<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OCULAR SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<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.)
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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:
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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
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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. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE PER OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(1)(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value per
share................................. 4,634,500 $24.375 $112,965,937.50 $33,325.95
============================================================================================================
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(1) Includes 604,500 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 solely
for the purpose of calculating the amount of the registration fee, based on
the average high and low trading prices for the Common Stock as reported on
the Nasdaq National Market on February 19, 1998.
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 20, 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 19, 1998, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET WAS $24.00. 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
------------------------
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<CAPTION>
UNDERWRITING PROCEEDS PROCEEDS TO
PRICE TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
---------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total(3)...................... $ $ $ $
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(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 ALEX. 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
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PAGE
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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>
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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.
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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.
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
4
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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:
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
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 will 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.
7
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THE OFFERING
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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.......... 21,897,816 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
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
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<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales............................................... $38,533 $48,503 $68,087 $90,509 $118,605
Gross profit............................................ 13,860 25,950 41,267 53,956 77,539
Total operating expenses................................ 15,377 17,492 26,015 36,521 47,609
Income (loss) from operations(3)........................ (1,517) 8,458 15,252 17,435 29,930
Net income (loss) applicable to common stockholders..... (4,509) 4,955 8,708 10,094 20,584
Net income per share (basic)(4)......................... $ 0.61 $ 1.10
Net income per share (diluted)(4)....................... $ 0.52 $ 0.98
Shares used in computing net income per share
(basic)(4)............................................ 16,445 18,722
Shares used in computing net income per share
(diluted)(4).......................................... 19,527 21,113
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, 1997(5)
--------------------
(IN THOUSANDS)
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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>
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(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 19, 1998, is estimated to
provide net proceeds of approximately $684,000 (after deducting estimated
discounts and commissions), which will be used primarily to pay expenses of
this offering. See "Use of Proceeds" and "Capitalization."
8
<PAGE> 10
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."
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 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
9
<PAGE> 11
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."
In December 1997, Cooper acquired Aspect Vision Care Ltd. ("AVCL"), a
U.K.-based manufacturer and marketer of soft contact lenses. AVCL's
manufacturing process technology and lens designs are based in 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.
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
10
<PAGE> 12
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 will 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 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
11
<PAGE> 13
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 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
competitive pressures, changes in consumer preferences, the inability of the
Company to respond to reduced
12
<PAGE> 14
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
13
<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
14
<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 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. 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.
16
<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"). The process of obtaining
clearance of a 510(k) notification typically takes five to twelve months without
clinical data, or twelve to eighteen months or more if clinical data are
required to be included in the notification, but it may take longer, and 510(k)
clearance may never be obtained. Approval through the PMA process, which
likewise may never be obtained, generally takes at least eighteen to twenty-four
months and can take substantially longer, is more expensive and requires the
submission of extensive preclinical and clinical data and manufacturing
information, among other things. The soft contact lenses currently marketed by
the Company have received FDA clearance through the 510(k) process or approval
through the PMA process. In addition, the Company has made modifications to its
products that the Company believes do not require the submission of new 510(k)
notifications or PMA supplements. There can be no assurance, however, that the
FDA will agree with any of the Company's determinations not to submit new 510(k)
notifications or PMA supplements for these changes, that the FDA will not
require the Company to cease sales and distribution while seeking clearances of
510(k) 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
17
<PAGE> 19
to current products will not require additional clearances or approvals from the
FDA, or that such approvals, if necessary, will be obtained in a timely manner
or at all.
The Company's manufacturing facilities are subject to periodic GMP and
other inspections by the FDA. In March 1996, the Company received a warning
letter from the FDA regarding certain procedures used in manufacturing products
at its facilities in Puerto Rico. The Company has taken steps to address the
FDA's concerns, and, after reinspecting the facilities, the FDA notified the
Company that its concerns were satisfactorily addressed. There can be no
assurance that the Company will be found in compliance with quality system
(including GMP) requirements in future inspections by regulatory authorities,
and 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 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.
18
<PAGE> 20
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 21,897,816 shares of Common Stock
outstanding. Of these shares, 12,489,042 shares of Common Stock (13,093,542
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 of the remaining shares of Common Stock held by
existing stockholders of the Company are currently eligible for sale in the
public market. of such shares are subject to compliance with the
resale volume limitations of Rule 144 under the Securities Act ( of
which are subject to 90-day lock-up agreements) and 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 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."
19
<PAGE> 21
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
$684,000 (at an assumed public offering price of $24.00 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 19, 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 December 31, 1997, there were 87
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 $24.00 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 70,582
Retained earnings................................................... 36,164 36,164
Unrealized gain on investments...................................... 11 11
Cumulative translation adjustment................................... (531) (531)
-------- -------
Total stockholders' equity....................................... 106,104 106,248
-------- -------
Total capitalization............................................. $109,983 $ 110,127
======== =======
</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 129,650 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)............. $ 0.61 $ 1.10
======= ========
Net income per share(diluted)(2)............ $ 0.52 $ 0.98
======= ========
Shares used in computing net income per
share (basic)(2).......................... 16,445 18,722
======= ========
Shares used in computing net income per
share(diluted)(2)......................... 19,527 21,113
======= ========
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 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 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 as expected.
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 its 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 improved gross margins and to increased
net sales.
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, and an increased
percentage of lower-priced international distributor sales in the Company's
product mix. Implementation of certain manufacturing process improvements was
delayed by 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
approximately $500,000 related to start-up and scrap costs in connection with
the transition from vial to blister packaging of the Company's lenses for
disposable replacement regimens.
Selling and Marketing Expenses
<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.
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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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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
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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
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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.
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
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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 will
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
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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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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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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."
40
<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
41
<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
42
<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."
43
<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
46
<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."
Soft contact lens manufacturers have generally differentiated themselves
from their competitors on the basis of product performance, marketing,
distribution channels and price. The Company believes that it is able to
distinguish its products on the basis of performance advantages and cost to
eyecare professionals and patients. Since the purchase of contact lenses
requires a prescription in the United States, the Company also competes on the
basis of its relationships and reputation with eyecare practitioners. There can
be no assurance that the Company will continue to so distinguish its products or
that it will be able to realize the anticipated reductions in its per unit
production costs.
The market for contact lenses is shifting from lenses marketed for annual
replacement regimens, where the Company has significant experience and a leading
market position, to lenses 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 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."
In December 1997, Cooper acquired AVCL, a U.K.-based manufacturer and
marketer of soft contact lenses. AVCL's manufacturing process technology and
lens designs are based in 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 has introduced a new line of
contact lenses marketed in the United States for
47
<PAGE> 49
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 "Risk Factors -- Intense Competition" and "Risk
Factors -- Risk of New Products and Technological Change."
GOVERNMENT REGULATION
The FDC Act, other statutes, regulations of the FDA and other agencies as
well as state laws govern the preclinical and clinical testing, manufacture,
labeling, distribution, sale, marketing, advertising and promotion of medical
devices such as contact lenses. Noncompliance with applicable regulations can
result in, among other things, fines, injunctions, product recall or product
seizures, operating restrictions (including suspension of production and
distribution), refusal of the FDA to grant approval of a PMA or clearance of a
510(k), withdrawal of previously granted marketing approvals or clearances, and
criminal prosecution. Sales of the Company's products outside the U.S. are
subject to regulatory requirements that, while generally comparable to those in
the U.S., vary widely from country to country.
FDA Regulation. For purposes of the applicable statutes and regulations,
the Company's products are generally treated as "medical devices." With
exceptions for certain medical devices first marketed before May 28, 1976, prior
to their commercial sale in the United States, medical devices must be cleared
by the FDA, exempted from the requirement of FDA clearance, or approved by the
FDA or approval. In general, the regulatory process can be lengthy, expensive
and uncertain, and securing FDA clearances or approvals may require the
submission of extensive clinical data together with other supporting information
to the FDA.
In the United States, medical devices are classified as Class I, II or III,
on the basis of the controls deemed by the FDA to be necessary to reasonably
ensure their safety and effectiveness. Class I devices are subject to general
controls (e.g., labeling 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 and FDA approval prior to marketing and
distribution.
The Company's daily-wear products have been classified as Class II devices
subject to the 510(k) pre-market notification process, while the Company's
extended-wear products have been classified as Class III devices subject to the
PMA requirements. Regulation of the Company's daily-wear products under the pre-
market notification process 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. The premarket notification process generally takes
five to twelve months without clinical data, or twelve to eighteen months or
more if clinical data are required to be
48
<PAGE> 50
included in the notifications but it may take longer, and 510(k) clearance may
never be obtained. The range of clinical data required to be included in a
510(k), if any, or a PMA application varies depending on the nature of the new
product or product modification. Generally, the 510(k) notifications filed by
the Company do not require clinical data, and, if clinical data are required,
the 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 twentyfour 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 takes from twelve to eighteen months from the date the
PMA is accepted for filing, but may take significantly longer if the FDA
requests additional information and if the sponsor files any major amendments to
the PMA. The review time is often significantly extended by the FDA's request
for clarification of information already provided in the submission. Toward the
end of the PMA review process, the FDA generally will conduct an inspection of
the manufacturer's facilities to ensure that the facilities are in compliance
with the 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.
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
49
<PAGE> 51
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 its facilities are in compliance with the FDA's QS regulations and
that the planned automation of its manufacturing facilities will not require
clearance or approval.
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."
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<PAGE> 52
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 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
51
<PAGE> 53
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 was granted an option
to purchase 30,000 shares. 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 has 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 and will be the fair market
value of the Common Stock on the date of grant.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
As permitted by the Delaware General Corporation Law, the Company's 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 by written notice 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
$5.03 per share. Under Dr. Lilley's employment agreement, his employment will
continue unless and until either the Company or Dr. Lilley serves on the other
12 months' notice of termination, provided that the Company has the right to
terminate his employment upon his 65th birthday.
OPTION GRANTS IN 1997
The following table sets forth information regarding option grants during
1997 to each of the Named Executive Officers. In accordance with the rules of
the Securities and Exchange Commission, the table sets forth the hypothetical
gains or "option spreads" that would exist for the options at the end of their
respective six-year terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted to the end of the option term.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------------- VALUE AT ASSUMED
% OF ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN OPTION TERM($)(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 $5,613,106
Gregory E.
Lichtwardt........... -- -- -- -- -- --
Daniel J. Kunst........ -- -- -- -- -- --
John Lilley............ -- -- -- -- -- --
</TABLE>
57
<PAGE> 59
- ---------------
(1) The options granted vest over a five-year period, with 20% of the option
vesting upon the completion of each year of service. In January 1998, the
Company granted additional options to the Named Executive Officers as
follows: Mr. Fruth, 220,000 shares; Mr. Lichtwardt, 66,000 shares, Mr.
Kunst, 36,000 shares and Dr. Lilley, 30,000 shares.
(2) The Company granted options to purchase 455,150 shares of Common Stock to
employees during 1997.
(3) The exercise price may be paid in cash, in shares of the Company's common
stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
(4) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.
AGGREGATED OPTION EXERCISES IN 1997 AND FISCAL YEAR END OPTION VALUES
The following table sets forth information regarding the exercise of stock
options by the Named Executive Officers during 1997 and stock options held as of
December 31, 1997 by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END(#) AT FISCAL YEAR END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISES(#) REALIZED($) 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 1,756,454
shares of Common Stock were outstanding as of December 31, 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.
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.
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<PAGE> 60
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
December 31, 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.
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<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
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% 1,001,138 6,313,438 28.8
William R. Grant(3).................... 2,970,907 13.6 1,001,139 1,969,768 9.0
Galen Partners, L.P. and
affiliates(4)........................ 2,965,059 13.6 1,001,139 1,963,920 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 * 10,000 39,886 *
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).............. 12,553,180 57.0 4,000,000 8,553,180 38.8
</TABLE>
- ---------------
* Less than 1% of the Company's outstanding Common Stock
(1) Percentage ownership prior to the offering is based on 21,867,816 shares
outstanding as of February 15, 1998 and percentage ownership after the
offering is based on 21,897,816 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 5,708,938 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 1,001,139 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 2,678,338 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 907,693 shares offered by Galen
Partners, L.P. and 93,446 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,
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<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) Represent 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. Allergan
has advised the Company that, prior to the consummation of this offering,
it intends to transfer shares of Common Stock to the Allergan Foundation
having an aggregate value of $10 million (based on the anticipated per
share proceeds to Selling Stockholders set forth on the cover page hereof),
and that such shares would 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 21,867,816 shares
of Common Stock held of record by 92 stockholders, and options to purchase
3,364,944 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 21,897,816 shares of Common Stock (based upon the 21,867,816 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 179,042 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 9,408,774 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
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 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
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
restrictions, holding periods or 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 218,978 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
3,364,944 shares of Common Stock were outstanding, of which options to purchase
765,922 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 163,144 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.
68
<PAGE> 70
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 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
69
<PAGE> 71
any part of the Registration Statement may be obtained from such offices upon
the payment of the fees prescribed by the Commission. The Commission maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the site is http://www.sec.gov.
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)............................. $ 0.61 $ 1.10
========== ==========
Net income per share (diluted)........................... $ 0.52 $ 0.98
========== ==========
Weighted average common shares outstanding............... 16,445,404 18,721,749
Weighted average dilutive potential common shares........ 3,081,581 2,391,713
---------- ----------
Total weighted average common and dilutive
potential common shares outstanding............ 19,526,985 21,113,462
========== ==========
</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 TOTAL
---------------- ------------------ PAID-IN (ACCUMULATED) GAIN ON TRANSLATION STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) INVESTMENTS ADJUSTMENT EQUITY
-------- ------ ---------- ------ ---------- ------------- ----------- ---------- --------------
<S> <C> <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) $ 4,447
Exercise of
employee
stock
options...... -- -- 85,136 -- 42 -- -- -- 42
Directors'
compensation... -- -- 35,904 -- 53 -- -- -- 53
Net income..... -- -- -- -- -- 8,790 -- -- 8,790
Preferred stock
dividends.... -- -- -- -- -- (82) -- -- (82)
Cumulative
translation
adjustment... -- -- -- -- -- -- -- 42 42
--------- --- ---------- --- ------- ------- --- ------- -----
BALANCES AS OF
DECEMBER 31,
1995........... 118,168 1 15,854,864 16 7,859 5,486 -- (70) 13,292
Exercise of
employee
stock
options...... -- -- 679,140 -- 200 -- -- -- 200
Directors'
compensation... -- -- 5,566 -- 28 -- -- -- 28
Income tax
benefits from
stock options
exercised.... -- -- -- -- 273 -- -- -- 273
Net income..... -- -- -- -- -- 10,176 -- -- 10,176
Preferred stock
dividends.... -- -- -- -- -- (82) -- -- (82)
Cumulative
translation
adjustment... -- -- -- -- -- -- -- 2 2
--------- --- ---------- --- ------- ------- --- ------- -----
BALANCES AS OF
DECEMBER 31,
1996........... 118,168 1 16,539,570 16 8,360 15,580 -- (68) 23,889
Exercise of
employee
stock
options...... -- -- 1,359,600 1 494 -- -- -- 495
Directors'
compensation... -- -- 2,660 -- 22 -- -- -- 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 -- -- -- 53,697
Income tax
benefits from
stock options
exercised.... -- -- -- -- 7,869 -- -- -- 7,869
Unrealized gain
on
investments... -- -- -- -- -- -- 11 -- 11
Net income..... -- -- -- -- -- 20,633 -- -- 20,633
Preferred stock
dividends.... -- -- -- -- -- (49) -- -- (49)
Cumulative
translation
adjustment... -- -- -- -- -- -- -- (463) (463)
--------- --- ---------- --- ------- ------- --- ------- -----
BALANCES AS OF
DECEMBER 31,
1997........... -- $ -- 21,738,166 $ 22 $ 70,438 $36,164 $ 11 $ (531) $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 their short maturities.
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 ophthalmologists,
optometrists, optical retailers and optical product distributors, 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. Accounts
F-8
<PAGE> 80
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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 (diluted)
is computed based on the weighted average number of common shares and dilutive
potential
F-9
<PAGE> 81
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
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 for all periods presented. In accordance with
Securities and Exchange Commission Staff Accounting Bulletins and staff policy,
net income per share (diluted) includes all common and dilutive potential common
shares granted or issued within 12 months of the offering date as if they were
outstanding for all periods presented, even if antidilutive, using the treasury
stock method and the initial public offering price. Certain historical net
income per share data has not been presented since such amounts are not deemed
meaningful due to the change in the Company's capital structure that occurred in
connection with the Company's initial public offering. 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 lease. Included in
property and equipment, net are (in thousands):
F-11
<PAGE> 83
OCULAR SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<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, 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................................. -- $ 0.61 $ 1.10
Adjusted pro forma.......................... -- 0.59 1.09
Net income per share (diluted):
As reported................................. -- $ 0.52 $ 0.98
Adjusted pro forma.......................... -- 0.50 0.97
</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,
---------------------------
1996 1997
----------- -----------
<S> <C> <C>
Net income used in the net income per share
(basic) calculation............................. $ 10,094 $ 20,584
Preferred stock dividends......................... 82 49
----------- -----------
Net income used in the net income per share
(diluted) calculation........................... $ 10,176 $ 20,633
=========== ===========
Weighted average common shares outstanding........ 16,445,404 18,721,749
Weighted average dilutive potential common
shares.......................................... 3,081,581 2,391,713
----------- -----------
Weighted average common and dilutive potential
common shares outstanding....................... 19,526,985 21,113,462
=========== ===========
Net income per share (basic)...................... $ 0.61 $ 1.10
=========== ===========
Net income per share (diluted).................... $ 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 applied for, and expects to obtain,
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>
EXCEPTION AGGREGATE
TITLE OF NUMBER FROM PURCHASE FORM OF
CLASS OF PURCHASERS DATE OF SALE SECURITIES OF 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 (included on page II-5).
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.
* To be filed by amendment.
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 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 20th day of February, 1998.
OCULAR SCIENCES, INC.
By: /s/ GREGORY E. LICHTWARDT
------------------------------------
Gregory E. Lichtwardt
Vice President, Finance and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints John D. Fruth and Gregory E. Lichtwardt,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462 promulgated under the
Securities Act, and all post-effective amendments thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his, her or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this
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:
/s/ JOHN D. FRUTH Chief Executive Officer and February 20, 1998
- --------------------------------------------- Chairman of the Board of
John D. Fruth Directors
PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER:
/s/ GREGORY E. LICHTWARDT Vice President, Finance and February 20, 1998
- --------------------------------------------- Financial Officer
Gregory E. Lichtwardt
DIRECTORS:
/s/ NORWICK B.H. GOODSPEED Director; President and February 20, 1998
- --------------------------------------------- Chief Operating Officer
Norwick B.H. Goodspeed
/s/ EDGAR J. CUMMINS Director February 20, 1998
- ---------------------------------------------
Edgar J. Cummins
/s/ TERENCE M. FRUTH Director February 20, 1998
- ---------------------------------------------
Terence M. Fruth
</TABLE>
II-5
<PAGE> 105
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<S> <C> <C>
/s/ WILLIAM R. GRANT Director February 20, 1998
- ---------------------------------------------
William R. Grant
/s/ DANIEL J. KUNST Director February 20, 1998
- ---------------------------------------------
Daniel J. Kunst
/s/ FRANCIS R. TUNNEY, JR. Director February 20, 1998
- ---------------------------------------------
Francis R. Tunney, Jr.
</TABLE>
II-6
<PAGE> 106
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
January 28, 1998
<PAGE> 107
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> 108
<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 pro forma 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 (included on page II-5)................................
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.
* To be filed by amendment.
<PAGE> 1
4,030,000 Shares
OCULAR SCIENCES, INC.
COMMON STOCK (PAR VALUE $0.001 PER SHARE)
UNDERWRITING AGREEMENT
_____________, 1998
<PAGE> 2
__________ __, 1998
Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
BT Alex. Brown Incorporated
Cowen & Company
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Ocular Sciences, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule II
hereto (the "Underwriters"), and certain stockholders of the Company (the
"Selling Stockholders") named in Schedule I hereto severally propose to sell to
the several Underwriters, an aggregate of 4,030,000 shares of the Common Stock
(par value $0.001 per share) of the Company (the "Firm Shares"), of which 30,000
shares are to be issued and sold by the Company and 4,000,000 shares are to be
sold by the Selling Stockholders, each Selling Stockholder selling the amount
set forth opposite such Selling Stockholder's name in Schedule I hereto. The
Company is successor by merger to O.S.I. Corporation, a California corporation
(the "Predecessor"), as a result of a reincorporation transaction that became
effective on July 30, 1997 (the "Reincorporation"). For the purposes of Section
1 hereof, all references to "Company" shall also refer to the Predecessor prior
to the Reincorporation.
A Selling Stockholder also proposes to sell to the several
Underwriters not more than an additional 604,500 shares of its Common Stock (par
value $0.001 per share) (the "Additional Shares") if and to the extent that you,
as Managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of Common Stock granted to the
Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of Common Stock
(par value $0.001 per share) of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"Common Stock." The Company and the Selling Stockholders are hereinafter
sometimes collectively referred to as the "Sellers."
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, including a prospectus,
relating to the Shares. The registration statement as amended at the time it
becomes effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement;" the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not
1
<PAGE> 3
misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and, (iii) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this Section l(b)
do not apply to statements or omissions in the Registration Statement
or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its Subsidiaries (as defined below), taken as a whole.
(d) Other than Ocular Sciences Puerto Rico Inc., a Delaware
corporation ("OSI Puerto Rico"), Ocular Sciences Canada Corporation, a
New Brunswick corporation ("OSI Canada"), Ocular Sciences Limited, a
company organized in the United Kingdom ("OSL"), and Ocular Sciences
Hungary, a Hungarian corporation ("OSH") (each of OSH, OSI Puerto Rico,
OSI Canada and OSL being referred to herein as a "Subsidiary" and
collectively as the "Subsidiaries"), the Company has no subsidiaries.
Each Subsidiary of the Company has been duly incorporated or organized,
as the case may be, is validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, as the
case may be, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its Subsidiaries,
taken as a whole. All of the issued shares of capital stock of each
Subsidiary have been duly and validly authorized and issued, are fully
paid and non-assessable, and are beneficially owned directly by the
Company, free and clear of all liens, encumbrances, equities or claims
other than liens and encumbrances described in the Prospectus.
(e) The Company and each of its Subsidiaries have good and
marketable title to all personal and real property owned by them that
is material to the business of the Company and its Subsidiaries, taken
as a whole, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as do
not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the
Company and each of its Subsidiaries; and any real property and
buildings held under lease by the Company and each of its Subsidiaries
are held by them under valid, subsisting and enforceable leases except
with such exceptions as are not material to the Company and do not
interfere with the current and proposed use of such property and
buildings by the Company and each of its Subsidiaries, in each case
except as described in or contemplated by the Prospectus.
(f) This Agreement has been duly authorized, executed and
delivered by the Company.
(g) The authorized capital stock of the Company conforms as to
legal matters in all material respects to the description thereof
contained in the Prospectus.
(h) The shares of Common Stock (including the Shares to be
sold by the Selling Stockholders) outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable. Except as set forth in
the Prospectus and other than options to purchase __________ shares of
the Company's Common Stock granted to employees
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<PAGE> 4
pursuant to the Company's 1989 Stock Option Plan (the "1989 Plan"), the
Company's 1997 Directors Stock Option Plan (the "Directors Plan") and
the Company's 1997 Share Equity Plan (the "1997 Plan") as described in
the Prospectus, neither the Company nor any of its Subsidiaries has
outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible
securities or obligations. All outstanding shares of capital stock and
options and other rights to acquire capital stock have been issued in
compliance with the registration and qualification provisions of all
applicable securities laws (or applicable exemptions thereof) and were
not issued in violation of any preemptive rights, rights of first
refusal and other similar rights.
(i) The Shares to be sold by the Company have been duly
authorized, and when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights.
(j) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or bylaws of the Company or any of its Subsidiaries
or any agreement or other instrument binding upon the Company or any
of its Subsidiaries that is material to the Company and its
Subsidiaries, taken as a whole, or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Company or any of its Subsidiaries, and no consent, approval,
authorization or order of, or qualification with, any governmental body
or governmental agency is required for the performance by the Company
of its obligations under this Agreement, except such as may be required
by the securities or Blue Sky laws of the various states or
international jurisdictions in connection with the offer and sale of
the Shares.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and Subsidiaries, taken as a whole, from that
set forth in the Prospectus.
(l) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (i) the
Company and its Subsidiaries have not incurred any material liability
or obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (ii) the Company
has not purchased any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its
capital stock; and (iii) there has not been any material change in the
capital stock, short-term debt or long-term debt of the Company and its
consolidated Subsidiaries, taken as a whole, except in each case as
described or specifically contemplated in the Prospectus.
(m) There are no legal or governmental proceedings pending or,
to the best of the Company's knowledge, threatened to which the Company
or any of its Subsidiaries is a party or to which any of the properties
of the Company or any of its Subsidiaries is subject that are required
to be described in the Registration Statement or the Prospectus and are
not so described or any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(n) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 or Rule 462 under the Securities
Act, complied when so filed in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder.
(o) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" or an entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended.
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<PAGE> 5
(p) There is no owner of any securities of the Company who has
any right, not effectively satisfied or waived, to require registration
of any shares of capital stock of the Company in connection with the
filing of the Registration Statement or the sale of any shares
thereunder. There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company or to
require the Company to include such securities with the Shares
registered pursuant to the Registration Statement, except in each case
as described in the Prospectus.
(q) The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any of
its Subsidiaries has been refused any material insurance coverage
sought or applied for since May 1, 1994; and neither the Company nor
any of its Subsidiaries has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the
earnings, business or operations of the Company and its Subsidiaries,
taken as a whole, except as described in or contemplated by the
Prospectus.
(r) The Company and each of its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) have received
all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses
and (iii) are in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of
such permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company and its
Subsidiaries, taken as a whole.
(s) The Company has complied with all provisions of Section
517.075, Florida Statutes Chapter 92-198, Laws of Florida relating to
doing business with the Government of Cuba or with any person or
affiliate located in Cuba.
(t) Except as specifically disclosed in the Prospectus, (i)
the Company and its Subsidiaries own or possess adequate licenses or
other rights to use all patents, copyrights, trademarks, service marks,
trade names, technology and know-how necessary to conduct their
respective businesses in the manner described in the Prospectus , (ii)
neither the Company nor any of its Subsidiaries has received any notice
of infringement or conflict with asserted rights of others with respect
to any patents, copyrights, trademarks, service marks, trade names,
technology or know-how that could reasonably be expected to result in
any material adverse effect upon the Company and its Subsidiaries,
taken as a whole, and (iii) the discoveries, inventions, products or
processes of the Company and its Subsidiaries referred to in the
Prospectus do not, to the best knowledge of the Company, infringe or
conflict with any right or patent of any third party, or any discovery,
invention, product or process that could reasonably be expected to have
a material adverse effect on the Company and its Subsidiaries, taken as
a whole.
(u) The Company and its Subsidiaries possess all consents,
approvals, orders, certificates, authorizations and permits issued by,
and has made all declarations and filings with, all appropriate
federal, state or foreign governmental and self-regulatory authorities
and all courts and other tribunals necessary to conduct their
respective businesses and to own, lease, license and use their
properties in the manner described in the Prospectus, except to the
extent that the failure to obtain or file would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole,
and neither the Company nor its Subsidiaries has received any notice of
proceedings related to the revocation or modification of any such
consent, approval, order, certificate, authorization or permit that,
singly or in the aggregate, could reasonably be expected to result in a
material adverse change in the condition, financial or otherwise, or in
the earnings, business or operations of the Company and its
Subsidiaries, taken as a whole.
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<PAGE> 6
(v) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principals of the United States and
to maintain asset accountability; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(w) No material labor dispute with employees of the Company or
any of its Subsidiaries exists or to the knowledge of the Company is
imminent, and, without conducting any independent investigation, the
Company is not aware of any written communication of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors that could result in
any material adverse change in the condition, financial or otherwise,
the earnings, the business or operations of the Company and its
Subsidiaries, taken as a whole.
(x) __________ and __________ outstanding shares of the Common
Stock and securities convertible into or exercisable or exchangeable
for Common Stock, respectively, are subject to valid, binding and
enforceable agreements (collectively, the "Lock-Up Agreements") that
restrict the holders thereof from selling, making any short sale of,
granting any option for the purchase of, or otherwise transferring or
disposing of, any of such shares of Common Stock, or any such
securities convertible or exercisable or exchangeable for Common Stock,
for a period of 90 days after the date of the Prospectus without the
prior written consent of Morgan Stanley.
(y) As of the date the Registration Statement became
effective, the Common Stock was authorized for quotation on The Nasdaq
National Market upon official notice of issuance.
(z) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which
constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common
Stock to facilitate the sale or resale of the Shares.
(aa) The financial statements, including the notes thereto,
included in the Registration Statement and the Prospectus fairly
present, in all material respects, the financial position of the
Company as of the dates indicated and the results of its operations for
the periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis.
(bb) The Shares to be sold by the Selling Stockholders
pursuant to this Agreement have been duly authorized and are validly
issued, fully paid and non-assessable.
(ee) The Company does not own any equity or capital interests
in any corporation, partnership, joint venture, association or other
entity, other than the Subsidiaries.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS.
Each of the Selling Stockholders, severally and not jointly, represents and
warrants to and agrees with each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder and constitutes a
valid and binding obligation upon such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations
under, this Agreement, the Custody Agreement signed by such Selling
Stockholder and the Company, as Custodian, relating to the deposit of
the Shares to be sold by such Selling Stockholder (the "Custody
Agreement") and the Power of Attorney appointing certain individuals
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<PAGE> 7
as such Selling Stockholder's attorneys-in-fact to the extent set forth
therein (the "Power of Attorney") does not contravene any provision of
applicable law, or the certificate of incorporation or bylaws of such
Selling Stockholder (if such Selling Stockholder is a corporation), or
any material agreement or other material instrument binding upon such
Selling Stockholder or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such
Selling Stockholder, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required
for the performance by such Selling Stockholder of its obligations
under this Agreement or the Custody Agreement or Power of Attorney of
such Selling Stockholder, except such as may be required under the
Securities Act or by the state securities or Blue Sky laws of the
various states in connection with the offer and sale of the Shares.
(c) Such Selling Stockholder has, and on the Closing Date will
have, valid title to the Shares to be sold by such Selling Stockholder
and the legal right and power, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement
and the Power of Attorney and to sell, transfer and deliver the Shares
to be sold by such Selling Stockholder.
(d) The Custody Agreement and the Power of Attorney have been
duly authorized, executed and delivered by such Selling Stockholder and
are valid and binding agreements of such Selling Stockholder.
(e) Upon delivery of and payment for the stock to be sold by
such Selling Stockholder as provided in this Agreement and upon
registration of the Shares in the names of the Underwriters (or their
nominees) in the stock records of the Company, the Underwriters will be
the owners of the Shares, free and clear of any adverse claim, security
interests, liens, equities and other encumbrances, provided that the
Underwriters are purchasing the Shares in good faith and without notice
of any adverse claim.
(f) All information furnished in writing by or on behalf of
such Selling Stockholder for use in the Registration Statement is, and
on the Closing Date will be, true, correct and complete, and does not,
and on the Closing Date will not, contain any untrue statement of a
material fact or omit to state any material fact necessary to make such
information not misleading, and all information furnished in writing by
or on behalf of such Selling Stockholder for use in the Prospectus is,
and on the Closing Date will be, true, correct and complete, and does
not, and on the Closing Date will not, contain any untrue statement of
a material fact or omit to state any material fact necessary to make
such information not misleading in the light of the circumstances under
which they were made.
3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and
not jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $_____ a share (the "Purchase
Price") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
number of Firm Shares to be sold by such Seller as the number of Firm Shares set
forth in Schedule II hereto opposite the name of such Underwriter bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, John D. Fruth
("Fruth"), a Selling Stockholder agrees to sell to the Underwriters the
Additional Shares, and the Underwriters shall have a one-time right to purchase,
severally and not jointly, up to 604,500 Additional Shares at the Purchase
Price. If you, on behalf of the Underwriters, elect to exercise such option, you
shall so notify the Fruth in writing not later than 30 days after the date of
this Agreement, which notice shall specify the number of Additional Shares to be
purchased by the Underwriters and the date on which such shares are to be
purchased. Such date may be the same as the Closing Date (as defined below) but
not earlier than the Closing Date nor later than ten business days after the
date of such notice. Additional Shares may be purchased as provided in Section 5
hereof solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. If any Additional Shares are to be
purchased, each Underwriter agrees, severally and not jointly, to purchase the
number of Additional Shares (subject to such adjustments to eliminate fractional
shares as you may
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<PAGE> 8
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of Firm Shares set forth in Schedule II
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares.
Each Seller hereby agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, it will not, during the
period ending 90 days after the date of the Prospectus, (i) offer, pledge, sell,
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, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise (the "Market Stand-Off"). The foregoing sentence shall not apply to
(A) the Shares to be sold hereunder, (B) the issuance by the Company of shares
of Common Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof, (C) options issued under the 1989 Plan,
the 1997 Plan, the Directors Plan, and the shares issuable upon exercise
thereof, (D) shares issued under the 1997 Employee Stock Purchase Plan and the
shares issuable upon exercise thereof; provided, however, that any receiver of
securities issued under (B), (C) or (D) above agrees to the Market Stand-Off. In
addition, each Selling Stockholder agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, it will not, during the
period ending 90 days after the date of the Prospectus, make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Sellers
are further advised by you that the Shares are to be offered to the public
initially at $_____ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of $_____
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be
sold by each Seller shall be made in federal or immediately available funds at
the office of Fenwick & West LLP at 10:00 A.M., New York time, on __________ __,
1998 or at such other time on the same or such other date, not later than
__________ __, 1998, as shall be designated in writing by you. The time and date
of such payment are hereinafter referred to as the "Closing Date."
Payment for any Additional Shares shall be made by certified
or official bank check or checks payable to the order of the Company in same day
funds at the office of Fenwick & West LLP at 10:00 A.M., New York time, on the
date specified in the notice described in Section 3 or on such other date as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall
be in definitive form and registered in such names and in such denominations as
you shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. CONDITIONS TO THE UNDERWRITER'S OBLIGATIONS. The
obligations of the Sellers to sell the Shares to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Shares on
the Closing Date are subject to the condition that the Registration Statement
shall have become effective not later than 5:30 p.m. (New York time) on the date
hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
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<PAGE> 9
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any
downgrading, nor shall any notice have been given of any
intended or potential downgrading or of any review for a
possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule
436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any
change, or any development involving a prospective change, in
the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its Subsidiaries,
taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent
to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company on behalf of the Company, to the effect set forth in
clause (a) above and to the effect that the representations and
warranties of the Company contained in this Agreement are true and
correct as of the Closing Date and that the Company has complied with
all of the agreements and satisfied all of the conditions on its part
to be performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely
upon his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date
an opinion of Fenwick & West LLP, outside counsel for the Company,
dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated,
is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has the
corporate power and corporate authority to own its property
and to conduct its business as described in the Prospectus and
is duly qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such
qualification except to the extent that the failure to be so
qualified would not have a material adverse effect on the
Company and its Subsidiaries, taken as a whole;
(ii) OSI Puerto Rico has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation and has the corporate power and corporate
authority to own its property and to conduct its business as
described in the Prospectus;
(iii) to such counsel's knowledge, other
than director qualifying shares, the Company is the sole
holder of all outstanding stock of the Subsidiaries (subject
to the rights of secured creditors as described in the
Prospectus);
(iv) the authorized capital stock of the
Company conforms as to legal matters in all material respects
to the description thereof contained in the Prospectus;
(v) the shares of Common Stock (including
the Shares to be sold by the Selling Stockholders) outstanding
prior to the issuance of the Shares to be sold by the Company
have been duly authorized and are validly issued and
non-assessable and, to such counsel's knowledge, fully paid;
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<PAGE> 10
(vi) the Shares to be sold by the Company
have been duly authorized and, when issued and delivered in
accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and, to such counsel's
knowledge, the issuance of such Shares will not be subject to
any preemptive or similar rights;
(vii) to the knowledge of such counsel,
there is no owner of any securities of the Company who has any
rights, not effectively satisfied or waived, to require
registration of any shares of capital stock of the Company in
connection with the filing of the Registration Statement;
(viii) the Company has corporate power and
corporate authority to enter into this Agreement and to issue,
sell and deliver to the Underwriters the Shares to be issued
and sold by the Company;
(ix) this Agreement has been duly
authorized, executed and delivered by the Company;
(x) the execution and delivery by the
Company of, and the performance by the Company of its
obligations under, this Agreement will not contravene any
provision of applicable law or the certificate of
incorporation or bylaws of the Company or, to such counsel's
knowledge, any agreement or other instrument binding upon the
Company or any of its Subsidiaries that is material to the
Company and its Subsidiaries, taken as a whole (where such
agreements and instruments have been identified to such
counsel by the Company as all of the material agreements and
instruments binding upon the Company or its Subsidiaries) (the
"Material Agreements"), or, to such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or its
Subsidiaries, and no consent, approval, authorization or order
of, or qualification with, any governmental body or
governmental agency is required for the performance by the
Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the
various states or international jurisdiction in connection
with the offer and sale of the Shares (as to which such
counsel need not opine);
(xi) to such counsel's knowledge based
solely upon oral advice from the Staff of the Commission: (I)
the Registration Statement has become effective under the
Securities Act, no stop order proceedings with respect thereto
have been instituted or are pending or threatened under the
Securities Act, and (II) any required filing of the Prospectus
and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time
period required by such Rule 424(b);
(xii) the Shares to be sold under this
Agreement to the Underwriters by the Company and the Selling
Stockholders are duly authorized for quotation on the Nasdaq
National Market;
(xiii) the statements (A) in the Prospectus
under the captions "Management--Executive Compensation,"
"Management--Employment Agreements," "Management--Employee
Benefit Plans," "Certain Transactions--OSL Acquisition and
Related Litigation" (except the third, fourth and fifth
paragraphs thereunder), "Description of Capital Stock," and
"Shares Eligible for Future Sale" and "Underwriters" (to the
extent of the description of this Agreement) and (B) in the
Registration Statement in Items 14 and 15, in each case
insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly
present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the
matters referred to therein;
(xiv) such counsel does not know of any
legal or governmental proceedings pending or threatened to
which the Company or any of its Subsidiaries is a party or to
which any of the properties of the Company or any of its
Subsidiaries is subject that are required to be described in
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the Registration Statement or the Prospectus and are not so
described or of any statutes, regulations, or to such
counsel's knowledge, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
(xv) the Company is not and, after giving
effect to the offering and sale of the Shares and the
application of the net proceeds therefrom as described in the
Prospectus, will not be an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended;
and
(xix) The statements in the Prospectus under
the captions "Risk Factors--Risk of Regulatory Action" and
"Business--Government Regulation," insofar as such statements
purport to summarize applicable provisions of the Federal
Food, Drug and Cosmetic Act and the regulations promulgated
thereunder, are accurate summaries in all material respects of
the provisions purported to be summarized under such captions
in the Prospectus.
In addition, such counsel shall state that in addition to
rendering legal advice and assistance to the Company in the course of the
preparation of the Registration Statement and the Prospectus, involving, among
other things, discussions and inquiries concerning various legal matters and the
review of certain corporate records, documents and proceedings, such counsel
also participated in conferences with certain officers and other representatives
of the Company, including its independent certified public accountants and with
the Underwriters and their counsel, at which the contents of the Registration
Statement and the Prospectus and related matters were discussed; provided, such
counsel may state that they have not independently verified the accuracy,
completeness or fairness of the information contained in the Registration
Statement and Prospectus.
In addition to the matters set forth above, counsel rendering
the foregoing opinion shall also include a statement to the effect that nothing
has come to the attention of such counsel that causes it to believe that (i) the
registration statement (except as to the financial statements, the notes
thereto, the schedules and the other financial and statistical data contained
therein, as to which such counsel need not express any opinion or belief) at the
date the Registration Statement became effective contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) the
Prospectus (except as to the financial statements, the notes thereto, the
schedules and the other financial and statistical data contained therein, as to
which such counsel need not express an opinion or belief) as of its date
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading and (iii) the Registration Statement or the Prospectus (except as to
the financial statements, the notes thereto, the schedules and the other
financial and statistical data contained therein, as to which such counsel need
not express any opinion or belief) did not comply as to form in all material
respects with the Securities Act and the applicable rules and regulations
thereunder.
(d) The Underwriters shall have received on the Closing Date
an opinion or opinions of counsel for the Selling Stockholders (who may
also be counsel for the Company) to the effect that with respect to the
Selling Stockholder that such counsel represents:
(i) this Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling
Stockholder;
(ii) the execution and delivery by such
Selling Stockholder of, and the performance by such Selling
Stockholder of its obligations under, this Agreement and the
Custody Agreement and Powers of Attorney of such Selling
Stockholder does not contravene any provision of applicable
law, or the certificate of incorporation or bylaws of such
Selling Stockholder (if such Selling Stockholder is a
corporation) or, to such counsel's knowledge, any agreement or
other instrument binding upon such Selling Stockholder (where
such agreements and
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instruments have been identified to such counsel by such
Selling Stockholder as all of the material agreements and
instruments binding upon such Selling Stockholder) or, to such
counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over
such Selling Stockholder, and, to such counsel's knowledge, no
consent, approval, authorization or order of, or qualification
with, any governmental body or governmental agency is required
for the performance by such Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or
Power of Attorney of such Selling Stockholder, except such as
may be required under the Securities Act or by the state
securities or Blue Sky laws in connection with the offer and
sale of the Shares (as to which such counsel need not opine);
(iii) to such counsel's knowledge, such
Selling Stockholder has the legal right and power, and all
authorization and approval required by law, to enter into this
Agreement and the Custody Agreement and Power of Attorney of
such Selling Stockholder and to sell, transfer and deliver the
Shares to be sold by such Selling Stockholder;
(iv) the Custody Agreement and the Power of
Attorney of such Selling Stockholder have been duly
authorized, executed and delivered by such Selling Stockholder
and are valid and binding agreements of such Selling
Stockholder; and
(v) upon delivery of and payment for the
stock to be sold by such Selling Stockholder as provided in
this Agreement and upon registration of the Shares in the
names of the Underwriters (or their nominees) in the stock
records of the Company (but without having conducted a search
of the records of any governmental authority or any third
person), the Underwriters will be the owners of the Shares,
free and clear of any adverse claim, security interests,
liens, equities and other encumbrances, provided that the
Underwriters are purchasing the Shares in good faith and
without notice of any adverse claim.
The opinions of Fenwick & West LLP described in paragraphs (c)
and (d) above (and any opinions of counsel for any Selling Stockholder referred
to in the immediately preceding paragraph) shall be rendered to the Underwriters
at the request of the Company or one or more of the Selling Stockholders, as the
case may be, and shall so state therein.
(e) The Underwriters shall have received on the Closing Date
an opinion of Moore & Blatch, counsel for OSL, dated the Closing Date,
to the effect that:
(i) OSL has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in
the United Kingdom;
(ii) all of the issued shares of capital
stock of OSL have been duly validly authorized and issued, are
fully paid up or credited as fully paid up, and owned directly
by the Company, free and clear of all liens and encumbrances
(other than the lien of Commercial Bank - California as
described in the Prospectus);
(iii) the execution and delivery by the
Company of, and the performance by the Company of its
obligations under, this Agreement will not contravene any
provision of English law or the Memorandum of Articles of
Association of OSL;
(f) The Underwriters shall have received on the Closing Date
an opinion of Bird, Bird and Hestres, counsel for OSI Puerto Rico,
dated as of the Closing Date, that OSI Puerto Rico is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on OSI Puerto Rico.
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<PAGE> 13
(g) The Underwriters shall have received on the Closing Date
an opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel for the Underwriters, dated the Closing Date, covering the
matters referred to in the first clause of subparagraph (c)(i), in the
first clause of subparagraph (c)(vi), in subparagraphs (c)(viii),
(c)(ix), (c)(xi) (but only as to the opinion in clause (I) thereof) and
(c)(xiii) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and the second
paragraph following the enumerated opinions in paragraph (c) above.
Such opinion shall also cover the matters referred to in subparagraph
(d)(i).
(h) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from KPMG Peat Marwick LLP, independent certified
public accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided that the letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof.
(i) The "lock-up" agreements between you and certain
stockholders, officers and directors of the Company relating to sales
and certain other dispositions of shares of Common Stock or certain
other securities, delivered to you on or before the date hereof, shall
be in full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the delivery to you on the Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the Additional Shares.
7. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four (4) signed copies
of the Registration Statement (including exhibits thereto) and for
delivery to each other Underwriter a conformed copy of the Registration
Statement (without exhibits thereto) and to furnish to you in New York
City, without charge, prior to 5:00 P.M. local time on the business day
next succeeding the date of this Agreement and during the period
mentioned in paragraph (c) below, as many copies of the Prospectus and
any supplements and amendments thereto or to the Registration Statement
as you may reasonably request.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such
proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you reasonably object, and to file
with the Commission within the applicable period specified in Rule
424(b) under the Securities Act any prospectus required to be filed
pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the Company)
to which Shares may have been sold by you on behalf of the Underwriters
and to any other dealers upon request, either amendments or supplements
to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so
that the Prospectus, as amended or supplemented, will comply with law.
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<PAGE> 14
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earnings statement
covering the twelve-month period ending March 30, 1999 that satisfies
the provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
(f) To pay or cause to be paid all expenses incident to the
performance of its obligations under this Agreement, including: (i) the
fees, disbursements and expenses of the Company's counsel and the
Company's accountants in connection with the registration and delivery
of the Shares under the Securities Act and all other fees or expenses
in connection with the preparation and filing of the Registration
Statement, any preliminary prospectus, the Prospectus and amendments
and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof
to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriters, including any transfer or
other taxes payable thereon, (iii) the cost of printing or producing
any Blue Sky memorandum in connection with the offer and sale of the
Shares under state securities laws, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with the Blue Sky memorandum, (iv) all filing fees and
reasonable disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the offering of the
Shares by the National Association of Securities Dealers, Inc., (v) all
costs and expenses incident to listing the Shares on the Nasdaq
National Market, (vi) the cost of printing certificates representing
the Shares, (vii) the costs and charges of any transfer agent,
registrar or depositary, (viii) the costs and expenses of the Company
relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Shares, including,
without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval
of the Company, travel and lodging expenses of the representatives and
officers of the Company and any such consultants and, if approved by
the Company, the cost of any aircraft chartered in connection with the
road show, (ix) any expenses of Selling Stockholders under Section 8
below and (x) all other costs and expenses incident to the performance
of the obligations of the Company hereunder for which provision is not
otherwise made in this Section. It is understood, however, that except
as provided in this Section, Section 9 entitled "Indemnity and
Contribution", and the last paragraph of Section 11 below, the
Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes payable on
resale of any of the Shares by them, and any advertising expenses
connected with any offers they may make.
(g) To not release any shares of Common Stock from any
restrictions imposed upon such shares by the Lock-Up Agreements without
the prior written consent of Morgan Stanley.
8. EXPENSES OF SELLING STOCKHOLDERS. The Underwriters shall
not be liable for any expenses of any Selling Stockholders in connection with
the sale of their Shares in the offering. As between the Company and the Selling
Stockholders, Selling Stockholder expenses will be paid by the Selling
Stockholders and/or the Company subject to the terms set forth in that certain
Registration Rights Agreement, dated as of October 30, 1992, as amended February
27, 1997, by and among the Company and the various signing stockholders thereto,
which include the Selling Stockholders. To the extent not set forth or provided
for therein, as between the Underwriters on the one hand, and the Company on the
other, all Selling Stockholder expenses shall be borne by the Company.
9. INDEMNITY AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against
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<PAGE> 15
any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar
as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission
based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use
therein; provided, however, that the foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of
any Underwriter, or any person controlling such Underwriter, from whom
the person asserting any such losses, claims, damages or liabilities
purchased Shares, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss,
claim, damage or liability.
