OCULAR SCIENCES INC /DE/, S-1/A, 1998-03-18

OCULAR SCIENCES INC /DE/
S-1/A, 1998-03-18
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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1998

REGISTRATION NO. 333-46669
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

OCULAR SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 3851 94-2985696
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

475 ECCLES AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(650) 583-1400
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

GREGORY E. LICHTWARDT
CHIEF FINANCIAL OFFICER
OCULAR SCIENCES, INC.
475 ECCLES AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(650) 583-1400
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
LAIRD H. SIMONS, III, ESQ. JAY K. HACHIGIAN, ESQ.
BARRY J. KRAMER, ESQ. BENNETT L. YEE, ESQ.
DAVID K. MICHAELS, ESQ. OLUFUNMILAYO B. AREWA, ESQ.
SAMUEL B. ANGUS, ESQ. JONATHAN J. NOBLE, ESQ.
FENWICK & WEST LLP GUNDERSON DETTMER STOUGH
TWO PALO ALTO SQUARE VILLENEUVE FRANKLIN & HACHIGIAN, LLP
PALO ALTO, CALIFORNIA 94306 155 CONSTITUTION DRIVE
(650) 494-0600 MENLO PARK, CALIFORNIA 94025
(650) 321-2400
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

PROSPECTUS (Subject to Completion)
Issued February 26, 1998

4,030,000 Shares

OCULAR SCIENCE LOGO

OCULAR SCIENCES, INC.
COMMON STOCK
------------------------

OF THE 4,030,000 SHARES OF COMMON STOCK BEING OFFERED, 30,000 SHARES ARE BEING
SOLD BY THE COMPANY AND 4,000,000 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. THE
COMPANY'S COMMON STOCK IS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"OCLR." ON FEBRUARY 25, 1998, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET WAS $24.50. SEE "PRICE RANGE OF COMMON STOCK."
------------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 9 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 $ 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..................... $ $ $ $
Total(3)...................... $ $ $ $
</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 $540,000.

(3) One of the Selling Stockholders has granted to the Underwriters an
option, exercisable within 30 days of the date hereof, to purchase up to
an aggregate of 604,500 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
$ , $ , $ and $ , 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 March , 1998 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.
BT ALEXS BROWN
COWEN & COMPANY

March , 1998
<PAGE> 3

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. IN
CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS,
IF ANY MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE
"UNDERWRITERS."

2
<PAGE> 4

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.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 9
Use of Proceeds............................................. 21
Price Range of Common Stock................................. 21
Dividend Policy............................................. 21
Capitalization.............................................. 22
Selected Consolidated Financial Data........................ 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 34
Management.................................................. 53
Certain Transactions........................................ 60
Principal and Selling Stockholders.......................... 63
Description of Capital Stock................................ 65
Shares Eligible for Future Sale............................. 67
Underwriters................................................ 68
Legal Matters............................................... 69
Experts..................................................... 69
Additional Information...................................... 69
Index to Consolidated Financial Statements.................. F-1
</TABLE>

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

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED. THESE STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING THE IMPACT OF INTENSE COMPETITION, RISKS OF EXPANSION
AND AUTOMATION OF MANUFACTURING FACILITIES, RISKS OF TRADE PRACTICE LITIGATION,
FLUCTUATIONS IN OPERATING RESULTS, RISKS OF INTERNATIONAL OPERATIONS, THE
MANAGEMENT OF GROWTH AND THE OTHER RISKS DISCUSSED IN THE SECTIONS ENTITLED
"RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS PROSPECTUS. THE ACTUAL RESULTS
THAT THE COMPANY ACHIEVES MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED OR
IMPLIED IN SUCH FORWARD-LOOKING STATEMENTS DUE TO SUCH RISKS AND UNCERTAINTIES.
WORDS SUCH AS "BELIEVES," "ANTICIPATES," "EXPECTS," "FUTURE," "INTENDS," "MAY"
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, BUT
ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING SUCH STATEMENTS. THE COMPANY
UNDERTAKES NO OBLIGATION TO REVISE ANY OF THESE FORWARD-LOOKING STATEMENTS.
------------------------

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> 5

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. 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
marketed 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. These
strategies provide 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
needs 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 28% from 1987 to 1997, according to Health
Products Research, a market research firm, largely as a result of the
introduction in 1988 of soft contact lenses marketed 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> 6

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 annual replacement segment of the United States market with a
market share estimated at approximately 24% of total unit sales in the fourth
quarter of 1997. Since its introduction of lenses marketed for weekly disposable
replacement regimens in 1993, the Company has steadily increased its share of
this growing market, reaching approximately 12% of total unit sales in the
United States during the fourth quarter of 1997, 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 69% from 1993 through 1997,
primarily due to increased sales of its lenses marketed for weekly disposable
replacement regimens. During the same period, while the overall average selling
prices of all of the Company's lenses declined approximately 59%, the Company
reduced its per unit production costs by approximately 73% 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 1993 through 1997, the Company's net sales and operating income
have increased at compound annual growth rates of approximately 33% and 80%,
respectively, while its operating margins have improved from 7.5% to 25.2% (in
each case excluding non-recurring charges in 1993). 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 marketed 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.

RECENT DEVELOPMENTS

On January 29, 1998, the Company announced that its net sales in 1997 were
$118.6 million, representing an increase of 31.0% over net sales of $90.5
million in 1996. Substantially all of this growth resulted from increased sales
of the Company's lenses marketed for weekly disposable replacement regimens.
Gross profit increased 43.7% to $77.5 million, or 65.4% of net sales in 1997,
from $54.0 million, or 59.6% of net sales in 1996. The increase in gross profit
from 1996 to 1997 was due primarily to increased net sales, and decreases in per
unit production costs resulting from the implementation of certain process
improvements and increases in manufacturing volume. Income from operations
increased 71.7% to $29.9 million in 1997 from $17.4 million in 1996, and net
income increased 102.8% to $20.6 million in 1997 from $10.2 million in 1996.

In August 1997, the Company consummated its initial public offering, in
which the Company sold 3,600,000 shares of Common Stock and selling stockholders
sold 4,680,000 shares of Common Stock, at an initial public offering price of
$16.50 per share. The net proceeds to the Company of $53.7 million were used to
repay indebtedness, and are being used for expansion and automation of
manufacturing facilities and other general corporate purposes.

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 replacement market.
The principal elements of the Company's strategy include:

5
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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 Brand Segmentation by Channel. The high-volume use of lenses
marketed 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 marketed 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 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 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, scaleable manufacturing
has become increasingly important. The Company's dry cast molding
technology allows it to manufacture high-quality lenses efficiently. As a
result, the Company has been able to reduce its per unit production costs
by approximately 73% over the last four years while increasing its
production volumes by approximately 876%. The Company plans to implement
highly automated production lines in its U.K. manufacturing facility,
beginning in the second quarter of 1998, and plans to relocate its Puerto
Rican manufacturing operations to a substantially larger new facility,
which is expected to also include these highly automated production lines,
in 1999. The Company believes that the increased unit volumes resulting
from the growing disposable replacement regimen market and this 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 since 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 marketing solely to the eyecare practitioners who prescribe
contact lenses. In addition, the Company continues to invest in increased
automation in its distribution operations in order to maintain its low
cost-to-serve.

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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 lenses marketed for
disposable replacement regimens in developed markets such as Europe, Japan
and Canada and by increased disposable income in emerging markets in 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 Carl Zeiss Company ("Zeiss") in Europe and Seiko Contactlens,
Inc. ("Seiko") in Japan, to capitalize on their existing market presence,
customer relationships and local infrastructure. The Company anticipates
that Seiko will receive initial approval to sell certain of the Company's
contact lenses marketed for disposable replacement regimens in Japan by the
fourth quarter of 1998. The Company has also established distribution
relationships with other soft contact lens distributors in a number of
countries in the Asian market. 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 1997. 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.

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THE OFFERING

<TABLE>
<S> <C>
Common Stock offered:
By the Company....................... 30,000 shares
By the Selling Stockholders.......... 4,000,000 shares(1)
Total............................. 4,030,000 shares(1)
Common Stock to be outstanding after
the offering...................... 21,900,776 shares(2)
Use of proceeds........................ The proceeds to the Company will be used primarily to pay
the expenses of this offering. The Company will not
receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See "Use of
Proceeds."
Nasdaq National Market symbol.......... OCLR
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997(5)
--------------------
(IN THOUSANDS)
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash and short-term and
long-term investments................................... $ 47,429
Working capital........................................... 55,988
Total assets.............................................. 129,735
Total debt................................................ 3,879
Stockholders' equity...................................... 106,104
</TABLE>

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

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

(2) Based on the number of shares outstanding as of February 15, 1998. Excludes
3,364,944 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"), the Company's 1997 Equity Incentive Plan (the "1997 Plan") and
the Company's 1997 Directors Stock Option Plan (the "Directors Plan"). See
"Management -- Employee Benefit Plans" and Note 11 of Notes to Consolidated
Financial Statements.

(3) Loss from operations for 1993 includes a non-recurring charge of $4.4
million, 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 net income per share (basic and diluted), see Notes 2 and 12 of
Notes to Consolidated Financial Statements.

(5) The sale by the Company of the 30,000 shares of Common Stock offered by it,
based on the last reported sales price on February 25, 1998, is estimated to
provide net proceeds of approximately $698,250 (after deducting estimated
discounts and commissions but before deducting estimated expenses of
approximately $540,000), which will be used primarily to pay expenses of
this offering. See "Use of Proceeds" and "Capitalization."

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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 or implied in such
forward-looking statements due to such risks and uncertainties. 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. As the
number of wearers of soft contact lenses in the United States ("U.S.") has not
grown significantly in recent years, increased U.S. market penetration by the
Company will require wearers of competing products to switch to the Company's
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"), Wesley Jessen VisionCare, Inc. ("Wesley Jessen") and The Cooper
Companies, Inc. ("Cooper"). Many 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."

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<PAGE> 11

introduction of a lens marketed for daily disposal regimens. 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 marketed for different replacement regimens are often similar,
the ability of competitors to reduce their per unit costs for lenses marketed
for daily disposal 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 affect the Company's ability to compete
in selling lenses for a much broader range of replacement regimens. See
"-- Dependence on Single Product Line; Need to Increase Sales of Lenses for
Disposable Replacement Regimens."

The Company believes that its manufacturing process technology, lens
designs and marketing strategies differentiate it from its leading competitors.
However, there can be no assurance that competitors will not adopt technologies,
lens designs or marketing strategies that are similar to those used by the
Company. Any such action by competitors could have a material adverse effect on
the Company's business, results of operations and financial condition. In this
regard, in December 1997, Cooper acquired Aspect Vision Care Ltd. ("AVCL"), a
U.K.-based manufacturer and marketer of soft contact lenses. The Company
believes that AVCL's manufacturing process technology and lens designs are based
in significant part on technology also licensed to, and used by, the Company.
AVCL was, until recently, contractually prohibited from selling lenses in the
U.S. See "Certain Transactions -- OSL Acquisition and Related Litigation."
Cooper has recently announced that it has introduced a new line of contact
lenses marketed in the U.S. for weekly and monthly replacement regimens that
utilize AVCL's manufacturing process technology and lens designs, and that this
new line will provide practitioners with products that are proprietary to their
practice.

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 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 has encountered certain delays in implementing these
automated lines, and there can be no assurance that it will not encounter
significant delays and difficulties in the future. 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 longer design time than anticipated, or 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 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.

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<PAGE> 12

The Company currently expects that from 1998 through the end of 2000, it
will invest approximately $64.0 million in capital expenditures on automated
production lines in the United Kingdom and Puerto Rico and expects to continue
to invest in additional automated production lines after this period. The
Company intends to finance these capital expenditures with net cash provided by
operating activities, existing cash balances and 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. As a result, the Company intends to relocate its Puerto Rican
manufacturing operations to a substantially larger new facility to be
constructed to the Company's specifications and leased to the Company by the
Puerto Rico Industrial Development Company. The Company has entered into a
letter of intent, and is negotiating the final terms of the lease for the
facility. The Company began construction of the new facility in January 1998 and
expects to complete construction, and initial installation of equipment, by the
second quarter of 1999. However, the Company has encountered certain delays in
the construction of the facility, and there can be no assurance as to when it
will complete construction and commence production. Before this new facility
begins production, it must be inspected by the U.S. Food and Drug Administration
(the "FDA") for compliance with the FDA's quality system regulation, which
includes current good manufacturing practice ("GMP") requirements, and
determined by the FDA to be in compliance with this regulation. The inspection
process and determination of compliance by the FDA 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. Given the long lead times associated with constructing a new
facility, as well as delays while seeking FDA clearance or approval of new or
modified products, the Company will incur substantial cash expenditures before
it commences production of commercial volumes of contact lenses 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 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 materially 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 lawsuit 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

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<PAGE> 13

contact lens providers, so as to reduce competition in the contact lens
industry. See "Business -- Sales and Marketing." One of the defendants has
agreed to settle the lawsuit 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. The lawsuit has been
consolidated with certain related lawsuits, including several class action
lawsuits, and trial has been set for April 1999 in Florida.

In an unrelated matter, one of the Company's largest competitors was sued
in a national 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. In August 1997, such competitor also
settled an investigation by 17 states into similar matters by agreeing to
certain significant restrictions on its future contact lens marketing practices
and making certain payments to each of the states. In October 1996, a class
action lawsuit was brought against another of the Company's largest competitors
in the Superior Court of New Jersey-Camden (the "New Jersey Lawsuit"). This suit
alleges that the defendant engaged in fraudulent and deceptive practices in the
marketing and sale of contact lenses by selling interchangeable contact lenses,
under different brand names and for different replacement regimens, at different
prices. The suit was certified as a national class action in December 1997. 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 and
New Jersey Lawsuits, 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. Additionally, the lawsuits against certain of
the Company's competitors have generated, and may continue to generate,
unfavorable publicity for the contact lens industry, which publicity could
increase the possibility of trade practice-related litigation or governmental
action. The defense of any trade practice-related 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 action, lawsuit or claim 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.

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 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
Marketed 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

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<PAGE> 14

competitive pressures, changes in consumer preferences, the inability of the
Company to respond to reduced prices by its competitors, the acceptance 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 marketed 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
demand for contact lenses for annual replacement regimens will continue to
contract in its major geographic markets as wearers continue to shift to
disposable replacement regimens. The Company, a relatively recent entrant in the
disposable replacement market, 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. The Company anticipates that prices for its products marketed for
disposable replacement regimens will decline in the future. There can be no
assurance that the Company's contact lenses marketed for disposable replacement
regimens will achieve widespread consumer acceptance, or that net sales or net
income from the sale of the Company's lenses marketed for disposable replacement
regimens will be sufficient to offset the decline in the Company's net sales or
net income from its contact lenses marketed for annual replacement regimens,
which have higher prices and gross margins. Any such failure to achieve broad
market acceptance or to capture a significant share of the disposable
replacement market 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. The lenses currently
offered in the U.S. by the Company in the disposable replacement market are
marketed for weekly and monthly replacement regimens. Certain of the Company's
competitors have introduced lenses marketed for daily replacement at lower
prices than their lenses currently marketed for weekly and bi-weekly regimens.
The Company is evaluating the introduction of a lens for daily disposal
regimens. The Company's ability to enter and to compete effectively in the daily
disposable market will depend in large part upon the Company's ability to expand
its production capacity and reduce its per unit production costs. 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
marketed for disposable replacement regimens with an ultraviolet light
inhibitor, which could increase the appeal of its products. The Company is
developing lenses with a similar feature, but 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 Bausch & Lamb 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 develop its own technology or 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 Marketed 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

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<PAGE> 15

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 net 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. Consistent with its historical seasonality, the Company
expects its net sales for the quarter ending March 31, 1998 to be lower than its
net sales for the quarter ended December 31, 1997. The Company believes that the
historical increases in sales of its products in the third and fourth quarters
have been primarily 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
marketed 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 marketed for annual replacement regimens to
lenses marketed for disposable replacement regimens and, within the disposable
segment, to lenses that are marketed for more frequent replacement, (ii)
decreases in the prices of lenses marketed for disposable replacement regimens
and (iii) increases in products sold internationally through distributors at
prices lower than direct sales prices in the U.S. The Company does not expect
there to be significant growth in its sales of lenses marketed for annual
replacement. 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 1997, the Company's international sales
represented approximately 18.7%, 18.2% and 21.0%, 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 materially 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

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<PAGE> 16

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.

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. The Company's sales to many of
its distributors are made pursuant to short-term agreements or purchase orders.
There can be no assurance that any such agreements will be renewed or replaced
upon their expiration or that the volume of purchases by any distributor will
not decline in future periods. 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, financial and management information
systems. See "Business -- Employees."

The Company is in the process of replacing its information systems with new
systems that are expected to include a number of integrated applications,
including order entry, billing and labeling. 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
and integration of these applications will be important to facilitate future
growth. The Company has implemented several of these applications, and
anticipates implementing the other planned applications by the middle of 1999.
However, the Company could experience unanticipated delays in the implementation
of the new systems and implementation of the new 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. In addition, delays in implementing the new
systems could require additional expenditures by the Company to modify or
replace portions of its existing information systems so that they will function
properly with respect to dates in the year 2000 and thereafter and there can be
no assurance that the Company will be able to correct any problems with respect
to such dates in a timely manner.

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<PAGE> 17

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.

The Company may discover 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, prior to its 1997 acquisition by Cooper, the
patent owners had a significant interest in AVCL, a United Kingdom company that
competes with the Company in certain markets and that was, until recently,
contractually prohibited from selling certain lenses in the U.S. See "Certain
Transactions -- OSL Acquisition and Related Litigation." In 1997, AVCL was
acquired by Cooper and Cooper has recently announced that it will use AVCL's
technology, which the Company believes includes the licensed technology, to
compete in the U.S. See "-- Intense Competition." 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.

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
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.

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<PAGE> 18

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 Federal Food, Drug and Cosmetic Act (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,
distribution, sales and marketing), product seizures and criminal prosecution of
a company and its officers and employees. 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 U.S. 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 U.S. market through the
submission of a Section 510(k) Pre-Market Notification (a "510(k)
notification"); exempted from the requirement of such clearance; or approved by
the FDA prior to introducing such product to the market through the submission
of a Pre-Market Approval Application (a "PMA"). An FDA review of a 510(k)
notification generally is expected to take from four to five months from the
date the 510(k) is accepted for review by the FDA, but it may take far longer,
and 510(k) clearance may never be obtained. Approval through the PMA process,
which likewise may never be obtained, generally is expected to take from ten to
eleven months from the date the PMA is accepted for filing, 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) 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.

17
<PAGE> 19

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. In February and March
1998, the FDA again inspected the Company's facilities in Puerto Rico for
compliance with quality system (including GMP) requirements. The Company has
received a summary of certain deficiencies observed by the FDA inspector. These
deficiencies related to aspects of the Company's complaint handling and certain
other procedures. The Company is addressing these deficiencies and believes that
the FDA will find the Company's responses to be satisfactory. There can be no
assurance, however, that the FDA will accept the Company's responses, or that
the Company will be found in compliance with quality system (including GMP)
requirements in future inspections by regulatory authorities. Any actions
required by the FDA as a result of its recent inspection or future inspections
could involve significant costs or disruption to the Company's operations, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, noncompliance with quality
system (including 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 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 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. 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 scarring and 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

18
<PAGE> 20

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.

