaries and benefits for distribution personnel,
general and administrative personnel, research and development personnel,
professional services, consultants' fees and non-manufacturing facilities costs.
General and administrative expenses increased 14.3% to $10.1 million in the six
months ended June 30, 1997 from $8.8 million in the six months ended June 30,
1996, but declined as a percentage of net sales from 22.7% to 19.0%. The
majority of the dollar increase came from sales and use tax provisions, higher
salaries and benefits to employees, fees to regulatory consultants and increased
depreciation. Substantially all of the decrease in the percentage of net sales
came from reductions in professional fees, partially as a result of the
settlement of the U.K. Litigation in February 1997. The Company believes that
its general and administrative expenses will

25
<PAGE> 26

increase as a result of expenses associated with being a public company and
amortization of intangible assets acquired in connection with the settlement of
the U.K. Litigation.

Interest and Other Expense, Net. Interest and other expense, net decreased
36.5% to $845,000, or 1.6% of net sales, in the six months ended June 30, 1997,
from $1.3 million, or 3.4% of net sales, in the three months ended March 31,
1996. This decrease primarily resulted from a reduction in the aggregate amount
of the Company's borrowings.

Income Taxes. Income taxes were $2.9 million in the six months ended June
30, 1997 and $1.3 million in the six months ended June 30, 1996 and income taxes
as a percentage of income before taxes increased to 30.0% in the six months
ended June 30, 1997 from 28.2% in the six months ended June 30, 1996. The
absolute level of the Company's effective tax rate is affected favorably by
earnings attributable to the Company's Puerto Rican operations, which are
partially exempt from United States income taxation. The Company anticipates
that it will continue to benefit from this favorable effect through 2001, when
the benefit of this exemption will expire for the Company under the current
provisions of the statute. Pending federal legislation would, if adopted, extend
this exemption beyond 2001 or replace it with other tax benefits after that
year. In addition, the Company's planned installation of highly automated
production lines in Puerto Rico could cause an increase in the Company's tax
rate if the automation results in a significant reduction in the Company's labor
costs in Puerto Rico in relation to its Puerto Rican earnings. See Note 11 of
Notes to Consolidated Financial Statements.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Net Sales. Net sales increased 32.9% to $90.5 million in 1996 from $68.1
million in 1995. Substantially all of this growth resulted from increased sales
of the Company's weekly disposable lens products. The overall average price of
the Company's lenses for weekly disposable replacement regimens was similar in
1995 and 1996. The Company's sales of lenses for annual replacement regimens
declined slightly in both volume and average price from 1995 to 1996.

Gross Profit. Gross profit increased 30.8% to $54.0 million in 1996 from
$41.3 million in 1995, but gross margin decreased to 59.6% in 1996 from 60.6% in
1995. Gross margin declined primarily as a result of a faster decrease in
overall average selling price than decreases in unit cost of sales. The
reduction in overall average selling price of 13.2% was caused by an increased
percentage of lenses for disposable replacement regimens, which have lower
prices, and an increased percentage of lower-priced international distributor
sales in the Company's product mix. Implementation of certain manufacturing
process improvements was delayed by an unrelated postponement by the FDA of its
GMP inspection of the Company's new United Kingdom facility, and this delay
prevented the reduction in cost of sales from completely offsetting the
reduction in average selling price as planned. Additionally, the Company
recorded provisions in 1996 totalling approximately $500,000 related to start-up
and scrap costs in connection with the transition from vial to blister packaging
of the Company's lenses for disposable replacement regimens.

Selling and Marketing Expenses. Selling and marketing expenses increased
54.3% to $18.1 million in 1996 from $11.7 million in 1995, while increasing to
20.0% of net sales in 1996 from 17.2% of net sales in 1995. A combination of
increased expenditures for cooperative merchandising allowances and, to a lesser
extent, for Company-paid freight caused both by an increase in volume and by the
need to fulfill product backorders rapidly and for shipments of diagnostic
lenses to eyecare practitioners without charge accounted for $4.6 million of the
year-to-year increase. Both the shipment of free diagnostic lenses and the
payment of cooperative merchandising allowances were factors related to the
Company's sales of disposable lenses, which grew at rates in excess of the
Company's overall net sales volume. The increase in cooperative merchandising
allowances accounted for substantially all of the increase in selling and
marketing expenses as a percentage of net sales, with increases in advertising
and promotion accounting for the remainder.

General and Administrative Expenses. General and administrative expenses
increased 28.9% to $18.4 million in 1996 from $14.3 million in 1995, but
decreased as a percentage of net sales to 20.3% from 21.0%. Legal expenses
related to the U.K. Litigation and the expense of the associated settlement
accounted for $1.2 million of the year-to-year dollar increase in general and
administrative expenses. Most of the

26
<PAGE> 27

remaining increase resulted from increases in building and utilities expenses,
salaries and benefits for general and administrative personnel and professional
fees. Excluding expenses of the U.K. Litigation, general and administrative
expenses would have decreased to 17.6% of net sales in 1996 from 19.0% of net
sales in 1995. This decrease was the result of limited growth in distribution
expenses relative to the growth in net sales and absolute declines in the dollar
amounts of amortization of goodwill and other intangibles and of research and
development expenses.

Income From Operations. Income from operations increased 14.3% to $17.4
million in 1996 from $15.3 million in 1995 but decreased to 19.3% of net sales
in 1996 from 22.4% of net sales in 1995. Excluding expenses of the U.K.
Litigation, income from operations in 1996 would have been 22.0% of net sales,
as compared to 24.3% of net sales in 1995.

Interest and Other Expense, Net. Interest and other expense, net increased
to $3.3 million in 1996 from $2.6 million in 1995 as a result of an increase in
interest expense, a decrease in interest income and a decrease in other income.

Income Taxes. Income taxes were $4.0 million in 1996 and $3.9 million in
1995. Income taxes declined as a percentage of income before taxes to 28.2% in
1996 from 30.6% in 1995. This reduction in the Company's effective income tax
rate resulted from an increase in earnings attributable to the Company's Puerto
Rican operations, which are partially exempt from United States income taxation.

Net Income. Net income increased 15.8% to $10.2 million in 1996 from $8.8
million in 1995. Excluding expenses of the U.K. Litigation, net income would
have increased $2.3 million or 23.5% from 1995 to 1996.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Net Sales. Net sales increased 40.4% to $68.1 million in 1995 from $48.5
million in 1994. This growth in net sales resulted primarily from introduction
of the Company's 55% water lens for weekly disposable replacement regimens in
the first quarter of 1995 and continued increases in unit sales of the Company's
38% water lens for weekly disposable replacement regimens and, to a
significantly lesser extent, unit sales of the Company's daily-wear annual
replacement lenses.

Gross Profit. Gross profit increased to $41.3 million in 1995 from $26.0
million in 1994, while gross margin increased to 60.6% in 1995 from 53.5% in
1994. Gross margin improved because of per unit production cost declines
resulting from manufacturing volume increases and process improvements. These
per unit production cost declines more than offset a significant reduction in
overall average selling price caused by the increased percentage of lower-priced
disposable products in the Company's product mix. The Company incurred no
significant start-up costs from the launch of its second weekly disposable lens
product, and maintained historical product return and sales allowance rates as
well as provisions for excess and obsolete inventory.

Selling and Marketing Expenses. Selling and marketing expenses increased
83.1% to $11.7 million in 1995 from $6.4 million in 1994, while increasing to
17.2% of net sales in 1995 from 13.2% of net sales in 1994. A combination of
increased staffing levels in the United States, shipment of diagnostic lenses to
eyecare practitioners without charge, cooperative merchandising allowances and
company-paid freight caused largely by fulfillment of product backorders
accounted for $4.3 million of the year-to-year dollar increase and a substantial
majority of the increase in percentage of net sales. Both the shipment of free
diagnostic lenses and the payment of cooperative merchandising allowances were
factors related to the Company's sales of disposable lenses, which grew more
rapidly than the Company's overall net sales volume.

General and Administrative Expenses. General and administrative expenses
increased 28.9% to $14.3 million in 1995 from $11.1 million in 1994 but
decreased to 21.0% of net sales in 1995 from 22.9% of net sales in 1994.
Increased staffing levels in the Company's distribution center and finance
department, together with increases in depreciation and amortization related to
increased capital expenditures, accounted for $1.8 million of the increase.
Legal fees for the U.K. Litigation accounted for $771,000 of the year-to-year
increase. Excluding expenses of the U.K. Litigation, general and administrative
expenses declined from 21.7% of net sales in 1994 to 19.0% of net sales in 1995.

27
<PAGE> 28

Income From Operations. Income from operations increased 80.3% to $15.3
million in 1995 from $8.5 million in 1994, while increasing to 22.4% of net
sales in 1995 from 17.4% of net sales in 1994. Excluding expenses of the U.K.
Litigation, income from operations would have increased to 24.3% of net sales in
1995 from 18.6% of net sales in 1994.

Interest and Other Expense, Net. Interest and other expense, net decreased
to $2.6 million in 1995 from $3.4 million in 1994 as a result of lower
borrowings under the Company's credit facility, increased interest income on
higher cash and cash equivalent balances and increased other income.

Income Taxes. Income taxes in 1995 were $3.9 million or 30.6% of income
before taxes. In 1994, the Company did not record a tax provision because of
operating loss carryforwards from prior years. Those losses were fully utilized
in 1994. The effective tax rate for 1995 was below the combined federal and
state statutory rates, principally as a result of earnings attributable to the
Company's Puerto Rican operations, which are partially exempt from U.S. income
taxation.

Net Income. Net income increased 74.5% to $8.8 million in 1995 from $5.0
million in 1994. Excluding expenses of the U.K. Litigation, net income would
have increased 73.8% to $9.7 million in 1995 from $5.6 million in 1994.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth the consolidated statements of income of the
Company for its nine most recent quarters. In the opinion of management, this
unaudited consolidated financial information has been prepared on the same basis
as the audited consolidated financial information, and includes all adjustments
(consisting only of normal, recurring adjustments) necessary to present this
information fairly when read in conjunction with the Company's consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
The operating results for any quarter are not necessarily indicative of results
for any future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $ 16,408 $18,249 $ 19,537 $17,176 $ 21,674 $25,600 $ 26,059 $23,879 $ 29,090
Cost of sales................ 7,036 6,722 6,904 6,891 9,037 10,207 10,418 9,462 10,958
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 9,372 11,527 12,633 10,285 12,637 15,393 15,641 14,417 18,132
Selling and marketing
expenses................... 2,975 2,923 3,238 3,723 4,519 4,765 5,094 5,774 6,198
General and administrative
expenses................... 3,649 3,875 3,486 4,340 4,473 4,649 4,958 5,399 4,676
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations..... 2,748 4,729 5,909 2,222 3,645 5,979 5,589 3,244 7,258
Interest and other expense,
net........................ (611) (704) (635) (689) (643) (963) (975) (641) (204)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before taxes........ 2,137 4,025 5,274 1,533 3,002 5,016 4,614 2,603 7,054
Income taxes................. (641) (1,351) (1,510) (429) (847) (1,415) (1,298) (781) (2,116)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................. $ 1,496 $ 2,674 $ 3,764 $ 1,104 $ 2,155 $ 3,601 $ 3,316 $ 1,822 $ 4,938
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

AS A PERCENTAGE OF NET SALES

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................ 42.9 36.8 35.3 40.1 41.7 39.9 40.0 39.6 37.7
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross margin............... 57.1 63.2 64.7 59.9 58.3 60.1 60.0 60.4 62.3
Selling and marketing
expenses................... 18.1 16.0 16.6 21.7 20.9 18.6 19.6 24.2 21.3
General and administrative
expenses................... 22.3 21.3 17.8 25.3 20.6 18.1 19.0 22.6 16.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from operations..... 16.7 25.9 30.3 12.9 16.8 23.4 21.4 13.6 25.0
Interest and other expense,
net........................ (3.7) (3.8) (3.3) (4.0) (3.0) (3.8) (3.7) (2.7) (0.7)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before taxes........ 13.0 22.1 27.0 8.9 13.8 19.6 17.7 10.9 24.3
Income taxes................. (3.9) (7.4) (7.7) (2.5) (3.9) (5.5) (5.0) (3.3) (7.3)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income................. 9.1% 14.7% 19.3% 6.4% 9.9% 14.1% 12.7% 7.6% 17.0%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

28
<PAGE> 29

The Company's quarterly operating results have varied in the past and are
likely to vary in the future significantly based upon a number of factors. The
Company's historical sales have exhibited significant seasonality, with the
third and fourth quarters having the highest net sales in any year and the first
quarter of the following year having lower net sales than the preceding two
quarters. The Company believes that the seasonality of its quarterly results is
primarily due to consumer buying habits. The Company believes that the
historical increase in sales of its products in the third and fourth quarters
have been due to late summer (back-to-school) purchases by consumers and to
higher traffic in the fourth quarter through malls and mass merchandisers with
optical outlets. The Company further believes that the historical decline in the
first quarter has been due to reduced consumer buying in the post-holiday
season. In addition, due to the relatively high proportion of the Company's
fixed costs to its total costs, the Company's level of profitability has
historically increased significantly with increasing sales volumes, resulting in
disproportionately better results in the second half of each year. There can be
no assurance that these patterns will not continue in future years, although the
pattern may be somewhat less pronounced if the Company continues to increase the
proportion of sales represented by more frequently replaced lenses for
disposable replacement regimens. See "Risk Factors -- Fluctuations In Operating
Results; Seasonality; Decreasing Average Sales Prices."

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require, a fair market value-based method of accounting for employee
stock options or similar equity instruments. The Company has elected to continue
to measure compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," as was previously required, and to
comply with pro forma disclosure of net income and earnings per share as if the
fair market value-based method of accounting had been applied.

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS 128 supersedes APB Opinion No. 15, "Earnings Per
Share," and specifies the computation, presentation, and disclosure requirements
for earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. It replaces the presentation of primary EPS with a
presentation of basic EPS and replaces the presentation of fully diluted EPS
with a presentation of diluted EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. The Company will adopt SFAS 128 for its interim and
annual consolidated financial statements that end after December 15, 1997 and
will restate all prior period earnings per share data. The Company expects that
its basic earnings per share will be greater than primary earnings per share and
diluted earnings per share will be substantially similar to the pro forma net
income per share disclosed in the consolidated financial statements included
elsewhere in this Prospectus.

LIQUIDITY AND CAPITAL RESOURCES

From January 1, 1994 to June 30, 1997, the Company's cash flows from
operating activities have been sufficient to fund substantially all of the
Company's cash requirements. Over this period, the Company generated cash-based
earnings (net income plus depreciation and amortization) of $43.9 million, which
were utilized to make purchases of property, plant and equipment of $34.0
million and to effect net repayments of long-term debt of $5.0 million. A
provision has been made for income taxes on unremitted earnings of subsidiaries
except in cases in which earnings of foreign subsidiaries are deemed to be
invested indefinitely. Such earnings would become taxable and payable upon the
sale or liquidation of these subsidiaries or upon remittance of dividends.
Although it is not practical to estimate the amount of additional tax that might
be payable upon such events, credits for foreign income taxes paid will be
available, at tax rates substantially equal to any resulting U.S. tax liability.
Net cash provided by operating activities was $10.0 million in 1994, $9.5
million in 1995, $12.7 million in 1996 and $10.7 million in the first six months
of 1997.

Working capital increased from $11.9 million at December 31, 1995 to $15.1
million at December 31, 1996 and then decreased to $4.0 million at June 30,
1997. The increase from 1995 to 1996 was primarily

29
<PAGE> 30

caused by an increase in accounts receivable offset in part by an increase in
accrued liabilities. The decrease from 1996 to 1997 was primarily the result of
an increase in accrued liabilities associated with the settlement of the U.K.
Litigation. At June 30, 1997, the Company had a cash and cash equivalents
balance of $4.0 million and restricted cash of $455,000 held in escrow for the
rent of the Company's United Kingdom facility.

In 1994, 1995, 1996 and the first six months of 1997, net cash provided by
operating activities was derived principally from net income of $5.0 million,
$8.8 million, $10.2 million and $6.8 million, respectively, adjusted for
depreciation and amortization of $2.1 million, $2.6 million, $4.9 million and
$3.5 million, respectively, offset by changes in operating assets and
liabilities.

Net cash used in investing activities in 1994, 1995, 1996 and the first six
months of 1997 was $2.1 million, $15.9 million, $11.5 million and $8.1 million.
In 1994, 1995 and 1996, substantially all of this net cash was used to purchase
property and equipment. In the first six months of 1997, the Company used $3.3
million to purchase intangible assets as part of the settlement of the U.K.
Litigation and $6.0 million to purchase property and equipment. Net cash used in
financing activities in 1994, 1995, 1996 and the first six months of 1997 was
$2.0 million, $217,000, $316,000 and $2.4 million. In each of these periods, net
cash was used primarily for net repayments of long-term debt.

Under the Comerica Credit Agreement, as of June 30, 1997, the Company had
outstanding $8.0 million principal amount of loans under a term loan facility
and $5.5 million principal amount of loans under a revolving line of credit
facility, all of which bore interest as of such date at a rate of approximately
8.2% per annum. The Company will utilize a portion of the net proceeds from this
offering to repay these loans in full. See "Use of Proceeds" and Note 6 of Notes
to Consolidated Financial Statements. Following the closing of this offering,
the Company intends to amend the Comerica Credit Agreement and has received a
commitment from Comerica Bank-California for an amended and restated credit
agreement (the "Amended Credit Agreement") under which the Company could borrow
up to $20 million in revolving credit loans. Outstanding borrowings under the
Amended Credit Agreement are expected to fluctuate based on investment levels in
working capital and property and equipment. The Company expects that the Amended
Credit Agreement will terminate on June 30, 2000, and will be secured by a
pledge of stock of the Company's subsidiaries. Following the closing of this
offering, borrowings under the Amended Credit Agreement would bear interest at
Comerica's prime rate or at Comerica's Eurodollar rate plus a specified margin
that varies based on the Company's ratio of debt to tangible net worth. The
Company's Puerto Rican subsidiary also has a credit facility with Banco Bilbao
de Vizcaya, Puerto Rico ("BBV"), under which it may borrow up to $5.8 million
for the construction and development of a new manufacturing facility in Puerto
Rico and the purchase of new equipment. This loan is guaranteed by the Company,
matures in December 1997 and is secured by the machinery and equipment purchased
with the loan proceeds. As of June 30, 1997, the Company's Puerto Rican
subsidiary had loans with a principal amount of $2.0 million outstanding under
this facility. The Company is negotiating with BBV for an increase in the size
and extension of the maturity of this facility. The Company's Puerto Rican
subsidiary has received a commitment from the Government Development Bank for
Puerto Rico (the "GDB") to provide up to $10.0 million of long-term loans to
refinance its borrowings from BBV upon completion of the new manufacturing
facility, and the Company is currently negotiating with the BBV for a
corresponding increase in its commitment. See Note 6 of Notes to Consolidated
Financial Statements. The Company's new financing arrangements with Comerica
Bank -- California and the GDB are subject to definitive documentation and
certain other conditions, and no assurance can be given as whether, or on what
terms, the Company will enter into such arrangements.

The Company is obligated to pay the remaining $6.7 million owed under the
settlement agreement in the U.K. Litigation upon the closing of this offering.
See "Certain Transactions -- OSL Acquisition and Related Litigation." The
Company also intends to use a portion of the net proceeds of this offering to
repay a $2.9 million note to John D. Fruth, the Company's President. In
addition, the Company is obligated to make minimum base payments on
noncancelable operating leases of $2.3 million, $2.2 million and $2.1 million in
1997, 1998 and 1999, respectively. Finally, the Company has existing commitments
to make capital expenditures of $2.9 million and expects to make additional
capital expenditures of $40.6 million through 1998, primarily to add highly
automated production lines at its facility in the United Kingdom and for
equipment and leasehold improvements at its planned new facility in Puerto Rico.
See "Use of Proceeds."

30
<PAGE> 31

The Company believes that the net proceeds from this offering, together
with its current cash and cash equivalents, further borrowings available under
its credit facilities and its anticipated net cash flow from operations, will be
sufficient to meet its anticipated cash needs for working capital, contractual
commitments and capital expenditures for at least the next 12 months. If cash
generated from operations proves insufficient to satisfy the Company's liquidity
requirements, the Company may seek to sell additional equity or debt securities
or obtain another credit facility. The sale of additional equity or convertible
debt securities could result in additional dilution to the Company's
stockholders. The sale of additional debt or further bank borrowings could
subject the Company to additional restrictive financial covenants and
restrictions on the payment of dividends. There can be no assurance that
financing will be available to the Company in amounts or on terms acceptable to
the Company, if at all.

31
<PAGE> 32

BUSINESS

The Company is a rapidly growing manufacturer and marketer of soft contact
lenses. The Company manufactures a broad line of soft contact lenses for annual
and disposable replacement regimens. The Company believes that its lens designs
provide wearers with a higher level of comfort and greater ease of handling than
those of its leading competitors. The Company's manufacturing technologies
permit consistent, cost-effective reproduction of these designs, allowing the
Company to offer its lenses at competitive prices. In addition, the Company has
implemented marketing strategies designed to assist eyecare practitioners, both
in independent practice and in retail chains, in retaining their patients and
monitoring their patients' ocular health, thereby providing a significant
incentive for practitioners to prescribe the Company's lenses. Furthermore, the
Company has continuously focused on lowering its non-manufacturing costs, or
"cost-to-serve," enabling it to increase its profitability and its flexibility
to reduce prices. To minimize its cost-to-serve, the Company utilizes a
telemarketing sales force and directs its marketing efforts toward eyecare
practitioners rather than consumers.

The Company believes that practitioners can increase their patient
retention and provide better ongoing patient care by providing
competitively-priced, high-quality products that are differentiated by brand
from those provided by competing channels. Accordingly, the Company has
successfully implemented a strategy to address the needs of eyecare
practitioners. The Company markets its lenses solely to eyecare practitioners,
both in private practice and in retail optical chains, rather than to consumers.
The Company believes that focusing on the eyecare practitioner, who
significantly influences the selection of the brand of contact lenses worn by
the patient, is critical to its ability to market contact lenses successfully.
The Company does not sell to mail-order companies, pharmacies or other
distribution channels that do not provide the regular eye examinations necessary
to maintain overall ocular health.

Over the last five years, the Company has established itself as a leader in
the spherical, non-specialty annual replacement segment of the United States
market with a market share estimated at 25% in 1996, based on unit sales. Since
its introduction of lenses for weekly disposable replacement regimens in 1993,
the Company has steadily increased its share of this growing market, reaching
approximately 8% of total unit sales in the United States during the second half
of 1996, based on data published by the Contact Lens Institute. The Company's
overall unit sales have increased at a compound annual growth rate of
approximately 81% since 1992, primarily due to increased sales of its lenses for
weekly disposable replacement regimens. During the same period, while the
overall average selling prices of all of the Company's lenses declined 50%, the
Company reduced its per unit production costs by approximately 64% by spreading
its relatively fixed manufacturing and operating costs over higher production
volumes, and by improving its manufacturing and packaging processes. As a
result, from 1992 to 1996, the Company's net sales and operating income
(excluding non-recurring charges in 1992) have increased at compound annual
growth rates of approximately 53% and 100%, respectively, while its operating
margins improved from 6.6% to 19.3%.