(b) Each Selling Stockholder agrees, severally and not
jointly, to indemnify and hold harmless each Underwriter, the Company,
its directors, its officers who sign the Registration Statement and
each person, if any, who controls any Underwriter or the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating
to such Selling Stockholder furnished in writing by or on behalf of
such Selling Stockholder expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments
or supplements thereto; provided, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to
the benefit of any Underwriter, or any person controlling such
Underwriter, from whom the person asserting any such losses, claims,
damages or liabilities purchased Shares, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the
sale of the Shares to such person, and if the Prospectus (as so amended
or supplemented) would have cured the defect giving rise to such loss,
claim, damage or liability.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Stockholders, the
directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with
reference to information relating to such Underwriter furnished to the
Company in writing by or on behalf of such Underwriter through you
expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto.
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(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to paragraph (a), (b) or (c) of
this Section 9, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may reasonably designate in
such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in
respect of the legal expenses of any indemnified party in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm (in
addition to any local counsel) for (i) all Underwriters and all
persons, if any, who control any Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange
Act, (ii) the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the
Company within the meaning of either such Section and (iii) all Selling
Stockholders and all persons, if any, who control any Selling
Stockholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the
case of any such separate firm for the Underwriters and such control
persons of the Underwriters, such firm shall be designated in writing
by Morgan Stanley. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the
Company, such firm shall be designated in writing by the Company. In
the case of any such separate firm for the Selling Stockholders and
such controlling persons of the Selling Stockholders, such firm shall
be designated in writing by the persons named as attorneys-in-fact for
the Selling Stockholders under the Powers of Attorney. The indemnifying
party shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for
fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on
claims that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in
paragraph (a), (b) or (c) of this Section 9 is unavailable to an
indemnified party or insufficient in respect of any losses, claims,
damages or liabilities referred to therein, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party or parties on the other hand from
the offering of the Shares or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying party
or parties on the one hand and of the indemnified party or parties on
the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received
by the Company and the
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<PAGE> 17
Selling Stockholders on the one hand and the Underwriters on the other
hand in connection with the offering of the Shares shall be deemed to
be in the same respective proportions as the net proceeds from the
offering of the Shares (before deducting expenses) received by each
Seller and the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover
of the Prospectus, bear to the aggregate Public Offering Price of the
Shares. The relative fault of each Seller and the Underwriters shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such Seller or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective number of Shares they have purchased hereunder, and not
joint.
(f) The Sellers and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in paragraph (e) of this Section 9. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 9,
no Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the Shares underwritten by
it and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section
9 are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in
equity.
(g) The indemnity and contribution provisions contained in
this Section 9 and the representations, warranties and other statements
of the Company and the Selling Stockholders contained in this Agreement
shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter,
any Selling Stockholder or any person controlling any Selling
Stockholder, or the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of
the Shares. The aggregate liability of each Selling Stockholder under
the indemnity and contribution agreements contained in this Section 9
and under the representations and warrants contained in paragraph (f)
of Section 2 hereof shall be limited to an amount equal to the net
proceeds received by such Selling Stockholder (before deducting
expenses) from the offering of the Shares sold by such Selling
Stockholder.
10. TERMINATION. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse and (b) in
the case of any of the events specified in clauses (a)(i) through (iv), such
event, singly or together with any other such event, makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
11. EFFECTIVENESS: DEFAULTING UNDERWRITERS. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
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If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares that it has or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule II bears to
the aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you, the
Company and the Selling Stockholders for the purchase of such Firm Shares are
not made within 36 hours after such default, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case either you or the relevant Sellers
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, on the Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase Additional Shares or (ii) purchase not less
than the number of Additional Shares that such non-defaulting Underwriters would
have been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of any Seller to
comply with the terms or to fulfill any of the conditions placed upon it in this
Agreement, or if for any reason any Seller shall be unable to perform its
obligations under this Agreement that are within its control, the Sellers will
reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and disbursements of their counsel) reasonably incurred by
such Underwriters in connection with this Agreement or the offering contemplated
hereunder.
12. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
14. HEADINGS. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
17
<PAGE> 19
Very truly yours,
OCULAR SCIENCES, INC.
By:
---------------------------------------
Name:
Title:
THE SELLING STOCKHOLDERS NAMED IN
SCHEDULE I HERETO, ACTING SEVERALLY
By:
---------------------------------------
Attorney-in-Fact
Accepted as of the date hereof:
MORGAN STANLEY & CO. INCORPORATED
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN INCORPORATED
COWEN & COMPANY
Acting severally on behalf of themselves
and the several Underwriters
named in Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:
-----------------------------------
<PAGE> 20
SCHEDULE I
<TABLE>
<CAPTION>
Number of Number of
Firm Shares Additional Shares
Selling Stockholder To Be Sold To Be Sold
- ------------------- ---------- ----------
<S> <C> <C>
Total:
</TABLE>
S-1
<PAGE> 21
SCHEDULE II
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
- ----------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
BT Alex. Brown Incorporated
Cowen & Company
Total:
</TABLE>
S-2
<PAGE> 1
EXHIBIT 10.13
$30,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of November 7, 1997
by and between
OCULAR SCIENCES, INC.,
a Delaware corporation,
AS A BORROWER,
OCULAR SCIENCES PUERTO RICO, INC.,
a Delaware corporation,
AS A BORROWER,
and
COMERICA BANK-CALIFORNIA,
AS THE LENDER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS............................. 2
SECTION 1.1. CERTAIN DEFINED TERMS..................................... 2
SECTION 1.2. Accounting Terms.......................................... 17
SECTION 1.3. Other Definitional Provisions............................. 18
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES............................ 18
SECTION 2.1. Advances.................................................. 18
(a) Facility A Advances....................................... 19
(b) Facility B Advances....................................... 19
(c) Use of Proceeds........................................... 19
SECTION 2.2. Mechanics of Advances..................................... 19
(a) Borrowings................................................ 19
(b) Notice of Borrowing....................................... 19
(c) Telephonic Notice......................................... 20
(d) Funding of Advances....................................... 20
(e) Notice of Borrowing Irrevocable........................... 20
SECTION 2.3. Evidence of Debt.......................................... 20
(a) Promise to Repay.......................................... 20
(b) Loan Account.............................................. 20
SECTION 2.4. Fees...................................................... 21
(a) Closing Fee............................................... 21
(b) Commitment Fees........................................... 21
SECTION 2.5. Repayment................................................. 21
(a) Facility A................................................ 21
(b) Facility B................................................ 21
(c) Maturity.................................................. 21
(d) Voluntary Prepayments..................................... 21
(e) Optional Reduction or Termination of Facility A........... 22
(f) Excess Exposure........................................... 22
(g) Change of Control......................................... 23
SECTION 2.6. Interest.................................................. 23
(a) Base Rate Advances........................................ 23
(b) Facility A Eurodollar Rate Advances....................... 23
(c) Facility B Eurodollar Rate Advances....................... 23
(d) Negotiated Rate Advances.................................. 24
(e) Default Interest.......................................... 24
SECTION 2.7. Interest Rate Determination and Protection................ 24
(a) Determination of Eurodollar Rate and Negotiated Rate...... 24
(b) Notice of Eurodollar Rate and Negotiated Rate............. 24
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
(c) Alternative Interest Rate................................. 24
(d) Minimum Amounts........................................... 25
(e) Lender's Determination Conclusive......................... 25
SECTION 2.8. Voluntary Conversion of Advances.......................... 25
(a) Notice of Continuance/Conversion.......................... 25
(b) Telephonic Notice......................................... 25
(c) Requirements.............................................. 26
(d) Base Rate Advances........................................ 26
SECTION 2.9. Funding Losses............................................ 26
SECTION 2.10. Increased Costs........................................... 27
(a) Increase in Cost.......................................... 27
(b) Increase in Capital Requirements.......................... 27
SECTION 2.11. Illegality................................................ 28
SECTION 2.12. Payments and Computations................................. 28
(a) Payments.................................................. 28
(b) Computations.............................................. 28
(c) Payment on Business Day................................... 28
SECTION 2.13. Taxes..................................................... 29
(a) Net Payments.............................................. 29
(b) Payment of Other Taxes.................................... 29
(c) Indemnification........................................... 29
(d) Evidence of Payments...................................... 29
SECTION 2.14. COLLATERAL AND GUARANTIES................................. 30
SECTION 2.15. Issuance of Letters of Credit............................. 30
SECTION 2.16. Payment of Letters of Credit; Reimbursement............... 30
SECTION 2.17. Letter of Credit Fees..................................... 32
SECTION 2.18. Uniform Custom and Practice............................... 32
ARTICLE III
CONDITIONS OF LENDING........................................ 32
SECTION 3.1. Conditions Precedent on the Closing Date.................. 32
(a) Loan Documents............................................ 32
(b) Corporate Documents....................................... 33
(c) Governmental Consents..................................... 33
(d) No Injunction............................................. 33
(e) Other Deliveries.......................................... 34
(f) Legal Opinions............................................ 34
(g) Cancellation of Original Credit Agreement................. 34
(h) Payment of Existing Debt.................................. 34
(i) Payment of Fees and Expenses.............................. 35
(j) No Material Adverse Change................................ 35
SECTION 3.2. Conditions Precedent to Each Extension of Credit.......... 35
(a) Notice.................................................... 35
(b) Certification............................................. 35
ARTICLE IV
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
REPRESENTATIONS AND WARRANTIES............................... 36
SECTION 4.1. Representations and Warranties of the Borrower............ 36
(a) Organization.............................................. 36
(b) Power and Authority....................................... 36
(c) Due Authorization......................................... 36
(d) Subsidiaries and Ownership of Capital Stock............... 36
(e) Governmental Approval..................................... 37
(f) Binding and Enforceable................................... 37
(g) Financial Information..................................... 37
(h) Material Adverse Change................................... 37
(i) Compliance................................................ 37
(j) Litigation................................................ 37
(k) No Conflict............................................... 38
(l) No Default................................................ 38
(m) Payment of Taxes.......................................... 38
(n) Margin Regulations........................................ 38
(o) Conduct of Business....................................... 38
(p) Environmental Matters..................................... 38
(q) ERISA Compliance.......................................... 39
(r) Title to Assets; No Infringement.......................... 40
(s) Undisclosed Liabilities................................... 40
ARTICLE V
COVENANTS OF THE BORROWERS.......................................................... 40
SECTION 5.1. Financial Covenants....................................... 40
(a) Maximum Leverage Ratio.................................... 40
(b) Minimum Fixed Charge Coverage Ratio....................... 40
(c) Minimum Quick Ratio....................................... 41
(d) Minimum Tangible Effective Net Worth...................... 41
SECTION 5.2. Affirmative Covenants..................................... 41
(a) Compliance with Laws...................................... 41
(b) Inspection of Property and Books and Records.............. 41
(c) Reporting Requirements.................................... 41
(d) Preservation of Corporate Existence, Etc.................. 43
(e) New Subsidiaries.......................................... 43
(f) Maintenance of Property................................... 44
(g) Insurance................................................. 44
(h) Payment of Taxes and Lienable Items....................... 44
(i) Use of Proceeds........................................... 44
(j) Permitted Cash Investments................................ 44
(k) Further Assurances........................................ 44
SECTION 5.3. Negative Covenants........................................ 45
(a) Liens..................................................... 45
(b) Disposition of Assets..................................... 47
(c) Investments............................................... 48
(d) Limitation on Debt and Accommodation Obligations.......... 49
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
(e) Transactions with Affiliates.............................. 51
(f) Restricted Junior Payments................................ 51
(g) Mergers, Etc.............................................. 52
(h) Conduct of Business....................................... 52
(i) Compliance with ERISA..................................... 52
(j) Payment Restrictions Affecting Subsidiaries............... 53
ARTICLE VI
EVENTS OF DEFAULT........................................... 53
SECTION 6.1. Events of Default......................................... 53
(a) Non-Payment of Principal.................................. 53
(b) Non-Payment of Interest................................... 53
(c) Non-Payment of Other Obligations.......................... 53
(d) Representations and Warranties............................ 53
(e) Financial and Negative Covenants.......................... 53
(f) Reporting and Collateral Covenants........................ 53
(g) Other Agreements.......................................... 54
(h) Default as to Other Debt.................................. 54
(i) Bankruptcy................................................ 54
(j) Judgments................................................. 55
(k) Material Adverse Change................................... 55
(l) Loan Documents............................................ 55
(m) Collateral Documents...................................... 55
(n) ERISA..................................................... 55
SECTION 6.2. Rights Not Exclusive...................................... 56
ARTICLE VII
MISCELLANEOUS............................................... 56
SECTION 7.1. Amendments................................................ 56
SECTION 7.2. Notices................................................... 56
SECTION 7.3. No Waiver; Remedies....................................... 57
SECTION 7.4. Costs and Expenses........................................ 57
SECTION 7.5. Right of Set-off.......................................... 57
SECTION 7.6. General Indemnity......................................... 57
SECTION 7.7. Assignments and Participations............................ 58
SECTION 7.8. Binding Effect............................................ 59
SECTION 7.9. Governing Law............................................. 59
SECTION 7.10. Waiver of Jury Trial...................................... 59
SECTION 7.11. Limitation of Liability................................... 60
SECTION 7.12. Confidentiality........................................... 60
SECTION 7.13. Entire Agreement.......................................... 60
SECTION 7.14. Termination of Original Credit Agreement.................. 60
SECTION 7.15. Survival.................................................. 61
SECTION 7.16. Execution in Counterparts................................. 61
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A-1 Form of Notice of Borrowing
Exhibit A-2 Form of Notice of Continuance/Conversion
Exhibit B-1 Form of Amended and Restated Subsidiary Guaranty
Exhibit B-2 Form of Parent Guaranty
Exhibit B-3 Form of Amended and Restated Pledge Agreement
Exhibit C-1 Form of Opinion of Counsel for the Borrowers
Exhibit C-2 Form of Opinion of Puerto Rican Counsel for Ocular
Sciences Puerto Rico, Inc.
Exhibit C-3 Form of Opinion of Foreign Counsel
Exhibit D-1 Form of Compliance Certificate
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule 4.1(d) List of Subsidiaries
Schedule 4.1(e) List of Governmental Approvals
Schedule 4.1(j) List of Litigation
Schedule 4.1(o) List of Business Lines
Schedule 4.1(p) List of Environmental Matters
Schedule 4.1(q) List of ERISA Matters
Schedule 4.1(s) List of Undisclosed Liabilities
Schedule 5.3(c) List of Investments
Schedule 5.3(d) List of Liens and Debts
</TABLE>
v
<PAGE> 7
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November
7, 1997, is made by and between OCULAR SCIENCES, INC., a Delaware corporation
(formerly known as O.S.I. Corporation and herein referred to as "Ocular
Sciences"), as a Borrower, and OCULAR SCIENCES PUERTO RICO, INC., a Delaware
corporation (formerly known as O.S.I. Puerto Rico Corporation and herein
referred to as "O.S.I. Puerto Rico"), as a Borrower, and COMERICA
BANK-CALIFORNIA, a California chartered bank, as the Lender.
RECITALS
WHEREAS, O.S.I. Puerto Rico has requested that the Lender loan funds to
O.S.I. Puerto Rico, and the Lender has agreed to lend money to O.S.I. Puerto
Rico subject to the terms and conditions of this Agreement;
WHEREAS, O.S.I. Corporation, a California corporation (the
"Predecessor"), was merged with and into Ocular Sciences pursuant to an
Agreement and Plan of Merger dated as of July 30, 1997;
WHEREAS, Ocular Sciences is the surviving corporation of the aforesaid
merger;
WHEREAS, the Predecessor and the Lender are parties to a certain Credit
Agreement dated as of October 30, 1996, as amended by Amendment Number One to
Credit Agreement dated as of February 27, 1997, Amendment Number Two to Credit
Agreement dated as of July 7, 1997, and Amendment Number Three to Credit
Agreement dated as of July 18, 1997 (as so amended, the "Original Credit
Agreement");
WHEREAS, Ocular Sciences has requested that the Lender amend and
restate the Original Credit Agreement; and
WHEREAS, the Lender is willing to amend the Original Credit Agreement
upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the promises and the agreements,
provisions and covenants herein contained, the Borrowers and the Lender agree as
follows:
1
<PAGE> 8
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. CERTAIN DEFINED TERMS. As used in this Agreement:
ACCOMMODATION OBLIGATION means, as applied to any Person, any direct or
indirect guaranty, endorsement or other liability of that Person with respect to
any Debt, lease, dividend, letter of credit or other obligation (the "primary
obligation") of another Person (the "primary obligor"), including any obligation
of that Person, whether or not contingent, (i) to purchase, repurchase or
otherwise acquire any such primary obligation or any property constituting
direct or indirect security therefor; (ii) to advance or provide funds (A) for
the payment or discharge of any such primary obligation, or (B) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor; (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation; or (iv) otherwise to assure or hold harmless the holder
of any such primary obligation against loss in respect thereof. The amount of
any Accommodation Obligation shall be deemed to be an amount equal to the
maximum stated or determinable amount of the primary obligation in respect of
which such Accommodation Obligation is made or, if not stated or if
indeterminable, the maximum reasonably estimated potential liability in respect
thereof. Endorsements of checks for collection or deposit in the ordinary course
of business are not Accommodation Obligations.
ADVANCE means a Facility A Advance or a Facility B Advance.
AFFILIATE of a specified Person means any other Person that directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with, the Person specified. For this purpose, "control,"
"controlled by" and "under common control with" mean, with respect to any
Person, the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
AGREEMENT means this Amended and Restated Credit Agreement.
APPLICABLE AMOUNT means the per annum interest margin applicable to
Base Rate Advances, Facility A Eurodollar Rate Advances, Facility B Eurodollar
Rate Advances and Negotiated Rate Advances and the per annum commitment fees
pertaining to Facility A, in each case as set forth below opposite the
applicable Leverage Ratio determined by the Lender, initially as set forth in
the certificate delivered on the Closing Date pursuant to Section 3.1(e)(iii)
and thereafter in the most recent financial statements and Compliance
Certificate delivered by the Borrower pursuant to Section 5.2(c). The Lender's
determination of the applicable
2
<PAGE> 9
Leverage Ratio shall be conclusive absent manifest error. Any such change in the
Applicable Amount shall be given prospective effect only, effective on the fifth
Business Day after receipt of the most recent financial statements and
Compliance Certificate, in each case with no retroactivity or clawback;
PROVIDED, HOWEVER, that if the Borrowers shall fail to timely deliver such
financial statements and Compliance Certificate for any period, then the
Applicable Amount shall be based on the highest level set forth below until the
fifth Business Day after the Borrowers shall deliver such financial statements
and Compliance Certificate to the Lender.
<TABLE>
<CAPTION>
Leverage Ratio Base Rate Facility A Facility B Negotiated Commitment
Advances Eurodollar Eurodollar Rate Fee
Rate Rate Advances
Advances Advances
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Greater than or equal
to 0.50 to 1.00 0.00% 1.50% 1.75% 1.75% 0.375%
- ---------------------------------------------------------------------------------------------------------
Less than 0.50 to 1.00
but greater than or
equal 0.25 to 1.00
0.00% 1.25% 1.50% 1.50% 0.250%
- ---------------------------------------------------------------------------------------------------------
Less than 0.25 to 1.00 0.00% 1.00% 1.25% 1.25% 0.250%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
ASSET SALE means the sale, sale-leaseback, license, transfer or other
disposition of any asset, business or property of either Borrower or any of
their Subsidiaries, other than (i) sales and other dispositions of inventory in
the ordinary course of business; (ii) sales of used, worn-out or surplus
equipment in which the proceeds are reinvested in other fixed assets within one
hundred eighty (180) days from the date of sale; (iii) sales and leasebacks of
equipment acquired by either Borrower or any of their Subsidiaries not more than
one hundred eighty (180) days prior to such sale or leaseback; and (iv)
non-exclusive licenses and similar arrangements for the use of intellectual
property of either Borrower or any of their Subsidiaries.
AUTHORIZED OFFICER means the chief executive officer, president, chief
financial officer or controller of a Borrower.
BANKRUPTCY, INSOLVENCY OR LIQUIDATION PROCEEDING means (i) any case
commenced by or against either Borrower under any chapter of the United States
Bankruptcy Code, any other proceeding for the reorganization, recapitalization
or adjustment or marshalling of the assets or liabilities of either Borrower,
any receivership or assignment for the benefit of creditors relating to either
Borrower or any similar case or proceeding relative to either Borrower or its
creditors, as such, in each case whether or not voluntary, (ii) any liquidation,
dissolution, marshalling of assets or liabilities or other winding up of or
relating to either Borrower, in each case whether or not voluntary and whether
or not involving bankruptcy or insolvency,
3
<PAGE> 10
and (iii) any other proceeding of any type or nature in which claims against
either Borrower generally are determined, proven or paid.
BASE RATE means, for any day, a fluctuating interest rate per annum
equal to the then effective rate of interest announced publicly by the Lender at
its head office from time to time as its prime commercial lending rate (it being
understood that such rate is merely a reference rate and is not the best, lowest
or most favorable rate offered by the Lender).
BASE RATE ADVANCE means an Advance which bears interest by reference to
the Base Rate as provided in Section 2.6(a).
BORROWER means Ocular Sciences or O.S.I. Puerto Rico, individually, and
BORROWERS mean Ocular Sciences and O.S.I. Puerto Rico, collectively.
BREAKAGE COSTS is defined in Section 2.9.
BUSINESS DAY means any day except a Saturday or Sunday or a day when
commercial banks are authorized or required by law to be closed in San Jose,
California and (i) if the applicable Business Day relates to a Eurodollar Rate
Advance, additionally means such a day on which commercial banks are authorized
or required by law to be closed in Detroit, Michigan or London, England, and
(ii) if the applicable Business Day relates to a Negotiated Rate Advance,
additionally means such a day on which commercial banks are authorized or
required by law to be closed in Detroit, Michigan.
CAPITAL LEASE means, with respect to any Person, any lease of any
property by that Person as lessee which, in accordance with GAAP, is required to
be accounted for as a capital lease on the balance sheet of that Person.
CASH FLOW means, for any period, an amount determined as (i)
Consolidated Net Income for such period, PLUS (ii) to the extent deducted in
determining Consolidated Net Income and without duplication, the sum of (A) all
charges for Consolidated Interest Expense, depreciation and amortization for
such period, PLUS (B) all non-cash charges required by GAAP relating to
dispositions of property, plant and equipment for such period, MINUS (iii)
preferred stock dividends paid or payable by Ocular Sciences or any of its
consolidated Subsidiaries during such period, MINUS (iv) Consolidated Capital
Expenditures for such period, all computed and calculated in accordance with
GAAP.
CHANGE OF CONTROL means a transaction or series of related transactions
by which either (i) any Person or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the 1934 Act) acquires beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act), directly or indirectly, of securities of Ocular
Sciences (or other securities convertible into such securities) representing
fifty percent (50%) or more of the combined voting power of all securities of
Ocular Sciences entitled to
4
<PAGE> 11
vote in the election of directors, (ii) Ocular Sciences shall cease to own one
hundred percent (100%) of all classes of stock of O.S.I. Puerto Rico, or (iii) a
majority of the member of Ocular Sciences' or O.S.I. Puerto Rico's board of
directors are Persons who were not in office on the Closing Date and were not
initially nominated by directors who were in office on the Closing Date or by
successor directors elected or appointed upon the initial nomination of such
directors or successor directors.
CLAIMS is defined in Section 7.6.
CLOSING DATE means the date on which all of the conditions precedent
set forth in Section 3.1 are satisfied or waived in writing by the Lender.
CODE means the Internal Revenue Code of 1986.
COLLATERAL means all property which at any time is subject or is to
become subject to any Lien granted or created under any of the Collateral
Documents.
COLLATERAL DOCUMENTS means the Pledge Agreement and all other
instruments, documents and agreements at any time delivered to the Lender to
create or evidence Liens to secure the Obligations.
COMPLIANCE CERTIFICATE means a certificate in substantially the form of
Exhibit D-1.
CONSOLIDATED CAPITAL EXPENDITURES means, for any period, the aggregate
of all expenditures (whether paid in cash or accrued as a liability (but without
duplication) during that period and including that portion of Capital Leases
which is capitalized on the consolidated balance sheet of Ocular Sciences and
its Subsidiaries) made or incurred during such period which, in accordance with
GAAP, are required to be included in or reflected by the fixed asset accounts of
Ocular Sciences or any of its Subsidiaries in any of their balance sheets
(including expenditures for equipment purchased within one hundred eighty (180)
days of the trade-in or sale of existing equipment owned by Ocular Sciences or
any of its Subsidiaries but only to the extent that the gross amount of such
purchase price exceeds the book value of the equipment being traded in or sold,
but excluding expenditures made in connection with the replacement or
restoration of assets to the extent reimbursed or financed from insurance
proceeds or condemnation awards).
CONSOLIDATED INTEREST EXPENSE means, for any period, total interest
expense (including the interest component of Capital Leases) of Ocular Sciences
and its consolidated Subsidiaries for such period determined in accordance with
GAAP, except that amortization or write-off of original issue discount,
capitalized debt issuance costs and expenses, and non-cash interest payments or
accruals shall in any event be excluded.
5
<PAGE> 12
CONSOLIDATED NET INCOME means, for any period, the net income of Ocular
Sciences and its consolidated Subsidiaries for such period determined in
accordance with GAAP.
CONSOLIDATED TOTAL DEBT means, as of any date of determination for
Ocular Sciences and its consolidated Subsidiaries, all items of indebtedness,
obligation or liability (other than Subordinated Debt) that should be
classified, and reported on Ocular Sciences' consolidated balance sheet, as
liabilities in accordance with GAAP.
DEBT means, as applied to any Person, (i) all indebtedness of such
Person for borrowed money (whether by loan or the issuance of debt securities or
otherwise); (ii) all obligations of such Person issued, undertaken or assumed as
the deferred purchase price of property or services or interest thereon, except
accounts and accrued expenses currently payable; (iii) all reimbursement
obligations of such Person with respect to surety bonds, letters of credit,
bankers' acceptances and similar instruments, whether or not contingent; (iv)
all monetary obligations of such Person under any Capital Lease; (v) all
obligations of such Person (contingent or otherwise) to purchase, retire or
redeem any capital stock or other equity interests in such Person or any
Affiliate of such Person; (vi) all monetary obligations of such Person measured
by, or determined on the basis of, the value of any capital stock of such Person
or any Affiliate of such Person; (vii) all Accommodation Obligations of such
Person; and (viii) all liabilities and obligations secured by (or as to which
the holder of the liability or obligation has an existing right, contingent or
otherwise, to be secured by) any Lien, except a Non-Consensual Lien, upon any
property of such Person or any Subsidiary of such Person.
DISALLOWED POST-PETITION INTEREST/EXPENSE CLAIMS means any claim for
interest on Advances accrued or computed for or as to any period of time at any
time after the commencement of any Bankruptcy, Insolvency or Liquidation
Proceeding at the rate (including any applicable post-default rate) set forth in
this Agreement or other applicable Loan Document or for fees, expense
reimbursements, indemnification or other similar Obligations accrued or
determined for or as to any such period of time in accordance with the
provisions of this Agreement or any such Loan Document, if such claim is not
allowed, allowable or enforceable in such Bankruptcy, Insolvency or Liquidation
Proceeding.
DOLLARS and $ mean United States dollars or such coin or currency of
the United States as at the time of payment shall be legal tender for the
payment of public and private debts in the United States.
ENVIRONMENTAL CLAIMS means any and all administrative, regulatory or
judicial claims, demands, directives, proceedings, orders, decrees and judgments
relating in any way to any Environmental Law or any Environmental Permit.
ENVIRONMENTAL LAWS means all federal, state and local laws, statutes,
rules, regulations, ordinances and codes, and any binding judicial or
administrative
6
<PAGE> 13
interpretation thereof or requirement thereunder, including any judicial or
administrative order by any Governmental Authority, relating to the regulation
or protection of human health, safety, the environment and natural resources.
ENVIRONMENTAL PERMIT means any license, permit, authorization,
registration or approval issued or required under any Environmental Law.
EQUITY ISSUANCE means the issuance or sale of any capital stock or
other equity, ownership or profit interests (except a dividend on any such stock
or interest declared and payable solely in additional shares of such stock or
interest) by (i) Ocular Sciences to any Person, or (ii) any Subsidiary of Ocular
Sciences to any Person, other than to Ocular Sciences or to any other
wholly-owned Subsidiary of Ocular Sciences.
ERISA means the Employee Retirement Income Security Act of 1974.
ERISA AFFILIATE means any entity which is (or at any relevant time was)
a member of a "controlled group of corporations," under "common control" or a
member of an "affiliated service group" with either Borrower as defined in
Section 414(b), (c) or (m) of the Code.
ERISA EVENT means (i) any of the events set forth in Section 4043(b) of
ERISA with respect to a Pension Plan; (ii) a withdrawal by either Borrower or
any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during
a plan year in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA); (iii) a complete or partial withdrawal by either Borrower
or any ERISA Affiliate from a Multiemployer Plan; (iv) the filing of a notice of
intent to terminate, the treatment of a plan amendment as a termination under
Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC
to terminate a Pension Plan or Multiemployer Plan subject to Title IV of ERISA;
(v) a failure to make required contributions to a Pension Plan or Multiemployer
Plan; (vi) the imposition of any liability under Title VI of ERISA, other than
PBGC premiums due but not delinquent under Section 4007 of ERISA, upon either
Borrower or any ERISA Affiliate; (vii) an application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the Code with
respect to any Pension Plan; (viii) either Borrower or any ERISA Affiliate
engages in a nonexempt prohibited transaction or otherwise becomes liable with
respect to a nonexempt prohibited transaction, the consequences of which, in the
aggregate, constitute or could reasonably be expected to result in a Material
Adverse Change; or (ix) a violation of the applicable requirements of Section
404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of the
Code by either Borrower or any ERISA Affiliate with respect to any Pension Plan
for which either Borrower or any of their Subsidiaries may be liable, the
consequences of which, in the aggregate, constitute or could reasonably be
expect to result in a Material Adverse Change.
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<PAGE> 14
EURODOLLAR RATE means, for any Interest Period applicable to a
Eurodollar Rate Advance,
(i) the per annum interest rate at which deposits in
eurodollars are offered to the Lender by other prime banks in the
eurodollar market in an amount comparable to the relevant Eurodollar
Rate Advance and for a period equal to the relevant Interest Period at
approximately 11:00 a.m. (Pacific time) one (1) Business Day prior to
the first day of such Interest Period, DIVIDED BY
(ii) an amount determined as one MINUS the stated maximum rate
(expressed as a decimal) of all reserve requirements (including any
marginal, emergency, supplemental, special or other reserves) that is
specified on the first day of such Interest Period by the Board of
Governors of the Federal Reserve System (or any successor agency
thereto) for determining the maximum reserve requirement with respect
to eurodollar funding (currently referred to as "eurocurrency
liabilities" in Regulation D of such Board) maintained by a member bank
of such System,
all as conclusively determined (absent manifest error) by the Lender, such sum
to be rounded upward, if necessary, to the nearest whole multiple of 1/16 of 1%.
EURODOLLAR RATE ADVANCE means a Facility A Eurodollar Rate Advance or a
Facility B Eurodollar Rate Advance.
EVENT OF DEFAULT is defined in Section 6.1.
FACILITY A means the credit available to Ocular Sciences pursuant to
Section 2.1(a) and Section 2.15.
FACILITY A ADVANCE means a loan in Dollars made by the Lender to Ocular
Sciences pursuant to Section 2.1(a).
FACILITY A AMOUNT means, as any date of determination, an amount
determined as (i) $20,000,000, MINUS (ii) all Facility A Reductions which have
become and remain effective.
FACILITY A AVAILABILITY means, as of any date of determination, an
amount determined as (i) the Facility A Amount then in effect, MINUS (ii) the
aggregate principal amount of Facility A Advances then outstanding, MINUS (iii)
the Letter of Credit Usage then outstanding.
FACILITY A EURODOLLAR RATE ADVANCE means an Advance which bears
interest at the Eurodollar Rate as provided in Section 2.6(b).
FACILITY A MATURITY DATE means June 30, 2000.
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<PAGE> 15
FACILITY A REDUCTION means each permanent reduction of the credit
available to Ocular Sciences under Facility A, whether made voluntarily pursuant
to Section 2.5(e) or required to be made pursuant to Section 2.5(g), Section 6.1
or any other provision of this Agreement or otherwise becoming effective in
accordance with this Agreement.
FACILITY AMOUNT means the Facility A Amount and the Facility B Amount.
FACILITY B means the credit available to O.S.I. Puerto Rico pursuant to
Section 2.1(b).
FACILITY B ADVANCE means a loan in Dollars made by the Lender to O.S.I.
Puerto Rico pursuant to Section 2.1(b).
FACILITY B AMOUNT means, as any date of determination, an amount
determined as (i) $10,000,000, MINUS (ii) all Facility B Reductions which have
become and remain effective.
FACILITY B EURODOLLAR RATE ADVANCE means an Advance which bears
interest at the Eurodollar Rate as provided in Section 2.6(c).
FACILITY B REDUCTION means each permanent reduction of the loan
outstanding to O.S.I. Puerto Rico under Facility B, whether made voluntarily
pursuant to Section 2.5(d) or required to be made pursuant to Section 2.5(g),
Section 6.1 or any other provision of this Agreement or otherwise becoming
effective in accordance with this Agreement.
FDIC means the Federal Deposit Insurance Corporation or any Person
succeeding to the present functions and powers of the Federal Deposit Insurance
Corporation.
FEDERAL RESERVE BANK means any one of twelve central banks, or any one
of their branches, that are part of the Federal Reserve System and that
constitute the so-called Federal Reserve Banks.
FISCAL QUARTER means a fiscal quarter of Ocular Sciences.
FISCAL QUARTER END DATE means the last day of a Fiscal Quarter.
FISCAL YEAR means a fiscal year of Ocular Sciences.
FIXED CHARGE COVERAGE RATIO means, as of any Fiscal Quarter End Date,
the ratio of (i) Cash Flow for the four consecutive Fiscal Quarters ending on
such Fiscal Quarter End Date, DIVIDED BY (ii) the sum of (A) Consolidated
Interest Expense for the four consecutive Fiscal Quarters ending on such Fiscal
Quarter End Date, PLUS
9
<PAGE> 16
(B) the aggregate of all principal payments with respect to all indebtedness for
borrowed money (including Capital Leases but specifically excluding Facility A
Advances and Facility B Advances) due and payable by Ocular Sciences or any of
its consolidated Subsidiaries during the four consecutive Fiscal Quarters
following such Fiscal Quarter End Date, PLUS (C) from the Closing Date through
April 30, 1999, an assumed amount of $1,818,182, PLUS (D) from and after May 1,
1999, the aggregate principal amount of outstanding Facility B Advances due and
payable by O.S.I. Puerto Rico during the four consecutive Fiscal Quarters
following such Fiscal Quarter End Date.
FOREIGN SUBSIDIARIES means initially the Persons listed on Schedule
4.1(d) below the heading "Foreign" and thereafter shall mean such Persons who
are or may become Subsidiaries of Ocular Sciences whose assets and business are
then located primarily outside of the United States. For purposes of determining
after the Closing Date which Subsidiaries of Ocular Sciences shall be subject to
the provision of Section 5.2(e) requiring that sixty-five percent (65%) of the
stock or other equity interests thereof owned directly or indirectly by Ocular
Sciences be pledged and delivered to the Lender, "Foreign Subsidiaries" shall
mean such other Persons as may become Subsidiaries of Ocular Sciences (i) to
whom Section 956(d) of the Code applies, and (ii) who qualify as a Material
Subsidiary. For the purposes of this Agreement, O.S.I. Puerto Rico shall not be
treated as a Foreign Subsidiary.
GAAP means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting profession), or in such
other statements by such entity as may be in general use by significant segments
of the U.S. accounting profession, which are applicable to the facts and
circumstances on the date of determination.
GOVERNMENTAL AUTHORITY means any nation, state, sovereign or
government, any political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
GUARANTOR means with respect to the Subsidiary Guaranty each Subsidiary
Guarantor and with respect to the Parent Guaranty means Ocular Sciences.
GUARANTY means the Subsidiary Guaranty and the Parent Guaranty.
HAZARDOUS MATERIALS means (i) flammable explosives, radioactive
materials, friable asbestos, urea formaldehyde foam insulation, transformers or
other equipment that contain dielectric fluid containing regulated levels of
polychlorinated biphenyls and petroleum products, and (ii) chemicals, materials,
substances or wastes
10
<PAGE> 17
which are now or hereafter become defined as or included in the definition,
listing or identification of "hazardous substances," "hazardous wastes,"
hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "medical waste," "infectious
waste," "biomedical waste," "biohazardous waste," or words of similar import,
under any applicable Environmental Law.
INDEMNIFIED PERSON is defined in Section 7.6.
INTANGIBLE ASSETS means, as of any date of determination for Ocular
Sciences and its consolidated Subsidiaries in accordance with GAAP, assets
having no physical existence and that should be classified as intangible assets,
including, without limitation, goodwill, patents, patent rights, trademarks,
trade names, franchises, copyrights, licenses, organizational expenses and
deferred charges (including, without limitation, unamortized debt issuance
costs).
INTEREST PERIOD means, for each Eurodollar Rate Advance and each
Negotiated Rate Advance, the period commencing on the date of such Advance or
the date of the conversion of any Advance into such an Advance and ending on the
last day of the period selected by a Borrower pursuant to the provisions below
and, thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the period
selected by a Borrower pursuant to the provisions below. The duration of each
such Interest Period shall be (i) not less than fourteen (14) days and not more
than one hundred eighty (180) days with respect to a Eurodollar Rate Advance,
and (ii) not less than one (1) year and not more than five and one-half (5.5)
years with respect to a Negotiated Rate Advance, in each case as a Borrower may
select by notice received by the Lender not later than 11:00 a.m. (Pacific time)
one (1) Business Day prior to the first day of such Interest Period; PROVIDED,
HOWEVER, that:
(i) Ocular Sciences may not select any Interest Period
applicable to a Facility A Advance which ends after the Facility A
Maturity Date;
(ii) O.S.I. Puerto Rico may not select any Interest Period
applicable to a Facility B Eurodollar Advance which ends after any date
on which some or all of the principal amount of such Facility B
Eurodollar Advance is scheduled to be repaid unless, after giving
effect to such selection, the aggregate unpaid principal amount of
Facility B Eurodollar Advances having Interest Periods which end on or
prior to such date is at least equal to the principal amount of the
Facility B Advance due and payable on and prior to such date;
(iii) O.S.I. Puerto Rico may not select any Interest Period
applicable to a Negotiated Rate Advance which extends beyond the
maturity date of Facility B;
(iv) the last day of any Interest Period shall be a Business
Day; and
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<PAGE> 18
(v) the Borrowers may not have more than an aggregate of seven
(7) Interest Periods in effect at any one time under Facility A and
Facility B.
INVESTMENT means (i) the acquisition of any interest in any business or
Person, whether by sale, lease or otherwise, (ii) the funding of any loan,
extension of credit, accommodation or capital contribution to or for the benefit
of any Person, and (iii) the acquisition of any debt or equity securities of or
claim against or interest in any Person, whether upon original issuance, by
purchase or otherwise.
LENDER means Comerica Bank-California, a California chartered bank.
LETTER OF CREDIT means a letter of credit or similar undertaking issued
by the Lender for the benefit of Ocular Sciences as provided in Section 2.15.
LETTER OF CREDIT USAGE means, as of any date of determination, an
amount determined as (i) the aggregate undrawn amount of all Letters of Credit
then outstanding, PLUS (ii) the aggregate unreimbursed drawings under all such
Letters of Credit then outstanding.
LEVERAGE RATIO means, as of any Fiscal Quarter End Date, the ratio of
(i) Consolidated Total Debt as of such Fiscal Quarter End Date, DIVIDED BY (ii)
Tangible Effective Net Worth as of such Fiscal Quarter End Date.
LIEN means any mortgage, deed of trust, lien, pledge, charge, security
interest, hypothecation, assignment, deposit arrangement or encumbrance of any
kind in respect of any asset, whether or not filed, recorded or otherwise
perfected or effective under applicable law, as well as the interest of a vendor
or lessor under any conditional sale agreement, capital or finance lease, or
other title retention agreement relating to such asset (other than an operating
lease).
LOAN DOCUMENTS means this Agreement, the Parent Guaranty, the
Subsidiary Guaranty, the Collateral Documents and all other guaranties and other
agreements, instruments and written indicia of the Obligations delivered to the
Lender by or on behalf of a Borrower or any other Loan Party pursuant to or in
connection with the transactions contemplated hereby.
LOAN PARTIES means, collectively, the Borrowers and all Material
Subsidiaries (other than Foreign Subsidiaries) that are parties to any Loan
Document, and LOAN PARTY means, individually, each Borrower and each Material
Subsidiary (other than a Foreign Subsidiary) that is a party to any Loan
Document.
MATERIAL ADVERSE CHANGE means any materially adverse change in the
financial condition, assets, liabilities, business, operations or prospects of
Ocular Sciences and its Subsidiaries, taken as a whole.
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<PAGE> 19
MATERIAL ENVIRONMENTAL CLAIM means any Environmental Claim, regardless
of merit, which does or can reasonably be expected to (i) result in either
Borrower or any of their Subsidiaries expending in the aggregate an amount in
excess of $1,000,000 to defend against, settle or satisfy, or (ii) prevent or
enjoin either Borrower or any of their Subsidiaries from carrying on business on
any property on which it conducts operations if the inability to carry on
business on any such property does or can reasonably be expected to cause a
Material Adverse Change.
MATERIAL SUBSIDIARY means each Subsidiary of Ocular Sciences that has
(i) as of the end of the most recent Fiscal Quarter, total assets representing
ten percent (10%) or more of the total assets of Ocular Sciences and its
consolidated Subsidiaries, (ii) for the most recent Fiscal Quarter, total
revenues representing ten percent (10%) or more of the revenues of Ocular
Sciences and its consolidated Subsidiaries, or (iii) for the most recent Fiscal
Quarter, net income representing ten percent (10%) or more of Consolidated Net
Income.
MULTIEMPLOYER PLAN means any Plan which is "multiemployer plan," as
defined in Section 4001(a)(3) of ERISA.
NEGOTIATED RATE means, for any Interest Period applicable to a
Negotiated Rate Advance,
(i) the per annum assessment rate incurred by the Lender to
the FDIC for deposit insurance of Dollar deposits at offices of the
Lender in the United States during the most recent period for which
such rate has been determined prior to the commencement of such
Interest Period, PLUS
(ii) an amount determined as (A) the per annum interest rate
determined by the Lender at its sole and absolute discretion as the
rate applicable to the Lender's source of funds in an amount comparable
to the relevant Negotiated Rate Advance and for a period equal to the
relevant Interest Period at approximately 11:00 a.m. (Pacific time) one
(1) Business Day prior to the first day of such Interest Period,
DIVIDED BY (B) one (1) MINUS the stated maximum rate (expressed as a
decimal) of all reserve requirements (including any marginal,
emergency, supplemental, special or other reserves) under any
regulation of the Board of Governors of the Federal Reserve System (or
any successor agency thereto) that are applicable during such Interest
Period,
all as conclusively determined (absent manifest error) by the Lender, such sum
to be rounded upward, if necessary, to the nearest whole multiple of 1/16 of 1%.
NEGOTIATED RATE ADVANCE means a Base Rate Advance or a Eurodollar Rate
Advance under Facility B that, from and after May 1, 1999, is converted into an
Advance bearing interest at the Negotiated Rate as provided in Section 2.6(d).
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<PAGE> 20
3.6 that the Company has not passed and will not pass a voluntary
winding-up resolution, no petition has been or will be presented or order made
by a Court for the winding-up, dissolution or administration of the Company and
no receiver, trustee, administrator, administrative receiver or similar officer
has been or will be appointed in relation to the Company or any of its assets
or revenues;
3.7 that each of the Credit Agreement and the Pledge Agreement are legal,
valid, binding and enforceable under the laws of the State of California and
that the Bank has not breached and will not breach any of the terms of the
Documents;
3.8 that there is nothing on the Credit Agreement, the Pledge Agreement or
in any agreement referred to in the documents reviewed by us which will affect
the import of any of the statements made in this Opinion;
3.9 the capacity, power and authority of all parties to enter into,
perform, observe and comply with all the terms of, and the due execution and
delivery by such parties of, the Documents;
3.10 the accuracy and completeness of all factual representations contained
or referred to in the Documents and in the documents referred to in paragraph 2
(which representations we have not independently verified) and that there are
no other facts which were relevant as at 7 November 1997.
3.11 that on 7 November 1997, each of OSI and OSI PR was and will remain a
duly organised and validly existing corporation in good standing under the laws
of the State of Delaware and had and has all corporate power and authority and
full legal right to own its properties (including, in the case of OSI, the
capital stock or shares of its subsidiaries) and to carry on the businesses in
which it was engaged on 7 November 1997 and proposed to be engaged thereafter.
3.12 that the Bank (pursuant to the Documents) is and will be a bona fide
purchaser or transferee for value of the Charged Shares and rights secured
under the Pledge Agreement without notice of any other concurrent or prior
transfer, charge, mortgage or other encumbrance or security interest of
whatsoever nature or claim in respect of the Charged Shares and rights at the
date on which monies were and are advanced under the Credit Agreement and at
the date of such purchase or transfer of the Charged Shares.
3.13 that no taxes or duties are payable in any jurisdiction outside England
in connection with the documents referred to in this paragraph 3 or, if any
taxes or duties are payable, that they will be fully paid in accordance with the
law of such jurisdiction(s);
3.14 that to the extent that any consents were or are have been or will be
required from any governmental or regulatory authority or agency or any third
party (including banks or other lenders) in any jurisdiction outside England or
from any third party (including banks or other lenders) in England all such
consents have been and will be obtained for the pledging of the Charged Shares
pursuant to the Pledge Agreement and the transfer of the Charged Shares
pursuant thereto;
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<PAGE> 21
3.15 that none of the parties is or will be seeking to achieve any purpose not
apparent from the Documents which might render any of the Documents illegal or
void and
3.16 that there are no provisions of the laws of any jurisdiction outside
England which would have any implication on the opinions we express
3.17 that the execution of the Pledge Agreement, the delivery of the same
together with the delivery of the share certificates referred to in paragraph
2.6 and the stock transfer form referred to in paragraph 2.5 to the Bank were
done as security for the indebtedness of OSI pursuant to the Credit Agreement,
3.18 that the terms set out in the Documents are not altered prior to the
Transfer (as defined in paragraph 3.19) of the Charged Shares to the Bank;
3.19 that any Transfer (as herein defined) of the Charged Shares to the Bank
is pursuant to the proper and valid exercise of an entitlement to do so on the
part of the Bank under the terms of the Pledge Agreement (whether as a result
of an Event of Default (as defined in the Pledge Agreement) or otherwise). For
the purposes of this Opinion TRANSFER means the completion by the Bank of the
stock transfer form referred to in paragraph 2.5 and the registration in the
register of members of the Company of the Bank as a member of the Company
following the delivery by the Bank of such stock transfer form, duly stamped
and the share certificates referred to in paragraph 2.6 to the Company for
registration thereof.
We have made such examination of the laws of England as currently applied by
English Courts as in our judgement is necessary for the purpose of this
opinion. We do not however purport to be qualified to pass upon and express no
opinion herein as to the laws of any jurisdiction other than those of England.
This Opinion is governed by and shall be construed in accordance with English
law.
4. OPINIONS
Based upon and subject to the foregoing and further subject to the assumptions
and qualifications in this Opinion and having regard to such legal
considerations as we have deemed relevant, we are of the opinion that:
4.1 the Company is a company duly incorporated under the laws of England as a
private limited liability company and is validly existing thereunder. As at 4
November 1997, the Company was in Good Standing as herein defined. By GOOD
STANDING (a phrase which has no recognised meaning under English law), we mean
that according to a certificate dated 4 November 1997 from the Registrar of
Companies, the Company has been in continuous and unbroken existence since the
date of its incorporation on 25 April 1985 and that there is no document on the
public file showing the institution of any proceedings for the winding up or
liquidation of the Company or that the Company is not still in operation.