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 Chief Executive
Officer, could have a material adverse effect on the Company. See
"Business -- Employees" and "Management."

Influence by Existing Stockholders. After completion of this offering, the
directors, officers and principal stockholders of the Company will, in the
aggregate, beneficially own approximately 38.8% of the Company's outstanding
Common Stock (approximately 36.1% if the Underwriters' overallotment option is
exercised in full). As a result, these stockholders, acting together, will
possess significant voting influence over the election of the Company's Board of
Directors and the approval of significant corporate transactions, among other
matters. Such influence 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. The Company's Board of Directors has 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 are 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. 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. This
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. Upon completion of
this offering, the Company will have 21,900,776 shares of Common Stock
outstanding. Of these shares, 12,571,200 shares of Common Stock (13,175,700
shares if the Underwriters' overallotment option is exercised in full) will be
freely tradable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"). Subject to certain 90-day "lock-up" agreements,
approximately 9,329,576 of the remaining shares of Common Stock held by existing
stockholders of the Company are currently eligible for sale in the public
market. 8,383,878 of such shares are subject to compliance with the resale
volume limitations of Rule 144 under the Securities Act (8,383,358 of which are
subject to 90-day lock-up agreements) and 945,698 of such shares may be sold
without regard to such limitations. The holders of an aggregate of approximately
8,266,358 shares of Common Stock following this offering have certain rights to
require the registration of their shares of Common Stock under the Securities
Act at the Company's expense. Future sales of the shares of Common Stock held by

19
<PAGE> 21

existing stockholders 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."

Volatility of Stock Price. The market price of Company's Common Stock is,
and is likely to continue 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, trade
practice litigation, 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 "Price Range of Common Stock."

20
<PAGE> 22

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 30,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$698,250 (at an assumed public offering price of $24.50 per share and after
deducting estimated underwriting discounts and commissions but before deducting
estimated expenses of $540,000). 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 the net
proceeds to it from this offering primarily to pay the estimated expenses
incurred by the Company in this offering.

PRICE RANGE OF COMMON STOCK

The Common Stock of the Company began trading publicly on the Nasdaq
National Market on August 5, 1997 under the symbol "OCLR." Prior to that date,
there was no public market for the Common Stock. The following table sets forth
for the periods indicated the high and low sale prices of the Common Stock.

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Year Ended December 31, 1997:
Third Quarter (since August 5, 1997)...................... $ 23 3/8 $ 16 1/2
Fourth Quarter............................................ 28 1/8 19 1/4
Year Ended December 31, 1998:
First Quarter (through February 25, 1998)................. 29 23 3/4
</TABLE>

A recent reported last sale price of the Company's Common Stock is set
forth on the cover of this Prospectus. As of February 15, 1998, there were 92
holders of record of the Company's Common Stock.

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 Company's Amended and Restated Credit Agreement with Comerica
Bank -- California (the "Comerica Credit Agreement'). 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.

21
<PAGE> 23

CAPITALIZATION

The following table sets forth, as of December 31, 1997, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to give effect to the sale of the 30,000 shares of Common Stock offered by the
Company hereby (at an assumed public offering price of $24.50 per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company).

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion:
Borrowings under the Comerica Credit Agreement(1)......... $ 2,183 $ 2,183
Capital lease obligations(1).............................. 1,696 1,696
-------- --------
Total long-term debt, including current portion........ 3,879 3,879
-------- --------
Stockholders' equity:
Preferred stock, $0.001 par value; 4,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock, $0.001 par value; 80,000,000 shares
authorized; 21,738,166 shares issued and outstanding,
actual; 21,768,166 shares issued and outstanding, as
adjusted(2)............................................ 22 22
Additional paid-in capital................................ 70,438 70,596
Retained earnings......................................... 36,164 36,164
Unrealized gain on investments............................ 11 11
Cumulative translation adjustment......................... (531) (531)
-------- --------
Total stockholders' equity............................. 106,104 106,262
-------- --------
Total capitalization................................... $109,983 $110,141
======== ========
</TABLE>

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

(1) See Note 7 of Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

(2) Excludes (i) 2,219,454 shares of Common Stock issuable at a weighted average
exercise price of $7.03 per share upon exercise of stock options outstanding
as of December 31, 1997 under the 1989 Plan, the 1997 Plan and the Directors
Plan, (ii) 1,947,694 shares of Common Stock reserved for future issuance
under the 1997 Plan, (iii) 180,000 shares of Common Stock reserved for
future issuance under the Directors Plan and (iv) 400,000 shares of Common
Stock reserved for future issuance under the 1997 Employee Stock Purchase
Plan. From January 1, 1998 through February 15, 1998, options to purchase an
aggregate of 132,610 shares of Common Stock under the 1989 Plan were
exercised, and the Company granted options to purchase an aggregate of
1,275,500 shares of Common Stock under the 1997 Plan. See
"Management -- Director Compensation," "Management -- Employee Benefit
Plans," "Description of Capital Stock" and Note 11 of Notes to Consolidated
Financial Statements.

22
<PAGE> 24

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, 1997 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,
1996 and 1997, and for each of the years in the three-year period ended December
31, 1997, and the KPMG Peat Marwick LLP report thereon, are included elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................... $38,533 $48,503 $68,087 $90,509 $118,605
Cost of sales............................... 24,673 22,553 26,820 36,553 41,066
------- ------- ------- ------- --------
Gross profit.............................. 13,860 25,950 41,267 53,956 77,539
Selling and marketing expenses.............. 4,122 6,405 11,728 18,101 27,139
General and administrative expenses......... 10,509 11,087 14,287 18,420 20,470
Reorganization costs........................ 746 -- -- -- --
------- ------- ------- ------- --------
Income (loss) from operations(1).......... (1,517) 8,458 15,252 17,435 29,930
Interest expense............................ (3,328) (3,128) (3,024) (3,216) (1,387)
Interest income............................. 65 123 280 132 939
Other (expense) income, net................. (1) (416) 151 (186) (6)
------- ------- ------- ------- --------
Income (loss) before taxes................ (4,781) 5,037 12,659 14,165 29,476
Income taxes................................ 368 -- (3,869) (3,989) (8,843)
------- ------- ------- ------- --------
Net income (loss)......................... (4,413) 5,037 8,790 10,176 20,633
Preferred stock dividends................... (96) (82) (82) (82) (49)
------- ------- ------- ------- --------
Net income (loss) applicable to common
stockholders........................... $(4,509) $ 4,955 $ 8,708 $10,094 $ 20,584
======= ======= ======= ======= ========
Net income per share (basic)(2)............. $ (0.35) $ 0.38 $ 0.55 $ 0.61 $ 1.10
======= ======= ======= ======= ========
Net income per share(diluted)(2)............ $ (0.35) $ 0.27 $ 0.46 $ 0.52 $ 0.98
======= ======= ======= ======= ========
Shares used in computing net income per
share (basic)(2).......................... 12,788 13,067 15,791 16,445 18,722
======= ======= ======= ======= ========
Shares used in computing net income per
share(diluted)(2)......................... 12,788 18,578 19,194 19,439 21,107
======= ======= ======= ======= ========
OTHER DATA:
Lenses marketed for disposable replacement
regimens as a percentage of total lenses
sold...................................... 19.1% 53.0% 73.4% 83.5% 89.6%
Depreciation and amortization............... $ 1,775 $ 2,137 $ 2,578 $ 4,904 $ 6,863
Capital expenditures........................ 2,489 2,153 13,558 12,256 16,156
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash and
short-term and long-term investments...... $ 3,774 $ 9,639 $ 5,346 $ 5,541 $ 47,429
Working capital............................. 13,957 17,305 11,913 15,118 55,988
Total assets................................ 32,191 35,645 50,874 63,503 129,735
Total debt.................................. 24,772 22,863 22,911 22,740 3,879
Stockholders' equity (deficit).............. (403) 4,447 13,292 23,889 106,104
</TABLE>

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

(1) Loss from operations for 1993 includes a non-recurring charge of $4.4
million 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 net income per share (basic and diluted) see Notes 2 and 12 of
Notes to Consolidated Financial Statements.

23
<PAGE> 25

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 the discussion of 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 its prior owners 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 then 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 North and South American contact
lens business of Allergan, Inc. ("Allergan"), 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 3,403,192 shares of Common Stock,
118,168 shares of 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 note was repaid with bank borrowings
in 1993 and the senior subordinated notes were repaid with bank borrowings in
1996. The Preferred Stock was converted into 236,336 shares of Common Stock upon
the consummation of the Company's initial public offering. The American Hydron
acquisition resulted in goodwill and other intangible assets of $3.4 million,
all of which were 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 marketed for annual replacement regimens and the remainder
of its sales from lenses marketed for monthly disposable replacement regimens.
In the third quarter of 1993, the Company began selling lenses marketed for
weekly disposable replacement regimens. Since that time, substantially all of
the Company's growth in net sales has resulted from sales of lenses marketed for
disposable replacement regimens, primarily weekly disposable replacement
regimens. In the first quarter of 1995, the Company introduced a second line of
lenses marketed for weekly disposable replacement regimens. The Company's lenses
marketed for disposable replacement regimens historically have had lower selling
prices and gross margins and are sold in much greater volumes than its lenses
marketed for annual replacement regimens. In 1997, lenses marketed for
disposable replacement regimens accounted for 89.6% of the Company's unit volume
and 75.9% of net sales. See "Risk Factors -- Dependence on Single Product Line;
Need to Increase Sales of Lenses Marketed for Disposable Replacement Regimens."
In 1997, approximately 54% of the Company's U.S. net sales came from sales to

24
<PAGE> 26

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, among
other things, for (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 in February 1997 and paid an additional $6.7 million in August 1997.
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 16 of Notes to Consolidated
Financial Statements. The Company is amortizing these intangible assets over a
ten-year period. In connection with the U.K. Litigation, the Company incurred
legal expenses of $1.3 million, $2.5 million and $56,000 in 1995, 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

All results of operations data in the following tables is presented in
thousands.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Net Sales

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 % CHANGE 1997
------- -------- --------
<S> <C> <C> <C>
U.S........................................ $74,004 26.6% $ 93,711
International.............................. 16,505 50.8% 24,894
------- --------
Net sales.................................. $90,509 31.0% $118,605
======= ========
As a percentage of net sales
U.S...................................... 81.8% 79.0%
International............................ 18.2% 21.0%
</TABLE>

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 31.0% to $118.6 million in 1997 from $90.5 million in 1996.
Substantially all of this growth resulted from increased sales of the Company's
lenses marketed for weekly disposable replacement regimens. The Company's
international sales as a percentage of total sales increased from 18.2% in 1996
to 21.0% in 1997 primarily as a result of increased demand experienced by the
Company's international distributors and new partnering and distributor
relationships established by the Company abroad. See "Risk Factors -- Risks
Relating to International Operations; Need to Increase Sales in International
Markets." In 1997, 89.6% of all lenses sold by the Company were marketed for use
in disposable replacement regimens, compared to 83.5% in 1996. The Company's
overall average selling price declined approximately 11.2% from 1996 to 1997,
primarily as a result of a shift in product mix from lenses marketed for annual
replacement regimens to lower priced lenses marketed for disposable replacement
and, to a lesser extent, as a result of an increase in the percentage of the
Company's products sold internationally to distributors at prices lower than
direct sales prices in the United States. Within each principal distribution
channel, the average selling price of each of the Company's

25
<PAGE> 27

primary products remained relatively stable from 1996 to 1997. The Company
expects that the overall average selling price that it realizes across its
products will continue to decline over time, and may decline at a greater rate
than in the past, because of (i) shifts in the Company's product mix from lenses
marketed for annual replacement regimens to lenses marketed for disposable
replacement regimens and, within the disposable category, to lenses marketed for
more frequent replacement, (ii) decreases in the average per unit selling prices
of lenses marketed for disposable replacement regimens and (iii) increases in
products sold internationally to distributors at lower prices than direct sales
prices in the United States. The Company does not expect there to be significant
growth, if any, in its sales of lenses marketed for annual replacement regimens
as a result of the continuing shift in consumer demand towards more frequent
replacement regimens. Historically, the Company's first quarter net sales have
been lower than its fourth quarter net sales, and the Company expects that its
net sales for the quarter ending March 31, 1998 will be lower than its net sales
for the quarter ended December 31, 1997. In addition, the Company does not
believe that its net sales growth rate from 1996 to 1997 is indicative of the
Company's long-term sales growth rate.

Gross Profit

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 % CHANGE 1997
------- -------- -------
<S> <C> <C> <C>
Gross profit................................ $53,956 43.7% $77,539
As a percentage of net sales................ 59.6% 65.4%
</TABLE>

Cost of sales is comprised primarily of the labor, overhead and material
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 43.7% to $77.5 million, or 65.4% of net sales in 1997, from $54.0
million, or 59.6% of net sales, in 1996. The increase in gross profit from 1996
to 1997 was due primarily to increased net sales, and to decreases in per unit
production costs resulting from the implementation of certain process
improvements and increases in manufacturing volume. The Company expects cost
reductions resulting from the Company's current production process to be less
significant in the immediate future. The Company intends to add new, highly
automated production lines at its United Kingdom and Puerto Rico facilities,
which are designed to reduce further its per unit cost of production over time,
and anticipates installing the first such line in the second quarter of 1998. As
the Company expects that its overall average selling price will continue to
decline over time, and anticipates higher depreciation, which is a component of
cost of sales, as a result of significantly increased investment in property and
equipment, 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." In addition, the Company may experience
decreased per unit prices in future periods, while not achieving comparable
decreases in its cost of sales until subsequent periods, if at all. As a result,
the Company would experience significant variability in its gross margins. For
example, if the Company introduces a lower-priced contact lens marketed for
daily replacement regimens, its average selling price will decline, and may
decline significantly, while reductions in costs of sales would likely not reach
comparable levels until subsequent periods, if at all. Accordingly, the Company
would expect its gross margins to decrease at least in the short term following
the introduction of lenses marketed for daily replacement regimens. See "Risk
Factors -- Fluctuations in Operating Results; Seasonality; Decreasing Average
Sales Prices."

In the fourth quarter of 1997, the Company finalized plans to change the
packaging component of its manufacturing process in late 1998, resulting in an
$824,000 write-down in 1997 of certain of its manufacturing assets to estimated
fair value and a corresponding $824,000 increase in cost of sales. See Note 5 of
Notes to Consolidated Financial Statements. In addition, cost of sales in 1997
included approximately $690,000 for amortization of intangible assets acquired
in connection with the settlement of the U.K. Litigation, and the Company
anticipates amortizing approximately $860,000 per year over the remainder of the
ten-year useful life of these intangible assets. See "-- Overview."

26
<PAGE> 28

Selling and Marketing Expenses

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 % CHANGE 1997
------- -------- -------
<S> <C> <C> <C>
Selling and marketing expenses............ $18,101 49.9% $27,139
As a percentage of net sales.............. 20.0% 22.9%
</TABLE>

Selling and marketing expenses are comprised primarily of cooperative
merchandising allowances, sample diagnostic products provided to eyecare
practitioners without charge, salaries, commissions and benefits for selling and
marketing personnel 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 marketed for disposable replacement regimens. These allowances are
limited to a percentage of purchases of lenses marketed for disposable
replacement regimens from the Company. Selling and marketing expenses increased
49.9% to $27.1 million, or 22.9% of net sales, in 1997 from $18.1 million, or
20.0% of net sales, in 1996. The increase, both in absolute dollars and as a
percentage of net sales from 1996 to 1997 resulted primarily from an increase in
cooperative merchandising allowances and, to a lesser extent, an increase in the
shipment of sample diagnostic products. The Company expects selling and
marketing expenses, particularly cooperative merchandising allowances, to
continue to grow at a faster rate than its net sales as the Company seeks to
increase its market share.

General and Administrative Expenses

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 % CHANGE 1997
------- -------- -------
<S> <C> <C> <C>
General and administrative expenses......... $18,420 11.1 % $20,470
As a percentage of net sales................ 20.4% 17.3%
</TABLE>

General and administrative expenses are comprised primarily of salaries and
benefits for distribution, general and administrative and research and
development personnel, professional services, consultants' fees and
non-manufacturing facilities costs. General and administrative expenses
increased 11.1% to $20.5 million in 1997 from $18.4 million in 1996, but
declined as a percentage of net sales from 20.4% to 17.3%. The dollar increase
was due primarily to increased salaries and other personnel-related benefits to
employees, increases in research and development related to the Company's
ongoing focus on reducing per unit costs of production, sales and use tax
provisions, fees to regulatory consultants, relocation and recruiting fees
associated with the hiring of a new chief operating officer, and increased
depreciation, partially offset by reductions in legal and professional fees as a
result of the settlement of the U.K. Litigation in February 1997. The decrease
in the percentage of net sales resulted from the limited growth in distribution
and administrative expenses relative to the growth in net sales. The Company
believes that its general and administrative expenses will increase in absolute
dollars, in part as a result of the expenses associated with being a public
company, and are expected to decrease as a percentage of net sales if net sales
grow.

Income from Operations

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 % CHANGE 1997
------- -------- -------
<S> <C> <C> <C>
Income from operations...................... $17,435 71.7 % $29,930
As a percentage of net sales................ 19.3% 25.2%
</TABLE>

Income from operations increased 71.7% to $29.9 million in 1997 from $17.4
million in 1996 and increased to 25.2% of net sales in 1997 from 19.3% of net
sales in 1996. Excluding expenses of the U.K. Litigation, income from operations
would have been 25.3% of net sales in 1997 compared to 22.0% of net sales in
1996.

27
<PAGE> 29

Interest and Other Expense, Net

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 % CHANGE 1997
------ -------- ----
<S> <C> <C> <C>
Interest and other expenses, net............... $3,270 (86.1%) $454
As a percentage of net sales................... 3.6% 0.4%
</TABLE>

Interest and other expense, net decreased 86.1% to $454,000, or 0.4% of net
sales, in 1997 from $3.3 million, or 3.6% of net sales, in 1996. This decrease
primarily resulted from a reduction in interest expense as the aggregate amount
of the Company's borrowings was reduced following its initial public offering in
August 1997 and an increase in interest earned as a result of the investment of
a portion of the net proceeds from the Company's initial public offering.

Income Taxes

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 % CHANGE 1997
------ -------- ------
<S> <C> <C> <C>
Income taxes.................................... $3,989 121.7% $8,843
Effective tax rate.............................. 28.2% 30.0%
</TABLE>

Income taxes were $8.8 million in 1997 and $4.0 million in 1996. The
Company's effective tax rate increased from 28.2% in 1996 to 30.0% in 1997 as a
result of an increase in the percentage of international earnings, which are
subject to full U.S. taxation, as compared to earnings attributable to the
Company's Puerto Rican operations, which are partially exempt from U.S.
taxation. The Company anticipates that it will continue to benefit from the
favorable effect of this partial exemption through 2001, when the benefit will
expire under the current provisions of the Internal Revenue Code. 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
reduction in the Company's labor costs in Puerto Rico relative to its Puerto
Rican earnings. See Note 13 of Notes to Consolidated Financial Statements.

Net Income

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 % CHANGE 1997
------- -------- -------
<S> <C> <C> <C>
Net income.................................... $10,176 102.8% $20,633
As a percentage of net sales.................. 11.2% 17.4%
</TABLE>

Net income increased 102.8% to $20.6 million in 1997 from $10.2 million in
1996. The increase was due primarily to increased net sales and improved gross
margins.