INDUSTRY OVERVIEW

The soft contact lens industry is characterized by increasing lens
consumption, declining unit prices and intense competition among the eyecare
practitioners and retail chains that fit, prescribe and sell contact lenses.
Industry analysts estimate that approximately 50% of the world's population
needs some type of vision correction. In the United States alone, over 130
million people require some form of vision correction. Approximately 26 million
people in the United States, or 20% of those requiring vision correction, wear
contact lenses according to estimates by industry analysts, making the United
States the world's largest market for contact lenses. While contact lenses have
been available for decades, the advent of soft lenses in 1971 changed the
industry substantially and stimulated significant penetration of the eyeglass
market by dramatically reducing the discomfort of earlier rigid lenses.

The first soft contact lenses were generally prescribed for replacement
every one to two years. Although they were significantly more comfortable than
hard contact lenses, they required an extensive cleaning routine, consisting of
daily cleaning with a surfactant cleanser and an additional weekly enzymatic
cleaning to reduce protein accumulation. Even with this cleaning program, these
lenses often became progressively less

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<PAGE> 33

comfortable to wear over time. Additionally, the long replacement schedule of
the lenses increased the likelihood of ocular health problems if the wearer did
not follow the required cleaning program. In response to these and other
factors, soft contact lenses for disposable replacement regimens were introduced
in 1988. These replacement regimens, in which lenses are to be replaced daily,
weekly or monthly, have spurred a rapid increase in contact lens consumption in
the United States. While contact lenses for disposable replacement regimens are
often made from the same or similar polymers and can have the same or similar
designs as lenses for annual replacement regimens, they are generally produced
at substantially higher volumes, sold in larger quantities and packaged in less
expensive materials. These factors allow the lenses to be sold at substantially
reduced per unit prices, making more frequent lens replacement economically
feasible for the consumer.

Largely as a result of this increased frequency of lens replacement, the
number of soft contact lenses sold in the United States has increased at a
compound annual growth rate of approximately 20% from 1985 to 1995, according to
Health Products Research, a market research firm. This increase in unit sales
has provided increased manufacturing economies of scale that, together with
increased competition in distribution channels, has led to significant
reductions in average retail prices for lenses for disposable replacement
regimens. The Company believes that this, in turn, has led to further increases
in lens consumption. Despite the decline in per unit prices, as wearers switch
to more frequent replacement regimens, their annual expenditures for lenses
increase. For example, the Company's annual sales are from five to seven times
higher for a wearer following a bi-weekly replacement regimen than they are for
a wearer following an annual replacement regimen. As a result, total dollar
sales of contact lenses in the United States has increased at a compound annual
growth rate of approximately 11% per year from 1994 through 1996. The Company
believes that the United States market for contact lenses will continue to grow,
although at a slower rate, as wearers continue to shift towards more frequent
lens replacement regimens. In addition, according to industry studies, while the
United States and Canadian market represented approximately 50% of worldwide
contact lens unit sales volumes in 1996, market growth rates outside the United
States now exceed those in the United States. The Company believes that
international contact lens sales will continue to increase as low-priced,
disposable contact lenses become increasingly available in many international
markets.

Most contact lenses are purchased from optometrists, either in private
practice or in retail chains, and from ophthalmologists in private practice. The
Company believes, based on a 1994 study sponsored by the American Academy of
Ophthalmology and management's experience in the eyecare industry, that the
eyecare profession suffers from a surplus of eyecare practitioners and believes
that the resulting competitive pressure has been exacerbated by the increased
prevalence of retail optical chains and mass merchandisers that provide eyecare
services. Eyecare practitioners in retail chains offer services and products
similar to those provided by practitioners in private practice but offer longer
hours in more convenient locations, such as shopping malls and other
high-traffic areas. Retail chains generally require higher patient volumes and
accordingly rely heavily on consumer advertising and promotional pricing to
generate sales. Consequently, the Company believes that competition to acquire
and retain patients has intensified.

The typical eyecare practitioner in both the private practice and retail
chain channels depends heavily on sales of products, such as contact lenses and
eyeglasses. The Company believes, based on a 1996 industry survey, that the
typical optometric practice or retail optical chain realizes approximately
two-thirds of its revenue from sales of corrective products, such as contact
lenses and eyeglasses, and approximately one-third of its revenue from
professional services such as eye examinations. Since the need for vision
correction is chronic, repeat sales of contact lenses can provide the
practitioner with a recurring, predictable revenue base.

While the introduction of disposable lens replacement regimens has led to
growth in the contact lens market, it has placed additional competitive pressure
on practitioners. Traditionally, patients purchased new lenses annually in
connection with their eye examinations. Today, a patient is still required to
see an eyecare practitioner initially to be fitted for contact lenses and to
receive a prescription. After the initial fitting, however, while the patient
may see the practitioner annually to monitor eye health, he or she may purchase
new contact lenses to refill the prescription three or four times per year. Most
patients select contact lenses based on the recommendation of their eyecare
practitioners, and accordingly practitioners have significant influence in
determining the brands of contact lenses worn by their patients. In addition,
because contact lens prescriptions are generally brand-specific, patients
typically continue to purchase the same brand for their

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<PAGE> 34

prescription refills. However, the prescribing practitioner risks losing the
recurring sales represented by prescription refills as nationally advertised
lens brands are now available through virtually every possible channel of
distribution, including mail-order companies and pharmacies.

The Company believes that practitioners can increase their patient
retention and provide better ongoing patient care by providing
competitively-priced, high-quality products that are differentiated by brand
from those provided by competing channels. As a result, the Company believes
that there exist significant opportunities for manufacturers of contact lenses
that can effectively address these needs. Moreover, the Company believes that
the increased frequency of lens purchases resulting from the shift to lenses for
disposable replacement regimens can provide significant recurring revenues for
manufacturers that are able to produce and distribute large quantities of
high-quality lenses on a cost-effective basis.

STRATEGY

The Company has successfully implemented a strategy based on addressing the
needs of eyecare practitioners. This strategy has enabled the Company to achieve
a leading position in the U.S. market for lenses for annual replacement
regimens. The Company is continuing to pursue this strategy by leveraging the
practitioner relationships and reputation resulting from this leading position
to increase its share of the growing disposable market segment. The Company
believes that its high-quality, efficient manufacturing technology and
cost-effective operations position it to profitably exploit the growth
associated with this high-volume segment. The principal elements of the
Company's strategy include:

Employ Unique Brand Segmentation by Channel. The high-volume use of
lenses for disposable replacement regimens has resulted in increased
mass-market advertising of competing products and intensified competition
across distribution channels. Unlike its larger competitors, which promote
nationally advertised consumer brands across multiple distribution
channels, the Company advertises and promotes its lenses for disposable
replacement regimens under specific brand names for the private practice
channel and other brand names for the retail chain channel. The Company
also provides private label brands for its larger customers. Branding by
distribution channel creates brand exclusivity and allows practitioners to
differentiate lenses sold by them from those sold through competing
channels, providing them with a greater ability to retain their patients'
prescription refill business. The Company believes that, as a result, its
channel-specific branding has become increasingly valuable to eyecare
practitioners. By promoting the repeat purchase of lenses from the
prescribing practitioner, the Company believes that its marketing
strategies increase patient satisfaction and thereby encourage long-term
loyalty to its products, while also motivating practitioners to prescribe
its lenses.

Produce Superior Performing Products. The Company believes that its
contact lenses are superior in performance to those of its major
competitors in terms of comfort and ease of handling. The Company's
advanced dry cast molding process and sophisticated lens designs maximize
wearers' comfort and improve shape retention of lenses, making them easier
for wearers to handle. In addition, the Company's lenses are designed and
manufactured to provide fitting characteristics similar to competitors'
lenses. In general, this interchangeability enables the practitioner to
switch a patient to the Company's

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<PAGE> 35

lenses without extensive refitting time. These advantages enable the
Company to market its lenses to eyecare practitioners for both existing, as
well as new, contact lens wearers.

Emphasize Low-Cost Efficient Manufacturing. With the growth of the
high-volume disposable market segment, low-cost, scalable manufacturing has
become increasingly important. The Company's dry cast molding technology
allows it to manufacture high-quality lenses efficiently. With dry cast
molding, the Company has been able to reduce its manufacturing costs per
lens by approximately 64% over the last three years while increasing its
production volumes approximately 470%. The Company believes that the
increased unit volumes resulting from the growing disposable lens market
and continued investment in automation and capacity will enable it to
further reduce per unit production costs and increase production volumes.

Minimize Cost-to-Serve. A substantial portion of the Company's costs
consists of the costs required to sell and market lenses and to take and
fill an order. The Company focuses on lowering these non-manufacturing
costs, or "cost-to-serve," in order to increase its profitability and its
flexibility to reduce prices. The Company's primary means of minimizing
cost-to-serve are its use of telemarketing rather than a traditional direct
sales organization and its use of advertising targeted to practitioners
rather than to consumers. This strategy differentiates the Company from its
competitors, and the Company believes that the cost of its average sales
call is substantially lower than that of its competitors that rely on field
sales representatives, as the Company's inside sales personnel can make
more calls per day at a lower annual cost per salesperson. Unlike its
leading competitors, which market their products to consumers through
expensive mass-media campaigns, the Company further controls its operating
expenses by directing its marketing solely to the eyecare practitioners who
prescribe contact lenses. In addition, the Company is investing in
increased automation in its distribution operations in order to maintain
its low cost-to-serve.

PRODUCTS

The Company manufactures a broad line of soft contact lenses that it
believes provide performance that is superior to other leading products at
competitive prices. Soft contact lens performance is defined primarily by
comfort (how the lens feels on the eye), handling (ease of placement and
removal), acuity of vision and physiological response. These qualities, in turn,
are determined primarily by lens design and the manufacturing process. The
Company's lenses incorporate sophisticated designs, including extremely thin
edges, a lenticulated carrier and a low-edge apex, that provide a high level of
comfort, enhanced shape retention and ease of handling. The Company's dry cast
molding process further improves handling and comfort by consistently and
accurately reproducing these designs. In addition, the Company's lenses are
designed and manufactured to provide fitting characteristics similar to those of
competitors' lenses. In general, these characteristics enable the practitioner
to switch a patient to the Company's lenses without extensive refitting time.
The Company believes that this interchangeability, together with its lenses'
performance and price, allows practitioners to easily prescribe the Company's
lenses to existing, as well as new, contact lens wearers.

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<PAGE> 36

The Company's contact lenses are made from flexible polymers containing 38%
or 55% water. The Company offers different brands for different replacement
regimens, from weekly and monthly replacement to annual replacement. A wearer's
replacement regimen is generally based on the recommendation of his or her
eyecare practitioner, who typically prescribes a lens brand targeted to that
regimen and who advises the wearer on the appropriate lens care procedures for
that regimen. However, the wearer may actually replace his or her lenses on a
more or less frequent basis. Given the basic functional similarity of lenses for
different replacement regimens, many of the Company's lenses for annual and
disposable replacement regimens are made from the same or similar polymers and
have the same or similar design specifications. Most of the Company's lenses
contain a light blue bulk-applied visibility tint that enables the wearer to see
and handle the lenses more easily, although some of the Company's more expensive
lenses for annual replacement contain a more expensive, individually applied
masked tint that improves handling and is less noticeable in the eye, and some
of the Company's lens are untinted. The Company's lenses for disposable and
annual replacement regimens are generally packaged in different quantities and
priced differently. See "Risk Factors -- Risk of Trade Practice Litigation;
Changes in Trade Practices."

Within different replacement regimens, the Company offers daily-wear
lenses, to be removed, cleaned and disinfected each night, and extended-wear
lenses that may be worn continuously, night and day, for up to seven days. In
addition, within each replacement regimen, the Company offers lenses having
different design parameters, diameters and base curves to enable practitioners
to fit their patients better.

Disposable Replacement Regimens

Lenses marketed for disposable replacement regimens accounted for 65.7% and
73.8% of the Company's net sales in 1996 and the six months ended June 30, 1997,
respectively. See "Risk Factors -- Dependence on Single Product Line; Need to
Increase Sales of Lenses for Disposable Replacement Regimens."

Weekly Replacement Regimens. The Company entered the growing weekly
disposable segment of the soft contact lens market with a 38% water content lens
in September 1993. The Company's introduction of a 55% water content lens in the
first quarter of 1995 provided a product directly competitive with the market
leader, Acuvue, which was the first soft contact lens to be marketed broadly in
the United States for weekly replacement. These lenses are marketed for
replacement every one to two weeks. The Company believes that its 55% water
lenses for weekly replacement can provide handling and comfort superior to that
provided by Acuvue, at a competitive price. The design and water content of the
55% water lens permit a high level of oxygen transmissibility and provide
increased comfort for overnight wear. A February 1997 independent study
comparing the Company's 55% water lens for weekly replacement to Acuvue found
that a substantial majority of the 70 patients studied preferred the Company's
lens for ease of use and comfort. This study reported that overall, 63% of these
70 patients preferred the Company's lens over the Acuvue lens. The Company
believes that its lenses for weekly replacement regimens have demonstrated
strong market acceptance, gaining U.S. market share steadily since their
introduction and representing approximately 8% (based on units sold) of the one
to two week disposable market segment in the United States in 1996. The Company
markets its weekly disposable lenses to independent practitioners under the
Hydron Biomedics, Clinasoft, Procon and Mediflex brands and to retail chains
under the UltraFlex 7/14 brand and private label brands. The Company packages
its lenses for weekly replacement in boxes, each containing six identical
blister-packed lenses.

Monthly Replacement Regimens (Planned Replacement Lenses). The Company
markets its lenses for monthly replacement regimens primarily under the Hydron
ProActive 55, Edge III ProActive and UltraFlex SmartChoice brands. These lenses
are marketed for replacement every one to three months. This replacement regimen
provides a lower cost alternative to weekly replacement.

Daily Replacement Regimens (Under Development). The Company is evaluating
the introduction of a low-cost lens for daily replacement. The product would be
packaged in boxes of 30 lenses. The Company believes that there may be
substantial demand for the convenience of a lens for single-day wear. However,
the Company believes that the level of demand for daily disposable lenses is
still uncertain. Certain of the Company's competitors have introduced, and
certain others plan to introduce, lenses for daily replacement. The Company
intends to evaluate the market response to their offerings before introducing
its own daily

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<PAGE> 37

disposable lens. In addition, because of the substantially greater volume
requirements and lower selling prices that the Company believes will be required
to support daily replacement, the Company does not intend to offer lenses for
this replacement regimen until it has significantly increased its manufacturing
capacity and decreased its per unit production costs. See "Risk
Factors -- Intense Competition" and "-- Manufacturing Capacity Constraints;
Risks Associated with Expansion and Automation of Manufacturing Operations."

Annual Lens Replacement Regimens

The Company is a leading provider of soft lenses for annual replacement
regimens in the United States. Annual replacement lenses accounted for 31.2% and
23.3% of the Company's net sales in 1996 and the six months ended June 30, 1997,
respectively. These lenses must be cleaned nightly, with an additional weekly
enzymatic cleaning to reduce protein accumulation. Patients generally wear these
lenses until they become dirty or uncomfortable (usually a year for 38% water
products and about nine months for 55% water products). The Company markets its
annual replacement lenses primarily under three brand names, Edge III, UltraFlex
and Hydron. These product lines include a number of lens designs to allow
practitioners to choose the lens that best meets their patients' needs. Under
both the Edge III and UltraFlex brands, the Company offers a low-priced,
daily-wear product, a thinner product, a product that is both thinner and larger
in diameter and a product that may be utilized as an extended-wear lens. The
Company packages its lenses for annual replacement regimens in single-lens vials
or blister packs.

Specialty Lenses

Specialty lenses accounted for approximately 2.7% and 2.2% of the Company's
net sales in 1996 and the six months ended June 30, 1997, respectively. Toric
lenses are designed to correct vision for people with astigmatism, which is
characterized by an irregularly shaped cornea. The Company offers daily wear
toric lenses under the Ultra T brand that are manufactured for the Company by a
third party. In addition, the Company manufactures a line of custom toric
lenses, produced to order in its Markham, Ontario facility, although the Company
expects to sell these operations to a third party. These custom lenses accounted
for less than one percent of the Company's net sales in 1996 and the first six
months of 1997. Bifocal contact lenses can help to correct presbyopia, or
age-related difficulty in focusing on near objects. The Company offers daily-
wear bifocal lenses under the Echelon brand that are cast-molded by the Company.
In addition, the Company produces its Versa-Scribe tinted lenses, sold in blue,
aqua and green, to enhance the color of the eye.

SALES AND MARKETING

In the United States and the United Kingdom, the Company's products are
sold primarily by its 54-person inside sales force, based in South San Francisco
and the United Kingdom. In order to maintain a low cost-to-serve, the Company
has utilized an inside sales force since its inception. This inside sales force
relies on telemarketing to sell the Company's products to practitioners, both in
independent practice and retail chains. With over 40,000 practitioners in the
United States, the Company believes that this market can be reached effectively
and frequently through telemarketing, mailings, trade journals and trade shows,
at a relatively low cost. The Company's inside sales personnel can make
presentations to a significantly greater number of practitioners per day than
the traditional field sales representatives used by the Company's principal
competitors, at a lower annual cost per salesperson. The Company believes that
this sales efficiency provides it with a competitive advantage and contributes
to its low cost-to-serve. For larger national accounts, senior management also
frequently makes outside sales calls.

In recruiting its sales personnel, the Company seeks well-educated
candidates who it believes will be capable of both discussing technical
information and developing relationships with practitioners. As part of a
continuing effort to ensure the motivation, professionalism and effectiveness of
its sales representatives, the Company provides each sales representative with
substantial training in a program that was developed by the Company and has been
used since its inception. This program typically includes two weeks of initial
training and at least two hours a week of continuing instruction. This training
emphasizes the development of personal relationships with customers and the
technical aspects of contact lens fitting and design. The Company's current
sales representatives average approximately three years with the Company,
providing a level of experience that the Company believes enables them to work
effectively with optometrists and ophthalmolo-

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gists. Each salesperson is assisted by a computer database that maintains each
practitioner's profile, monitors ongoing activities and orders, allows sales
personnel to enter information for follow-up calls and highlights dates for
return calls.

The Company also utilizes distributors that resell the Company's contact
lenses primarily to independent practitioners. In 1996, sales through
distributors represented approximately 13% of the Company's United States sales
and a substantial majority of its international sales. The Company believes that
by using distributors, it increases the availability of its lenses to many
practitioners who prefer to utilize a single source for several brands of lenses
and manages the costs involved in numerous small orders. In addition, the
Company utilizes advertising targeted to practitioners, such as direct-mail and
advertisements in professional journals, to generate leads for its inside sales
force. The Company also provides customers with substantial merchandising
allowances and has developed a variety of promotional programs to offer lenses
at significantly reduced prices in order to encourage trial of its products.

As a matter of policy, the Company does not sell lenses to mail-order
companies because to do so would be inconsistent with its strategy of focusing
on the practitioner and because they do not provide the regular eye examinations
necessary to check the fit of the lenses and monitor overall ocular health. To
control the distribution of its lenses for disposable replacement regimens, the
Company places serialized bar-codes on each disposable product box and blister
pack and routinely monitors product availability at mail-order companies. The
Company has a policy of terminating the supply of disposable lenses to its
customers who are found to have diverted products to a mail-order company. See
"Risk Factors -- Risk of Trade Practice Litigation; Changes in Trade Practices."

In 1996, the Company sold its products to approximately 13,000 independent
practitioner accounts and approximately 80 retail chains. The Company's
customers in each of the past three years have included 18 of the top 20 United
States optical retailers. Thirteen of these top 20 U.S. retailers, as well as
key international corporate accounts such as Synsam in Scandinavia, have
selected the Company's lenses for their private label. No single customer
accounted for more than approximately 8% of the Company's net sales in 1996. The
Company's ten largest customers in 1996 represented approximately 27% of the
Company's net sales in that year.

Product Branding. The Company has developed many different trademarked
brands for its lenses for disposable replacement regimens. Certain brands are
offered only to independent practitioners. Other brands are offered only to
retail chains. In addition, private label brands are offered to certain
high-volume customers that wish to develop their own brand recognition and
loyalty, and private practitioners (or groups of private practitioners) meeting
certain volume criteria can similarly purchase "semi-exclusive" brands that are
not widely offered to other practitioners in their local market. The Company
believes that this approach differentiates the Company from its leading
competitors, which typically rely heavily on expensive consumer advertising and
promotion of national brands to generate brand awareness and demand. With the
same nationally advertised and promoted brands of disposable lenses available in
a number of major distribution channels, often including mail-order companies
and pharmacies, patients can bypass their original eyecare provider when
purchasing replacement lenses. By marketing its lenses under different brands,
segmented by distribution channel, the Company believes that it can assist
eyecare professionals in retaining their patients and improve patients'
long-term eyecare. See "Risk Factors -- Risk of Trade Practice Litigation;
Changes in Trade Practices."

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<PAGE> 39

The following table summarizes the brands under which the Company's current
lenses for disposable replacement regimens are offered in the independent
practitioner and retail chain channels:

<TABLE>
<CAPTION>
INDEPENDENT
REPLACEMENT PRACTITIONER RETAIL CHAIN
REGIMEN BRANDS BRANDS
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Monthly Disposable Lenses Hydron ProActive 55 UltraFlex SmartChoice 55
Edge III ProActive UltraFlex SmartChoice
Clinasoft (semi-exclusive) Private labels
Procon (semi-exclusive)
Mediflex (semi-exclusive)
- --------------------------------------------------------------------------------------------
Weekly Disposable Lenses Hydron Biomedics 38 UltraFlex 7/14 38
Hydron Biomedics 55 UltraFlex 7/14 55
Clinasoft (semi-exclusive) Private labels
Procon (semi-exclusive)
Mediflex (semi-exclusive)
- --------------------------------------------------------------------------------------------
</TABLE>

International Markets. The Company anticipates that many international
markets for soft contact lenses will grow at faster rates than the United States
market, driven by increased availability of low-priced disposable lenses in
developed markets such as Europe, Japan and Canada and by increased disposable
income in emerging markets such as Asia and Latin America. However, many markets
outside the United States do not have the volume of demand necessary for local
manufacturers to achieve the economies of scale required for low cost lens
production. As a result, the Company's international strategy is to enter into
strategic distribution and marketing relationships with established regional
optical companies. The Company offers these companies lower cost lenses afforded
by its volume production efficiencies and the marketing benefits of a private
label brand, and they provide the Company with the benefits of their existing
market presence, customer relationships and local infrastructure. The Company
believes that this strategy permits it to target growing international markets
effectively without significant investment in direct operations. See "Risk
Factors -- Risks Relating to International Operations; Need to Increase Sales in
International Markets" and Note 13 of Notes to Consolidated Financial
Statements. The following summarizes the Company's international sales
operations:

Europe. To expand its penetration of this growing market, the Company
has developed strategic partnerships with a number of regional and local
contact lens distributors including the contact lens division of the Carl
Zeiss Company ("Zeiss"). In this relationship, Zeiss sells the Company's
disposable contact lenses under its brand names on a non-exclusive basis
throughout Europe. The Company also currently has distribution
relationships in Europe and the Middle East serving a number of countries,
as well as an inside sales organization based in Southampton, England that
uses telemarketing and other sales methods in the United Kingdom similar to
those used by the Company in the United States.