- page 4 -
<PAGE> 22
4.2 The Charged Shares have been duly authorised for issuance by the Company
and have been issued to OSI fully paid up or credited as fully paid up.
4.3 Under the laws of England, there are no legal restrictions on the Transfer
of the Charged Shares pursuant to the proper and valid enforcement of the Charge
and the Transfer of the Charged Shares in manner aforesaid does not require any
governmental approval or authorization in England, and the Memorandum and
Articles of Association of the Company do not contain any restrictions on the
Transfer of the Charged Shares in manner aforesaid and do not require any
approval or other authorisation of the members of the Company in connection
therewith.
4.4 The execution by OSI of the Pledge Agreement and delivery of the same
together with the delivery of the share certificates referred to in paragraph
2.6 and the stock transfer form referred to in paragraph 2.5 to the Bank create
a valid equitable pledge of the Charged Shares under the laws of England,
enforceable in England.
4.5 All actions of the Company and OSI required by the laws of England in
respect of the Charge to create a valid and enforceable equitable pledge under
the laws of England have been duly taken by the Company and OSI.
4.6 Until the occurrence of:
4.6.1 any Event of Default (as defined in the Pledge Agreement);
4.6.2 any other event entitling the Bank to enforce the Charge; or
4.6.3 any Transfer of the Charged Shares to the Bank
the Charge will not result in the imposition upon the Bank of any liability
applicable to membership of the Company for capital contributions to the
Company, for funding any unfunded obligations of the Company or for any other
liability of the Company.
5 QUALIFICATIONS
The opinions expressed herein are subject to the following qualifications:
5.1 the validity and enforcement of any of the Documents may be limited by
statutes of limitation, lapse of time and by laws relating to bankruptcy,
insolvency, liquidation, arrangement, moratorium, re-organisation or other laws
relating to or affecting generally the enforcement of the rights of creditors,
and claims may be or become subject to set-off or counterclaim;
5.2 equitable remedies, such as injunction and specific performance, are
discretionary and may not necessarily be awarded by the English Courts; in
particular, such remedies may not be available where damages are considered to
be an adequate and appropriate remedy;
- page 5 -
<PAGE> 23
5.3 a provision that a calculation, determination or certificate will be
conclusive and binding will not apply to a calculation, determination or
certificate which is given unreasonably, arbitrarily or without good faith or
which is fraudulent or manifestly inaccurate and will not necessarily prevent
judicial enquiry into the merits of any claim;
5.4 failure to exercise a right may operate as a waiver of that right
notwithstanding a provision such as section 8.5 of the Pledge Agreement;
5.5 we express no opinion on the accuracy or completeness of any statements
or warranties of fact set out in the Documents, which statements and warranties
we have not independently verified;
5.6 we express no opinion on any provision in any of the Documents requiring
written amendments and waivers of such documents insofar as it suggests that
oral or other modifications, amendments or waivers could not be effectively
agreed upon or granted by or between the parties;
5.7 where any party to any of the Documents is vested with a discretion or
may determine a matter in its opinion, Courts in England may require that such a
discretion be exercised reasonably or that such an opinion be based on
reasonable grounds;
5.8 An English Court would determine in its discretion whether or not an
invalid, illegal or unenforceable provision may be severed or be partially
effective, notwithstanding a provision such as section 8.7 of the Pledge
Agreement;
5.9 the exercise by the Bank of the powers and remedies conferred on it by
each of the Documents or otherwise vested in it by law will be subject to
general equitable principles regarding the enforcement of security and the
general supervisory powers and discretion of the English Courts in the context
thereof and we express no opinion as to the efficacy of any powers conferred
upon or the Bank or any receiver, administrative receiver or similar officer
appointed under the Documents insofar as these powers go beyond those conferred
by statute or by common law;
5.10 an English Court may not award by way of costs all of the expenditure
incurred by a successful litigant in proceedings brought before the Court and
an undertaking by any party to the Documents to bear any indemnity in respect
of any taxes or duties might not be enforceable in respect of United Kingdom
stamp duties, pursuant to Section 117 of the Stamp Act 1891, if such were
imposed in the future;
5.11 the opinion expressed in paragraph 4.1 that the Company is a company duly
incorporated under English law is based on the assumption set out in paragraph
3.6, on our telephone enquiry made on 5 November 1997 confirming that no
winding up petition had been presented in respect of the Company but otherwise
solely upon the result of a search conducted by our agents at the Companies
Registry on 4 November 1997. It should be noted that:-
5.11.1 a search at the Companies Registry is not capable of revealing whether
or not a winding-up petition or a petition for the making of an administration
order has been presented; and
- page 6 -
<PAGE> 24
5.11.2 notice of a winding-up order or resolution, notice of an
administration order and notice of the appointment of a receiver may not be
filed at the Companies Registry immediately and there may be delay in the
relevant notice appearing on the file of the relevant party;
5.12 we express no opinion as to:
5.12.1 the priority of any of the security created by the Pledge Agreement;
5.12.2 the legality, validity, binding nature or enforceability of the
payment obligations contained in the Documents;
5.12.3 the efficacy of the Pledge Agreement in relation to any property
other than the Charged Shares;
5.13 unless and until the Charged Shares are registered in the register of
members of the Company in the name of the Bank the Charge will take effect as
an equitable charge and may be defeated by interests acquired by third parties
without notice of the Charge;
5.14 we express no opinion as to whether any provision in the Documents
conferring a right of set-off or similar right would be effective against a
liquidator, administrator or a creditor;
5.15 as regards the enforcement of a judgement of a foreign Court, the
Courts of England will not simply register and enforce such judgment. It would
be necessary to commence fresh proceedings before the English Courts, in which
the foreign judgment would be evidence of liability, subject to satisfaction
of the following criteria:
5.15.1 the procedural rules for commencement and maintenance of proceedings
before the English Courts would need to be observed;
5.15.2 the foreign Court must properly have had jurisdiction to hear and
determine the matter;
5.15.3 the decision of the foreign Court must have been final and conclusive;
5.15.4 the decision of the foreign Court must have been for a fixed sum only;
5.15.5 the decision of the foreign Court must not have been obtained by
fraud or by a trick;
5.15.6 the decision of the foreign Court must not be contrary to public
policy or have been given in proceedings of a penal or revenue nature;
and
5.15.7 the decision of the foreign Court must not be contrary to natural
justice;
5.16 the Transfer of the Charged Shares to the Bank will attract ad valorem
stamp duty at the rate of 50 pence for each pound 100 (or part thereof) of
consideration and accordingly the Bank will be required to submit the stock
transfer form referred to in paragraph 2.5 for stamping and pay the
- page 7 -
<PAGE> 25
duty thereon prior to being entitled to be registered as a member of the
Company in the register of members of the Company.
5.17 The Company's loan facility from Midland Bank Plc (Midland) contains a
provision which would entitle Midland to withdraw the facility in the event of
a change of control of the Company. There is no definition of "control" in the
Midland loan documentation. However, it is likely that control would be deemed
to change if the Charged Shares were registered in the name of the Bank.
This Opinion is given for the sole benefit of the Bank in connection with the
transactions contemplated by the Credit Agreement. This Opinion is not to be
disclosed to any other person nor is it to be relied upon by any other person
or for any other purpose or quoted or referred to in any public document
without our prior written consent.
Yours faithfully
/s/ MOORE & BLATCH
MOORE & BLATCH
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EXHIBIT D-1
FORM OF COMPLIANCE CERTIFICATE
This Compliance Certificate is being delivered by the undersigned,
Authorized Officers of Ocular Sciences, Inc. ("Ocular Sciences") and Ocular
Sciences Puerto Rico, Inc. ("Ocular Sciences Puerto Rico") (individually, a
"Borrower" and collectively, the "Borrowers"), on behalf of each Borrower (and
not in an individual capacity), to Comerica Bank-California (the "Lender")
pursuant to Section 5.2(c)(vi) of that certain Amended and Restated Credit
Agreement dated as of November 7, 1997 by and between the Borrowers and the
Lender (as amended or modified from time to time, the "Agreement"). Capitalized
terms used herein and not otherwise defined herein shall have the same meanings
as set forth in the Agreement.
The undersigned hereby certify and warrant to the Lender, on behalf of
each Borrower (and not in an individual capacity), as follows:
1. The representations and warranties contained in Article IV of the
Agreement and Article III of the Pledge Agreement are true and correct in all
material respects on and as of the date of this Compliance Certificate (or, in
the case of representations and warranties stated as having been made only on
the date of the Agreement, on the date of such Agreement).
2. No event has occurred and is continuing which constitutes an Event
of Default or a Potential Default.
3. Since December 31, 1996, there has been no Material Adverse Change.
4. All Loan Documents are in full force and effect.
5. The following is a true and correct computation of the ratios and
financial tests contained in the Agreement as of _______, 19__ (the "Fiscal
Quarter End Date"):
(a) Section 5.1(a) - Maximum Leverage Ratio
(i) Total liabilities of Ocular Sciences and its
consolidated Subsidiaries as of the Fiscal
Quarter End Date as determined in
accordance with GAAP: $___________
(ii) Subordinated Debt as of the Fiscal Quarter
End Date: $___________
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(iii) Consolidated Total Debt as of the Fiscal
Quarter End Date [Item 5(a)(i) minus Item
5(a)(ii)]: $___________
(iv) Tangible Effective Net Worth as of the
Fiscal Quarter End Date [Item 5(d)(ix)
below]: $___________
(v) Leverage Ratio as of the Fiscal Quarter End
Date [Item 5(a)(iii) divided by Item 5(a)(iv)]: _______:1.00
(vi) The ratio in Item 5(a)(v) may not be greater
than: 0.75:1.00
(b) Section 5.1(b) - Minimum Fixed Charge Coverage Ratio
(i) Consolidated Net Income for the four
consecutive Fiscal Quarters ending on the
Fiscal Quarter End Date: $___________
(ii) Consolidated Interest Expense for the four
consecutive Fiscal Quarters ending on the
Fiscal Quarter End Date: $___________
(iii) Depreciation and amortization expense of
Ocular Sciences and its consolidated
Subsidiaries for the four consecutive Fiscal
Quarters ending on the Fiscal Quarter End
Date as determined in accordance with
GAAP: $___________
(iv) All non-cash charges of Ocular Sciences and
its consolidated Subsidiaries required by
GAAP relating to dispositions of property,
plant and equipment for the four
consecutive Fiscal Quarters ending on the
Fiscal Quarter End Date: $___________
(v) Preferred stock dividends paid or payable
by Ocular Sciences or any of its
consolidated Subsidiaries during the four
consecutive Fiscal Quarters ending on the
Fiscal Quarter End Date: $___________
(vi) Consolidated Capital Expenditures for the
four consecutive Fiscal Quarters ending on
the Fiscal Quarter End Date: $___________
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(vii) Cash Flow for the four consecutive Fiscal
Quarters ending on the Fiscal Quarter End
Date [Item 5(b)(i) plus Item 5(b)(ii) plus
Item 5(b)(iii) plus Item 5(b)(iv) minus
Item 5(b)(v) minus Item 5(b)(vi)]: $___________
(viii) Consolidated Interest Expense for the four
consecutive Fiscal Quarters ending on the
Fiscal Quarter End Date: $___________
(ix) The aggregate of all principal payments
with respect to all indebtedness for
borrowed money (including Capital Leases
but specifically excluding Facility A
Advances and Facility B Advances) due and
payable by Ocular Sciences or any of its
consolidated Subsidiaries during the four
consecutive Fiscal Quarters following such
Fiscal Quarter End Date: $___________
(x) From the Closing Date through April 30,
1999, an assumed amount of $1,818,182, and
from and after May 1, 1999, the aggregate
principal amount of outstanding Facility B
Advances due and payable by Ocular
Sciences Puerto Rico during the four
consecutive Fiscal Quarters following such
Fiscal Quarter End Date: $___________
(xi) Item 5(b)(viii) plus Item 5(b)(ix) plus Item
5(b)(x): $___________
(xii) Fixed Charge Coverage Ratio as of the
Fiscal Quarter End Date [Item 5(b)(vii)
divided by Item 5(b)(xi)]: _______:1.00
(xiii) The ratio in Item 5(b)(xii) may not be less
than: 1.10:1.00
(c) Section 5.1(c) - Minimum Quick Ratio
(i) The sum of unrestricted cash and
unrestricted Permitted Cash Investments of
Ocular Sciences and its consolidated
Subsidiaries as of the Fiscal Quarter End
Date as determined in accordance with
GAAP: $___________
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(ii) Trade accounts receivable (net of applicable
reserves therefor) of Ocular Sciences and its
consolidated Subsidiaries as of the Fiscal
Quarter End Date as determined in accordance
with GAAP: $___________
(iii) Item 5(c)(i) plus Item 5(c)(ii): $___________
(iv) Current liabilities (excluding the aggregate
principal amount of Facility A Advances
outstanding under the Agreement) of
Ocular Sciences and its consolidated
Subsidiaries as of the Fiscal Quarter End
Date as determined in accordance with
GAAP: $___________
(v) The aggregate principal amount of Facility
A Advances outstanding under the
Agreement: $___________
(vi) Item 5(c)(iv) plus Item 5(c)(v): $___________
(vii) Quick Ratio as of the Fiscal Quarter End
Date [Item 5(c)(iii) divided by Item 5(c)(vi)]: _______:1.00
(viii) The ratio in Item 5(c)(vii) may not be less
than: 1.15:1.00
(d) Section 5.1(d) - Minimum Tangible Effective Net Worth
(i) Base amount: $76,900,000
(ii) Cumulative Consolidated Net Income (but
without taking into account any losses),
commencing with the Fiscal Quarter ending
on September 30, 1997 and ending with the
Fiscal Quarter ending on the Fiscal Quarter
End Date (provided that the Fiscal Quarter
ending on September 30, 1997 shall include
the period from September 1, 1997 through
September 30, 1997 only): $___________
(iii) 80% of Item 5(d)(ii): $___________
(iv) 100% of the net cash proceeds from any
Equity Issuance after the Closing Date: $___________
(v) Item 5(d)(i) plus Item 5(d)(iii) plus Item
5(d)(iv): $___________
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(vi) Net book value of all assets of Ocular Sciences
and its consolidated Subsidiaries as of the
Fiscal Quarter End Date as determined in
accordance with GAAP: $___________
(vii) Intangible Assets as of the Fiscal Quarter
End Date: $___________
(viii) Consolidated Total Debt as of the Fiscal
Quarter End Date [Item 5(a)(iii) above]: $___________
(ix) Tangible Effective Net Worth as of the
Fiscal Quarter End Date [Item 5(d)(vi)
minus Item 5(d)(vii) minus Item 5(d)(viii): $___________
(x) The amount in Item 5(d)(ix) may not be less
than the amount in Item 5(d)(v). Yes/No
The undersigned have reviewed the terms of the Agreement and have made, or
caused to be made under their supervision, a review in reasonable detail of the
transactions and condition of the Borrowers and their Subsidiaries during the
Fiscal Quarter covered by this Compliance Certificate.
IN WITNESS WHEREOF, each Borrower has caused this Compliance Certificate
to be executed and delivered, and the certifications and warranties contained
herein to be made, as of this ___ day of ________, 19__ .
OCULAR SCIENCES, INC. OCULAR SCIENCES PUERTO RICO,
INC.
By:_______________________________ By:__________________________________
Its:______________________________ Its:_________________________________
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1934 ACT means the Securities Exchange Act of 1934.
NON-CONSENSUAL LIEN means a Lien permitted under Section 5.3(a)(iv),
(v), (vi), (vii), (viii) or (x).
NOTICE OF BORROWING means a notice substantially in the form of Exhibit
A-1.
NOTICE OF CONTINUANCE/CONVERSION means a notice substantially in the
form of Exhibit A-2.
OBLIGATIONS means, with respect to each Borrower, all present and
future debts, obligations and liabilities of every type and description of such
Borrower or any other Loan Party at any time arising under or in connection with
this Agreement, any other Loan Document or any Rate Contract, due or to become
due to the Lender, any Indemnified Person or any other Person and includes,
without limitation, (i) all liability for principal of and interest on any
Advances, and (ii) all liability under the Loan Documents for any fees, taxes,
compensation, costs, losses, expense reimbursements and indemnification.
OCULAR SCIENCES means Ocular Sciences, Inc., a Delaware corporation.
OCULAR SCIENCES CANADA means Ocular Sciences Canada, Inc., formerly OSI
Canada Corporation, a corporation organized under the laws of Canada and a
wholly-owned Subsidiary of Ocular Sciences.
OCULAR SCIENCES LIMITED means Ocular Sciences Limited, a corporation
organized under the laws of the United Kingdom and a wholly-owned Subsidiary of
Ocular Sciences.
ORIGINAL CREDIT AGREEMENT has the meaning set forth in the Recitals of
this Agreement.
O.S.I. PUERTO RICO means Ocular Sciences Puerto Rico, Inc., a Delaware
corporation and a wholly-owned Subsidiary of Ocular Sciences.
OTHER TAXES is defined in Section 2.13(b).
PARENT GUARANTY means the Parent Guaranty, in substantially the form of
Exhibit B-2, executed by Ocular Sciences and delivered pursuant to Section
3.1(a)(iii) and all guaranties, instruments and agreements at any time delivered
by Ocular Sciences in respect of, in exchange or substitution for, or in
replacement of, such guaranty or to evidence its guaranty of payment of any of
the Obligations of O.S.I. Puerto Rico.
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PBGC means the Pension Benefit Guaranty Corporation or any entity
succeeding to any of its functions under ERISA.
PENSION PLAN means any Plan which is (i) an "employee pension benefit
plan" as defined in Section 3(2) of ERISA, and (ii) not a Multiemployer Plan.
PERMITTED CASH INVESTMENTS means (i) certificates of deposit or money
market securities with maturities of three years or less issued by any United
States, Australian, Canadian, Japanese or European commercial bank with capital,
surplus and undivided profits of $500,000,000 or more; (ii) obligations issued
by, or guaranteed by, the United States government and maturing within three
years from the date of acquisition thereof; (iii) commercial paper, municipal
bonds and similar instruments with maturities of three years or less rated at
least P-1 or A-3, respectively, by Moody's Investors Service, Inc., or rated at
least A-1 or A, respectively, by Standard & Poor's Corporation, or receiving an
equivalent rating from any other nationally recognized rating agency; (iv)
repurchase or reverse repurchase agreements issued by any United States
commercial bank with capital surplus and undivided profits of $500,000,000 or
more; and (v) investments in money market funds or mutual funds that invest
solely in investments described in clauses (i) through (iv).
PERSON means an individual, partnership, corporation, limited liability
company, limited liability partnership, business trust, joint stock company,
trust, unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.
PLAN means any "employee benefit plan" as defined in Section 3(3) of
ERISA (i) which either Borrower or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or, within the six years prior
to the Closing Date, maintained, administered, contributed to or was required to
contribute to, or under which either Borrower or any ERISA Affiliate may incur
any liability, and (ii) which covers any employee or former employee of either
Borrower or any ERISA Affiliate (with respect to their relationship with such
entities).
PLEDGE AGREEMENT means the Amended and Restated Pledge Agreement in
substantially the form of Exhibit B-3, executed by Ocular Sciences and delivered
pursuant to Section 3.1(a)(iv), and each joinder therein by any other Subsidiary
of Ocular Sciences to create a Lien that secures the Obligations.
POTENTIAL DEFAULT means any event or condition described in Section 6.1
which, with any notice or passage of time (or both) expressly described in
Section 6.1, would constitute an Event of Default.
PREDECESSOR has the meaning set forth in the Recitals of this
Agreement.
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QUALIFIED PLAN means a pension plan (as defined in Section 3(2) of
ERISA) intended to be tax-qualified under Section 401(a) of the Code and which
either Borrower or any ERISA Affiliate sponsors, maintains, or to which it makes
or is obligated to make contributions, or in the case of a multiple employer
plan (as described in Section 4064(a) of ERISA) has made contributions at any
time during the immediately preceding period covering at least five plan years,
but excluding any Multiemployer Plan.
QUICK RATIO means, as of any Fiscal Quarter End Date for Ocular
Sciences and its consolidated Subsidiaries in accordance with GAAP, the ratio of
(i) the sum of unrestricted cash, PLUS unrestricted Permitted Cash Investments,
PLUS trade accounts receivable (net of applicable reserves therefor), DIVIDED BY
(ii) the sum of current liabilities, PLUS (without duplication) the aggregate
principal amount of Facility A Advances outstanding under the Agreement, in each
case as of such Fiscal Quarter End Date.
RATE CONTRACT means any interest rate and currency swap agreement, cap,
floor or collar agreement, interest rate insurance, currency spot or forward
contract, or other agreement or arrangement designed to provide protection
against fluctuations in interest or currency exchange rates entered into by
either Borrower or any of their Subsidiaries and any Person which is, or at the
time such contract, agreement or arrangement was entered into, the Lender or an
Affiliate of the Lender.
REPORTABLE EVENT means any of the events set forth in Section 4043(b)
of ERISA, a withdrawal from a plan described in Section 4063 of ERISA, or a
cessation of operations described in Section 4062(e) of ERISA.
SUBORDINATED DEBT means any Debt of Ocular Sciences or any of its
Subsidiaries which is subordinate to the Obligations having terms and conditions
satisfactory to the Lender.
SUBSIDIARY means, with respect to any Person, any corporation,
association, partnership, joint venture or other business entity of which more
than fifty percent (50%) of the voting stock or other equity interests is owned
or controlled directly or indirectly by such Person or one or more Subsidiaries
of such Person or a combination thereof.
SUBSIDIARY GUARANTOR means O.S.I. Puerto Rico and each Material
Subsidiary (other than any Foreign Subsidiary) that executes a joinder to the
Subsidiary Guaranty.
SUBSIDIARY GUARANTY means the Amended and Restated Subsidiary Guaranty,
in substantially the form of Exhibit B-1, executed by O.S.I. Puerto Rico and
delivered pursuant to Section 3.1(a)(ii), and each joinder therein by any other
Material Subsidiary (other than any Foreign Subsidiary), and all guaranties,
instruments and agreements at any time delivered by any Material Subsidiary
(other
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than any Foreign Subsidiary) in respect of, in exchange or substitution for, or
in replacement of, such guaranty or to evidence its guaranty of payment of any
of the Obligations of Ocular Sciences.
TANGIBLE EFFECTIVE NET WORTH means, as of any date of determination for
Ocular Sciences and its consolidated Subsidiaries in accordance with GAAP, the
amount determined as (i) the net book value of all assets (other than Intangible
Assets) after all appropriate deductions which are either required or reflected
by Ocular Sciences in its consolidated balance sheets (including, without
limitation, reserves for doubtful receivables, returns, obsolescence,
depreciation and amortization), MINUS (ii) Consolidated Total Debt.
TAXES is defined in Section 2.13(a).
UCC means the Uniform Commercial Code, as adopted and applied in the
state of California.
UNFUNDED PENSION LIABILITY means, with respect to any Pension Plan that
is subject to Title IV of ERISA, the excess of such Pension Plan's accrued
benefits, as defined in Section 3(23) of ERISA, over the current value of such
Pension Plan's assets, as defined in Section 3(26) of ERISA (but excluding from
the definition of "current value" of "assets" of such Pension Plan, accrued but
unpaid contributions).
UNITED STATES and U.S. mean the United States of America.
WELFARE PLAN means any Plan which is an "employee welfare benefit plan"
as defined in Section 3(1) of ERISA.
WITHDRAWAL LIABILITIES means the aggregate amount of the liabilities,
if any, pursuant to Section 4201 of ERISA if a Borrower and each ERISA Affiliate
made a complete withdrawal from all Multiemployer Plans and any increase in
contributions pursuant to Section 4243 of ERISA.
SECTION 1.2. ACCOUNTING TERMS. All accounting terms not expressly
defined herein shall be construed, except where the context otherwise requires,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP applied on a consistent basis. If GAAP changes during the
term of this Agreement so as to affect the calculation of any term defined
herein, the Borrowers and the Lender agree to negotiate in good faith toward an
amendment of this Agreement which shall approximate, to the extent possible, the
economic effect of the original provisions hereof after taking into account such
change in GAAP, but until the parties are able to agree upon such amendment (a)
the Borrowers shall be deemed in compliance with the provisions hereof only if
and to the extent it would have been in compliance if such change in GAAP had
not occurred, and (b) the Borrowers shall deliver to the Lender, with each
financial report delivered by the
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Borrowers hereunder, information sufficient to confirm such compliance as if
such change in GAAP had not occurred.
SECTION 1.3. OTHER DEFINITIONAL PROVISIONS.
(a) Unless otherwise specified herein or therein, all terms
defined in this Agreement shall have the defined meanings when used in
any other Loan Document or in any certificate or other document made or
delivered pursuant hereto.
(b) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement, and
section, schedule and exhibit references are to this Agreement unless
otherwise specified. The meaning of defined terms shall be equally
applicable to the singular and plural forms of the defined terms. The
term "including" is not limiting and means "including without
limitation."
(c) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and
including", the words "to" and "until" each mean "to but excluding",
and the word "through" means "to and including."
(d) References to agreements and other documents shall be
deemed to include all subsequent amendments and other modifications
thereto, but only to the extent such amendments and other modifications
are not prohibited by the terms of any Loan Document.
(e) References to statutes, acts or codes shall include all
regulations promulgated thereunder, and references to statutes, acts,
codes or regulations shall be construed as including all statutory and
regulatory provisions consolidating, amending or replacing the statute
or regulation.
(f) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the construction of
this Agreement.
(g) Unless the context otherwise requires, all terms used in
this Agreement that are not specifically defined in this Agreement and
that are defined in the UCC shall have the meanings assigned to such
terms in the UCC.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.1. ADVANCES.
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(a) FACILITY A ADVANCES. Subject to the terms and conditions
herein, the Lender agrees to make Facility A Advances to Ocular
Sciences, from time to time on any Business Day from the Closing Date
and prior to the Facility A Maturity Date, in an aggregate principal
amount outstanding at any time not to exceed the Facility A Amount, as
such Facility A Amount may be reduced from time to time in accordance
with the provisions of this Agreement; PROVIDED, HOWEVER, that the
aggregate principal amount of Facility A Advances outstanding at any
time shall not exceed an amount determined as (i) the Facility A Amount
then in effect, MINUS (ii) the Letter of Credit Usage then outstanding.
Subject to the terms and conditions hereof and within the foregoing
limits, Ocular Sciences may borrow, repay and reborrow Facility A
Advances.
(b) FACILITY B ADVANCES. Subject to the terms and conditions
herein, the Lender agrees to make Facility B Advances to O.S.I. Puerto
Rico, from time to time on any Business Day from the Closing Date
through April 30, 1999, in an aggregate principal amount outstanding at
any time not to exceed the Facility B Amount, as such Facility B Amount
may be reduced from time to time in accordance with the provisions of
this Agreement. Notwithstanding the preceding sentence or any other
provision hereof to the contrary, O.S.I. Puerto Rico may not request,
and the Bank shall have no obligation to make, Negotiated Rate Advances
prior to May 1, 1999. From and after May 1, 1999, subject to the terms
and conditions hereof, O.S.I. Puerto Rico may request that outstanding
Base Rate Advances and outstanding Eurodollar Rate Advances under
Facility B be converted into Negotiated Rate Advances pursuant to
Section 2.8 of this Agreement. Facility B Advances which are repaid or
prepaid by O.S.I. Puerto Rico may not be re-borrowed.
(c) USE OF PROCEEDS. The Facility A Advances shall be used by
Ocular Sciences to provide for its working capital and general
corporate needs. The Facility B Advances shall be used by O.S.I. Puerto
Rico (i) initially to repay all outstanding indebtedness owing by it to
Banco Bilbao Vizcaya Puerto Rico, and (iii) thereafter to finance the
construction of an industrial building in Santa Isabel, Puerto Rico and
to finance the purchase of machinery and equipment.
SECTION 2.2. MECHANICS OF ADVANCES.
(a) BORROWINGS. Each Base Rate Advance shall be in a minimum
amount of $250,000 or an integral multiple of $50,000 in excess
thereof. Each Eurodollar Rate Advance and each Negotiated Rate Advance
shall be in a minimum amount of $500,000 or an integral multiple of
$100,000 in excess thereof, except that the initial Eurodollar Rate
Advance to retire the outstanding indebtedness of O.S.I. Puerto Rico to
Banco Bilbao Vizcaya Puerto Rico shall be in the amount specified in
the payoff letter dated November 6, 1997.
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(b) NOTICE OF BORROWING. To request an Advance (other than a
Negotiated Rate Advance), a Borrower shall deliver a Notice of
Borrowing to the Lender not later than 11:00 a.m. (Pacific time) (i)
one (1) Business Day prior to the date of the requested Advance in the
case of a Eurodollar Rate Advance, and (ii) on the date of the
requested Advance in the case of a Base Rate Advance. The Notice of
Borrowing shall specify (A) the date of the requested Advance, which
shall be a Business Day; (B) the amount of such Advance; (C) whether
such Advance will consist of a Base Rate Advance or a Eurodollar Rate
Advance; (D) whether such Advance will be a Facility A Advance or a
Facility B Advance, and (E) in the case of a Eurodollar Rate Advance,
the initial Interest Period for such Eurodollar Rate Advance.
(c) TELEPHONIC NOTICE. In lieu of delivering a Notice of
Borrowing, a Borrower may give the Lender telephonic notice of any
proposed Advance by the time required under Section 2.2(b) and in such
event shall promptly (but in no event later than 5:00 p.m. (Pacific
time) on the date of the requested Advance) deliver a confirmatory
written Notice of Borrowing to the Lender. If the telephonic request
differs in any respect from the written Notice of Borrowing
subsequently delivered, then the Lender shall notify such Borrower of
such discrepancy and in such case the telephonic request shall govern
as to the terms of the Advance made in accordance with such telephonic
request. The Lender's determination of the contents of any telephonic
request shall, absent manifest error, be conclusive and binding on all
parties hereto.
(d) FUNDING OF ADVANCES. Upon fulfillment of the applicable
conditions set forth in Article III, the Lender shall, not later than
2:00 p.m. (Pacific time) on the date of the requested Advance, make
same day funds in Dollars in the amount of the Advance available to the
Borrower which requested such Advance.
(e) NOTICE OF BORROWING IRREVOCABLE. Each Notice of Borrowing
and telephonic request shall be irrevocable and binding on the Borrower
requesting such Advance.
SECTION 2.3. EVIDENCE OF DEBT.
(a) PROMISE TO REPAY. Ocular Sciences hereby agrees to pay
when due the principal amount of each Facility A Advance, and further
agrees to pay all unpaid interest accrued thereon, in accordance with
the terms of this Agreement. O.S.I. Puerto Rico hereby agrees to pay
when due the principal amount of each Facility B Advance, and further
agrees to pay all unpaid interest accrued thereon, in accordance with
the terms of this Agreement.
(b) LOAN ACCOUNT. The Lender shall maintain in accordance with
its usual practice an account or accounts evidencing the Debt of each
Borrower to the Lender resulting from each Advance owing by the
applicable Borrower to
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the Lender from time to time, including the amount of principal and
interest payable and paid to the Lender from time to time hereunder.
The entries made in each such loan account or accounts shall be
conclusive and binding for all purposes, absent manifest error.
SECTION 2.4. FEES.
(a) CLOSING FEE. On the Closing Date, the Borrowers shall pay
to the Lender a one time non-refundable fee of $35,000.
(b) COMMITMENT FEES. On the last day of each January, April,
July and October, commencing January 31, 1998, and continuing
thereafter until the Facility A Maturity Date, Ocular Sciences shall
pay a commitment fee to the Lender, at a rate equal to the Applicable
Amount attributable to commitment fees, computed in arrears and based
on the average daily Facility A Availability (PLUS, for the purposes of
this computation only, the outstanding amount of Letter of Credit Usage
consisting of documentary (commercial) Letters of Credit). No
commitment fee shall be payable in respect of Facility B.
SECTION 2.5. REPAYMENT. Each Borrower agrees to repay the Advances as
follows:
(a) FACILITY A. The Facility A Advances shall be repaid in
full on the Facility A Maturity Date.
(b) FACILITY B. The Facility B Advances shall be repaid to the
Lender in consecutive principal installments of $250,000 (or such
lesser amount as is then outstanding with respect to Facility B), which
shall be payable on the last day of each January, April, July and
October, with the first such installment to be paid on July 31, 1999,
and the last such installment to be paid on October 31, 2004, at which
time the entire unpaid principal and accrued unpaid interest with
respect to the Facility B Advances shall be due and payable in full.
(c) MATURITY. Facility A shall terminate on the Facility A
Maturity Date at which time all outstanding amounts under this
Agreement shall be due and payable. Facility B shall terminate on
October 31, 2004 at which time the Facility B Advances and any accrued
and unpaid interest thereon shall be due and payable.
(d) VOLUNTARY PREPAYMENTS. A Borrower may from time to time
prepay, without premium or penalty, the outstanding principal amount of
Advances under either Facility A or Facility B, or both, as such
Borrower may elect, in whole or in part, so long as (i) such Borrower
gives two (2) Business Days prior written notice to the Lender no later
than 11:00 a.m. (Pacific time) (except that notices regarding Facility
A prepayments may be given no later
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than 11:00 a.m. (Pacific time) on the same day as the prepayment)
stating (A) the proposed date of the prepayment; (B) the principal
amount of the prepayment; (C) whether such prepayment will consist of
Base Rate Advances, Eurodollar Rate Advances or Negotiated Rate
Advances; and (D) whether such prepayment will consist of Facility A
Advances or Facility B Advances; (ii) each partial prepayment is made
in a principal amount of not less than $250,000 or integral multiples
of $50,000 in excess thereof; (iii) if any Eurodollar Rate Advance is
paid prior to the last day of the Interest Period for such Advance, all
unpaid interest accrued to the date of prepayment on the principal
amount prepaid and all Breakage Costs incurred as a result of the
prepayment are also paid; (iv) if any Negotiated Rate Advance is paid
prior to the last day of the Interest Period for such advance or any
principal installment pertaining to a Negotiated Rate Advance is paid
prior to the regularly scheduled date such installment was due, all
unpaid interest accrued to the date of prepayment on the principal
amount prepaid and all Breakage Costs incurred as a result of the
prepayment are also paid; and (v) all unpaid interest under Facility B
accrued to the date of prepayment is paid concurrently with any
prepayment in full. Notice of prepayment, once given, shall be
irrevocable, and the amount of the prepayment specified in the notice
shall accordingly be due and payable on the prepayment date specified
therein. Principal that is prepaid under Facility A may be re-borrowed
on the terms and conditions set forth herein, but principal that is
prepaid under Facility B may not be re-borrowed. All prepayments of
Facility B shall be credited to future scheduled installments payable
with respect to Facility B in the inverse order of maturity.
(e) OPTIONAL REDUCTION OR TERMINATION OF FACILITY A. Ocular
Sciences may permanently reduce the Facility A Amount, in whole or in
part, upon at least five (5) Business Days prior written notice to the
Lender; PROVIDED, HOWEVER, that (i) each partial reduction of the
Facility A Amount shall be in a minimum amount of $1,000,000 or
integral multiples of $100,000 in excess thereof; (ii) each reduction
or termination shall be accompanied by the payment of the commitment
fee, if any, accrued on the Facility A Amount so reduced through the
date of such reduction or termination; (iii) the Facility A Amount, as
so reduced, shall not be less than an amount determined as the sum of
(A) the aggregate principal amount of Facility A Advances then
outstanding, PLUS (B) the Letter of Credit Usage then outstanding; (iv)
Ocular Sciences shall prepay the amount, if any, by which the sum of
(x) the aggregate principal amount of Facility A Advances then
outstanding, PLUS (y) the Letter of Credit Usage then outstanding,
exceeds the Facility A Amount as so reduced, together with interest
thereon to the date of prepayment, and (v) if the termination or
reduction of the Facility A Amount requires the prepayment of
Eurodollar Rate Advances, then the termination or reduction may be made
only on the last Business Day of the then current Interest Period
applicable to such Eurodollar Rate Advance.
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(f) EXCESS EXPOSURE. If, at any time for any reason, the sum
of (i) the aggregate principal amount of outstanding Facility A
Advances, PLUS (ii) the outstanding Letter of Credit Usage, exceeds the
Facility A Availability in effect at such time, then Ocular Sciences
shall immediately, without notice or demand, repay Facility A Advances
in an amount equal to such excess.
(g) CHANGE OF CONTROL. Each Borrower shall give the Lender
written notice of a Change of Control twenty (20) Business Days prior
to a Change of Control (or if twenty (20) Business Days' notice is not
practicable, such lesser notice (but not less than five (5) Business
Days) as is practicable). On the date of a Change of Control (i) all
Advances then outstanding to such Borrower shall be due and payable in
full, (ii) with respect to a Change of Control of Ocular Sciences,
Ocular Sciences shall deposit with the Lender cash collateral (in a
form acceptable to the Lender) in an amount equal to the Letter of
Credit Usage then outstanding, and (iii) the Facility Amount shall be
automatically and permanently reduced to zero.
SECTION 2.6. INTEREST. Each Borrower agrees to pay interest
on the unpaid principal amount of each Advance made by the Lender from the date
of such Advance until such principal amount shall be repaid in full, at the
following rates per annum:
(a) BASE RATE ADVANCES. Whenever such Advance is a Base Rate
Advance, a rate per annum equal on each day to the Base Rate as in
effect on such day PLUS the Applicable Amount attributable to Base Rate
Advances, with all such interest payable quarterly in arrears on the
last day of each January, April, July and October, commencing January
31, 1998, and (i) with respect to the Facility A Advances, on the
Facility A Maturity Date, and (ii) with respect to the Facility B
Advances, on such other date that such Advances are repaid, or required
to be repaid, in full.
(b) FACILITY A EURODOLLAR RATE ADVANCES. Whenever such Advance
is a Eurodollar Rate Advance under Facility A, a rate per annum equal
on each day during the Interest Period for such Eurodollar Rate Advance
to the sum of the Eurodollar Rate for such Interest Period determined
for such day PLUS the Applicable Amount attributable to Facility A
Eurodollar Rate Advances, with all interest so accrued payable on the
last day of such Interest Period, and if such Interest Period has a
duration of more than ninety (90) days, on the day which occurs ninety
(90) days after the first day of such Interest Period.
(c) FACILITY B EURODOLLAR RATE ADVANCES. Whenever such Advance
is a Eurodollar Rate Advance under Facility B, a rate per annum equal
on each day during the Interest Period for such Eurodollar Rate Advance
to the sum of the Eurodollar Rate for such Interest Period determined
for such day PLUS the Applicable Amount attributable to Facility B
Eurodollar Rate Advances, with all interest so accrued payable on the
last day of such Interest Period, and if
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such Interest Period has a duration of more than ninety (90) days, on
the day which occurs ninety (90) days after the first day of such
Interest Period.
(d) NEGOTIATED RATE ADVANCES. Whenever such Advance is a
Negotiated Rate Advance under Facility B, a rate per annum equal on
each day during the Interest Period for such Negotiated Rate Advance to
the sum of the Negotiated Rate for such Interest Period determined for
such day PLUS the Applicable Amount attributable to Negotiated Rate
Advances, with all interest so accrued payable quarterly in arrears on
the last day of each January, April, July and October, commencing July
31, 1999 and on such other date that the Facility B Advances are
repaid, or required to be repaid, in full.
(e) DEFAULT INTEREST. Upon written notice from the Lender to a
Borrower, from and after the occurrence of an Event of Default, all
amounts outstanding to such Borrower under this Agreement, to the
extent permitted by law, will bear interest equal to the greater of (i)
the rate applicable to Base Rate Advances PLUS three percent (3%) per
annum, or (ii) the rate otherwise payable on such amount (without
giving effect to this provision) PLUS three percent (3%) per annum.
SECTION 2.7. INTEREST RATE DETERMINATION AND PROTECTION.
(a) DETERMINATION OF EURODOLLAR RATE AND NEGOTIATED RATE. The
Eurodollar Rate and Negotiated Rate for each Interest Period applicable
to a Eurodollar Rate Advance or a Negotiated Rate Advance shall be
determined by the Lender at or before 11:00 a.m. (Pacific time) one (1)
Business Day before the first day of such Interest Period.
(b) NOTICE OF EURODOLLAR RATE AND NEGOTIATED RATE. The Lender
shall give prompt notice to a Borrower of the Eurodollar Rate and
Negotiated Rate for any Interest Period when determined by the Lender.
(c) ALTERNATIVE INTEREST RATE. If, with respect to any
Eurodollar Rate Advance or Negotiated Rate Advance, the Lender
determines that by reason of any change in applicable law or regulation
or regulatory requirement, or in the interpretation or application
thereof, or compliance by the Lender with any request (whether or not
having the force of law) of any banking authority, or of any change in
national or international financial, political or economic conditions
or currency exchange rates or exchange controls, the Lender determines
that (i) adequate and reasonable means do not exist for ascertaining a
Eurodollar Rate or a Negotiated Rate, as applicable, for any requested
Interest Period, (ii) the rate at which deposits in any Eurodollar Rate
or Negotiated Rate do not accurately reflect the cost to the Lender of
making or maintaining such Eurodollar Rate Advance or Negotiated Rate
Advance for any Interest Period, or (iii) Dollar deposits are not
available to the Lender in an amount substantially equal to such
Eurodollar Rate Advance or Negotiated
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Rate Advance and for a period equal to such Interest Period, then the
Lender shall forthwith so notify the Borrowers and thereupon (A) each
Eurodollar Rate Advance or Negotiated Rate Advance will automatically,
on the last day of the then existing Interest Period therefor, convert
into a Base Rate Advance, and (B) the obligation of the Lender to make
or continue, or to convert Advances into, Eurodollar Rate Advances or
Negotiated Rate Advances shall be suspended until the Lender shall
notify the Borrowers that the circumstances causing such suspension no
longer exist.
(d) MINIMUM AMOUNTS. No Advance of LESS than $1,000,000 may be
made or continued as, or converted into, Eurodollar Rate Advances or
Negotiated Rate Advances. If at any time the outstanding principal
amount of any Eurodollar Rate Advance is reduced to less than
$1,000,000, then such Advance shall automatically and immediately
convert into a Base Rate Advance.
(e) LENDER'S DETERMINATION CONCLUSIVE. Each determination by
the Lender of an interest rate hereunder shall be conclusive and
binding for all purposes, absent manifest error.
SECTION 2.8. VOLUNTARY CONVERSION OF ADVANCES.
(a) NOTICE OF CONTINUANCE/CONVERSION. Subject to the
provisions of Section 2.7 and Section 2.11, a Borrower may on any
Business Day, by giving the Lender a Notice of Continuance/Conversion
not later than 11:00 a.m. (Pacific time) on the preceding Business Day,
(i) convert Base Rate Advances into either Eurodollar Rate Advances or
Negotiated Rate Advances; provided, however, that conversions into
Negotiated Rate Advances may only be effected from and after May 1,
1999; (ii) convert Eurodollar Rate Advances into either Base Rate
Advances or Negotiated Rate Advances; provided, however, that
conversions into Negotiated Rate Advances may only be effected from and
after May 1, 1999; (iii) convert Negotiated Rate Advances into either
Base Rate Advances or Eurodollar Rate Advances; (iv) continue
Eurodollar Rate Advances as Eurodollar Rate Advances; or (iv) continue
Negotiated Rate Advances as Negotiated Rate Advances, but (A) such
Borrower may convert either a Eurodollar Rate Advance or a Negotiated
Rate Advance only on the last day of an Interest Period; (B) such
Borrower may continue a Eurodollar Rate Advance as a Eurodollar Rate
Advance only as of the last day of an Interest Period for such
Eurodollar Rate Advance; (C) such Borrower may continue a Negotiated
Rate Advance as a Negotiated Rate Advance only as of the last day of an
Interest Period for such Negotiated Rate Advance, and (D) no Advance
may be converted into or continued as either a Eurodollar Rate Advance
or a Negotiated Rate Advance at any time when an Event of Default or
Potential Default has occurred and is continuing.
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(b) TELEPHONIC NOTICE. In lieu of delivering a Notice of
Continuance/Conversion, a Borrower may give the Lender telephonic
notice of any proposed conversion or continuance by the time required
under Section 2.8(a) and in such event shall promptly (but in no event
later than 5:00 p.m. (Pacific time) on the Business Day prior to the
date of the requested conversion or continuance) deliver a confirmatory
written Notice of Continuance/Conversion to the Lender. If the
telephonic request differs in any respect from the written Notice of
Continuance/Conversion subsequently furnished, then the Lender shall
notify such Borrower of such discrepancy and in such case the
telephonic request shall govern as to the terms of such Notice of
Continuation/Conversion. The Lender's determination of the contents of
any telephonic request shall, absent manifest error, be conclusive and
binding on all parties hereto.
(c) REQUIREMENTS. Each Notice of Continuance/Conversion or
telephonic request shall specify (i) the date of the requested
continuance or conversion; (ii) whether such Advance is a continuance
or conversion of an outstanding Advance; (iii) the principal amount of
the Advance to be converted or continued; (iv) whether such Advance is
a Facility A Advance or a Facility B Advance; and (v) in the case of an
Advance which is converted into or continued as either a Eurodollar
Rate Advance or a Negotiated Rate Advance, the duration of the Interest
Period for such Advance.
(d) BASE RATE ADVANCES. Unless a Eurodollar Rate or Negotiated
Rate, as appropriate, has been determined for a particular Advance and
applies to such Advance on a particular day in accordance with the
provisions hereof, such Advance shall be a Base Rate Advance and shall
accrue interest at the rate then applicable to Base Rate Advances.
SECTION 2.9. FUNDING LOSSES. If (a) any Eurodollar Rate Advance or
Negotiated Rate is repaid or converted into a Base Rate Advance on any day other
than the last day of the relevant Interest Period (whether as a result of any
optional prepayment, mandatory prepayment, payment upon acceleration, mandatory
conversion or otherwise), (b) a Borrower fails to borrow, continue or convert
any Eurodollar Rate Advance or Negotiated Rate Advance in accordance with a
Notice of Borrowing, a Notice of Continuance/Conversion or a telephonic request
delivered to the Lender (whether as a result of the failure to satisfy any
applicable conditions or otherwise); or (c) a Borrower fails to make any
prepayment of either a Eurodollar Rate Advance or a Negotiated Rate Advance in
accordance with any notice of prepayment delivered to the Lender, then such
Borrower shall, upon demand by the Lender, reimburse the Lender for all
reasonable costs and losses incurred by the Lender as a result of such
repayment, prepayment or failure ("Breakage Costs"), including reasonable costs
and losses incurred by the Lender as a result of funding arrangements or
contracts entered into by the Lender to fund Eurodollar Rate Advances or
Negotiated Rate Advances. Breakage Costs shall be payable only if demanded
within ninety (90) days after the end of the applicable Interest Period and
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shall be due within thirty (30) days after demand. Demand shall be made by
delivery to a Borrower of a certificate of the Lender, setting forth in
reasonable detail the calculation of the Breakage Costs for which demand is
made, and such certificate shall, in the absence of manifest error, be
conclusive and binding on such Borrower. The calculation of any amounts payable
to the Lender shall be made as though the Lender shall have actually funded or
committed to fund the relevant Eurodollar Rate Advance or Negotiated Rate
Advance through the purchase of an underlying deposit in an amount equal to such
Eurodollar Rate Advance or Negotiated Rate Advance, respectively, and having a
maturity comparable to the relevant Interest Period; PROVIDED, HOWEVER, that the
Lender may fund any Eurodollar Rate Advance or Negotiated Rate Advance in any
manner it deems fit, and the foregoing assumptions shall be utilized only for
the purpose of the calculation of amounts payable under this paragraph. If a
Borrower shall be obligated to repay either Eurodollar Rate Advances or
Negotiated Rate Advances pursuant to Section 2.11 on a date that is not the last
day of the Interest Period for such Advance, then such Borrower may, in lieu of
making such payment on such date in order to avoid the obligation to pay
Breakage Costs, deposit Dollars with the Lender in an amount equal to the
principal amount of either the Eurodollar Rate Advances or Negotiated Rate
Advances being repaid PLUS interest to the date such prepayment will be applied.