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

Net Sales

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 % CHANGE 1996
------- -------- -------
<S> <C> <C> <C>
U.S........................................... $55,334 33.7% $74,004
International................................. 12,753 29.4% 16,505
------- -------
Net sales..................................... $68,087 32.9% $90,509
======= =======
As a percentage of net sales
U.S......................................... 81.3% 81.8%
International............................... 18.7% 18.2%
</TABLE>

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 lenses marketed for weekly disposal regimens. The overall average
price of the Company's lenses marketed for weekly disposable replacement
regimens was

28
<PAGE> 30

similar in 1995 and 1996. The Company's sales of lenses marketed for annual
replacement regimens declined slightly in both volume and average price from
1995 to 1996. The Company's international sales represented approximately 18.7%
and 18.2% of the Company's net sales in 1995 and 1996, respectively.

Gross Profit

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 % CHANGE 1996
------- -------- -------
<S> <C> <C> <C>
Gross profit.................................. $41,267 30.7% $53,956
As a percentage of net sales.................. 60.6% 59.6%
</TABLE>

Gross profit increased 30.7% 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 in unit cost of sales. The reduction in overall average
selling price of 13.2% was caused by an increased percentage of lenses marketed
for disposable replacement regimens, which have lower prices. Implementation of
certain manufacturing process improvements was delayed by a postponement by the
FDA of its GMP inspection of the Company's new United Kingdom facility, and this
delay prevented the reduction in per unit cost of sales from completely
offsetting the reduction in average selling price as planned. Additionally, the
Company recorded provisions in 1996 totaling $548,000 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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 % CHANGE 1996
------- -------- -------
<S> <C> <C> <C>
Selling and marketing expenses................ $11,728 54.3% $18,101
As a percentage of net sales.................. 17.2% 20.0%
</TABLE>

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 lenses marketed for disposable replacement regimens, which grew at rates in
excess of the Company's overall net sales. 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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 % CHANGE 1996
------- -------- -------
<S> <C> <C> <C>
General and administrative expenses........... $14,287 28.9% $18,420
As a percentage of net sales.................. 21.0% 20.4%
</TABLE>

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
20.4% 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 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

29
<PAGE> 31

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 % CHANGE 1996
------- -------- -------
<S> <C> <C> <C>
Income from operations........................ $15,252 14.3% $17,435
As a percentage of net sales.................. 22.4% 19.3%
</TABLE>

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 % CHANGE 1996
------ -------- ------
<S> <C> <C> <C>
Interest and other expense, net................. $2,593 26.1% $3,270
As a percentage of net sales.................... 3.8% 3.6%
</TABLE>

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 % CHANGE 1996
------ -------- ------
<S> <C> <C> <C>
Income taxes...................................... $3,869 3.1% $3,989
Effective tax rate................................ 30.6% 28.2%
</TABLE>

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 % CHANGE 1996
------ -------- -------
<S> <C> <C> <C>
Net income....................................... $8,790 15.8% $10,176
As a percentage of net sales..................... 12.9% 11.2%
</TABLE>

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.

30
<PAGE> 32

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth the consolidated statements of income of the
Company for its eight 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
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $17,176 $21,674 $25,600 $26,059 $23,879 $29,090 $33,095 $32,541
Cost of sales............. 6,891 9,037 10,207 10,418 9,462 10,958 10,391 10,255
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 10,285 12,637 15,393 15,641 14,417 18,132 22,704 22,286
Selling and marketing
expenses................ 3,723 4,519 4,765 5,094 5,774 6,198 7,410 7,757
General and administrative
expenses................ 4,340 4,473 4,649 4,958 5,399 4,676 5,224 5,171
------- ------- ------- ------- ------- ------- ------- -------
Income from
operations............ 2,222 3,645 5,979 5,589 3,244 7,258 10,070 9,358
Interest and other expense
net..................... (689) (643) (963) (975) (641) (204) (443) 834
------- ------- ------- ------- ------- ------- ------- -------
Income before taxes..... 1,533 3,002 5,016 4,614 2,603 7,054 9,627 10,192
Income taxes.............. (429) (847) (1,415) (1,298) (781) (2,116) (2,889) (3,057)
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $ 1,104 $ 2,155 $ 3,601 $ 3,316 $ 1,822 $ 4,938 $ 6,738 $ 7,135
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

AS A PERCENTAGE OF NET SALES

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
<S> <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%
Cost of sales.............. 40.1 41.7 39.9 40.0 39.6 37.7 31.4 31.5
------ ------ ------ ------ ------ ------ ------ ------
Gross margin............. 59.9 58.3 60.1 60.0 60.4 62.3 68.6 68.5
Selling and marketing
expenses................. 21.7 20.9 18.6 19.6 24.2 21.3 22.4 23.8
General and administrative
expenses................. 25.3 20.6 18.1 19.0 22.6 16.0 15.8 15.9
------ ------ ------ ------ ------ ------ ------ ------
Income from
operations........... 12.9 16.8 23.4 21.4 13.6 25.0 30.4 28.8
Interest and other expense
net...................... (4.0) (3.0) (3.8) (3.7) (2.7) (0.7) (1.3) 2.5
------ ------ ------ ------ ------ ------ ------ ------
Income before taxes.... 8.9 13.8 19.6 17.7 10.9 24.3 29.1 31.3
Income taxes............... (2.5) (3.9) (5.5) (5.0) (3.3) (7.3) (8.7) (9.4)
------ ------ ------ ------ ------ ------ ------ ------
Net income............... 6.4% 9.9% 14.1% 12.7% 7.6% 17.0% 20.4% 21.9%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

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 net 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. Consistent with its historical seasonality, the Company expects its
net sales for the quarter ending March 31, 1998 to be lower than its net sales
for the quarter ended December 31, 1997. The Company believes that the
historical increases in sales of its products in the third and fourth quarters
have been primarily 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

31
<PAGE> 33

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,
and if it continues the pattern may be somewhat less pronounced if the Company
continues to increase the proportion of sales represented by more frequently
replaced lenses marketed for disposable replacement regimens. See "Risk
Factors -- Fluctuations in Operating Results; Seasonality; Decreasing Average
Sales Prices."

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

In June 1997, the Financial Accounting Standards Board issued SFAS Nos. 130
and 131, "Reporting Comprehensive Income" ("SFAS No. 130") and "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No. 131"),
respectively (collectively, the "Statements"). The Statements are effective for
fiscal years beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting of comprehensive income and its components in annual
financial statements. SFAS No. 131 establishes standards for reporting financial
and descriptive information about an enterprise's operating segments in its
annual financial statements and selected segment information in interim
financial reports. Reclassification or restatement of comparative financial
statements or financial information for earlier periods is required upon
adoption of SFAS No. 130 and SFAS No. 131, respectively. Application of the
Statements' disclosure requirements will have no impact on the Company's
consolidated financial position, results of operations or earnings per share
data as currently reported.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at December 31, 1997 of $27.9 million increased
from a December 31, 1996 balance of $3.8 million. The restricted cash held in
escrow for the rent of the Company's United Kingdom facility at December 31,
1997 of $0.5 million was reduced from $1.7 million at December 31, 1996. Working
capital increased from $15.1 million at December 31, 1996 to $56.0 million at
December 31, 1997. The increase in both cash and cash equivalents and working
capital from 1996 to 1997 was primarily attributable to the Company's sale of
3.6 million shares of Common Stock in its August 1997 initial public offering,
partially offset by the repayment of debt then outstanding under the Comerica
Credit Agreement and to the Company's Chief Executive Officer, the final payment
for intangible assets pursuant to the settlement of the U.K. Litigation and
investments in long-term securities. See Note 14 of Notes to Consolidated
Financial Statements.

From January 1, 1995 to December 31, 1997, the Company's cash flows from
operating activities and the Company's initial public offering have been
sufficient to fund substantially all of the Company's cash requirements. Over
this three-year period, the Company generated cash-based earnings (net income
plus depreciation and amortization) of $53.9 million. This operating cash, along
with the proceeds from the initial public offering of $53.7 million, was
utilized to purchase property, plant and equipment of $42.0 million, intangible
assets of $8.8 million as part of the settlement of the U.K. Litigation, and
short and long-term investments of $19.1 million and to effect net repayment of
long-term debt of $19.4 million.

Net cash provided by operating activities was $9.5 million, $12.7 million
and $31.6 million in 1995, 1996 and 1997, respectively, representing net income
of $8.8 million, $10.2 million and $20.6 million, respectively, adjusted
primarily for depreciation and amortization of $2.6 million, $4.9 million and
$6.9 million, respectively, and in 1997 a tax benefit of $7.9 million from a
gain related to an employee stock option exercise, offset by increases in
accounts receivables and inventory.

Net cash used in investing activities in 1995, 1996 and 1997 was $15.9
million, $11.5 million and $42.5 million, respectively. In 1995 and 1996,
substantially all of this net cash was used to purchase property and equipment.
In 1997, the Company in addition to using $8.8 million to purchase intangible
assets as part of the settlement of the U.K. Litigation and $19.1 million to
purchase short and long-term investments. The $31.0 million increase from 1996
to 1997 in net cash used in investing activities was due primarily to the
settlement of the U.K. Litigation and to the purchase of short and long-term
investments using proceeds from the Company's initial public offering.

32
<PAGE> 34

Net cash used in financing activities in 1995 and 1996 was $217,000 and
$316,000, respectively. In each of these years, net cash was used primarily for
repayments of long-term debt. Net cash provided by financing activities in 1997
was $35.2 million, due primarily to net proceeds to the Company from its August
1997 initial public offering of $53.7 million, partially offset by net
repayments of long-term debt of $18.9 million.

In addition to cash, cash equivalents, short-term investments and long-term
investments, the Company has a credit facility with Comerica Bank -- California.
Under the Comerica Credit Agreement, the Company and its subsidiary Ocular
Sciences Puerto Rico, Inc. ("Ocular Sciences Puerto Rico") can borrow up to an
aggregate of $30.0 million. The Comerica Credit Agreement provides for up to $20
million of revolving credit loans to the Company and up to $10 million of term
loans to Ocular Sciences Puerto Rico. Revolving credit borrowings under the
Comerica Credit Agreement bear interest at the bank's base rate or at 1.00% to
1.50% above the eurodollar rate, and term loans bear interest at the bank's base
or at 1.25% to 1.75% above the eurodollar rate, in each case with the applicable
margin over the eurodollar rate depending on the Company's ratio of debt to
tangible net worth. As of December 31, 1997, there were no revolving credit
loans outstanding under the Comerica Credit Agreement. $2.4 million of term
loans were borrowed on November 7, 1997 and used to repay outstanding loans from
the Banco Bilbao de Vizcaya, and the remaining $7.6 million of term loans will
be available to finance the construction and development of the Company's
planned new Puerto Rican manufacturing facility. The revolving credit loans will
be available through June 30, 2000 and the term loan facility provides for
advances through April 30, 1999, at which time the principal amount outstanding
will become payable over twenty-two quarterly principal installments, with a
final maturity date of October 31, 2004. The Company is required to maintain
minimum ratios of debt to tangible net worth and of current assets to current
liabilities, and a minimum tangible net worth. Borrowings under the Comerica
Credit Agreement are secured by a pledge of 100% of the outstanding common stock
of Ocular Sciences Puerto Rico and 65% of the outstanding capital stock of the
Company's United Kingdom and Canadian subsidiaries. In addition, the Company and
Ocular Sciences Puerto Rico have each guaranteed the other's borrowings under
the Comerica Credit Agreement. See Note 7 of Notes to Consolidated Financial
Statements.

The Company is obligated to make minimum base payments on noncancelable
operating leases of $2.5 million, $2.5 million and $1.6 million in 1998, 1999
and 2000, respectively, and has existing commitments to make capital
expenditures of $8.6 million. The Company currently expects to make capital
expenditures of approximately $45.0 million in 1998 (including the $8.6
million), primarily related to the development and implementation of automated
production lines at its manufacturing facilities and the development and
construction of a new Puerto Rican manufacturing facility. However, the amount
of capital expenditures may increase or decrease, as the Company may accelerate
or delay the implementation of the automated production lines based on market
conditions and demand for its products. See "Risk Factors -- Manufacturing
Capacity Constraints; Risks Associated With Expansion and Automation of
Manufacturing Operations."

The Company is in the process of replacing its information systems with new
systems that function properly with respect to dates in the year 2000 and
thereafter. The Company has implemented several of these applications and
anticipates implementing the other planned applications by the end of 1999.
Delays in implementing the new systems could require additional expenditures,
estimated at approximately $500,000, to modify or replace portions of its
existing information systems so that they will function properly with respect to
dates in the year 2000 and thereafter. See "Risk Factors" -- Uncertain Ability
to Manage Growth; Risks Associated with Implementation of New Management
Information Systems.

The Company believes that its current cash and cash equivalents, 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 further credit facilities. 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.

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<PAGE> 35

BUSINESS

The Company is a rapidly growing manufacturer and marketer of soft contact
lenses. The Company manufactures a broad line of soft contact lenses marketed
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. These strategies
provide 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 offered by competing distribution 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 annual replacement segment of the United States market with a
market share estimated at approximately 24% in the fourth quarter of 1997, based
on unit sales. Since its introduction of lenses marketed for weekly disposable
replacement regimens in 1993, the Company has steadily increased its share of
this growing market, reaching approximately 12% of total unit sales in the
United States during the fourth quarter of 1997, 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 69% from 1993 to 1997, primarily
due to increased sales of its lenses marketed for weekly disposable replacement
regimens. During the same period, while the overall average selling prices of
all of the Company's lenses declined approximately 59%, the Company reduced its
per unit production costs by approximately 73% 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 1993 to
1997, the Company's net sales and operating income have increased at compound
annual growth rates of approximately 33% and 80%, respectively, while its
operating margins have improved from 7.5% to 25.2% (in each case excluding
non-recurring charges in 1993).

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

34
<PAGE> 36

protein accumulation. Even with this cleaning program, these lenses often became
progressively less 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 marketed 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
marketed for disposable replacement regimens are often made from the same or
similar polymers and can have the same or similar designs as lenses marketed 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 28% from 1987 through 1997,
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 marketed 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 U.S. have 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 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

35
<PAGE> 37

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 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 offered by competing distribution 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
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 marketed 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:

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 unit shipped for
disposable replacement regimens, the Company can identify 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 Brand Segmentation by Channel. The high-volume use of lenses
marketed 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 marketed 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.

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<PAGE> 38

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, as well as new, contact lens wearers.

Emphasize Low-Cost Efficient Manufacturing. With the growth of the
high-volume disposable market segment, lowcost, scaleable manufacturing has
become increasingly important. The Company's dry cast molding technology
allows it to manufacture high-quality lenses efficiently. As a result, the
Company has been able to reduce its per unit production costs by
approximately 73% over the last four years while increasing its production
volumes by approximately 876%. The Company plans to implement highly
automated production lines in its U.K. manufacturing facility beginning in
the second quarter of 1998, and plans relocate its Puerto Rican
manufacturing operations to a substantially larger new facility, which is
expected to also include these highly automated production lines, in 1999.
The Company believes that the increased unit volumes resulting from the
growing disposable replacement market and this 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 continues to invest 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 lenses marketed for
disposable replacement regimens in developed markets such as Europe, Japan
and Canada and by increased disposable income in emerging markets in 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 Zeiss in Europe and
Seiko in Japan, to capitalize on their existing market presence, customer
relationships and local infrastructure. The Company anticipates that Seiko
will receive initial approval to sell certain of the Company's contact
lenses marketed for disposable replacement regimens in Japan by the fourth
quarter of 1998. The Company has also established distribution
relationships with other soft contact lens distributors in a number of
countries in the Asian market. The Company believes that, as a result, it
can target growing international markets effectively without significant
investment in direct operations.

PRODUCTS

The Company manufactures a broad line of soft contact lenses that it
believes provide superior performance 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

37
<PAGE> 39

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, 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.

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
marketed for different replacement regimens, many of the Company's lenses
marketed 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 marketed 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 lenses are untinted. The
Company's lenses marketed 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 75.9% of
the Company's net sales in 1997. 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 marketed 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 marketed 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 marketed for weekly replacement regimens
have demonstrated strong market acceptance, gaining U.S. market share
steadily since their introduction and representing approximately 12% of
total unit sales in the growing weekly disposable market segment in the
United States in the fourth quarter of 1997. The Company sells its lenses
marketed for weekly disposal 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's lenses marketed for monthly replacement regimens are sold
primarily under the Hydron ProActive 55, Edge III ProActive

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<PAGE> 40

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 to be marketed 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 lenses marketed for daily disposal is still uncertain.
Certain of the Company's competitors, including Johnson & Johnson and, more
recently, Ciba-Geigy and Bausch & Lomb, have introduced, and certain others
plan to introduce, lower-priced lenses marketed for daily replacement. The
Company intends to evaluate the market response to their offerings before
introducing its own lens marketed for daily disposal 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 Replacement Regimens

The Company is a leading provider of soft lenses marketed for annual
replacement regimens in the United States. Lenses marketed for annual
replacement regimens accounted for 21.8% of the Company's net sales in 1997.
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 lenses
for annual replacement regimens 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 marketed for annual replacement regimens in
single-lens vials or blister packs.

Specialty Lenses

Specialty lenses accounted for 2.3% of the Company's net sales in 1997.
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. 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 51-person inside sales force (as of December 31, 1997),
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.

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<PAGE> 41

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 ophthalmologists. 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 1997, sales through
distributors represented approximately 12% 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 marketed 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 lenses marketed
for disposable replacement regimens 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 1997, the Company sold its products to approximately 14,000 independent
practitioner accounts and approximately 85 retail chains. The Company's
customers in each of the past three years have included at least 18 of the top
20 United States optical retailers. Twelve 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 1997, and
the Company's ten largest customers in 1997 represented approximately 22% of the
Company's net sales in that year.

Product Branding. The Company has developed many different trademarked
brands for its lenses marketed 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 lenses marketed for disposable
replacement regimens 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> 42

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

<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------
REPLACEMENT INDEPENDENT RETAIL CHAIN
REGIMEN PRACTITIONER BRANDS
BRANDS
- -------------------------------------------------------------------------------

Monthly Disposable Hydron ProActive 55 UltraFlex SmartChoice 55
Edge III ProActive UltraFlex SmartChoice
Clinasoft Private labels
(semi-exclusive)
Procon (semi-exclusive)
Mediflex (semi-exclusive)
- -------------------------------------------------------------------------------
Weekly Disposable Hydron Biomedics 38 UltraFlex 7/14 38
Hydron Biomedics 55 UltraFlex 7/14 55
Clinasoft Private labels
(semi-exclusive)
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 lenses in developed
markets such as Europe, Japan and Canada and by increased disposable income in
emerging markets in 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 15 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 Zeiss. In this relationship, Zeiss
sells the Company's contact lenses marketed for disposable replacement
regimens 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 marketed 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.

Asia. The Company believes that the growth of unit sales in this
market will be driven primarily by sales of contact lenses marketed for
disposable replacement regimens, particularly in Japan. Unit sales of
lenses marketed 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

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<PAGE> 43

relationship with Seiko, which is responsible for obtaining local
regulatory approvals and will distribute the Company's lenses to Japanese
eyecare practitioners through its network of approximately 69 direct sales
representatives. The Company anticipates that Seiko will receive initial
approval to sell certain of the Company's contact lenses marketed for
disposable replacement regimens in Japan by the fourth quarter of 1998. 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; Romsey, 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
Romsey, 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 1997, an
average of approximately 2,596 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 reduce its cost-to-serve and improve customer service, the
Company has recently implemented a highly computerized and automated retrieval
system at its South San Francisco facility. This system incorporates advanced
handling processes such as automatic dispensing, automated conveyors and radio
frequency dispatch. These processes are 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. The Company intends to implement a similar system in the United
Kingdom.