Canada. The Company has a direct selling organization based in Ontario
that uses field sales representatives as well as direct mail, journal
promotion and cooperative merchandising allowance programs similar to those
used by the Company in the United States. The Company also utilizes a small
number of Canadian distributors to resell its products, primarily to
independent eyecare practitioners.

Latin America. Although the Company expects unit growth in the
disposable segment of this emerging market, it also believes that unit
sales of lenses for annual replacement regimens will grow at a much faster
pace than in North America or Europe because of the lower level of consumer
disposable income. To expand the Company's penetration of this growing
market, the Company has entered into a number of non-exclusive distribution
arrangements in Latin America.

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<PAGE> 40

Asia. The Company believes that the growth of unit sales in this
market will be driven primarily by sales of contact lenses for disposable
replacement regimens, particularly in Japan. Unit sales of lenses for
annual replacement regimens in East Asia are also expected to grow at a
faster rate than in North America or Europe due to comparatively low levels
of consumer disposable income. To capitalize on expected growth in the
Japanese market, the Company has formed a strategic distribution
relationship with Seiko Contactlens, Inc., which is responsible for
obtaining local regulatory approvals and will distribute the Company's
lenses to Japanese eyecare practitioners through its network of
approximately 80 direct sales representatives. The Company has also
established distribution relationships with other soft contact lens
distributors in a number of countries in the Asian market.

DISTRIBUTION

The Company's distribution operations provide its customers with rapid and
reliable deliveries of its products in a cost-effective manner. Because the
Company's customers place both small orders for individual patients and large
inventory stocking orders, the Company's fulfillment system has the flexibility
to receive, fill and ship orders as small as a single lens and as large as tens
of thousands of lenses. Customers may place orders by toll-free telephone call
or by facsimile. Certain of the Company's larger customers use the Company's
electronic data interchange ("EDI") services to place orders and receive order
acknowledgments, invoices, inventory status reports and customized pricing
information online, improving efficiency and timeliness for both the Company and
the customer. If the product is in stock, customer orders received by 2:00 p.m.
local time are generally shipped the same day.

The Company maintains its primary warehouse and distribution facilities in
South San Francisco, California; Eastleigh, United Kingdom; and Markham,
Ontario. The largest and most sophisticated of these distribution centers is the
South San Francisco location, which primarily serves customers in the United
States and Latin America. Customers in Europe and Asia are primarily served from
the Eastleigh, United Kingdom facility and customers in Canada are primarily
served from the Markham, Ontario facility. Lenses are labeled and boxed at the
distribution center based on actual and anticipated customer orders. In 1996, an
average of approximately 2,100 orders were placed daily at the South San
Francisco facility from customers in North and Latin America and downloaded to
the distribution center for picking and shipping.

To further improve its cost-to-serve, the Company is currently testing, and
plans to implement, a highly computerized and automated retrieval system at its
South San Francisco facility. This system is designed to incorporate advanced
handling processes such as automatic dispensing, automated conveyors and radio
frequency dispatch. These processes will be integrated by software that, in
turn, is integrated into the Company's order entry system, allowing orders to be
downloaded, stocking locations determined and fulfillment instructions delivered
automatically.

MANUFACTURING

Substantially all of the Company's products are manufactured in facilities
in Santa Isabel, Puerto Rico and in Eastleigh, United Kingdom. The Company
produces its lenses primarily through a manufacturing process known as dry cast
molding. This process uses a single use, two-part plastic mold that is
manufactured by injection-molding machines utilizing high-precision optical
tooling that is also made by the Company. A liquid monomer mixture is dispensed
into the mold and polymerized to form a finished dry lens. The mold containing
the polymerized lens can be inventoried for an extended period under proper
conditions. The dry lens, once removed from the mold, is immersed in a fluid
bath to extract unreacted monomer and to be hydrated and is then inspected,
packaged and sterilized. Each of the Puerto Rico and United Kingdom plants can
generally hydrate dry lenses manufactured by the other. These capabilities
substantially increase the efficiency and flexibility of the Company's
manufacturing operations.

The Company's dry cast molding process enables the Company to reproduce
consistently the sophisticated designs of its lenses, including the lenticulated
carrier and low-edge apex that provide enhanced shape retention and superior
handling characteristics. In addition, the Company believes that this process
allows the reproduction of lenses that are designed to provide fitting
characteristics similar to those of leading

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competitors' lenses, regardless of their manufacturing process. The Company also
believes that the dry cast molding process provides advantages over certain
alternate production methods in yield, throughput efficiency and performance.
For example, each dry lens in the Company's cast molding process emerges from
the mold completely finished, eliminating the need for additional polishing.
This cast molding process reduces manufacturing steps and facilitates automated
handling and inspection. The Company relies on a non-exclusive, perpetual,
irrevocable patent license for a significant element of its dry cast molding
technology. See "-- Trademarks, Trade Secrets and Patent Licenses." In addition
to dry cast molding, certain of the Company's competitors utilize wet cast
molding, lathing or spin-casting processes. While the Company also manufactures
certain low-volume lenses utilizing lathing, this process accounts for less than
2% of its total production.

The Company believes that dry cast molding is a highly scalable process,
which makes it well suited to address the high-volume requirements of the
growing disposable market. Using this technology, the Company has been able to
increase production volumes by approximately 470% from 1993 to 1996. The
disposable market, however, is relatively price-sensitive, and lenses for
disposable replacement regimens generally have significantly lower selling
prices than lenses for annual replacement regimens. The Company believes that
its ability to compete effectively in this growing market will depend on its
ability to continue to reduce its per unit production costs while increasing
manufacturing capacity and maintaining the high quality of its products.

The Company believes that reducing its manufacturing costs requires
increased automation to further improve manufacturing efficiencies and yields,
improved packaging designs that utilize lower cost materials and larger
production volumes to take advantage of economies of scale. While the Company
has implemented a number of cost reduction measures, such as blister packaging,
hot water extraction, automatic demolding and in-monomer tinting over the past
several years, the most significant improvements are expected to come from the
planned implementation of additional production lines incorporating a new
automated process based on the Company's current dry cast molding technology.
This automated process is currently being developed in a joint effort between
the Company and an engineering consulting firm. Initial design has been
substantially completed, and the Company has placed orders for much of the
equipment necessary for the first of the planned new production lines. This
first line is expected to be operational in 1998. The automated process is
designed to integrate standard components such as automated handling systems,
conveyors, robotics and video inspection into the manufacturing line. The
Company believes that the new automated process will enable it to reduce
significantly the labor content of production as well as unit packaging costs
while increasing yields and efficiencies through improved controls and
consistency of environment. The Company believes that the automated production
lines will be capable of manufacturing considerably greater volumes while
occupying less space than the Company's existing lines and will be installed in
both the United Kingdom and Puerto Rico locations within the next two years. The
Company currently expects to invest approximately $44 million in capital
expenditures on these automated production lines through the year 2000. See
"Risk Factors -- Manufacturing Capacity Constraints; Risks Associated with
Expansion and Automation of Manufacturing Operations."

Over the past two years, the Company at times has experienced significant
backorders for certain of its products, including lenses for disposable
replacement regimens. These backorders resulted primarily from customer demand
for certain products being in excess of the Company's inventory and short-term
production capabilities as well as the Company's inability to gain timely FDA
clearance or approval for certain products. The Company is developing expanded
production capacity and an integrated enterprise-wide computer system to manage
the supply chain dynamics of forecasting, manufacturing, labeling and stocking
of its products. The level of backorders is currently minimal and is limited to
certain low-volume products.

The Company's success will depend in part upon its ability to increase its
production volume on a timely basis while maintaining product quality, reducing
per unit production costs and complying with the FDA's GMP regulations. There
can be no assurance that the Company will not encounter difficulties in
expanding and automating its manufacturing facilities and increasing production,
including problems involving production yields, quality control, construction
delays and shortages of qualified personnel. The Company's failure to reduce per
unit production costs and maintain product quality could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors -- Manufacturing

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<PAGE> 42

Capacity Constraints; Risks of Expansion and Automation of Manufacturing
Operations" and "-- Risks Associated with Interruption of Manufacturing
Operations."

FACILITIES

The Company's principal administrative, sales, marketing, customer service,
packaging and distribution facility is located in South San Francisco,
California. The Company's principal manufacturing facilities are located near
Southampton, United Kingdom, and in Santa Isabel, Puerto Rico. The Company also
maintains sales offices in Canada, Hungary and the United Kingdom.

Rapid growth in sales volumes has required that the Company increase its
capacity by adding manufacturing space. The Company's first United Kingdom
manufacturing facility was established in 1988 and operated by PLL until 1992,
when it was acquired by the Company. The Company opened its second United
Kingdom manufacturing facility in 1996. The Company's Puerto Rican manufacturing
facility was acquired in late 1992 as part of the American Hydron acquisition.
This facility is now operating at or near capacity. As part of the Company's
plan to increase its manufacturing capacity, it intends to relocate its Puerto
Rican manufacturing facilities to a substantially larger new facility to be
constructed and leased near Santa Isabel, Puerto Rico. The Company is in the
process of negotiating the terms for the construction and leasing of the new
manufacturing facility with the Puerto Rican development agency. The Company
expects to begin construction during the third quarter of 1997. Until the new
Puerto Rican facility is completed, the Company intends to utilize excess
capacity in the United Kingdom to meet any requirements for increased volumes of
lens production. See "-- Manufacturing."

The following table describes the Company's principal facilities as of June
30, 1997:

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION FUNCTION SQUARE FEET OWNED/LEASED
- ------------------------------- ------------------------------- ----------- -------------
<S> <C> <C> <C>
South San Francisco, Corporate 122,000 Leased
California(1) Headquarters/Sales/Distribution
Eastleigh, United Kingdom(2) Manufacturing 58,700 Leased
Santa Isabel, Puerto Rico(3) Manufacturing 34,372 Leased
Markham, Ontario Sales/Distribution/Custom 12,000 Leased
Manufacturing
Nursling, United Kingdom(4) Manufacturing 18,400 Owned/Leased
Budapest, Hungary Sales/Distribution 775 Leased
</TABLE>

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

(1) The Company's lease for this facility expires on October 30, 2002, and the
Company has an option to extend the lease until 2007 and to lease an
additional 30,000 square feet.

(2) The Company's lease for this facility expires on December 23, 2010.

(3) Represents three separate buildings. The Company plans to construct a
substantially larger facility in Santa Isabel, Puerto Rico, and to relocate
to this facility from its existing facilities.

(4) Represents three separate buildings. All three are currently vacant. Two are
leased under leases that expire on January 31, 1998 and March 24, 2011.

RESEARCH AND DEVELOPMENT

The Company's research and development efforts are focused primarily on the
development of automated manufacturing processes to increase the efficiency and
capacity of the manufacturing operation. See "-- Manufacturing." In addition,
the Company is engaged to a limited extent in development of new soft contact
lens products and additional features. For example, the Company intends to
develop lenses that absorb ultraviolet light and is evaluating the introduction
of lenses designed for daily disposable replacement regimens. See "-- Government
Regulation." During the years ended December 31, 1994, 1995 and 1996, and the
six months ended June 30, 1997, expenditures for research and development
(including obtaining regulatory approvals) were approximately $900,000, $1.0
million, $1.1 million and $1.1 million, respectively. See "Risk Factors -- Risk
of New Products and Technological Change."

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<PAGE> 43

TRADEMARKS, TRADE SECRETS AND PATENT LICENSES

The Company believes that its trademarks are among its most valuable assets
and has numerous trademark registrations in the United States, Europe and other
foreign countries. The Company's channel-specific branding strategy is dependent
on the Company's strategic use of its trademark portfolio, as the trademark for
each product brand is generally registered. The Company licenses the Hydron
trademarks under a license agreement that prohibits the use of those trademarks
outside of the Americas. The Company believes that there are no currently
pending challenges to the use or registration of any of the Company's material
trademarks. There can be no assurance, however, that the Company's trademarks do
not or will not violate the proprietary rights of others, that they would be
upheld if challenged or that the Company would, in such an event, not be
prevented from using its trademarks, any of which could have a material adverse
effect on the Company and its business.

The Company has obtained non-exclusive licenses from third parties to
patents for certain contact lens designs and manufacturing technologies used in
the production of its products. Pursuant to a patent license agreement with
several parties, including Geoffrey and Anthony Galley, principal stockholders
of the Company, the Company has obtained a perpetual, fully paid, worldwide,
non-exclusive, irrevocable license to certain patents and patent applications
covering technology that is significant in the Company's dry cast molding
processes. See "Certain Transactions -- OSL Acquisition and Related Litigation."
The Company has also obtained non-exclusive, fully paid, perpetual, worldwide
licenses to use certain technology relating to the tinting of lenses and to
manufacture a monomer used to produce certain of its lenses. In addition, the
Company licenses technology used in manufacturing its toric and bifocal contact
lenses under non-exclusive license agreements that limit the sales of products
manufactured using the licensed technology to the Americas. The Company believes
that it has all patent licenses that are necessary for the conduct of the
Company's business. However, to the extent the Company desires or is required to
obtain additional licenses to patents or proprietary rights of others, there can
be no assurance that any such licenses will be available on terms acceptable to
the Company, if at all.

In addition to trademarks and patent licenses, the Company owns certain
trade secrets, copyrights, know-how and other intellectual property. The Company
seeks to protect these assets, in part, by entering into confidentiality
agreements with certain of its business partners, consultants and vendors. There
can be no assurance that these agreements will not be breached, that the Company
will have adequate remedies for any such breach or that the Company's trade
secrets and other intellectual property will not otherwise become known or be
independently developed by others and thereby become unprotected. Furthermore,
no assurance can be given that competitors will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's proprietary technology or that the Company can
meaningfully protect its rights in unpatented proprietary technology.

The Company's policy is to prosecute and defend its key trademarks, trade
secrets and proprietary technology aggressively. The defense and prosecution of
intellectual property suits and related administrative proceedings are both
costly and time-consuming. There can be no assurance that the prosecution and
defense of the Company's intellectual property will be successful or that the
Company will be able to secure adequate intellectual property protections in the
future. The protection of intellectual property in certain foreign countries is
particularly uncertain. Adverse determinations in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, and such events would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Dependence on Trademarks, Patent
Licenses and Trade Secrets; Risk of Intellectual Property Infringement" and
"Certain Transactions -- OSL Acquisition and Related Litigation."

COMPETITION

The market for soft contact lenses is intensely competitive and is
characterized by decreasing prices for many products. The Company's products
compete with the products offered by a number of larger companies including
Johnson & Johnson, Ciba-Geigy, Bausch & Lomb and Wesley Jessen. Most of the
Company's competitors have substantially greater financial, manufacturing,
marketing and technical resources, greater

44
<PAGE> 44

market penetration and larger manufacturing volumes than the Company. Among
other things, these advantages may afford the Company's competitors greater
ability to manufacture large volumes of lenses, reduce product prices and
influence customer buying decisions. The Company believes that certain of its
competitors are expanding, or are planning to expand, their manufacturing
capacity, and to implement new, more automated manufacturing processes in order
to support anticipated increases in volume. As many of the costs involved in
producing contact lenses are relatively fixed, if a manufacturer can increase
its volume, it can generally reduce its per unit costs and thereby increase its
flexibility to reduce prices. In addition, competitors may reduce prices to
achieve the sales volumes necessary to utilize their increased capacity. Price
reductions by competitors could make the Company's products less competitive,
and there can be no assurance that the Company would be able to reduce its
prices in response. The Company's ability to respond to competitive pressures by
decreasing its prices without adversely affecting its gross margins and
operating results will depend on its ability to decrease its costs per lens. Any
significant decrease in the Company's costs per lens will depend, in part, on
the Company's ability to increase its sales volume and production capacity.
There can be no assurance that the Company will be able to continue to increase
its sales volume or reduce its per unit production costs. The failure of the
Company to respond to competitive pressures, and particularly price competition,
in a timely manner would have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, in
response to competition, the Company may reduce prices, increase cooperative
merchandising allowances or otherwise increase spending, any of which may also
adversely affect its business, financial condition and results of operations.
See "Risk Factors -- Manufacturing Capacity Constraints; Risks Associated with
Expansion and Automation of Manufacturing Operations."

Soft contact lens manufacturers have generally differentiated themselves
from their competitors on the basis of product performance, marketing,
distribution channels and price. The Company believes that it is able to
distinguish its products on the basis of performance advantages and cost to
eyecare professionals and patients. Since the purchase of contact lenses
requires a prescription in the United States, the Company also competes on the
basis of its relationships and reputation with eyecare practitioners. There can
be no assurance that the Company will continue to so distinguish its products or
that it will be able to realize the anticipated reductions in its per unit
production costs.

The market for contact lenses is shifting from lenses marketed for annual
replacement regimens, where the Company has significant experience and a leading
market position, to lenses for disposable replacement regimens, where the
Company is less experienced and has a smaller market share. The disposable lens
segment is particularly competitive and price-sensitive and is currently
dominated by the Acuvue product produced by Johnson & Johnson. The Company
believes that the per unit production costs of Johnson & Johnson and certain of
the Company's other competitors are currently lower than those of the Company. A
significant price reduction by Johnson & Johnson or certain of these other
competitors could limit or reduce the Company's market share in the disposable
lens segment and, as a result, could materially adversely affect the Company's
business, financial condition and results of operations. In addition, the lenses
currently offered in the United States by the Company in the disposable lens
segment are marketed for weekly and monthly replacement regimens. Certain of the
Company's competitors have introduced lenses for daily replacement at lower
prices than their current weekly and bi-weekly disposable lenses. The Company's
ability to enter and to compete effectively in the market for daily disposable
lenses will depend in large part upon the Company's ability to expand its
production capacity and reduce its per unit production costs. Additionally, as
contact lenses for different replacement regimens are often similar, the ability
of competitors to reduce their per unit costs for daily disposable lenses may
also permit them to reduce their costs for lenses marketed for other replacement
regimens. Such reductions, if not matched by the Company, could significantly
adversely impact the Company's ability to compete over a much broader level of
products. See "Risk Factors -- Dependence on Single Product Line; Need to
Increase Sales of Lenses for Disposable Replacement Regimens."

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<PAGE> 45

inconvenience of contact lenses. Accordingly, there can be no assurance that
these procedures, or other alternative technologies that may be developed in the
future, will not cause a substantial decline in the number of contact lens
wearers and thus have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Intense
Competition" and "Risk Factors -- Risk of New Products and Technological
Change."

GOVERNMENT REGULATION

The FDC Act, other statutes, regulations of the FDA and other agencies as
well as state laws govern the preclinical and clinical testing, manufacture,
labeling, distribution, sale, marketing, advertising and promotion of medical
devices such as contact lenses. Noncompliance with applicable regulations can
result in, among other things, fines, injunctions, product recall or product
seizures, operating restrictions (including suspension of production and
distribution), refusal of the FDA to grant approval of a PMA or clearance of a
510(k), withdrawal of previously granted marketing approvals or clearances, and
criminal prosecution. Sales of the Company's products outside the U.S. are
subject to regulatory requirements that, while generally comparable to those in
the U.S., vary widely from country to country.

FDA Regulation. For purposes of the applicable statutes and regulations,
the Company's products are generally treated as "medical devices." With
exceptions for certain medical devices first marketed before May 28, 1976, prior
to their commercial sale in the United States, medical devices must be cleared
or approved by the FDA or be exempted from the requirement of FDA clearance or
approval. In general, the regulatory process can be lengthy, expensive and
uncertain, and securing FDA clearances or approvals may require the submission
of extensive clinical data together with other supporting information to the
FDA.

In the United States, medical devices are classified as Class I, II or III,
on the basis of the controls deemed by the FDA to be necessary to reasonably
ensure their safety and effectiveness. Class I devices are subject to general
controls (e.g., labeling, 510(k) notification and adherence to FDA-mandated
current GMP requirements), and Class II devices are subject to general controls
and special controls (e.g., performance standards). Generally, Class III devices
are those that must receive premarket approval by the FDA to ensure their safety
and effectiveness (e.g., life-sustaining, life-supporting and implantable
devices) and also include most devices that were not on the market before May
28, 1976 ("new medical devices") and for which the FDA has not made a finding of
"substantial equivalence" based on a 510(k). Class III devices usually require
clinical testing and FDA approval prior to marketing and distribution.

The Company's daily-wear products have been classified as Class II devices
subject to the 510(k) pre-market notification process, while the Company's
extended-wear products have been classified as Class III devices subject to the
PMA requirements. Regulation of the Company's daily-wear products under the
pre-market notification process dictates that new product introductions in this
category be preceded by FDA clearance of a 510(k) pre-market notification
containing information which establishes the new product as substantially
equivalent to a legally marketed Class I or II medical device or to a legally
marketed Class III device that does not itself require an approved PMA prior to
marketing ("predicate device"). A 510(k) must contain information to support a
claim of substantial equivalence, and this information may include laboratory
test results or the results of clinical studies of the device in humans. The FDA
has no specific time limitation by which it must respond to a 510(k). The FDA
may determine that a device is not "substantially equivalent" to a predicate
device or that additional information is needed before a substantial equivalence
determination can be made. The premarket notification process generally takes
five to twelve months without clinical data, or twelve to eighteen months or
more if clinical data are required to be included in the notifications but it
may take longer, and 510(k) clearance may never be obtained. The range of
clinical data required to be included in a 510(k), if any, or a PMA application
varies depending on the nature of the new product or product modification.
Generally, the 510(k) notifications filed by the Company do not require clinical
data, and, if clinical data are required, the trial is short-term. If the
Company is unable to establish to the FDA's satisfaction that a new product is
substantially equivalent to a predicate device, extensive preclinical and
clinical testing will be required, additional costs will be incurred, and FDA
approval of a PMA for the product will be required prior to market entry. Such
approval, which cannot be assured in a timely manner or at all, generally takes
at least eighteen to twenty-four months, and can take substantially longer.

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<PAGE> 46

Regulation of the Company's extended-wear products as Class III devices
requires that the Company submit a PMA to the FDA and obtain its approval of the
application prior to marketing such products in the United States. A PMA must be
supported by valid scientific evidence that typically includes extensive data,
including data from preclinical testing and human clinical trials to demonstrate
the safety and effectiveness of the device. The FDA ordinarily requires the
performance of at least two independent, statistically significant human
clinical trials that must demonstrate the safety and effectiveness of the device
in order to obtain FDA approval of the PMA. If the device presents a
"significant risk," the sponsor of the trial (usually the manufacturer or the
distributor of the device) is required to file an investigational device
exemption ("IDE") application with the FDA prior to commencing human clinical
trials. The IDE application must be supported by data, typically including the
results of animal and laboratory testing. If the IDE application is approved by
the FDA and the study protocol is approved by one or more appropriate
institutional review boards ("IRBs"), human clinical trials may begin at a
specific number of investigational sites with a specific number of patients, as
approved by the FDA. If the device presents a "nonsignificant risk" to the
patient, a sponsor may begin the human clinical trials after obtaining approval
of the study protocol by one or more appropriate IRBs, but FDA approval of an
IDE is not necessary unless the FDA notifies the sponsor that an IDE application
is required. An IDE supplement must be submitted to, and approved by, the FDA
before a sponsor or an investigator may make a change to the investigational
plan that may affect its scientific soundness or the rights, safety or welfare
of human subjects. The FDA has the authority to re-evaluate, alter, suspend or
terminate clinical testing based on its assessment of data collected throughout
the trials.