Such deposit shall be (i) held by the Lender on terms and conditions
satisfactory to the Lender in its sole discretion, and (ii) applied by the
Lender to such Eurodollar Rate Advances or Negotiated Rate Advances on the last
day of the Interest Period therefor.
SECTION 2.10. INCREASED COSTS.
(a) INCREASE IN COST. If, due to either (i) the introduction
of, any change in or in the interpretation of, any law or regulation
after the Closing Date, or (ii) the compliance with any guideline or
request from any central bank or other Governmental Authority (whether
or not having the force of law) made after the Closing Date, there
shall be any increase in the cost to the Lender of agreeing to make or
making, funding or maintaining Eurodollar Rate Advances or Negotiated
Rate Advances, then the applicable Borrower shall from time to time pay
to the Lender additional amounts sufficient to compensate the Lender or
participant for such increased cost. Such costs shall be payable only
if demanded within six (6) months after they were incurred and shall be
due within thirty (30) days after demand. Demand shall be made by
delivery to such Borrower of a certificate of the Lender, setting forth
in reasonable detail the calculation of the costs for which demand is
made. Such certificate shall, in the absence of manifest error, be
conclusive and binding on such Borrower.
(b) INCREASE IN CAPITAL REQUIREMENTS. If the Lender determines
that compliance with any change in law or regulation or any guideline
or request from any central bank or other Governmental Authority
(whether or not having the force of law), in each case after the
Closing Date, affects or would affect the amount of capital required or
expected by any central bank or other
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Governmental Authority to be maintained by either the Lender or any
corporation controlling the Lender and that the amount of such capital
is increased by or based upon the existence of the Lender's commitment
to lend or funding hereunder and other commitments or funding of this
type, then, upon demand by the Lender, the applicable Borrower shall,
within thirty (30) days after demand from time to time by the Lender,
pay to the Lender additional amounts sufficient to compensate the
Lender in the light of such circumstances, to the extent that the
Lender determines in good faith that such increase in capital is
allocable to the existence of the Lender's commitment to lend or
funding hereunder. No such compensation may be demanded as to increased
capital maintained by the Lender more than six (6) months before
compensation was first demanded by the Lender under this Section
2.10(b). Demand for such compensation shall be made by delivery to such
Borrower of a certificate of the Lender setting forth the amount
demanded. Such certificate shall, in the absence of manifest error, be
conclusive and binding on such Borrower.
SECTION 2.11. ILLEGALITY. Notwithstanding any other provision of this
Agreement, if the Lender shall notify the Borrowers that the introduction of,
any change in or in the interpretation of, any law or regulation makes it
unlawful, or any central bank or other Governmental Authority asserts that it is
unlawful, for the Lender to perform its obligations hereunder to make either
Eurodollar Rate Advances or Negotiated Rate Advances or to fund or maintain
either Eurodollar Rate Advances or Negotiated Rate Advances hereunder, then (i)
the obligation of the Lender to make or continue, or to convert Advances into,
Eurodollar Rate Advances or Negotiated Rate Advances shall be suspended until
the Lender shall notify the Borrowers that the circumstances causing such
suspension no longer exist, and (ii) the Borrowers shall forthwith either (A)
prepay in full all Eurodollar Rate Advances and Negotiated Rate Advances of the
Lender then outstanding, together with interest accrued thereon and Breakage
Costs related thereto, or (B) convert all Eurodollar Rate Advances and
Negotiated Rate Advances of the Lender then outstanding into Base Rate Advances
and pay all interest accrued thereon to the date of conversion and all Breakage
Costs related thereto.
SECTION 2.12. PAYMENTS AND COMPUTATIONS.
(a) PAYMENTS. Each Borrower shall make each payment due
hereunder not later than 2:00 p.m. (Pacific time) on the day payment is
due in Dollars received by the Lender at its address referred to in
Section 7.2 in same day funds.
(b) COMPUTATIONS. Except as otherwise specified in Section
2.17(a), all computations of interest and fees accruing at a per annum
rate shall be made on the basis of the actual number of days (including
the first day but excluding the last day) occurring in the period for
which such interest or fees are payable and a year of three hundred
sixty (360) days.
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(c) PAYMENT ON BUSINESS DAY. Whenever any payment hereunder is
due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day, and such extension of time shall be
included in the computation of interest or fees.
SECTION 2.13. TAXES.
(a) NET PAYMENTS. Any and all payments by either Borrower
hereunder shall be made free and clear of, and without deduction for,
any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of the Lender, taxes imposed on its net income,
and franchise taxes imposed on it, by the jurisdiction under the laws
of which the Lender is organized or any municipal subdivision thereof
(all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities, collectively, are "Taxes"). If either
Borrower is required by law to deduct any Taxes from or in respect of
any sum payable hereunder to the Lender, then (i) the sum payable shall
be increased as may be necessary so that, after making all required
deductions (including deductions applicable to additional sums payable
under this Section 2.13), the Lender receives an amount equal to the
sum it would have received if no such deductions had been made, (ii)
such Borrower shall make such deductions, and (iii) such Borrower shall
pay the full amount deducted to the relevant taxation authority or
other authority in accordance with applicable law.
(b) PAYMENT OF OTHER TAXES. In addition, each Borrower agrees
to pay any present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies which arise from
any payment made hereunder or under or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any
other Loan Document ("Other Taxes").
(c) INDEMNIFICATION. Each Borrower will indemnify the Lender
for the full amount of Taxes or Other Taxes (including any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.13) paid by the Lender and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto. Payment under this indemnity shall be due within thirty (30)
days after written demand therefor.
(d) EVIDENCE OF PAYMENTS. Within thirty (30) days after the
date of any payment of Taxes, each Borrower will furnish to the Lender,
at its address referred to in Section 7.2, the original or a certified
copy of a receipt evidencing payment thereof. If no Taxes are payable
in respect of any payment hereunder, each Borrower will furnish to the
Lender, at such address, a certificate from each appropriate taxing
authority, or an opinion of counsel
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acceptable to the Lender, in either case stating that such payment is
exempt from or not subject to Taxes.
SECTION 2.14. COLLATERAL AND GUARANTIES. Payment and performance of
all Obligations of either Borrower or any of their Subsidiaries under this
Agreement and all other Loan Documents shall be secured in accordance with the
Collateral Documents. Payment and performance of all Obligations of Ocular
Sciences under this Agreement and all other Loan Documents shall be
unconditionally guaranteed by the Subsidiary Guarantors pursuant to the
Subsidiary Guaranty. Payment and performance of all Obligations of O.S.I. Puerto
Rico under this Agreement and all other Loan Documents shall be unconditionally
guaranteed by Ocular Sciences pursuant to the Parent Guaranty.
SECTION 2.15. ISSUANCE OF LETTERS OF CREDIT. Upon the request of Ocular
Sciences, and subject to the conditions set forth in Article III hereof and such
other conditions to the opening of Letters of Credit as the Lender requires of
its customers generally, the Lender shall from time to time open standby and/or
documentary (commercial) letters of credit (each, a "Letter of Credit") for the
account of Ocular Sciences; PROVIDED, HOWEVER, that the Letter of Credit Usage
shall not at any time exceed $3,000,000, and PROVIDED, FURTHER, that no Letter
of Credit shall be opened if at such time the sum of (a) the Letter of Credit
Usage then outstanding (after giving effect to the requested new Letter of
Credit), PLUS (b) the aggregate principal amount of Facility A Advances then
outstanding, shall exceed the Facility A Amount existing at such time. The
issuance of each Letter of Credit shall be made on at least five (5) Business
Days' prior written notice from Ocular Sciences to the Lender, which written
notice shall be an application for a Letter of Credit on the Lender's customary
form completed to the satisfaction of the Lender, together with the proposed
form of the Letter of Credit (which shall be denominated in Dollars and require
drafts payable at sight and otherwise be satisfactory to the Lender) and such
other certificates, documents and other papers and information as the Lender may
reasonably request. The Lender shall not at any time be obligated to issue any
Letter of Credit if such issuance would conflict with, or cause the Lender to
exceed any limits imposed by, any applicable requirements of law. The expiration
date of any standby Letter of Credit shall not be later than three hundred sixty
(360) days from the date of issuance thereof or such later date to which a
Letter of Credit expiration date may be extended by the application of automatic
extension or "evergreen" provisions of such Letter of Credit, and the expiration
date of any documentary (commercial) Letter of Credit shall not be later than
one hundred eighty (180) days from the date of issuance thereof; PROVIDED,
HOWEVER, that in no event shall any Letter of Credit have an expiration date
later than the Facility A Maturity Date. Each Letter of Credit shall be issued
for lawful purposes occurring in the ordinary course of business of Ocular
Sciences.
SECTION 2.16. PAYMENT OF LETTERS OF CREDIT; REIMBURSEMENT. The Lender
shall review each draft and any accompanying documents presented under a Letter
of Credit. Promptly after the Lender shall have ascertained that any draft and
any
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accompanying documents presented under such Letter of Credit appear on their
face to be in substantial conformity with the terms and conditions of the Letter
of Credit, (a) the Lender shall, not later than 11:00 a.m. (Pacific time) on the
date payment under the Letter of Credit is to be made, give telephonic or
facsimile notice to Ocular Sciences of the receipt and amount of such draft and
the date on which payment thereon will be made, (b) the Lender shall, not later
than 2:00 p.m. (Pacific time) on such day, make the appropriate payment to the
beneficiary of such Letter of Credit, and (c) Ocular Sciences shall, not later
than 2:00 p.m. (Pacific time) on such date, reimburse the Lender for such
payment (such reimbursement may be in the form of a Facility A Advance if Ocular
Sciences meets all of the conditions precedent for such an Advance and complies
with the requirements of Section 2.1). If Ocular Sciences does not reimburse the
Lender within the time set forth above, then Ocular Sciences shall pay to the
Lender (in addition to the amount of the drawing) interest on such amount at a
rate per annum equal to the rate applicable to Base Rate Advances hereunder PLUS
three percent (3%), payable on demand. The obligations of Ocular Sciences under
this Section 2.16 to reimburse the Lender for all drawings under Letters of
Credit shall be absolute, unconditional and irrevocable and shall be satisfied
strictly in accordance with their terms, irrespective of:
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, setoff, defense or other
right which Ocular Sciences or any other Person may at any time have
against the beneficiary under any Letter of Credit or the Lender (other
than the defense of payment in accordance with the terms of this
Agreement or a defense based on the gross negligence or willful
misconduct of the Lender) or any other Person in connection with this
Agreement or any other transaction;
(iii) any draft or other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any
respect;
(iv) payment by the Lender under any Letter of Credit against
presentation of a draft or other document which does not comply with
the terms of such Letter of Credit, and
(v) any other circumstance or event whatsoever, whether or not
similar to any of the foregoing.
It is understood that in making any payment under any Letter of Credit (A) the
Lender's exclusive reliance on the documents presented to it under such Letter
of Credit as to any and all matters set forth therein, including, without
limitation, reliance on the amount of any draft presented under such Letter of
Credit, whether or not the amount due to the beneficiary equals the amount of
such draft and whether or not any document presented pursuant to such Letter of
Credit proves to be insufficient in any respect, if such document on its face
appears to be in order,
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and whether or not any other statement or any other document presented pursuant
to such Letter of Credit proves to be forged or invalid or any statement therein
proves to be inaccurate or untrue in any respect whatsoever, and (B) any
noncompliance in any immaterial respect of the documents presented under such
Letter of Credit with the terms thereof shall, in each case, not be deemed
willful misconduct or gross negligence of the Lender.
SECTION 2.17. LETTER OF CREDIT FEES.
(a) Ocular Sciences agrees to pay to the Lender, with respect
to each standby Letter of Credit, an issuance fee equal to the then
effective Applicable Amount (i.e. the per annum interest margin)
pertaining to Facility A Eurodollar Rate Advances multiplied by the
face amount of such Letter of Credit for the period from and including
the date of issuance to and including the stated expiry date, payable
prior to issuance of such Letter of Credit.
(b) Ocular Sciences agrees to pay to the Lender, with respect
to each documentary (commercial) Letter of Credit, an issuance fee at
the rate customarily charged by the Lender at the time in like
circumstances, payable prior to issuance of such Letter of Credit.
(c) Ocular Sciences agrees to pay to the Lender on demand,
such other commissions, negotiation fees, transfer fees, and other
fees, charges and expenses in connection with the issuance, amendment,
transfer, cancellation, handling or administration of each Letter of
Credit which are customarily charged by the Lender at the time in
connection with such matters.
(d) Any fees paid pursuant to this Section 2.17 are
non-refundable.
SECTION 2.18. UNIFORM CUSTOM AND PRACTICE. The Uniform Customs and
Practice for Documentary Credits as published by the International Chamber of
Commerce most recently at the time of issuance of any Letter of Credit shall
(unless otherwise expressly provided in the Letter of Credit) apply to the
Letters of Credit.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.1. CONDITIONS PRECEDENT ON THE CLOSING DATE. This Agreement
shall become effective and binding upon the parties hereto only if each of the
following conditions precedent is satisfied or waived by the Lender no later
than November 7, 1997:
(a) LOAN DOCUMENTS. The Lender must have received:
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(i) this Agreement, including all exhibits and
schedules hereto, duly executed by each Borrower and the
Lender;
(ii) the Subsidiary Guaranty, duly executed by each
Material Subsidiary (excluding any Foreign Subsidiary);
(iii) the Parent Guaranty, duly executed by Ocular
Sciences; and
(iv) the Pledge Agreement, duly executed by Ocular
Sciences, together with certificates representing the Pledged
Shares of O.S.I. Puerto Rico, Ocular Sciences Limited, and
Ocular Sciences Canada referred to in Schedule A to such
Pledge Agreement, accompanied by undated stock powers executed
in blank.
(b) CORPORATE DOCUMENTS. The Lender must have received:
(i) copies of the articles or certificate of
incorporation and by-laws or other governing documents of each
Loan Party as in effect on the Closing Date, certified as of
the Closing Date by the Secretary of State of the state in
which such Loan Party is incorporated or formed or the
Secretary or an Assistant Secretary of such Loan Party, as
applicable;
(ii) copies of resolutions of the board of directors
of each Loan Party approving the transactions contemplated
hereby and authorizing the execution, delivery and performance
of each Loan Document to which it is a party, certified as of
the Closing Date by a Secretary or an Assistant Secretary of
such Loan Party;
(iii) a certificate of the Secretary or an Assistant
Secretary of each Loan Party certifying the names and true
signatures of the officers of such Loan Party authorized to
sign each Loan Document to which it is a party and, in the
case of a Borrower, to request an extension of credit
hereunder; and
(iv) a good standing certificate for each Loan Party,
issued as of a recent date by the Secretary of State of (A)
the state in which such Loan Party is incorporated or formed,
and (B) each state in which it owns material assets and
conducts material operations.
(c) GOVERNMENTAL CONSENTS. Each Loan Party must have obtained
all consents, approvals and authorizations required from any
Governmental Authority in connection with the execution, delivery and
performance of its obligations under the Loan Documents.
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(d) NO INJUNCTION. No law or regulation shall prohibit, and no
order, judgment or decree of any Governmental Authority shall enjoin,
prohibit or restrain, and no litigation shall be pending or threatened
which, in the reasonable judgment of the Lender, would enjoin, prohibit
or restrain (i) the making of the Advances or the issuance of Letters
of Credit, or (ii) the consummation of the transactions contemplated by
the Loan Documents.
(e) OTHER DELIVERIES. The Lender must have received:
(i) a copy of Ocular Sciences' audited financial
statement for the Fiscal Year ended December 31, 1996;
(ii) a certificate dated as of the Closing Date and
signed by an Authorized Officer, certifying on behalf of each
Borrower that, as of the Closing Date, (A) the representations
and warranties contained in Article IV of the Agreement and
Article III of the Pledge Agreement are true and correct on
and as of the Closing Date, as though made on and as of such
date, (B) no Event of Default or Potential Default has
occurred and is continuing, (C) since December 31, 1996, there
has been no Material Adverse Change, and (D) each of the other
applicable conditions precedent set forth in this Article III
has been satisfied;
(iii) a certificate dated as of the Closing Date and
signed by an Authorized Officer setting forth a calculation of
the Leverage Ratio as of September 30, 1997;
(iv) all documents evidencing other necessary
corporate action and governmental approvals, if any, with
respect to this Agreement or any other Loan Document; and
(v) such other certificates, agreements, documents or
instruments as the Lender may reasonably request in writing.
(f) LEGAL OPINIONS. The Lender must have received an opinion
of (i) Fenwick & West LLP, outside counsel for the Borrowers, (ii) Bird
Bird & Hestres, Puerto Rican counsel to O.S.I. Puerto Rico, and (iii)
outside counsel in the United Kingdom for Ocular Sciences Limited,
substantially in the forms of Exhibit C-1, C-2 and C-3, respectively,
and as to such other matters as the Lender may reasonably request.
(g) CANCELLATION OF ORIGINAL CREDIT AGREEMENT. The Lender
shall have received payment in full of all Obligations under the
Original Credit Agreement.
(h) PAYMENT OF EXISTING DEBT. The Lender must have received
evidence that all Debt of the Borrowers and its Subsidiaries (other
than Debt
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permitted by Section 5.3(d)) has been repaid in full and that all
related financing commitments have been terminated.
(i) PAYMENT OF FEES AND EXPENSES. All fees and expense
reimbursements due to the Lender under this Agreement must have been
paid.
(j) NO MATERIAL ADVERSE CHANGE. Since December 31, 1996, there
must not have been any Material Adverse Change.
SECTION 3.2. CONDITIONS PRECEDENT TO EACH EXTENSION OF CREDIT. The
Lender shall not be obligated to make any Advance on the date requested
(including the Closing Date) and/or to issue a Letter of Credit on any date,
unless each of the following conditions precedent is then satisfied or waived:
(a) NOTICE. The Borrower requesting such Advance or Letter of
Credit shall have delivered a fully completed Notice of Borrowing or
request for Letter of Credit, as applicable.
(b) CERTIFICATION. Each of the following statements shall be
true and correct, and the Lender shall have received a certificate
dated such date and signed by an Authorized Officer, certifying on
behalf of each Borrower that:
(i) the representations and warranties contained in
Article IV of the Agreement and Article III of the Pledge
Agreement are true and correct in all material respects on and
as of such date, both before and after giving effect to the
extension of credit to be made hereunder on such date and the
application of the proceeds therefrom, as though made on and
as of such date (other than the representations and
warranties, if any, which specifically are stated herein as
being made as of a particular date);
(ii) no event has occurred and is continuing, or
would result from such extension of credit or from the
application of the proceeds therefrom, which constitutes an
Event of Default or a Potential Default;
(iii) since December 31, 1996, there has been no
Material Adverse Change; and
(iv) all Loan Documents are in full force and effect.
The delivery of a Notice of Borrowing or request for Letter of Credit and the
acceptance by a Borrower of the proceeds of an Advance or the issuance of a
Letter of Credit shall constitute a representation and warranty by such Borrower
that, on the date of such credit extension, the foregoing statements are true.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. Each
Borrower represents and warrants as follows:
(a) ORGANIZATION. Each Loan Party is a corporation, limited
liability company or partnership duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is
organized and is duly qualified to do business and in good standing in
each jurisdiction where its material assets are located or its material
operations are conducted, except where the failure to be so qualified
could not reasonably be expected to cause a Material Adverse Change.
(b) POWER AND AUTHORITY. Each Loan Party has the corporate or
partnership power (i) to carry on its business as now being conducted
and as proposed to be conducted by it, (ii) to execute, deliver and
perform each Loan Document to which it is a party, and (iii) to take
all action necessary to consummate the transactions contemplated under
each Loan Document to which it is a party.
(c) DUE AUTHORIZATION. The execution, delivery and performance
by each Loan Party of each Loan Document to which it is or will be a
party have been duly authorized by all necessary action of its board of
directors (or, in case of a Loan Party that is not a corporation, its
governing authority), and neither contravene its certificate or
articles of incorporation or by-laws (or, in case of a Loan Party that
is not a corporation, its governing agreements) nor result in or
require the creation of any Lien (other than pursuant to the Pledge
Agreement) upon any of its property or assets.
(d) SUBSIDIARIES AND OWNERSHIP OF CAPITAL STOCK. Set forth on
Schedule 4.1(d) or on Schedule A to the Pledge Agreement, as such
Schedule may be amended pursuant to Section 5.2(e), is a complete list
of all direct and indirect Subsidiaries of Ocular Sciences. Such
Schedules also set forth the number of issued and authorized shares of
each class of capital stock of and other equity, ownership or profit
interests in such Subsidiary and the identity of the holders of all
such shares. Except as set forth in such Schedules, no capital stock of
or other equity, ownership or profit interests in any such Subsidiary
is subject to issuance or sale under any warrant, option or purchase
right, conversion or exchange right, call, commitment or claim of any
right, title or interest therein or thereto. Other than the shares
evidencing the capital stock of Ocular Sciences Hungary Ltd., all such
shares, capital stock or other equity, ownership or profit interests
are certificated securities evidenced and represented by certificates
issued in bearer or registered form. The outstanding capital stock of
each such Subsidiary is duly authorized, validly issued, fully paid and
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nonassessable and is not "margin stock," as that term is defined in
Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System.
(e) GOVERNMENTAL APPROVAL. No authorization or approval or
other action by, and no notice to or filing with, any Governmental
Authority is required for the due execution, delivery and performance
by each of the Loan Parties of any Loan Document to which it is or will
be a party, except for (i) those set forth on Schedule 4.1(e), and (ii)
filings and other actions required in connection with the exercise by
the Lender of its remedies in respect of the Pledged Shares (as such
term is defined in the Pledge Agreement).
(f) BINDING AND ENFORCEABLE. This Agreement and each other
Loan Document to which any Loan Party will be a party is or when
delivered will be legal, valid and binding obligations of the Loan
Parties enforceable against the Loan Parties in accordance with their
respective terms, subject to laws generally affecting the enforcement
of creditors' rights.
(g) FINANCIAL INFORMATION. The consolidated balance sheets of
Ocular Sciences and its Subsidiaries as at December 31, 1995 and
December 31, 1996 and the related income and cash flow statements for
the periods then ended, each other financial statement of Ocular
Sciences and its Subsidiaries delivered to the Lender on or prior to
the Closing Date (excluding any forecasts or financial projections
which may have been delivered to the Lender), and each financial
statement delivered to the Lender pursuant to Section 5.2(c), as and
when delivered to the Lender, fairly present the financial condition of
Ocular Sciences and its Subsidiaries as at the date thereof and the
results of their operations for the period then ended, all in
accordance with GAAP consistently applied but subject, in the case of
unaudited financial statements, to normal year-end adjustments and the
absence of footnotes.
(h) MATERIAL ADVERSE CHANGE. Since December 31, 1996, there
has been no Material Adverse Change.
(i) COMPLIANCE. The execution, delivery and performance by
each Loan Party of each Loan Document to which it is or will be a party
complies with all applicable laws. Each Loan Party is in compliance in
all material respects with all material applicable laws, rules,
regulations and orders.
(j) LITIGATION. Set forth on Schedule 4.1(j) is a list, as of
the Closing Date, of all pending or, to each Borrower's knowledge,
overtly threatened actions or proceedings against or directly affecting
any Loan Party before any court, governmental agency or arbitrator,
other than any action or proceeding that would not subject either
Borrower or any of their Subsidiaries to liability in excess of
$1,000,000 individually or in the aggregate. Except as identified on
Schedule 4.1(j), there is no pending or, to each Borrower's knowledge,
overtly threatened action or proceeding against or directly affecting
any Loan
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Party before any court, governmental agency or arbitrator which could
reasonably be expected to result in a Material Adverse Change or which
relates to or could reasonably be expected to affect the legality,
validity or enforceability of any Loan Document.
(k) NO CONFLICT. The execution, delivery and performance by
each Loan Party of each of the Loan Documents to which it is a party do
not and will not (i) to its best knowledge, conflict with, result in a
breach of, or constitute (with or without notice or the lapse of time
or both) a default under, any instrument, lease, indenture, agreement
or other contractual obligation issued by any Loan Party or enforceable
against it or any of its property or assets if (A) such agreement is
required to be filed with the Securities and Exchange Commission in
accordance with the 1934 Act (or would be required to be so filed if
either Borrower is subject to the reporting requirements of the 1934
Act), (B) such Agreement is not readily replaceable without any
material adverse effect on such Loan Party or its business, or (C) any
such conflict, breach or default would have a material adverse effect
on the business of such Loan Party, or (ii) require any approval of its
stockholders or partners that has not been obtained.
(l) NO DEFAULT. No event has occurred and is continuing which
constitutes an Event of Default or a Potential Default.
(m) PAYMENT OF TAXES. Each Borrower and each of their
Subsidiaries has filed all federal income tax returns and all other tax
returns required to be filed by it or has timely filed extensions
relating thereto and has paid all taxes and assessments payable by it
which have become due except (i) to the extent being contested in
accordance with the provisions of Section 5.2(h), and (ii) in the case
of state and local tax returns and taxes, where the same would not
reasonably be expected to result in aggregate liability to either
Borrower or any of their Subsidiaries in excess of $500,000.
(n) MARGIN REGULATIONS. No proceeds of any Advance will be
used for any purpose that requires the Lender to deliver or obtain any
certification under, or to comply with any margin requirement or other
provision of, Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.
(o) CONDUCT OF BUSINESS. Each Borrower and their Subsidiaries
are engaged in the lines of business described on Schedule 4.1(o) and
activities substantially similar or reasonably incidental thereto.
(p) ENVIRONMENTAL MATTERS. Except as set forth on Schedule
4.1(p), as it may from time to time be amended by either Borrower, no
Material Environmental Claim is pending or, to the knowledge of each
Borrower, overtly threatened against either Borrower or any of their
Subsidiaries or any
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of their past or present property or assets. Except as set forth on
Schedule 4.1(p), and except in respect of matters that, in the
aggregate, are not and cannot reasonably be expected to result in a
Material Environmental Claim or a Material Adverse Change, the
operations of each Borrower and their Subsidiaries comply and, to the
knowledge of each Borrower, have complied in all material respects with
all applicable Environmental Laws.
(q) ERISA COMPLIANCE.
(i) Each Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code and
other applicable federal or state law.
(ii) Each Pension Plan which is intended to be
tax-qualified under Section 401(a) of the Code has been
determined by the Internal Revenue Service to qualify under
Section 401 of the Code, and the trusts created thereunder
have been determined to be exempt from tax under the
provisions of Section 501 of the Code, and to the best
knowledge of each Borrower, nothing has occurred which would
cause the loss of such qualification or tax-exempt status.
(iii) Except as set forth on Schedule 4.1(q), (A)
none of the Pension Plans which is subject to Title IV of
ERISA has any material Unfunded Pension Liability as to which
either Borrower or any ERISA Affiliate is or may be liable;
(B) neither of the Borrowers nor any ERISA Affiliate has nor
reasonably expects to incur any material liability (and no
event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such material
liability) under Section 4201 or 4243 of ERISA with respect to
any Multiemployer Plan; (C) no ERISA Event has occurred or, to
the best knowledge of each Borrower, is reasonably expected to
occur, and (D) neither of the Borrowers nor any ERISA
Affiliate has maintained any Welfare Plan which provides, or
requires either Borrower or any ERISA Affiliate to provide,
medical or other welfare benefits to any participant after the
termination of such participant's employment with such
Borrower or such ERISA Affiliate (except to the extent
required by the provisions of Part 6 of Title I, Subtitle B of
ERISA or Sections 162(k) and 4980B of the Code).
(iv) Each Welfare Plan which is a "group health
plan," as defined in Section 607(1) of ERISA, has been
operated in compliance with provisions of Part 6 of Title I of
ERISA and Sections 162(k) and 4980B of the Code at all times.
(v) Neither of the Borrowers nor any ERISA Affiliate
has engaged, directly or indirectly, in a prohibited
transaction (as defined in Section 4975 of the Code or Section
406 of ERISA) for which no
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statutory or administrative exemption is applicable in
connection with any Plan, the consequences of which, in the
aggregate, constitute or can reasonably be expected to result
in a Material Adverse Change.
(r) TITLE TO ASSETS; NO INFRINGEMENT. Each Borrower and their
Subsidiaries have good and merchantable title to, or valid leasehold
interest in, as of the date of each of its financial statements
delivered hereunder, all of its material assets reflected therein and
all assets and properties acquired since the date of such financial
statements, free and clear of all Liens, except Liens permitted under
Section 5.3(a), and, to the knowledge of each Borrower, such assets do
not infringe upon any patent, trademark, copyright or other legally
protected interest of any other Person. Each Loan Party has complied
with all material obligations under all leases of real property to
which it is a party and under which it is in occupancy, and all such
leases are in full force and effect and each Loan Party enjoys peaceful
and undisturbed possession under all such leases.
(s) UNDISCLOSED LIABILITIES. Except as set forth on Schedule
4.1(s), neither of the Borrowers nor any of their Subsidiaries has any
liabilities, contingent or otherwise, which are not reflected on the
most recent financial statements delivered to the Lender pursuant to
Section 5.2(c) and which could reasonably be expected to constitute a
Material Adverse Change.
(t) NO NEGATIVE PLEDGES. Neither of the Borrowers nor any of
their Subsidiaries are parties to or subject to any agreement, document
or instrument which would restrict or prevent them from granting first
priority Liens upon their assets to the Lender, except the agreements,
documents or instruments existing on the Closing Date pursuant to which
Liens not prohibited by the terms of this Agreement have been created.
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.1. FINANCIAL COVENANTS. So long as any Obligation remains
unpaid or the Lender is obligated to extend credit hereunder, unless the Lender
otherwise consents in writing:
(a) MAXIMUM LEVERAGE RATIO. Neither of the Borrowers will
cause, permit or suffer the Leverage Ratio determined as of each Fiscal
Quarter End Date to be greater than 0.75 to 1.00.
(b) MINIMUM FIXED CHARGE COVERAGE RATIO. Neither of the
Borrowers will cause, permit or suffer the Fixed Charge Coverage Ratio
as of each Fiscal Quarter End Date to be less than 1.10 to 1.00.
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(c) MINIMUM QUICK RATIO. Neither of the Borrowers will cause,
permit or suffer the Quick Ratio as of each Fiscal Quarter End Date to
be less than 1.15 to 1.00.
(d) MINIMUM TANGIBLE EFFECTIVE NET WORTH. Neither of the
Borrowers will cause, permit or suffer Tangible Effective Net Worth as
of each Fiscal Quarter End Date to be less than the sum of (i)
$76,900,000, PLUS (ii) eighty percent (80%) of Consolidated Net Income
for each Fiscal Quarter (on a cumulative basis but without taking into
account any loss incurred during any Fiscal Quarter), commencing with
the Fiscal Quarter ending on September 30, 1997 (provided that the
Fiscal Quarter ending on September 30, 1997 shall include the period
from September 1, 1997 through September 30, 1997 only), PLUS (iii) one
hundred percent (100%) of the net cash proceeds from any Equity
Issuance after the Closing Date.
SECTION 5.2. AFFIRMATIVE COVENANTS. So long as any Obligation remains
unpaid or the Lender is obligated to extend credit hereunder, unless the Lender
otherwise consents in writing, each Borrower will, and will cause its
Subsidiaries to:
(a) COMPLIANCE WITH LAWS. Comply in all material respects with
all applicable laws, rules, regulations and orders.
(b) INSPECTION OF PROPERTY AND BOOKS AND RECORDS. (i) Maintain
proper books of record and account, in which full, true and correct
entries in conformity with GAAP consistently applied shall be made of
all financial transactions and matters involving its assets and
business, as and to the extent required by GAAP, and (ii) permit
representatives of the Lender to visit and inspect any of its
properties, to examine its corporate, financial and operating records
and make copies thereof or abstracts therefrom, and to discuss its
affairs, finances and accounts with its officers, employees and
independent public accountants, all at the expense of such Borrowers
and at such reasonable times during normal business hours and as often
as may be reasonably requested (but not more than twice per calendar
year, unless an Event of Default or Potential Default shall have
occurred and be continuing in which case such limitation shall not
apply), upon at least three (3) Business Days' advance notice to such
Borrowers, except that when an Event of Default exists, the Lender may
take any such action at any time during business hours and on same-day
notice.
(c) REPORTING REQUIREMENTS. Furnish to the Lender:
(i) as soon as available and in any event within
fifty (50) days after the end of each of the first three
Fiscal Quarters of each Fiscal Year, the consolidated and
consolidating balance sheet of Ocular Sciences and its
Subsidiaries as at the end of such Fiscal Quarter and
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their consolidated and consolidating income and cash flow
statements for such Fiscal Quarter and for the Fiscal Year to
date, prepared by Ocular Sciences and certified by an
Authorized Officer;
(ii) as soon as available and in any event within
ninety-five (95) days after the end of each Fiscal Year, the
consolidated financial statements of Ocular Sciences and its
Subsidiaries for such Fiscal Year, certified without any
qualification by a firm of certified public accountants of
nationally recognized standing, together with a
company-prepared consolidating balance sheet of Ocular
Sciences and its Subsidiaries as at the end of such Fiscal
Year and their consolidating income and cash flow statements
for such Fiscal Year, certified by an Authorized Officer;
(iii) as soon as available, a copy of each management
letter delivered to either Borrower by any outside auditing
firm, if such management letter identifies a material
weakness;
(iv) as soon as possible and in any event within five
(5) Business Days after becoming aware of any Event of Default
or Potential Default, any pending or overtly threatened
material litigation, any Material Environmental Claim, any
ERISA Event or any Material Adverse Change, a statement of an
Authorized Officer of a Borrower setting forth details of such
Event of Default or Potential Default, litigation, claim,
event or change and the action which such Borrower has taken
and proposes to take with respect thereto;
(v) promptly after the filing thereof, copies of all
reports and all registration statements filed by or on behalf
of either Borrower with the Securities and Exchange Commission
or any national securities exchange, excluding filings on Form
S-8 (or any successor form) and any other filing solely in
respect of stock option plans of either Borrower;
(vi) as soon as available and in any event within
fifty (50) days after the end of each Fiscal Quarter, a
Compliance Certificate signed by an Authorized Officer of each
Borrower in substantially the form of Exhibit D-1 and setting
forth the information requested therein;
(vii) as soon as possible and in any event within
thirty (30) days after the end of each Fiscal Year,
company-prepared financial forecasts and projections for the
ensuing Fiscal Year in a form acceptable to the Lender; and
(viii) such other information respecting the assets,
liabilities, condition or operations, financial or otherwise,
of either Borrower or
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any of their Subsidiaries as the Lender from time to time may
reasonably request.
(d) PRESERVATION OF CORPORATE EXISTENCE, ETC. Subject to
Section 5.3(h) and in the case of each Borrower and their Subsidiaries,
(i) preserve and maintain in full force and effect its corporate or
partnership existence and good standing under the laws of the
jurisdiction in which it was incorporated or organized and all rights,
privileges, qualifications, permits, licenses and franchises material
to the normal conduct of its business, (ii) use its reasonable efforts,
in the ordinary course and consistent with past practice, to preserve
its business organization, reputation and goodwill, and (iii) preserve
or renew all of its patents, copyrights, trademarks and licenses
therefor and other intellectual property, in each case where the
non-preservation of which constitutes or could reasonably be expected
to result in a Material Adverse Change; PROVIDED, HOWEVER, that either
Borrower or any of their Subsidiaries may consummate any merger or
consolidation permitted under Section 5.3(g), and PROVIDED, FURTHER,
that neither of the Borrowers nor any of their Subsidiaries shall be
required to preserve or maintain any right, asset, goodwill, business
or franchise if such Borrower or such Subsidiary shall determine that
the preservation thereof is no longer desirable in the conduct of the
business of such Borrower or such Subsidiary, as the case may be, and
that the loss thereof is not disadvantageous in any material respect to
such Borrower, such Subsidiary or the Lender.
(e) NEW SUBSIDIARIES. Promptly (but in any event within ten
(10) Business Days) after the date on which either a new (direct or
indirect) Subsidiary of Ocular Sciences is formed or acquired or an
existing Subsidiary of Ocular Sciences becomes a Material Subsidiary
(i) notify the Lender of such event, (ii) amend Schedule 4.1(d) and
deliver such amended Schedule to the Lender, and (iii) promptly (but in
any event within twenty (20) Business Days) after the formation,
acquisition or change of each Material Subsidiary, (A) deliver to the
Lender all stock certificates and other instruments added to the
Collateral thereby (to the extent required by the Pledge Agreement),
accompanied by an undated stock power or transfer document executed in
blank (provided that in the case of a Foreign Subsidiary, stock
certificates or other instruments representing only sixty-five percent
(65%) of Ocular Sciences' equity interests therein need be delivered to
the Lender); (B) amend Schedule A of the Pledge Agreement in light of
such event and deliver such Schedule to the Lender; (C) cause each such
Material Subsidiary (but excluding any Foreign Subsidiary) to execute
and deliver a joinder to the Subsidiary Guaranty; (D) if the Material
Subsidiary is indirectly owned or controlled by Ocular Sciences, at the
Lender's request cause such Subsidiary of Ocular Sciences that directly
controls each such Material Subsidiary (including each Foreign
Subsidiary to the extent of sixty-five percent (65%) of its equity
interest therein) to become a party to the Pledge Agreement by
executing a joinder thereto in form and substance acceptable to the
Lender, and (E) deliver
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to the Lender in respect of each such Material Subsidiary of Ocular
Sciences an opinion of counsel substantially in the form of Exhibit
C-3.
(f) MAINTENANCE OF PROPERTY. Maintain and preserve all its
property which is necessary for use in its business in good working
order and condition, except as permitted under Section 5.3(b) and
except to the extent that either Borrower determines in good faith that
it is not in the best interests of such Borrower and its Subsidiaries
to do so.
(g) INSURANCE. Maintain insurance with financially sound and
reputable insurers with respect to its properties and business against
loss or damage of the kinds consistent with industry practice of
Persons engaged in the same or similar business, of such types and in
such amounts as are carried under similar circumstances by such other
Persons.
(h) PAYMENT OF TAXES AND LIENABLE ITEMS. Pay and discharge, as
they become due and payable, all claims for tax liabilities,
assessments and governmental charges or levies against it or upon its
properties or assets and all lawful claims which, if unpaid, would,
with the passage of time or notice or both, by law become a Lien upon
its property (other than a Lien permitted by Section 5.3(a), excluding
clause (ix) thereof), unless (i) such claim is contested in good faith;
(ii) adequate reserves have been established for such claim to the
extent required by GAAP and other adequate provision for the payment
thereof has been made; (iii) enforcement of such claim is effectively
stayed during any time as such claim may otherwise become a Lien; and
(iv) if such claim is finally determined to be due, it is paid, with
all interest or penalties thereon, promptly (but in no event within the
time period prescribed by applicable law) after resolution of such
contest.
(i) USE OF PROCEEDS. Use the proceeds of the Advances solely
for lawful and permitted corporate purposes of each Borrower and their
Subsidiaries and not in contravention of this Agreement or any other
agreement or obligation binding upon it and in strict compliance with
all applicable laws, regulations and orders.
(j) PERMITTED CASH INVESTMENTS. To the extent it has cash,
keep its cash invested in Permitted Cash Investments (other than (i)
cash in collection or disbursement, (ii) cash of Foreign Subsidiaries
not in excess of $2,000,000 for each Foreign Subsidiary, and (iii) cash
of O.S.I. Puerto Rico not in excess of $2,000,000).
(k) FURTHER ASSURANCES.
(i) Promptly (but in no event later than five (5)
Business Days after becoming aware thereof) notify the Lender
if any written information, exhibits and reports furnished to
the Lender contained any
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untrue statement of a material fact or omitted to state any
material fact or any fact necessary to make the statements
contained therein not misleading in light of the circumstances
in which made, and correct any defect or error that may be
discovered therein or in the execution, acknowledgment or
recordation of any Loan Document.
(ii) Promptly upon request by the Lender, procure,
execute and deliver any and all documents, instruments and
agreements and perform such acts as the Lender may reasonably
require from time to time in order (A) to carry out more
effectively the purposes of this Agreement or any other Loan
Document, (B) to maintain the pledge to the Lender of (x) one
hundred percent (100%) of the outstanding equity interests of
each domestic Subsidiary, or (y) sixty-five percent (65%) of
the outstanding equity interests of each Foreign Subsidiary,
as required by Sections 3.1(a) and 5.2(e), or (C) to better
assure, convey, grant, assign, transfer, preserve, protect and
confirm to the Lender the rights granted or now or hereafter
intended to be granted to the Lender under any Loan Document
or under any other instrument executed in connection
therewith.
SECTION 5.3. NEGATIVE COVENANTS. So long as any Obligation remains
unpaid or the Lender is obligated to extend credit hereunder, without the
written consent of the Lender, neither Borrower will, and neither Borrower will
cause or permit any Subsidiary to:
(a) LIENS. Directly or indirectly make, create, incur, assume
or suffer to exist any Lien upon or with respect to any part of its
property or assets, whether now owned or hereafter acquired, or become
or remain bound by any agreement to do so, except:
(i) any Lien (other than a Lien on the Collateral)
(A) existing on the Closing Date and described in Schedule
5.3(d) securing Debt permitted under Section 5.3(d)(i), or (B)
granted to secure any extension, renewal, refinancing or
replacement of any such Debt if (x) the principal amount
secured thereby is not increased, and (y) the property subject
to the Lien so granted is limited to the property that was
subject to the original Lien and any accessions, fixtures,
improvements or equipment added thereto in the ordinary course
of business;
(ii) any Lien created under any Loan Document;
(iii) Liens existing on any fixed assets acquired by
the Borrowers or any of their Subsidiaries after the Closing
Date, to the extent that such Lien exists on the date such
fixed asset is acquired so long as such Lien was not created
in anticipation thereof, securing Debt permitted under Section
5.3(d)(viii) and any extension, renewal,
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refinancing or replacement of any such Debt if (A) the
principal amount secured thereby is not increased, and (B) the
property subject to such Liens so granted is limited to the
property that was subject to the original Lien and any
accessions, fixtures, improvements or equipment added thereto
in the ordinary course of business;
(iv) any Lien for taxes, fees, assessments or other
governmental charges which are not delinquent and remain
payable without penalty or which are being contested as
permitted under Section 5.2(h);
(v) any carriers', warehousemen's, mechanics',
landlords', materialmen's, repairmen's or other similar Lien
created by operation of law and arising in the ordinary course
of business which is not delinquent or remains payable without
penalty or which is being contested as permitted under Section
5.2(h);
(vi) any Lien (other than a Lien imposed by
Environmental Laws or by ERISA) on the property of the
Borrowers or any of their Subsidiaries imposed by law, or
pledges or deposits required by law pursuant to worker's
compensation, unemployment insurance and other social security
legislation (exclusive of obligations in respect of the
payment for borrowed money);
(vii) any Lien on the property of the Borrowers or
any of their Subsidiaries made to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids,
leases (including landlords' Liens), government contracts,
performance and return-of-money bonds and other similar
obligations incurred in the ordinary course of business
(exclusive of obligations in respect of the payment for
borrowed money) not exceeding $3,000,000 in the aggregate at
any one time outstanding;
(viii) any easement, right-of-way, restriction and
other similar encumbrance incurred in the ordinary course of
business if, in the aggregate, such items are not substantial
in amount and do not constitute and cannot reasonably be
expected to result in a Material Adverse Change;
(ix) any Lien arising out of any judgment or award
against it if (A) such Lien is being contested as permitted
under Section 5.2(h); (B) there is no material likelihood of
the sale, forfeiture or loss of any part of its properties;
(C) such Lien does not materially interfere with the use of
any material part of its properties, and (D) the existence of
such Lien is not an Event of Default under Section 6.1(j);
(x) Leases or subleases and licenses and sublicenses
granted to others not interfering in any material respect with
the business of the
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Borrowers and their Subsidiaries taken as a whole and any
interest or title of a lessor or licensor or under any lease
or license;
(xi) Liens which constitute rights of set-off of a
customary nature or bankers' Liens with respect to amounts on
deposit, whether arising by operation of law or by contract,
in connection with arrangements entered into with banks in the
ordinary course of business;
(xii) rights of consignees of inventory in the
ordinary course of business not exceeding $2,000,000 in the
aggregate at any one time outstanding for the Borrowers and
their Subsidiaries; and
(xiii) Liens incurred after the Closing Date on fixed
assets securing Debt permitted and described in Section
5.3(d)(iii);
or become or remain bound by any agreement restricting its ability to
grant, create, incur, assume or suffer to exist any Lien upon or with
respect to any part of its property or assets for the benefit of the
Lender, whether now owned or hereafter acquired, as security for the
payment of the Obligations or any refinancing or replacement thereof,
except (A) restrictions set forth in the Loan Documents; (B)
restrictions on junior Liens on property secured by a Lien permitted
under Section 5.3(a)(i) and (xiii), if such restrictions are
enforceable solely by the holder of the Lien so permitted; (C)
restrictions on the creation of a Lien on the lessee's interest under a
lease or any other contract if such restrictions are enforceable solely
by the lessor under such lease or other party to such contract; and (D)
restrictions contained in agreements for the sale or lease of assets if
such sale or lease is permitted hereunder.
(b) DISPOSITION OF ASSETS. Engage in any Asset Sale or
otherwise directly or indirectly sell, assign, lease, convey, transfer
or otherwise dispose of all or any portion of its assets, business or
property, or agree to do any of the foregoing, except:
(i) dispositions of inventory or used, worn-out or
surplus property or equipment or Permitted Cash Investments,
in each case in the ordinary course of business;
(ii) the sale of any business unit of either Borrower
or any of their Subsidiaries that the board of directors of
such Borrower or such Subsidiary determines in good faith to
be non-material;
(iii) any Asset Sale so long as (A) such transaction
is on an arm's-length basis; (B) no Event of Default or
Potential Default is continuing or would result from such
Asset Sale; (C) the purchase price paid to either Borrower or
any of their Subsidiaries for such asset shall
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not be less than the fair market value of such asset at the
time of such sale; (D) the purchase price for such asset shall
be paid to either Borrower or any of their Subsidiaries solely
in cash (except for non-cash consideration in the form of
promissory notes not exceeding $2,000,000 in the aggregate at
any one time outstanding); and (E) the aggregate book value of
assets (other than the custom lens laboratory owned by Ocular
Sciences Canada) sold by the Borrowers and their Subsidiaries
pursuant to this clause (iii) in any Fiscal Year does not
exceed five percent (5%) of Ocular Sciences' consolidated
total assets (determined in accordance with GAAP) as of the
last day of the preceding Fiscal Year;
(iv) so long as no Event of Default or Potential
Default is continuing or would result from the proposed
transaction, the grant of an option or other right to purchase
an asset in a transaction that would be permitted under this
Section 5.3(b);
(v) the sale, lease, transfer or other disposition of
assets by any Subsidiary of a Borrower to such Borrower;
(vi) sales, transfers or other dispositions of fixed
assets or equipment by either Borrower or any of their
Subsidiaries to the extent that (A) such equipment is traded
in for credit against the purchase price of other fixed assets
or equipment, or (B) the proceeds of such sale are applied to
the purchase price of such other fixed assets or equipment
within one hundred eighty (180) days from the date of sale,
transfer or disposition; and
(vii) non-exclusive licenses and similar arrangements
for the use of intellectual property granted to others not
interfering in any material respect with the business of the
Borrowers and their Subsidiaries taken as a whole;
PROVIDED, HOWEVER, that neither of the Borrowers nor any of their
Subsidiaries shall dispose of any asset to effect a leaseback of any
asset, other than sale-leasebacks of equipment effected less than one
hundred eighty (180) days after such Borrower or such Subsidiary shall
have acquired such equipment.