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 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

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<PAGE> 44

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.

The Company believes that dry cast molding is a highly scaleable process,
which makes it well suited to address the high-volume requirements of the
growing disposable replacement market. Using this technology, the Company has
been able to increase production volumes by approximately 876% from 1993 to
1997. The disposable replacement market, however, is relatively price-sensitive,
and lenses marketed for disposable replacement regimens generally have
significantly lower selling prices than lenses marketed 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 is assembling and testing much of the
equipment necessary, for the first of the planned new production lines, to be
installed at its United Kingdom facility. The Company anticipates commencing
initial production this line in the second quarter of 1998, and believes that a
year may be required before the new line can operate at anticipated yields and
production levels. The Company anticipates installing additional automated lines
in both the United Kingdom and Puerto Rico. The Company believes that, as the
new automated lines are implemented and their production volumes increased, they
will 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. The Company
currently expects that from 1998 through the end of 2000, it will invest
approximately $64.0 million in capital expenditures on these automated
production lines, and the Company expects to continue to invest in additional
automated production lines after this period. 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 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 quality system (including
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 Capacity
Constraints; Risks of Expansion and Automation of Manufacturing Operations" and
"-- Risks Associated with Interruption of Manufacturing Operations."

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<PAGE> 45

INFORMATION SYSTEMS

The Company believes that its information systems are an integral component
of its strategy to minimize its cost-to-serve and improve customer service. The
Company is in the process of replacing its information systems with new systems
that are expected to include a number of integrated applications, including
order entry, billing and labeling. The new systems will significantly affect
many aspects of the Company's business, including its manufacturing, sales and
marketing, distribution and accounting functions, and the successful
implementation and integration of these applications will be important to
facilitate future growth. Applications for forecasting and demand management
were implemented in the fourth quarter of 1997, and the Company anticipates
implementing applications providing the remaining planned functions by the end
of 1999. However, the Company could experience unanticipated delays in the
implementation of the new systems and implementation of the new information
systems could cause significant disruption in operations. See "Risk
Factors -- Uncertain Ability to Manage Growth; Risks Associated with New
Management Information Systems."

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 currently operating at or near capacity (based on a single
production shift per work day.) 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 to the
Company's specifications and leased to the Company by the Puerto Rico Industrial
Development Company. The Company has entered into a letter of intent and is
negotiating the final terms of the lease for this facility. The Company began
construction of the new facility during the first quarter of 1998 and expects to
complete construction, and initial installation of equipment, by the second
quarter of 1999. Until the new Puerto Rican facility is completed, the Company
intends to utilize excess capacity in the United Kingdom, or increase capacity
in Puerto Rico through additional production shifts, to meet any requirements
for increased volumes of lens production. See "-- Manufacturing" and "Risk
Factors--Manufacturing Capacity Constraints; Risks Associated with Expansion and
Automation of Manufacturing Operations."

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<PAGE> 46

The following table describes the Company's principal facilities as of
December 31, 1997:

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION FUNCTION SQUARE FEET OWNED/LEASED
-------- -------- ----------- ------------
<S> <C> <C> <C>
South San Francisco, California(1) Corporate Headquarters/Sales/ 122,000 Leased
Distribution
Eastleigh, United Kingdom(2) Manufacturing/Sales 58,700 Leased
Eastleigh, United Kingdom(3) Warehouse 10,000 Leased
Romsey, United Kingdom(4) Distribution/Warehouse 23,000 Leased
Santa Isabel, Puerto Rico(5) Manufacturing 34,372 Leased
Markham, Ontario(6) Sales/Marketing 4,217 Leased
Markham, Ontario(7) Distribution/Warehouse 2,940 Leased
Nursling, United Kingdom(8) 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) The Company occupies this facility under a three-month license that expires
on March 25, 1998. The Company is currently negotiating with respect to a
longer-term lease of this facility.

(4) The Company's lease for this facility expires August 18, 2002, and the
Company has an option to extend the lease to 2007.

(5) 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.

(6) The Company's lease for this facility expires October 31, 2007, and the
Company has an option to extend the lease to 2012.

(7) The Company's lease for this facility expires October 31, 1998, and the
Company has an option to extend the lease to 1999.

(8) Represents three separate buildings, each of which are currently vacant. One
is leased under a lease that expires March 24, 2011. The Company has a
month-to-month lease to a second building and the Company is currently
negotiating with respect to a longer term lease for the building. The third
building is owned by the Company.

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 is developing
lenses that absorb ultraviolet light and is evaluating the introduction of
lenses marketed for daily disposable replacement regimens. See "-- Government
Regulation." During the years ended December 31, 1995, 1996 and 1997,
expenditures for research and development (including obtaining regulatory
approvals) were approximately $1.0 million, $1.1 million and $2.4 million,
respectively. See "Risk Factors -- Risk of New Products and Technological
Change."

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

45
<PAGE> 47

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, who were significant
stockholders of the Company prior to its initial public offering and adverse
parties to the U.K. Litigation, 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 "Risk Factors -- Intense Competition" and "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 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. As the number of wearers
of soft contact lenses in the U.S. has not grown significantly in recent years,
increased U.S. market penetration by the Company will require wearers of
competing products to switch to the Company's products. The Company's products
compete with products offered by a number of larger companies including Johnson
& Johnson, Ciba-Geigy, Bausch & Lomb, Wesley Jessen and Cooper. Many 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

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<PAGE> 48

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 "Risk
Factors -- 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 marketed for disposable replacement regimens, where
the Company is less experienced and has a significantly smaller market share.
The disposable replacement market 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 replacement market 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 replacement market are marketed
for weekly and monthly replacement regimens. Certain of the Company's
competitors, including Johnson & Johnson, have introduced lenses marketed for
daily replacement at lower prices than their lenses currently marketed for
weekly and bi-weekly disposal. Recently, Ciba-Geigy has introduced a
lower-priced lens marketed for daily replacement in the U.S. market, and Bausch
& Lomb has begun selling lenses marketed for daily replacement in certain
European markets. The Company is evaluating the introduction of a lens marketed
for daily disposal regimens. 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 marketed for different
replacement regimens are often similar, the ability of competitors to reduce
their per unit costs for lenses marketed for daily disposal 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 affect
the Company's ability to compete in marketing lenses for a much broader range of
replacement regimens. See "Risk Factors -- Dependence on Single Product Line;
Need to Increase Sales of Lenses for Disposable Replacement Regimens."

Soft contact lens manufacturers have generally sought to differentiate
themselves from their competitors on the basis of product performance,
marketing, distribution channels and price. In addition, the Company believes
that its manufacturing process technology, lens designs and marketing strategies
differentiate it from its leading competitors. 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 competitors will not adopt technologies, lens designs or
marketing strategies that are similar to those used by the Company. Any such
action by competitors could have a material adverse effect on the Company's
business, results of operations and financial condition. In this regard, in
December 1997, Cooper acquired AVCL, a U.K.-based manufacturer and marketer of
soft contact lenses. The Company believes that AVCL's manufacturing process
technology and lens designs are based in significant part on technology also
licensed to, and used by, the Company. AVCL was, until recently, contractually
prohibited from selling lenses in the United States. See "Certain
Transactions -- OSL Acquisition and Related Litigation." Cooper has recently
announced that it

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<PAGE> 49

has introduced a new line of contact lenses marketed in the United States for
weekly and monthly replacement regimens that utilize AVCL's manufacturing
process technology and lens designs, and that this new line will provide
practitioners with products that are proprietary to their practice.

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
by the FDA, exempted from the requirement of FDA clearance, or approved by the
FDA. 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 and adherence to FDA-mandated quality system (including
current GMP) requirements and, in some cases, 510(k) notification), and Class II
devices are subject to general controls including, in most cases, 510(k)
notification 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 as well as 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 requires 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
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. An FDA review of a 510(k) generally is expected to
take

48
<PAGE> 50

from four to five months from the date the 510(k) is accepted for review by the
agency, but it may take far 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 necessary
clinical trials are 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.

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 is expected to take from ten to eleven 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. During 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 quality system (including current 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.

49
<PAGE> 51

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.

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 quality system ("QS") regulation,
which includes, among other things, the FDA's GMP requirements. This regulation
requires, 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 regulation
also requires (i) investigation of any deficiencies in the manufacturing process
or in the products produced, (ii) purchasing controls, (iii) detailed
record-keeping including the maintenance of service records and (iv)
pre-production design controls. Manufacturing facilities are subject to FDA
inspection on a periodic basis to monitor compliance with QS (including current
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. The pre-production design control requirements 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. The Company
believes that the planned automation of its manufacturing facilities will not
require clearance or approval.

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. In February and March 1998, the FDA again inspected
the Company's facilities in Puerto Rico for compliance with quality system
(including GMP) requirements. The Company has received a summary of certain
deficiencies observed by the FDA inspector. These deficiencies related to
aspects of the Company's complaint handling and certain other procedures. The
Company is addressing these deficiencies and believes that the FDA will find the
Company's responses to be satisfactory. There can be no assurance, however, that
the FDA will accept the Company's responses, or that the Company will be found
in compliance with quality system (including GMP) requirements in future
inspections by regulatory authorities. Any actions required by the FDA as a
result of its recent inspection or future inspections could involve significant

50
<PAGE> 52

costs or disruption to the Company's operations, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, noncompliance with quality system (including 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.

The Company is also required to register as a medical device manufacturer
and to list its products 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 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

51
<PAGE> 53

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. 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 continue to
receive, complaints of significant patient discomfort, including corneal
scarring and 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 $20.0 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 December 31, 1997, the Company had 1,167 full-time employees,
including 297 in the United States, 373 in the United Kingdom, 460 in Puerto
Rico, 27 in Canada and 10 in Hungary. Of the Company's full-time employees, 119
are engaged in sales and marketing, 749 in manufacturing, 198 in distribution,
eight in process development and 93 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
Chief Executive Officer, 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."

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<PAGE> 54

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their ages and
positions as of February 15, 1998, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John D. Fruth............... 54 Chief Executive Officer and Chairman of the Board of
Directors
Norwick B.H. Goodspeed...... 48 President, Chief Operating Officer and Director
Daniel J. Kunst............. 45 Vice President, Sales and Marketing and Director
Gregory E. Lichtwardt....... 43 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)......... 73 Director
Francis R. Tunney, Jr.(1)... 50 Director
</TABLE>

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

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

JOHN D. FRUTH founded the Company in 1985 and has been the Chief Executive
Officer and Chairman of the Board of Directors of the Company since its
inception. He was also President of the Company from 1985 to October 1997. 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.

NORWICK B.H. GOODSPEED has been President and Chief Operating Officer of
the Company and a member of the Board of Directors since October 1997. From 1993
to October 1997, Mr. Goodspeed was the President and Chief Executive Officer of
McGaw, Inc., a manufacturer of intravenous solutions and related equipment and a
subsidiary of IVAX Corp. From 1991 to 1993, Mr. Goodspeed was Senior Vice
President, Sales and Marketing of McGaw, Inc. From 1988 to 1991, he was the
President and Chief Executive Officer of Vical, Inc., a gene therapy company.

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, 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
financial positions within several different divisions of American Hospital
Supply Corporation, a health-care and medical products company.

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<PAGE> 55

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.

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. Chiron
Vision Corporation was acquired by Bausch & Lomb in December 1997. 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.

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;
MiniMed, Inc., a company that specializes in drug delivery devices and systems;
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 February 1991. From
1989 to 1991, Mr. Tunney was Senior Vice President, General Counsel and
Corporate Secretary of Allergan. Mr. Tunney joined Allergan in 1985 as Associate
General Counsel and from 1986 to 1989 served as Allergan's General Counsel. From
1979 to 1985, 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 which
terminated on the closing of the Company's initial public offering. Executive
officers are chosen by, and serve at the discretion of, the Board.

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

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<PAGE> 56

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

Prior to the Company's initial public offering, the non-employee members of
the Board were issued shares of the Company's Common Stock as compensation for
their 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 services during 1996. In
November 1997, the Company paid $4,333 to each of Messrs. Grant, Fruth, Cummins
and Tunney as compensation for services in 1997. Members of the Board are also
reimbursed for their reasonable expenses in attending meetings of the Board.

In June 1997, the Board adopted and the stockholders approved 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 August 4, 1997, the effective date of the
Company's initial public offering, each eligible director (Terence M. Fruth,
William R. Grant, Francis R. Tunney and Edgar J. Cummins) was granted an option
to purchase 30,000 shares at the exercise price of $16.50 per share. Each
eligible director who hereafter becomes a member of the Board 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. As of December 31, 1997, options to purchase a
total of 120,000 shares of Common Stock have been granted under the Directors
Plan. All options granted under the Directors Plan vest as to 1/36 of the shares
subject to the option per month commencing the month following the month of 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 is 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 Amended
and Restated 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 indemnity 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> 57

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning the
compensation awarded to or earned by (i) the Company's Chief Executive Officer
and (ii) each of the Company's four other executive officers (the "Named
Executive Officers") for services rendered to the Company in all capacities
during 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS
----------------------------------------------- ----------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($)(2) COMPENSATION($)(3) OPTIONS(#)
--------------------------- ------------ ----------- ------------------ ----------------------
<S> <C> <C> <C> <C>
John D. Fruth................ $357,462 $192,500 $ 3,939(4) --
Chief Executive Officer
Norwick B.H. Goodspeed....... 49,615 -- 111,250(6) 300,000
President and Chief
Operating Officer(5)
Gregory E. Lichtwardt........ 190,513 97,428 235 --
Vice President, Finance,
Chief Financial Officer and
Treasurer
Daniel J. Kunst.............. 186,406 82,829 426 --
Vice President, Sales and
Marketing
John Lilley.................. 169,000 73,811 63,415(8) --
Vice President,
Manufacturing(7)
</TABLE>

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

(1) Excludes salary earned in 1996 and paid in 1997 as follows: Mr. Lichtwardt,
$30,154; and Mr. Kunst, $20,597. Includes salary earned in 1997 and paid in
1998 as follows: Mr. Fruth $57,462; Mr. Lichtwardt $15,513; and Mr. Kunst
$5,252.

(2) Represents bonuses earned in 1997 and paid in 1998. Excludes bonuses earned
in 1996 and paid in 1997, as follows: Mr. Fruth, $133,000; Mr. Lichtwardt,
$53,463; Mr. Kunst, $45,451; and Dr. Lilley $36,132.

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

(4) Represents premiums paid by the Company with respect to term life insurance
for Mr. Fruth's benefit in the amount of $864 and automobile expenses paid
by the Company for his benefit in the amount of $3,075.

(5) Mr. Goodspeed joined the Company as President and Chief Operating Officer in
October 1997, and serves in those capacities under the terms of an
employment agreement. His current annual salary is $300,000. See
"-- Employment Agreements."

(6) Represents $80,000 of relocation costs and $31,250 representing the portion
of certain loans to Mr. Goodspeed that the Company amortized in 1997. See
"-- Employment Agreements."

(7) Dr. Lilley serves as the Company's Vice President, Manufacturing under the
terms of an employment agreement. See "-- Employment Agreements."

(8) Represents a $42,108 contribution by the Company to a pension plan for the
benefit of Dr. Lilley, a $10,437 reimbursement for automobile expenses and
$10,870 paid by the Company for insurance for the benefit of Dr. Lilley.

EMPLOYMENT AGREEMENTS

In October 1997, Norwick B.H. Goodspeed joined the Company as its President
and Chief Operating Officer pursuant to the terms of an employment agreement
dated October 15, 1997. Under the employment agreement, the Company agreed to
employ Mr. Goodspeed as its President and Chief Operating Officer at an initial
annual base salary of $300,000. Mr. Goodspeed is eligible to receive a bonus of
up to 60% of his annual

56
<PAGE> 58

salary in 1998, and up to 50% of his annual salary for each year thereafter. In
addition, Mr. Goodspeed has received an option to purchase 300,000 shares of the
Company's Common Stock at an exercise price of $24.25 per share, vesting 20% per
year over five years so long as Mr. Goodspeed is employed by the Company. The
Company has also agreed to pay certain relocation costs and other costs
associated with the sale of Mr. Goodspeed's prior residence in southern
California, up to a maximum of $159,000. To date, the Company has paid $80,000
of such relocation costs. The employment agreement further provides that Mr.
Goodspeed's employment will continue for a term of three years unless and until
terminated by either the Company or Mr. Goodspeed.

Under Mr. Goodspeed's employment agreement, the Company extended a $450,000
loan to Mr. Goodspeed in January 1998 in connection with his purchase of a new
residence in the San Francisco area (the "Loan"). The Loan is interest free and
is secured by a purchase money second deed of trust on the new residence and by
a security interest in certain stock options granted to Mr. Goodspeed to
purchase 300,000 shares of the Company's Common Stock and any securities
issuable upon exercise of such options. The Loan is due and payable in full on
the earlier of (i) October 15, 2002; (ii) six months after Mr. Goodspeed's
voluntary resignation or termination by the Company for Cause (as defined in Mr.
Goodspeed's employment agreement); or (iii) Mr. Goodspeed's agreement to sell,
convey, transfer, dispose of, or further encumber the new residence. Under the
terms of the employment agreement, the Company has agreed to forgive the Loan in
its entirety (and return any payments received in connection therewith), in the
event that Mr. Goodspeed remains continuously employed with the Company from
October 15, 1997 through October 15, 2000. The Company has also agreed to
forgive 50% of the Loan in the event that Mr. Goodspeed is terminated by the
Company without Cause.

Pursuant to the terms of an employment agreement dated March 1996, the
Company employed Dr. John Lilley as its Vice President, Manufacturing at an
initial annual salary of L95,000. This salary was increased to L103,000 in 1997.
Under the employment agreement, 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. In 1996, 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 Dr. Lilley's 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.

57
<PAGE> 59

OPTION GRANTS IN 1997

The following table sets forth information regarding option grants during
1997 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($)(4)
OPTIONS FISCAL EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) YEAR(2) PER SHARE ($/SH)(3) DATE 5% 10%
---- -------------- ------------- ------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John D. Fruth.......... -- -- -- -- -- --
Norwick B.H.
Goodspeed............ 300,000 68.2% $24.25 10/15/03 $2,474,196 $5,613,106
Gregory E.
Lichtwardt........... -- -- -- -- -- --
Daniel J. Kunst........ -- -- -- -- -- --
John Lilley............ -- -- -- -- -- --
</TABLE>

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

(1) The options granted vest over a five-year period, with 20% of the option
vesting upon the completion of each year of service. In January 1998, the
Company granted additional options to the Named Executive Officers as
follows: Mr. Fruth, 220,000 shares; Mr. Lichtwardt, 66,000 shares, Mr.
Kunst, 36,000 shares and Dr. Lilley, 30,000 shares.

(2) The Company granted options to purchase 440,150 shares of Common Stock to
employees during 1997.

(3) The exercise price may be paid in cash, in shares of the Company's common
stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares.