The PMA must also contain the results of all relevant bench tests,
laboratory and animal studies, a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling and promotional labeling. Once the FDA accepts a PMA
submission for filing, the FDA begins an in-depth review of the PMA. An FDA
review of a PMA generally takes from twelve to eighteen months from the date the
PMA is accepted for filing, but may take significantly longer if the FDA
requests additional information and if the sponsor files any major amendments to
the PMA. The review time is often significantly extended by the FDA's request
for clarification of information already provided in the submission. Toward the
end of the PMA review process, the FDA generally will conduct an inspection of
the manufacturer's facilities to ensure that the facilities are in compliance
with the applicable GMP requirements.

If the FDA's evaluations of both the PMA and the manufacturing facilities
are favorable, the FDA will issue either an approval letter (order) or an
"approvable letter" containing a number of conditions that must be met in order
to secure approval of a PMA. When and if those conditions have been fulfilled to
the satisfaction of the FDA, the agency will issue an order approving the PMA
and authorizing commercial marketing of the device for certain indications. If
the FDA's evaluation of the PMA or manufacturing facilities is not favorable,
the FDA will deny approval of the PMA or issue a "not approvable letter." The
FDA may also determine that additional preclinical testing or human clinical
trials are necessary, in which case approval of the PMA could be delayed for
several years while additional testing or trials are conducted and submitted in
an amendment to the PMA. The PMA process can be expensive, uncertain and
lengthy, and a number of devices for which FDA approval has been sought by other
companies have never been approved for marketing.

Even if 510(k) clearance or PMA approval is obtained, this clearance or
approval can be withdrawn by the FDA due to the failure to comply with
regulatory requirements or the occurrence of unforeseen problems following
initial clearance or approval. Modifications to existing 510(k)-cleared devices,
including changes in design, material, or manufacturing process that could
significantly affect safety or effectiveness, require submission and clearance
of new 510(k) notifications as do significant changes in labeling, e.g., a
change in indications for use. Modifications to a device that is the subject of
an approved PMA, its labeling, or manufacturing process ordinarily require
approval by the FDA of PMA supplements or new PMAs. Supplements to a PMA
typically require the submission of similar information as is required for an
initial PMA, except that the supplement is generally limited to that information
needed to support the proposed change from the product covered by the original
PMA. The approval of supplemental PMAs requires approximately one to two years.

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<PAGE> 47

All of the products currently marketed by the Company have received 510(k)
clearance or PMA approval. The Company anticipates that its planned
ultraviolet-absorbing daily-wear lens will be regulated as a Class II medical
device, requiring submission and clearance of a 510(k), and that its planned
ultraviolet-absorbing extended-wear lens will be regulated as a Class III
medical device, requiring submission and approval of a PMA supplement. There can
be no assurance that these planned products or any other future products will
receive FDA marketing clearance or approval on a timely basis or at all, or that
its new daily-wear lens will not be subjected to the PMA process. The Company
has made minor modifications to its lenses which it believes do not require the
submission and clearance of new 510(k) notifications or the submission and
approval of PMA supplements. There can be no assurance, however, that the FDA
will agree with any of the Company's determinations not to submit new 510(k)
notifications or PMA supplements for these changes, that the FDA will not
require the Company to cease sales and distribution while seeking clearances of
510(k) notifications or approvals of PMA supplements for the changes, or that
such clearances and approvals, if required, will be obtained in a timely manner
or at all.

The FDC Act requires that medical devices, including contact lenses, be
manufactured in accordance with the FDA's GMP regulations. These regulations
require, among other things, that (i) the manufacturing process be regulated,
controlled and documented by the use of written procedures, and (ii) the ability
to produce devices which meet the manufacturer's specifications be validated by
extensive and detailed testing of every aspect of the process. The regulations
also require detailed record keeping and investigation of any deficiencies in
the manufacturing process or in the products produced. Manufacturing facilities
are subject to FDA inspection on a periodic basis to monitor compliance with GMP
requirements. If violations of the applicable regulations are noted during FDA
inspections of manufacturing facilities, the FDA can prohibit further
manufacturing, distribution and sale of the devices until the violations are
cured. On October 7, 1996, the FDA published a revision of its GMP requirements,
incorporating them into a new regulation called the quality system ("QS")
regulation. The QS regulation requires, among other things, pre-production
design controls, purchasing controls and maintenance of service records. The QS
regulation became effective June 1, 1997, except that the FDA has stated that,
as long as manufacturers are taking reasonable steps to come into compliance
with the design control requirements, the FDA will not initiate action
(including enforcement cases) based on a failure to comply with these
requirements before June 1, 1998. Once in effect, the QS regulation is expected
to increase the cost of complying with FDA GMP and related requirements. The
Company believes that its facilities are in compliance with GMP regulations and
that the planned automation of its manufacturing facilities will not require FDA
approval.

The Company is also required to register as a medical device manufacturer
with the FDA. Devices marketed in the United States are subject to pervasive and
continuing regulatory oversight by the FDA and other agencies, and the Company
is subject to periodic inspection and record-keeping requirements. As a medical
device manufacturer, the Company is further required to comply with FDA
requirements regarding the reporting of allegations of death or serious injury
associated with the use of its medical devices, as well as product malfunctions
that would likely cause or contribute to death or serious injury if the
malfunction were to recur. Other FDA requirements govern product labeling and
prohibit a manufacturer from marketing a device with a cleared 510(k) or an
approved PMA for an uncleared or unapproved indication. Failure to comply with
applicable regulatory requirements can result in a wide variety of severe
administrative, civil, and criminal sanctions and penalties. See "Risk
Factors -- Risks of Regulatory Action."

International Regulation. Sales of medical devices outside the U.S. are
subject to foreign regulatory requirements that vary widely from country to
country. These laws and regulations range from simple product registration
requirements in some countries to complex clearance and production controls such
as those described above in others. As a result, the processes and time periods
required to obtain foreign marketing approval may be longer or shorter than
those necessary to obtain FDA approval. These differences may affect the
efficiency and timeliness of international market introduction of the Company's
products, and there can be no assurance that the Company will be able to obtain
regulatory approvals or clearances for its products in foreign countries.

Medical devices sold or marketed in the European Union ("EU") are subject
to the EU's medical devices directive. Under this directive, CE mark
certification procedures became available for medical

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<PAGE> 48

devices, and the successful completion of such procedures would allow certified
devices to be marketed in all EU countries. In order to obtain the right to
affix the CE mark to its products, medical device companies must obtain
certification that its processes meet European quality standards and establish
that the product is considered safe and fit for its intended purpose. After June
14, 1998, medical devices other than active implants and in vitro diagnostic
products may not be sold in EU countries unless they display the CE mark.
Although member countries must accept for marketing medical devices bearing a CE
marking without imposing further requirements related to product safety and
performance, each country may require the use of its own language or labels and
instructions for use.

The Company may also have to obtain additional approvals from foreign
regulatory authorities in order to sell its products in non-EU countries. Some
countries have historically permitted human studies earlier in the product
development cycle than regulations in the United States permit. Other countries,
such as Japan, have requirements similar to those of the United States. This
disparity in the regulation of medical devices may result in more rapid product
clearance in certain countries than in the United States, while approvals in
countries such as Japan may require longer periods than in the United States.
Seiko Contactlens Inc., the Company's distributor in Japan, will be responsible
for management of clinical trials and obtaining regulatory approval for the
Company's products, and such approval will therefore be outside the Company's
control. Accordingly, there can be no assurance as to when or whether such
approval will be received.

Other Regulation. The Company is also subject to numerous federal, state
and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and
disposal of hazardous or potentially hazardous substances. There can be no
assurance that the Company will not be required to incur significant costs to
comply with such laws and regulations in the future or that compliance with such
laws or regulations will not have a material adverse effect upon the Company's
ability to do business.

The Company's success depends to a significant extent upon the success of
its customers in the retail optical industry. These customers are subject to a
variety of federal, state and local laws, regulations and ordinances, including
those regarding advertising, location and design of stores, products sold and
qualifications and practices of the industry. The state and local legal
requirements vary widely among jurisdictions and are subject to frequent change.
Furthermore, numerous health-care related legislative proposals have been made
in recent years in the United States Congress and in various state legislatures.
The potential impact of these proposals with respect to the business of the
Company's customers is uncertain, and there is no assurance that the proposals,
if adopted, would not have a material adverse impact on the Company.

There is substantial United States federal and state governmental
regulation related to the prescribing of contact lenses. These regulations
relate to who is permitted to prescribe and fit contact lenses, the prescriber's
obligation to provide prescriptions to its patients, the length of time a
prescription is valid, the ability or obligation of prescribers to prescribe
lenses by brand rather than by generic equivalent or specification, and other
matters. Although these regulations primarily affect contact lens prescribers,
and not manufacturers or distributors of lenses such as the Company, changes in
these regulations, or their interpretation or enforcement, could adversely
affect the effectiveness of the Company's marketing strategy to eyecare
practitioners, most notably the effectiveness of the Company's channel-specific
and private label branding strategies. Additionally, given the Company's
strategic emphasis on focusing its marketing efforts on eyecare practitioners
rather than consumers, the Company may be more vulnerable than its competitors
to changes in current trade practices. Adverse regulatory or other decisions
affecting eyecare practitioners, or material changes in the selling and
prescribing practices for contact lenses, could have a material adverse affect
on the Company's business, operating results and financial condition.

PRODUCT LIABILITY AND INSURANCE

The Company has in the past been, and continues to be, subject to product
liability claims and lawsuits, and the Company's Canadian subsidiary is
currently a defendant in one such lawsuit, filed by an individual in 1997 in the
Province of Ontario, Canada, alleging that the Company's lenses injured the
plaintiff's cornea and seeking damages of 500,000 Canadian dollars plus interest
and costs. Because contact lenses are medical

48
<PAGE> 49

devices, the Company faces an inherent risk of exposure to product liability
claims in the event that the use of its products results in personal injury. The
Company also faces the possibility that defects in the design or manufacture of
its products might necessitate a product recall. From time to time, the Company
has received, and may continue to receive, complaints of significant patient
discomfort, including corneal complications, while using the Company's contact
lenses. In certain cases, the reasons for the problems have never been
established. In addition, on two occasions, in 1995 and 1997, the Company has
recalled limited volumes of certain of its product because certain labels on the
vial or blister did not match the enclosed lens. Although the Company has not
experienced material losses to date due to product liability claims or product
recalls, there can be no assurance that the Company will not experience such
losses in the future, that insurance coverage will be adequate to cover such
losses, or that insurance coverage will be available on acceptable terms or at
all. The Company maintains product liability insurance with coverage of $1
million per occurrence and an annual aggregate maximum of $2 million with
umbrella coverage of $10 million. A product liability or other judgment against
the Company in excess of the Company's insurance coverage or a product recall
could have a material adverse effect on the Company's business, financial
condition and results of operations.

EMPLOYEES

As of June 30, 1997, the Company had 1,138 full-time employees, including
282 in the United States, 388 in the United Kingdom, 416 in Puerto Rico, 42 in
Canada and 10 in Hungary. Of the Company's full-time employees, 128 are engaged
in sales and marketing, 755 in manufacturing, 173 in distribution, six in
process development and 76 in finance and administration. The Company also
utilizes a number of part-time employees in its manufacturing and distribution
operations to supplement its full-time workforce. The Company's success is
dependent in part on its ability to attract and retain qualified employees. In
particular, the loss of John D. Fruth, the Company's founder and President,
would have a material adverse effect on the Company's development and marketing
efforts. None of the Company's employees is represented by a labor union or is
the subject of a collective bargaining agreement with respect to his or her
employment by the Company. The Company has never experienced a work stoppage and
believes that its employee relations are good. See "Risk Factors -- Dependence
on Key Personnel."

49
<PAGE> 50

MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their ages and
positions as of June 30, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
John D. Fruth 53 President, Chief Executive Officer and Chairman of the
Board of Directors
Daniel J. Kunst 44 Vice President, Sales and Marketing, and Director
Gregory E. Lichtwardt 42 Vice President, Finance, Chief Financial Officer and
Treasurer
John Lilley 50 Vice President, Manufacturing
Edgar J. Cummins(1) 54 Director
Terence M. Fruth 59 Director and Corporate Secretary
William R. Grant(1) 72 Director
Francis R. Tunney, Jr.(1) 49 Director
</TABLE>

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

(1) Member of the Audit Committee and the Compensation Committee

JOHN D. FRUTH founded the Company in 1985 and has been the President, Chief
Executive Officer and Chairman of the Board of Directors of the Company since
its inception. Prior to joining the Company, Mr. Fruth worked in the regulatory
affairs department and served as President, contact lens division, of
CooperVision, Inc., a contact lens manufacturer, from 1976 to 1983. From 1972 to
1976, Mr. Fruth worked in sales and marketing management positions at Bausch &
Lomb, a company that manufactures and markets health-care products, including
contact lenses. John D. Fruth is the brother of Terence M. Fruth.

DANIEL J. KUNST has been Vice President, Sales and Marketing, of the
Company since August 1995. Mr. Kunst has also been a member of the Board of
Directors of the Company since October 1987 and served as Executive Vice
President and Chief Operating Officer of the Company from 1987 to February 1992.
From November 1994 to May 1995, Mr. Kunst served as Chief Executive Officer of
NeoLens, Inc., an optical products company. From January 1993 to October 1994,
Mr. Kunst was President, Chief Executive Officer and a director of Cymed, Inc.,
a manufacturer and marketer of medical devices. From March 1992 to January 1993,
he worked as an independent consultant to ophthalmic companies. Additionally,
from 1990 to 1995, Mr. Kunst was a member of the board of directors of VISX,
Inc., a manufacturer of ophthalmic lasers. From 1979 to 1987, Mr. Kunst held
various management positions with CooperVision, Inc., including President,
Professional Resources Division; Senior Vice President, Ophthalmic Products
Division; and Vice President, Sales and Marketing, Revo Sunglass Division.

GREGORY E. LICHTWARDT has been Vice President, Finance, and Chief Financial
Officer of the Company since April 1993 and Treasurer since May 1997. Prior to
joining the Company, from November 1990 to February 1993, Mr. Lichtwardt was
Vice President, Finance, of the Humphrey Instruments Division of Allergan, Inc.
("Allergan"), a health-care company focused on specialty pharmaceutical
products. From February 1989 to November 1990, he served as Director of
Operations, Accounting and Planning, of Allergan's Optical Division. From
December 1986 to January 1989, he was Corporate Controller of AST Research,
Inc., a personal computer manufacturing company, and from June 1980 to December
1986, Mr. Lichtwardt held several financial positions within several different
divisions of American Hospital Supply Corporation, a health-care and medical
products company.

JOHN LILLEY has been Vice President, Manufacturing, of the Company since
June 1996. From 1990 to June 1996, Dr. Lilley served as Manufacturing Director
of Bespak plc, an English company that manufactures precision plastic
injection-molded components for the pharmaceutical industry. From 1989 to 1990,
he was Operations Director of Birkby Plastics, a division of the Plessey
Plastics Group, which manufactures plastic injection-molded components for the
automotive and computer industries.

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<PAGE> 51

EDGAR J. CUMMINS has been a member of the Board of Directors of the Company
since October 1992. Since May 1995, Mr. Cummins has served as Chief Financial
Officer of Chiron Vision Corporation, an ophthalmic surgical company. From 1986
to May 1995, he was Chief Financial Officer of Allergan. Prior to his service
with Allergan, Mr. Cummins held various senior financial positions with American
Hospital Supply Corporation, a health-care and medical products company, and
Baxter Travenol Laboratories, Inc., a medical products company, over a period of
seven years. Prior to that, he spent five years as a financial consultant for
Arthur Young & Company, a certified public accounting company. Mr. Cummins also
sits on the board of directors of Biopsys, Inc., a surgical device company.

TERENCE M. FRUTH has been Corporate Secretary and a member of the Board of
Directors of the Company since August 1992. Since 1985, Mr. Fruth has been a
partner, Vice President and Corporate Secretary of Fruth & Anthony, P.A., a
Minneapolis-based law firm specializing in commercial litigation. Mr. Fruth has
been practicing law for 30 years. Mr. Fruth is a member of both the Minnesota
State and American Bar Associations. Terence M. Fruth is the brother of John D.
Fruth.

WILLIAM R. GRANT has been a member of the Board of Directors of the Company
since October 1992. Since 1989, he has been the Chairman of Galen Associates, a
venture capital firm specializing in emerging health-care companies. From 1987
to 1989, Mr. Grant served as Chairman of New York Life International Investment,
and, from 1979 to 1987, he was the Chairman and President of MacKay-Shields
Financial Corporation. Prior to 1979, Mr. Grant had 25 years' experience with
Smith Barney, Harris Upham & Co., Inc., where he served as President and, from
1976 to 1978, Vice Chairman. Mr. Grant currently serves as Vice Chairman of
SmithKline Beecham plc and serves on the boards of directors of Allergan; Fluor
Corporation, an engineering, construction and diversified services company;
MiniMed, Inc., a company that specializes in drug delivery devices and systems;
New York Life Insurance Company, an insurance and financial services company;
Seagull Energy Corporation, an oil and gas company; and Witco Corporation, a
specialty chemicals company.

FRANCIS R. TUNNEY, JR. has been a member of the Board of Directors of the
Company since October 1996. Mr. Tunney has been Corporate Vice President,
General Counsel and Corporate Secretary of Allergan since January 1990. From
1989 to 1991, Mr. Tunney was Senior Vice President, General Counsel and
Corporate Secretary of Allergan. From 1979 to 1989, Mr. Tunney held several
positions at SmithKline Beecham plc, including counsel for its Medical Device
and Diagnostics Division, acting general manager for its Medical Ultrasound
Division and senior international attorney within its corporate law department.

Directors are elected at each annual meeting of stockholders to serve until
the next annual meeting of stockholders, or until their successors are duly
elected and qualified or until their earlier resignation, removal or death.
William R. Grant and Francis R. Tunney, Jr. were elected to the Board of
Directors (the "Board") pursuant to the terms of a shareholders' agreement (the
"Shareholders' Agreement") under which Galen Partners, L.P. and Galen Partners
International, L.P., collectively, are entitled to nominate one director of the
Company and Allergan is entitled to nominate one director of the Company,
subject to certain conditions. See "Certain Transactions -- Allergan/Hydron
Acquisition; Galen Financing." Mr. Grant was nominated by Galen Partners, L.P.
and Galen Partners International, L.P., and Mr. Tunney was nominated by
Allergan. The Shareholders' Agreement will terminate on the closing of this
offering. Executive officers are chosen by, and serve at the discretion of, the
Board of Directors.

BOARD COMMITTEES

The Company's Compensation Committee was formed in January 1993 to review
and approve the compensation and benefits for the Company's key executive
officers, administer the Company's stock purchase and stock option plans and
make recommendations to the Board regarding such matters. The Compensation
Committee is currently composed of Edgar J. Cummins, William R. Grant and
Francis R. Tunney, Jr. No interlocking relationship exists between the Board or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. The Audit Committee was formed in January 1993 to review the internal
accounting procedures of the

53
<PAGE> 52

Company and to consult with and review the services provided by the Company's
independent auditors. The Audit Committee is currently comprised of Edgar J.
Cummins, William R. Grant and Francis R. Tunney, Jr.

DIRECTOR COMPENSATION

Members of the Board do not receive cash compensation for their services as
directors but are reimbursed for their reasonable expenses in attending meetings
of the Board. Historically, the Board members have been issued shares as
compensation for service. In January 1997, William R. Grant, Terence M. Fruth,
Edgar J. Cummins and Francis R. Tunney, Jr. were issued 742, 680, 680 and 186
shares of Common Stock, respectively, as compensation for service during 1996.

In June 1997, the Board adopted and the stockholders approved the 1997
Directors Stock Option Plan (the "Directors Plan") and reserved a total of
300,000 shares of the Company's Common Stock for issuance thereunder. Only
members of the Board who are not employees of the Company, or any parent,
subsidiary or affiliate of the Company, are eligible to participate in the
Directors Plan. On the effective date of the Registration Statement (the
"Effective Date"), each eligible director will automatically be granted an
option to purchase 30,000 shares. Each eligible director who becomes a member of
the Board after the Effective Date will automatically be granted an option to
purchase 30,000 shares upon joining the Board. In addition, each eligible
director will automatically be granted an option to purchase 15,000 shares on
each anniversary date of such director's initial option grant under the
Directors Plan if such director has served continuously as a member of the Board
since the date such director was first granted an option under the Directors
Plan. All options issued under the Directors Plan will vest as to 1/36 per month
commencing one month after the date of grant, for so long as the optionee
continues as a member of the Board or as a consultant to the Company. The
exercise price of all options granted under the Directors Plan will be the fair
market value of the Common Stock on the date of grant.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY

As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases) or (iv) for any transaction from which
the director derived an improper personal benefit.

As permitted by the Delaware General Corporation Law, the Bylaws of the
Company provide that (i) the Company is required to indemnify its directors and
officers to the fullest extent permitted by the Delaware General Corporation
Law, subject to certain very limited exceptions, (ii) the Company may indemnify
its other employees and agents as set forth in the Delaware General Corporation
Law, (iii) the Company is required to advance expenses, as incurred, to its
directors and executive officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law, subject to
certain very limited exceptions, (iv) the rights conferred in the Bylaws are not
exclusive and (v) the Company is authorized to enter into indemnification
agreements with its directors, officers, employees and agents.

The Company has entered into indemnity agreements with each of its current
directors and executive officers to give such directors and executive officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Company's Bylaws and to provide additional procedural protections.
At present, there is no pending litigation or proceeding involving a director,
officer or employee of the Company regarding which indemnification is sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification.

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<PAGE> 53

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning the
compensation awarded to, earned by, or paid for services rendered to the Company
in all capacities during 1996 by (i) the Company's Chief Executive officer and
(ii) each of the Company's three other executive officers (the "Named Executive
Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION
----------------------------------------- AWARDS
OTHER ANNUAL ---------------------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)(1) SECURITIES UNDERLYING OPTIONS (#)
- ------------------------------ --------- -------- ------------------ ---------------------------------
<S> <C> <C> <C> <C>
John D. Fruth, President and
Chief Executive Officer..... $ 262,692 $101,635 $ 6,234(2) --
Gregory E. Lichtwardt, Vice
President, Finance, Chief
Financial Officer and
Treasurer................... 133,000 34,467 167 --
Daniel J. Kunst, Vice
President, Sales and
Marketing................... 135,000 11,553 173 --
John Lilley, Vice President,
Manufacturing(3)............ 88,667 -- 32,397(4) 80,000
</TABLE>

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

(1) For all but John D. Fruth and John Lilley, Other Annual Compensation
represents premiums paid by the Company with respect to life insurance for
the benefit of the respective individual.