(c) INVESTMENTS. Directly or indirectly make, acquire, carry
or maintain any Investment, or become or remain bound by any agreement
to make, acquire, carry or maintain any Investment, except:
(i) Investments held on the Closing Date and
described in Schedule 5.3(c);
(ii) Permitted Cash Investments;
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<PAGE> 66
(iii) loans made by Ocular Sciences to any of its
Subsidiaries, or loans made by any Subsidiary of Ocular
Sciences to Ocular Sciences;
(iv) loans and advances to employees of either
Borrower or any of their Subsidiaries not exceeding $2,500,000
in the aggregate at any one time outstanding;
(v) acquisitions permitted under Section 5.3(g)(i) or
(iv);
(vi) Investments constituting non-cash consideration
permitted to be received in connection with dispositions of
assets permitted under Section 5.3(b)(iii);
(vii) Investments made after the Closing Date by
Ocular Sciences in any of its direct wholly-owned Subsidiaries
(other than a Foreign Subsidiary and other than O.S.I. Puerto
Rico);
(viii) Investments made by Ocular Sciences after the
Closing Date in any Foreign Subsidiary (in addition to those
permitted by Section 5.3(c)(ix)) or O.S.I. Puerto Rico not
exceeding $2,000,000 in the aggregate at any one time
outstanding;
(ix) Investments made after the Closing Date by
Ocular Sciences in Ocular Sciences Limited to the extent
required by the Inland Revenue Authority of the United Kingdom
rules and regulations to maintain the deductibility of
interest expense incurred by Ocular Sciences Limited;
(x) Investments by either Borrower or any of their
Subsidiaries consisting of accounts receivable from customers
(including Subsidiaries of such Borrower) or amounts received
in settlement of delinquent obligations of and other disputes
with customers and suppliers, in each case arising in the
ordinary course of business; and
(xi) other Investments so long as the unrecovered
investment made by the Borrowers and their Subsidiaries
therein (counted at cost and not counting recoveries fairly
characterized as income) does not exceed $2,000,000 in the
aggregate at any one time outstanding.
(d) LIMITATION ON DEBT AND ACCOMMODATION OBLIGATIONS. Directly
or indirectly create, incur, assume, guarantee or suffer to exist, or
otherwise become or remain directly or indirectly liable with respect
to, any Debt or any Accommodation Obligation, except:
(i) Debt existing on the Closing Date and described
in Schedule 5.3(d) and any extension, renewal or refinancing
of such Debt
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so long as both (A) either (x) the principal amount of such
Debt is not increased, or (y) any increase in the principal
amount of such Debt is permitted pursuant to another clause of
this Section 5.3(d), and (B) the terms and conditions
(including financial and other restrictive covenants) are not
materially more restrictive on any Loan Party than the terms
and conditions existing on the Closing Date;
(ii) the Obligations;
(iii) Capital Leases, conditional sales agreements
and other purchase money Debt incurred after the Closing Date
for property, plant or equipment not exceeding $5,000,000 in
the aggregate principal amount at any one time outstanding for
the Borrowers and their Subsidiaries;
(iv) Debt in the nature of surety bonds issued at the
request of either Borrower or any of their Subsidiaries to
secure contingent obligations of such Person either (A) in the
ordinary course of business, or (B) in connection with the
enforcement of rights or claims of either Borrower or any of
their Subsidiaries, or (C) in connection with judgments to the
extent permitted under Section 5.3(a)(ix);
(v) Debt permitted under Section 5.3(c)(iii);
(vi) Debt under Rate Contracts;
(vii) Subordinated Debt on terms and conditions
approved by the Lender;
(viii) Debt (but not Accommodation Obligations in
respect of such Debt) incurred after the Closing Date and
permitted under Section 5.3(g)(iv);
(ix) Debt not exceeding $5,000,000 in the aggregate
at any one time outstanding consisting of foreign exchange
contracts on which delivery is to be effected and settlement
allowed at any time in the future (plus related fees, costs
and indemnities) entered into between either Borrower and the
Lender;
(x) endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course
of business;
(xi) obligations to pay dividends and other payments
permitted under Section 5.3(f) (to the extent that such
obligations are construed as "Debt" hereunder);
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(xii) Accommodation Obligations of operating leases
and performance obligations entered into in the ordinary
course of business; and
(xiii) other Debt not exceeding $2,000,000 in the
aggregate principal amount at any one time outstanding for the
Borrowers and their Subsidiaries.
(e) TRANSACTIONS WITH AFFILIATES. Enter or agree to enter into
any transaction with any Affiliate of either Borrower or of any of
their Subsidiaries except (i) under the Loan Documents, or (ii) in the
ordinary course of business and pursuant to the reasonable requirements
of the business of such Borrower or such Subsidiary and upon fair and
reasonable terms no less favorable to such Borrower or such Subsidiary
than those that would prevail in a comparable arm's-length transaction
with a Person not an Affiliate of such Borrower or such Subsidiary;
PROVIDED, HOWEVER, that nothing in this Section 5.3(e) shall be
construed to prohibit (A) customary directors' and officers'
indemnities; (B) customary directors' fees; (C) reasonable compensation
to officers (as determined by such Borrower's or such Subsidiary's
board of directors); and (D) administrative services provided by either
Borrower to their Subsidiaries in the ordinary course of business
consistent with past practice.
(f) RESTRICTED JUNIOR PAYMENTS. Directly or indirectly (i)
declare or make any dividend payment or other distribution of assets,
properties, cash, rights, obligations or securities on account of any
shares of any class of its capital stock or any other equity, ownership
or profit interests; (ii) purchase, redeem or otherwise acquire for
value any shares of any class of capital stock of, or other equity,
ownership or profit interests in, Ocular Sciences or any of its
Subsidiaries or any warrants, rights or options to acquire any such
shares or interests, now or hereafter outstanding, which exceed
$1,000,000 in the aggregate for the Borrowers and their Subsidiaries
subsequent to the Closing Date; (iii) enter into any agreement
restricting the ability of any Subsidiary of Ocular Sciences to declare
or make any dividend payment or other distribution of assets,
properties, cash, rights, obligations or securities to its stockholders
(other than as permitted in Section 5.3(j)); (iv) agree to or permit
any amendment or modification of or change in any of the terms of
agreements governing Subordinated Debt; or (v) pay, prepay, redeem,
purchase or otherwise acquire any Subordinated Debt, or make any
deposit to provide for the payment of any Subordinated Debt when due,
or exchange any Subordinated Debt, or give any notice in respect
thereof, except that:
(A) Either Borrower may declare and make any dividend
payments or other distributions payable solely by such
Borrower in common stock of such Borrower; and
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(B) any Subsidiary of either Borrower may declare and
make dividends and distributions made solely to such Borrower
or to a wholly-owned Subsidiary of such Borrower.
(g) MERGERS, ETC. Merge or consolidate with or into or enter
into any agreement to merge or consolidate with or into any Person, or
acquire any ownership interest in any assets, business or Person,
except:
(i) acquisitions of property, plant and equipment in
the ordinary course of business;
(ii) mergers or consolidations between (A)
wholly-owned Subsidiaries of either Borrower, or (B) Ocular
Sciences and any of its wholly-owned Subsidiaries, so long as
Ocular Sciences is the surviving corporation;
(iii) Investments permitted under Section 5.3(c); and
(iv) an acquisition of the entire ownership interest
in any assets primarily used for, or any business or Person
engaged in, any of the lines of business currently conducted
by either Borrower or any of their Subsidiaries and activities
reasonably incidental thereto, so long as (A) the total
consideration (including cash, Debt incurred and value of
stock) paid by the Borrowers and their Subsidiaries for all
such acquisitions does not exceed $7,000,000 in the aggregate
subsequent to the Closing Date, (B) no Debt is assumed (other
than Debt secured solely by fixed assets being acquired) or
incurred in connection with the acquisition, (C) if the
acquisition is accomplished by merger or consolidation, Ocular
Sciences is the surviving corporation, and (D) no Event of
Default or Potential Default is continuing or would result
from such acquisition.
(h) CONDUCT OF BUSINESS. Engage in any business or activity
other than the businesses described in Section 4.1(o) and any activity
reasonably incidental thereto.
(i) COMPLIANCE WITH ERISA. Directly or indirectly (or permit
any ERISA Affiliate directly or indirectly to) (i) terminate any Plan
subject to Title IV of ERISA so as to result in liability to the
Borrowers or any ERISA Affiliate in excess of $1,000,000 in the
aggregate; (ii) permit any ERISA Event to exist; (iii) make a complete
or partial withdrawal (within the meaning of ERISA Section 4201) from
any Multiemployer Plan so as to result in liability to the Borrowers or
any ERISA Affiliate in excess of $1,000,000 in the aggregate; or (iv)
permit the total Unfunded Pension Liabilities (using the actuarial
assumptions utilized by the PBGC) for all Pension Plans (other than
Pension
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Plans which have no Unfunded Pension Liabilities) to exceed $1,000,000
in the aggregate.
(j) PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. Cause, permit
or suffer any Subsidiary to become or remain subject to any contractual
obligation that in any manner limits or restricts its right to pay
dividends or make distributions, whether in cash or in property, to its
stockholders or to make loans or sell assets to either Borrower or any
of their Subsidiaries or to enter into any other lawful transaction
with either Borrower or any of their Subsidiaries, except limitations
and restrictions set forth in the Loan Documents.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. EVENTS OF DEFAULT. If any of the following events (each,
an "Event of Default") shall occur and be continuing:
(a) NON-PAYMENT OF PRINCIPAL. Either Borrower fails to pay
when due any principal of any Advance; or
(b) NON-PAYMENT OF INTEREST. Either Borrower fails to pay when
due any interest payable under Section 2.6 or any fee payable under
Section 2.4 or Section 2.17 and such failure continues for three (3)
Business Days; or
(c) NON-PAYMENT OF OTHER OBLIGATIONS. Either Borrower fails to
pay any other payment Obligation, and such failure continues for ten
(10) Business Days after either (i) it is acknowledged in writing by
such Borrower, or (ii) written notice thereof is given to such Borrower
by the Lender; or
(d) REPRESENTATIONS AND WARRANTIES. Any representation or
warranty made by any Loan Party under or in connection with any Loan
Document proves to have been incorrect in any material respect when
made; or
(e) FINANCIAL AND NEGATIVE COVENANTS. Either Borrower fails to
perform or observe any term, covenant or agreement set forth in Section
5.1 or Section 5.3; or
(f) REPORTING AND COLLATERAL COVENANTS. Either Borrower fails
to perform or observe any term, covenant or agreement set forth in
Sections 5.2(c), (e), (j) or (k), and such failure continues for ten
(10) Business Days after either (i) it is acknowledged in writing by
such Borrower, or (ii) written notice thereof is given to such Borrower
by the Lender; or
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(g) OTHER AGREEMENTS. Either Borrower or any of their
Subsidiaries fails to perform or observe any term, covenant or
agreement contained in this Agreement or any other Loan Document (other
than those specifically referred to in any of the preceding paragraphs
of this Section 6.1) and such failure continues for thirty (30) days
after either (i) it is acknowledged in writing by such Borrower or such
Subsidiary, or (ii) written notice thereof is given to such Borrower or
such Subsidiary by the Lender; or
(h) DEFAULT AS TO OTHER DEBT. Either Borrower or any of their
Subsidiaries (i) fails to pay, when due and payable (whether at the
scheduled maturity or upon any required prepayment, acceleration,
demand or otherwise), any principal of or premium or interest on any
Debt (except any Advances) outstanding in a principal amount of at
least $1,000,000, and such failure continues for longer than the period
of grace, if any, specified for such failure in the indenture or
agreement governing such Debt, or (ii) commits, permits or suffers a
breach, default or event of default to occur under any indenture or
agreement governing any Debt (except any Advances) outstanding in a
principal amount of at least $1,000,000, and such breach, default or
event of default continues for longer than the period of grace, if any,
specified for such failure in such indenture or agreement; or any such
Debt of at least $1,000,000 is declared to be due and payable or is
required to be prepaid prior to the stated maturity thereof; PROVIDED,
HOWEVER, that no such failure, breach, default, event of default,
declaration or requirement as to any Debt (A) which is the liability
solely of a Foreign Subsidiary shall be an Event of Default hereunder
until either (x) it is acknowledged in writing by either Borrower, or
(y) it continues for ten (10) Business Days after written notice
thereof is given to either Borrower by the Lender, and (B) shall be an
Event of Default hereunder if, in the case of a wholly-owned Subsidiary
of either Borrower, such Debt is held entirely by either Borrower or,
in the case of either Borrower, such Debt is held entirely by one or
more of its wholly-owned Subsidiaries; or
(i) BANKRUPTCY. (i) Either Borrower or any of their
Subsidiaries are generally not paying its debts as they become due or
admits in writing its inability to pay its debts generally or makes a
general assignment for the benefit of creditors, or (ii) any proceeding
is instituted by or against either Borrower or any of their
Subsidiaries seeking an order for relief under the United States
Bankruptcy Code or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or
its debts or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property
under any law relating to bankruptcy, insolvency, liquidation or
reorganization or relief of debtors and either (A) any such relief in
any such proceeding is sought or consented to by it or an order for any
such relief is entered against it, or (B) any such proceeding
instituted against it remains undismissed and unstayed for a period of
sixty (60) days, or (C) either Borrower or any of their Subsidiaries
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takes any corporate action to authorize any of the actions set forth
above in this Section 6.1(i); or
(j) JUDGMENTS. Any judgment or order for the payment of money
is rendered against either Borrower or any of their Subsidiaries in an
amount in excess of $1,000,000 individually or in the aggregate and
either (i) enforcement proceedings are commenced by any creditor upon
such judgment or order and not stayed, or (ii) there is any period of
sixty (60) consecutive days during which such judgment has not been
paid in full or a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, is not in effect; or
(k) MATERIAL ADVERSE CHANGE. There is any Material Adverse
Change since December 31, 1996; or
(l) LOAN DOCUMENTS. Any provision of any Loan Document after
delivery thereof for any reason ceases to be valid and binding on each
Loan Party thereto, or any Loan Party shall repudiate or purport to
revoke or terminate any of its obligations under any Loan Document to
which it is party, and such event continues for ten (10) Business Days
after written notice thereof is given to either Borrower; or
(m) COLLATERAL DOCUMENTS. The Collateral Documents, after
delivery thereof pursuant to Section 3.1(a), for any reason (other than
pursuant to the terms thereof) cease to create a valid and perfected
first priority security interest in any Collateral purported to be
covered thereby, and such event continues for ten (10) Business Days
after written notice thereof is given to either Borrower, or
(n) ERISA. (i) Either Borrower or any ERISA Affiliate fails to
satisfy its contribution requirements under Section 412(c)(11) of the
Code, whether or not it has sought a waiver under Section 412(d) of the
Code; (ii) in the case of an ERISA Event involving the withdrawal from
a Pension Plan of a "substantial employer" (as defined in Section
4001(a)(2) or Section 4062(e) of ERISA), the withdrawing employer's
proportionate share of that Pension Plan's Unfunded Pension Liabilities
is more than $1,000,000 in the aggregate; (iii) in the case of an ERISA
Event involving the complete or partial withdrawal from a Multiemployer
Plan, the withdrawing employer incurs a Withdrawal Liability in an
aggregate amount exceeding $1,000,000; (iv) a Plan that is intended to
be qualified under Section 401(a) of the Code loses its qualification,
and with respect to such loss of qualification, either Borrower or any
ERISA Affiliate can reasonably be expected to be required to pay (for
additional taxes, payments to or on behalf of Plan participants, or
otherwise) an aggregate amount exceeding $1,000,000; or (v) any
combination of events listed in clauses (ii) through (iv) occurs that
involves a net increase in
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aggregate Unfunded Pension Liabilities and unfunded liabilities in
excess of $1,000,000;
then, and in any such event, the Lender (A) shall declare its obligation to make
Advances and issue Letters of Credit to be terminated, whereupon the same shall
forthwith terminate and the Facility Amount shall be automatically and
permanently reduced to zero, and (B) shall by notice to the Borrowers, declare
all Advances, together with all interest thereon and all other Obligations, to
be immediately due and payable, and thereupon the Advances and such interest and
all other Obligations, shall be immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrowers; PROVIDED, HOWEVER, that if an order
for relief under the United States Bankruptcy Code is entered at the request or
upon the consent of either Borrower or involuntarily against either Borrower,
then (x) the obligation of the Lender to make Advances and to issue Letters of
Credit shall automatically be terminated and the Facility Amount shall be
immediately, automatically and permanently reduced to zero, and (y) all Advances
and all such interest and other Obligations shall automatically become and be
immediately due and payable, without presentment, demand, protest or any notice
of any kind, all of which are hereby expressly waived by the Borrowers.
SECTION 6.2. RIGHTS NOT EXCLUSIVE. The rights provided for in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other rights, powers or privileges or remedies provided by law or in equity
or under any other instrument, document or agreement.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. AMENDMENTS. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by either Borrower therefrom, shall
be effective unless it is in writing and signed by the Lender (and any such
waiver or consent shall in any case be effective only in the specific instance
and for the specific purpose for which given), except that Ocular Sciences may
amend Schedule 4.1(d) as provided in Section 5.2(e) by delivering a copy of such
amended Schedule to the Lender in accordance with Section 7.2.
SECTION 7.2. NOTICES. All notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic, telex or cable
communication) and mailed, telecopied, telegraphed, telexed, cabled or
delivered, if to either Borrower, at 475 Eccles Avenue, South San Francisco, CA
94080, Attention: Chief Financial Officer; if to the Lender, at Comerica
Bank-California, 155 Grand Avenue, Suite 402, Oakland, CA 94612, Attention: Lori
Edwards, or, as to each party, at such other address as shall be designated by
such
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party in a written notice to the other parties. All such notices and
communications shall be effective when received.
SECTION 7.3. NO WAIVER; REMEDIES. No failure on the part of the
Lender to exercise, and no delay in exercising, any right under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 7.4. COSTS AND EXPENSES. The Borrowers agrees to pay within
twenty (20) days after the Borrowers receive an invoice itemizing the same, all
reasonable out-of-pocket costs and expenses incurred by the Lender in connection
with the preparation, negotiation, execution, delivery, modification,
administration and amendment of the Loan Documents and the other documents to be
delivered under the Loan Documents, including the reasonable fees and
out-of-pocket expenses of counsel for the Lender with respect thereto and with
respect to advising the Lender as to its rights and responsibilities under the
Loan Documents in connection with actions or inactions of the Loan Parties. The
Borrowers further agree to pay on demand all reasonable costs and expenses,
including reasonable fees and expenses of attorneys (including allocable costs
of in-house counsel), accountants, advisors and other experts, incurred by the
Lender in respect of any Event of Default or while any Event of Default is
continuing or in connection with the protection, resolution or enforcement
(whether through negotiations, by legal proceedings, in bankruptcy or otherwise)
of the Obligations or the Collateral or any right, remedy, power, interest or
claim of the Lender under any Loan Document.
SECTION 7.5. RIGHT OF SET-OFF. Whenever any Event of Default is
continuing, the Lender may at any time or from time to time without any prior
notice to either Borrower or any other Person, set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other debt at any time owing by the Lender to or for the credit or the
account of either Borrower, whether or not then due, against any and all
Advances and other Obligations then owing to the Lender, whether or not then
due. After any such set-off and application is made, the Lender shall promptly
notify the Borrowers thereof, but the failure to do so shall not affect the
validity of the set-off and application and shall not expose the Lender to any
liability. The Lender's right of set-off under this Section 7.5 is cumulative
with and additional to all other rights and remedies (including other rights of
set-off).
SECTION 7.6. GENERAL INDEMNITY. Each Borrower agrees to indemnify and
hold harmless the Lender and its Affiliates and each director, officer,
employee, attorney or agent of any of the foregoing persons (each such Person,
an "Indemnified Person") from any losses, claims, costs, damages, expenses or
liabilities (or actions, suits or proceedings, including any inquiry or
investigation, with respect thereto) (collectively, "Claims") to which any
Indemnified Person may become subject, insofar
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as such Claims arise out of, in any way relate to, or result from, this
Agreement or any other Loan Document or any of the transactions contemplated
hereby and thereby and to reimburse upon demand each Indemnified Person for any
and all reasonable legal and other expenses incurred in connection with
investigating, preparing to defend or defending any such Claim; PROVIDED,
HOWEVER, that neither Borrower shall have any indemnity obligation to any
Indemnified Person for any Claim (a) based on or arising from the gross
negligence or willful misconduct of such Indemnified Person or a breach of any
Loan Document or applicable law by an Indemnified Person, or (b) made or
prosecuted by either Borrower. The Borrowers shall be given prompt notice of the
commencement of any action or proceeding on any Claim and of any overt written
threat of litigation on any Claim, but the failure to receive such notice shall
not relieve either Borrower from any of its obligations under this Section 7.6
or under Section 7.4. Each Borrower shall have the right, with the consent of
the Indemnified Person (which shall not unreasonably be withheld), to select a
firm of attorneys as legal counsel to defend any Claim, and each Borrower shall
pay the fees, expenses and disbursements of such counsel and any special or
local counsel, and if the Indemnified Person would or could result in a conflict
of interest, or that a defense, crossclaim or counterclaim is available to such
Indemnified Person that is not available to any other Person represented by such
legal counsel in the same proceeding, then to the extent reasonably necessary to
avoid such a conflict of interest or to permit unqualified assertion of such a
defense, crossclaim or counterclaim, such Indemnified Person shall be entitled
to separate representation, at the Borrower's expense, by legal counsel selected
by such Indemnified Person and reasonably acceptable to the Borrower, with all
such legal counsel using reasonable efforts to avoid unnecessary duplication of
effort by counsel. Each Indemnified Person shall have the right to be
represented by counsel of its own choosing (i) at each Borrower's expense
whenever any Event of Default or Potential Default is continuing, and (ii) at
such Indemnified Person's expense at any other time, and each Borrower and the
attorneys selected by each Borrower shall cooperate in all reasonable respects
with such counsel. Each Borrower shall be entitled to settle any Claim, at each
Borrower's sole cost and expense, without the consent of the Indemnified Person
if (A) no Event of Default or Potential Default is continuing, (B) the
settlement does not and will not, under any circumstances, impose any present or
future payment or performance obligation upon the Indemnified Person, and (C)
the settlement includes the giving by the claimant to the Indemnified Person of
a release from all liability in respect of such Claim, and otherwise only upon
the prior written consent of the Indemnified Person.
SECTION 7.7. ASSIGNMENTS AND PARTICIPATIONS. The Lender may at
any time sell, assign, grant a participation in, or otherwise transfer all or
any part of its rights and obligations under this Agreement (a) without either
Borrower's consent if such transfer is to a Federal Reserve Bank, to an
Affiliate of the Lender or if an Event of Default is continuing, and (b) with
the consent of the Borrowers (which consent shall not be unreasonably withheld)
to any other Person. In the event of any such sale by the Lender of a
participation, the holder of such participation, other than an Affiliate of the
Lender, shall not have any rights under this Agreement, except that such
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holder may, under the terms of such participation, be granted the right to
participate with the Lender in connection with any action that (i) increases the
Facility Amount, (ii) postpones the scheduled maturity date of Facility A or
Facility B, (iii) postpones any scheduled Facility B payment date, (iv)
decreases the rate of interest applicable to any Advances, (v) releases all or
substantially all of the Collateral or any right to obtain additional
Collateral, or (vi) releases any Guarantor or any right to have an additional
Material Subsidiary (other than a Foreign Subsidiary) become a Guarantor. In all
other respects, the Lender's obligations under this Agreement shall remain
unchanged, the Lender shall remain solely responsible for the performance
thereof, and the Borrowers shall continue to deal solely and directly with the
Lender in connection with the Lender's rights and obligations under this
Agreement. The Borrowers hereby authorize the Lender and each such participant
or assignee, in case of default by either Borrower hereunder, to proceed
directly by right of setoff, bankers' lien or otherwise, against any assets of
either Borrower or any of their Subsidiaries which may at the time of such
default be in the hands of the Lender or any such participant or assignee.
SECTION 7.8. BINDING EFFECT. This Agreement shall become effective
when it has been executed by the parties hereto and the conditions set forth in
Section 3.1 have been satisfied and thereafter shall be binding upon and inure
to the benefit of each Borrower and the Lender and their respective successors
and assigns, except that neither Borrower shall have the right to assign its
rights hereunder or any interest herein without the prior written consent of the
Lender.
SECTION 7.9. GOVERNING LAW. This Agreement and the other Loan Documents
shall be governed by, and construed in accordance with, the laws of the State of
California. Any legal action or proceeding with respect to any Loan Document may
be brought in the courts of the State of California or of the United States for
the Northern District or the Central District of California, and by execution
and delivery of this Agreement, each Borrower and the Lender consents, for
itself and in respect of its property, to the jurisdiction of those courts. Each
Borrower and the Lender irrevocably waive any objection, including any objection
to the laying of venue or based on the grounds of forum non conveniens, which it
may now or hereafter have to the bringing of any action or proceeding in such
jurisdiction in respect of any Loan Document. Each Borrower and the Lender waive
personal service of any summons, complaint or other process, which may be made
by any other means permitted by California law.
SECTION 7.10. WAIVER OF JURY TRIAL. Each Borrower and the Lender
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY of any claim or cause of action
based upon or arising out of or related to this Agreement or any other Loan
Document or the transactions contemplated hereby or thereby in any action,
proceeding or other litigation of any type brought by any of the parties against
any other party or parties, whether based on contract, tort, statutory liability
or otherwise. Each Borrower and the Lender agree that any such claim or cause of
action shall be tried by the court WITHOUT A JURY. This waiver shall apply to
each future
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amendment, renewal, supplement or modification of any Loan Document and to each
future Loan Document.
SECTION 7.11. LIMITATION OF LIABILITY. No claim may be made by either
Borrower, any Subsidiary of either Borrower, or any other Person against the
Lender or its Affiliates, directors, officers, employees, attorneys or agents
for any special, indirect or consequential damages or, to the fullest extent
permitted by law, for any punitive damages in respect of any claim or cause of
action (whether based on contract, tort, statutory liability or any other
ground) based on, arising out of, or related to any Loan Document or the
transactions contemplated hereby or any act, omission or event occurring in
connection therewith, and each Borrower (for itself and on behalf of each of
their Subsidiaries) hereby waives, releases and agrees never to sue upon any
claim for any such damages, whether such claim now exists or hereafter arises
and whether or not it is now known or suspected to exist in its favor.
SECTION 7.12. CONFIDENTIALITY. The Lender agrees that it will not,
without the prior consent of the Borrowers, disclose any information with
respect to either Borrower which is furnished to the Lender pursuant to this
Agreement and which either Borrower has notified the Lender, in writing,
constitutes confidential information, except (a) to the Lender's directors,
officers, employees, agents and financial and legal advisors under instructions
to maintain confidentiality; (b) to any actual or prospective participant or
assignee under Section 7.7, so long as such participant or assignee agrees to be
bound by the provisions of this Section 7.12; (c) information that is known to
the Lender or its directors, officers, employees, agents or financial and legal
advisors prior to its disclosure by either Borrower; (d) information that has
become publicly available other than by the Lender's improper disclosure; (e)
information that is obtained from any source other than either Borrower or its
Affiliates, unless the Lender has actual knowledge that such source disclosed
such information to it in breach of an obligation of confidentiality; and (f) as
may be required or appropriate in any proceeding to collect the Obligations or
protect or enforce any right or remedy of the Lender under the Loan Documents or
in defense of any claim asserted against the Lender or in any other litigation
or for compliance with any applicable law or any subpoena, discovery request or
other legal process, so long as the Lender (if not prohibited from doing so)
gives the Borrowers at least three (3) Business Days' prior notice thereof. The
Lender's obligations under this Section 7.12 shall survive the expiration or
termination of this Agreement.
SECTION 7.13. ENTIRE AGREEMENT. This Agreement, together with the
other Loan Documents, embodies the entire Agreement and understanding among each
Borrower and the Lender and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
SECTION 7.14. TERMINATION OF ORIGINAL CREDIT AGREEMENT. Upon
repayment to the Lender of all Obligations under the Original Credit Agreement,
and
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upon satisfaction of all conditions precedent specified in Section 3.1 hereof,
as and when required therein, the Original Credit Agreement shall be deemed
terminated and shall be of no further force and effect, except that (i) all
obligations of Ocular Sciences that by the express terms of the Original Credit
Agreement survive termination thereof shall survive such termination and (ii)
the Lender's obligations under Section 7.12 of the Original Credit Agreement
shall survive such termination. Without limiting the foregoing, Ocular Sciences
shall pay to the Lender all accrued and unpaid amounts owing with respect to
commitment fees and other sums owing to the Lender under the Original Credit
Agreement. As of November 7, 1997, the accrued unpaid commitment fee owing by
Ocular Sciences to the Lender under the Original Credit Agreement is $1,239.59.
SECTION 7.15. SURVIVAL. Each Borrower's liability for any and all
fees, taxes, compensation, costs, losses, expense reimbursements,
indemnification and other similar Obligations arising under any Loan Document
shall survive the expiration or termination of the commitments of the Lender to
extend credit hereunder and the repayment and retirement of all Advances and
Letters of Credit at any time outstanding hereunder.
SECTION 7.16. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
OCULAR SCIENCES, INC.
By: /s/ GREGORY E. LICHTWARDT
-----------------------------------
Name: Gregory E. Lichtwardt
Title: Vice President, Finance and
Chief Financial Officer
OCULAR SCIENCES PUERTO RICO, INC.
By: /s/ GREGORY E. LICHTWARDT
------------------------------------
Name: Gregory E. Lichtwardt
Title: Secretary
COMERICA BANK-CALIFORNIA
By: /s/ LORI S. EDWARDS
------------------------------------
Name: Lori S. Edwards
Title: First Vice President
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EXHIBIT A-1
FORM OF
NOTICE OF BORROWING
[DATE]
Comerica Bank-California
155 Grand Avenue, Suite 402
Oakland, CA 94612
Attention: Lori Edwards
Re: Notice of Borrowing
Ladies and Gentlemen:
This Notice of Borrowing is being delivered pursuant to Section 3.2 of
that certain Amended and Restated Credit Agreement dated as of November 7, 1997
by and between Ocular Sciences, Inc., Ocular Sciences Puerto Rico, Inc. and
Comerica Bank-California (as amended or modified or supplemented to date, the
"Agreement"). Capitalized terms used herein and not otherwise defined herein
shall have the same meanings as set forth in the Agreement.
The undersigned hereby requests an Advance under the Agreement and in
connection therewith sets forth the following information as required by Section
2.2(b) of the Agreement:
1. The Business Day of such Advance is ____________________, 19______.
2. The amount of such Advance is _________________.
3. The Advance will be a [Base Rate Advance] [Eurodollar Rate Advance].
4. The Advance will be a [Facility A Advance] [Facility B Advance].
[5. The initial Interest Period for such Eurodollar Rate Advance is
________________ days.]
6. Such Borrower hereby certifies that the following statements are
true on the date hereof and will be true on and as of the date of the requested
Advance (before and after giving effect to the proceeds of such Advance and the
application of the proceeds therefrom):
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a. the representations and warranties contained in Article IV
of the Agreement and Article III of the Pledge Agreement are true and
correct in all material respects (or, in the case of representations
and warranties stated as having been made only on the date of the
Agreement, on the date of such Agreement);
b. no event has occurred and is continuing, or would result
from such extension of credit or from the application of the proceeds
therefrom, which constitutes an Event of Default or a Potential
Default;
c. since December 31, 1996, there has been no Material Adverse
Change; and
d. all Loan Documents are in full force and effect.
Very truly yours,
[OCULAR SCIENCES, INC.,]
[OCULAR SCIENCES PUERTO RICO, INC],
a Delaware corporation
By
-----------------------------------------
Name:
Title:
A-1-2
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EXHIBIT A-2
FORM OF
NOTICE OF CONTINUANCE/CONVERSION
[DATE]
Comerica Bank-California
155 Grand Avenue, Suite 402
Oakland, CA 94612
Attention: Lori Edwards
Re: Notice of Continuance/Conversion
Ladies and Gentlemen:
This Notice of Continuance/Conversion is being delivered pursuant to
Section 2.8 of that certain Amended and Restated Credit Agreement dated as of
November 7, 1997 by and between Ocular Sciences, Inc., Ocular Sciences Puerto
Rico, Inc. and Comerica Bank-California (as amended, modified or supplemented to
date, the "Agreement"). Capitalized terms used herein and not otherwise defined
herein shall have the same meanings as set forth in the Agreement.
The undersigned hereby request a [continuance] [conversion] under the
Agreement and in connection therewith sets forth the following information as
required by Section 2.8 of the Agreement:
1. The effective date of the [continuance] [conversion] shall be
____________, 19__________(which shall be the last day of an Interest Period if
(a) continuing an Advance as a Eurodollar Rate Advance or a Negotiated Rate
Advance, or (b) converting an Advance from a Eurodollar Rate Advance or a
Negotiated Rate Advance into a Base Rate Advance).
2. ____________ shall be [converted from] a [Base Rate] [Eurodollar
Rate] [Negotiated Rate] Advance into a [Base Rate] [Eurodollar Rate] [Negotiated
Rate] Advance [continued as] a [Eurodollar Rate] [Negotiated Rate] Advance.
3. The Advance being [continued] [converted] is a [Facility A Advance]
[Facility B Advance].
[4. The Interest Period for the [continued] [converted] [Eurodollar
Rate] [Negotiated Rate] Advance shall be _____ days.]
5. Such Borrower hereby certifies that the following statements are
true
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and correct on the date hereof and will be true on and as of the date of the
requested [continuance] [conversion]:
a. the representations and warranties contained in Article IV
of the Agreement and Article III of the Pledge Agreement are true and
correct in all material respects (or, in the case of representations
and warranties stated as having been made only on the date of the
Agreement, on the date of such Agreement);
b. no event has occurred and is continuing, or would result
from such [continuance][conversion], which constitutes an Event of
Default or a Potential Default;
c. since December 31, 1996, there has been no Material Adverse
Change; and
d. all Loan Documents are in full force and effect.
6. This Notice of Continuance/Conversion shall only be effective if
delivered to the Lender at the above address at least one (2) Business Day
before the date of the requested [continuance] [conversion].
Very truly yours,
[OCULAR SCIENCES, INC.,]
[OCULAR SCIENCES PUERTO RICO, INC.],
a Delaware corporation
By:
-------------------------------------
Name:
Title:
A-2-2
<PAGE> 84
EXHIBIT B-1
AMENDED AND RESTATED
FORM OF AMENDED AND RESTATED
SUBSIDIARY GUARANTY
This AMENDED AND RESTATED SUBSIDIARY GUARANTY, dated as of
November 7, 1997, is made by Ocular Sciences Puerto Rico, Inc., a Delaware
corporation (herein referred to as "O.S.I. Puerto Rico") and each entity that
hereafter executes and delivers a Subsidiary Joinder in substantially the form
set forth as Annex 1 hereto (each such entity, a "Guarantor" and collectively
the "Guarantors") in favor of Comerica Bank-California, a California chartered
bank (the "Lender").
RECITALS
A. The Lender has entered into that certain Amended and
Restated Credit Agreement dated as of November 7, 1997 (the "Credit Agreement"),
by and among Ocular Sciences, Inc., a Delaware corporation (formerly known as
O.S.I. Corporation and herein referred to as "Ocular Sciences"), as a Borrower,
and O.S.I. Puerto Rico, as a Borrower, and Lender. The Credit Agreement amends
and restates in its entirety that certain Credit Agreement, dated as of October
30, 1996, as amended by Amendment Number One to Credit Agreement dated as of
February 27, 1997, Amendment Number Two to Credit Agreement dated as of July 7,
1997, and Amendment Number Three to Credit Agreement dated as of July 18, 1997,
between Ocular Sciences' predecessor, O.S.I. Corporation, a California
corporation, and Lender.
B. Each Guarantor is a direct or indirect subsidiary of Ocular
Sciences and expects to derive substantial direct and indirect benefit from the
transactions contemplated by the Credit Agreement.
C. It is a condition precedent to the extension of credit
under the Credit Agreement that each Guarantor shall have guaranteed payment of
each and all the Obligations (as that term is defined in the Credit Agreement)
and all other debts, liabilities and obligations of Ocular Sciences and each
other Subsidiary of Ocular Sciences under the Loan Documents, on the terms set
forth herein.
D. Ocular Sciences has agreed, in the Credit Agreement, to
cause all future Material Subsidiaries of Ocular Sciences to become party to
this Guaranty, as a Guarantor hereunder.
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<PAGE> 85
NOW, THEREFORE, in consideration of the foregoing and in order
to induce the Lender to extend credit to Ocular Sciences under the Credit
Agreement, each Guarantor hereby agrees as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 General Definitions. Except as otherwise
specifically provided herein, the terms that are defined in Section 1.1 of the
Credit Agreement shall have the same meanings when used in this Guaranty and the
provisions of Sections 1.2 and 1.3 of the Credit Agreement shall apply to this
Guaranty.
SECTION 1.2 Certain Defined Terms. As used in this Guaranty,
the following terms shall have the following meanings:
"Bankruptcy Code" means Title 11 of the United States Code, as
from time to time amended.
"Guaranteed Obligations" is defined in Section 2.1(a).
"Guaranty" means this Amended and Restated Subsidiary
Guaranty, dated as of November 7, 1997, made by the Guarantors for the benefit
of the Lender.
"Guaranty Taxes" is defined in Section 3.8(a).
"Subordinated Liabilities" is defined in Section 2.8(a).
"Subsidiary Joinder" means an instrument substantially in the
form of Annex 1 hereto.
ARTICLE II
GUARANTY AND RELATED PROVISIONS
SECTION 2.1 Guaranty. Each Guarantor hereby unconditionally:
(a) guarantees the punctual payment when due, whether at
stated maturity, by acceleration or otherwise, of (i) all Obligations
now outstanding or hereafter arising under or in connection with the
Credit Agreement or any other Loan Document, whether for principal,
interest, fees, taxes, additional compensation, expense reimbursements,
indemnification or otherwise, and (ii) all liabilities of each
Guarantor now outstanding or hereafter arising under the Guaranty and
any Subsidiary Joinder, and (iii) each other debt, liability or
obligation of Ocular Sciences or any Subsidiary of Ocular Sciences now
outstanding or hereafter arising under any of the Loan
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Documents (such Obligations, liabilities and other debts, liabilities
and obligations, collectively, are the "Guaranteed Obligations"), and
(b) agrees to pay on demand (i) all Disallowed
Post-Commencement Interest and Expenses, to the Person entitled to
payment thereof if the claim therefor had been allowed in any
Bankruptcy, Insolvency or Liquidation Proceeding, and (ii) all costs
and expenses (including, without limitation, reasonable attorneys' fees
and legal expenses) incurred by the Lender in enforcing this Guaranty.
SECTION 2.2 Acceleration of Payment. If (i) the Advances
become immediately due and payable pursuant to Section 6.1 of the Credit
Agreement, (ii) any Bankruptcy, Insolvency or Liquidation Proceeding is
commenced voluntarily by any Guarantor, or (iii) any Bankruptcy, Insolvency or
Liquidation Proceeding is commenced involuntarily against any Guarantor and
either (x) remains pending for more than 30 days or (y) an order for relief is
granted or consented to by Ocular Sciences or by the debtor therein, then all
liability of each Guarantor under this Guaranty in respect of any Guaranteed
Obligation that is not then due and payable shall thereupon become and be
immediately due and payable, without notice or demand.
SECTION 2.3 Guaranty Absolute and Unconditional. Each
Guarantor guarantees that the Guaranteed Obligations will be paid in accordance
with the terms of the Credit Agreement and the other Loan Documents, regardless
of any law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights and claims of the Lender against
Ocular Sciences or any Subsidiary of Ocular Sciences with respect thereto and
even if any such rights or claims are modified, reduced or discharged in a
Bankruptcy, Insolvency or Liquidation Proceeding or otherwise. The obligations
of each Guarantor under this Guaranty are independent of the Guaranteed
Obligations, and a separate action or actions may be brought and prosecuted
against each Guarantor to enforce this Guaranty, whether or not any action is
brought against Ocular Sciences or any other Guarantor and whether or not Ocular
Sciences or any other Guarantor is joined in any such action or actions. The
liability of each Guarantor under this Guaranty shall be absolute and
unconditional irrespective of: (i) any lack of validity or enforceability of the
Credit Agreement or any other Loan Document or any other agreement or instrument
relating thereto; (ii) any change in the time, manner or place of payment of, or
in any other term of, any of the Guaranteed Obligations, or any other amendment
or waiver of or any consent to departure from the Credit Agreement or any other
Loan Document, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to Ocular Sciences
or any of its Subsidiaries or otherwise; (iii) any taking, exchange, release or
non-perfection of any Lien securing, or any taking, release or amendment or
waiver of or consent to departure from any other guaranty of, any of the
Guaranteed Obligations; (iv) any manner or order of sale or other enforcement of
any Lien securing any or all of the Guaranteed Obligations or any manner or
order of application of the proceeds of any such Lien to the payment of the
Guaranteed Obligations or any failure to
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enforce any Lien or to apply any proceeds thereof; (v) any change, restructuring
or termination of the corporate structure or existence of Ocular Sciences or any
of its Subsidiaries; or (vi) any other circumstance which might otherwise
constitute a defense (except the defense of payment) available to, or a
discharge of, a surety or guarantor.
SECTION 2.4 Guaranty Irrevocable and Continuing. This Guaranty
is an irrevocable and continuing offer and agreement guaranteeing payment of any
and all Guaranteed Obligations and shall extend to all Guaranteed Obligations
now outstanding or created or incurred at any future time, whether or not
created or incurred pursuant to any agreement presently in effect or hereafter
made, until all obligations of the Lender to extend credit to Ocular Sciences
have expired or been terminated and all Guaranteed Obligations have been fully,
finally and indefeasibly paid. To the extent any contingent Obligation survives
the expiration or termination of the Credit Agreement and the repayment of the
Advances, each Guarantor's liability under this Guaranty shall likewise survive.
This Guaranty may be released only in writing except, with respect to a given
Guarantor, as provided for in Section 2.10.
SECTION 2.5 Reinstatement. If at any time any payment on any
Guaranteed Obligation is set aside, avoided or rescinded or must otherwise be
restored or returned, this Guaranty and the liability of each Guarantor under
this Guaranty shall remain in full force and effect and, if previously released
or terminated, shall be automatically and fully reinstated, without any
necessity for any act, consent or agreement of any Guarantor, as fully as if
such payment had never been made and as fully as if any such release or
termination had never become effective.
SECTION 2.6 Waiver. Guarantor hereby waives and relinquishes
all rights, remedies and defenses accorded by applicable law to sureties or
guarantors and agrees not to assert or take advantage of any such rights,
remedies or defenses, including without limitation:
(a) any right to require the Lender to proceed against Ocular
Sciences or any other Person or to proceed against or exhaust any
security held by the Lender at any time or to pursue any other remedy
in the power of the Lender before proceeding against Guarantor;
(b) the defense of the statute of limitations in any action
hereunder or in any action for the collection or performance of any
Guaranteed Obligations;
(c) any defense that may arise by reason of the incapacity,
lack of authority, death or disability of any other Person or the
failure of the Lender to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any other
Person;
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(d) demand, presentment, protest and notice of any kind,
including without limitation notice of the existence, creation or
incurring of any new or additional indebtedness or obligation or of any
action or non-action on the part of Ocular Sciences, Lender, any
endorser or creditor of Ocular Sciences or Guarantor or on the part of
any other Person under this or any other instrument in connection with
any obligation or evidence of indebtedness held by Lender as Collateral
or in connection with any Guaranteed Obligations;
(e) any defense based upon an election of remedies by the
Lender (including without limitation an election to proceed by
non-judicial rather than judicial foreclosure) irrespective of whether
such election destroys or otherwise impairs any subrogation rights of
Guarantor, the right of Guarantor to proceed against Ocular Sciences
for reimbursement, or both (it being understood that as a consequence
of the waiver set forth in this Section 2.6(e), Guarantor is waiving,
among other things, any defense that Guarantor might be able to invoke
under California law based upon the argument (as enunciated in, among
other cases, Union Bank v. Gradsky, 265 Cal. App. 2d 40 (1968), and
Cathay Bank v. Lee, 93 Los Angeles Daily Journal D.A.R. 4871 (1993)),
that an election by a lender to foreclose non-judicially under a deed
of trust effects a release of the Guarantor from any obligation to pay,
under its guaranty, any portion of the guaranteed obligation remaining
unpaid after the non-judicial foreclosure since the non-judicial
foreclosure could destroy or impair Guarantor's subrogation or other
rights to obtain any reimbursement from Ocular Sciences for such
payments);
(f) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the
principal;
(g) any duty on the part of the Lender to disclose to
Guarantor any facts the Lender may now or hereafter know about Ocular
Sciences, regardless of whether the Lender has reason to believe that
any such facts materially increase the risk beyond that which Guarantor
intends to assume, or has reason to believe that such facts are unknown
to Guarantor, or has a reasonable opportunity to communicate such facts
to Guarantor, since Guarantor acknowledges that Guarantor is fully
responsible for being and keeping informed of the financial condition
of Ocular Sciences and of all circumstances bearing on the risk of
non-payment of any Guaranteed Obligations;
(h) any defense arising because of the election by the Lender,
in any proceeding instituted under the Bankruptcy Code, of the
application of Section 1111(b)(2) of the Bankruptcy Code; and
(i) any defense based upon any borrowing or grant of a
security interest under Section 364 of the Federal Bankruptcy Code.
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Without limiting the generality of the foregoing, Guarantor
hereby expressly waives any and all benefits which might otherwise be available
to Guarantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845
through 2850, 2899 and 3433, California Code of Civil Procedure Sections 580(a),
580(b), 580(d) and 726, and California Commercial Code Section 3606(1).
SECTION 2.7 Subrogation. Each Guarantor hereby represents,
warrants and agrees, in respect of any and all present and future rights of
subrogation, recourse, reimbursement, indemnity, exoneration, contribution and
other claims that such Guarantor at any time may have against Ocular Sciences,
any other Guarantor or any other Person liable for the payment of any of the
Guaranteed Obligations (including, without limitation, the owner of any interest
in collateral subject to a Lien securing any of the Guaranteed Obligations) as a
result of or in connection with this Guaranty or any payment hereunder, that:
(a) No Agreement. Such Guarantor has not entered into, and
agrees that it will not enter into, any agreement providing, directly
or indirectly, for any such right or claim against Ocular Sciences or,
except as set forth in Section 2.10, against any other Subsidiary of
Ocular Sciences and each such agreement now existing or hereafter
entered into (except as provided for in Section 2.10) is and shall be
void;
(b) Release. Such Guarantor waives and releases any such right
or claim against Ocular Sciences, any other Guarantor or any other such
Person until the Guaranteed Obligations have been paid in full;
(c) Capital Contribution. Neither the execution and delivery
of this Guaranty by such Guarantor nor any payment by such Guarantor
under this Guaranty shall give rise to any claim (as that term is
defined in the Bankruptcy Code) in favor of such Guarantor against
Ocular Sciences until the Guaranteed Obligations have been paid in
full; and
(d) Subordination of Contribution Rights. Such Guarantor
reserves, as against each other Guarantor, its right of contribution
under Section 2.10 but agrees that all such contribution rights shall
be included among the Subordinated Liabilities.
SECTION 2.8 Subordination Provisions.
(a) Subordination. Any and all present and future debts,
liabilities and obligations of every type and description (whether for
money borrowed, on intercompany accounts, for provision of goods or
services, under tax sharing or contribution agreements or on account of
any other transaction, agreement, occurrence or event and whether
absolute or contingent, direct or indirect, matured or unmatured,
liquidated or unliquidated, created directly or acquired from another,
or sole, joint,
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several or joint and several) of Ocular Sciences or any Subsidiary of
Ocular Sciences now outstanding or hereafter incurred or owed to any
Guarantor (the "Subordinated Liabilities") shall be, and hereby are,
subordinated to full and final payment of the Guaranteed Obligations.
(b) Prohibited Payments. If any Event of Default or Potential
Default occurs, then for so long as such Event of Default or Potential
Default may be continuing, no Guarantor will demand, sue for, accept or
receive, or cause or permit any other Person to make, any payment on or
transfer of property on account of any Subordinated Liabilities.