(4) 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 1997 AND FISCAL YEAR END OPTION VALUES

The following table sets forth information regarding the exercise of stock
options by the Named Executive Officers during 1997 and stock options held as of
December 31, 1997 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 $20,744,154 -- -- -- --
Norwick B.H. Goodspeed........ -- -- -- 300,000 -- $ 600,000
Gregory E. Lichtwardt......... -- -- 128,000 32,000 $3,172,000 793,000
Daniel J. Kunst............... -- -- 40,000 60,000 928,600 1,392,900
John Lilley................... -- -- 16,000 64,000 339,520 1,358,080
</TABLE>

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

(1) Based on the fair market value of the Company's Common Stock at December 31,
1997 ($26.25 per share) less the exercise price payable for such shares.

EMPLOYEE BENEFIT PLANS

1989 Stock Option Plan. Under the 1989 Plan, options to purchase 1,623,844
shares of Common Stock were outstanding as of February 15, 1997. The 1989 Plan
was terminated on August 4, 1997, the effective date of the Company's initial
public offering, at which time the Company's 1997 Equity Incentive Plan became
effective. As a result, no options have been granted under the 1989 Plan since
the Company's initial public offering. However, termination does not 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.

58
<PAGE> 60

1997 Equity Incentive Plan. In June 1997, the Board adopted and the
stockholders approved the 1997 Plan, under which 2,290,694 shares of Common
Stock are reserved for issuance. As of February 15 1998, options to purchase
1,618,500 shares of the Company's Common Stock have been granted under the 1997
Plan. The 1997 Plan will terminate in May 2007, unless sooner terminated by the
Board. The 1997 Plan authorizes the award of options, opportunities to purchase
restricted stock and stock bonuses (each an "Award"). The 1997 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 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 Plan.

The 1997 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 Plan is ten
years. Options granted under the 1997 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 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 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 has yet to become effective, and as of
February 15, 1997 no shares of Common Stock had been purchased under the
Purchase Plan. If and when the Purchase Plan becomes effective, it 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.

59
<PAGE> 61

CERTAIN TRANSACTIONS

Since January 1, 1995, 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 and related loans, which are described
under the caption "Management-Employment Agreements," 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 Chief Executive Officer 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"), who received 1,015,024 shares of the Company's Common Stock in the
acquisition. Prior to this acquisition, Geoffrey H. Galley had owned 190,400
shares of the Company's Common Stock.

In connection with the PLL Acquisition, PLL entered into a patent license
agreement (the "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. 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 14 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.

60
<PAGE> 62

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 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, and (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. The Settlement Agreement also provided for the payment of $10
million by the Company, of which $3.3 million was paid on the date of the
Settlement Agreement and the remaining $6.7 million was paid upon the closing of
the Company's initial public offering. See Note 16 of Notes to Consolidated
Financial Statements.

The Patent Owners sold all of the shares of Common Stock owned by them in
the Company's initial public 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 the Company's initial public
offering. In December 1997, AVCL was acquired by Cooper. See "Risk
Factors -- Intense Competition."

ALLERGAN/AMERICAN HYDRON ACQUISITION; GALEN FINANCING

In October 1992, the Company acquired the North and South American contact
lens business of Allergan, which had been operating under the name American
Hydron, for $24.5 million, including acquisition costs of $1.2 million. The
transaction 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 with bank borrowings in 1993 and the senior subordinated notes were
repaid with 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. On December 31, 1996, the remaining warrants were
canceled pursuant to their terms because the Company had met certain financial
milestones. The Series A Preferred Stock was converted into 236,336 shares of
Common Stock at the consummation of the Company's initial public offering.

In connection with the American Hydron acquisition, the Company 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> 63

1997 INITIAL PUBLIC OFFERING

In August 1997, the Company completed its initial public offering in which
8,280,000 shares of its Common Stock were sold to the public at a price of
$16.50 per share (including shares sold pursuant to the underwriters'
over-allotment option). The shares sold consisted of 3,600,000 shares sold by
the Company and 4,680,000 shares sold by selling stockholders. The Company
incurred aggregate expenses of $1,545,000 in connection with the initial public
offering (excluding underwriting discounts and commissions paid by the Company
and the selling stockholders).

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 Chief Executive Officer of the
Company, is a partner, has provided legal services to the Company since its
formation. The Company made payments of $309,000 in 1995, $284,000 in 1996 and
$77,000 in 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
$2.9 million junior subordinated promissory note, bearing interest at the prime
rate plus 3%. The Company repaid the note with a portion of the net proceeds
from the Company's initial public offering.

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<PAGE> 64

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 February 15, 1998 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) NUMBER OF OFFERING(1)
5% STOCKHOLDERS, DIRECTORS AND -------------------- SHARES BEING --------------------
NAMED EXECUTIVE OFFICERS NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------ ---------- ------- -------------------- ---------- -------
<S> <C> <C> <C> <C> <C>
John D. Fruth(2)....................... 7,314,576 33.4% 1,001,195 6,313,381 28.8
William R. Grant(3).................... 2,970,907 13.6 1,001,196 1,969,711 9.0
Galen Partners, L.P. and
affiliates(4)........................ 2,965,069 13.6 1,001,196 1,963,873 9.0
Francis R. Tunney, Jr.(5).............. 1,983,747 9.1 1,977,723 6,024 *
Allergan, Inc.(6)...................... 1,977,723 9.0 1,977,723 -- --
Gregory E. Lichtwardt(7)............... 90,480 * 10,000 80,480 *
Terence M. Fruth(8).................... 110,808 * -- 110,808 *
Daniel J. Kunst(9)..................... 49,886 * 9,886 40,000 *
John Lilley(10)........................ 16,000 * -- 16,000 *
Edgar J. Cummins(11)................... 16,786 * -- 16,786 *
Norwick B.H. Goodspeed................. -- -- -- -- *
All directors and executive officers as
a group (9 persons)(12).............. 12,553,190 57.0 4,000,000 8,553,190 38.8
</TABLE>

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

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

(1) Percentage ownership prior to the offering is based on 21,870,776 shares
outstanding as of February 15, 1998 and percentage ownership after the
offering is based on 21,900,776 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 February 15, 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) If the Underwriters' overallotment option is exercised in full, Mr. Fruth
will sell an additional 604,500 shares in this offering, and will
beneficially own after this offering an aggregate of 5,708,881 shares, or
26.1% of the shares outstanding. The address for Mr. Fruth is c/o Ocular
Sciences, Inc., 475 Eccles Ave., South San Francisco, California 94080.

(3) Shares owned prior to the offering represent 2,965,069 shares held of
record by Galen Partners, L.P. and its affiliates and 5,838 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 February
15, 1998. The 1,001,196 shares being offered are held and being offered by
Galen Partners, L.P. and its affiliates (see Note (4)).

(4) Shares owned prior to the offering represent 2,678,348 shares held of
record by Galen Partners, L.P., 275,711 shares held of record by Galen
Partners International, L.P. and 11,010 shares held of record by Galen
Associates. Shares being offered represent 907,784 shares offered by Galen
Partners, L.P. and 93,412 shares being offered by Galen Partners
International, L.P. Shares owned do not include 5,838 shares of Common
Stock that may be acquired by William R. Grant (a director of the Company)
upon exercise of stock options that are currently exercisable or will
become exercisable within 60 days of February 15, 1998. Mr. Grant, 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,

63
<PAGE> 65

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.

(5) Represents the 1,977,723 shares held of record and being offered by
Allergan, 186 shares held of record by Mr. Tunney, Jr. (see Note (6)) and
5,838 shares of Common Stock that may be acquired by Mr. Tunney upon
exercise of stock options that are currently exercisable or will become
exercisable within 60 days of February 15, 1998.

(6) Does not include 186 shares held of record by Mr. Tunney, Jr. or 5,838
shares of Common Stock that may be acquired upon exercise of stock options
held by Mr. Tunney that are currently exercisable or will become
exercisable within 60 days of February 15, 1998. Mr. Tunney, a director of
the Company, is the General Counsel of Allergan. Allergan's and Mr.
Tunney's address is 2525 Dupont Drive, Irvine, California 92612. In March
1998, Allergan transferred 417,000 shares of Common Stock to the Allergan
Foundation and such shares will be sold by The Allergan Foundation in this
offering.

(7) 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 February 15, 1998.

(8) Includes 5,838 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 February 15, 1998.

(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 February 15, 1998.

(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 February 15, 1998.

(11) Includes 5,838 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 February 15, 1998.

(12) Includes the shares described in notes (3), (5), (7), (8), (9), (10) and
(11).

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<PAGE> 66

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists 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 February 15, 1998, there were outstanding 21,870,776 shares
of Common Stock held of record by 92 stockholders, and options to purchase
3,361,984 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

Pursuant to the Company's Amended and Restated 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

The holders of approximately 8,266,358 shares of Common Stock following
this offering (the "Registrable Securities") have certain rights to register
those shares under the Securities Act. 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 demand registration 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 two such registrations (in addition to
this offering, which constitutes such a demand registration), 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.

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

65
<PAGE> 67

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 time that such stockholder
became an interested stockholder, unless: (i) prior to such time, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder's 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) at or subsequent to such time, 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 or any
other partnership, incorporated association or other entity if the merger is
caused by the interested stockholder; (ii) any sale, lease, exchange, mortgage,
transfer, pledge or other disposition involving the interested stockholder of
10% or more of the aggregate market value of the assets of the corporation or of
the outstanding stock 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; (iv) any transaction
involving the corporation which has the effect of increasing the proportional
share of capital stock or securities convertible into capital stock of the
corporation which is owned by the interested stockholder, except for certain
immaterial adjustments; or (v) 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 (except those permitted by (i)-(iv)
above). 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 is quoted on the Nasdaq National Market under the symbol
"OCLR."

66
<PAGE> 68

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of this offering, the Company will have outstanding an
aggregate of 21,900,776 shares of Common Stock (based upon the 21,870,776 shares
of the Company's Common Stock outstanding as of February 15, 1998). Of these
shares, the 4,030,000 shares offered hereby (4,634,500 shares if the
Underwriters' overallotment option is exercised in full), the 8,280,000 shares
sold in the Company's initial public offering and 261,200 shares either sold by
the Company pursuant to the exercise of options, or publicly resold by
stockholders of the Company, following the initial public offering will be
freely tradable without restriction under the Securities Act, unless such shares
are held by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act. The remaining 9,329,576 shares of Common Stock
("Restricted Shares") may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 promulgated under
the Securities Act, which is summarized below.

After giving effect to this offering, an aggregate of 8,383,358 Restricted
Shares will be held by "affiliates". All of such shares are subject to
contractual lock-ups in which the holders have agreed not to sell or otherwise
dispose of such shares for 90 days after the date of this Prospectus without the
prior consent of Morgan Stanley & Co., Incorporated, and, subject to such
lock-ups and to the volume and manner of sale restrictions of Rule 144, such
shares will be eligible for public resale following this offering. All of the
Restricted Shares were subject to contractual lock-ups entered into in
connection with the Company's initial public offering, which lock-ups expired on
February 1, 1998. An additional 520 Restricted Shares not held by affiliates may
be sold in the public market after this offering subject to the volume and
resale restrictions of Rule 144. The remaining 945,698 Restricted Shares are
"144(k) Shares" or "Rule 701 Shares" and will be eligible for public sale
following this offering and will not be subject to any volume or other
restrictions under Rule 144. 291,000 of these remaining Restricted Shares are
subject to contractual lock-ups. Sales of a substantial number of Restricted
Shares in the public market 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, 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 219,007 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, notice requirements and the availability of current public
information about the Company.

Shares of Common Stock issued upon exercise of options will be available
for sale in the public market, subject to Rule 144 volume limitations applicable
to affiliates, and subject to lock-up agreements with respect to executive
officers and directors of the Company. At February 15, 1998, options to purchase
3,361,984 shares of Common Stock were outstanding, of which options to purchase
762,962 shares were vested and exercisable. Of such vested and exercisable
options, options to purchase 602,778 shares were held by affiliates and will be
subject to 90-day lock-up agreements, and the remaining 160,184 shares issuable
under vested options may be sold in the public market without restriction upon
exercise of such options. See "Management -- Director Compensation" and
"Management -- Employee Benefit Plans."

67
<PAGE> 69

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., BT Alex. Brown
Incorporated and Cowen & Company are serving as Representatives (the
"Representatives"), have severally agreed to purchase, and the Company and the
Selling Stockholders have severally agreed to sell to them, 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...........................
Bear, Stearns & Co. Inc. ...................................
BT Alex. Brown Incorporated.................................
Cowen & Company.............................................
---------
Total............................................. 4,030,000
=========
</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 initially 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 $ per share under the public offering price. Any
Underwriter may allow, and such dealers may re-allow, a concession not in excess
of $ per share to other Underwriters or to certain other dealers.

Pursuant to the Underwriting Agreement, John D. Fruth, one of the Selling
Stockholders and the Company's Chief Executive Officer, has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 604,500 additional shares of Common Stock at the
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 Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all executive officers and directors, and certain other
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
90 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 90 days after the date of this Prospectus, except under certain
circumstances.

Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc. and Cowen &
Company were the representatives of the several underwriters in the Company's
initial public offering of 8,280,000 shares of the

68
<PAGE> 70

Company's Common Stock (including 1,080,000 shares sold to cover overallotments)
in August 1997, for which they received customary underwriting discounts and
commissions.

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 and dealers may engage
in passive market making transactions in the Common Stock in accordance with
Rule 103 of Regulation M promulgated by the Commission. In general, a passive
market maker may not bid for, or purchase, the Common Stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the Common Stock during a specified two month prior period, or
200 shares, whichever is greater. A passive market maker must identify passive
market making bids as such on the Nasdaq electronic inter-dealer reporting
system. Passive market making may stabilize or maintain the market price of the
Common Stock above independent market levels. Underwriters and dealers are not
required to engage in passive market making and may end passive market making
activities at any time.

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, 1996 and 1997, and for each of the years in the three-year period
ended December 31, 1997, 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.

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
hereby. 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,

69
<PAGE> 71

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.

The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Commission. Reports, proxy statements and other
information filed by the Company can be inspected and copied (at prescribed
rates) at the Commissioner's Public Reference Section, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549.

70
<PAGE> 72

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> 73

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, 1996 and 1997, 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, 1997. 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, 1996 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP

San Francisco, California
January 28, 1998

F-2
<PAGE> 74

OCULAR SCIENCES, INC.

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

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 3,795 $ 27,895
Restricted cash........................................... 1,746 464
Short-term investments.................................... -- 10,000
Accounts receivable, less allowances for sales returns and
doubtful accounts of $1,451 and $1,655 for 1996 and
1997, respectively..................................... 16,022 18,785
Inventories............................................... 12,956 12,941
Loans to officers and employees........................... -- 927
Other current assets...................................... 1,746 5,173
------- --------
Total Current Assets.............................. 36,265 76,185
Property and equipment, net............................... 26,462 36,248
Intangible assets, net.................................... 683 8,137
Long-term investments..................................... -- 9,070
Other assets.............................................. 93 95
------- --------
Total Assets...................................... $63,503 $129,735
======= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 4,006 $ 3,723
Accrued liabilities....................................... 8,578 9,354
Accrued cooperative merchandise allowances................ 2,194 4,238
Current portion of long-term debt......................... 4,273 445
Current deferred taxes.................................... 1,155 2,159
Income and other taxes payable............................ 941 278
------- --------
Total Current Liabilities......................... 21,147 20,197
Long-term debt, less current portion........................ 15,572 3,434
Long-term related-party debt................................ 2,895 --
------- --------
Total Liabilities................................. $39,614 $ 23,631
------- --------
Commitments, contingencies and subsequent events
Stockholders' Equity:
Preferred Stock, $0.001 par value; 4,000,000 shares
authorized; 118,168 and no shares issued and
outstanding for 1996 and 1997, respectively............ 1 --
Common Stock, $0.001 par value; 80,000,000 shares
authorized; 16,539,570 and 21,738,166 shares issued and
outstanding for 1996 and 1997, respectively............ 16 22
Additional paid-in capital................................ 8,360 70,438
Retained earnings......................................... 15,580 36,164
Unrealized gain on investments............................ -- 11
Cumulative translation adjustment......................... (68) (531)
------- --------
Total Stockholders' Equity........................ 23,889 106,104
------- --------
Total Liabilities and Stockholders' Equity........ $63,503 $129,735
======= ========
</TABLE>

See accompanying notes to consolidated financial statements.
F-3
<PAGE> 75

OCULAR SCIENCES, INC.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................... $ 68,087 $ 90,509 $ 118,605
Cost of sales........................................... 26,820 36,553 41,066
----------- ----------- -----------
Gross profit.......................................... 41,267 53,956 77,539
Selling and marketing expenses.......................... 11,728 18,101 27,139
General and administrative expenses..................... 14,287 18,420 20,470
----------- ----------- -----------
Income from operations................................ 15,252 17,435 29,930
Interest expense........................................ (3,024) (3,216) (1,387)
Interest income......................................... 280 132 939
Other (expense) income, net............................. 151 (186) (6)
----------- ----------- -----------
Income before taxes................................... 12,659 14,165 29,476
Income taxes............................................ (3,869) (3,989) (8,843)
----------- ----------- -----------
Net income............................................ 8,790 10,176 20,633
Preferred stock dividends............................... (82) (82) (49)
----------- ----------- -----------
Net income applicable to common stockholders.......... $ 8,708 $ 10,094 $ 20,584
=========== =========== ===========
Net income per share data:
Net income per share (basic).......................... $ 0.55 $ 0.61 $ 1.10
=========== =========== ===========
Net income per share (diluted)........................ $ 0.46 $ 0.52 $ 0.98
=========== =========== ===========

Weighted average common shares outstanding............ 15,790,770 16,445,404 18,721,749
Weighted average dilutive potential common shares..... 3,403,554 2,994,053 2,385,691
----------- ----------- -----------
Total weighted average common and dilutive
potential common shares outstanding......... 19,194,324 19,439,457 21,107,440
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.
F-4
<PAGE> 76

OCULAR SCIENCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS UNREALIZED CUMULATIVE
----------------- ------------------- PAID-IN (ACCUMULATED) GAIN ON TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) INVESTMENTS ADJUSTMENT
-------- ------ ---------- ------ ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AS OF DECEMBER
31, 1994................ 118,168 $ 1 15,733,824 $16 $ 7,764 $(3,222) $ -- $(112)
Exercise of employee
stock options......... -- -- 85,136 -- 42 -- -- --
Directors'
compensation.......... -- -- 35,904 -- 53 -- -- --
Net income.............. -- -- -- -- -- 8,790 -- --
Preferred stock
dividends............. -- -- -- -- -- (82) -- --
Cumulative translation
adjustment............ -- -- -- -- -- -- -- 42
-------- --- ---------- --- ------- ------- ------- -----
BALANCES AS OF DECEMBER
31, 1995................ 118,168 1 15,854,864 16 7,859 5,486 -- (70)
Exercise of employee
stock options......... -- -- 679,140 -- 200 -- -- --
Directors'
compensation.......... -- -- 5,566 -- 28 -- -- --
Income tax benefits from
stock options
exercised............. -- -- -- -- 273 -- -- --
Net income.............. -- -- -- -- -- 10,176 -- --
Preferred stock
dividends............. -- -- -- -- -- (82) -- --
Cumulative translation
adjustment............ -- -- -- -- -- -- -- 2
-------- --- ---------- --- ------- ------- ------- -----
BALANCES AS OF DECEMBER
31, 1996................ 118,168 1 16,539,570 16 8,360 15,580 -- (68)
Exercise of employee
stock options......... -- -- 1,359,600 1 494 -- -- --
Directors'
compensation.......... -- -- 2,660 -- 22 -- -- --
Conversion of preferred
stock to common
stock................. (118,168) (1) 236,336 1 -- -- -- --
Sale of common stock in
initial public
offering, net of
issuance costs of
$1,545................ -- -- 3,600,000 4 53,693 -- -- --
Income tax benefits from
stock options
exercised............. -- -- -- -- 7,869 -- -- --
Unrealized gain on
investments........... -- -- -- -- -- -- 11 --
Net income.............. -- -- -- -- -- 20,633 -- --
Preferred stock
dividends............. -- -- -- -- -- (49) -- --
Cumulative translation
adjustment............ -- -- -- -- -- -- -- (463)
-------- --- ---------- --- ------- ------- ------- -----
BALANCES AS OF DECEMBER
31, 1997................ -- $-- 21,738,166 $22 $70,438 $36,164 $ 11 $(531)
======== === ========== === ======= ======= ======= =====