(2) Represents premiums paid by the Company with respect to term life insurance
for John D. Fruth's benefit in the amount of $884 and automobile expenses
paid by the Company for his benefit in the amount of $5,350.

(3) On March 27, 1996, the Company executed an employment agreement with John
Lilley, and in June 1996 he joined the Company. The Company agreed to employ
Dr. Lilley as Vice President, Manufacturing at an annual salary of L95,000.
In addition, Dr. Lilley is eligible to receive a bonus of up to 40% of his
annual salary at the discretion of the Company based on the achievement of
manufacturing goals and objectives established by the Company at the start
of each fiscal year. Dr. Lilley also received an option to purchase 80,000
shares of the Company's Common Stock at an exercise price of $5.03 per
share. Under the employment agreement, his employment will continue unless
and until either the Company or Dr. Lilley serves on the other 12 months'
notice of termination, provided that the Company has the right to terminate
his employment upon his 65th birthday.

(4) Represents a $22,165 contribution by the Company to a pension plan for the
benefit of Dr. Lilley and a $10,232 reimbursement for automobile expenses.

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<PAGE> 54

OPTION GRANTS IN 1996

The following table sets forth information regarding option grants during
1996 to each of the Named Executive Officers. In accordance with the rules of
the Securities and Exchange Commission, the table sets forth the hypothetical
gains or "option spreads" that would exist for the options at the end of their
respective six-year terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted to the end of the option term.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------- VALUE AT ASSUMED
% OF ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN OPTION TERM(3)
OPTIONS FISCAL EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) YEAR(2) PER SHARE ($/SH) DATE 5% 10%
- --------------------- ------------- ------------- ---------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John D. Fruth........ -- -- -- -- -- --
Gregory E.
Lichtwardt......... -- -- -- -- -- --
Daniel J. Kunst...... -- -- -- -- -- --
John Lilley.......... 80,000 20.2% $ 5.03 05/31/02 $136,854 $310,476
</TABLE>

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

(1) The option granted to John Lilley under the 1989 Stock Option Plan in 1996
is a nonqualified stock option that was granted at fair market value and
that vests 20% per year over a five-year period so long as Dr. Lilley is
employed by the Company. The option has a term of six years.

(2) The Company granted options to purchase 395,534 shares of Common Stock to
employees during 1996.

(3) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.

AGGREGATED OPTION EXERCISES IN 1996 AND FISCAL YEAR-END OPTION VALUES

The following table sets forth information regarding the exercise of stock
options by the Named Executive Officers during 1996 and stock options held as of
December 31, 1996 by the Named Executive Officers.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END(#) AT FISCAL YEAR-END(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISES(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John D. Fruth......... -- -- 1,280,000 -- $ 9,864,128 --
Gregory E.
Lichtwardt.......... -- -- 96,000 64,000 627,000 $ 418,000
Daniel J. Kunst....... -- -- 20,000 80,000 99,300 397,200
John Lilley........... -- -- -- 80,000 -- 237,600
</TABLE>

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

(1) Based on the fair market value of the Company's Common Stock at December 31,
1996 ($8.00 per share) less the exercise price payable for such shares.

EMPLOYEE BENEFIT PLANS

1989 Stock Option Plan. Under the 1989 Plan, as of June 30, 1997 options to
purchase 1,799,694 shares of Common Stock were outstanding and 279,294 shares of
Common Stock were reserved for issuance for options available for grant to
employees, officers, directors, consultants, independent contractors and
advisors. In July 1997, the Company granted options to purchase an aggregate of
18,000 additional shares of Common Stock under the 1989 Plan at an exercise
price of $14.00 per share, including an option to purchase 5,000 shares granted
to Mr. Tunney, a director of the Company and granted options to purchase in
aggregate of 13,000 shares of common stock under the 1989 Plan at an exercise
price equal to the initial public offering of the Common Stock. The 1989 Plan
will be terminated upon the effective date of the Registration Statement for
this offering, when the 1997 Equity Incentive Plan will become effective. As a
result, no further options may be granted under the 1989 Plan following the
closing of this offering. However, termination does not

54
<PAGE> 55

affect any outstanding options, all of which will remain outstanding until
exercised or until they terminate or expire in accordance with their terms. The
terms of options granted under the 1989 Plan and the administration of the plan
are substantially the same as those that pertain to the 1997 Equity Incentive
Plan, except that the vesting of options granted prior to March 1, 1995 under
the 1989 Plan accelerates upon certain acquisitions of the Company unless the
options are assumed or substituted by the acquiring corporation.

1992 Officers and Directors Stock Option Plan. There are options to
purchase 1,280,000 shares of the Company's Common Stock outstanding under the
1992 Plan, all of which have been granted to John D. Fruth. These options were
granted in 1992 at an exercise price of $0.29 per share, are fully vested and
terminate in September 1997. The 1992 Plan will be terminated upon the effective
date of the Registration Statement for this offering, when the 1997 Equity
Incentive Plan will become effective. However, termination does not affect these
outstanding options, which will remain outstanding until exercised or until they
terminate or expire in accordance with their terms. The Company expects that Mr.
Fruth will exercise such options prior to the consummation of this offering.

1997 Equity Incentive Plan. In June 1997, the Board adopted and the
stockholders approved the 1997 Equity Incentive Plan, under which 2,000,000
shares of Common Stock are reserved for issuance. Any authorized shares not
issued or subject to outstanding grants under the 1989 Plan on the effective
date of this offering (279,294 shares as of June 30, 1997) and any shares that
are issuable upon exercise of options granted pursuant to the 1989 Plan that
expire or become unexercisable for any reason without having been exercised in
full will be available for future grant and issuance under the 1997 Equity
Incentive Plan. No options have been issued under the 1997 Equity Incentive
Plan. The 1997 Equity Incentive Plan will become effective on the effective date
of the Registration Statement for this offering and will terminate in May 2007,
unless sooner terminated by the Board. The 1997 Equity Incentive Plan authorizes
the award of options, opportunities to purchase restricted stock and stock
bonuses (each an "Award"). The 1997 Equity Incentive Plan is administered by a
committee appointed by the Board, currently the Compensation Committee,
consisting of Messrs. Cummins, Grant and Tunney, all of whom are "nonemployee
directors" under applicable federal securities laws and "outside directors" as
defined under applicable federal tax laws. The committee has the authority to
construe and interpret the 1997 Equity Incentive Plan and any agreement made
thereunder, grant Awards and establish their terms and make all other
determinations necessary or advisable for the administration of the 1997 Equity
Incentive Plan.

The 1997 Equity Incentive Plan provides for the grant of both incentive
stock options ("ISOs") that qualify under Section 422 of the Internal Revenue
Code of 1986, as amended, and nonqualified stock options ("NQSOs"). ISOs may be
granted only to employees of the Company or of a parent or subsidiary of the
Company. NQSOs may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or of any parent or
subsidiary of the Company, provided such consultants, independent contractors
and advisors render bona fide services not in connection with the offer and sale
of securities in a capital-raising transaction ("Eligible Service Providers").
The exercise price of ISOs must be at least equal to the fair market value of
the Company's Common Stock on the date of grant (110% of that value in the case
of ISOs issued to ten percent stockholders). The exercise price of NQSOs must be
at least equal to 85% of that value. The maximum term of options granted under
the 1997 Equity Incentive Plan is ten years. Options granted under the 1997
Equity Incentive Plan may not be transferred in any manner other than by will or
by the laws of descent and distribution and may be exercised during the lifetime
of the optionee only by the optionee. Options granted under the 1997 Equity
Incentive Plan generally expire 90 days after the termination of the optionee's
service to the Company or to a parent or subsidiary of the Company, except in
the case of death or disability, in which case the options may be exercised up
to 12 months following the date of death or termination of service. Options
terminate immediately upon termination of employment for cause.

Opportunities to purchase shares of the Company's Common Stock and awards
of shares of the Company's Common Stock, either of which may be subject to a
right of repurchase in favor of the Company or other restrictions on ownership
or transfer, may be given to Eligible Service Providers.

In the event of certain acquisitions of the Company, any or all outstanding
Awards may be assumed or replaced by the successor corporation. In the
alternative, the successor corporation may substitute equivalent

55
<PAGE> 56

Awards or provide consideration to Award recipients which is substantially
similar to that provided to stockholders. If the successor does not assume or
substitute Awards, outstanding Awards will expire upon consummation of the
transaction, provided that the Board in its sole discretion may provide that the
vesting of any or all Awards will accelerate prior to such consummation.

1997 Employee Stock Purchase Plan. In June 1997, the Board adopted and the
stockholders approved the 1997 Employee Stock Purchase Plan (the "Purchase
Plan") and reserved a total of 400,000 shares of the Company's Common Stock for
issuance thereunder. The Purchase Plan will become effective upon the effective
date of the Registration Statement for this offering and will permit eligible
employees to acquire shares of the Company's Common Stock through payroll
deductions. Eligible employees may select a rate of payroll deduction between 2%
and 10% of their compensation and are subject to certain maximum purchase
limitations described in the Purchase Plan. Except for the first offering, each
offering under the Purchase Plan will be for a period of 24 months (the
"Offering Period") and will consist of four six-month purchase periods (each a
"Purchase Period"). The purchase price for the Company's Common Stock purchased
under the Purchase Plan is 85% of the lesser of the fair market value of the
Company's Common Stock on the first day of the applicable Offering Period and
the last day of the applicable Purchase Period. The Board has the authority to
determine the date on which the first Offering Period will begin and the length
of such Offering Period. The Board has the power to change the duration of
Offering Periods and Purchase Periods. The Purchase Plan is intended to qualify
as an "employee stock purchase plan" under Section 423 of the Code.

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<PAGE> 57

CERTAIN TRANSACTIONS

Since January 1, 1994, there has not been nor is there currently proposed,
any transaction or series of similar transactions to which the Company or any of
its subsidiaries was or is to be a party in which the amount involved exceeds
$60,000 and in which any director, executive officer, holder of more than 5% of
the Common Stock of the Company or any member of the immediate family of any of
the foregoing persons had or will have a direct or indirect material interest
other than (i) compensation agreements, which are described where required in
"Management," and (ii) the transactions described below.

OSL ACQUISITION AND RELATED LITIGATION

In September 1992, the Company acquired PLL, a United Kingdom-based
manufacturer of contact lenses and, until the acquisition, a supplier to the
Company, for a total of 1,728,000 shares of the Company's Common Stock (the "PLL
Acquisition"). After the acquisition, PLL was renamed Ocular Sciences Ltd.
("OSL"). The owners of PLL (the "PLL Owners") included John D. Fruth, the
Company's President and a director and principal stockholder of the Company, who
received 496,976 shares of the Company's Common Stock in the acquisition, and
Geoffrey H. Galley and his son Anthony D. Galley (together, the "Galleys"),
principal stockholders of the Company, who received 1,015,024 shares of the
Company's Common Stock in the acquisition.

In connection with the PLL Acquisition, PLL entered into a patent license
agreement with the PLL Owners other than Mr. Fruth (the "Patent Owners"),
pursuant to which PLL obtained a non-exclusive license to certain contact lens
manufacturing patents in exchange for royalty payments that were to aggregate up
to $4.4 million, of which up to $3.6 million was to be paid to the Galleys. An
additional royalty was to be payable by PLL on certain sales by it to other
contact lens manufacturers. Royalties totaling $1.7 million were accrued in
1994, and, as of December 31, 1994, the Company had made cumulative royalty
payments of approximately $3.2 million. No royalty payments were made after 1994
as a result of the lawsuit described below. Also in connection with the PLL
Acquisition, PLL entered into a purchase and supply agreement with Aspect Vision
Care Ltd. ("AVCL"), a United Kingdom-based contact lens distributor controlled
by certain of the Patent Owners, pursuant to which PLL agreed to manufacture and
supply contact lenses to AVCL at a purchase price equal to the Company's direct
and indirect costs of processing the lenses, plus 20% (the "Purchase and Supply
Agreement"). In connection with the Purchase and Supply Agreement, PLL agreed
not to sell the contact lenses covered by such agreement to third parties in the
United Kingdom, and AVCL agreed not to sell such lenses in North and South
America, for a period of ten years (subject to certain exceptions). AVCL
accounted for approximately $1.9 million of the Company's net sales for the year
ended December 31, 1994 and $407,000 of accounts receivable as of December 31,
1995 and 1996. There were no sales to AVCL in 1995 and 1996. See Note 12 of
Notes to Consolidated Financial Statements.

In May 1992, Anthony Galley was appointed Managing Director of PLL and in
November 1992 entered into an employment agreement with PLL. Mr. Galley was also
appointed Vice President, Manufacturing, of the Company. In 1993 and 1994,
disputes arose between the Company, OSL, Anthony Galley and AVCL regarding the
type, price and quantity of contact lenses that OSL was obligated to supply to
AVCL under the Purchase and Supply Agreement. AVCL constructed its own
manufacturing facility in 1994 using information that the Company believed to be
proprietary to OSL.

In April 1994, OSL terminated Anthony Galley's employment, and, in the
following month, the Company and OSL sued AVCL, the Galleys, the other Patent
Owners and certain related persons in the United Kingdom and later in
California. The suit in the United Kingdom alleged misappropriation of
intellectual property, breach of fiduciary duty, breach of contract and other
claims, while the suit in California alleged securities fraud arising out of the
PLL Acquisition. The defendants brought a counterclaim against OSL and the
Company for sums allegedly due under the patent license agreement and breach of
Anthony Galley's employment contract, and other claims, and brought a separate
action in the United Kingdom against OSL alleging patent infringement.

In November 1996, judgment was rendered in the United Kingdom actions. The
judgment found against the Company and OSL on the most important claims brought
by them. In the judgment, the judge harshly

60
<PAGE> 58

criticized the Company's business practices and stated that he did not believe
the testimony of Messrs. Fruth and Lichtwardt, the Company's Chief Executive
Officer and Chief Financial Officer, respectively. The judge found in favor of
the defendants on a number of their counterclaims, although not on the issue of
patent infringement, which was decided in favor of OSL.

In February 1997, prior to the determination of any costs or damages, the
Company and the other parties to the foregoing litigations entered into a
settlement agreement (the "Settlement Agreement") providing for, among other
things (i) a mutual release among the parties, including a release from any
further amounts owed under the patent license agreement or Purchase and Supply
Agreement, and the termination of all pending litigation, (ii) the replacement
of the patent license agreement with a new, fully paid-up, non-exclusive patent
license that did not limit OSL's ability to sell contact lenses to other contact
lens manufacturers, (iii) the grant by OSL to AVCL and the Patent Owners of a
royalty-free, non-exclusive license to any OSL proprietary information that was
in their possession as of the commencement of the lawsuits in May 1994, (iv) the
termination of the Purchase and Supply Agreement, including the elimination of
the restriction on the Company's ability to sell contact lenses in the United
Kingdom (with the payment of a royalty in certain limited circumstances) and the
elimination of the restriction on AVCL's ability to sell contact lenses in North
and South America, (v) the placement of the Company's shares owned by the Patent
Owners in a voting trust, which trust is to expire upon the effectiveness of
this offering and (vi) certain priority registration rights for the Patent
Owners in connection with public offerings of the Company, including this
offering. The Settlement Agreement also provided for the payment of $10 million
by the Company, of which $3.3 million (net of withholding) was paid on the date
of the Settlement Agreement and the remaining $6.7 million is to be paid upon
the closing of the Company's initial public offering. See Note 14 of Notes to
Consolidated Financial Statements.

The Patent Owners are offering all of the shares of Common Stock owned by
them in this offering, and have agreed not to acquire additional shares of the
Company's Common Stock or other securities or assets of the Company for a period
of five years from the date of this offering.

ALLERGAN/AMERICAN HYDRON ACQUISITION; GALEN FINANCING

In October 1992, the Company acquired the North and South American contact
lens business of Allergan Optical, Inc., which had been operating under the name
American Hydron, for $24.5 million. Allergan Optical, Inc. was a wholly-owned
subsidiary of Allergan, Inc. (together referred to as "Allergan"). The American
Hydron acquisition and related working capital requirements were financed by the
issuance of (i) a senior secured note in the amount of $7.0 million to Allergan,
(ii) senior subordinated notes in the aggregate principal amount of $16.3
million, $13.8 million of which was issued to Allergan and $2.5 million of which
was issued to Galen Partners, L.P. and Galen Partners International L.P.
(together, the "Galen Group"), (iii) 118,168 shares of Series A Preferred Stock
(valued at $8.46 per share, for an aggregate value of approximately $1.0
million) to Allergan, (iv) 3,403,192 shares of Common Stock at $1.47 per share,
for an aggregate price of approximately $5.0 million, to the Galen Group and (v)
warrants to purchase an aggregate of 3,492,688 shares of Common Stock at an
exercise price of $0.00125 per share, 2,957,000 of which were issued to Allergan
and 535,688 of which were issued to the Galen Group. The senior secured note was
repaid from bank borrowings in 1993 and the senior subordinated notes were
repaid from bank borrowings in October 1996. In December 1994, Allergan and the
Galen Group exercised their warrants to purchase 2,467,456 and 356,936 shares of
Common Stock, respectively. Effective December 31, 1996, the remaining warrants
were canceled pursuant to their terms because the Company had met certain
financial milestones.

In connection with the American Hydron acquisition, the Company entered
into a Shareholders' Agreement that provided each of Allergan and the Galen
Group with the right to appoint one person to the Board, which positions are
currently filled by Messrs. Tunney and Grant, respectively. The Shareholders'
Agreement also placed certain restrictions on the ability of the signatories
thereto to transfer their shares. Such rights and restrictions will expire on
consummation of this offering. The Company also entered into a registration
rights agreement providing the Company's then current shareholders, including
John D. Fruth, Allergan, the Galen Group and the Galleys, with certain
registration rights. See "Description of Capital Stock -- Registration Rights."

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<PAGE> 59

PAYMENTS TO DIRECTOR

Fruth & Anthony, a law firm in which Terence M. Fruth, a director of the
Company and the brother of John D. Fruth, the President of the Company, is a
partner, has provided legal services to the Company since its formation. The
Company made payments of $399,834 in 1994, $309,253 in 1995, $283,945 in 1996
and $58,470 in the first six months of 1997 to Fruth & Anthony for such legal
services.

LOANS FROM MR. FRUTH

From July 1986 to March 1990, John D. Fruth loaned the Company a total of
$2.9 million to meet certain short-term operating cash requirements. In October
1992, in connection with the American Hydron acquisition, Mr. Fruth was issued a
junior subordinated promissory note in the principal amount of $2.9 million to
evidence the outstanding principal and interest on such loans (the "Fruth
Note"). The Fruth Note bears interest at the prime rate plus 3%. The Fruth Note
was further subordinated in connection with the Company's borrowings under the
Comerica Credit Agreement in October 1996. In June 1997, the Fruth Note was
amended to provide, among other things, that all principal and unpaid interest
is payable on the earlier of November 1, 1997 or the consummation by the Company
of a public offering in which it receives net proceeds of at least $37.0
million. The Company expects to repay the Fruth Note with a portion of the
proceeds of this offering.

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<PAGE> 60

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 30, 1997 and as
adjusted to reflect the sale of the shares offered hereby, assuming no exercise
of the Underwriters' overallotment option, by: (i) each person who is known by
the Company to own beneficially more than 5% of the Company's Common Stock, (ii)
each director of the Company, (iii) each of the Named Executive Officers, (iv)
all directors and executive officers of the Company as a group and (v) each
Selling Stockholder.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)
5% STOCKHOLDERS, DIRECTORS AND NAMED -------------------- NUMBER OF --------------------
EXECUTIVE OFFICERS NUMBER PERCENT SHARES BEING OFFERED NUMBER PERCENT
- -------------------------------------------- ----------- ------- -------------------- ---------- -------
<S> <C> <C> <C> <C> <C>
John D. Fruth(2)............................ 8,314,576 45.9% 741,591 7,572,985 34.9%
Galen Partners, L.P. and affiliates(3)...... 3,771,138 22.4 350,000 3,421,138 16.7
William R. Grant(4)......................... 3,771,138 22.4 350,000 3,421,138 16.7
Allergan, Inc.(5)........................... 2,783,792 16.5 475,201 2,308,591 11.3
Francis R. Tunney, Jr.(6)................... 2,783,978 16.5 475,201 2,308,777 11.3
Anthony D. Galley(7)........................ 1,312,480 7.8 1,312,480 -- *
Geoffrey H. Galley(8)....................... 1,225,744 7.3 1,225,744 -- *
Terence M. Fruth............................ 104,970 * -- 104,970 *
Edgar J. Cummins............................ 10,948 * -- 10,948 *
Daniel J. Kunst(9).......................... 49,886 * -- 49,886 *
Gregory E. Lichtwardt(10)................... 96,000 * -- 96,000 *
John Lilley(11)............................. 8,000 * -- 8,000 *
All directors and executive officers as a
group
(8 persons)(12)........................... 15,139,496 82.9 1,566,792 13,572,704 62.1
OTHER SELLING STOCKHOLDERS
Ronald E. Hansman(13)....................... 320,000 2.0 36,894 283,106 1.3
Barrie Bevis................................ 86,400 * 86,400 -- *
Albert H. Morland........................... 86,400 * 86,400 -- *
Ivor Atkinson............................... 43,200 * 43,200 -- *
Anita Hall(14).............................. 32,000 * 3,690 28,310 *
</TABLE>

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

* Less than 1% of the Company's outstanding Common Stock

(1) Percentage ownership is based on 16,826,326 shares outstanding as of June
30, 1997 and 20,426,326 shares outstanding after the offering. Unless
otherwise indicated below, the persons and entities named in the table have
sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options that are currently exercisable or
will become exercisable within 60 days of June 30, 1997 are deemed to be
outstanding and to be beneficially owned by the person holding such options
for the purpose of computing the percentage ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.

(2) Includes 1,280,000 shares of Common Stock that may be acquired upon
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of June 30, 1997. The Company expects that Mr.
Fruth will exercise such options prior to the consummation of this
offering. Assuming exercise of the overallotment option in full, the number
of shares being offered by Mr. Fruth will be increased by 258,409 shares
and the number of shares beneficially owned by Mr. Fruth after the offering
will be reduced to 33.7% of the shares outstanding.

(3) Represents 3,409,184 shares held of record by Galen Partners, L.P., 350,944
shares held of record by Galen Partners International, L.P., and 11,010
shares held of record by Galen Associates. William R. Grant (a director of
the Company), Bruce F. Wesson and Rebound Investments, Inc. are the general
partners of BGW Partners, L.P., the general partner of Galen Partners, L.P.
and Galen Partners International, L.P. and thus may be deemed to have
voting and investment power with respect to these shares. The address for
these individuals and entities is c/o Galen Associates, 610 Fifth Avenue,
New York, New York 10020. Assuming exercise of the overallotment option in
full, the number of shares being offered by Galen Partners, L.P. and its
affiliates will be increased by an aggregate of 456,069 shares and the
number of shares beneficially owned by Galen Partners, L.P. and its
affiliates after the offering will be reduced to 14.5% of the shares
outstanding.