(c) No Liens or Transfers. Each Guarantor agrees that (i) it
will not demand, accept or hold any Lien upon any real or personal
property of Ocular Sciences or any of its Subsidiaries as security for
any of the Subordinated Liabilities and (ii) any such Lien shall be
void.
(d) Insolvency Proceedings. In any Bankruptcy, Insolvency or
Liquidation Proceeding, the Lender shall be entitled to receive payment
in full of all amounts due or to become due on or in respect of the
Guaranteed Obligations, or provision shall be made for such payment in
money or money's worth, before any Guarantor is entitled to receive any
payment or distribution of any kind or character, whether in cash,
property or securities, on account of any of the Subordinated
Liabilities, and to that end the Lender shall be entitled to receive,
for application to the payment thereof, all payments and distributions
of any kind or character, whether in cash, property or securities
(including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other debt or liability of
Ocular Sciences or any Subsidiary of Ocular Sciences being subordinated
to the payment of the Subordinated Liabilities), which may be payable
or deliverable in respect of the Subordinated Liabilities in any such
Bankruptcy, Insolvency or Liquidation Proceeding.
(e) Disallowed Post-Commencement Interest and Expenses. If in
any Bankruptcy, Insolvency or Liquidation Proceeding (i) any payment or
distribution of any kind or character, whether in cash, property or
securities (including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other debt or
liability of Ocular Sciences or any Subsidiary of Ocular Sciences being
subordinated to the payment of the Subordinated Liabilities) is payable
or deliverable in respect of the Subordinated Liabilities, and (ii) the
Lender is not otherwise entitled to receive such payment or
distribution pursuant to Section 2.8(d), and (iii) any amount remains
unpaid to the Lender on account of any Disallowed Post-Commencement
Interest and Expenses, then the Lender shall be entitled to receive
payment of all such unpaid Disallowed Post-Commencement Interest and
Expenses
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from and out of any and all such payments and distributions in respect
of the Subordinated Liabilities.
(f) Held in Trust. If any payment, transfer or distribution is
made to any Guarantor upon any Subordinated Liabilities that is not
permitted to be made under this Section 2.8 or that the Lender is
entitled to receive under this Section 2.8, such Guarantor shall
receive and hold the same in trust, as trustee for the benefit of the
Lender, and shall forthwith transfer and deliver the same to the
Lender, in precisely the form received (except for any required
endorsement), for application to the payment of Guaranteed Obligations
or any unpaid Disallowed Post-Commencement Interest and Expenses.
(g) Claims in Bankruptcy. Each Guarantor will file all claims
against Ocular Sciences or any Subsidiary of Ocular Sciences in any
Bankruptcy, Insolvency or Liquidation Proceeding in which the filing of
claims is required or permitted by law upon any of the Subordinated
Liabilities and will assign to the Lender, all rights of such Guarantor
thereunder. If any Guarantor does not file any such claim at least 30
days prior to any applicable claims bar date, the Lender is hereby
authorized (but shall not be obligated), as attorney-in-fact for such
Guarantor with full power of substitution, either to file such claim or
proof thereof in the name of such Guarantor or, at the option of the
Lender, to assign the claim and cause the claim or proof thereof to be
filed by an agent or nominee. The Lender and its agents and nominees
shall have the sole right, but no obligation, to accept or reject any
plan proposed in such Bankruptcy, Insolvency or Liquidation Proceeding
and to cast any votes and to take any other action with respect to all
claims upon any of the Subordinated Liabilities.
(h) Subordination Effective and not Impaired. This Section 2.8
shall remain effective for so long as this Guaranty is continuing and
thereafter for so long as any Guaranteed Obligation is outstanding.
Each Guarantor's obligations under this Section 2.8: (i) shall be
absolute and unconditional as set forth in Section 2.3, irrevocable and
continuing as set forth in Section 2.4, subject to reinstatement as set
forth in Section 2.5 and not be affected or impaired by any of the
matters waived in Section 2.6; (ii) shall be subject to the provisions
of Article III; and (iii) shall otherwise be as equally enduring and
free from defenses as such Guarantor's liability under this Guaranty.
SECTION 2.9 Fraudulent Transfer Limitation. If, in any action
to enforce this Guaranty or any proceeding to allow or adjudicate a claim under
this Guaranty, a court of competent jurisdiction determines that enforcement of
this Guaranty against any Guarantor for the full amount of the Guaranteed
Obligations is not lawful under, or would be subject to avoidance under, Section
548 of the Bankruptcy Code or any applicable provision of
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comparable state law, the liability of such Guarantor under this Guaranty shall
be limited to the maximum amount lawful and not subject to avoidance under such
law.
SECTION 2.10 Contribution among Guarantors. The Guarantors
desire to allocate among themselves, in a fair and equitable manner, their
rights of contribution from each other when any payment is made by one of the
Guarantors under this Guaranty. Accordingly, if any payment is made by a
Guarantor under this Guaranty (a "Funding Guarantor") that exceeds its Fair
Share, the Funding Guarantor shall be entitled to a contribution from each other
Guarantor in the amount of such other Guarantor's Fair Share Shortfall, so that
all such contributions shall cause each Guarantor's Aggregate Payments to equal
its Fair Share. For these purposes:
(a) "Fair Share" means, with respect to a Guarantor as of any
date of determination, an amount equal to (i) the ratio of (x) the
Adjusted Maximum Amount of such Guarantor to (y) the aggregate Adjusted
Maximum Amounts of all Guarantors, multiplied by (ii) the aggregate
amount paid on or before such date by all Funding Guarantors under this
Guaranty.
(b) "Fair Share Shortfall" means, with respect to a Guarantor
as of any date of determination, the excess, if any, of the Fair Share
of such Guarantor over the Aggregate Payments of such Guarantor.
(c) "Adjusted Maximum Amount" means, with respect to a
Guarantor as of any date of determination, the maximum aggregate amount
of the liability of such Guarantor under this Guaranty, limited to the
extent required under Section 2.9 (except that, for purposes solely of
this calculation, any assets or liabilities arising by virtue of any
rights to or obligations of contribution under this Section 2.10 shall
not be counted as assets or liabilities of such Guarantor).
(d) "Aggregate Payments" means, with respect to a Guarantor as
of any date of determination, the aggregate net amount of all payments
made on or before such date by such Guarantor under this Guaranty
(including, without limitation, under this Section 2.10).
The amounts payable as contributions hereunder shall be determined by the
Funding Guarantor as of the date on which the related payment or distribution is
made by the Funding Guarantor, and such determination shall be binding on the
other Guarantors absent manifest error. The allocation and right of contribution
among the Guarantors set forth in this Section 2.10 shall not be construed to
limit in any way the liability of any Guarantor under this Guaranty to the
Lender.
SECTION 2.11 Joint and Several Obligation. This Guaranty and
all liabilities of each Guarantor hereunder shall be the joint and several
obligation of each Guarantor and
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may be freely enforced against each Guarantor, for the full amount of the
Guaranteed Obligations (subject to Section 2.9), without regard to whether
enforcement is sought or available against any other Guarantor.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.1 Condition of Ocular Sciences. Each Guarantor is
fully aware of the financial condition of Ocular Sciences and its Subsidiaries
and is executing and delivering this Guaranty based solely upon such Guarantor's
own independent investigation of all matters pertinent hereto and is not relying
in any manner upon any representation or statement by the Lender. Each Guarantor
represents and warrants that it is in a position to obtain, and each Guarantor
hereby assumes full responsibility for obtaining, any additional information
concerning the financial condition of Ocular Sciences and each of its
Subsidiaries and any other matter pertinent hereto as such Guarantor may desire,
and such Guarantor is not relying upon or expecting the Lender to furnish to
such Guarantor any information now or hereafter in the possession of the Lender
concerning the same or any other matter. By executing this Guaranty, each
Guarantor knowingly accepts the full range of risks encompassed within a
contract of this type, which risks each Guarantor acknowledges. No Guarantor
shall have the right to require the Lender to obtain or disclose any information
with respect to the Guaranteed Obligations, the financial condition or prospects
of Ocular Sciences or any Subsidiary of Ocular Sciences, the ability of Ocular
Sciences or any Subsidiary of Ocular Sciences to pay or perform the Guaranteed
Obligations, the existence, perfection, priority or enforceability of any
collateral security for any or all of the Guaranteed Obligations, the existence
or enforceability of any other guaranties of all or any part of the Guaranteed
Obligations, any action or non-action on the part of the Lender, Ocular
Sciences, any Subsidiary of Ocular Sciences or any other Person, or any other
event, occurrence, condition or circumstance whatsoever.
SECTION 3.2 Amendments.
(a) Amendment to Guaranty. No amendment or waiver of any
provision of this Guaranty, no consent to any departure by any
Guarantor herefrom, shall in any event be effective unless the same
shall be in writing and signed by the Lender, and then such waiver or
consent shall be effective only in the specific instance and for the
specific purpose for which given, except that no amendment, waiver or
consent shall, unless in writing and signed by the Lender, (i) reduce
or discharge the liability of any Guarantor hereunder, or (ii) postpone
any date fixed for payment hereunder.
(b) Amendment or Modification of Other Loan Documents. The
other Loan Documents may be amended, modified or supplemented in
accordance with their terms without notice to or consent or agreement
by any Guarantor, including, without
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limitation, so as to (i) alter, compromise, modify, accelerate, extend,
renew, refinance or change the time or manner for making of Advances,
provision of other financial accommodations, or the payment or
performance of all or any portion of the Guaranteed Obligations, (ii)
increase or reduce the rate of interest or amount of principal payable
on the Guaranteed Obligations, (iii) release or discharge Ocular
Sciences, any other Loan Party or any other Person as to all or any
portion of the Guaranteed Obligations, or (iv) release, substitute or
add any one or more guarantors or endorsers, accept additional or
substituted security for payment or performance of the Guaranteed
Obligations, or release or subordinate any security therefor.
SECTION 3.3 Notices. All notices, requests, approvals,
consents and other communications required or permitted to be made hereunder
shall, except as otherwise provided, be given in the manner specified and to the
addresses set forth in Section 7.2 of the Credit Agreement.
SECTION 3.4 Right of Set off. If any Advances become
immediately due and payable pursuant to Section 6.1 of the Credit Agreement, the
Lender shall have the right at any time, and from time to time thereafter, to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other liability at any time owing by Lender to or for the credit or the account
of any Guarantor against any and all liability of such Guarantor under this
Guaranty, whether or not Lender shall have made any demand under this Guaranty
and even though such deposit or liability may then be unmatured. Lender agrees
to promptly notify the affected Guarantor after any such set-off and application
made by Lender, but the failure to give such notice shall not affect the
validity of such set-off and application. The rights of the Lender under this
Section 3.4 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which Lender may have.
SECTION 3.5 Successors and Assigns. This Guaranty is binding
upon and enforceable against each Guarantor, its successors and assigns, and
shall inure to the benefit of, and be enforceable by, the Lender and its
representatives, successors and assigns.
SECTION 3.6 No Inquiry. The Lender may rely, without further
inquiry, on the power and authority of each Guarantor, Ocular Sciences and each
of its Subsidiaries and on the authority of all officers, directors and agents
acting or purporting to act on their behalf.
SECTION 3.7 Involuntary Proceedings. So long as the Lender is
obligated to extend credit under the Credit Agreement or any Guaranteed
Obligations are outstanding, no Guarantor will, without the prior written
consent of the Lender, commence or join with any other Person in commencing any
Bankruptcy, Insolvency or Liquidation Proceeding against Ocular Sciences or any
of its Subsidiaries.
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SECTION 3.8 Payments Free and Clear of Taxes.
(a) Payment. Each Guarantor agrees to pay any and all present
or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto which arise from any payment
made hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Guaranty, excluding, with respect to
the Lender, taxes imposed on its net income (collectively, the
"Guaranty Taxes").
(b) Indemnity. Each Guarantor hereby indemnifies the Lender
for the full amount of Guaranty Taxes (including, without limitation,
any Guaranty Taxes imposed by any jurisdiction on amounts payable under
this Section 3.8) paid by the Lender and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto (plus interest on any amounts not paid within thirty days from
the date written demand is made therefor at a rate equal to the rate
payable under the Credit Agreement on Base Rate Advances during the
continuance of a default in the repayment of Advances), whether or not
such Guaranty Taxes were correctly or legally asserted; provided,
however, that if the Lender subsequently recoups all or any part of
such amount from the relevant taxation authority or other authority,
then the Lender shall identify and remit the amount of the recoupment
to such Guarantor within five Business Days after it receives the
recoupment.
(c) Survival. Without prejudice to the survival of any other
agreement of any Guarantor hereunder, the agreements and obligations of
each Guarantor contained in this Section 3.8 shall survive the full and
final payment and performance of the Guaranteed Obligations.
(d) Receipt. Within 30 days after the date of any payment of
Guaranty Taxes by any Guarantor, such Guarantor shall furnish to the
Lender a receipt for any Guaranty Taxes paid by such Guarantor pursuant
to this Section 3.8.
SECTION 3.9 No Waiver; Remedies. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof, and no single or partial exercise of any right
hereunder shall preclude any other or further exercise of any other right or of
the same right as to any other matter or on a subsequent occasion.
SECTION 3.10 Remedies Cumulative. All rights, powers and
remedies of the Lender under this Guaranty, under any other agreement now or at
any time hereafter in effect between the Lender and any Guarantor (whether
relating to the Guaranteed Obligations or otherwise) or now or hereafter
existing at law or in equity or by statute or otherwise, shall be cumulative and
concurrent and not alternative and each such right, power and remedy may be
exercised independently of, and in addition to, each other such right, power or
remedy.
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SECTION 3.11 Severally Enforceable. This Guaranty may be
enforced severally and successively by the Lender in one or more actions,
whether independent, concurrent, joint, successive or otherwise.
SECTION 3.12 Counterparts. This Guaranty may be executed in
counterparts, and each such counterpart for all purposes shall be deemed an
original and all such counterparts together shall constitute but one and the
same agreement.
SECTION 3.13 Severability. If any provision hereof or the
application thereof in any particular circumstance is held to be unlawful or
unenforceable in any respect, all other provisions hereof and such provision in
all other applications shall nevertheless remain effective and enforceable to
the maximum extent lawful.
SECTION 3.14 Integration. This Guaranty and the other Loan
Documents to which any Guarantor is party are intended as an integrated and
final expression of the entire agreement of such Guarantor with respect to the
subject matter hereof and thereof. No representation, understanding, promise or
condition concerning the subject matter hereof and thereof shall be binding upon
the Lender unless expressed herein or therein, and no course of prior dealing or
usage of trade, and no parol or extrinsic evidence of any nature, shall be
admissible to supplement, modify or vary any of the terms hereof or thereof.
Acceptance of or acquiescence in a course of performance rendered under this
Guaranty or any other dealings between any Guarantor and the Lender shall not be
relevant to determine the meaning of this Guaranty even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection.
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<PAGE> 97
SECTION 3.15 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL; WAIVER OF DAMAGES.
(a) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF CALIFORNIA.
(b) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE
STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT
OR THE CENTRAL DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF
THIS GUARANTY, EACH PARTY HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS. EACH PARTY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN
SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED
HERETO. SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE
BY ANY MEANS PERMITTED BY CALIFORNIA LAW.
(c) WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ALL RIGHTS
TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, AND AGREES THAT ANY SUCH
CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, EACH PARTY FURTHER AGREES THAT
ITS RIGHT TO A TRIAL BY JURY IS HEREBY WAIVED AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY OTHER
LOAN DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS GUARANTY AND THE OTHER LOAN DOCUMENTS.
(d) LIMITATION OF LIABILITY. NO CLAIM MAY BE MADE BY
ANY GUARANTOR AGAINST THE LENDER OR ANY OF ITS AFFILIATES,
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<PAGE> 98
DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM
(WHETHER BASED UPON ANY BREACH OF CONTRACT, TORT, BREACH OF STATUTORY
DUTY OR ANY OTHER THEORY OF LIABILITY) ARISING OUT OF OR RELATED TO THE
TRANSACTIONS CONTEMPLATED BY THIS GUARANTY, OR ANY ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION THEREWITH, AND EACH GUARANTOR HEREBY
WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR ANY SUCH
DAMAGES, WHETHER OR NOT NOW ACCRUED AND WHETHER OR NOT KNOWN OR
SUSPECTED TO EXIST IN ITS FAVOR.
SECTION 3.16 Acceptance and Notice. Each Guarantor
acknowledges acceptance hereof and reliance hereon by the Lender and waives,
irrevocably and forever, all notice thereof.
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
"GUARANTOR"
OCULAR SCIENCES PUERTO RICO, INC.
By:
------------------------------------
Name: Gregory E. Lichtwardt
Title: Secretary
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<PAGE> 99
Annex 1
Form of Subsidiary Joinder
AGREEMENT TO BE BOUND BY GUARANTY
This Agreement to be Bound by Guaranty (this "Agreement") is
executed as of the _____ day of _________, ____, by [NAME OF NEW SUBSIDIARY] , a
____________ [corporation] [partnership] [etc.] (the "New Subsidiary").
RECITALS
A. On or about November 7, 1997, Ocular Sciences, Inc., a
Delaware corporation (formerly known as O.S.I. Corporation and herein referred
to as "Ocular Sciences"), as a Borrower, and Ocular Sciences Puerto Rico, Inc.,
a Delaware corporation, as a Borrower (collectively, the "Borrower") executed
that certain Amended and Restated Credit Agreement dated as of November 7, 1997
(the "Credit Agreement"), by and between the Borrower and Comerica
Bank-California (the "Lender"). The Credit Agreement amends and restates in its
entirety that certain Credit Agreement, dated as of October 30, 1996, as amended
by Amendment Number One to Credit Agreement dated as of February 27, 1997,
Amendment Number Two to Credit Agreement dated as of July 7, 1997, and Amendment
Number Three to Credit Agreement dated as of July 18, 1997, between Ocular
Sciences' predecessor, O.S.I. Corporation, a California corporation, and Lender.
Terms not defined herein are used as defined in the Credit Agreement.
B. As a condition to the execution of the Credit Agreement by
the Lender, all of the Material Subsidiaries of Ocular Sciences (other than the
Foreign Subsidiaries) executed that certain Amended and Restated Subsidiary
Guaranty dated as of November 7, 1997 (the "Guaranty"), by and among the
entities referred to therein as "Guarantor", in favor of the Lender. The
Guaranty amends and restates in its entirety that certain Subsidiary Guaranty
dated as of October 30, 1996, as amended, executed by the parties thereto in
favor of Lender.
C. Section 5.2(e) of the Credit Agreement provides that when
Ocular Sciences acquires or forms a new Material Subsidiary (other than a
Foreign Subsidiary) or when a Subsidiary becomes a Material Subsidiary (other
than a Foreign Subsidiary), Ocular Sciences will cause such Subsidiary to
deliver an executed counterpart to the Guaranty and such Subsidiary shall become
a party to the Guaranty.
D. On [Insert Date] , the New Subsidiary [Describe
acquisition/formation of New Subsidiary, or growth of Material Subsidiary] . The
New Subsidiary will benefit from the funds available to Ocular Sciences under
the Credit Agreement, and in recognition of this benefit and in order to comply
with the Credit Agreement, the New Subsidiary is willing to enter into this
Agreement.
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<PAGE> 100
AGREEMENT
NOW, THEREFORE, the New Subsidiary agrees as follows:
1. Representations and Warranties. On and as of the date of
this Agreement (the "Effective Date") and for the benefit of the Lender, the New
Subsidiary hereby makes each of the representations and warranties contained in
the Guaranty.
2. Agreement to be Bound. The New Subsidiary agrees that, on
and as of the Effective Date, it shall become a Guarantor under the Guaranty and
shall be bound by all the provisions of the Guaranty the same as if the New
Subsidiary had executed the Guaranty on the Closing Date.
3. Waiver. Without limiting the generality of the waivers in
the Guaranty, the New Subsidiary specifically agrees to be bound by the Guaranty
and waives any right to notice of acceptance of its execution of this Agreement
and of its agreement to be bound by the Guaranty.
4. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the New Subsidiary has caused this
Agreement to be Bound by Guaranty to be executed by its duly authorized officer.
[NAME OF NEW SUBSIDIARY]
By:
-------------------------------
Name:
Title:
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<PAGE> 101
Exhibit B-2
FORM OF PARENT GUARANTY
This GUARANTY, dated as of November 7, 1997, is made by Ocular
Sciences, Inc., a Delaware corporation (formerly known as O.S.I. Corporation, a
California corporation) (herein called "Guarantor"), in favor of Comerica Bank-
California, a California chartered bank (the "Lender").
RECITALS
A. Guarantor and Ocular Sciences Puerto Rico, Inc., a Delaware
corporation ("O.S.I. Puerto Rico"), each as the "Borrowers," and Lender have
entered into that certain Amended and Restated Credit Agreement dated as of
November 7, 1997 (the "Credit Agreement"). The Credit Agreement amends and
restates in its entirety that certain Credit Agreement, dated as of October 30,
1996, as amended by Amendment Number One to Credit Agreement dated as of
February 27, 1997, Amendment Number Two to Credit Agreement dated as of July 7,
1997, and Amendment Number Three to Credit Agreement dated as of July 18, 1997,
between Guarantor's predecessor, O.S.I. Corporation, a California corporation,
and Lender.
B. Pursuant to the Credit Agreement, the Lender agreed to
provide O.S.I. Puerto Rico with a credit facility of up to $10,000,000, which is
referred to in the Credit Agreement as "Facility B."
C. Guarantor is the owner of all issued and outstanding
capital stock of O.S.I. Puerto Rico and expects to derive substantial direct and
indirect benefit from the transactions contemplated by the Credit Agreement.
D. It is a condition precedent to the extension of credit
under the Credit Agreement that Guarantor shall have guaranteed payment of each
and all the Obligations (as that term is defined in the Credit Agreement) and
all other debts, liabilities and obligations of O.S.I. Puerto Rico under the
Loan Documents, on the terms set forth herein.
E. O.S.I. Puerto Rico has agreed, in the Credit Agreement, to
cause Guarantor to become party to this Guaranty.
NOW, THEREFORE, in consideration of the foregoing and in order
to induce the Lender to extend credit to O.S.I. Puerto Rico under the Credit
Agreement, Guarantor hereby agrees as follows:
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ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 General Definitions. Except as otherwise
specifically provided herein, the terms that are defined in Section 1.1 of the
Credit Agreement shall have the same meanings when used in this Guaranty and the
provisions of Sections 1.2 and 1.3 of the Credit Agreement shall apply to this
Guaranty.
SECTION 1.2 Certain Defined Terms. As used in this Guaranty,
the following terms shall have the following meanings:
"Bankruptcy Code" means Title 11 of the United States Code, as
from time to time amended.
"Guaranteed Obligations" is defined in Section 2.1(a).
"Guaranty" means this Guaranty, dated as of November 7, 1997,
made by Guarantor for the benefit of the Lender.
"Guaranty Taxes" is defined in Section 3.8(a).
"Subordinated Liabilities" is defined in Section 2.8(a).
ARTICLE II
GUARANTY AND RELATED PROVISIONS
SECTION 2.1 Guaranty. Guarantor hereby unconditionally:
(a) guarantees the punctual payment when due, whether at
stated maturity, by acceleration or otherwise, of (i) all Obligations
of O.S.I. Puerto Rico now outstanding or hereafter arising under or in
connection with the Credit Agreement or any other Loan Document
(including without limitation all Obligations respecting Facility B),
whether for principal, interest, fees, taxes, additional compensation,
expense reimbursements, indemnification or otherwise, and (ii) all
liabilities of Guarantor now outstanding or hereafter arising under the
Guaranty, and (iii) each other debt, liability or obligation of O.S.I.
Puerto Rico now outstanding or hereafter arising under any of the Loan
Documents (such Obligations, liabilities and other debts, liabilities
and obligations, collectively, are the "Guaranteed Obligations"), and
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(b) agrees to pay on demand (i) all Disallowed
Post-Commencement Interest and Expenses, to the Person entitled to
payment thereof if the claim therefor had been allowed in any
Bankruptcy, Insolvency or Liquidation Proceeding, and (ii) all costs
and expenses (including, without limitation, reasonable attorneys' fees
and legal expenses) incurred by the Lender in enforcing this Guaranty.
SECTION 2.2 Acceleration of Payment. If (i) the Advances
become immediately due and payable pursuant to Section 6.1 of the Credit
Agreement, (ii) any Bankruptcy, Insolvency or Liquidation Proceeding is
commenced voluntarily by Guarantor, or (iii) any Bankruptcy, Insolvency or
Liquidation Proceeding is commenced involuntarily against Guarantor and either
(x) remains pending for more than 30 days or (y) an order for relief is granted
or consented to by O.S.I. Puerto Rico or by the debtor therein, then all
liability of Guarantor under this Guaranty in respect of any Guaranteed
Obligation that is not then due and payable shall thereupon become and be
immediately due and payable, without notice or demand.
SECTION 2.3 Guaranty Absolute and Unconditional. Guarantor
guarantees that the Guaranteed Obligations will be paid in accordance with the
terms of the Credit Agreement and the other Loan Documents, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights and claims of the Lender against
O.S.I. Puerto Rico or any Subsidiary of O.S.I. Puerto Rico with respect thereto
and even if any such rights or claims are modified, reduced or discharged in a
Bankruptcy, Insolvency or Liquidation Proceeding or otherwise. The obligations
of Guarantor under this Guaranty are independent of the Guaranteed Obligations,
and a separate action or actions may be brought and prosecuted against Guarantor
to enforce this Guaranty, whether or not any action is brought against O.S.I.
Puerto Rico or any other guarantor and whether or not O.S.I. Puerto Rico or any
other guarantor is joined in any such action or actions. The liability of
Guarantor under this Guaranty shall be absolute and unconditional irrespective
of: (i) any lack of validity or enforceability of the Credit Agreement or any
other Loan Document or any other agreement or instrument relating thereto; (ii)
any change in the time, manner or place of payment of, or in any other term of,
any of the Guaranteed Obligations, or any other amendment or waiver of or any
consent to departure from the Credit Agreement or any other Loan Document,
including, without limitation, any increase in the Guaranteed Obligations
resulting from the extension of additional credit to O.S.I. Puerto Rico or
otherwise; (iii) any taking, exchange, release or non-perfection of any Lien
securing, or any taking, release or amendment or waiver of or consent to
departure from any other guaranty of, any of the Guaranteed Obligations; (iv)
any manner or order of sale or other enforcement of any Lien securing any or all
of the Guaranteed Obligations or any manner or order of application of the
proceeds of any such Lien to the payment of the Guaranteed Obligations or any
failure to enforce any
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Lien or to apply any proceeds thereof; (v) any change, restructuring or
termination of the corporate structure or existence of O.S.I. Puerto Rico; or
(vi) any other circumstance which might otherwise constitute a defense (except
the defense of payment) available to, or a discharge of, a surety or guarantor.
SECTION 2.4 Guaranty Irrevocable and Continuing. This Guaranty
is an irrevocable and continuing offer and agreement guaranteeing payment of any
and all Guaranteed Obligations and shall extend to all Guaranteed Obligations
now outstanding or created or incurred at any future time, whether or not
created or incurred pursuant to any agreement presently in effect or hereafter
made, until all obligations of the Lender to extend credit to O.S.I. Puerto Rico
have expired or been terminated and all Guaranteed Obligations have been fully,
finally and indefeasibly paid. To the extent any contingent Obligation survives
the expiration or termination of the Credit Agreement and the repayment of the
Advances, Guarantor's liability under this Guaranty shall likewise survive. This
Guaranty may be released only in writing.
SECTION 2.5 Reinstatement. If at any time any payment on any
Guaranteed Obligation is set aside, avoided or rescinded or must otherwise be
restored or returned, this Guaranty and the liability of Guarantor under this
Guaranty shall remain in full force and effect and, if previously released or
terminated, shall be automatically and fully reinstated, without any necessity
for any act, consent or agreement of Guarantor, as fully as if such payment had
never been made and as fully as if any such release or termination had never
become effective.
SECTION 2.6 Waiver. Guarantor hereby waives and relinquishes
all rights, remedies and defenses accorded by applicable law to sureties or
guarantors and agrees not to assert or take advantage of any such rights,
remedies or defenses, including without limitation:
(a) any right to require the Lender to proceed against O.S.I.
Puerto Rico or any other Person or to proceed against or exhaust any
security held by the Lender at any time or to pursue any other remedy
in the power of the Lender before proceeding against Guarantor;
(b) the defense of the statute of limitations in any action
hereunder or in any action for the collection or performance of any
Guaranteed Obligations;
(c) any defense that may arise by reason of the incapacity,
lack of authority, death or disability of any other Person or the
failure of the Lender to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any other
Person;
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(d) demand, presentment, protest and notice of any kind,
including without limitation notice of the existence, creation or
incurring of any new or additional indebtedness or obligation or of any
action or non-action on the part of O.S.I. Puerto Rico, Lender, any
endorser or creditor of O.S.I. Puerto Rico or Guarantor or on the part
of any other Person under this or any other instrument in connection
with any obligation or evidence of indebtedness held by the Lender as
Collateral or in connection with any Guaranteed Obligations;
(e) any defense based upon an election of remedies by the
Lender (including without limitation an election to proceed by
non-judicial rather than judicial foreclosure) irrespective of whether
such election destroys or otherwise impairs any subrogation rights of
Guarantor, the right of Guarantor to proceed against O.S.I. Puerto Rico
for reimbursement, or both (it being understood that as a consequence
of the waiver set forth in this Section 2.6(e), Guarantor is waiving,
among other things, any defense that Guarantor might be able to invoke
under California law based upon the argument (as enunciated in, among
other cases, Union Bank v. Gradsky, 265 Cal. App. 2d 40 (1968), and
Cathay Bank v. Lee, 93 Los Angeles Daily Journal D.A.R. 4871 (1993)),
that an election by a lender to foreclose non-judicially under a deed
of trust effects a release of the Guarantor from any obligation to pay,
under its guaranty, any portion of the guaranteed obligation remaining
unpaid after the non-judicial foreclosure since the non-judicial
foreclosure could destroy or impair Guarantor's subrogation or other
rights to obtain any reimbursement from O.S.I. Puerto Rico for such
payments);
(f) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the
principal;
(g) any duty on the part of the Lender to disclose to
Guarantor any facts the Lender may now or hereafter know about O.S.I.
Puerto Rico, regardless of whether the Lender has reason to believe
that any such facts materially increase the risk beyond that which
Guarantor intends to assume, or has reason to believe that such facts
are unknown to Guarantor, or has a reasonable opportunity to
communicate such facts to Guarantor, since Guarantor acknowledges that
Guarantor is fully responsible for being and keeping informed of the
financial condition of O.S.I. Puerto Rico and of all circumstances
bearing on the risk of non-payment of any Guaranteed Obligations;
(h) any defense arising because of the election by the Lender,
in any proceeding instituted under the Bankruptcy Code, of the
application of Section 1111(b)(2) of the Bankruptcy Code; and
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(i) any defense based upon any borrowing or grant of a
security interest under Section 364 of the Federal Bankruptcy Code.
Without limiting the generality of the foregoing, Guarantor
hereby expressly waives any and all benefits which might otherwise be available
to Guarantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845
through 2850, 2899 and 3433, California Code of Civil Procedure Sections 580(a),
580(b), 580(d) and 726, and California Commercial Code Section 3606(1).
SECTION 2.7 Subrogation. Guarantor hereby represents, warrants
and agrees, in respect of any and all present and future rights of subrogation,
recourse, reimbursement, indemnity, exoneration, contribution and other claims
that Guarantor at any time may have against O.S.I. Puerto Rico, any other
guarantor, or any other Person liable for the payment of any of the Guaranteed
Obligations (including, without limitation, the owner of any interest in
collateral subject to a Lien securing any of the Guaranteed Obligations) as a
result of or in connection with this Guaranty or any payment hereunder, that:
(a) No Agreement. Guarantor has not entered into, and agrees
that it will not enter into, any agreement providing, directly or
indirectly, for any such right or claim against O.S.I. Puerto Rico or
against any other Subsidiary of O.S.I. Puerto Rico, and each such
agreement now existing or hereafter entered into is and shall be void;
(b) Release. Guarantor waives and releases any such right or
claim against O.S.I. Puerto Rico, any other guarantor or any other such
Person until the Guaranteed Obligations have been paid in full; and
(c) Capital Contribution. Neither the execution and delivery
of this Guaranty by Guarantor nor any payment by Guarantor under this
Guaranty shall give rise to any claim (as that term is defined in the
Bankruptcy Code) in favor of Guarantor against O.S.I. Puerto Rico until
the Guaranteed Obligations have been paid in full.
SECTION 2.8 Subordination Provisions.
(a) Subordination. Any and all present and future debts,
liabilities and obligations of every type and description (whether for
money borrowed, on intercompany accounts, for provision of goods or
services, under tax sharing or contribution agreements or on account of
any other transaction, agreement, occurrence or event and whether
absolute or contingent, direct or indirect, matured or unmatured,
liquidated or unliquidated, created directly or acquired from another,
or sole, joint, several or joint and several) of O.S.I.
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Puerto Rico or any Subsidiary of O.S.I. Puerto Rico now outstanding or
hereafter incurred or owed to Guarantor (the "Subordinated
Liabilities") shall be, and hereby are, subordinated to full and final
payment of the Guaranteed Obligations.
(b) Prohibited Payments. If any Event of Default or Potential
Default occurs, then for so long as such Event of Default or Potential
Default may be continuing, Guarantor will not demand, sue for, accept
or receive, or cause or permit any other Person to make, any payment on
or transfer of property on account of any Subordinated Liabilities.
(c) No Liens or Transfers. Guarantor agrees that (i) it will
not demand, accept or hold any Lien upon any real or personal property
of O.S.I. Puerto Rico as security for any of the Subordinated
Liabilities and (ii) any such Lien shall be void.
(d) Insolvency Proceedings. In any Bankruptcy, Insolvency or
Liquidation Proceeding, the Lender shall be entitled to receive payment
in full of all amounts due or to become due on or in respect of the
Guaranteed Obligations, or provision shall be made for such payment in
money or money's worth, before Guarantor is entitled to receive any
payment or distribution of any kind or character, whether in cash,
property or securities, on account of any of the Subordinated
Liabilities, and to that end the Lender shall be entitled to receive,
for application to the payment thereof, all payments and distributions
of any kind or character, whether in cash, property or securities
(including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other debt or liability of
O.S.I. Puerto Rico or any Subsidiary of O.S.I. Puerto Rico being
subordinated to the payment of the Subordinated Liabilities), which may
be payable or deliverable in respect of the Subordinated Liabilities in
any such Bankruptcy, Insolvency or Liquidation Proceeding.
(e) Disallowed Post-Commencement Interest and Expenses. If in
any Bankruptcy, Insolvency or Liquidation Proceeding (i) any payment or
distribution of any kind or character, whether in cash, property or
securities (including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other debt or
liability of O.S.I. Puerto Rico or any Subsidiary of O.S.I. Puerto Rico
being subordinated to the payment of the Subordinated Liabilities) is
payable or deliverable in respect of the Subordinated Liabilities, and
(ii) the Lender is not otherwise entitled to receive such payment or
distribution pursuant to Section 2.8(d), and (iii) any amount remains
unpaid to the Lender on account of any Disallowed Post-Commencement
Interest and Expenses, then the Lender shall be entitled to
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receive payment of all such unpaid Disallowed Post-Commencement
Interest and Expenses from and out of any and all such payments and
distributions in respect of the Subordinated Liabilities.
(f) Held in Trust. If any payment, transfer or distribution is
made to Guarantor upon any Subordinated Liabilities that is not
permitted to be made under this Section 2.8 or that the Lender is
entitled to receive under this Section 2.8, Guarantor shall receive and
hold the same in trust, as trustee for the benefit of the Lender, and
shall forthwith transfer and deliver the same to the Lender, in
precisely the form received (except for any required endorsement), for
application to the payment of Guaranteed Obligations or any unpaid
Disallowed Post-Commencement Interest and Expenses.
(g) Claims in Bankruptcy. Guarantor will file all claims
against O.S.I. Puerto Rico or any Subsidiary of O.S.I. Puerto Rico in
any Bankruptcy, Insolvency or Liquidation Proceeding in which the
filing of claims is required or permitted by law upon any of the
Subordinated Liabilities and will assign to the Lender, all rights of
Guarantor thereunder. If Guarantor does not file any such claim at
least 30 days prior to any applicable claims bar date, the Lender is
hereby authorized (but shall not be obligated), as attorney-in-fact for
Guarantor with full power of substitution, either to file such claim or
proof thereof in the name of Guarantor or, at the option of the Lender,
to assign the claim and cause the claim or proof thereof to be filed by
an agent or nominee. The Lender and its agents and nominees shall have
the sole right, but no obligation, to accept or reject any plan
proposed in such Bankruptcy, Insolvency or Liquidation Proceeding and
to cast any votes and to take any other action with respect to all
claims upon any of the Subordinated Liabilities.
(h) Subordination Effective and not Impaired. This Section 2.8
shall remain effective for so long as this Guaranty is continuing and
thereafter for so long as any Guaranteed Obligation is outstanding.
Guarantor's obligations under this Section 2.8: (i) shall be absolute
and unconditional as set forth in Section 2.3, irrevocable and
continuing as set forth in Section 2.4, subject to reinstatement as set
forth in Section 2.5 and not be affected or impaired by any of the
matters waived in Section 2.6; (ii) shall be subject to the provisions
of Article III; and (iii) shall otherwise be as equally enduring and
free from defenses as Guarantor's liability under this Guaranty.
SECTION 2.9 Fraudulent Transfer Limitation. If, in any action
to enforce this Guaranty or any proceeding to allow or adjudicate a claim under
this Guaranty, a court of competent jurisdiction determines that enforcement of
this Guaranty against Guarantor for the full amount of the Guaranteed
Obligations is not lawful under, or would be subject to avoidance under, Section
548 of the Bankruptcy
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Code or any applicable provision of comparable state law, the liability of
Guarantor under this Guaranty shall be limited to the maximum amount lawful and
not subject to avoidance under such law.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.1 Condition of O.S.I. Puerto Rico. Guarantor is
fully aware of the financial condition of O.S.I. Puerto Rico and is executing
and delivering this Guaranty based solely upon Guarantor's own independent
investigation of all matters pertinent hereto and is not relying in any manner
upon any representation or statement by the Lender. Guarantor represents and
warrants that it is in a position to obtain, and Guarantor hereby assumes full
responsibility for obtaining, any additional information concerning the
financial condition of O.S.I. Puerto Rico and any other matter pertinent hereto
as Guarantor may desire, and Guarantor is not relying upon or expecting the
Lender to furnish to Guarantor any information now or hereafter in the
possession of the Lender concerning the same or any other matter. By executing
this Guaranty, Guarantor knowingly accepts the full range of risks encompassed
within a contract of this type, which risks Guarantor acknowledges. Guarantor
shall not have the right to require the Lender to obtain or disclose any
information with respect to the Guaranteed Obligations, the financial condition
or prospects of O.S.I. Puerto Rico or any Subsidiary of O.S.I. Puerto Rico, the
ability of O.S.I. Puerto Rico or any Subsidiary of O.S.I. Puerto Rico to pay or
perform the Guaranteed Obligations, the existence, perfection, priority or
enforceability of any collateral security for any or all of the Guaranteed
Obligations, the existence or enforceability of any other guaranties of all or
any part of the Guaranteed Obligations, any action or non-action on the part of
the Lender, O.S.I. Puerto Rico, any Subsidiary of O.S.I. Puerto Rico or any
other Person, or any other event, occurrence, condition or circumstance
whatsoever.
SECTION 3.2 Amendments.
(a) Amendment to Guaranty. No amendment or waiver of any
provision of this Guaranty, no consent to any departure by Guarantor
herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose
for which given, except that no amendment, waiver or consent shall,
unless in writing and signed by the Lender, (i) reduce or discharge the
liability of Guarantor hereunder, or (ii) postpone any date fixed for
payment hereunder.
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(b) Amendment or Modification of Other Loan Documents. The
other Loan Documents may be amended, modified or supplemented in
accordance with their terms without notice to or consent or agreement
by Guarantor, including, without limitation, so as to (i) alter,
compromise, modify, accelerate, extend, renew, refinance or change the
time or manner for making of Advances, provision of other financial
accommodations, or the payment or performance of all or any portion of
the Guaranteed Obligations, (ii) increase or reduce the rate of
interest or amount of principal payable on the Guaranteed Obligations,
(iii) release or discharge O.S.I. Puerto Rico, any other Loan Party or
any other Person as to all or any portion of the Guaranteed
Obligations, or (iv) release, substitute or add any one or more
guarantors or endorsers, accept additional or substituted security for
payment or performance of the Guaranteed Obligations, or release or
subordinate any security therefor.
SECTION 3.3 Notices. All notices, requests, approvals,
consents and other communications required or permitted to be made hereunder
shall, except as otherwise provided, be given in the manner specified and to the
addresses set forth in Section 7.2 of the Credit Agreement.
SECTION 3.4 Right of Set off. If any Advances become
immediately due and payable pursuant to Section 6.1 of the Credit Agreement, the
Lender shall have the right at any time, and from time to time thereafter, to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other liability at any time owing by Lender to or for the credit or the account
of Guarantor against any and all liability of Guarantor under this Guaranty,
whether or not Lender shall have made any demand under this Guaranty and even
though such deposit or liability may then be unmatured. Lender agrees to
promptly notify the affected Guarantor after any such set-off and application
made by Lender, but the failure to give such notice shall not affect the
validity of such set-off and application. The rights of the Lender under this
Section 3.4 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which Lender may have.
SECTION 3.5 Successors and Assigns. This Guaranty is binding
upon and enforceable against Guarantor, its successors and assigns, and shall
inure to the benefit of, and be enforceable by, the Lender and its
representatives, successors and assigns.
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SECTION 3.6 No Inquiry. The Lender may rely, without further
inquiry, on the power and authority of Guarantor, O.S.I. Puerto Rico and on the
authority of all officers, directors and agents acting or purporting to act on
their behalf.
SECTION 3.7 Involuntary Proceedings. So long as the Lender is
obligated to extend credit under the Credit Agreement or any Guaranteed
Obligations are outstanding, Guarantor will not, without the prior written
consent of the Lender, commence or join with any other Person in commencing any
Bankruptcy, Insolvency or Liquidation Proceeding against O.S.I. Puerto Rico.
SECTION 3.8 Payments Free and Clear of Taxes.
(a) Payment. Guarantor agrees to pay any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto which arise from any payment made
hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Guaranty, excluding, with respect to
the Lender, taxes imposed on its net income (collectively, the
"Guaranty Taxes").
(b) Indemnity. Guarantor hereby indemnifies the Lender for the
full amount of Guaranty Taxes (including, without limitation, any
Guaranty Taxes imposed by any jurisdiction on amounts payable under
this Section 3.8) paid by the Lender and any liability (including
penalties, interest and expenses) arising therefrom or with respect
thereto (plus interest on any amounts not paid within thirty days from
the date written demand is made therefor at a rate equal to the rate
payable under the Credit Agreement on Base Rate Advances during the
continuance of a default in the repayment of Advances), whether or not
such Guaranty Taxes were correctly or legally asserted; provided,
however, that if the Lender subsequently recoups all or any part of
such amount from the relevant taxation authority or other authority,
then the Lender shall identify and remit the amount of the recoupment
to Guarantor within five Business Days after it receives the
recoupment.
(c) Survival. Without prejudice to the survival of any other
agreement of Guarantor hereunder, the agreements and obligations of
Guarantor contained in this Section 3.8 shall survive the full and
final payment and performance of the Guaranteed Obligations.
(d) Receipt. Within 30 days after the date of any payment of
Guaranty Taxes by Guarantor, Guarantor shall furnish to the Lender a
receipt for any Guaranty Taxes paid by Guarantor pursuant to this
Section 3.8.
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SECTION 3.9 No Waiver; Remedies. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof, and no single or partial exercise of any right
hereunder shall preclude any other or further exercise of any other right or of
the same right as to any other matter or on a subsequent occasion.
SECTION 3.10 Remedies Cumulative. All rights, powers and
remedies of the Lender under this Guaranty, under any other agreement now or at
any time hereafter in effect between the Lender and Guarantor (whether relating
to the Guaranteed Obligations or otherwise) or now or hereafter existing at law
or in equity or by statute or otherwise, shall be cumulative and concurrent and
not alternative and each such right, power and remedy may be exercised
independently of, and in addition to, each other such right, power or remedy.
SECTION 3.11 Severally Enforceable. This Guaranty may be
enforced severally and successively by the Lender in one or more actions,
whether independent, concurrent, joint, successive or otherwise.
SECTION 3.12 Counterparts. This Guaranty may be executed in
counterparts, and each such counterpart for all purposes shall be deemed an
original and all such counterparts together shall constitute but one and the
same agreement.
SECTION 3.13 Severability. If any provision hereof or the
application thereof in any particular circumstance is held to be unlawful or
unenforceable in any respect, all other provisions hereof and such provision in
all other applications shall nevertheless remain effective and enforceable to
the maximum extent lawful.
SECTION 3.14 Integration. This Guaranty and the other Loan
Documents to which Guarantor is party are intended as an integrated and final
expression of the entire agreement of Guarantor with respect to the subject
matter hereof and thereof. No representation, understanding, promise or
condition concerning the subject matter hereof and thereof shall be binding upon
the Lender unless expressed herein or therein, and no course of prior dealing or
usage of trade, and no parol or extrinsic evidence of any nature, shall be
admissible to supplement, modify or vary any of the terms hereof or thereof.
Acceptance of or acquiescence in a course of performance rendered under this
Guaranty or any other dealings between Guarantor and the Lender shall not be
relevant to determine the meaning of this Guaranty even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection.
SECTION 3.15 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL; WAIVER OF DAMAGES.
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(a) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF CALIFORNIA.
(b) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE
STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT
OR THE CENTRAL DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF
THIS GUARANTY, EACH PARTY HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS. EACH PARTY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN
SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED
HERETO. SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE
BY ANY MEANS PERMITTED BY CALIFORNIA LAW.
(c) WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ALL RIGHTS
TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, AND AGREES THAT ANY SUCH
CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, EACH PARTY FURTHER AGREES THAT
ITS RIGHT TO A TRIAL BY JURY IS HEREBY WAIVED AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY OTHER
LOAN DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS GUARANTY AND THE OTHER LOAN DOCUMENTS.
(d) LIMITATION OF LIABILITY. NO CLAIM MAY BE MADE BY
GUARANTOR AGAINST THE LENDER OR ANY OF ITS AFFILIATES,
DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS FOR ANY
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SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY
CLAIM (WHETHER BASED UPON ANY BREACH OF CONTRACT, TORT, BREACH OF
STATUTORY DUTY OR ANY OTHER THEORY OF LIABILITY) ARISING OUT OF OR
RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS GUARANTY, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, AND GUARANTOR
HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR ANY
SUCH DAMAGES, WHETHER OR NOT NOW ACCRUED AND WHETHER OR NOT KNOWN OR
SUSPECTED TO EXIST IN ITS FAVOR.
SECTION 3.16 Acceptance and Notice. Guarantor acknowledges
acceptance hereof and reliance hereon by the Lender and waives, irrevocably and
forever, all notice thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
OCULAR SCIENCES, INC.,
a Delaware corporation
By:
-------------------------------------
Gregory E. Lichtwardt, Vice President,
Finance, and Chief Financial Officer
COMERICA BANK-CALIFORNIA
By:
-------------------------------------
Lori S. Edwards, First Vice President
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EXHIBIT B-3
FORM OF AMENDED AND RESTATED
PLEDGE AGREEMENT
This AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of November
7, 1997, 1997, is made by and between OCULAR SCIENCES, INC., a Delaware
corporation (the "Grantor"), in favor of COMERICA BANK-CALIFORNIA, a California
chartered bank ("Secured Party").