TOTAL
STOCKHOLDERS'
EQUITY
--------------
<S> <C>
BALANCES AS OF DECEMBER
31, 1994................ $ 4,447
Exercise of employee
stock options......... 42
Directors'
compensation.......... 53
Net income.............. 8,790
Preferred stock
dividends............. (82)
Cumulative translation
adjustment............ 42
--------
BALANCES AS OF DECEMBER
31, 1995................ 13,292
Exercise of employee
stock options......... 200
Directors'
compensation.......... 28
Income tax benefits from
stock options
exercised............. 273
Net income.............. 10,176
Preferred stock
dividends............. (82)
Cumulative translation
adjustment............ 2
--------
BALANCES AS OF DECEMBER
31, 1996................ 23,889
Exercise of employee
stock options......... 495
Directors'
compensation.......... 22
Conversion of preferred
stock to common
stock................. --
Sale of common stock in
initial public
offering, net of
issuance costs of
$1,545................ 53,697
Income tax benefits from
stock options
exercised............. 7,869
Unrealized gain on
investments........... 11
Net income.............. 20,633
Preferred stock
dividends............. (49)
Cumulative translation
adjustment............ (463)
--------
BALANCES AS OF DECEMBER
31, 1997................ $106,104
========
</TABLE>

See accompanying notes to consolidated financial statements.
F-5
<PAGE> 77

OCULAR SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 8,790 $ 10,176 $ 20,633
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 2,578 4,904 6,863
Income tax benefits from stock options exercised...... -- -- 7,869
Allowances for sales returns and doubtful accounts.... 311 193 968
Provision for excess and obsolete inventory........... 475 605 893
Provision for damaged and scrap products.............. -- 548 729
Impairment loss on fixed asset revaluation............ -- -- 824
Loss/(gain) on sale of property and equipment......... 28 (35) (165)
Exchange loss (gain).................................. 37 (49) 9
Deferred income taxes................................. 1,353 932 1,014
Changes in operating assets and liabilities:
Accounts receivable................................... (5,942) (4,339) (3,859)
Inventories........................................... (3,005) (1,259) (1,792)
Other current and non-current assets.................. (1,115) (164) (4,363)
Accounts payable...................................... 2,759 (973) (269)
Accrued liabilities................................... 1,915 3,183 2,899
Income and other taxes payable........................ 1,333 (1,024) (664)
-------- -------- --------
Net cash provided by operating activities........ 9,517 12,698 31,589
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment....................... (13,558) (12,256) (16,156)
Purchase of short-term and long-term investments......... -- -- (19,059)
Purchase of marketing rights and license agreement....... -- -- (8,817)
Proceeds from liquidation of property and equipment...... 7 55 308
(Deposits to)/payments from restricted cash.............. (2,321) 730 1,217
-------- -------- --------
Net cash used in investing activities............ (15,872) (11,471) (42,507)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt................. 1,637 19,343 5,951
Repayment of long-term debt.............................. (1,702) (19,805) (24,867)
Proceeds from initial public offering, net............... -- -- 53,697
Preferred stock dividends................................ (247) (82) (63)
Proceeds from issuance of common stock................... 95 228 517
-------- -------- --------
Net cash (used in) provided by financing
activities..................................... (217) (316) 35,235
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents.............................................. (42) (141) (217)
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents.................................... (6,614) 770 24,100
Cash and cash equivalents at beginning of year............. 9,639 3,025 3,795
-------- -------- --------
Cash and cash equivalents at end of year................... $ 3,025 $ 3,795 $ 27,895
======== ======== ========
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest.............................................. $ 3,021 $ 3,561 $ 1,439
Income taxes.......................................... $ 1,188 $ 3,393 $ 2,911
</TABLE>

See accompanying notes to consolidated financial statements.
F-6
<PAGE> 78

OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

NOTE 1. NATURE OF BUSINESS

FORMATION AND BUSINESS OF THE COMPANY

O.S.I. Corporation was incorporated in California in 1985. On July 31,
1997, the Company effected a reincorporation into the state of Delaware and
changed its name to Ocular Sciences, Inc. The Company is engaged in the design,
manufacture and distribution of contact lenses and conducts business under the
name of Ocular Sciences/American Hydron.

THE INITIAL PUBLIC OFFERING (THE "IPO")

On August 8, 1997, the Company closed its initial public offering of
8,280,000 shares of its Common Stock at an initial public offering price of
$16.50 per share. Of the 8,280,000 shares, 3,600,000 shares were sold by the
Company and the remaining 4,680,000 were sold by certain selling shareholders.
The net proceeds to the Company were $53.7 million, after deducting underwriting
discounts and commissions and other offering expenses payable by the Company.
The Company utilized $11.6 million of the proceeds to repay all of the debt
outstanding under the Company's Credit Agreement with Comerica
Bank -- California, $2.9 million of the proceeds to repay subordinated debt owed
to the Company's Chief Executive Officer, $6.7 million of the proceeds as final
payment pursuant to the settlement agreement of certain U.K. litigation (Note
16) and $400,000 for the construction of the new Puerto Rican manufacturing
facility.

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.), Ocular Sciences Puerto Rico
Corporation, Ocular Sciences 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

Cash equivalents consist of commercial paper, money market funds, United
States government debt securities and certificates of deposits with original
maturities of three months or less.

Financial Instruments

All of the Company's short-term and long-term investments are classified as
"available-for-sale" under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."

The amortized costs of available-for-sale debt securities are adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in net investment income. As required by SFAS No. 115,
available-for-sale debt securities are recorded at fair value. Unrealized gains
and losses, net of tax, are reported as a separate component of stockholders'
equity. Realized gains and losses, and declines in value judged to be other than
temporary on available-for-sale securities, are included in other (expense)

F-7
<PAGE> 79
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

income, net. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in interest income.

The Company's short-term and long-term investments in marketable equity
securities are carried at fair value, based on quoted market prices for these or
similar investments.

The carrying amounts reported in the balance sheet for cash, receivables,
related party loans, accounts payable, accrued liabilities and short-term and
long-term debt approximate fair values due to the short-term maturities and the
fact that the Company only recently entered into the long-term debt.

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, 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 14 and 16). The restricted cash
balance as of December 31, 1997 related to cash held in escrow for the Company's
United Kingdom leased facility.

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 and discounts 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 lenses marketed for disposable replacement
regimens. The Company records the provisions for cooperative merchandising at
the time of sale to the customers and as a component of selling and marketing
expenses.

Foreign Currencies

The functional currencies of the Company's United Kingdom, Canadian and
Hungarian subsidiaries are the respective local currencies. Accordingly, 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
consolidated financial statements as a separate component of stockholders'
equity.

Concentration of Credit Risk

The Company sells its products to a diverse group of optometrists, optical
retailers, optical product distributors and ophthalmologists, and therefore the
concentration of credit risk with respect to accounts receivable is limited due
to the large number and diversity of customers across broad geographic areas.

F-8
<PAGE> 80
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

Accounts receivable from customers are uncollateralized. As of December 31,
1996, approximately 22% of accounts receivable and 12% of consolidated net sales
were concentrated in two customers, while, as of December 31, 1997,
approximately 16% 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.

Long-Lived Assets, Including Intangible Assets

The Company accounts for long-lived assets under SFAS No. 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." 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 loss 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. The Company estimates fair value based on the best information available,
making judgments and projections as considered necessary.

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.

Under this approach, deferred income taxes reflect the tax consequences 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.

Net Income Per Share

The Company adopted SFAS No. 128, "Earnings per Share," as of December 31,
1997. SFAS No. 128 establishes standards for computing and presenting earnings
per share. Net income per share (basic) is computed based on the weighted
average number of common shares outstanding, and net income per share

F-9
<PAGE> 81
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

(diluted) is computed based on the weighted average number of common shares and
dilutive potential common shares outstanding during the period. Dilutive
potential common shares include the conversion of stock options using the
treasury stock method. The August 8, 1997 conversion of the shares of Series A
Preferred Stock into 236,336 shares of common stock is included in the weighted
average dilutive potential common shares outstanding figures as if converted at
the beginning of each period presented. All prior period net income per share
data was restated by the Company upon adoption of SFAS No. 128.

Stock-Based Compensation

The Company follows 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 additional paid-in capital.

New Accounting Standard

In June 1997, the Financial Accounting Standards Board issued SFAS Nos. 130
and 131, "Reporting Comprehensive Income" ("SFAS No. 130") and "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No. 131"),
respectively ("collectively, the "Statements"). The Statements are effective for
fiscal years beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting of comprehensive income and its components in annual
financial statements. SFAS No. 131 establishes standards for reporting financial
and descriptive information about an enterprise's operating segments in its
annual financial statements and selected segment information in interim
financial reports. Reclassification or restatement of comparative financial
statements or financial information for earlier periods is required upon
adoption of SFAS No. 130 and SFAS No. 131, respectively. Application of the
Statements' disclosure requirements will have no impact on the Company's
consolidated financial position, results of operations or net income per share
data as currently reported.

NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 1997, short-term and long-term investments amounted to
$10,000,000 and $9,070,000, respectively. Short-term and long-term investments
have been classified as available-for-sale securities as of December 31, 1997,
and consisted of the following (in thousands):

<TABLE>
<S> <C>
Tax-exempt municipal funds.................................. $ 8,779
United States government debt securities.................... 8,285
Corporate notes............................................. 2,006
-------
$19,070
=======
</TABLE>

F-10
<PAGE> 82
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

Available-for-sale securities as of December 31, 1997, consisted of the
following, by contractual maturity (in thousands):

<TABLE>
<S> <C>
Due in one year or less..................................... $10,000
Due in one to three years................................... 9,070
-------
$19,070
=======
</TABLE>

The Company's available-for-sale securities are carried at market value
and, as of December 31, 1997, included an unrealized gain of $11,000, net of
tax, principally from tax-exempt municipal funds and United States government
securities.

NOTE 4. INVENTORIES

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Raw materials............................................ $ 1,845 $ 2,767
Work in process.......................................... 1,535 812
Finished goods........................................... 9,576 9,362
------- -------
$12,956 $12,941
======= =======
</TABLE>

NOTE 5. PROPERTY AND EQUIPMENT, NET

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

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- --------
<S> <C> <C>
Equipment and machinery................................. $18,247 $ 22,485
Furniture and fixtures.................................. 1,870 2,416
Vehicles................................................ 297 248
Building and leasehold improvements..................... 8,911 10,304
Construction in progress................................ 6,668 14,824
------- --------
35,993 50,277
Less accumulated depreciation and amortization.......... (9,531) (14,029)
------- --------
$26,462 $ 36,248
======= ========
</TABLE>

The Company leases a portion of its distribution machinery and equipment
and vehicles under long-term leases (See Note 7), and has the option to purchase
these assets for fair market value at the termination of the

F-11
<PAGE> 83
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

lease. Included in property and equipment, net are (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Equipment and machinery.................................... $1,701 $3,233
Furniture and fixtures..................................... -- 205
Vehicles................................................... 161 161
Construction in progress................................... 1,136 --
------ ------
2,998 3,599
Less accumulated depreciation and amortization............. (559) (910)
------ ------
$2,439 $2,689
====== ======
</TABLE>

Depreciation and amortization expense on machinery and equipment under long-term
leases was approximately $62,000, $148,000 and $478,000 for the years ended
December 31, 1995, 1996 and 1997.

In the fourth quarter of 1997, the Company finalized plans to change the
packaging component of its manufacturing process to be implemented in late 1998,
which will render certain of the Company's existing manufacturing equipment
obsolete. In accordance with SFAS No. 121, the Company recorded a pretax charge
to cost of sales of $824,000 related to this impairment loss and reduced the
carrying amount of this asset by a corresponding amount. The amount of
impairment loss is the excess of the carrying amount of the impaired asset over
the fair value of the asset.

NOTE 6. INTANGIBLE ASSETS, NET

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

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- ------
<S> <C> <C>
Marketing rights, trademarks, licenses and covenants not
to compete.............................................. $1,475 $8,921
Goodwill.................................................. 2,094 --
------- ------
3,569 8,921
Less accumulated amortization............................. (2,886) (784)
------- ------
$683 $8,137
======= ======
</TABLE>

F-12
<PAGE> 84
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

NOTE 7. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- ------
<S> <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 $ --
Term loan to a bank, principal payments due quarterly from
January 31, 1997 through October 1, 1998, bearing
interest at the bank's Eurodollar rate plus 2.75%....... 10,000 --
Term loan to a bank, principal payments due quarterly from
July 31, 1999 through October 31, 2004, bearing interest
at the bank's Eurodollar rate plus 1.25%................ -- 2,183
Note payable to Banco Bilbao de Vizcaya, Puerto Rico, due
the earlier of December 1997 or upon closing of
permanent financing, bearing interest at the bank's rate
plus 2%................................................. 1,069 --
Capital lease obligations, bearing an effective interest
rate of 8.763%, 10.5% and 10.19%, respectively, for
1995, 1996 and 1997, secured by certain equipment....... 1,248 1,696
Other..................................................... 54 --
------- ------
Total long-term debt.................................... 19,845 3,879
Less current portion of long-term debt.................... (4,273) (445)
------- ------
$15,572 $3,434
======= ======
</TABLE>

In late 1996, the Company executed a commercial lending facility (the
"Agreement") with a major commercial bank. The Agreement provided for a term
loan and 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 was
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 term loan was in the
amount of $10,000,000. The facility was secured by the Company's accounts
receivable, inventory, loans and notes receivable, the stock of the Company's
subsidiaries, and certain intangible assets; provided that the collateral did
not include more than 65% of any class of equity securities of any foreign
subsidiary. The Agreement provided 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 agreement contained a commitment fee of 0.375% per annum on
the unused portion of the revolving line of credit. The Company was also
required under the Agreement to maintain minimum debt to tangible net worth,
interest coverage and tangible net worth ratios, and the Agreement placed
certain limitations on debt, liens, contingent obligations, investments and cash
dividends on common stock. The term loan and the credit facility were paid off,
in full, during 1997.

On November 7, 1997 the Company amended its credit agreement (the "Amended
Credit Agreement") with this same commercial bank. Under the new agreement, the
Company and its subsidiary, Ocular Sciences Puerto Rico, Inc. ("Ocular Sciences
Puerto Rico") can borrow up to an aggregate of $30,000,000. The Amended Credit
Agreement provides for a revolving line of credit of up to $20,000,000 to the
Company and up to $10,000,000 of term loans to Ocular Sciences Puerto Rico.
Under the Amended Credit Agreement the revolving line of credit has two interest
rate options --interest at the bank's base rate or at 1.00% to 1.50% above the
rate at which deposits in eurodollars are offered to the bank by other prime
banks in the eurodollar market, with the applicable margin over the eurodollar
rate depending on the Company's ratio of debt to tangible net worth. The Company
pays commitment fees of 0.250% to 0.375% on the revolving line of credit, with
percentages varying based on the Company's ratio of debt to tangible net worth.
Loans under the

F-13
<PAGE> 85
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

revolving line of credit are due in full on June 30, 2000. The Company may elect
to prepay any principal due under the revolving line of credit but would be
required to reimburse the lending bank for any breakage costs with respect to
prepayment of any eurodollar rate loan prior to the end of an applicable
interest period. At December 31, 1997, the Company had no borrowings under the
revolving line of credit and thus the full $20,000,000 remained available.

A term loan, with a December 31, 1997 balance of $2,183,000, was borrowed
on November 7, 1997 under the Amended Credit Agreement and used to repay
outstanding notes payable to Banco Bilbao de Vizcaya, Puerto Rico ("BBV"). The
remainder of the $10,000,000 term loan is available to finance the construction
and development of Ocular Sciences Puerto Rico's new manufacturing facility. The
term loan provides for three interest rate options --interest at the bank's base
rate, interest at 1.25% to 1.75% above the rate at which deposits in eurodollars
are offered to the bank by other prime banks in the eurodollar market, or
interest at 1.25% to 1.75% above the negotiated rate, defined as the lending
bank's cost of funds (after reserve requirements) plus its FDIC insurance rate.
The negotiated rate option is available only after April 30, 1999. The effective
interest rate of the term loan as of December 31, 1997 was 7.1875%. There are no
commitment fees on the term loan. On April 30, 1999, the then-outstanding term
loan will become payable in twenty-two quarterly principal installments
beginning July 31, 1999, $250,000 each quarter with any balance to be paid on
October 31, 2004. The Company may elect to prepay the principal due under the
term loan but would be required to reimburse the lending bank for any breakage
costs with respect to prepayment of any eurodollar rate loan prior to the end of
an applicable interest period.

Borrowings by the Company under the Amended Credit Agreement are guaranteed
by Ocular Sciences Puerto Rico, and borrowings by the Ocular Sciences Puerto
Rico, under the Amended Credit Agreement are guaranteed by the Company.
Borrowings under the Amended Credit Agreement are secured by a pledge of 100% of
the outstanding common stock of Ocular Sciences Puerto Rico and 65% of the
outstanding capital stock of the Company's United Kingdom and Canadian
subsidiaries. The Company is also required under the Amended Credit Agreement to
maintain minimum ratios of debt to tangible net worth and of current assets to
current liabilities, and a minimum tangible net worth, and the Amended Credit
Agreement places certain limitations on debts, liens, contingent obligations,
investments and cash dividends on common stock.

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.

In 1995, the Company guaranteed the borrowings of Ocular Sciences Puerto
Rico, under a loan agreement with BBV for the financing of the construction of
an industrial building at Santa Isabel Industrial Park, Santa Isabel, Puerto
Rico, and for the purchase of machinery and equipment not to exceed the total
sum of $5,800,000. The loan was 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 was payable in December 1997 or upon the closing of a
permanent financing loan from the Government Development Bank of Puerto Rico
("GDB"). The BBV loan bore interest at 2% over the lender's defined cost of
funds or, in the event that such funds were not available, 1.5% over the
lender's prime lending rate. The effective interest rate as of December 31, 1996
was 8%. The BBV loan agreement also contained a commission fee equal to 1% of
the principal and drawing fees equal to 0.5% of the

F-14
<PAGE> 86
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

loan amount. This loan was fully paid by a portion of the term loan under the
Amended Credit Agreement in 1997. As of December 31, 1996, the loan amount
outstanding under this agreement was $1,069,000.

The long-term debt, including current portion, is due in aggregate annual
installments of $445,000, $993,000, $1,497,000 and $944,000 in each of the years
from 1998 through 2001.