(4) Represents 3,771,138 shares held of record and the 350,000 shares being
offered by Galen Partners, L.P. and its affiliates. See Note (3).

(5) Represents 2,783,792 shares held of record by Allergan, Inc. Does not
include 186 shares held of record by Francis R. Tunney, Jr. Mr. Tunney, a
director of the Company, is the General Counsel of Allergan, Inc. Also does
not include 1,992,624 shares held of record by Francis R. Tunney, Jr. as
trustee of a voting trust, including the 1,225,744 shares owned
beneficially by Geoffrey H. Galley and 550,880 shares owned by his son,
Anthony D. Galley, because the voting trust terminates upon the
effectiveness of this offering. Allergan's address is 2525 Dupont Drive,
Irvine, California 92612. Assuming exercise of the overallotment option in

60
<PAGE> 61

full, the number of shares being offered by Allergan, Inc. will be
increased by 330,868 shares and the number of shares beneficially owned by
Allergan after the offering will be reduced to 9.7% of the shares
outstanding.

(6) Represents 2,783,792 shares held of record and the 475,201 shares being
offered by Allergan, Inc. and 186 shares held of record by Francis R.
Tunney, Jr. See Note (5).

(7) Represents 550,880 shares held of record and being offered by Anthony D.
Galley and 761,600 shares held of record and being offered by Geoffrey H.
Galley over which Anthony D. Galley has power of attorney including the
right to vote such shares. Anthony D. Galley's address is Beacon Wey, The
Hangers, Bishops Waltham, Hampshire SO32 1FZ, England.

(8) Represents shares of Common Stock held of record and being offered by
Geoffrey H. Galley. Does not include 550,880 shares held of record and
being offered by Anthony D. Galley, Geoffrey Galley's son. Geoffrey H.
Galley's address is Red Lodge, The Close, Totteridge, London N20 8PJ,
England.

(9) Includes 40,000 shares of Common Stock that may be acquired upon exercise
of stock options that are currently exercisable or will become exercisable
within 60 days of June 30, 1997.

(10) Represents shares of Common Stock that may be acquired upon exercise of
stock options that are currently exercisable or will become exercisable
within 60 days of June 30, 1997.

(11) Represents shares of Common Stock that may be acquired upon exercise of
stock options that are currently exercisable or will become exercisable
within 60 days of June 30, 1997.

(12) Includes 1,424,000 shares of Common Stock that may be acquired upon
exercise of stock options exercisable within 60 days of June 30, 1997.

(13) Assuming exercise of the overallotment option in full, the number of shares
being offered by Mr. Hansman will be increased by 31,505 shares and the
number of shares beneficially owned by Mr. Hansman after the offering will
be reduced to 1.2 % of the shares outstanding.

(14) Assuming exercise of the overallotment option in full, the number of shares
being offered by Ms. Hall will be increased by 3,149 shares and the number
of shares owned by Ms. Hall after the offering will be reduced to 25,161
shares.

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<PAGE> 62

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, the authorized capital stock of the
Company will consist of 80,000,000 shares of Common Stock, $0.001 par value, and
4,000,000 shares of Preferred Stock, par value $0.001. As of June 30, 1997, and
assuming the conversion of all outstanding Preferred Stock into Common Stock,
there were outstanding 16,826,326 shares of Common Stock held of record by
approximately 50 stockholders, and options to purchase 3,079,694 shares of
Common Stock.

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Amended and Restated
Certificate of Incorporation, which is included as an exhibit to the
Registration Statement of which this Prospectus forms a part, and by the
provisions of applicable law.

COMMON STOCK

Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board may from time to time determine. Each
stockholder is entitled to one vote for each share of Common Stock held on all
matters submitted to a vote of stockholders. The Common Stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding-up of the Company, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the Common Stock and any participating Preferred Stock outstanding at
that time after payment of liquidation preferences, if any, on any outstanding
Preferred Stock and payment of other claims of creditors. Each outstanding share
of Common Stock is, and all shares of Common Stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.

PREFERRED STOCK

Upon the closing of this offering, each outstanding share of Preferred
Stock (the "Convertible Preferred") will be converted into two shares of Common
Stock. See Note 9 of Notes to Consolidated Financial Statements for a
description of the Convertible Preferred. Pursuant to the Company's Certificate
of Incorporation, the Board is authorized to provide for the issuance of shares
of Preferred Stock in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the rights,
preferences and privileges of the shares of each wholly unissued series and any
qualifications, limitations or restrictions thereon, and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding), without any further vote or action by the
stockholders. The Board may authorize the issuance of Preferred Stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of Common Stock. Thus, the issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no current plan to issue any shares of
Preferred Stock.

REGISTRATION RIGHTS

Following this offering, the holders of approximately 12,323,120 shares of
Common Stock (the "Registrable Securities") will have certain rights to register
those shares under the Securities Act. The holders of Registrable Securities
have agreed that they will not exercise any right with respect to any such
registrations for a period ending 180 days after the effective date of the
Registration Statement for this offering without the prior written consent of
Morgan Stanley & Co. Incorporated. Thereafter, if requested by the holders of at
least 10% of the Registrable Securities, the Company must file a registration
statement under the Securities Act covering all Registrable Securities requested
to be included by all holders of such Registrable Securities, provided such
offering represents at least 20% of the Registrable Securities then outstanding.
These rights are subject to certain conditions and limitations, among them the
right of the underwriters of an offering to limit the number of shares included
in such registration in certain circumstances. The Company may be required to
effect up to three such registrations, plus one additional such registration for
each registration that does not include all holders' Registrable Securities
requested to be included. All expenses incurred in connection with such
registrations (other than underwriters' discounts and commissions) will be borne
by the Company. These demand registration rights expire October 30, 2002.

65
<PAGE> 63

In addition, if the Company proposes to register any of its securities
under the Securities Act, whether or not for sale for its own account, other
than in connection with a Company employee benefit plan or a corporate
reorganization, the holders of Registrable Securities are entitled to notice of
such registration and are entitled to include shares of such Common Stock
therein. These rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in such registration in certain circumstances. All expenses incurred in
connection with such registrations (other than underwriters' discounts and
commissions) will be borne by the Company. These registration rights expire
October 30, 2002.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is American
Stock Transfer & Trust Company. The Transfer Agent's telephone number is (212)
936-5100.

DELAWARE TAKEOVER STATUTE

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding, for purposes of determining the number of
shares outstanding, those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer or (iii) on or subsequent to
such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock that is not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition involving the interested stockholder
of 10% or more of the assets of the corporation; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder or
(iv) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation. In general, Section 203 defines an interested stockholder as
any entity or person beneficially owning 15% or more of the outstanding voting
stock of the corporation and any entity or person affiliated with or controlling
or controlled by such entity or person. See "Risk Factors -- Certain
Anti-Takeover Provisions."

LISTING

The Common Stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "OCLR."

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<PAGE> 64

SHARES ELIGIBLE FOR FUTURE SALE

In addition to the 7,200,000 shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' overallotment option), as of the
effective date of the Registration Statement of which this Prospectus forms a
part (the "Effective Date"), there will be 13,226,326 shares of Common Stock
outstanding, all of which are "restricted" shares (the "Restricted Shares")
under the Securities Act. Of the Restricted Shares, an aggregate of 13,222,166
shares of Common Stock will be eligible for sale in the public market subject to
Rule 144 and Rule 701 under the Securities Act after expiration of a contractual
lock-up beginning 180 days after the date of the Prospectus, unless earlier
released, in whole or in part, by Morgan Stanley & Co. Incorporated. Of these
shares, an aggregate of 12,148,704 shares are held by "affiliates" of the
Company and accordingly will be subject to certain volume and resale
restrictions set forth in Rule 144. In addition, an aggregate of 2,660 shares of
Common Stock will become eligible for resale in the public market upon
expiration of a one-year holding period, subject to certain volume and resale
restrictions set forth in Rule 144, in the first quarter of 1998. Sales of a
substantial number of Restricted Shares in the public market following this
offering could adversely affect the market price of the Common Stock and the
ability of the Company to raise equity capital in the future.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate of the Company) would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately 204,263 shares immediately after
this offering) or (ii) the average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of any
prior owner except an affiliate of the Company), is entitled to sell such shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144. Unless otherwise restricted, "144(k) shares"
may therefore be sold immediately upon the completion of this offering.

Rule 701 permits resales of shares in reliance upon Rule 144, but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of, or consultant to, the Company
who purchased his or her shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. The
Securities and Exchange Commission has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, along
with the shares acquired upon exercise of such options (including exercises
after the date of this Prospectus). Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
such shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
In both cases, a holder of Rule 701 shares is required to wait until 90 days
after the date of this Prospectus before selling such shares.

Immediately after this offering, the Company intends to file a registration
statement under the Securities Act covering 5,658,988 shares of Common Stock
reserved for issuance under the Company's stock option plans. Shares of Common
Stock issued upon exercise of options under the Form S-8 will be available for
sale in the public market, subject to Rule 144 volume limitations applicable to
affiliates and subject to lock-up agreements. At June 30, 1997, options to
purchase 3,079,694 shares of Common Stock were outstanding. Beginning 180 days
after the Effective Date, shares issuable upon the exercise of vested options
will be eligible for sale, if such options are exercised. See
"Management -- Director Compensation" and "Management -- Employee Benefit
Plans."

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<PAGE> 65

UNDERWRITERS

Under the terms and subject to the conditions contained in the Underwriting
Agreement dated as of the date hereof, the Underwriters named below, for whom
Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc. and Cowen & Company
are serving as Representatives (the "Representatives"), have severally agreed to
purchase, and the Company and the Selling Stockholders have agreed to sell to
them severally, the respective numbers of shares of Common Stock set forth
opposite their names below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---------------------------------------------------------------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated............................... 1,863,334
Bear, Stearns & Co. Inc......................................... 1,863,333
Cowen & Company................................................. 1,863,333
Sanford C. Bernstein & Co., Inc................................. 80,000
Alex. Brown & Sons Incorporated................................. 150,000
Deutsche Morgan Grenfell Inc.................................... 150,000
Donaldson, Lufkin & Jenrette Securities Corporation............. 150,000
Gerard Klauer Mattision & Co., LLC.............................. 80,000
Goldman, Sachs & Co............................................. 150,000
Edward D. Jones & Co., L.P...................................... 80,000
John G. Kinnard and Company, Incorporated....................... 80,000
McDonald & Company Securities, Inc.............................. 80,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.............. 150,000
Needham & Company, Inc.......................................... 80,000
Oppenheimer & Co., Inc.......................................... 150,000
Smith Barney Inc................................................ 150,000
Van Kasper & Company............................................ 80,000
---------
Total................................................. 7,200,000
=========
</TABLE>

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

The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $.69 per share under the initial public offering price. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $.10 per share to other Underwriters or to certain other dealers.
After the initial offering of the Common Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.

Pursuant to the Underwriting Agreement, certain of the Selling Stockholders
have granted to the Underwriters an option, exercisable for 30 days from the
date of this Prospectus, to purchase up to 1,080,000 additional shares of Common
Stock at the initial public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The Underwriters may exercise such
option solely for the purpose of covering overallotments, if any, incurred in
the sale of the shares of Common Stock offered hereby. To the extent such option
is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the preceding
table bears to the total number of shares of Common Stock offered hereby to the
Underwriters.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales in excess of five percent of the number of shares of
Common Stock offered hereby to accounts over which they exercise discretionary
authority.

The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

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<PAGE> 66

See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers, directors, stockholders and option holders
of the Company have agreed not to sell or otherwise dispose of Common Stock or
convertible securities of the Company for up to 180 days after the date of this
Prospectus without the prior consent of Morgan Stanley & Co. Incorporated. The
Company has agreed in the Underwriting Agreement that it will not, directly or
indirectly, without the prior written consent of Morgan Stanley & Co.
Incorporated, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock, for a period of
180 days after the date of this Prospectus, except under certain circumstances.

In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities and may
end any of these activities at any time.

The Underwriters have reserved for sale, at the initial public offering
price, up to five percent of the Common Stock offered hereby for employees and
directors of the Company and certain others who have expressed an interest in
purchasing such shares of Common Stock in the offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public on the same basis as other
shares offered hereby.

PRICING OF THE OFFERING

Prior to this offering, there has been no public market for the Common
Stock of the Company. The initial public offering price for the Common Stock has
been determined by negotiations among the Company, the Selling Stockholders and
the Representatives. Among the factors considered in determining the initial
public offering price will be the future prospects of the Company and its
industry in general, sales, earnings and certain other financial and operating
information of the Company in recent periods, and the price-earnings ratios,
price-sales ratios, market prices of securities and certain financial and
operating information of companies engaged in activities similar to those of the
Company.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Fenwick & West LLP, Palo Alto, California. Certain legal
matters will be passed upon for the Underwriters by Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, Menlo Park, California.

EXPERTS

The consolidated financial statements and schedule of the Company as of
December 31, 1995 and 1996, and for each of the years in the three-year period
ended December 31, 1996, have been included herein and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.

66
<PAGE> 67

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedule filed therewith. Certain
items are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedule filed therewith. Statements contained in this Prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement, and the exhibits and schedule
filed therewith, may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.

70
<PAGE> 68

OCULAR SCIENCES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Income................................................... F-4
Consolidated Statements of Stockholders' Equity..................................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>

F-1
<PAGE> 69

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Ocular Sciences, Inc.

We have audited the accompanying consolidated balance sheets of Ocular
Sciences, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ocular
Sciences, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP

February 14, 1997, except as to Notes 1 and 16,
of the notes to Consolidated Financial Statements
which are as of July 14, 1997
San Francisco, California

F-2
<PAGE> 70

OCULAR SCIENCES, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
----------------- JUNE 30, JUNE 30,
1995 1996 1997 1997
------- ------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents...................................... $ 3,025 $ 3,795 $ 4,018
Restricted cash................................................ 2,321 1,746 455
Accounts receivable, less allowance for sales returns and
doubtful accounts of $1,930, $1,451 and $1,185 for 1995,
1996 and 1997, respectively................................. 11,722 16,022 14,330
Inventories.................................................... 12,581 12,956 13,615
Loans to officers and employees................................ -- -- 900
Other current assets........................................... 1,519 1,746 2,555
------- ------- -------
Total Current Assets................................... 31,168 36,265 35,873
Property and equipment, net.................................... 18,192 26,462 29,614
Intangible assets, net......................................... 1,401 683 8,827
Other assets................................................... 113 93 95
------- ------- -------
Total Assets........................................... $50,874 $63,503 $ 74,409
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................... $ 4,819 $ 4,006 $ 3,501
Accrued liabilities............................................ 6,868 8,578 7,992
Accrued liabilities to related parties......................... -- -- 6,667
Accrued cooperative merchandise allowances..................... 496 2,194 3,067
Current portion of long-term debt.............................. 1,716 4,273 5,411
Current portion of related-party debt.......................... 2,868 -- 2,895
Current deferred taxes......................................... 462 1,155 1,147
Income and other taxes payable................................. 2,026 941 1,236
------- ------- -------
Total Current Liabilities.............................. 19,255 21,147 31,916
Long-term debt, less current portion............................. 2,258 15,572 12,006
Long-term related-party debt, less current portion............... 16,069 2,895 --
------- ------- -------
Total Liabilities...................................... 37,582 39,614 43,922
------- ------- -------
Commitments, contingencies and subsequent events
Stockholders' Equity:
Preferred Stock, $0.001 par value; 4,000,000 shares authorized:
118,168 shares issued and outstanding for 1995, 1996 and
1997; none pro forma........................................ 1 1 1 $ --
Common Stock, $0.001 par value; 80,000,000 shares authorized;
15,854,864, 16,539,570, and 16,589,990 shares issued and
outstanding for 1995, 1996 and 1997, respectively;
16,826,326 pro forma........................................ 16 16 16 16
Additional paid-in capital..................................... 7,859 8,360 8,457 8,458
Retained earnings.............................................. 5,486 15,580 22,299 22,299
Cumulative translation adjustment.............................. (70) (68) (286) (286)
------- ------- ------- -------
Total Stockholders' Equity............................. 13,292 23,889 30,487 $ 30,487
------- ------- ------- -------
Total Liabilities and Stockholders' Equity............. $50,874 $63,503 $ 74,409
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 71

OCULAR SCIENCES, INC.

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- -----------------------
1994 1995 1996 1996 1997
------- ------- ----------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $48,503 $68,087 $ 90,509 $38,850 $ 52,969
Cost of sales.......................... 22,553 26,820 36,553 15,927 20,420
------- ------- --------- ------- ---------
Gross profit...................... 25,950 41,267 53,956 22,923 32,549
Selling and marketing expenses......... 6,405 11,728 18,101 8,241 11,972
General and administrative expenses.... 11,087 14,287 18,420 8,813 10,075
------- ------- --------- ------- ---------
Income from operations............ 8,458 15,252 17,435 5,869 10,502
Interest expense....................... (3,128) (3,024) (3,216) (1,556) (949)
Interest income........................ 123 280 132 69 67
Other (expense) income, net............ (416) 151 (186) 156 37
------- ------- --------- ------- ---------
Income before taxes............... 5,037 12,659 14,165 4,538 9,657
Income taxes........................... -- (3,869) (3,989) (1,278) (2,897)
------- ------- --------- ------- ---------
Net income........................ 5,037 8,790 10,176 3,260 6,760
Preferred stock dividends.............. (82) (82) (82) (41) (41)
------- ------- --------- ------- ---------
Net income applicable to common
stockholders.................... $ 4,955 $ 8,708 $ 10,094 $ 3,219 $ 6,719
======= ======= ========= ======= =========
Pro forma net income per share data:
Pro forma net income per share....... $ 0.52 $ 0.35
========= =========
Pro forma weighted average common and
common equivalent shares
outstanding....................... 19,526,985 19,553,651
========= =========
Supplementary pro forma net income
per share......................... $ 0.61 $ 0.36
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 72

OCULAR SCIENCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS CUMULATIVE TOTAL
---------------- ------------------- PAID-IN (ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT EQUITY
------- ------ ---------- ------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of December 31,
1993.......................... 118,168 $1 12,821,112 $ 13 $7,760 $ (8,177) $ -- $ (403)
Exercise of employee stock
options..................... -- -- 8,320 -- 3 -- -- 3
Conversion of warrants to
common stock................ -- -- 2,904,392 3 1 -- 4
Net income.................... -- -- -- -- -- 5,037 -- 5,037
Preferred stock dividends..... -- -- -- -- -- (82) -- (82)
Cumulative translation
adjustment.................. -- -- -- -- -- -- (112) (112)
--
------- ---------- ---- ------ -------- ----- --------
Balances as of December 31,
1994.......................... 118,168 1 15,733,824 16 7,764 (3,222) (112) 4,447
Exercise of employee stock
options..................... -- -- 85,136 -- 42 -- -- 42
Directors' compensation....... -- -- 35,904 -- 53 -- -- 53
Net income.................... -- -- -- -- -- 8,790 -- 8,790
Preferred stock dividends..... -- -- -- -- -- (82) -- (82)
Cumulative translation
adjustment.................. -- -- -- -- -- -- 42 42
--
------- ---------- ---- ------ -------- ----- --------
Balances as of December 31,
1995.......................... 118,168 1 15,854,864 16 7,859 5,486 (70) 13,292
Exercise of employee stock
options..................... -- -- 679,140 -- 200 -- -- 200
Directors' compensation....... -- -- 5,566 -- 28 -- -- 28
Income tax benefits from stock
options exercised........... -- -- -- -- 273 -- -- 273
Net income.................... -- -- -- -- -- 10,176 -- 10,176
Preferred stock dividends..... -- -- -- -- -- (82) -- (82)
Cumulative translation
adjustment.................. -- -- -- -- -- -- 2 2
--
------- ---------- ---- ------ -------- ----- --------
Balances as of December 31,
1996.......................... 118,168 $1 16,539,570 $ 16 $8,360 $ 15,580 $ (68) $ 23,889
Exercise of employee stock
options (unaudited)......... -- -- 47,760 -- 75 -- -- 75
Directors' compensation....... -- -- 2,660 -- 22 -- -- 22
Net income (unaudited)........ -- -- -- -- -- 6,760 -- 6,760
Preferred stock dividends
(unaudited)................. -- -- -- -- -- (41) -- (41)
Cumulative translation
adjustment (unaudited)...... -- -- -- -- -- -- (218) (218)
--
------- ---------- ---- ------ -------- ----- --------
Balances as of June 30, 1997
(unaudited)................... 118,168 $1 16,589,990 $ 16 $8,457 $ 22,299 $(286) $ 30,487
======= == ========== ==== ====== ======== ===== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 73

OCULAR SCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------ -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $5,037 $ 8,790 $ 10,176 $ 3,260 $ 6,760
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 2,137 2,578 4,904 1,963 3,525
Allowances for sales returns and doubtful
accounts..................................... 813 311 193 365 496
Provision for excess and obsolete inventory.... 240 475 605 136 562
Provision for damaged and scrap products....... -- -- 548 234 397
(Gain)/loss on sale of property and
equipment.................................... 114 28 (35) -- --
Exchange loss (gain)........................... 48 37 (49) (164) (59)
Deferred income taxes.......................... (656) 1,353 932 -- --
Changes in operating assets and liabilities:
Accounts receivable............................ (837) (5,942) (4,339) 833 1,141
Inventories.................................... 2,395 (3,005) (1,259) (2,152) (1,704)
Income and other taxes payable................. 428 1,333 (1,024) (313) 300
Other current and non-current assets........... 324 (1,115) (164) (1,166) (1,737)
Accounts payable............................... (994) 2,759 (973) (1,222) (481)
Accrued liabilities............................ 924 1,915 3,183 1,313 1,459
------ ------ -------- ------- -------
Net cash provided by operating
activities.............................. 9,973 9,517 12,698 3,087 10,659
------ ------ -------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment................ (2,153) (13,558) (12,256) (7,273) (6,022)
Purchase of marketing rights and license
agreement...................................... -- -- -- -- (3,333)
Proceeds from liquidation of property and
equipment...................................... 60 7 55 -- --
(Deposits to)/payments from restricted cash....... -- (2,321) 730 761 1,228
------ ------ -------- ------- -------
Net cash used in investing activities..... (2,093) (15,872) (11,471) (6,512) (8,127)
------ ------ -------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.......... 95 1,637 19,343 3,270 5,731
Repayment of long-term debt....................... (2,134) (1,702) (19,805) (914) (8,197)
Preferred stock dividends......................... -- (247) (82) (41) (41)
Proceeds from issuance of common stock............ 7 95 228 211 97
------ ------ -------- ------- -------
Net cash (used in) provided by financing
activities.............................. (2,032) (217) (316) 2,526 (2,410)
------ ------ -------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents....................................... 17 (42) (141) 69 101
------ ------ -------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 5,865 (6,614) 770 (830) 223
Cash and cash equivalents at beginning of year...... 3,774 9,639 3,025 3,025 3,795
------ ------ -------- ------- -------
Cash and cash equivalents at end of year............ $9,639 $ 3,025 $ 3,795 $ 2,195 4,018
====== ====== ======== ======= =======
Supplemental cash flow disclosures:
Cash paid (received) during the year for:
Interest....................................... $3,284 $ 3,021 $ 3,561 $ 1,487 $ 886
Income taxes................................... $ (490) $ 1,188 $ 3,393 $ 1,586 $ 2,605
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 74

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

NOTE 1. NATURE OF BUSINESS

FORMATION AND BUSINESS OF THE COMPANY

O.S.I. Corporation was incorporated in California in 1985. The Company is
engaged in the design, manufacture and distribution of contact lenses and
conducts business under the name of Ocular Sciences/American Hydron.