RECITALS
A. The Grantor has entered into that certain Amended and Restated
Credit Agreement dated as of November 7, 1997 (the "Credit Agreement"), by and
between the Grantor, as a Borrower, and Ocular Sciences Puerto Rico, Inc., a
Delaware corporation, as a Borrower (each, "Borrower" and, collectively, the
"Borrowers"), and Secured Party, as the Lender. The Credit Agreement amends and
restates in its entirety that certain Credit Agreement, dated as of October 30,
1996, as amended by Amendment Number One to Credit Agreement dated as of
February 27, 1997, Amendment Number Two to Credit Agreement dated as of July 7,
1997, and Amendment Number Three to Credit Agreement dated as of July 18, 1997,
between the Grantor's predecessor, O.S.I. Corporation, a California corporation,
and Secured Party, as the Lender.
B. It is a condition precedent to the extension of credit under
the Credit Agreement that the Grantor shall have granted the security interests
described herein as security for each and all the Grantor's Obligations (as that
term is defined in the Credit Agreement), including without limitation Grantor's
Obligations as a Borrower and Grantor's Obligations under the Parent Guaranty,
and as security for the other debts, liabilities and obligations secured
hereunder.
NOW, THEREFORE, in consideration of the foregoing and in order to
induce the Lender to extend credit under the Credit Agreement, the Grantor
hereby agrees as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 General Definitions. Except as otherwise specifically
provided herein, the terms that are defined in Section 1.1 of the Credit
Agreement shall have the same meanings when used in this Agreement and the
provisions of Sections 1.2 and 1.3 of the Credit Agreement shall apply to this
Agreement.
SECTION 1.2 U.C.C. Definitions. Where applicable and except as
otherwise expressly provided herein, terms used herein (whether or not
capitalized) shall have the respective meanings assigned to them in the Uniform
Commercial Code as enacted in the State of California (the "Code").
SECTION 1.3 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
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"Agreement" means this Amended and Restated Pledge Agreement,
dated as of November 7, 1997, made by and between the Grantor and Secured Party.
"Collateral" is defined in Section 2.1.
"Pledged Shares" is defined in Section 2.1(a).
"Proceeds" includes (i) all payments, dividends, cash, options,
warrants, rights, instruments and other property of any type or nature at any
time received, receivable or otherwise distributed, voluntarily or
involuntarily, (x) on account of, in respect of or in exchange for any item of
Collateral or (y) upon the collection, sale or other disposition of any item of
Collateral; (ii) any insurance or payments under any indemnity, warranty or
guaranty now or hereafter payable in respect of any item of Collateral or any
proceeds thereof or any loss relating thereto; (iii) all proceeds of any
Collateral; and (iv) any property or interest in property acquired with or in
exchange for any of the foregoing.
"Secured Obligations" is defined in Section 2.2.
"Secured Party" means Comerica Bank-California.
ARTICLE II
SECURITY INTEREST AND COLLATERAL
SECTION 2.1 Creation of Security Interest. As security for the
due and punctual payment and performance of all present and future Secured
Obligations, the Grantor hereby grants Secured Party a security interest in all
right, title and interest of the Grantor in, to, under or derived from the
following property (collectively, the "Collateral"), in each case whether now
owned or hereafter acquired by such Grantor and wherever located:
(a) The shares of stock listed on Schedule A hereto (the "Pledged
Shares");
(b) All other shares of stock or equity securities of, or
ownership interests in, any issuer of the Pledged Shares or any other
Person, in each case whether or not represented by a certificated
security or other instrument;
(c) All options, warrants and rights to subscribe for or purchase
voting or nonvoting capital stock or equity securities of, or ownership
interests in, any issuer of the Pledged Shares or any other corporation,
partnership, trust or Person, whether or not represented by a
certificated security or other instrument;
(d) All additions, accessions, substitutions, issues and profits
of, to or from any of the foregoing;
(e) All renewals, interest, dividends, distributions, rights of
any kind (including but not limited to stock splits, stock rights,
voting and preferential rights, and rights to subscribe for securities
declared or granted in connection therewith) relating to the Pledged
Shares;
(f) All securities, instruments, investment property, or
distributions of any
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kind issuable, issued or received by the Grantor upon conversion of,
in respect of, or in exchange for the Pledged Shares, or any other
Collateral, including, but not limited to, those arising from a stock
dividend, stock split, reclassification, reorganization, merger,
consolidation, sale of assets or other exchange of securities or any
dividends or other distributions of any kind upon or with respect to the
above-described Collateral; and
(g) All Proceeds of any of the foregoing,
provided, nevertheless, that the Collateral shall not include more than 65% of
any class of equity securities of any Foreign Subsidiary (or any options,
warrants or rights to subscribe for equity securities which if exercised would
cause the Collateral to include more than 65% of any class of equity securities
of any Foreign Subsidiary).
SECTION 2.2 Secured Obligations. The Collateral secures (i) the
payment of all present and future Obligations and all other debts and
liabilities of the Grantor now outstanding or hereafter arising under (A) the
Credit Agreement, the Parent Guaranty, this Agreement, any other Loan Document
or (B), unless the Grantor and Secured Party otherwise specifically agree in
writing, any other agreement between Grantor and Secured Party, and all other
debts and liabilities of the Grantor to Secured Party, now outstanding or
hereafter arising, and whether for principal, interest, fees, cost and expense
reimbursements, indemnification or otherwise, (ii) the performance by the
Grantor of all its other obligations of every kind and character arising under
(A) the Credit Agreement, the Parent Guaranty, this Agreement or any other Loan
Document or (B), unless the Grantor and the Secured Party otherwise specifically
agree in writing, any other agreement, document or instrument between the
Grantor and the Secured Party, now outstanding or hereafter arising and (iii)
all costs and expenses incurred by Secured Party in asserting, enforcing or
protecting the Collateral in any bankruptcy case or insolvency proceeding to
which the Grantor or any other Loan Party may be party and all collection costs
and enforcement expenses incurred by Secured Party in collecting, retaking,
holding, preparing for sale, selling or otherwise disposing of or realizing on
any Collateral or otherwise exercising or enforcing any of its rights or
remedies hereunder, together (in each case) with Secured Party's reasonable
attorneys' fees and disbursements and court costs related thereto (collectively,
the "Secured Obligations").
SECTION 2.3 Delivery of Instruments. All securities, stock
certificates and other instruments and investment property constituting the
Collateral shall be delivered to and held by Secured Party on the date hereof
or, if hereafter acquired, promptly, and, in any case, no later than five (5)
days, after or upon acquisition thereof by any Grantor and without any notice
from or demand by Secured Party, in each case in suitable form for transfer by
delivery or accompanied by duly executed instruments of transfer or assignments
in blank or with appropriate endorsements, in form and substance reasonably
satisfactory to Secured Party.
SECTION 2.4 Further Assurances. Each Grantor will promptly (and
in no event later than five days after request by Secured Party) execute and
deliver, and use its reasonable and diligent best efforts to obtain from other
Persons, all instruments and documents (including, without limitation,
assignments, transfer documents and transfer notices, financing statements and
other lien notices), in form and substance reasonably satisfactory to Secured
Party, and take all other actions which are necessary or, in the
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reasonable good faith judgment of Secured Party, desirable or appropriate to
create, perfect, protect or enforce Secured Party's security interests in the
Collateral, to enable Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral, to protect the Collateral
against the rights, claims or interests of third Persons or to effect or to
assure further the purposes and provisions of this Agreement, and the Grantor
will pay all costs related thereto and all reasonable expenses incurred by
Secured Party in connection therewith.
SECTION 2.5 Survival of Security Interest. Except as otherwise
required by law, the security interest granted hereby shall, (i) remain
enforceable as security for all Secured Obligations now outstanding or created
or incurred at any future time (whether or not created or incurred pursuant to
any agreement presently in effect or hereafter made and notwithstanding any
subsequent repayment of any of the Secured Obligations or any other act,
occurrence or event), until all obligations of the Lender to extend credit to
the Grantor have expired or been terminated and all Secured Obligations have
been fully and finally paid, (ii) survive the expiration or termination of the
Credit Agreement and the repayment of the Advances to the same extent that any
contingent Obligation survives, and (iii) survive any sale, exchange or other
disposition of the Grantor's interest in any Collateral and remain enforceable
against each transferee and subsequent owner of such interest, unless such sale,
exchange or other disposition is permitted at the time under the Credit
Agreement.
SECTION 2.6 Reinstatement. If at any time any payment on any
Secured Obligation is set aside, avoided, or rescinded or must otherwise be
restored or returned, this Agreement and the security interest created hereby
shall remain in full force and effect and, if previously released or terminated,
shall be automatically and fully reinstated, without any necessity for any act,
consent or agreement of any Grantor, as fully as if such payment had never been
made and as fully as if any such release or termination had never become
effective.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Grantors. Each
Grantor represents and warrants that:
(a) Schedule A completely and accurately sets forth all shares of
stock, and all other equity, ownership and profit interests in which the
Grantor owns any interest. The Pledged Shares have been duly authorized
and validly issued, are fully paid and non-assessable and were not
issued in breach or derogation of preemptive rights of any Person.
(b) The Grantor's chief executive office is located at the
address shown as the chief executive office on Schedule B hereto. The
Grantor has no places of business other than its chief executive office
and the other locations set forth on Schedule B.
(c) The Grantor does not do business, and for the previous five
years has not done business, under any fictitious business names or
trade names other than those listed on Schedule C hereto.
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(d) The Grantor at all times is (or, as to any item of Collateral
acquired after the date hereof, will be) the sole legal and beneficial
owner of all Collateral reflected on its books and records as belonging
to it and has exclusive possession and control thereof free and clear of
any Liens except those created by this Agreement or permitted under
Section 5.3(a) of the Credit Agreement. No financing statement, notice
of lien, or instrument similar in effect covering the Collateral or any
portion thereof or any proceeds thereof exists or is on file in any
public office, except as may have been filed in favor of Secured Party,
and those relating to Liens permitted by the Credit Agreement.
(e) The Collateral has not been and will not be used or bought by
the Grantor for personal, family or household purposes.
(f) The Pledged Shares are certificated securities evidenced and
represented by certificates issued in bearer or registered form. All
originals of all stock certificates and other instruments or investment
property constituting Collateral have been delivered to Secured Party
with all necessary or appropriate endorsements.
(g) Except (i) as set forth in Schedule D and (ii) as to laws
generally applicable to the creation, perfection or enforcement of
security interests in personal property, neither the Grantor nor any of
the Collateral purported to be granted by it is subject to any
requirement of law or contractual obligation which prohibits, restricts
or limits the execution, delivery or performance of this Agreement or
the creation, perfection or enforcement of the security interest
purported to be created hereby.
(h) None of the Collateral constitutes "margin stock," as defined
in Regulation U of the Board of Governors of the Federal Reserve System.
(i) The proper taxpayer identification number for the Grantor is
accurately set forth on Schedule E.
ARTICLE IV
COVENANTS
SECTION 4.1 Covenants of Grantors. The Grantor covenants and
agrees that so long as the security interest created hereby remains outstanding:
(a) The Grantor will deliver to Secured Party each instrument
included in the Collateral as set forth in Section 2.3.
(b) The Grantor will not cause, permit or suffer any voluntary or
involuntary change in its name, identity or corporate structure, or in
the location of its chief executive office unless (in each case) (x)
Schedule B has first been appropriately supplemented with respect
thereto, and (y) an appropriate financing statement has been filed in
the proper office and in the proper form, and all other requisite
actions have been taken, to perfect or continue the perfection (without
loss of priority) of Secured Party's security interest in the
Collateral.
(c) The Grantor will defend the Collateral against all claims and
demands
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of all Persons at any time claiming the same or any interest therein
unless such interest is permitted hereunder and under the Credit
Agreement.
(d) The Grantor will not encumber, sell, exchange or otherwise
dispose of any item of Collateral or any interest therein, or permit or
suffer any such item to be encumbered, sold, exchanged or otherwise
disposed of, unless (i) such action is permitted at the time under the
Credit Agreement and (ii) the Grantor makes all payments on account of
the Obligations required to be made therefrom (provided that any such
payments made in connection with any Asset Sale permitted under Section
5.3(b)(iii) of the Credit Agreement shall be made concurrently with the
closing of such Asset Sale), and the Grantor and each other Loan Party
takes all other actions required to be taken in connection therewith,
under the Credit Agreement, this Agreement or any other Loan Document.
(e) Secured Party is hereby authorized to file one or more
financing statements, and continuations thereof and amendments thereto,
relative to all or any part of the Collateral, without the signature of
the Grantor where permitted by law.
(f) The Grantor will (i) maintain insurance as required in
Section 5.2(g) of the Credit Agreement, (ii) give the Lender written
notice of any default in the payment of premiums on such insurance
policies and at least ten (10) days written notice prior to cancellation
of any such policies, and (iii) cause the Lender to be named (A) as the
principal beneficiary on any key-man life insurance policy and (B) as an
additional insured on a lender's loss payable endorsement, in a form
satisfactory to the Lender for any other such insurance policies.
(g) Secured Party may at any time (but shall not be obligated to)
(i) perform any of the obligations of the Grantor under this Agreement
if the Grantor fails to perform such obligation within 30 days (or, in
the case of insurance, within 10 days) after written demand by Secured
Party and (ii) make any payments and do any other acts it may deem
reasonably necessary or desirable to protect its security interest in
the Collateral, including, without limitation, the right to pay,
purchase, contest or compromise any Lien that attaches or is asserted
against any Collateral (other than Liens permitted under Section 5.3(a)
of the Credit Agreement), to procure insurance required to be provided
by the Grantor under the Credit Agreement, and to the extent the
Grantor is required hereunder or under the Credit Agreement to do so, to
appear in and defend any action or proceeding relating to the
Collateral, if the Grantor fails to make such payments or perform such
acts within 30 days after written demand by Secured Party and the
Grantor will promptly reimburse Secured Party for all payments made by
Secured Party in doing so, together with interest thereon at the rate
then applicable under the Credit Agreement to the Advances, and all
costs and expenses related thereto as set forth in Section 8.10 hereof.
ARTICLE V
VOTING RIGHTS, DIVIDENDS AND DISTRIBUTIONS
SECTION 5.1 Voting Rights. So long as no Event of Default has
occurred and is continuing or would result from any exercise thereof, the
Grantor shall have and may exercise all voting rights with respect to any and
all shares of stock, equity securities and
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other equity, ownership or profit interests constituting Collateral, except
that:
(a) the Grantor may not and will not act or vote in favor of any
action that would be or cause a breach of any obligations of the Grantor
or any other Loan Party under the Credit Agreement or under any other
Loan Document;
(b) the Grantor may not and will not act or vote in favor of (i)
the authorization or issuance of any options, warrants, voting rights,
or preference shares or additional shares, or (ii) any reclassification,
readjustment, reorganization, merger, consolidation, sale or disposition
of assets, or dissolution, without giving Secured Party at least 5 days'
prior written notice thereof, provided that for the conversion of Debt
to equity permitted under Section 5.3(c)(ix) of the Credit Agreement,
such notice shall be limited to subsequent notice only, which the
Grantor shall provide to Secured Party in writing within 5 days after
such conversion; and
(c) the Grantor may not and will not act or vote in favor of any
action that does or is reasonably likely to have a material adverse
effect on the aggregate value of the Collateral provided that, for
purposes of this Section 5.1(c), the effect of any such act or vote
shall be determined with respect to the facts and circumstances at the
time of such act or vote.
Upon the occurrence and during the continuance of an Event of Default, Secured
Party may (but shall not be obligated to) terminate the Grantor's right to
exercise voting rights with respect to any or all such shares of stock, equity
securities and ownership interests, either by giving written notice of such
termination to the Grantor or by transferring such shares, securities or
interests into Secured Party's name, and Secured Party shall thereupon have the
sole right and power to exercise such voting rights.
SECTION 5.2 Dividends, Distributions and Payments. So long as no
Event of Default has occurred and is continuing or would result, the Grantors
shall be entitled to receive all dividends and distributions on all shares of
stock, equity securities and other equity, ownership and profit interests
constituting Collateral, so long as the Grantors make all payments on account of
the Obligations required to be made therefrom, and the Grantors and each other
Loan Party takes all other actions required to be taken in connection therewith,
under the Credit Agreement, this Agreement or any other Loan Document.
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.1 Remedies. Upon and at any time after the occurrence
and during the continuance of any Event of Default, Secured Party may exercise
and enforce, in any order, (i) each and all of the rights and remedies available
to a secured party upon default under the Code or other applicable law, (ii)
each and all of the rights and remedies available to it, as Lender or as Secured
Party, under the Credit Agreement or any other Loan Document and (iii) each and
all of the following rights and remedies:
(a) Secured Party may notify any or all account debtors and
obligors on any Collateral to make payment directly to Secured Party.
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(b) Secured Party may take possession of all items of Collateral
that are not then in its possession and require the Grantors or the
Person in possession thereof to deliver such Collateral to Secured Party
at one or more locations designated by Secured Party and reasonably
convenient to it and the Grantors.
(c) Secured Party may sell, lease, license or otherwise dispose
of any or all of the Collateral or any part thereof in one or more
parcels at a public sale or in a private sale or transaction, on any
exchange or market or at Secured Party's offices or on the Grantor's
premises or at any other location, for cash, on credit or for future
delivery, and may enter into all contracts necessary or appropriate in
connection therewith, without any notice whatsoever unless required by
law. The Grantors agree that at least ten calendar days' written notice
to the Grantor of the time and place of any public sale or the time
after which any private sale is to be made shall be commercially
reasonable. The giving of notice of any such sale or other disposition
shall not obligate Secured Party to proceed with the sale or
disposition, and any such sale or disposition may be postponed or
adjourned from time to time, without further notice.
In addition, each holder of any Secured Obligation may exercise and enforce such
rights and remedies for the collection of any Secured Obligation as may be
available to it by law or agreement.
SECTION 6.2 Remedies Cumulative. Secured Party may exercise and
enforce each right and remedy available to it upon the occurrence of an Event of
Default either before or concurrently with or after, and independently of, any
exercise or enforcement of any other right or remedy of Secured Party against
any Person or property. All such rights and remedies shall be cumulative, and no
one of them shall exclude or preclude any other.
SECTION 6.3 Surplus, Deficiency. Any surplus proceeds of any sale
or other disposition of Collateral by Secured Party remaining after all the
Secured Obligations are paid in full shall be paid over to the Grantor or to
whomever may be lawfully entitled to receive such surplus or as a court of
competent jurisdiction may direct, but if any obligation to make Advances then
remains outstanding or if any contingent, unliquidated or unmatured Secured
Obligation then remains outstanding, such surplus proceeds may be retained by
Secured Party and held as Collateral until such time as all such obligations
have expired or been terminated and all outstanding Secured Obligations have
been determined, liquidated, paid in full and discharged. The Grantors shall be
and remain liable for any deficiency.
SECTION 6.4 Information Related to Collateral. If Secured Party
determines to sell or otherwise dispose of any Collateral, the Grantor shall,
and shall cause any Person controlled by it to, furnish to Secured Party all
information Secured Party may request that pertains or could pertain to the
value or condition of such Collateral or would or might facilitate its sale.
SECTION 6.5 Sale Exempt from Registration. Secured Party shall be
entitled at any sale or other disposition of Collateral, if it deems it
advisable to do so, to restrict the prospective bidders or purchasers to persons
who will provide assurances satisfactory to Secured Party that they may be
offered and sold the Collateral to be sold without registration under the
Securities Act of 1933, as amended (the "Securities Act"), or any other
applicable
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state or federal statute, and upon the consummation of any such sale, Secured
Party shall have the right to assign, transfer and deliver to the purchaser or
purchasers thereof the Collateral so sold. Secured Party may solicit offers to
buy the Collateral, or any part of it, from a limited number of investors deemed
by Secured Party, in its commercially reasonable judgment, to meet the
requirements to purchase securities under Regulation D promulgated under the
Securities Act as then in effect (or any other regulation of similar import). If
Secured Party solicits such offers from such investors, then the acceptance by
Secured Party of the highest offer obtained therefrom shall be deemed to be a
commercially reasonable method of disposition of such Collateral.
SECTION 6.6 Registration Rights. During the continuance of an
Event of Default, if Secured Party determines that registration of any
securities constituting Collateral under the Securities Act or other applicable
law is required or desirable in connection with any sale, the Grantors will use
their best efforts to cause such registration to be effectively made, at no
expense to Secured Party, and to continue any such registration effective for
such time as may be reasonably necessary in the opinion of the Secured Party.
ARTICLE VII
SECURED PARTY
SECTION 7.1 Credit Agreement Provisions. Secured Party is
executing and delivering this Agreement, and accepting the security interests,
rights, remedies, powers and benefits conferred upon Secured Party hereby, as
Lender under the Credit Agreement. The provisions of Article VI of the Credit
Agreement and all rights, powers, immunities and indemnities granted to the
Lender under the Credit Agreement and other Loan Documents shall apply in
respect of such execution, delivery and acceptance and in respect of any and all
actions taken or omitted by Secured Party under, in connection with or with
respect to this Agreement.
SECTION 7.2 No Liability. Secured Party makes no statement,
promise, representation or warranty whatsoever, and shall have no liability
whatsoever, to any holder of any Secured Obligations as to the authorization,
execution, delivery, legality, enforceability or sufficiency of this Agreement
or as to the creation, perfection, priority or enforceability of any security
interest granted hereunder or as to existence, ownership, quality, condition,
value or sufficiency of any Collateral or as to any other matter whatsoever.
SECTION 7.3 Duty of Care. Neither Secured Party nor any director,
officer, employee, attorney or agent of Secured Party shall be obligated to care
for the Collateral hereunder or to collect, enforce, vote or protect the
Collateral or any rights or interests of the Grantor related thereto or to
preserve or enforce any rights which the Grantor or any other Person may have
against any third party, except only that Secured Party shall exercise
reasonable care in physically safekeeping any item of Collateral that was
delivered into Secured Party's possession. Secured Party shall be deemed to have
exercised such reasonable care if the Collateral is accorded treatment
substantially equal to that which Secured Party accords to its own property or
if it selects, with reasonable care, a custodian or agent to hold such
collateral for Secured Party's account.
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ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 Notices. All notices, requests, approvals, consents
and other communications required or permitted to be made hereunder shall,
except as otherwise provided, be given in the manner specified and to the
addresses set forth in Section 7.2 of the Credit Agreement.
SECTION 8.2 Headings. The various headings in this Agreement are
inserted for convenience only and shall not affect the meaning or interpretation
of this Agreement or any provision hereof.
SECTION 8.3 Changes. This Agreement or any provision hereof may
be changed, waived or terminated only by a statement in writing signed by the
party against which such change, waiver or termination is sought to be enforced
or otherwise in accordance with Section 7.1 of the Credit Agreement except as
provided in Section 5.2(e) of the Credit Agreement or as required to comply with
Section 4.1(b). Any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 8.4 Grantor Remains Liable. The Grantor shall remain
liable under all contracts and agreements included in the Collateral to the
extent set forth therein to perform all of its duties and obligations thereunder
to the same extent as if this Agreement had not been executed. The exercise or
enforcement by Secured Party of any of its rights and remedies under this
Agreement or in respect of the Collateral shall not release the Grantor from any
of its duties or obligations under any such contracts or agreements. Secured
Party shall not be obligated to perform any such duties or obligations and shall
not be liable for any breach thereof.
SECTION 8.5 No Waiver. No failure by Secured Party to exercise,
or delay by Secured Party in exercising, any power, right or remedy under this
Agreement shall operate as a waiver thereof. No waiver by Secured Party shall be
effective unless given in a writing signed by it. No waiver so given shall
operate as a waiver in respect of any other matter or in respect of the same
matter on a future occasion. Acceptance of or acquiescence in a course of
performance in respect of this Agreement shall not waive or affect the
construction or interpretation of the terms of this Agreement even if the
accepting or acquiescing party had knowledge of the nature of the performance
and opportunity for objection.
SECTION 8.6 Entire Agreement. This Agreement and the other Loan
Documents are intended by the parties as a final expression of their agreement
and a complete and exclusive statement of the terms and conditions thereof.
SECTION 8.7 Severability. If any provision of this Agreement is
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions hereof, or of such provision in
any other application, shall not be in any way affected or impaired thereby and
such other provisions and applications shall be enforceable to the full extent
lawful.
SECTION 8.8 Power of Attorney. Each Grantor hereby appoints and
constitutes Secured Party or any delegate, nominee or agent acting for Secured
Party as the
B-3-10
<PAGE> 125
Grantor's attorney-in-fact with the power and authority (but not the duty), in
the name of the Grantor or in the name of Secured Party or such delegate,
nominee or agent, to (i) execute, deliver and file such financing statements,
agreements, deeds and writings as the Grantor is required to execute, deliver or
file hereunder, (ii) endorse, collect or transfer any item of Collateral (A)
which the Grantor is required to endorse, collect or transfer hereunder after
either (x) the occurrence and continuance of an Event of Default, or (y) Secured
Party has requested that Grantor so endorse, collect or transfer and Grantor has
failed to so endorse, collect or transfer or which Secured Party is permitted to
endorse, collect or transfer hereunder, (iii) make any payments or take any
action under Section 2.4 or Section 4.1(g) hereof, (iv) take any other action
(A) permitted to Secured Party hereunder or (B) required of the Grantor
hereunder after either (x) an Event of Default has occurred and is continuing or
(y) the Secured Party has requested that Grantor take such action and Grantor
has failed to do so, and (z) take any action reasonably necessary to any of the
foregoing. This power of attorney is coupled with an interest and is irrevocable
as to the Grantor. Secured Party shall have no duty whatsoever to exercise any
power herein granted it.
SECTION 8.9 Counterparts. This Agreement and any amendments,
waivers, consents or supplements may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, but
all of which shall together constitute one and the same agreement.
SECTION 8.10 Costs and Expenses. The Grantor hereby agrees to pay
or reimburse Secured Party for all reasonable costs and expenses (including,
without limitation, reasonable attorneys' fees and disbursements and court
costs) incurred in connection with or as a result of the exercise or enforcement
by Secured Party of any right or remedy available to it or the protection or
enforcement of its interest in the Collateral in any bankruptcy case or
insolvency proceeding.
SECTION 8.11 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL; LIMITATION OF LIABILITY; WAIVER OF BOND.
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED UNDER THE LAWS OF THE STATE OF CALIFORNIA, EXCEPT TO THE
EXTENT THAT THE PERFECTION OF THE SECURITY INTERESTS HEREUNDER IN
RESPECT OF ANY PARTICULAR COLLATERAL IS GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
(b) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OR THE
CENTRAL DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH PARTY HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE JURISDICTION OF THOSE COURTS. EACH PARTY IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED
HERETO. SERVICE OF ANY SUMMONS,
B-3-11
<PAGE> 126
COMPLAINT OR OTHER PROCESS MAY BE MADE BY ANY MEANS PERMITTED BY
CALIFORNIA LAW.
(c) WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ALL RIGHTS TO
A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY
OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE, AND AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, EACH PARTY FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY
IS HEREBY WAIVED AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY
PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS.
(d) LIMITATION OF LIABILITY. NO CLAIM MAY BE MADE BY THE GRANTOR
AGAINST SECURED PARTY OR ITS AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES,
ATTORNEYS OR AGENTS FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES IN RESPECT OF ANY CLAIM (WHETHER BASED UPON BREACH OF CONTRACT,
TORT, BREACH OF STATUTORY DUTY OR ANY OTHER THEORY OF LIABILITY) ARISING
OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OR
ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, AND THE
GRANTOR HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR
ANY SUCH DAMAGES, WHETHER OR NOT NOW ACCRUED AND WHETHER OR NOT KNOWN OR
SUSPECTED TO EXIST IN ITS FAVOR.
(e) WAIVER OF BOND. THE GRANTOR WAIVES THE POSTING OF ANY BOND
OTHERWISE REQUIRED OF SECURED PARTY IN CONNECTION WITH THE ENFORCEMENT
OF ANY OF ITS REMEDIES HEREUNDER, INCLUDING, WITHOUT LIMITATION, ANY
ORDER OR WRIT FOR REPLEVIN OR DELIVERY OF POSSESSION OF ANY COLLATERAL.
SECTION 8.12 Successors and Assigns. This Agreement is binding
upon and enforceable against the Grantors and their successors and assigns. It
shall inure to the benefit of and may be enforced by Secured Party and its
successors and assigns, for its and their own benefit and for the benefit of
each and every present and future Lender or other Person entitled to enforce any
of the Secured Obligations and each of their respective heirs, representatives,
successors and assigns.
B-3-12
<PAGE> 127
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
OCULAR SCIENCES, INC.
By:_______________________________
Greg E. Lichtwardt Vice President,
Finance, and Chief Financial Officer
COMERICA BANK-CALIFORNIA
By:_______________________________
Lori S. Edwards, First Vice President
B-3-13
<PAGE> 128
SCHEDULE A
PLEDGED SHARES
<TABLE>
<CAPTION>
Percentage of
Stock Certificate Number Outstanding
Stock Issuer Class of Stock No(s). Par Value of Shares Shares
- ------------ -------------- -------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
</TABLE>
B-3-A-1
<PAGE> 129
SCHEDULE B
CHIEF EXECUTIVE OFFICE
AND
OTHER LOCATIONS
B-3-B-1
<PAGE> 130
SCHEDULE C
TRADE NAMES
B-3-C-1
<PAGE> 131
SCHEDULE D
RESTRICTIONS ON COLLATERAL
B-3-D-1
<PAGE> 132
SCHEDULE E
TAXPAYER ID NUMBER
B-3-E-1
<PAGE> 133
EXHIBIT C-1
FORM OF LEGAL OPINION
November 7, 1997
Comerica Bank-California
155 Grand Avenue, Suite 402
Oakland, California 94612
Attn: Ms. Lori S. Edwards
RE: OCULAR SCIENCES, INC. AND OCULAR SCIENCES PUERTO RICO, INC.
Ladies and Gentlemen:
We have acted as special counsel for Ocular Sciences, Inc., a Delaware
corporation ("Ocular Sciences"), and Ocular Sciences Puerto Rico, Inc. ("O.S.I.
Puerto Rico") (collectively the "Borrowers"), in connection with that certain
Amended and Restated Credit Agreement dated as of even date herewith, including
all exhibits and schedules thereto (the "Credit Agreement") by and between the
Borrowers and Comerica Bank-California, a California chartered bank ("Lender").
We are rendering this opinion pursuant to Section 3.1(f) of the Credit
Agreement. Except as otherwise defined herein, capitalized terms used but not
defined herein shall have the meanings given to them in the Credit Agreement.
In connection with this opinion, we have examined the following
documents (the items referred to in clauses 1 through 6 below are referenced to
herein as the "Loan Documents"):
1. The Credit Agreement;
2. The Amended and Restated Subsidiary Guaranty (the "Subsidiary
Guaranty");
3. The Amended and Restated Pledge Agreement (the "Pledge
Agreement");
4. The Parent Guaranty;
5. A UCC-2 financing statement for filing with the Secretary of
State of California naming Ocular Sciences as the debtor and the
Lender as the secured party (the "Financing Statement");
6. Assignments Separate From Certificates evidencing the Pledged
Shares;
C-1-1
<PAGE> 134
Comerica Bank-California
November 7, 1997
Page 2
7. Certificate of Incorporation and Bylaws of Ocular Sciences and
O.S.I. Puerto Rico, certified by the Secretary of Ocular
Sciences and O.S.I. Puerto Rico, respectively; and
8. An officer's certificate of Ocular Sciences, a copy of which is
attached as Exhibit A hereto ("Ocular Sciences' Certificate"),
and an officer's certificate of O.S.I. Puerto Rico, a copy of
which is attached as Exhibit B hereto ("O.S.I. Puerto Rico's
Certificate").
In addition, we have examined and relied upon originals or copies
certified to our satisfaction of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinions expressed below, including the
Ocular Sciences' Certificate and O.S.I. Puerto Rico's Certificate.
We are admitted to practice law only in the State of California, and we
express no opinion concerning any law other than the law of the State of
California, the Delaware General Corporation Law, and the law of the United
States of America.
In rendering this opinion, we have assumed the genuineness and
authenticity of all signatures (other than that of Ocular Sciences and O.S.I.
Puerto Rico) on original documents; that all natural persons who are signatories
are legally competent to execute and deliver such documents; the authenticity
and completeness of all documents submitted to us as originals; the conformity
of originals to all documents submitted to us as copies; the accuracy,
completeness and authenticity of certificates of public officials; the due
authorization, execution and delivery of all documents (except the due
authorization, execution and delivery by Ocular Sciences and O.S.I. Puerto Rico
of the Loan Documents to which they respectively are parties) where
authorization, execution and delivery are prerequisites to the effectiveness of
such documents; the power and authority of the Lender to enter into and perform
their obligations under the Loan Documents; that each of the Loan Documents has
been duly executed by the Lender and delivered to Ocular Sciences and O.S.I.
Puerto Rico and is the legal, valid and binding obligation of the Lender,
enforceable against the Lender in accordance with their terms; that the Lender
is duly qualified in the State of California to do business of the type
contemplated by the Loan Documents; that the Lender qualifies for an exemption
from the otherwise applicable interest rate limitations of California law for
loans or forbearances contained in Article XV, Section 1 of the California
Constitution; that all loans under the Loan Documents will be made by the Lender
for its own account or for the account of another person or entity that
qualifies for an exemption from the interest rate limitations of California law,
and there is no present agreement or plan, express or implied, on the part of
the Lender to sell participations or any other interest in the loans to be made
under the
C-1-2
<PAGE> 135
Comerica Bank-California
November 7, 1997
Page 3
Loan Documents to any person or entity other than a person or entity that also
qualifies for an exemption from the interest rate limitations of California law;
that except for the Loan Documents, there are no documents or agreements between
the parties which would expand or otherwise modify the respective rights and
obligations of the parties set forth in the Loan Documents; and with respect to
matters of fact (as distinguished from matters of law), with your permission and
without verification by us, we also have relied upon and assumed that the
representations of Ocular Sciences, O.S.I. Puerto Rico and the other parties set
forth in the Loan Documents, the Ocular Sciences' Certificate, O.S.I. Puerto
Rico's Certificate and any other certificates, instruments or agreements
executed in connection therewith or delivered to us are true, correct, complete
and not misleading. We have made no independent investigation of any such facts
stated in any such certificate or representation.
Where we render an opinion "to the best of our knowledge" or concerning
an item "known to us" or our opinion otherwise refers to our knowledge, it is
intended to indicate that during the course of our representation of Ocular
Sciences and O.S.I. Puerto Rico in connection with the Loan Documents, no
information that would give us current actual knowledge of the inaccuracy of
such statement has come to the attention of those attorneys in this firm who
have rendered or are rendering legal services to Ocular Sciences and O.S.I.
Puerto Rico in connection with the Loan Documents. However, except as otherwise
expressly indicated, we have not undertaken any independent investigation to
determine the accuracy of such statement and any limited inquiry undertaken by
us during the preparation of this opinion letter should not be regarded as such
an investigation; no inference as to our knowledge of any matters bearing on the
accuracy of any such statement should be drawn from the fact of our
representation of Ocular Sciences and O.S.I. Puerto Rico.
With respect to our opinion in paragraph 4 below, we have relied solely
upon copies, supplied to us by Ocular Sciences, of those undertakings,
contracts, indentures, mortgages, deeds of trust or other instruments, documents
or agreements which have been identified to us by Ocular Sciences in the Ocular
Sciences' Certificate as all material undertakings, contracts, indentures,
mortgages, deeds of trust or other instruments, documents or agreements to which
Ocular Sciences is a party or by which it is bound (the "Ocular Sciences
Material Contracts"). We have not undertaken any independent investigation of
such matters, other than the inquiries we have made of the officers of Ocular
Sciences and the review we have made of the corporate records of Ocular Sciences
described above.
With respect to our opinion in paragraph 5 below, we have relied solely
upon copies, supplied to us by O.S.I. Puerto Rico, of those undertakings,
contracts,
C-1-3
<PAGE> 136
Comerica Bank-California
November 7, 1997
Page 4
indentures, mortgages, deeds of trust or other instruments, documents or
agreements which have been identified to us by O.S.I. Puerto Rico in O.S.I.
Puerto Rico's Certificate as all material undertakings, contracts, indentures,
mortgages, deeds of trust or other instruments, documents or agreements to which
O.S.I. Puerto Rico is a party or by which it is bound (the "O.S.I. Puerto Rico
Material Contracts"). We have not undertaken any independent investigation of
such matters, other than the inquiries we have made of the officers of O.S.I.
Puerto Rico and the review we have made of the corporate records of O.S.I.
Puerto Rico described above.
In rendering our opinion in the second and last sentences of paragraph
1, we have relied solely on a certificate of good standing from each of the
Secretary of State's office of each of the states specified in that paragraph.
On the basis of the foregoing, and subject to the qualifications stated
below, we are of the opinion that:
1. Ocular Sciences is a corporation, duly incorporated and validly
existing under the laws of Delaware and has the requisite corporate power and
authority to own its property and to conduct the business in which it is
currently engaged. Ocular Sciences is duly qualified and in good standing as a
foreign corporation authorized to transact business in California and in each of
the states listed below its name on Exhibit C. O.S.I. Puerto Rico is a
corporation, duly incorporated and validly existing under the laws of Delaware
and has the requisite corporate power and authority. O.S.I. Puerto Rico is duly
qualified and in good standing as a foreign corporation authorized to transact
business in California and in each of the states listed below its name on
Exhibit C.
2. Ocular Sciences and O.S.I. Puerto Rico have taken all necessary and
appropriate corporate action to authorize the execution, delivery and
performance of the Loan Documents to which they respectively are parties, and
each has the corporate power and authority to execute, deliver and perform the
Loan Documents to which it is respectively a party.
3. The Credit Agreement, the Pledge Agreement and the Parent Guaranty
have been duly executed and delivered by Ocular Sciences. The Credit Agreement
and the Subsidiary Guaranty have been duly executed and delivered by O.S.I.
Puerto Rico. The Credit Agreement, the Pledge Agreement, and the Parent Guaranty
constitute the legal, valid and binding obligations of Ocular Sciences,
enforceable against Ocular Sciences in accordance with their respective terms.
The Credit Agreement and the Subsidiary Guaranty constitute the legal, valid and
binding
C-1-4
<PAGE> 137
Comerica Bank-California
November 7, 1997
Page 5
obligations of O.S.I. Puerto Rico, enforceable against O.S.I. Puerto Rico in
accordance with their respective terms.
4. The execution, delivery and performance by Ocular Sciences of the
Loan Documents to which it is a party do not (a) to the best of our knowledge,
violate or contravene any order of any court or United States or California
governmental agency as presently in effect applicable to Ocular Sciences; (b)
violate or contravene any United States or California law presently in effect
and applicable to Ocular Sciences; (c) conflict with or result in a breach of or
constitute a default under the Certificate of Incorporation or Bylaws of Ocular
Sciences; (d) to the best of our knowledge, violate or result in a breach of or
constitute any default under any of the Ocular Sciences Material Contracts; and
(e) result in or require the creation or imposition of any lien on any of Ocular
Sciences' properties pursuant to any order of any court or United States or
California governmental agency as presently in effect applicable to Ocular
Sciences or any of the Ocular Sciences Material Contracts, other than the liens
created pursuant to the Loan Documents.
5. The execution, delivery and performance by O.S.I. Puerto Rico of the
Loan Documents to which it is a party do not (a) to the best of our knowledge,
violate or contravene any order of any court or United States or California
governmental agency as presently in effect applicable to O.S.I. Puerto Rico; (b)
violate or contravene any United States or California law presently in effect
and applicable to O.S.I. Puerto Rico; (c) conflict with, or result in a breach
of, or constitute a default under the Certificate of Incorporation or Bylaws of
O.S.I. Puerto Rico; (d) to the best of our knowledge, violate or result in a
breach of, or constitute any default under, any of the O.S.I. Puerto Rico
Material Contracts; and (e) result in, or require the creation or imposition of,
any lien on any of O.S.I. Puerto Rico's properties pursuant to any order of any
court or United States or California governmental agency as presently in effect
applicable to O.S.I. Puerto Rico or any of the O.S.I. Puerto Rico Material
Contracts, other than the liens created pursuant to the Loan Documents.
6. No authorization, consent, approval, license, qualification or formal
exemption from, nor notice to, nor any filing, recordation, declaration or
registration with, any United States or California governmental authority is
necessary or required on the part of Ocular Sciences or O.S.I. Puerto Rico in
connection with the execution, delivery, or performance by Ocular Sciences or
O.S.I. Puerto Rico of the Loan Documents to which they respectively are parties,
except for such filings or recordations as may be necessary to perfect the
security interests or liens granted by the Loan Documents.
C-1-5
<PAGE> 138
Comerica Bank-California
November 7, 1997
Page 6
7. To the best of our knowledge, there is no action, suit or proceeding
at law or in equity by or before any court or governmental agency now pending
against Ocular Sciences with respect to the Loan Documents to which it is a
party.
8. To the best of our knowledge, there is no action, suit or proceeding
at law or in equity by or before any court or governmental agency threatened
against O.S.I. Puerto Rico with respect to the Loan Documents to which it is a
party.
9. The delivery to the Lender of (a) the original stock certificates
evidencing the Pledged Shares (as defined in the Pledge Agreement), and (b) the
duly executed Assignments, in blank, and the Lender's continuous possession of
such documents, perfects the Lender's security interest in the Pledged Shares.
Upon the due execution by Ocular Sciences and the proper filing of the Financing
Statement in the Office of the Secretary of State of California (assuming that
the representations made by Ocular Sciences and by O.S.I. Puerto Rico with
respect to the location of the Collateral, its place of business and chief
executive office are and remain true and correct), the security interests
granted by Ocular Sciences under the Pledge Agreement in and to such Collateral
to secure the Secured Obligations (as defined in the Pledge Agreement) will
constitute perfected security interests therein to the extent that security
interests in such Collateral may be perfected by filing a financing statement
under Division 9 of the California Uniform Commercial Code ("CUCC"). Except for
the filing of periodic continuation statements, it is not necessary under the
CUCC to re-record, re-register or refile a UCC-1 financing statement, or to
record, register or file any other or additional documents, instruments or
statements in order to maintain perfection of the security interests in any such
Collateral granted in favor of the Lender, except that additional financing
statements may be required to be filed if Ocular Sciences or O.S.I. Puerto Rico
changes its name, identity or corporate structure so as to make a financing
statement seriously misleading (unless new appropriate financing statements
indicating the new name, identity or corporate structure are duly filed), or if
there is any change in the location of its chief executive office or chief place
of business or the state in which any of the Collateral is located.
10. Neither Ocular Sciences nor O.S.I. Puerto Rico is an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
11. To the best of our knowledge, neither Ocular Sciences nor O.S.I.
Puerto Rico is generally engaged in the business of purchasing or selling margin
stock (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System) or extending credit for the purpose of purchasing or
carrying margin stock. To the best of our knowledge, no proceeds of any Advance
will be
C-1-6
<PAGE> 139
Comerica Bank-California
November 7, 1997
Page 7
used for any purpose that requires any Lender to deliver or obtain any
certification under, or to comply with any margin requirements or other
provision of, Regulations G, T, V or X of the Board of Governors of the Federal
Reserve System.
The opinions expressed in this letter are subject to the following
qualifications:
[ADD RELEVANT QUALIFICATIONS]
Very truly yours,
---------------------------------------
FENWICK & WEST LLP
C-1-7
<PAGE> 140
Exhibit A
Officer's Certificate of Ocular Sciences, Inc.
C-1-8
<PAGE> 141
Exhibit B
Officer's Certificate of O.S.I. Puerto Rico
C-1-9
<PAGE> 142
Exhibit C
Good Standing
Ocular Sciences, Inc.
California
Delaware
New Jersey
Pennsylvania
O.S.I. Puerto Rico
California
Delaware
Commonwealth of Puerto Rico
C-1-10
<PAGE> 143
EXHIBIT C-2
[BIRD BIRD & HESTRES LETTERHEAD]
November 7, 1997
Comerica Bank-California
155 Grand Avenue
Suite 402
Oakland, CA 94612
RE: Ocular Sciences Puerto Rico,
Inc.
BBH NO. 80.7
Ladies and Gentlemen:
We have acted as counsel to Ocular Sciences Puerto Rico, Inc., formerly
known as O.S.I. Puerto Rico Corporation, a Delaware corporation ('O.S.I. Puerto
Rico'), in connection with the Amended and Restated Credit Agreement by and
between Ocular Sciences, Inc., a Delaware corporation previously known as O.S.I.
Corporation, a California corporation ('Ocular Sciences') and O.S.I. Puerto
Rico, as Borrowers and Comerica Bank-California (the "Lender") as lender, dated
as of November 7, 1997 (the 'Credit Agreement'). This opinion is delivered to
you pursuant to the provisions of Section 3.1(f) of Article III of the Credit
Agreement (the 'Credit Agreement'). Except as otherwise defined herein,
capitalized terms shall have the respective meanings given to them in the Credit
Agreement.
In connection with this opinion, we have examined the following documents,
each dated as of November 7, 1997, unless otherwise noted (collectively, the
"Loan Documents"):
1. The Amended and Restated Credit Agreement by and between
<PAGE> 144
Comerica Bank-California
November 7, 1997
Page - 2 -
Ocular Sciences, O.S.I. Puerto Rico, and the Lender;
2. The Parent Guaranty between Ocular Sciences and the Lender (the
'Parent Guaranty');
3. The Amended and Restated Pledge Agreement by and between Ocular
Sciences, Inc. and the Lender;
4. The Amended and restated Subsidiary Guaranty between O.S.I. Puerto
Rico and the Lender (the 'Subsidiary Agreement');
5. The Certificate of Incorporation and By-Laws of O.S.I. Puerto Rico;
and
6. Such other agreements, corporate records and documents, including
originals, or copies, certified or otherwise, identified to our
satisfaction of such certificates of public officials and of officers
and representatives of O.S.I. Puerto Rico as we have deemed necessary
as a basis for the opinions hereinafter expressed.
In addition, as to certain matters, we have relied upon certificates and
advice from various public officials. We assume the accuracy of all material and
factual matters contained therein, which are not independently established. We
have also examined, and as to matters of fact, relied upon the representations
and warranties set forth in the Credit Agreement and certificates delivered
pursuant thereto. We have assumed the due authorization, execution and delivery
of the Loan Documents and other documents executed and delivered by O.S.I.
Puerto Rico and Ocular Sciences, and by all other parties thereto other than
said entities.
The opinions expressed herein are qualified to the extent that the validity
or enforceability of any of the agreements, documents or obligations referred to
herein may be subject to or affected by applicable reorganization, moratorium,
bankruptcy, insolvency, or other laws relating to or affecting the rights of
creditors generally. We do not express any opinion on the availability of any
equitable (whether in a proceeding at law or in equity) or other specific remedy
upon breach of any of the agreements, documents or obligations referred to
herein.
<PAGE> 145
Comerica Bank-California
November 7, 1997
Page - 3 -
On the basis of and subject to the foregoing, it is our opinion that:
1. The courts of the Commonwealth of Puerto Rico would observe and give
effect to the choice of California law as the governing law of the Credit
Agreement and the Subsidiary Agreement.
2. The United States District Court in the Commonwealth of Puerto Rico
would enforce a judgment obtained in a United States federal court in California
with respect to O.S.I. Puerto Rico and its obligations under the Credit
Agreement, as a Borrower, and under the Subsidiary Guaranty, as a Guarantor. In
the case of a judgment rendered by a California state court, for the judgment to
be enforceable in the Commonwealth of Puerto Rico an exequatur petition would
have to be filed in the General Court of Justice of the Commonwealth of Puerto
Rico in order to give full faith and credit to the California judgment.
3. O.S.I. Puerto Rico is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on O.S.I. Puerto Rico.
This opinion is issued solely for your information in connection with the
transaction described above and should not be quoted in whole or in part or
otherwise referred to in any financial statement or other document or furnished
to any other party or agency without our prior written consent and with the
consent of O.S.I. Puerto Rico, except that (i) the rights of the Lender under
this letter shall benefit any permitted successors, assigns and participants of
the Lender, and (ii) copies of this letter may be shown to or delivered to (A)
any regulatory or supervisory authority having jurisdiction over the Lender and
its successors and assigns, and (B) to the Lender's and its successors and
assigns' accountants, auditors and attorneys.