NOTE 8. OPERATING LEASES

The Company leases its offices, warehouse facilities and certain equipment
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, 1997, are as follows (in thousands):

<TABLE>
<S> <C>
Year Ending December 31,
1998...................................................... $ 2,552
1999...................................................... 2,486
2000...................................................... 1,650
2001...................................................... 1,563
2002...................................................... 1,554
Thereafter................................................ 4,404
-------
$14,209
=======
</TABLE>

Rent expense on operating leases was approximately $918,000, $1,643,000 and
$2,301,000 for the years ended December 31, 1995, 1996 and 1997, respectively.

NOTE 9. STOCK SPLIT

On August 4, 1997, the Company effected a two-for-one stock split of the
Company's common stock. On February 21, 1995, the stockholders of the Company
approved a four-for-one split of the Company's common and preferred stock. All
applicable share and per share amounts have been retroactively adjusted to
reflect both stock splits.

NOTE 10. PREFERRED STOCK AND ACCRUED DIVIDENDS

Each share of preferred stock outstanding at December 31, 1996
automatically converted into two shares of common stock upon the consummation of
the Company's initial public offering. Cumulative dividends outstanding as of
December 31, 1996 equaled $14,000 and are included in accrued liabilities.
Cumulative dividends were paid on a quarterly basis from January 1995 to August
1997.

NOTE 11. 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, by their terms,
expired 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 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. The number of shares subject to the warrants were to be reduced if the
Company met certain financial performance goals and the Company prepaid the
subordinated notes payable to stockholders on or before October 30, 1996. The
Company repaid this note on October 30, 1996 (see Notes 7 and 14) and achieved
the financial performance goals. As a result, all outstanding warrants were
cancelled effective December 31, 1996.

F-15
<PAGE> 87
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

Stock-based Compensation Plans

The Company has the following stock-based compensation plans:

(i) 1989 Stock Option Plan

The 1989 Stock Option Plan provided for the grant to employees,
directors and 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 non-qualified options, exercisable at a price not less than 85% of
the fair market value of the shares on the date of grant. The options
generally were granted for a six-year term and vested over a five-year
period. This plan was terminated upon the effective date of the Company's
initial public offering on August 4, 1997. Any authorized shares not issued
or subject to outstanding grants under this plan on August 4, 1997 and any
shares that are issuable upon exercise of options granted pursuant to this
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. As of December 31, 1997, options to purchase a
total of 1,756,454 shares are outstanding under this plan.

(ii) 1992 Officers and Directors Stock Option Plan

The 1992 Officers and Directors Stock Option provided for the grant of
incentive stock options exercisable at a price not less than the fair
market value of the Company's common stock on the grant date or
nonqualified stock options exercisable at a price not less than 85% of the
fair market value of the Company's common stock on the grant date. A total
of 1,280,000 shares of common stock were reserved for issuance under this
plan. In 1992 the Company's Chief Executive Officer was granted an option
to purchase the 1,280,000 shares of common stock reserved under this plan.
This option was exercised, in full, during 1997 at an exercise price of
$0.29365 per share. The Plan was terminated upon the effective date of the
Company's initial public offering.

(iii) 1997 Equity Incentive Plan

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 no less than the fair market value of
the Company's Common Stock on the date of grant and the exercise price of
all nonqualified stock options must be at a price not less than 85% of such
fair market value. The options generally are granted for a ten-year term
and vest over a five-year period. Any authorized shares not issued or
subject to outstanding grants under the 1989 Plan on August 4, 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 are available for future grant and issuance under
the 1997 Equity Incentive Plan. As of December 31, 1997, a total of
2,290,694 shares of common stock were reserved for issuance under the plan.

(iv) 1997 Director Stock Option Plan

The 1997 Director 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. The options generally are granted for a ten-year term and
vest over a three-year period. A total of 300,000 shares of common stock
are reserved for issuance under the plan.

(v) 1997 Employee Stock Purchase Plan

The 1997 Employee Stock Purchase Plan (the "Purchase Plan") permits
employees to purchase common stock at a price equal to 85% of fair market
value of the Company's common stock. A total of
F-16
<PAGE> 88
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

400,000 shares of common stock are reserved for issuance under the Purchase
Plan. The Purchase Plan was not effective as of December 31, 1997 and,
accordingly, no shares of common stock have been purchased under the
Purchase Plan.

A summary of stock option transactions under the plans indicated at (i),
(iii) and (iv) follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF NUMBER OF EXERCISE
EXERCISE PRICES SHARES PRICE
----------------- ---------- --------
<S> <C> <C> <C>
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............................. 5.030 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 (79,600) 1.5018
Granted............................. 8.085 to 25.375 575,150 19.7429
Canceled............................ 1.4688 to 14.00 (80,400) 3.6103
----------------- ---------- --------
Outstanding as of December 31, 1997... $0.267 to $25.375 2,219,454 $ 7.0284
================= ========== ========
</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 December 31, 1997,
was 876,790, at exercise prices ranging from $0.267 to $16.50. As of December
31, 1995, 1996 and 1997, there were available for grant 584,718, 322,444 and
2,127,694 shares, respectively under the plans.

Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company is required to disclose the pro forma effects on net income and net
income per share as if the Company had elected to use the fair value approach to
account for all its employee stock-based compensation plans. Had compensation
cost for the Company's plans been determined in a manner consistent with the
fair value approach enumerated in SFAS No. 123, the Company's pro forma net
income and pro forma net income per share for the years ended December 31, 1995,
1996 and 1997, would have been reduced to the pro forma amounts indicated below
(in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Pro forma net income:
As reported................................. $ 8,790 $ 10,176 $ 20,633
Adjusted pro forma.......................... 8,632 9,787 20,527
Net income per share (basic)
As reported................................. $ 0.55 $ 0.61 $ 1.10
Adjusted pro forma.......................... 0.55 0.60 1.10
Net income per share (diluted):
As reported................................. $ 0.46 $ 0.52 $ 0.98
Adjusted pro forma.......................... 0.45 0.51 0.98
</TABLE>

F-17
<PAGE> 89
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

In 1995 and 1996, the Company calculated the fair value of options using
the minimum value method, which applies a dividend rate and expected volatility
of zero.

In 1997, the Company calculated the fair value of options using the
Black-Scholes option-pricing model. The assumptions used were as follows:

<TABLE>
<S> <C>
Weighted-average risk free rate............................. 5.94%
Expected life (years)....................................... 3
Volatility (options granted from January 1, 1997 to August
3, 1997).................................................. 0.00%
Volatility (options granted from August 4, 1997 to December
31, 1997)................................................. 35.3%
Dividend yield.............................................. --
</TABLE>

The following table summarizes information about fixed stock options
outstanding as of December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
OF REMAINING WEIGHTED-AVERAGE OF WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
------------------------ --------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$0.27 -- 0.27............... 27,600 0.2 $ 0.27 27,600 $ 0.27
$1.47 -- 1.47............... 1,011,840 2.2 1.47 648,960 1.47
$3.04 -- 3.04............... 258,730 3.5 3.04 104,668 3.03
$5.03 -- 5.03............... 237,234 4.2 5.03 50,760 5.03
$7.36 -- 7.36............... 125,100 4.7 7.36 26,040 7.36
$8.09 -- 8.09............... 62,050 4.9 8.09 5,430 8.09
$14.00 -- 14.00............... 33,900 4.5 14.00 -- --
$16.50 -- 16.50............... 133,000 9.1 16.50 13,332 16.50
$24.25 -- 24.25............... 300,000 5.8 24.25 -- --
$25.38 -- 25.38............... 30,000 6.0 25.38 -- --
--------- --- ------ ------- ------
$0.27 -- 25.38............... 2,219,454 3.7 $ 7.03 876,790 $ 2.27
========= === ====== ======= ======
</TABLE>

NOTE 12. NET INCOME PER SHARE

The following table reconciles net income per share (basic) to net income
per share (diluted):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income used in the net income per share
(basic) calculation............................. $ 8,708 $ 10,094 $ 20,584
Preferred stock dividends......................... 82 82 49
----------- ----------- -----------
Net income used in the net income per share
(diluted) calculation........................... $ 8,790 $ 10,176 $ 20,633
=========== =========== ===========
Weighted average common shares outstanding........ 15,790,770 16,445,404 18,721,749
Weighted average dilutive potential common
shares.......................................... 3,403,554 2,994,053 2,385,691
----------- ----------- -----------
Weighted average common and dilutive potential
common shares outstanding....................... 19,194,324 19,439,457 21,107,440
=========== =========== ===========
Net income per share (basic)...................... $ 0.55 $ 0.61 $ 1.10
=========== =========== ===========
Net income per share (diluted).................... $ 0.46 $ 0.52 $ 0.98
=========== =========== ===========
</TABLE>

F-18
<PAGE> 90
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

NOTE 13. 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 additional paid-in capital. Such amounts
approximated $273,000 and $7,869,000 for 1996 and 1997.

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

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
United States................................. $10,689 $12,993 $28,580
Foreign....................................... 1,970 1,172 896
------- ------- -------
Total............................... $12,659 $14,165 $29,476
======= ======= =======
</TABLE>

Income tax expense (benefit) for the years ended December 31, 1995, 1996
and 1997, consisted of (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
--------------------------- --------------------------- ---------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------ ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal.............. $ 764 $1,311 $2,075 $1,963 $(648) $1,315 $5,866 $(231) $5,635
State................ 611 254 865 627 389 1,016 1,729 (402) 1,327
Foreign.............. 1,141 (212) 929 706 952 1,658 963 918 1,881
------ ------ ------ ------ ----- ------ ------ ----- ------
$2,516 $1,353 $3,869 $3,296 $ 693 $3,989 $8,558 $ 285 $8,843
====== ====== ====== ====== ===== ====== ====== ===== ======
</TABLE>

The total income tax expense (benefit) differed from the amount computed by
applying the federal statutory income tax rate of 34% for 1995 and 1996 and 35%
for 1997 to income before taxes as a result of the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax expense at federal statutory rate of
34% for 1995 and 1996 and 35% for 1997.......... $ 4,304 $ 4,816 $10,317
Foreign tax rate differential..................... (33) (4) 44
Puerto Rico possessions tax credit................ (429) (1,135) (2,554)
State taxes....................................... 510 367 719
Amortization of goodwill.......................... 168 168 124
Other permanent differences....................... 529 (223) 193
Net change in deferred tax asset valuation
allowance....................................... (1,180) -- --
------- ------- -------
$ 3,869 $ 3,989 $ 8,843
======= ======= =======
</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-19
<PAGE> 91
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

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

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Accrual of royalties deductible when paid.............. $ 425 $ --
Net operating loss carryforwards....................... -- 295
Deferred compensation and interest..................... 295 --
Accounts receivable, principally due to allowance for
doubtful accounts................................... 660 939
Inventories, principally due to reserves and additional
costs capitalized for tax purposes.................. 1,189 1,300
State taxes............................................ 236 --
Other accrued liabilities.............................. 576 1,312
------- -------
Total gross deferred tax assets................ 3,381 3,846
------- -------
Deferred tax liabilities:
Investment in subsidiaries............................. (461) (448)
Puerto Rico tollgate tax............................... (818) (1,400)
Puerto Rico profit split and basis difference.......... (957) (926)
Other basis differences................................ (1,401) (1,348)
Depreciation of property and equipment................. (899) (1,821)
State taxes............................................ -- (62)
------- -------
Total gross deferred tax liabilities........... (4,536) (6,005)
------- -------
Net deferred tax asset (liability)............. $(1,155) $(2,159)
======= =======
</TABLE>

At December 31, 1997, taxes had not been provided on $2,586,000 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.

NOTE 14. 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 were stockholders of the
Company prior to the initial public offering. 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 patent owners 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 16).

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 16, AVCL
and the Company were

F-20
<PAGE> 92
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

involved in litigation, which was settled in February 1997. AVCL accounted for
$407,000 of accounts receivable as of December 31, 1996. There were no sales to
AVCL in 1995, 1996 or 1997. A provision was recorded for the full amount of the
accounts receivable from AVCL as of December 31, 1996, which was subsequently
written off during the year ended December 31, 1997.

During 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 16).

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
7).

As of December 31, 1996, the Company had a $2,895,000 long-term junior
subordinated note payable due to the Company's Chief Executive Officer bearing
interest at the prime rate plus 3% (11.25% as of December 31, 1996). An
agreement was signed by the Chief Executive Officer on October 30, 1996 that
provided for subordination of this junior subordinated note to debt outstanding
to a major commercial bank (see Note 7). This note was amended on June 1, 1997
whereby provisions of the subordination were removed and all principal and
unpaid interest was payable to him on November 1, 1997. The Chief Executive
Officer had advanced the Company funds periodically, prior to 1993, to meet
certain short-term operating cash requirements. Accrued interest on this debt
totaled $54,000 as of December 31, 1996. The debt was repaid in full during
1997. The Chief Executive Officer had 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 Chief Executive Officer exercised options to
purchase 1,280,000 shares of Common Stock with an exercise price of $0.29365 per
share during 1997.

In April 1997, the Company loaned a total of $892,195 to certain employees
of the Company, of which $550,923 was loaned to the Company's Vice President,
U.S. Sales under a full-recourse promissory note. Total accrued interest
included in loans to officers and employees amounted to $35,128, of which
$23,456 related to this officer's loan. 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.

A director of the Company, who is also the brother of the Chief Executive
Officer, 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
$309,000, $284,000 and $77,000 in the years ended December 31, 1995, 1996 and
1997, respectively.

F-21
<PAGE> 93
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

NOTE 15. 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
and Puerto Rico. The Company sold its Canadian manufacturing operations
effective October 1, 1997. The Company's operations by geographic area for 1995,
1996 and 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
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
======== ======= ======== ========
December 31, 1997
Sales to unaffiliated customers............. $106,284 $12,321 $ -- $118,605
Intercompany sales.......................... 32,492 19,918 (52,410) --
-------- ------- -------- --------
Total net sales............................. $138,776 $32,239 $(52,410) $118,605
======== ======= ======== ========
Income from operations...................... $ 27,316 $ 4,037 $ (1,423) $ 29,930
======== ======= ======== ========
Net assets.................................. $100,738 $28,720 $(23,354) $106,104
======== ======= ======== ========
</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 99.5% and
0.5%, respectively, of the Company's European net assets as of December 31,
1997.

NOTE 16. 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 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 14) with a new, fully

F-22
<PAGE> 94
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

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; (iii) the termination of the Company's obligation to supply
contact lenses under the September 30, 1992 purchase and supply agreement (See
Note 14); and (iv) the termination of a limitation on the Company's right to
sell certain contact lenses directly into the United Kingdom and a limitation on
AVCL's right to sell certain contact lenses in North and South America. The
Company paid $3,333,000 to the defendants upon consummation of the settlement
agreement and an additional $6,667,000 upon the closing of the Company's initial
public offering in August, 1997.

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 1995, 1996, and 1997 of $1,320,000, $2,513,000 and
$56,000, 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 17. OTHER COMMITMENTS

Commitments for the remodeling of existing facilities, construction of new
facilities and purchase of capital equipment over the next year are
approximately $2,849,000 and $8,592,000, respectively, as of December 31, 1996
and December 31, 1997.

NOTE 18. SUBSEQUENT EVENTS

Financing

Ocular Sciences Puerto Rico has entered into a letter of intent and is
negotiating the final terms of an agreement with The Puerto Rico Industrial
Development Company ("PRIDCO") to manage the construction of a new building in
Puerto Rico that will be leased by Ocular Sciences Puerto Rico as its
manufacturing facility, upon completion of construction. Ocular Sciences Puerto
Rico plans to use term loans under the Amended Credit Agreement to finance the
building construction as well as the leasehold improvements (see Note 7). Under
the anticipated agreement, PRIDCO would reimburse Ocular Sciences Puerto Rico
for up to a maximum of $3,470,000 for certain structural construction costs of
the facility at the end of the construction project, as specified in the
agreement. Annual rental payments of approximately $489,000 would be due to
PRIDCO to commence four months after completion of the project, for a period of
ten years. No assurance can be given as to the terms of the final agreement
between PRIDCO and Ocular Sciences Puerto Rico or that such agreement will be
consummated.

Loan to Officer

Under an employment agreement, the Company extended a $450,000 loan to the
Company's President and Chief Operating Officer in January 1998 in connection
with his purchase of a new residence (the "Loan"). The Loan is interest free and
is secured by a purchase money second deed of trust on the new residence and by
a security interest in certain stock options granted to the Company's President
and Chief

F-23
<PAGE> 95
OCULAR SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

Operating Officer to purchase 300,000 shares of the Company's Common Stock and
any securities issuable upon exercise of such options. The Loan is due and
payable in full on the earlier of (i) October 15, 2002; (ii) six (6) months
after the Company's President and Chief Operating Officer's voluntary
resignation or termination by the Company for Cause (as defined in the
employment agreement); or (iii) upon the Company's President and Chief Operating
Officer's agreement to sell, convey, transfer, or dispose of, or further
encumber the new residence. Under the terms of the employment agreement, the
Company has agreed to forgive the Loan in its entirety (and return any payments
received in connection therewith), in the event that the Company's President and
Chief Operating Officer remains continuously employed with the Company from
October 15, 1997 through October 15, 2000. The Company has also agreed to
forgive 50% of the loan in the event that Mr. Goodspeed is terminated by the
Company by written notice without cause. The Company is amortizing the loan
amount to compensation expense over the three year period.

F-24
<PAGE> 96
APPENDIX

Description of graphics in Registration Statement dated February 20, 1998
and the Preliminary Prospectus included therein

Inside Front Cover

The inside front cover of the Preliminary Prospectus contains a text that 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> 97
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."

Inside Back Cover

The inside back cover of the Preliminary Prospectus contains 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. At the top of the bar
chart on the left is text reading "Revenues ($millions). Bars indicate revenue
levels for each year from 1993 through 1997, as follows: 1993, $38.5 million;
1994 $48.5 million; 1995, $68.1 million; 1996, $90.5 million and 1997, $118.6
million. Text immediately under this chart reads "Company Revenue Growth." At
the top of the bar chart on the right is text reading "% of total units." Bars
for each year from 1993 through 1997 are superimposed with percentages as
follows: 1993, 19.1%; 1994, 53.0%; 1995, 73.4%; 1996, 83.5% and 1997, 89.6%.
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 immediately 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 an attractive
wholesome-looking 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 4 YEARS:
Production costs reduced 73% per lens
Production volumes increased 876%

2
<PAGE> 98
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; immediately underneath each box is text. Under a box labeled
"HYDRON BIOMEDICS 55" are the words "Private Practitioners." Under a box
labeled "UltraFlex 7/14 55 VISIBILITY TINTED CONTACT LENSES" are the words
"Retail Optical Chain." Underneath a box labeled "Clinasoft 55 VISIBILITY
TINTED CONTACT LENSES" are the words "Private Label for Private Practitioners."
Underneath a box labeled "Hydrovue 55 VISIBILITY TINTED CONTACT LENSES" are 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."

At the bottom right side of the page is a graphic of the Company's logo
followed by text that reads ""Better lenses, better care.''

3
<PAGE> 99

OCULAR SCIENCE LOGO
<PAGE> 100

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses to be paid by the Registrant in connection with this
offering are as follows:

<TABLE>
<S> <C>
SEC Registration Fee........................................ $33,000
NASD Filing Fee............................................. 12,000
Nasdaq National Market Application Fee...................... 2,000
Printing.................................................... 110,000
Legal Fees and Expenses..................................... 200,000
Accounting Fees and Expenses................................ 75,000
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent and Registrar Fees........................... 2,000
Miscellaneous............................................... 101,000
--------
Total............................................. $540,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law Code authorizes a court
to award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). Article VI of the Registrant's Bylaws provides for mandatory
indemnifications of its directors and officers and permissible indemnifications
of employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. In addition, the Registrant has entered into Indemnity
Agreements with its officers and directors, and has entered into a Registration
Rights Agreement with certain of its stockholders providing for, among other
things, indemnification of selling stockholders under certain circumstances.
Reference is also made to Section 9 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities.