On May 12, 1997, the Company's Board of Directors approved a
reincorporation into the state of Delaware. The Board of Directors also approved
a change in the Company's name to Ocular Sciences, Inc. (the "Company") and
authorized the filing of a registration statement with the Securities and
Exchange Commission permitting the Company to sell shares of its common stock in
a proposed initial public offering. In connection with the reincorporation, the
stockholders of the Company approved a two-for-one stock split and increased its
authorized common stock to 80,000,000. All applicable share and per share
amounts in the accompanying consolidated financial statements have been
retroactively adjusted to reflect the reincorporation and the stock split.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Ocular Sciences Ltd. ("OSL")
(formerly Precision Lens Laboratories Ltd.), O.S.I. Puerto Rico Corporation,
O.S.I. Canada Corporation and Ocular Sciences Hungary. All significant
intercompany balances and transactions have been eliminated in consolidation.

Accounting Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period.

Cash and Cash Equivalents

The Company considers all highly liquid cash investments, primarily
consisting of money market funds, with an original maturity of three months or
less to be cash equivalents.

Restricted Cash

Restricted cash consists of cash held in an escrow account for payment of
various commitments of the Company's United Kingdom subsidiary. The largest
component of restricted cash as of December 31, 1995 and 1996 related to
royalties due under a molding patent license for which the Company was in
litigation with the patent owners. The royalties related to liabilities that
were recorded and charged to expense in 1994 and 1995. The Company settled the
litigation with the patent holders in February 1997 (see Notes 12 and 14). The
restricted cash balance as of June 30, 1997 related to cash held in escrow for
the construction and rent of the Company's United Kingdom facility.

F-7
<PAGE> 75

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

Inventories

Inventories are recorded at the lower of cost (first-in, first-out method)
or market. Cost includes material, labor and applicable factory overhead.
Provision for potentially obsolete or slow moving inventory is made based upon
management's analysis of inventory levels and forecasted sales.

Revenue Recognition

The Company recognizes sales upon shipment of products to its customers.
Allowances for sales returns are accrued at the time sales are recognized.

Cooperative Merchandise Allowances

The Company offers a cooperative merchandise program to certain of its
customers whereby the Company reimburses these customers for items such as
advertising, displays and mailings that are intended to encourage the fitting
and wearing of the Company's disposable lenses. The Company records the
provisions for cooperative merchandising at the time of sale to the customers
and as a component of selling and marketing expense.

Foreign Currencies

During the quarter ended December 31, 1994, the functional currencies of
the Company's United Kingdom and Canadian subsidiaries were changed from the
U.S. dollar to the respective local currencies, reflecting the fact that the
local currencies are the currencies in which the subsidiaries primarily generate
and expend cash.

As a result of this change, the subsidiaries translate all asset and
liability accounts at current exchange rates in effect at the balance sheet date
and statement of income accounts at average exchange rates during the period.
Translation adjustments arising from differences in exchange rates from period
to period are included in the financial statements as a separate component of
stockholders' equity.

Concentration of Credit Risk

The Company sells its products to a diverse group of ophthalmologists,
optometrists, optical retailers and optical product distributors, and therefore
the concentration of credit risk with respect to receivables is limited due to
the large number and diversity of customers across broad geographic areas.
Accounts receivable from customers are uncollateralized. As of December 31,
1995, approximately 11% of accounts receivable and 8% of consolidated net sales
were concentrated in one customer, while, as of December 31, 1996, approximately
22% of accounts receivable and 12% of consolidated net sales were concentrated
in two customers and, as of June 30, 1997, approximately 14% of accounts
receivable and 8% of consolidated net sales were concentrated in one customer.
To reduce credit risk, the Company performs ongoing credit evaluations of its
significant customers' respective financial conditions. The Company establishes
an allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, historical trends and other information.

Property and Equipment

Property and equipment are recorded at cost and are depreciated using the
straight-line method over the respective estimated useful lives of the assets,
which range from three to ten years. Leasehold improvements are amortized over
the shorter of the respective lease terms or the respective estimated useful
lives of the assets.

F-8
<PAGE> 76

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

Long-Lived Assets, Including Intangible Assets

The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," as of January 1, 1996. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of SFAS No. 121 did not have
an impact on the Company's consolidated financial position, results of
operations or liquidity.

Marketing rights, trademarks, licenses, and covenants not to compete are
carried at cost less accumulated amortization, which is calculated on a
straight-line basis over the estimated useful lives of the respective assets,
which are typically five to ten years. Goodwill, which represents the excess of
purchase price over fair value of the tangible and intangible assets acquired,
is amortized on a straight-line basis over five years.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are
recognized for tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each
balance sheet date based on enacted tax laws and statutory tax rates expected to
apply in the periods in which the differences are expected to affect taxable
income.

The provision for income taxes has been determined using the asset and
liability approach of accounting for income taxes. Under this approach, deferred
income taxes reflect the tax consequences on future years of temporary
differences between the tax bases of assets and liabilities and their financial
reporting amounts. Provision has been made for income taxes on unremitted
earnings of subsidiaries, except in cases in which earnings of foreign
subsidiaries are deemed to be permanently invested.

Stock-Based Compensation

The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," and has elected to continue to account for
stock-based compensation using methods prescribed in Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations.

The Company follows the practice of recording amounts received upon the
exercise of options by crediting common stock and additional paid-in capital.
The Company realizes an income tax benefit from the exercise and early
disposition of certain stock options and the exercise of other stock options.
The benefit results in a decrease in current income taxes payable and an
increase in common stock.

Reclassifications

Certain reclassifications were made to the 1994 and 1995 consolidated
financial statements to conform to the 1996 presentation.

F-9
<PAGE> 77

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

Unaudited Interim Consolidated Financial Information

The unaudited interim consolidated financial information as of June 30,
1997 and for the three months ended June 30, 1996 and 1997 has been prepared on
the same basis as the audited consolidated financial statements. In the opinion
of management, such unaudited information includes all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of this
interim information. Operating results for the six months ended June 30, 1997
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1997.

Unaudited Pro Forma Stockholders' Equity

The unaudited pro forma stockholders' equity section assumes the conversion
of all outstanding shares of Series A preferred stock into 236,336 shares of the
Company's common stock upon the closing of the Company's anticipated initial
public offering.

Pro Forma Net Income Per Share

Pro forma net income per share is computed based on the weighted average
number of common shares and common equivalent shares outstanding during the
period. Common equivalent shares include convertible preferred shares and the
conversion of stock options using the treasury stock method. The conversion of
the shares of Series A Preferred Stock into 236,336 shares of common stock is
included in the pro forma computation for all periods presented. In accordance
with Securities and Exchange Commission Staff Accounting Bulletins and staff
policy, pro forma net income per share includes all common and common equivalent
shares granted or issued within 12 months of the offering date as if they were
outstanding for all periods presented, even if antidilutive, using the treasury
stock method and the anticipated initial public offering price. Historical net
income per share has not been presented since such amounts are not deemed
meaningful due to the change in the Company's capital structure that will occur
in connection with the Company's anticipated initial public offering.

Supplementary Net Income Per Share

Supplementary net income per share is computed as if the June 30, 1997 debt
balances outstanding of $13,501,000 under the Company's Credit Agreement and
$2,895,000 under a long-term subordinated note payable due to a stockholder had
been paid at the beginning of the period or the date of issuance, if later,
resulting in the elimination of $2,741,000 and $865,000 in interest expense for
the year ended December 31, 1996 and the six months ended June 30, 1997,
respectively.

New Accounting Standard

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which will be effective for financial statements for
periods ending after December 15, 1997, including interim periods, and
establishes standards for computing and presenting earnings per share. Earlier
application is not permitted. In its consolidated financial statements for the
year ending December 31, 1997, the Company will make the required disclosures of
basic and diluted earnings per share and provide a reconciliation of the
numerator and denominator of its basic and diluted earnings per share
computations. All prior period earnings per share data will be restated by the
Company upon adoption of SFAS 128. The Company expects that basic earnings per
share of the Company will be greater than primary earnings per share and diluted
earnings per share will be substantially similar to the pro forma net income per
share disclosed herein.

F-10
<PAGE> 78

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

NOTE 3. INVENTORIES

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Raw materials......................................... $ 1,950 $ 1,845 $ 1,955
Work in process....................................... 950 1,535 1,298
Finished goods........................................ 9,681 9,576 10,362
------- ------- -------
$12,581 $12,956 13,615
======= ======= =======
</TABLE>

NOTE 4. PROPERTY AND EQUIPMENT, NET

Property and equipment net, consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Equipment and machinery.............................. $ 9,940 $18,247 $ 21,672
Furniture and fixtures............................... 817 1,870 2,194
Vehicles............................................. 297 297 254
Building and leasehold improvements.................. 3,006 8,911 9,343
Construction in progress............................. 10,013 6,668 8,508
------- ------- --------
24,073 35,993 41,971
Less accumulated depreciation and amortization....... (5,881) (9,531) (12,357)
------- ------- --------
$18,192 $26,462 $ 29,614
======= ======= ========
</TABLE>

NOTE 5. INTANGIBLE ASSETS, NET

Intangible assets, net consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Marketing rights, trademarks, licenses and covenants
not to compete...................................... $ 1,483 $ 1,475 $10,271
Goodwill.............................................. 2,094 2,094 2,094
------- ------- -------
3,577 3,569 12,365
Less accumulated amortization......................... (2,176) (2,886) (3,538)
------- ------- -------
$ 1,401 $ 683 $ 8,827
======= ======= =======
</TABLE>

F-11
<PAGE> 79

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

NOTE 6. LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Revolving line of credit to a bank, due October 31,
1999, bearing interest at the bank's Eurodollar rate
plus 2.75%.......................................... $ -- $ 7,474 $ 5,501
Term loan to a bank, principal payments due quarterly
from January 31, 1997 through October 31, 1998,
bearing interest at the bank's Eurodollar rate plus
2.75%............................................... -- 10,000 8,000
Senior note payable to a bank, due serially until June
1997, bearing interest at prime plus 3/4%.......... 2,250 -- --
Note payable to Banco Bilbao Vizcaya Puerto Rico, due
the earlier of December 1997 or upon closing of
permanent financing, bearing interest at the bank's
rate plus 2%........................................ 834 1,069 1,973
Capital lease obligations, bearing an effective
interest rate of 8.763%, 10.5% and 10.5%,
respectively, for 1995, 1996 and 1997, secured by
certain equipment................................... 778 1,248 1,918
Other................................................. 112 54 25
------- ------- -------
Total long-term debt........................ 3,974 19,845 17,417
Less current portion of long-term debt................ (1,716) (4,273) (5,411)
------- ------- -------
$ 2,258 $15,572 $12,006
======= ======= =======
</TABLE>

On October 30, 1996, the Company executed a commercial lending facility
(the "Agreement") with a major commercial bank. The Agreement provides for a
term loan and a revolving line of credit, the proceeds of which were used to
retire the Company's pre-existing line of credit.

The revolving line of credit is available up to the lesser of $17,000,000
or 80% of the Company's eligible accounts receivable plus 50% of the Company's
net inventory, inclusive of an amount of up to $3,000,000 for letters of credit.
The outstanding balance of this line of credit is due in full on October 31,
1999. However, the Company may elect to prepay the principal due under the
revolving line of credit, or the term loan, for a 2% fee on the prepayment
amount if prepaid by October 31, 1997 or a 1% fee thereafter, provided that only
the prepayments under the line of credit may be reborrowed.

The term loan in the amount of $10,000,000 is payable in eight quarterly
installments beginning January 31, 1997, $1,000,000 each quarter in 1997 and
$1,500,000 each quarter in 1998. In addition to the foregoing payments, the term
loan must be repaid with cash proceeds, if applicable, from the Company's sale
of its assets, issuance of its equity (less all placement fees and underwriting
expenses) or subordinated debt, and other extraordinary receipts from litigation
settlement, key man life insurance or tax refunds.

The Agreement provides the Company with two interest rate
options -- interest at 0.25% to 0.75% above the bank's base rate or at 2.25% to
2.75% above the rate at which deposits in eurodollars are offered to the bank by
other prime banks in the eurodollar market, with the percentages varying based
on certain leverage ratios. The effective interest rates on the Agreement as of
December 31, 1996 and June 30, 1997 were 8.125% and 8.1875%, respectively. The
Company pays commitment fees of 0.375% on the unused amount of the revolving
line of credit. There are no commitment fees on the term loan. As of December
31, 1996 and June 30, 1997, the uncommitted line of credit under the Agreement
was $9,400,000 and $11,400,000, respectively, with no amounts outstanding under
the letters of credit. The Agreement is secured by the Company's accounts
receivable, inventory, equipment, loans and notes receivable, and general
intangibles provided that the collateral must not include more than 65% of any
class of equity securities of any foreign

F-12
<PAGE> 80

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

subsidiary. The Company is also required under the Agreement to maintain minimum
debt to tangible net worth, interest coverage and tangible net worth ratios, and
the Agreement places certain limitations on debt, liens, contingent obligations,
investments and cash dividends on common stock. The Company was in compliance
with all covenants associated with the Agreement as of December 31, 1996 and
June 30, 1997.

In late 1995, the Company entered into a bank line of credit under which up
to $3,500,000 was available for borrowings through September 30, 1996. The
Company's accounts receivable, inventory and equipment located in the United
States were pledged as collateral under the agreement. The interest rate for
this facility was fixed at the bank's reference rate plus 0.75% (9.25% at
December 31, 1995). The agreement contained a commitment fee of 0.5% per annum
on the unused portion of the line of credit and also contained restrictive
financial covenants that required maintenance of certain financial ratios and
limited the total amount of fixed or capital purchases. As of December 31, 1995,
no amounts were outstanding on this credit line, which was terminated on October
30, 1996.

The Company has guaranteed the borrowings of its Puerto Rican subsidiary
under a loan agreement with Banco Bilbao Vizcaya Puerto Rico ("BBV") for the
financing of the construction of an industrial building at Santa Isabel
Industrial Park, Santa Isabel, Puerto Rico, and for purchase of machinery and
equipment not to exceed the total sum of $5,800,000. The loan is secured by a
chattel mortgage upon all machinery and equipment purchased with any part of the
loan proceeds and for the full amount of the loan plus interest and other sums
due to the bank. The principal amount of this loan is payable in December 1997
or upon the closing of a permanent financing loan from the Government
Development Bank of Puerto Rico ("GDB"). The Company has secured the commitment
for permanent financing. The BBV loan bears interest at 2% over the lender's
defined cost of funds or, in the event that such funds are not available, 1.5%
over the lender's prime lending rate. The effective interest rates as of
December 31, 1995 and 1996 and June 30, 1997 were 10%, 8% and 9%, respectively.
The BBV loan agreement also contains a commission fee equal to 1% of the
principal and drawing fees equal to 0.5% of the loan amount. As of December 31,
1995 and 1996 and June 30, 1997, the loan amount outstanding on this agreement
was $834,000, $1,069,000 and $1,973,000, respectively.

The long-term debt, including current portion, is due in aggregate annual
installments of $4,273,000, $6,257,000, $7,974,000, $381,000 and $960,000 in
each of the years from 1997 through 2001 and thereafter.

NOTE 7. OPERATING LEASES

The Company leases its offices and warehouse facilities under noncancelable
operating leases. The future minimum lease payments on these noncancelable
operating leases with an initial term in excess of one year as of December 31,
1996, are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------------------------------------------------------
<S> <C>
1997....................................................... $ 2,314
1998....................................................... 2,168
1999....................................................... 2,100
2000....................................................... 1,348
2001....................................................... 1,310
Thereafter................................................. 4,767
-------
$14,007
=======
</TABLE>

F-13
<PAGE> 81

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

Rent expense on operating leases was approximately $711,000, $918,000 and
$1,643,000 for the years ended December 31, 1994, 1995 and 1996, respectively,
and $854,000 and $1,166,000, for the six months ended June 30, 1996 and 1997,
respectively.

NOTE 8. STOCK SPLIT

On February 21, 1995, the stockholders of the Company approved a
four-for-one split of the Company's common and preferred stock.

NOTE 9. PREFERRED STOCK AND ACCRUED DIVIDENDS

Each share of preferred stock is convertible into two shares of common
stock, at the option of the holder, at any time, on a two-for-one basis, subject
to adjustment for dilution. Each share of preferred stock will automatically
convert into two shares of common stock in the event of (1) the closing of an
underwritten public offering, a sale of substantially all of the assets of the
Company, or a consolidation or merger of the Company in which the stockholders
prior to the event do not represent a majority of the outstanding shares after
the event or (2) upon the written consent of a majority of the total number of
outstanding shares of Series A preferred stock. The shares of preferred stock
may be redeemed, at the Company's election, at a redemption price of 110% of
their original purchase price plus accrued dividends.

Except as required by law, the Series A preferred stock is non-voting. When
Series A preferred stock is entitled to vote as a matter of law, the shares of
Series A preferred stock will have a number of votes equal to the number of
shares of common stock into which they could then be converted.

The holders of Series A preferred stock are entitled to cumulative annual
dividends of 8.25% per annum, prior and in preference to the payment of any
dividends on the common stock (other than a common stock dividend). Such
dividends are cumulative from November 1, 1992 and accrue day to day until paid,
whether or not earned or declared. The cumulative dividends are to be paid by
the Company in cash, in quarterly installments in arrears on April 30, July 31,
October 31 and January 31 of each year ("payment dates"). Cumulative dividends
of $14,000 were outstanding as of December 31, 1995, 1996 and as of June 30,
1997 and are included in accrued liabilities. Holders of Series A preferred
stock, as their sole and exclusive remedy, may elect, at their option upon
written notice to the Company, to receive shares of common stock in lieu of cash
dividends accrued if the Company fails to pay accrued dividends for eight
consecutive payment dates. Cumulative dividends accrued through October 31, 1994
were paid to holders of Series A preferred stock in January 1995 and scheduled
quarterly dividend payments were made thereafter.

In the event of liquidation, holders of Series A preferred stock are
entitled to receive an amount equal to the original purchase price of their
shares of preferred stock plus all accrued and unpaid dividends.

NOTE 10. COMMON STOCK

Warrants

As of December 31, 1995, warrants were outstanding that entitled the
warrant holders to purchase up to 588,296 shares of common stock for $0.00125
per share, subject to adjustment for dilution. The warrants expire on the
earlier of October 30, 2002 or the date of effectiveness of a registration
statement covering at least 35% of the common stock then outstanding. The number
of shares subject to the warrants are reduced if the Company meets certain
financial performance goals and the Company prepays the subordinated notes
payable to stockholders prior to October 30, 1996. The Company repaid this note
on October 30, 1996 (see Note 6 and 12). The warrants were issued on October 30,
1992 in connection with the acquisition of the contact lens business in North
and South America of Allergan, Inc. In accordance with the original terms of

F-14
<PAGE> 82

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

the warrant agreement, all outstanding warrants were cancelled effective
December 31, 1996, as a result of the Company achieving certain financial
results and prepaying certain subordinated notes payable.

Stock Option Plans

The Company has two stock-based compensation plans that are described
below. In 1996, the Company adopted the provisions of SFAS No. 123 and elected
to continue to account for stock-based compensation using the methods prescribed
in APB No. 25. Accordingly, no compensation expense has been recognized for its
fixed stock option plans in 1994, 1995 and 1996. Had compensation expense for
the stock option plans been determined consistent with SFAS No. 123, the
Company's net income and net income per share would have been reduced to the pro
forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------ SIX MONTHS ENDED
1995 1996 JUNE 30, 1997
------ ------- --------------------
<S> <C> <C> <C>
Net income
As reported......................... $8,790 $10,176 $6,760
Pro forma........................... $8,632 $ 9,787 $6,662
Net income per share
As reported......................... -- 0.52 0.35
Pro forma........................... -- 0.50 0.34
</TABLE>

The initial effect of applying the SFAS No. 123 disclosure requirement may
not be representative of the effects on reported net income for future years.
The Company's 1989 stock option plan provides for the grant to employees,
directors or consultants of incentive stock options, exercisable at a price not
less than the fair market value of the shares on the grant date, or for
nonqualified options, exercisable at a price not less than 85% of the fair
market value of the shares on the grant date. The options generally are granted
for a six year term and vest over a five-year period. During 1994, the
stockholders approved an amendment to the Company's incentive stock option plan
increasing the number of shares reserved for issuance under that plan by 938,064
to 2,938,064. The fair value of each option grant is estimated on the grant date
by calculating the difference between the current market value of the Company's
common stock and the present value of the exercise price using a risk-free
interest rate of 6.65% over the expected life of five years. The Company
calculated the fair value of options using the minimum value method, which
applies a dividend rate and expected volatility of zero. The per share weighted
average fair value of options granted during the years ended December 31, 1994,
1995, 1996 and six months ended June 30, 1997 were $0.4066, $0.8114, $1.6413 and
$2.2817, respectively.

F-15
<PAGE> 83

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

A summary of stock option transactions under this plan follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF NUMBER OF EXERCISE
EXERCISE PRICES SHARES PRICE
------------------- --------- --------
<S> <C> <C> <C>
Outstanding as of December 31, 1993............... $0.267 to $1.4688 1,024,480 $ 0.3587
Exercised....................................... 0.267 (8,320) 0.267
Granted......................................... 1.4688 1,333,200 1.4687
Canceled........................................ 0.267 to 1.4688 (192,080) 1.1847
----------------- --------- -------
Outstanding as of December 31, 1994............... $0.267 to $1.4688 2,157,280 $ 1.0018
Exercised....................................... 0.267 to 1.4688 (85,136) 0.5036
Granted......................................... 1.4688 to 3.035 392,120 2.8752
Canceled........................................ 0.267 to 3.035 (243,094) 1.4361
----------------- --------- -------
Outstanding as of December 31, 1995............... $0.267 to $3.035 2,221,170 $ 1.3040
Exercised....................................... 0.267 to 3.035 (679,140) 0.2993
Granted......................................... 5.03 to 7.355 395,534 5.8159
Canceled........................................ 0.267 to 7.355 (133,260) 2.4839
----------------- --------- -------
Outstanding as of December 31, 1996............... $0.267 to $7.355 1,804,304 $ 2.5842
Exercised....................................... 0.267 to 8.085 (47,760) 1.5782
Granted......................................... 8.085 76,850 8.0850
Canceled........................................ 1.4688 to 8.085 (33,700) 3.7197
----------------- --------- -------
Outstanding as of June 30, 1997................... $0.267 to $8.085 1,799,694 $ 2.8215
================= ========= =======
</TABLE>

The total number of shares exercisable as of December 31, 1996 was 602,566,
at exercise prices ranging from $0.267 to $5.03 and, as of June 30, 1997 was
718,300, at exercise prices ranging from $0.267 to $8.085. As of December 31,
1994, 1995 and 1996 and June 30, 1997, there were available for grant under the
plan 733,744, 584,718, 322,444 and 279,294 shares, respectively.