The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Registrant and its directors and executive officers,
may be sufficiently broad to permit indemnification of the Registrant's
directors and executive officers for liabilities arising under the Securities
Act.

As authorized by the Registrant's Bylaws, the Registrant, with approval by
the Registrant's Board of Directors, has obtained directors' and officers'
liability insurance with a per claim and annual aggregate coverage limit of $30
million.

Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:

<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Underwriting Agreement...................................... 1.01
Registrant's Bylaws......................................... 3.04
Registration Rights Agreement............................... 4.01
Form of Indemnity Agreement................................. 10.06
</TABLE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On July 31, 1997, the Company reincorporated in Delaware through a merger
of the Company's California predecessor ("OSI California") into the Company.

II-1
<PAGE> 101

Between February 1, 1995 and February 1, 1998, the Company and OSI
California sold the following equity securities that were not registered under
the Securities Act of 1933.

<TABLE>
<CAPTION>
NUMBER EXCEPTION AGGREGATE
TITLE OF OF FROM PURCHASE FORM OF
CLASS OF PURCHASERS DATE OF SALE SECURITIES SHARES REGISTRATION PRICE CONSIDERATION
------------------- ------------ ------------ --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Exercise of options by 28 employees 02/95 -
and one director.................. 06/30/97 Common Stock 796,900(3) Rule 701 $ 312,931 Cash
Edgar J. Cummins, William R.
Grant(1), Daniel J. Kunst, Terence
M. Fruth and Richard M.
Haugen(2)......................... 01/10/96 Common Stock 5,566 Rule 701 27,996.98 Services as
director
Employees(3)........................ 07/02/97 Common Stock 1,200 Rule 701(3) 1,503.24 Cash
Chief Executive Officer(3).......... 08/04/97 Common Stock 1,280,000 Rule 701(3) $375,808.00 Cash
</TABLE>

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

(1) Stock certificate issued to Galen Associates.

(2) Stock certificate issued to Richard M. Haugen and Mary J. Haugen as trustees
of the Haugen Family Trust.

(3) Represents shares issued upon exercise of stock options.

In August 1997, the Company completed its initial public offering in which
8,280,000 shares of its Common Stock were sold to the public at a price of
$16.50 per share (including shares sold pursuant to the underwriters'
over-allotment option). The shares sold consisted of 3,600,000 shares sold by
the Company at an aggregate public offering price of $59.4 million and 4,680,000
shares sold by selling stockholders at an aggregate public offering price of
$77.2 million. Effective immediately prior to the closing of the initial public
offering, all outstanding shares of the Company's then outstanding preferred
stock were automatically converted into shares of common stock.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following exhibits are filed herewith:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <C> <S>
1.01 -- Underwriting Agreement.*
2.01 -- Form of Agreement and Plan of Merger by and between O.S.I.
Corporation, a California corporation, and Registrant.+
3.01 -- Registrant's Certificate of Incorporation.+
3.03 -- Form of Registrant's Restated Certificate of Incorporation.+
3.04 -- Registrant's Bylaws.+
4.01 -- Registration Rights Agreement dated as of October 30, 1992
by and among the Registrant and the other parties listed on
the signature pages thereto.+
4.02 -- Amendment to Registration Rights Agreement and Shareholders'
Agreement dated as of February 27, 1997 by and among the
Registrant and the other parties listed on the signature
pages thereto.+
5.01 -- Opinion of Fenwick & West LLP regarding legality of the
securities being offered.
10.01 -- Registrant's 1989 Stock Option Plan adopted July 21, 1989,
as amended November 30, 1994.+
10.02 -- Registrant's 1997 Equity Incentive Plan.+
10.03 -- Registrant's 1997 Directors Stock Option Plan.+
10.04 -- Registrant's 1997 Employee Stock Purchase Plan.+
10.05 -- Form of Indemnity Agreement entered into by Registrant with
each of its directors and executive officers.+
</TABLE>

II-2
<PAGE> 102

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <C> <S>
10.06 -- Settlement Agreement and Release dated as of February 27,
1997 between Aspect Vision Care Ltd., New Focus Health Care
Ltd., Geoffrey Galley, Anthony Galley, Barrie Bevis, Albert
Morland, Ivor Atkinson and Wilfred Booker, Sciences Ltd.,
O.S.I. Corporation and John Fruth.+#
10.07 -- Amendment to Settlement Agreement and Release dated as of
February 27, 1997 between the parties to the Settlement
Agreement and Contact Lens Technologies Ltd.+
10.08 -- Patent License Agreement dated February 27, 1997 by and
between Ocular Sciences Ltd. and certain persons referred to
therein as the Patent Owners.+
10.09 -- Employment Agreement dated March 27, 1996 by between John
Lilley and O.S.I. Corporation.+
10.10 -- Lease for 475 -- 479 Eccles Avenue dated May 18, 1995,
between Stanley D. McDonald, Norman H. Scherdt, Herbert A.
West and McDonald Ltd. as "Landlord" and O.S.I. Corporation
as "Tenant."+
10.11 -- Lease for Santa Isabel, Puerto Rico Kingdom dated September
14, 1984, between The Puerto Rico Industrial Development
Company as "Landlord" and O.S.I. Puerto Rico Corporation as
"Tenant," as amended.+
10.12 -- Counterpart Underlease of Distribution Depot dated November
30, 1995 among Boots the Chemist Limited as "Landlord,"
Ocular Sciences Limited as "Tenant" and O.S.I. Corporation
as "Guarantor."+
10.13 -- Amended and Restated Credit Agreement among Ocular Sciences,
Inc., Ocular Sciences Puerto Rico, Inc. and Comerica
Bank -- California dated November 7, 1997 and exhibits
thereto.*
10.14 -- Employment Agreement dated October 15, 1997 between Norwick
Goodspeed and the Company.*
10.15 -- Lease of Unit 10 The Quadrangle Abbey Park Industrial Estate
Romsey Hamphire dated August 19, 1997 between Ocular
Sciences Limited and The Royal Bank of Scotland plc.*
11.01 -- Statement regarding computation of net income per share
(basic and diluted).
21.01 -- List of Subsidiaries.*
23.01 -- Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 -- Consent of KPMG Peat Marwick LLP, Independent Certified
Public Accountants.
24.01 -- Power of Attorney.*
27.01 -- Financial Data Schedule.
</TABLE>

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

# Confidential treatment has been requested from the Securities and Exchange
Commission with respect to certain portions of this exhibit. Omitted portions
have been filed separately with the Commission.

+ Incorporated by reference from the Company's registration statement on Form
S-1, file no. 333-27421.

* Previously filed.

II-3
<PAGE> 103

(b) The following financial statement schedule is filed herewith:

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowance for sales returns and
doubtful accounts
receivable................... 1,451 968 -- (764)(1) 1,655
Provision for excess and
obsolete inventory........... 2,242 893 -- (964)(2) 2,171
YEAR ENDED DECEMBER 31, 1996
Allowance for sales returns and
doubtful accounts
receivable................... 1,930 193 -- (672)(1) 1,451
Provision for excess and
obsolete inventory........... 2,341 605 -- (704)(2) 2,242
YEAR ENDED DECEMBER 31, 1995
Allowance for sales returns and
doubtful accounts
receivable................... 2,011 311 -- (392)(1) 1,930
Provision for excess and
obsolete inventory........... 4,554 475 -- (2,688)(2) 2,341
</TABLE>

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

(1) Uncollectible accounts written off, net of recoveries.

(2) Discontinued, expired, damaged and scrap inventory.

Other financial statement schedules are omitted because the information
called for is not required or is shown either in the Consolidated Financial
Statements or the Notes thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 104

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of South San
Francisco, State of California, on the 17th day of March, 1998.

OCULAR SCIENCES, INC.

By: /s/ GREGORY E. LICHTWARDT
------------------------------------
Gregory E. Lichtwardt
Vice President, Finance and
Chief Financial Officer

In accordance with the requirements of the Securities Act, this Amendment
to the Registration Statement was signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:

* Chief Executive Officer and March 17, 1998
- ----------------------------------------------------- Chairman of the Board of
John D. Fruth Directors

PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER:

/s/ GREGORY E. LICHTWARDT Vice President, Finance and March 17, 1998
- ----------------------------------------------------- Financial Officer
Gregory E. Lichtwardt

DIRECTORS:

* Director; President and March 17, 1998
- ----------------------------------------------------- Chief Operating Officer
Norwick B.H. Goodspeed

* Director March 17, 1998
- -----------------------------------------------------
Edgar J. Cummins

* Director March 17, 1998
- -----------------------------------------------------
Terence M. Fruth

* Director March 17, 1998
- -----------------------------------------------------
William R. Grant

* Director March 17, 1998
- -----------------------------------------------------
Daniel J. Kunst

* Director March 17, 1998
- -----------------------------------------------------
Francis R. Tunney, Jr.

*By: /s/ GREGORY E. LICHTWARDT
------------------------------------------------
Gregory E. Lichtwardt
Attorney-in-fact
</TABLE>

II-5
<PAGE> 105

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Ocular Sciences, Inc.

Under date of January 28, 1998, we reported on the consolidated balance
sheets of Ocular Sciences, Inc. and subsidiaries as of December 31, 1996 and
1997, 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,
1997, which are included in the prospectus. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

KPMG Peat Marwick LLP

San Francisco, California

March 17, 1998

<PAGE> 106

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
1.01 -- Underwriting Agreement*.....................................
2.01 -- Form of Agreement and Plan of Merger by and between O.S.I.
Corporation, a California corporation, and Registrant+......
3.01 -- Registrant's Certificate of Incorporation+..................
3.03 -- Form of Registrant's Restated Certificate of
Incorporation+..............................................
3.04 -- Registrant's Bylaws+........................................
4.01 -- Registration Rights Agreement dated as of October 30, 1992
by and among the Registrant and the other parties listed on
the signature pages thereto+................................
4.02 -- Amendment to Registration Rights Agreement and Shareholders'
Agreement dated as of February 27, 1997 by and among the
Registrant and the other parties listed on the signature
pages thereto+..............................................
5.01 -- Opinion of Fenwick & West LLP regarding legality of the
securities being offered....................................
10.01 -- Registrant's 1989 Stock Option Plan adopted July 21, 1989,
as amended November 30, 1994+...............................
10.02 -- Registrant's 1997 Equity Incentive Plan.+...................
10.03 -- Registrant's 1997 Directors Stock Option Plan+..............
10.04 -- Registrant's 1997 Employee Stock Purchase Plan+.............
10.05 -- Form of Indemnity Agreement entered into by Registrant with
each of its directors and executive officers+...............
10.06 -- Settlement Agreement and Release dated as of February 27,
1997 between Aspect Vision Care Ltd., New Focus Health Care
Ltd., Geoffrey Galley, Anthony Galley, Barrie Bevis, Albert
Morland, Ivor Atkinson and Wilfred Booker, Sciences Ltd.,
O.S.I. Corporation and John Fruth#..........................
10.07 -- Amendment to Settlement Agreement and Release dated as of
February 27, 1997 between the parties to the Settlement
Agreement and Contact Lens Technologies Ltd+................
10.08 -- Patent License Agreement dated February 27, 1997 by and
between Ocular Sciences Ltd. and certain persons referred to
therein as the Patent Owners+...............................
10.09 -- Employment Agreement dated March 27, 1996 by between John
Lilley and O.S.I. Corporation+..............................
10.10 -- Lease for 475 -- 479 Eccles Avenue dated May 18, 1995,
between Stanley D. McDonald, Norman H. Scherdt, Herbert A.
West and McDonald Ltd. as "Landlord" and O.S.I. Corporation
as "Tenant"+................................................
10.11 -- Lease for Santa Isabel, Puerto Rico Kingdom dated September
14, 1984, between The Puerto Rico Industrial Development
Company as "Landlord" and O.S.I. Puerto Rico Corporation as
"Tenant," as amended+.......................................
10.12 -- Counterpart Underlease of Distribution Depot dated November
30, 1995 among Boots the Chemist Limited as "Landlord,"
Ocular Sciences Limited as "Tenant" and O.S.I. Corporation
as "Guarantor"+.............................................
10.13 -- Amended and Restated Credit Agreement among Ocular Sciences,
Inc., Ocular Sciences Puerto Rico, Inc. and Comerica
Bank -- California dated November 7, 1997 and exhibits
thereto*....................................................
</TABLE>

<PAGE> 107

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
10.14 -- Employment Agreement dated October 15, 1997 between Norwick
Goodspeed and the Company*..................................
10.15 -- Lease of Unit 10 The Quadrangle Abbey Park Industrial Estate
Romsey Hampshire dated August 19, 1997 between Ocular
Sciences Limited and The Royal Bank of Scotland plc*........
11.01 -- Statement regarding computation of net income per share
(basic and diluted).........................................
21.01 -- List of Subsidiaries*.......................................
23.01 -- Consent of Fenwick & West LLP (included in Exhibit 5.01)....
23.02 -- Consent of KPMG Peat Marwick LLP, Independent Certified
Public Accountants..........................................
24.01 -- Power of Attorney*..........................................
27.01 -- Financial Data Schedule.....................................
</TABLE>

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

+ Incorporated by reference from the Company's registration statement on Form
S-1, file no. 333-27421.

* Previously filed.

<PAGE> 1

EXHIBIT 5.01

[LETTERHEAD OF FENWICK & WEST LLP]

March 16, 1998

Ocular Sciences, Inc.
475 Eccles Avenue
South San Francisco, CA 94080

Gentlemen/Ladies:

At your request, we have examined the Registration Statement on Form S-1
(the "Registration Statement") filed by you with the Securities and Exchange
Commission (the "Commission") on February 20, 1998 (Registration Number
333-46669), Amendment No. 1 to such Registration Statement filed by you with the
Commission on February 27, 1998, and Amendment No. 2 to such Registration
Statement to be filed by you with the Commission on March 16, 1998
(collectively, the "Registration Statement") in connection with the registration
under the Securities Act of 1933, as amended, of an aggregate of 4,634,500
shares of your Common Stock (the "Stock"), 4,594,500 of which are presently
issued and outstanding and 10,000 shares of which will be issued and outstanding
upon proper exercise of stock options to purchase such shares (the "Option
Shares"), all of which will be sold by certain selling stockholders (the
"Selling Stockholders"), and 30,000 shares to be issued and sold by you.

In rendering this opinion, we have examined the following:

(1) the Registration Statement, including exhibits;

(2) your registration statement on Form S-8 (File Number 333-22999) filed
with the Commission on August 6, 1997;

(3) the Stock Option Grant and Stock Option Exercise Agreement covering
the Option Shares;

(4) the Prospectus prepared in connection with the Registration Statement;

(5) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books and the minute books of your predecessor, O.S.I. Corporation, a
California corporation ("O.S.I. California"), that are in our
possession;

(6) the documentation relating to the acquisition of the shares to be sold
by each Selling Stockholder pursuant to the Registration Statement;

(7) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations; and

(8) the Custody Agreement, Transmittal Letter and Powers of Attorney
signed by the Selling Stockholders in connection with the sale of
Stock described in the Registration Statement.
<PAGE> 2
Ocular Sciences, Inc.
March 16, 1998
Page 2

We have also confirmed the continued effectiveness of the Company's
registration under the Securities Exchange Act of 1934, as amended, by
telephone call to the offices of the Commission and have confirmed your
eligibility to use Form S-1.

In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the legal capacity of all natural persons executing the same, the lack
of any undisclosed terminations, modifications, waivers or amendments to any
documents reviewed by us and the due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness thereof.

As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above. We have made no independent
investigation or other attempt to verify the accuracy of any such information or
to determine the existence or non-existence of any other factual matters;
however, we are not aware of any facts that would lead us to believe that the
opinion expressed herein is not accurate.

We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the State of California and the
existing Delaware General Corporation Law without reference to case law or
secondary sources.

Based upon the foregoing, it is our opinion that (i) up to 4,594,500 shares
of Stock to be sold by the Selling Stockholders pursuant to the Registration
Statement are validly issued, fully paid and nonassessable, (ii) the Option
Shares to be sold by the Selling Shareholders, upon proper exercise of stock
options to purchase such shares, and payment therefor in accordance with the
Stock Option Grant and the Stock Option Exercise Agreement governing the
issuance thereof, will be validly issued, fully paid and nonassessable, and
(iii) the 30,000 shares of Stock to be issued and sold by you, when issued and
sold in the manner referred to in the relevant Prospectus associated with the
Registration Statement, will be validly issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.

This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for your use as an exhibit to the Registration
Statement for the purpose of the above sale of the Stock and is not to be relied
upon for any other purpose.

Very truly yours,

FENWICK & WEST LLP

By: /s/ Barry J. Kramer, Esq.
------------------------------

<PAGE> 1
Exhibit 11.01
OCULAR SCIENCES, INC.

STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE (BASIC AND DILUTED)

Year ended December 31,
-------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net income per share (basic):

Net income $ 8,708,000 $10,094,000 $20,584,000
========== =========== ===========

Weighted average common shares outstanding 15,790,770 16,445,404 18,721,749
========== =========== ===========

Net income per share (basic) $0.55 $0.61 $1.10
========== =========== ===========
Net income per share (diluted)

Net income (diluted) $ 8,790,000 $10,176,000 $20,633,000
========== =========== ===========

Weighted average common shares outstanding 15,790,770 16,445,404 18,721,749

Weighted average shares of stock options
under the treasury stock method 3,167,218 2,757,717 2,247,828

Weighted average shares issuable upon conversion
of the Series A Preferred Stock 236,336 236,336 137,863
---------- ----------- -----------
Weighted average number of common and
dilutive potential common shares outstanding 19,194,324 19,439,457 21,107,440
========== =========== ===========
Net income per share (diluted) $0.46 $0.52 $0.98
========== =========== ===========
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996 AND 1997 CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF
INCOME, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 5,541 28,359
<SECURITIES> 0 10,000
<RECEIVABLES> 17,473 20,440
<ALLOWANCES> 1,451 1,655
<INVENTORY> 12,956 12,941
<CURRENT-ASSETS> 36,265 76,185
<PP&E> 35,993 50,277
<DEPRECIATION> 9,531 14,029
<TOTAL-ASSETS> 63,503 129,735
<CURRENT-LIABILITIES> 21,147 20,197
<BONDS> 0 0
0 0
1 0
<COMMON> 16 22
<OTHER-SE> 23,880 106,082
<TOTAL-LIABILITY-AND-EQUITY> 63,503 129,735
<SALES> 90,509 118,605
<TOTAL-REVENUES> 90,509 118,605
<CGS> 36,553 41,066
<TOTAL-COSTS> 36,521 47,609
<OTHER-EXPENSES> 186 6
<LOSS-PROVISION> 193 968
<INTEREST-EXPENSE> 3,216 1,387
<INCOME-PRETAX> 14,165 29,476
<INCOME-TAX> 3,989 8,843
<INCOME-CONTINUING> 10,176 20,633
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,176 20,633
<EPS-PRIMARY> 0.61 1.10
<EPS-DILUTED> 0.52 0.98

</TABLE>