In 1992, the Company adopted a stock option plan for officers and
directors, which provides for the grant of incentive stock options exercisable
at a price not less than the fair market value of the shares on the grant date
or nonqualified stock options exercisable at a price not less than 85% of the
fair market value of the shares on the grant date. A total of 1,280,000 shares
of common stock are reserved for issuance under this plan. As of December 31,
1996, an option to purchase the 1,280,000 shares of common stock reserved under
this plan had been granted to the Company's president. The option is fully
vested and can be exercised at $0.29365 per share, subject to adjustment (see
Note 12).

NOTE 11. INCOME TAXES

Deferred taxes are provided, where warranted, to reflect the future tax
consequences of differences between the financial reporting and tax reporting of
various assets and liabilities; these differences will be either taxable or
deductible when the related assets and liabilities are recovered or settled. The
income tax benefits related to the exercise of stock options reduces taxes
currently payable and is credited to common stock. Such amounts approximated
$273,000 for 1996.

F-16
<PAGE> 84

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

Income before income tax expense includes the following components (in
thousands):

<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
United States................................... 4,226 10,692 12,993
Foreign......................................... 810 1,970 1,172
------- -------- --------
Total................................. 5,036 12,662 14,165
======= ======== ========
</TABLE>

Income tax expense (benefit) for the years ended December 31, 1994, 1995
and 1996, consisted of (in thousands):

<TABLE>
<CAPTION>
1994 1995 1996
------------------------ -------------------------- -------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ----- ------- -------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal...... $ -- $ (374) $(374) $ 764 $1,311 $ 2,075 $ 1,963 $ (648) $1,315
State........ 1 -- 1 611 254 865 627 389 1,016
Foreign...... 655 (282) 373 1,141 (212) 929 706 952 1,658
---- ----- ----- ------ ------ ------ ------ ----- ------
$ 656 $ (656) $ -- $ 2,516 $1,353 $ 3,869 $ 3,296 $ 693 $3,989
==== ===== ===== ====== ====== ====== ====== ===== ======
</TABLE>

The total income tax expense (benefit) differed from the amount computed by
applying the federal statutory income tax rate of 34% to income before taxes as
a result of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Computed tax expense at federal statutory rate
of 34%........................................ $ 1,713 $ 4,304 $ 4,816
Foreign tax rate differential................... (21) (33) (4)
Puerto Rico possessions tax credit.............. (255) (429) (1,135)
State taxes..................................... 181 510 367
Amortization of goodwill........................ 168 168 168
Other permanent differences..................... 98 529 (223)
Net change in deferred tax asset valuation
allowance..................................... (1,884) (1,180) --
------- ------- -------
$ -- $ 3,869 $ 3,989
======= ======= =======
</TABLE>

The Company has used the profit split method to calculate taxable income
since January 1, 1995. Prior to that date, the Company used the cost plus
method.

F-17
<PAGE> 85

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows
(in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Accrual of royalties deductible when paid...................... $ 276 $ 425
Net operating loss carryforwards............................... -- --
Deferred compensation and interest............................. 426 295
Accounts receivable, principally due to allowance for doubtful
accounts.................................................... 319 660
Inventories, principally due to reserves and additional costs
capitalized for tax purposes................................ 899 1,189
State taxes.................................................... 124 236
Other accrued liabilities...................................... 846 576
------- -------
Total gross deferred tax assets........................ 2,890 3,381
Less valuation allowance....................................... -- --
Gross deferred tax assets, net of valuation allowance....... 2,890 3,381
Deferred tax liabilities:
Investment in subsidiaries..................................... (461) (461)
Puerto Rico tollgate tax....................................... -- (818)
Puerto Rico profit split and basis difference.................. (957) (957)
Other basis differences........................................ (1,695) (1,401)
Depreciation of property and equipment......................... (239) (899)
Total gross deferred tax liabilities................... (3,352) (4,536)
------- -------
Net deferred tax asset (liability)..................... $ (462) $(1,155)
======= =======
</TABLE>

At December 31, 1996, taxes have not been provided on $2,121,000 of
accumulated foreign unremitted earnings which are expected to remain invested
indefinitely. Applicable foreign income taxes have been provided. Although, it
is not practical to estimate the amount of additional tax that might be payable
on the foreign unremitted earnings, credits for foreign income taxes paid will
be available, at tax rates substantially equal to any U.S. tax liability. For
financial reporting purposes, a valuation allowance was recognized as of
December 31, 1994, to reflect the uncertainty of generating taxable income
sufficient to utilize the gross deferred tax asset.

NOTE 12. RELATED PARTY TRANSACTIONS

On September 30, 1992, the Company entered into a non-exclusive patent
license agreement, which granted the Company the right to manufacture, use and
sell products and processes covered by patents and patent applications owned by
certain former stockholders of OSL, some of whom are stockholders of the
Company. The term of the patent license agreement was the life of the licensed
patents (up to 17 years). The agreement required the Company to pay royalties to
the former OSL stockholders of $0.50 per lens, with a minimum $1,000,000 per
royalty year (from July 1 to June 30) commencing in 1993, until $4,400,000 in
total royalties has been paid on a cumulative basis. Royalty payments totaling
$1,650,000 were made in 1994, and as of December 31, 1994, the Company made
cumulative royalty payments of approximately $3,200,000. Royalty payments of
$1,200,000 were deposited into an escrow account pending settlement of
litigation against certain stockholders of the Company (see Note 14).

F-18
<PAGE> 86

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

Also, on September 30, 1992, the Company entered into a purchase and supply
agreement with Aspect Vision Care Ltd. ("AVCL"), an entity affiliated with
certain stockholders of the Company. The agreement provided that the Company
would sell lenses to AVCL at a purchase price equal to the Company's direct and
indirect costs of processing the lenses, plus 20%. As discussed in Note 14, AVCL
and the Company were involved in litigation which was settled in February 1997.
AVCL accounted for net sales of approximately $1,863,000 for the year ended
December 31, 1994 and $407,000 of accounts receivable as of December 31, 1995
and 1996. There were no sales to AVCL in 1995 or 1996. A provision was recorded
for the full amount of the accounts receivable from AVCL as of December 31,
1995, which was subsequently written off during the three months ended March 31,
1997.

During 1993 and 1994 certain individuals who held a controlling interest in
AVCL also served as members of the board of directors of the Company's United
Kingdom subsidiary (OSL).

On September 30, 1992, the Company entered into consulting agreements with
two stockholders that called for an aggregate of approximately $7,000 per month
to be paid for consulting services rendered. These agreements were terminated in
February 1997 (see Note 14).

As of December 31, 1995, the Company had approximately $16,042,000 in
subordinated notes, net of debt discount, of which $2,868,000 represented the
current portion. The Company also had accrued interest of $481,000 due to the
Company's warrant holders and certain stockholders. This debt agreement
contained certain restrictive financial covenants requiring the Company to
maintain certain levels of tangible net worth and cash, to maintain specified
ratios (debt to net worth and quick ratio) and to achieve certain levels of
interest expense coverage. The debt was retired on October 30, 1996 (see Note
6).

As of December 31, 1995 and 1996 and June 30, 1997, the Company had a
$2,895,000 long-term junior subordinated note payable due to the Company's
president bearing interest at prime plus 3% (11.5%, 11.25% and 11.25% as of
December 31, 1995, December 31, 1996 and June 30, 1997, respectively). An
agreement was signed by the president on October 30, 1996 that provided for
subordination of this junior subordinated note to debt outstanding to a major
commercial bank (see Note 6). This note was amended on June 1, 1997 whereby
provisions of the subordination was removed and all principal and unpaid
interest is payable to him on November 1, 1997. The president had advanced the
Company funds periodically, prior to 1993, to meet certain short-term operating
cash requirements. Accrued interest on this debt totaled $56,000 as of December
31, 1995 and $54,000 as of December 31, 1996 and June 30, 1997. The president
has the right to exercise stock options held by reducing the principal balance
owed on the note payable in lieu of providing cash payments upon exercise. The
president holds options to purchase 1,280,000 shares of common stock with an
exercise price of $0.29365 per share, subject to adjustment.

A director of the Company, who is also the brother of the President, is a
partner in a law firm which has provided legal services to the Company since its
formation. The Company made payments for legal services of $400,000, $309,000
$284,000 and $93,000 and $59,000 in the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1996 and 1997.

F-19
<PAGE> 87

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

NOTE 13. FOREIGN OPERATIONS

The Company operates in a single industry segment and has several wholly
owned subsidiaries that manufacture the Company's products in the United
Kingdom, Canada and Puerto Rico. The Company's operations by geographic area for
1994, 1995 and 1996 and for the six months ended June 30, 1997 are as follows
(in thousands):

<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1994
Sales to unaffiliated customers... $ 45,212 $ 3,291 $ -- $ 48,503
Intercompany sales................ 20,838 9,342 (30,180) --
-------- ------- -------- -------
Total net sales................... $ 66,050 $12,633 $(30,180) $ 48,503
======== ======= ======== =======
Income from operations............ $ 5,692 $ 1,094 $ 1,672 $ 8,458
======== ======= ======== =======
Net assets........................ $ 7,416 $ 2,509 $ (5,478) $ 4,447
======== ======= ======== =======
December 31, 1995
Sales to unaffiliated customers... $ 64,377 $ 3,710 $ -- $ 68,087
Intercompany sales................ 25,059 13,291 (38,350) --
-------- ------- -------- -------
Total net sales................... $ 89,436 $17,001 $(38,350) $ 68,087
======== ======= ======== =======
Income from operations............ $ 14,929 $ 1,724 $ (1,401) $ 15,252
======== ======= ======== =======
Net assets........................ $ 12,623 $10,459 $ (9,790) $ 13,292
======== ======= ======== =======
December 31, 1996
Sales to unaffiliated customers... $ 84,009 $ 6,500 $ -- $ 90,509
Intercompany sales................ 29,702 20,345 (50,047) --
-------- ------- -------- -------
Total net sales................... $113,711 $26,845 $(50,047) $ 90,509
======== ======= ======== =======
Income from operations............ $ 16,587 $ 1,523 $ (675) $ 17,435
======== ======= ======== =======
Net assets........................ $ 29,729 $15,340 $(21,180) $ 23,889
======== ======= ======== =======
Six Months Ended June 30, 1997
Sales to unaffiliated customers... $ 47,972 $ 4,997 $ -- $ 52,969
Intercompany sales................ 15,498 10,056 (25,554) --
-------- ------- -------- -------
Total net sales................... $ 63,470 $15,053 $(25,554) $ 52,969
======== ======= ======== =======
Income from operations............ $ 10,972 $ 1,004 $ 1,474 $ 10,502
======== ======= ======== =======
Net assets........................ $ 35,817 $17,924 $(25,254) $ 30,487
======== ======= ======== =======
</TABLE>

Europe is comprised of the Company's United Kingdom and Hungary operations
that make up 99.4% and 0.6%, respectively, as of December 31, 1996 and 99.2% and
0.8%, respectively, of the Company's European net assets as of June 30, 1997.

NOTE 14. LITIGATION

In 1994, litigation was commenced by the Company and OSL, its United
Kingdom subsidiary, against former employees and a former director of OSL, its
United Kingdom distributor (AVCL) and certain related parties. The claims by the
Company were essentially for misappropriation of intellectual property, breach
of contract and nonpayment of accounts. In a related matter, there was also a
patent infringement action against OSL which involved the validity of a certain
molding patent that was licensed by OSL from certain of the

F-20
<PAGE> 88

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

defendants. The Company also brought an action in federal court in California
against certain of the same individuals who were sued in the United Kingdom. The
California action was essentially one for breach of employment, breach of
contract and violation of securities laws.

In November 1996, judgment was rendered in the United Kingdom actions. In
February 1997, prior to the determination of any costs or damages by the United
Kingdom courts, the parties to the above litigations entered into a settlement
agreement for total monetary consideration of $10,000,000. The settlement
agreement provided for, among other things, (i) a mutual release and termination
of all pending litigation; (ii) the replacement of the September 30, 1992 patent
license agreement (See Note 12) with a new, fully paid-up, non-exclusive, patent
license, that did not contain any restrictions on the Company's ability to sell
contact lenses to other contact lens manufacturers; and, (iii) the termination
of the Company's obligation to supply contact lenses under the September 30,
1992 purchase and supply agreement (See Note 12), including a limitation of the
Company to sell contact lenses directly into the United Kingdom. The Company
paid $3,333,000 to the defendants upon consummation of the settlement agreement
and agreed to pay an additional $6,667,000 upon the earlier of February 27, 1998
or the sale of the Company's common stock in an initial public offering. The
Company has the option of paying a portion of this remaining amount in common
stock at a designated fixed value.

The Company engaged a third party valuation firm to value the United
Kingdom marketing rights and the prepaid patent license agreement acquired as a
result of the settlement agreement and assigned values to the liabilities
identified as a result of the court judgment. The Company then allocated the
$10,000,000 of consideration to the liabilities identified and the intangible
assets acquired on a pro rata basis. As a result of this allocation and in
accordance with APB Opinion No. 17, "Intangible Assets," the Company allocated
$8,800,000 of the consideration to the United Kingdom marketing rights and the
prepaid patent license agreement acquired. The Company has assigned an estimated
useful life of 10 years to the United Kingdom marketing rights and the prepaid
patent license agreement.

The Company incurred legal expenses, which were included in general and
administrative expenses, in 1994, 1995, 1996 and the six months ended June 30,
1996 and 1997 of $549,000, $1,320,000, $2,513,000, $649,000 and $52,000,
respectively, related to this litigation.

Various other legal actions arising in the normal course of business have
been brought against the Company and certain of its subsidiaries. Management
believes that the ultimate resolution of the these actions will not have a
material adverse effect on the Company's financial position or results of
operations.

NOTE 15. OTHER COMMITMENTS

Commitments for the remodeling of existing facilities and purchase of
capital equipment over the next year are approximately $2,849,000 and
$7,686,000, respectively, as of December 31, 1996 and June 30, 1997.

NOTE 16. SUBSEQUENT EVENTS

Compensation Plans

In June 1997, the Board of Directors and the stockholders of the Company
adopted the following compensation plans:

The 1997 Equity Incentive Plan provides for grants of incentive stock
options to employees (including officers and employee directors) and
nonqualified stock options to employees, officers, directors, consultants,
independent contractors and advisors of the Company. The exercise price of all
incentive stock options must be equal to the fair market value of the Company's
common stock on the date of grant. The exercise price of

F-21
<PAGE> 89

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 IS UNAUDITED)

all nonqualified stock options must be at least equal to 85% of that value. A
total of 2,000,000 shares of common stock are reserved for future issuances
under the plan.

The 1997 Directors Stock Option Plan provides for grants of nonqualified
stock options to certain non-employee directors of the Company. The exercise
price per share of all options granted under the plan must be equal to the fair
market value of the Company's common stock on the date of grant. A total of
300,000 shares of common stock are reserved for future issuances under the plan.

The 1997 Employee Stock Purchase Plan will be implemented by an offering
commencing on the date of the closing of the proposed initial public offering.
The plan permits employees to purchase common stock at a price equal to 85% of
the fair market value of the Company's common stock. A total of 400,000 shares
of common stock are reserved for future issuances under the plan.

Financing

Following the closing of the Company's initial public offering, the Company
intends to amend and restate the commercial lending facility (the "Revised
Agreement") and has received a commitment from its bank for the Revised
Agreement under which the Company could borrow up to $20 million in revolving
credit loans. Outstanding borrowings under the Revised Agreement are expected to
fluctuate based on investment levels in working capital and property and
equipment. The Company expects that the Revised Agreement will terminate on June
30, 2000, and would be secured by a pledge of the Company's stock in its
subsidiaries. Borrowings under the Revised Agreement would bear interest at
Comerica's prime rate or at Comerica's eurodollar rate plus a specified margin
that varies based on the Company's ratio of debt to tangible net worth.

Loans to Officer

In April 1997, the Company loaned a total of $892,195 to certain employees
of the Company, of which $550,923 is a full-recourse promissory note loaned to
the Company's Vice President, U.S. Sales. All the loans, except for the loan to
this officer, are non-recourse but are secured by a total of 228,846 shares of
the Company's Common Stock, 102,212 of which have been pledged by the officer.
The loans bear interest at a rate of 6%, payable on or before the earliest to
occur of the one year anniversary of each loan, respectively, termination of
employment, liquidation or dissolution of the Company or, under certain
circumstances, merger or consolidation of the Company.

F-22
<PAGE> 90
APPENDIX

Description of graphics in Prospectus dated August 4, 1997

The inside front cover of the Prospectus is a "gatefold" consisting of three
pages of graphics. These pages are described below.

First Page

The graphic reads "SUPERIOR CONTACT LENS PERFORMANCE" at the top of the page on
the left hand side. On the right hand side of the page is a photographic image
of the right half of a woman's face. Her eye is circled and lines are drawn to 5
points on the page where graphics are included. The first line from the woman's
face extends to the text on the top left of the page that reads "SUPERIOR
CONTACT LENS PERFORMANCE."

The second line from the graphic of the face points to a graphic containing text
reading as follows:

"MORE COMFORTABLE
-- Significant wearer requirement
-- Thin, molded edge reduces lid sensation
-- Sophisticated lens design enhances comfort."

This text is followed by a schematic diagram of a cross-section of a contact
lens, identifying the "low edge apex," the "CN bevel," the "constant center
thickness," the "lenticulated carrier" and the "constant edge thickness."

The next line from the face points to a graphic containing text reading as
follows:

"EASE OF HANDLING
-- Formulated, manufactured and designed for optimal lens shape
retention
-- Easy to tell if inside out and to place on the eye
-- In an independent comparative study, more patients preferred
Biomedics 55 than the leading disposable brand for comfort and
lens handling."

Under this text is a picture of a contact lens on the tip of a finger.

The fourth line from the graphic of the face points to graphics on the lower
left side of the page containing text reading as follows:

"SCALABLE MANUFACTURING TECHNOLOGY
-- Dry cast molding enhances performance
-- Designed for low cost/high volume production."

Under this text are two photographic images. The first is a photograph of a
production line, with text underneath identifying it as "automated molding
machines." The second, located to the right
<PAGE> 91
of the production line graphic, is a photographic image of robotic lens
demolding equipment. Text underneath the picture reads "Robotic lens demolding".

The fifth line from the graphic of the face points to the bottom right side of
the page, ending at a graphic of the Company's logo followed by text that reads
"Better lenses, better care."

Page 2

To the right of the page is a graphic consisting of a photograph of an
optometrist giving a patient an eye examination. Superimposed on the graphic is
a graphic of half of an anatomical chart of the eye. Text at the top left of the
page reads "PRESSURE ON THE EYECARE PRACTITIONER." There are six graphics
arranged in a semicircle to the left of the graphic of the optometrist, each
consisting of a box containing text. This text reads as follows (from top to
bottom): "SURPLUS OF EYECARE PRACTITIONERS," "PATIENT RETENTION," "MASS MARKET
NATIONALLY ADVERTISED BRANDS," "ECONOMIC IMPACT OF MANAGED CARE," "RETAIL
OPTICAL CHAIN PROMOTIONS," and "COMPETITION FROM PHARMACIES AND MAIL ORDER." At
the left, bottom of the page is a graphic of the Company's logo followed by text
that reads "Better Lenses, better care."

Page 3

Text at the top of the page reads "A PROVEN STRATEGY FOR SUCCESS." Underneath
this text is text that reads "RAPID GROWTH WITH FOCUS ON DISPOSABLE REPLACEMENT
REGIMENS." Underneath this text are two bar charts side by side. The bar chart
on the left contains text in its upper right corner reading "Revenues
($millions). Bars indicate revenue levels for each year from 1992 through 1996,
as follows: 1992, $16.5 million; 1993, $38.5 million; 1994 $48.5 million; 1995,
$68.1 million; and 1996, $90.5 million. Text immediately under this chart reads
"Company Revenue Growth." The bar chart on the right contains text in its upper
right corner reading "% of total units." Bars for each year from 1992 through
1996 are superimposed with percentages as follows: 1992, 15.2%; 1993, 19.1%;
1994, 53.0%; 1995, 73.4%; and 1996, 83.5%. Each bar is orange at the top and
blue at the bottom, in varying amounts corresponding to the proportions
represented by these percentages. Superimposed over the lower right portion of
the bar chart is a graphic consisting of a box containing text identifying the
blue portion of each bar as representing "Disposable Replacement" and
identifying the orange portion of each bar as representing "Annual Replacement."
Text directly underneath the chart reads "Company sales by Replacement Regimen."

The graphic in the middle left of the page is a photographic image of
two office cubicles, each containing an office in which a person wearing a
headset is seated at a desk on which there is a computer. Superimposed over the
lower portion of this picture is a photographic image of a woman's face; the
woman is wearing a headset. Also superimposed over the picture of the cubicles
is text that reads "TELEMARKETING." Text to the right of these pictures, in the
center right of the page, reads as follows:

"CONTINUAL FOCUS ON REDUCTION OF MANUFACTURING COSTS AND COST-TO-SERVE
MANUFACTURING IN LAST 3 YEARS:
Production costs reduced 65% per lens
Production volumes increased 470%

2
<PAGE> 92
COST-TO-SERVE MINIMIZED:
Highly effective, low-cost inside sales force
Automated distributions systems".

A graphic at the bottom of the page contains text extending across the page
that reads "WORLDWIDE BRAND SEGMENTATION BY DISTRIBUTION CHANNEL FOR BETTER
PATIENT RETENTION" Underneath this text, lined up from left to right across
the page, are pictures of five boxes of different brands of the Company's
contact lenses; underneath each box is text. Under a box labeled "HYDRON
BIOMEDICS 55 is the words "Private Practitioners." Under a box labeled
"UltraFlex 7/14 55 VISIBILITY TINTED CONTACT LENSES" is the words "Retail
Optical Chain." Underneath a box labeled "Clinasoft 55 VISIBILITY TINTED
CONTACT LENSES" is the words "Private Label for Private Practitioners."
Underneath a box labeled "Hydrovue 55 VISIBILITY TINTED CONTACT LENSES" is the
words "Private label for Retail Chain".

The graphic at the very bottom of the page consists of text that reads as
follows:

"INTERNATIONAL STRATEGIC RELATIONSHIPS
LEVERAGING OCULAR SCIENCES TECHNOLOGY
AND MANUFACTURING SCALE WITH ESTABLISHED
COMPANIES IN KEY MARKETS."

3
<PAGE> 93

OCULAR SCIENCE LOGO