We are qualified to practice law in the Commonwealth of Puerto Rico and do
not purport to be experts on, or express any opinion herein concerning any law
other than the laws of the Commonwealth of Puerto Rico. In rendering the
foregoing opinions we have made no independent investigation of any laws other
than the laws of the
<PAGE> 146
Comerica Bank-California
November 7, 1997
Page - 4 -
Commonwealth of Puerto Rico and the General Corporation Law of the Commonwealth
of Puerto Rico.
Very truly yours,
BIRD BIRD & HESTRES
EFH/
<PAGE> 147
EXHIBIT C-3
Our Ref RPB.CF 7056.311
Your Ref [MOORE BLATCH SOLICITORS LETTERHEAD]
7 November 1997
Comerica Bank - California
333 West Santa Clara Street
San Jose
CA 95113
USA
Dear Sirs
OCULAR SCIENCES INC. (OSI) - EQUITABLE PLEDGE OF SHARES OF OCULAR SCIENCES
LIMITED (THE COMPANY)
1. INTRODUCTION
We have been asked to give an opinion in connection with an equitable pledge
(the Charge) of, inter alia 1,950,000 ordinary shares of pound 1 each in the
capital of the Company comprising 65 per cent of the issued share capital of
the Company (the CHARGED SHARES) pursuant to an amended and restated pledge and
security agreement dated as of 7 November 1997 (the PLEDGE AGREEMENT) between
OSI and Comerica Bank - California (the BANK) as part security for a loan
facility of US $30,000,000 from the Bank to OSI and Ocular Sciences Puerto Rico
Inc. (OSI PR) pursuant to an amended and restated credit agreement likewise
dated as of 7 November 1997 between OSI, OSI PR and the Bank (the CREDIT
AGREEMENT).
In this Opinion, reference to the DOCUMENTS shall be construed as reference to
the Credit Agreement and the Pledge Agreement.
Words and expressions defined in the Documents will, unless otherwise defined
herein, have the same meaning when used herein.
This opinion is given only in respect of the matters stated as at 7 November
1997 and on the basis of the law as it existed at that date.
We have been acting as legal advisers in England to OSI and the Company in
connection with the Charge to the extent addressed in this Opinion.
<PAGE> 148
2. DOCUMENTS
For the purpose of giving this Opinion we have examined the following documents.
2.1 a copy of the Credit Agreement executed by the parties thereto.
2.2 a copy of the Pledged Agreement executed by the parties thereto.
2.3 copies of the Memorandum of Association and the Articles of Association
of the Company, certified as being true and correct copies as at 5 November
1997 by a director or the company secretary of the Company.
2.4 our agent's report following their search on 4 November 1997 of the
public records of the Company on file which were available for inspection by
the public at the Companies Registry;
2.5 a copy of the undated stock transfer form in respect of the Charged
Shares executed by OSI in favour of the Bank,
2.6 copies of the share certificates dated on or before 7 November 1997
sealed by the Company in favour of OSI in respect of the Charged Shares.
and such other documents, records and papers as we think necessary or relevant
as a basis for our opinions herein contained.
3. ASSUMPTIONS
For the purpose of this Opinion, we have assumed (without making any
investigation thereof):
3.1 the authenticity of all documents or instruments submitted to us as
originals;
3.2 the completeness and the conformity to original documents or
instruments or all documents or instruments submitted to us as certified or
other copies of originals;
3.3 the genuineness of all signatures and seals on the documents and
instruments submitted to us;
3.4 that the entry into the Documents by OSI and OSI PR has been properly
approved by unanimous resolutions of the board of directors of OSI and OSI PR
and that the Documents have been duly and properly executed by the persons
authorised to execute the Documents by resolutions of the board of directors of
OSI and OSI PR;
3.5 that there have been and will be no amendments to the Memorandum of
Association or the Articles of Association of the Company as examined by us and
certified as being true and correct copies by a director or the company
secretary of the Company as referred to in paragraph 2.3;
-page 2-
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
October 15, 1997 (the "Effective Date") between Ocular Sciences, Inc., a
Delaware corporation with its principal offices located at 475 Eccles Avenue,
South San Francisco, CA 94080 (the "Company"), and Norwick Goodspeed, a resident
of California ("Employee").
In consideration of the promises, terms and conditions set forth in this
Agreement, the parties agree as follows:
1. POSITION. During the term of this Agreement, Company will employ
Employee, and Employee will serve Company, as the Company's President and Chief
Operating Officer. Employee will be elected to the Company's Board of Directors
promptly after the commencement of his employment.
2. DUTIES. Employee's duties will be as set forth in the Company's
Bylaws and, subject to such provisions, shall include primary responsibility
for manufacturing, sales, marketing, information systems, domestic operations,
regulatory affairs and human resources. Employee will report to the Company's
Chief Executive Officer and be subject to the direction of the Company's Chief
Executive Officer and Board of Directors. Employee will comply with and be
bound by the Company's operating policies, procedures, and practices from time
to time in effect during Employee's employment, including any insider trading
policies. Employee understands that he will be subject to the provisions of the
Securities Exchange Act of 1934, as amended, applicable to officers of
companies with securities registered under such act. Employee will perform his
duties under this Agreement at the offices of Company, provided, that Employee
may be required to travel in connection with the performance of his duties
hereunder. Employee hereby represents and warrants that he is free to enter
into and fully perform this Agreement and the agreements referred to herein
without breach of any agreement or contract to which he is a party or by which
he is bound.
3. EXCLUSIVE SERVICE. Employee will devote his full working time
exclusively to this employment and will use his best efforts to carry out his
duties and advance the Company's interests. Employee will not have any other
employment, consulting or similar relationship during the term of his
employment by the Company. Notwithstanding the foregoing, after employee has
been employed by the Company for 12 months he may accept and maintain a
position on the Board of Directors of another corporation, upon advance written
notice to the Company, so long as the Company's Board of Directors does not, in
its sole discretion, determine that such outside Board membership will or is
likely to have an adverse impact on Employee's ability to satisfactorily
discharge his responsibilities to the Company.
4. TERM OF AGREEMENT. This Agreement will commence on the Effective Date,
and will continue until the earlier of three (3) years after the Effective Date
or when terminated pursuant to Section 9 hereof.
<PAGE> 2
5. COMPENSATION AND BENEFITS.
5.1 BASE SALARY. The Company agrees to pay Employee an initial salary
(the "Base Salary") of Three Hundred Thousand Dollars ($300,000) per year. Such
salary will be reviewed each year by the Company's Board of Directors or
Compensation Committee. Employee's salary will be payable as earned in
accordance with the Company's customary payroll practice and will be subject to
such deductions or withholdings as are required by law.
5.2 EMPLOYEE BENEFIT PLANS; VACATION. Employee will be eligible to
participate in Company's employee benefit plans of general application,
including life, health, and dental insurance, in accordance with the rules
established for individual participation in any such plan and applicable law.
Employee will be entitled to twenty (20) days of vacation per year in
accordance with the Company's vacation policy.
5.3 EXPENSES. The Company will reimburse Employee for all reasonable
and necessary expenses incurred by Employee in connection with the Company's
business, provided that such expenses are in accordance with the Company's
applicable policy and are properly documented and accounted for in accordance
with Company policy.
5.4 CASH BONUS. Employee will be eligible to earn a cash bonus
("Cash Bonus") of up to fifty percent (50%) of his Base Salary for calendar
year 1998 and each full calendar year thereafter, based on performance criteria
(the "Criteria") to be agreed to between Company and Employee. Notwithstanding
the foregoing, the Cash Bonus for calendar year 1998 may be up to sixty percent
(60%) of Base Salary to offset that no bonus will be payable for any of 1997.
As soon as practical after December 31 of each applicable year, the Company's
Board of Directors or Compensation Committee will approve the payment to the
Employee of a Cash Bonus based on actual performance relative to the Criteria.
5.5 STOCK OPTIONS. Employee shall be granted one or more
non-qualified options under the Company's 1997 Equity Incentive Plan (the
"Options") to purchase Three Hundred Thousand (300,000) shares of the Company's
Common Stock at the fair market value of such stock as determined by the
Company's Board of Directors or Compensation Committee on the date that
Employee's employment commences. The Options shall vest over 5 years at the
rate of 20% per year, with such vesting commencing 6 months from the Effective
Date, have a term of 6 years and otherwise be pursuant to the terms of the
Company's current standard stock option documents.
6. RELOCATION ASSISTANCE
6.1 COSTS ASSOCIATED WITH SALE OF OLD RESIDENCE. The Company shall
reimburse Employee for any brokerage commissions and other costs incurred upon
the sale of his current residence in Corona Del Mar, California (the "Old
Residence"), up to a maximum of $60,000.
6.2 COSTS ASSOCIATED WITH MOVE. The Company will reimburse
Employee's costs associated with moving his household goods and motor vehicles
from his Old Residence to the San Francisco Bay Area, up to a maximum of $8,000.
2
<PAGE> 3
6.3 INTERIM EXPENSES. The Company will reimburse Employee's
temporary living expenses in the San Francisco Bay Area and weekly round-trip
travel to Orange County, until the earlier of Employee's relocation to the San
Francisco Bay Area or six months from the date hereof, up to a maximum of
$31,000.
6.4 COSTS ASSOCIATED WITH PURCHASE OF NEW RESIDENCE. The Company
will reimburse employee for the "one time" costs associated with the purchase
of a house in the San Francisco Bay Area (the "New Residence"), including
payment of up to two loan points, up to a maximum of $20,000.
6.5 TAX GROSS-UP. The Company will "gross-up" Employee for any
Federal and California income taxes payable by Employee on account of any
expenses that are not deductible by Employee and that are reimbursed by the
Company pursuant to Sections 6.1 through 6.4 above, up to a maximum of $40,000.
6.6 REPAYMENT BY EMPLOYEE IN EVENT OF VOLUNTARY TERMINATION OR
TERMINATION FOR CAUSE WITHIN 12 MONTHS. In the event that Employee voluntarily
terminates his employment with the Company within 12 months of the date hereof
(other than pursuant to disability or death), or Company terminates Employee
for Cause (as defined below) within such 12 month period, then Employee shall
repay to Company, within six months, any amounts paid to Employee pursuant to
this Section 6.
7. COMPANY LOAN(S) TO EMPLOYEE.
7.1 $450,000 LOAN UPON PURCHASE OF NEW RESIDENCE. Upon Employee's
purchase of the New Residence, the Company will provide Employee with an
interest free loan of Four Hundred Fifty Thousand Dollars ($450,000) (the
"$450,000 Loan"). The $450,000 Loan shall be secured by a deed of trust (the
$450,000 Deed of Trust") on the New Residence and by a security interest in the
Options and any shares issued upon exercise of the Options (the "Underlying
Securities"). The $450,000 Deed of Trust shall be subordinate to any deed of
trust Employee grants on the New Residence to a bank or other financial
institution for a loan to purchase the New Residence. Employee will be
prohibited from selling, transferring or otherwise disposing of any interest in
the New Residence, the Options or the Underlying Securities while any
obligations are outstanding under the $450,000 Loan. The $450,000 Loan shall be
due and payable in full on the earlier of: (i) 5 years from the Effective date;
(ii) 6 months after Employee's voluntary resignation or termination by the
Company for Cause, (iii) Employee's default under any loan secured by the New
Residence or (iv) the sale, transfer or other disposition of the New Residence.
Notwithstanding the foregoing, the $450,000 Loan shall be forgiven if Employee
remains continuously employed by the Company from the date hereof through
October 15, 2000. In the event that any portion of principal of the $450,000
Loan is paid by Employee and Employee subsequently becomes entitled to
forgiveness of the $450,000 Loan pursuant to the preceding sentence, then the
amount of principal paid by the Employee shall be returned to him. Employee
shall be responsible for all taxes arising from any loan forgiveness and the
Company will be entitled to withhold appropriate amounts for tax purposes.
7.2 POSSIBLE ADDITIONAL LOANS. If Employee is unable to sell the
Old residence prior to the purchase of the New Residence, then the Company will
either (i) arrange
3
<PAGE> 4
for a bank or other financial institution to provide Employee with a loan in
the amount of the purchase price of the New Residence less $450,000 or (ii)
loan such amount to Employee itself, each up to a maximum of $1,100,000. Any
obligation taken on by the Company in connection with such loan (e.g., a
guarantee) or any amount so loaned by the Company, shall be released or paid,
as the case may be, on the earlier of (i) six months after the date of the loan
or (ii) the date the $450,000 Loan is due. Any such loan will be on standard
terms for similar loans and will include a first deed of trust on the New
Residence. Employee will enter into any documentation reasonably requested by
the Company to support any guaranty provided by the Company pursuant to this
Section 7.2
7.3 OTHER LOAN TERMS. In connection with the loans set forth in
Section 7.1 and 7.2 above (the "Loans") Employee and Employee's spouse shall
execute any documents reasonably requested by the Company or the institution
granting the Loans, including loan and security agreements, promissory notes
and deeds of trust. Such documents shall have such other terms and provisions
as are typical for residential loans, including standard default provisions and
a provision regarding the payment of fees and expenses, including reasonable
attorneys' fees, incurred enforcing or collecting the Loans.
8. PROPRIETARY RIGHTS. Employee hereby agrees to execute an Employee
Invention Assignment and Confidentiality Agreement with the Company in
substantially the form attached hereto as Exhibit A.
9. TERMINATION.
9.1 EVENTS OF TERMINATION. Employees employment with the Company
shall terminate upon any one of the following:
(a) the Company's termination of Employee for "cause" as
defined under Section 9.2 below ("Termination for Cause"); or
(b) the effective date of a written notice sent to Employee
stating that the Company is terminating his employment, without cause, which
notice can be given by the Company at any time after the Effective Date at the
Company's sole discretion, for any reason or for no reason ("Termination
Without Cause"); or
(c) the effective date of Employee's voluntary termination
of his employment with the Company ("Voluntary Termination").
9.2 "CAUSE" DEFINED. For purposes of this Agreement, "cause" for
Employee's termination will exist at any time after the happening of one or
more of the following events:
(a) a material failure or refusal by Employee to diligently
perform his duties to the Company, including his obligations under this
Agreement; provided that if reasonably possible, the Company will provide
Employee with 30 days advance notice to remedy the situation, and provided
further that the Company will not be required to provide such notice more than
once during the term of this Agreement.
4
<PAGE> 5
(b) conduct by Employee that is materially detrimental to, or
materially discredits, the reputation, character or standing of the
Company, including the commission of a felony crime;
(c) conduct by Employee that is intended to do injury to the Company;
or
(d) disability that prevents Employee from performing his duties
more than 90 days in any 360 day period; or Employee's death.
10. EFFECT OF TERMINATION.
10.1 TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the event of
any termination of this Agreement pursuant to Sections 9.1(a) or 9.1(c), the
Company shall pay Employee the compensation and benefits otherwise payable to
Employee under Section 5 through the date of termination. Employee's rights
under the Company's benefit plans of general application shall be determined
under the provisions of those plans.
10.2 TERMINATION WITHOUT CAUSE. In the event of any termination of
this Agreement pursuant to Section 9.1(b),
(a) the Company shall pay Employee the compensation and benefits
otherwise payable to Employee under Section 5 through the date of
termination,
(b) for one (1) year after the date of termination the Company shall
continue to pay Employee his Base Salary under Section 5.1 above at
Employee's then-current salary, less applicable deductions and withholding
taxes, payable on the Company's normal payroll dates during that period,
provided, however, that if Employee secures other employment during the
period that Section 5.1 remains in effect pursuant to this Section 10.2,
the Company will be entitled to set off, dollar for dollar, whatever is
earned in such employment against the amount owed to Employee hereunder,
(c) Employee's rights under the Company's benefit plans of general
application shall be determined under the provisions of those plans;
(d) if the $450,000 Loan has not been forgiven pursuant to the last
three sentences of Section 7.1, then the Company shall forgive 50% of the
outstanding principal under the $450,000 Loan.
As a condition to the Company's obligations under Section 10.2(b) and (d)
hereof, the Company may require Employee to enter into a mutual release in form
and substance satisfactory to the Company in its reasonable discretion.
11. NON-SOLICITATION. So long as Employee is an employee of the Company
and for one (1) year thereafter, Employee shall not, directly or indirectly,
either for himself or for any other person or entity, directly or indirectly,
solicit, induce or assist another to solicit or induce
5
<PAGE> 6
any employee, consultant, customer or supplier of the Company to terminate his,
her or its relationship with the Company.
12. MISCELLANEOUS.
12.1 ARBITRATION. Employee and the Company agree to submit to
mandatory binding arbitration any controversy or claim arising out of, or
relating to, this Agreement or any breach hereof, provided, however, that the
Company retains its right to, and shall not be prohibited, limited or in any
other way restricted from, seeking or obtaining equitable relief from a court
having jurisdiction over the parties. Such arbitration shall be conducted in
accordance with the commercial arbitration rules of the American Arbitration
Association in effect at that time, and judgment upon the determination or
award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
12.2 SEVERABILITY. If any provision of this Agreement shall
be found by any arbitrator or court of competent jurisdiction to be invalid or
unenforceable, then the parties hereby waive such provision to the extent that
it is found to be invalid or unenforceable and to the extent that to do so
would not deprive one of the parties of the substantial benefit of its bargain.
Such provision shall, to the extent allowable by law and the preceding
sentence, be modified by such arbitrator or court to effect the intent of the
parties to the extent possible, and as modified, shall be enforced as any other
provision hereof, all the other provisions continuing in full force and effect.
12.3 NO WAIVER. The failure by either party at any time to
require performance or compliance by the other of any of its obligations or
agreements shall in no way affect the right to require such performance or
compliance at any time thereafter. The waiver by either party of a breach of any
provision hereof shall not be taken or held to be a waiver of any preceding or
succeeding breach of such provision or as a waiver of the provision itself. No
waiver of any kind shall be effective or binding, unless it is in writing and is
signed by the party against whom such waiver is sought to be enforced.
12.4 ASSIGNMENT. This Agreement and all rights hereunder
are personal to Employee and may not be transferred or assigned by Employee
at any time. The Company may assign its rights, together with its obligation
hereunder, to any parent or successor, or in connection with any sale,
transfer or other disposition of all or substantially all of its business
and/or assets, provided, however, that any such assignee assumes the Company's
obligations hereunder.
12.5 WITHHOLDING. All sums payable to Employee hereunder
shall be reduced by all federal, state, local and other withholding and similar
taxes and payments required by applicable law.
12.6 ENTIRE AGREEMENT. This Agreement constitutes the
entire and only agreement between the parties relating to the subject matter
hereof, and this Agreement supersedes and cancels any and all previous
contracts, arrangements or understandings with respect thereto.
6
<PAGE> 7
12.7 AMENDMENT. This Agreement may be amended, modified,
superseded, canceled, renewed or extended only by an agreement in writing
executed by both parties hereto.
12.8 NOTICES. All notices and other communications required
or permitted under this Agreement shall be in writing and sent by (i) hand
delivery, (ii) certified mail, return receipt requested, postage pre-paid, or
(iii) nationally recognized express courier service. Such notices and other
communications shall be effective upon receipt if hand delivered or, two (2)
business days after mailing, if sent by mail, or after delivery to the courier
if sent by express courier, to the following addresses, or such other addresses
as any party shall notify the other parties:
If to the Company: Ocular Science, Inc.
475 Eccles Avenue
South San Francisco, CA 94080
Attention: John Fruth
If to Employee: Norwick Goodspeed
450 Santa Rita Ave
--------------------------------
Palo Alto, CA 94301
--------------------------------
12.9 HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall in no way affect the meaning or
interpretation of this Agreement. In this Agreement, the singular includes the
plural, the plural includes the singular, the masculine gender includes both
the male and female, and the word "or" is used in the inclusive sense.
12.10 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but both of
which, taken together, constitute one and the same agreement.
12.11 GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereto shall be construed in accordance with the
laws of the State of California, without giving effect to the principles of
conflict of laws.
IN WITNESS WHEREOF, the Company and Employee have executed this
Employment Agreement as of the date first above written.
OCULAR SCIENCES, INC. EMPLOYEE
By: John D. Fruth /s/ NORWICK GOODSPEED
--------------------------------- --------------------------------
Norwick Goodspeed
Its: C.E.O.
--------------------------------
7
<PAGE> 1
Exhibit 10.15
Dated 19th August 1997
THE ROYAL BANK OF SCOTLAND plc
(as Custodian Trustee of the GUD Pension Trust)
--and--
We hereby certify this is
a true and accurate copy
OCULAR SCIENCES LIMITED of the original
/s/ MOORE & BLATCH
------------------
MOORE & BLATCH
SOLICITORS
SOUTHAMPTON
SO17 1XF
-------------------------------
LEASE
of
Unit 10 The Quadrangle
Abbey Park Industrial Estate
Romsey Hampshire
-------------------------------
ASHURST MORRIS CRISP
Broadwalk House
5 Appold Street
London EC2A 2HA
Tel: 0171-638 1111
Fax: 0171-972 7990
SCR/G65004072
<PAGE> 2
PARTICULARS
[SEAL]
DATE: 19th August 1997
PARTIES:
LANDLORD: THE ROYAL BANK OF SCOTLAND
Custodian Trustee of the GUD Pension Trust) whose
registered office is at 36 St. Andrew Square Edinburgh
EH2 2YB
TENANT: OCULAR SCIENCES LIMITED whose registered
office is at Reliant Close Chandlers Ford Industrial
Estate Eastleigh Hampshire SO53 4ND
DEMISED PREMISES: Unit 10 on the Estate more particularly described in
this Lease
ESTATE: The Quadrangle Abbey park Industrial Estate
Romsey Hampshire shown for identification purposes
only edged blue on the Plan
TERM: 10 years commencing on 18 August 1997
PRINCIPAL RENT: (Pound) 127,500 per annum
RENT COMMENCEMENT
DATE: The Term commencement date
PERMITTED USE: Use within Classes B1(b) B1(c) or B(8) (each with
ancillary office accommodation) of the schedule to the
Town and Country Planning (Use Classes) Order 1987
INTERNAL DECORATION
YEAR: 2002
EXTERNAL DECORATION
YEAR: 2002
<PAGE> 3
THIS LEASE is made the date stated in the Particulars between the parties
specified in the Particulars.
THE PARTIES AGREE AS FOLLOWS:-
1. INTERPRETATION
In this Lease where the context so admits the following expressions shall
have the following meanings respectively that is to say:-
"ADDITIONAL RENTS" means:-
(a) a sum representing the cost (subject to the provisions of clause
4.17.8) from time to time incurred by the Landlord in complying with
the Landlord's insurance covenant hereinafter contained
(b) the Service Charge
(c) any interest chargeable under the provisions of this lease
(d) all expenses costs fees and other sums incurred under the provisions
of clauses 4.16 ("Landlord's Costs") and 4.14 ("Landlord may repair on
Tenant's default")
(e) any additional insurance premiums payable by the Tenant arising under
clause 4.17 ("Insurance")
(f) any value added tax payable by the Tenant arising under the
provisions of clause 4.29 ("Value Added Tax")
"DEMISED PREMISES" means the building including the structure on the Estate
known as Unit 10 and the curtilage thereof as the same is shown for
identification purposes only edged red on the Plan and any drains pipes cables
wires or other conducting media running through the Estate that exclusively
serve the Demised Premises
"ESTATE ROADS" means the roads which are for the purposes of identification
only coloured brown on the Plan or such other roads on the Estate as the
Landlord may from time to time in writing designate
"INSURED RISKS" mean (subject to such exclusions and limitations as are imposed
by the insurers) fire explosion storm tempest earthquake lightning subsidence
and heave aircraft (not being hostile aircraft) and articles dropped therefrom
riot civil commotion malicious persons and flood bursting
-1-
<PAGE> 4
and overflowing of water pipes tanks and other apparatus or such other insurable
risks against which the Landlord from time to time shall deem it desirable or
expedient to insure
"LANDLORD" means the Landlord hereinbefore named or such other person for the
time being entitled to the reversion immediately expectant upon the
determination for the Term hereby created
"LANDLORD'S SURVEYOR" means any person (being a chartered surveyor) or firm of
surveyors (the majority of the partners of which are chartered surveyors)
appointed by or acting for the Landlord including an employee of the Landlord to
perform the function of a surveyor for any purposes of this lease
"PARTICULARS" means the list of particulars annexed hereto and headed
"Particulars"
"PLAN" means the plan annexed hereto
"PREMIER'S ESTATE" means "the Estate" as defined in the conveyance dated 15 June
1988 (referred to in Part 1 of Schedule 4) made between (1) Premier Investments
Limited (2) London & Bristol Developments plc and (3) Abbey Park Management
Limited but excluding any part of the Estate (as herein defined)
"REVIEW DATE" means 18th August 2002
"REVIEW PERIOD" means the period starting on and including the Review Date up
to the end of the Term
"SERVICE COSTS" means:
(a) all cost expenses and outgoings whatsoever properly incurred by the
Landlord in carrying out the works and providing the services set out in
part 1 of schedule 5 and
(b) all sums properly incurred by the Landlord in relation to the items set
out in part 2 of schedule 5
"SERVICE CHARGE" means the sum payable by the Tenant in accordance with part 3
of schedule 5
"SERVICE CHARGE YEAR" means the period of 12 months up to 28 September each year
or such other 12 month period as the Landlord shall from time to time nominate
-2-
<PAGE> 5
"TENANT" means the Tenant hereinbefore named or such other person in
whom the Term shall for the time being be vested and wherever it
includes more than one person the covenants on the part of the Tenant
hereinafter contained shall be deemed to be joint and several
2. DEMISE AND RENT RESERVATION
In consideration of the rents and Tenant's covenants hereinafter
reserved and contained the Landlord hereby demises unto the Tenant the
Demised Premises with limited title guarantee TOGETHER with (but to the
exclusion of all other rights) the easements rights and privileges
specified in schedule 1 EXCEPT AND RESERVED unto the Landlord and others
the easements rights and privileges specified in schedule 2 TO HOLD the
Demised Premises unto the Tenant during the Term SUBJECT to the
provisions of the deeds and documents referred to in schedule 4 and to
the proviso for re-entry hereinafter contained YIELDING AND PAYING
THEREFOR unto the Landlord during the Term yearly and proportionately
for any fraction of a year the rents set out hereunder
2.1 until and including the day immediately preceeding the Review Date the
Principal Rent
2.2 during the Review Period a rent equal to the yearly rent previously
payable hereunder or such increased rent as shall be ascertained in
accordance with clause 3 whichever shall be the greater
ALL such rents to be paid by equal quarterly payments in advance on the
usual quarter days in every year the first payment (apportioned in
respect of the period from the Rent Commencement Date up to and
including the day immediately preceding the next following quarter day)
to be paid on the execution hereof
2.3 the Additional Rents (such rents to be payable from the date hereof or
the date of occupation if earlier) as determined by the Landlord or the
Landlord's Surveyor and to be paid to the Landlord within 14 days of
demand (except as otherwise provided)
3. RENT REVIEW
3.1 The increased rent for the Review Period may be agreed at any time
between the Landlord and the Tenant or (in the absence of agreement)
determined not earlier than the relevant Review Date by an arbitrator to
be nominated in the absence of agreement by or on behalf of the
President for the time being of the Royal Institution of Chartered
Surveyors on the application of either the Landlord or the Tenant made
not earlier than six months before the Review Date and so that in the
case of such arbitration the increased rent to be determined by the
arbitrator shall be such
-3-
<PAGE> 6
as he shall decide should be the open market rent (having regard to current
open market rental values) at the Review Date for the Demised Premises:
3.1.1 On the following assumptions at that date:
(a) that the Demised Premises are fit for immediate occupation and
use and that no work has been carried out thereon by the Tenant
its undertenants or their predecessors in title which has
diminished the rental value of the Demised Premises and that in
case the Demised Premises have been destroyed or damaged they
have been fully restored
(b) that the Demised Premises are available to let in the open
market by a willing landlord to a willing tenant as a whole
without a premium but with vacant possession and subject to the
provisions of this Lease (other than the amount of the rent
hereby reserved but including the provisions for rent review)
and that the term is equal in length to the Term but such term
begins on the Review Date
(c) that no reduction is to be made to take account of any rental
concession which on a new letting with vacant possession might
be granted to an incoming tenant
(d) that the covenants herein contained on the part of the Tenant
have been fully performed and observed
(e) that if Value Added Tax is chargeable on the rent reserved by
clauses 2.1 and 2.2 every prospective willing tenant would be
able to recover such Value Added Tax in full
(f) that the Demised Premises may be used for any of the purposes
within Class B1(b) B1(c) or B8 of the Schedule to the Town &
Country Planning (Use Classes) Order 1987
3.1.2 But disregarding:
(a) any effect on rent of the fact that the Tenant its undertenants
or their respective predecessors in title have been in
occupation of the Demised Premises
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(b) any goodwill attached to the Demised Premises by reason
of the carrying on thereat of the business of the Tenant
its undertenants or their predecessors in title in their
respective businesses
(c) any increase in rental value of the Demised Premises
attributable to the existence at the Review Date of any
improvement to the Demised Premises or any part thereof
carried out with consent where required and otherwise
than in pursuance of an obligation to the Landlord or
its predecessors in title by the Tenant or its
predecessors in title during the Term
(d) any effect on rental value of any obligations of the
Tenant to remove alterations or to restore or reinstate
the Demised Premises
3.2 IT IS HEREBY FURTHER PROVIDED
3.2.1 The arbitration shall be conducted in accordance with the
Arbitration Act of 1996 or any statutory modification or
re-enactment thereof for the time being in force
3.2.2 If the arbitrator shall die delay or become unwilling or
incapable of acting or if for any reason the President for the
time being of the Royal Institution of Chartered Surveyors (or
the person acting on his behalf) shall in his absolute
discretion think fit he may on the application of either the
Landlord or the Tenant by writing discharge the arbitrator and
appoint another in his place
3.2.3 When the increased rent has been ascertained as hereinbefore
provided the Landlord and the Tenant shall record it forthwith
by each signing and exchanging a separate written memorandum
in such form as may reasonably be required by the Landlord the
Landlord and the Tenant each bearing its own expenses incurred
in relation to the preparation of such separate written
memorandum
3.2.5 (a) If the increased rent payable on and from the Review
Date has not been agreed by the Review Date rent shall
continue to be payable at the rate previously payable
and forthwith upon the increased rent being
ascertained the Tenant shall pay to the Landlord any
shortfall between the rent and the increased rent
payable up to the next following quarter day together
with interest upon each instalment thereof from the
date upon which the same would have been payable if the
increased rent had been ascertained on the Review Date
in question to the date of actual payment thereof at
one percent above the base
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rate from time to time of Midland Bank plc or such other bank as the
Landlord may specify
3.2.4 (b) For the purpose of this proviso the increased rent shall be
deemed to have been ascertained on the date when the same has
been agreed between the Landlord and the Tenant or as the case
may be the date of the award of the arbitrator Time shall not be
of the essence in interpreting this rent review clause
3.2.5 If either the Landlord or the Tenant shall fail to pay any costs
awarded against it in the arbitration within 14 days of the same
being demanded by the arbitrator the other shall be entitled to
pay the same and the amounts so paid shall be repaid by the party
chargeable on demand
3.3 Without prejudice to the provisions of this clause if on the Review Date
there shall be in force any enactment or restriction which shall relate to
the control of rents and which shall restrict the Landlord's right to
review the rent or recover any increased rent under this Lease then the
Landlord shall once such restriction is removed or relaxed be entitled (but
without prejudice to its right if any to recover any increased rent the
payment of which has only been deferred by law) on giving notice in writing
to the Tenant to proceed with the review of rent which may have been
prevented or restricted and the date of expiry of such notice shall be
deemed to be a Review Date and the Landlord shall be entitled to recover
any increase in rent from the earliest permitted date
4. TENANT'S COVENANTS
The Tenant hereby COVENANTS with the Landlord as follows:
4.1 TO PAY RENT
4.1.1 To pay the reserved rents throughout the Term and during any
statutory continuation at the times and in manner aforesaid
without any deduction whatsoever except as authorised by any
statutory enactment for the time being in force
4.1.2 If so required by the Landlord in writing to arrange for payment
of the rent to be effected on the due dates by banker's standing
order
4.2 INTEREST
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4.2.1 If any of the reserved rents shall be due but unpaid for 14 days
to pay interest thereon (if demanded by the Landlord) calculated
on a daily basis from the due date until receipt by the Landlord
at the rate of 4% per annum (except as otherwise provided herein)
over the base rate from time to time of Midland Bank plc or such
other bank as the Landlord may specify (which interest rate shall
apply before as well as after and notwithstanding any judgment of
the court) Provided that this sub-clause shall not prejudice any
other right or remedy in respect of such reserved rents
4.2.2 If following the occurence of any of the events referred to in
clause 6.2 hereof acceptance of any of the reserved rents shall
be refused by the Landlord but shall subsequently be accepted
without prejudice to any right or remedy of the Landlord to pay
interest thereon (if demanded by the Landlord) calculated on a
daily basis from the due date until acceptance and receipt by the
Landlord at a rate of 4% per annum (except as otherwise provided
herein) over the base rate from time to time of Midland Bank plc
or such other bank as the Landlord may specify (which interest
rate shall apply before as well as after and notwithstanding any
judgment of the court) Provided that this sub-clause shall not
prejudice any other right or remedy in respect of such reserved
rents
4.3 TO PAY RATES AND TAXES
To pay and discharge all existing and future rates taxes assessments
outgoings duties and impositions whatsoever payable by law in respect of
the Demised Premises or any part thereof by the owner or occupier thereof
including all charges in respect of water gas electricity and
telecommunications used or consumed at the Demised Premises save for any
taxes raised or assessed on the Landlord in respect of rent received and/or
arising on any disposition of any reversion to this Lease PROVIDED ALWAYS
that the Tenant shall not agree or by default allow to be fixed the
rateable value of the Demised Premises or any part thereof without the
prior written consent of the Landlord such consent not to be unreasonably
withheld and to co-operate with the Landlord in any negotiations with the
District Valuer or in any appeal to the court or to the Lands Tribunal or
to the Valuation and Community Charge Tribunal in respect of the rateable
value of the Demised Premises
4.4 INFORMATION AS TO SUBTENANTS
To give to the Landlord in writing the information set out in section 40(1)
of the Landlord and Tenant Act 1954 within 21 days after service at any
time during the Term of a notice requesting such information
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4.5 TO REPAIR
4.5.1 In a proper and workmanlike manner to repair maintain cleanse
and keep in good and substantial repair and condition the
Demised Premises and the appurtenances thereof including (but
without the prejudice to the generality of the foregoing) all
additions and improvements (including any which may extend
beyond the boundaries of the Demised Premises) doors windows
and any glass therein floor coverings (including for the
avoidance of double carpets) wall and ceilings finishes
fixtures fittings and fastenings wires cables sewers waste
water drain and other pipes and sanitary central heating and
water apparatus therein serving the Demised Premises and to
renew and replace from time to time all Landlord's fixtures
fittings and appurtenances which may be or become beyond repair
at any time during or at the expiration of the Term (however
determined) damage in all such cases from any of the Insured
Risks excepted (so long as the policy of insurance effected by
the Landlord shall not have been vitiated or payment of any
policy moneys refused in whole or in part by reason of any act
neglect or default of the Tenant its undertenants or their
respective servants agents or licensees)
4.5.2 To pay to the Landlord all proper costs incurred by the
Landlord in connection with the repair maintenance and/or
renewal of any part of the Estate as is occasioned by the act
neglect default or omission of the Tenant its undertenants or
their respective servants agents invitees and licensees or any
other person under the Tenant's or its undertenants' control
4.6 TO PAINT AND REDECORATE
In the Internal Decoration Year and also in the last year of the Term
(however determined) in colours and materials to be first approved in
writing by the Landlord (such approval not to be unreasonably withheld
or delayed) in a proper and workmanlike manner and to the reasonable
satisfaction of the Landlord to paint all the inside parts of the
Demised Premises previously or usually painted with two coats of good
interior quality paint and at the same time to oil varnish polish paper
or treat all internal parts thereof previously or requiring to be so
treated and to wash down all washable surfaces and in the External
Decoration Year and also in the last year of the Term (however
determined) in colours and materials to be first approved in writing by
the Landlord (such approval not to be unreasonably withheld or delayed)
in a proper and workmanlike manner and to the reasonable satisfaction of
the Landlord to paint in a proper and workmanlike manner all the
external parts of the Demised Premises usually or previously painted
with two coats of good and suitable exterior quality paint and at the
same time to oil varnish polish or treat all external parts of the
Demised Premises usually or previously so treated
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4.7 TO YIELD UP
At the expiration or sooner determination of the Term peaceably and
quietly to yield up to the Landlord the Demised Premises with vacant
possession and with all additions and improvements fixtures and fittings
(Tenant's trade fixtures excepted) in accordance with the several
covenants herein contained
4.8 TO COMPLY WITH STATUTORY REQUIREMENTS AND TO INDEMNIFY LANDLORD
4.8.1 At all times to observe and comply with the provisions of or
imposed under any statute licence or regulation regulating or
permitting the use of the Demised Premises for the purpose for
which they are for the time being used and the requirements of
any competent authority in that connection and at the expense
of the Tenant to do all that is necessary to obtain maintain
and renew all licenses and registrations required by law for
the use of the Demised Premises for that purpose
4.8.2 At the sole cost of the Tenant to comply with the requirements
of ever Act of Parliament for the time being in force including
(but without prejudice to the generality of the foregoing) the
Factories Act 1961 the Offices Shops and Railway Premises Act
1963 the Town and Country Planning Act 1990 and the Planning
(Listed Buildings and Conservation Areas) Act 1990 (hereinafter
called the "PLANNING ACT") or any statutory modification or
re-enactment of any such Acts for the time being in force and
of all bye-laws orders and regulations licences consents
permissions and conditions made thereunder affecting the
Demised Premises or any use thereof and to indemnify and keep
harmless and indemnified the Landlord against any breach or
non-performance of any such requirements and against all costs
expenses penalties and levies thereby arising
4.9 PLANNING
In relation to the Planning Act -
4.9.1 Not without the prior written consent of the Landlord (such
consent not to be unreasonably withheld) to apply for
permissions to carry out on the Demised Premises any
development requiring permission under the Planning Act
4.9.2 Not to make any applications under the Planning Act whatsoever
in respect of any other part of the Estate not comprising the
Demised Premises
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4.9.3 Not without the prior written consent of the Landlord (such
consent not to be unreasonably withheld) to implement any
planning permission relating to the Demised Premises
4.9.4 Whenever required to permit the Landlord to enter upon the
Demised Premises to comply with any requirement lawfully made of
it under the Planning Act by any competent authority
notwithstanding that any action reasonably necessary for
compliance interferes with the Tenant's enjoyment of the Demised
Premises
4.9.5 To pay and satisfy any charge which may hereafter be imposed
under the Planning Act in respect of the carrying out of any
operations or the institution or continuance of the use of the
Demised Premises
4.9.6 Unless the Landlord shall otherwise direct in writing to carry
out and complete before the expiration or sooner determination of
the Term any works stipulated to be carried out to the Demised
Premises notwithstanding that such works are to be carried out by
a later date as a condition of planning permission for any
development begun before such expiration or sooner determination
save for any such permissions applied for by the Landlord
4.10 NOTICES RECEIVED
Within 14 days of receipt of the same to give full particulars to the
Landlord of any notice direction or order or proposal for a notice
direction or order made given or issued to the Tenant by any government
department or local or public authority and if so required by the Landlord
to produce and supply copies of the same to the Landlord AND promptly to
take all necessary steps to comply with the same AND ALSO at the reasonable
request of the Landlord and at the joint equal cost of the Landlord and the
Tenant to make or join with the Landlord in making such objections or
representations relating to the same as the Landlord shall deem expedient
4.11 NOTICE AS TO DEFECTS
Forthwith upon becoming aware of the same to give notice in writing to the
Landlord of any substantial defect in any part of the Estate which would or
might give rise to an obligation on the Landlord to do or refrain from doing
any act or thing in order to comply with any statutory duty of care imposed on
the Landlord and to indemnify the Landlord against any loss claims actions
costs or demands arising from any such defect in the state of the Demised
Premises and/or a failure to give such notice and at all times to display and
maintain all notices (including the wording thereof)
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which the Landlord may from time to time properly require to be
displayed at the Demised Premises in pursuance of any statutory
requirement
4.12 TO PERMIT ENTRY TO EXAMINE AND DO REPAIRS
To permit entry to the Demised Premises or any part thereof at all
reasonable hours in the daytime on reasonable prior notice being given
(or without prior notice in emergency):
4.12.1 by the Landlord to view the same to examine the state and
condition thereof to take inventories of the fixtures and
fittings therein to make any inspection which may be required
for the purposes of the Landlord and Tenant Acts 1927 and 1954
or any other enactments for the time being affecting the Demised
Premises or the Estate or the owner or occupier thereof and for
any other purpose connected with the interest of the Landlord in
the Demised Premises or its disposal charge or demise
4.12.2 by the Landlord and (with the previous written authority of the
Landlord) the tenants and occupiers of any adjoining premises
so as to exercise repairs decorations or alterations to the
adjoining premises for which the party entering is responsible
and which cannot otherwise reasonably be executed without such
entry and to empty cleanse renew or repair any of the sewers
drains gutters or service belonging to the Demised Premises and
the adjoining premises
4.12.3 by the Surveyors Agents Contractors and workmen of the
respective parties hereby permitted or so authorised to enter
together with appliances
Subject in all cases to making good in a reasonable manner and without
unreasonable delay any damage thereby occasioned to the Demised
Premises
4.13 TO REPAIR ON NOTICE
To repair and make good to the reasonable satisfaction of the Landlord's
Surveyor all breaches of covenant defects and wants of reparation for
which the Tenant shall be liable under the covenants herein contained
of which notice shall have been given by the Landlord to the Tenant
within two calendar months after the giving of such notice or within
such longer period as the Landlord's Surveyor shall reasonably consider
appropriate or sooner if requisite
4.14 LANDLORD MAY REPAIR ON TENANT'S DEFAULT
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That if the Tenant shall at any time make default in the performance of
any of the covenants herein contained relating to the repair decoration
cleansing or condition of the Demised Premises or any part thereof of
which notice has been give as aforesaid it shall be lawful for workmen
or others employed by the Landlord (but without prejudice to the right
of re-entry hereinafter contained) to enter upon the Demised Premises
and repair and restore the same and all expenses properly incurred
thereby (which expression shall include but not be limited to the
reasonable and proper fees of professional advisers) shall be a debt
immediately payable by the Tenant to the Landlord on demand
4.15 RE-LETTING
To permit the Landlord or its agents during the six months immediately
preceding the expiration or sooner determination of the Term to affix
and retain without interference upon any suitable part of the Demised
Premises a notice for reletting (or at any time for selling) the same
but not so as materially to conceal the Tenant's own business signs and
name AND to permit all persons with written authority from the Landlord
or its agents to enter upon and view the Demised Premises at all
reasonable times of the day without interruption
4.16 LANDLORD'S COSTS
To pay to the Landlord on an indemnity basis all reasonable and proper
solicitors' counsel's surveyor's and other professional costs expenses
and fees incurred by the Landlord:
4.16.1 In or in contemplation of any proceedings relating to the
Demised Premises whether or not under section 146 or 147 of the
Law of Property Act 1925 or the preparation and service of a
notice thereunder (whether or not any right of re-entry or
forfeiture has been waived by the Landlord or a notice served on
the Tenant has been complied with or the Tenant has enjoyed
relief under the provisions of the Act or forfeiture is avoided
otherwise than by relief granted by the court) and to keep the
Landlord fully and effectively indemnified against all costs
expenses claims and demands whatsoever in respect of such
proceedings
4.16.2 In the preparation and service of a schedule of dilapidations at
any time during or within a period of six months after the
determination of the Term (but only in respect of dilapidations
accrued up to the date of such determination) and in the
inspection of the works which are the subject of such schedule
whether during or after the carrying out thereof
4.16.3 In connection with the recovery of any arrears of rent or the
Additional Rents
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4.16.4 In respect of any application for consent required by this Lease
whether or not such consent is granted
4.17 INSURANCE
4.17.1 Not to do or omit or allow to be done or omitted any act matter
or thing whatsoever whereby any policy of insurance effected on
the Demised Premises or the Estate or anything therein or on any
other adjoining or neighbouring premises of the Landlord may
become void or voidable or the premiums payable for such
insurance increased
4.17.2 To the extent that any insurance premium payable in respect of
any such adjoining or neighbouring premises or any other part of
the Estate is increased by any use act or omission of the Tenant
in relation to the Demised Premises to pay the Landlord on demand
the amount of such increase (and not only the proportion which
the Demised Premises bear to any such adjoining or neighbouring
premises or such other part of the Estate)
4.17.3 In the event of the Demised Premises or any part thereof being
destroyed or damaged by any of the Insured Risks to give
immediate notice thereof to the Landlord
4.17.4 In the event of the Demised Premises or any part thereof or any
other part of the Estate being destroyed or damaged by any of the
Insured Risks and the insurance money under any insurance
effected against the same being wholly or partly irrecoverable by
reason of any act neglect omission or default of the Tenant then
and in every such case the Tenant will pay to the Landlord
forthwith the whole or (as the case may require) a fair
proportion of the cost of completely rebuilding and reinstating
the same
4.17.5 To comply with the requirements and reasonable recommendations of
the Landlord's insurers
4.17.6 Not to store any inflammable explosive radioactive poisonous or
deleterious substance at the Demised Premises
4.17.7 Not to effect or permit or suffer to be effected by any other
person under the Tenant's control any insurance in respect of a
risk against which the Landlord shall insure under clause 5.2
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4.17.8 The Landlord may retain for the Landlord's own benefit any
commissions or discount received or obtained by the Landlord on
or based on the gross premiums and other expenses which would
otherwise be paid or incurred or suffered by the Landlord in
effecting or maintaining such insurance
4.17.9 To repay to the Landlord on demand the proper costs and expenses
incurred in obtaining valuations of the Demised Premises for
insurance purposes from time to time but not more frequently than
once in every three years
4.18 ALTERATIONS
4.18.1 Not to cut injure or alter nor allow to be cut injured or altered
any part of the structure of the Demised Premises or to make any
structural erection addition or alteration whatsoever to the
Demised Premises including without prejudice to the generality of
the foregoing the external walls the floor slabs and the roof
cladding thereof
4.18.2 Not to erect within the Demised Premises any mezzanine floor or
floors without the Landlord's consent (which shall not be
unreasonably withheld)
4.18.3 Not to make any non-structural internal erection addition or
alteration whatsoever to the Demised Premises or any alteration
or addition to the electrical installation or the sprinkler
system (if any) within the Demised Premises without the previous
consent in writing of the Landlord (such consent not to be
unreasonably withheld or delayed) nor except in accordance with
plans and specifications (with such additional copies thereof as
the Landlord may reasonably require) previously submitted to and
approved in writing by the Landlord (such approval not to be
unreasonably withheld or delayed) nor carried out except to the
reasonable satisfaction of the Landlord and the Tenant shall
enter into such covenants as the Landlord may reasonably require
as to the execution of such alterations and shall indemnify the
Landlord in respect of any insurance costs arising as a result of
such alterations being carried out PROVIDED always that any such
alterations or additions shall at the end or sooner determination
of the Term be reinstated by the Tenant unless released in
writing by the Landlord.
4.18.4 Notwithstanding any other provision contained in this lease the
Landlord shall in its absolute discretion have the right to
prohibit the Tenant from making any alteration improvement or
planning application in relation to the Demised Premises which
could (if followed at any time by a disposal or deemed disposal
of any part thereof) give rise to a charge for tax upon the
Landlord whether immediate deferred or contingent upon the
happening of any future event
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4.19 4.19.1 PERMITTED USE
Not to use and occupy the Demised Premises except for the Permitted Use
4.19.1 PROHIBITED USERS
Not to use any part of the Demised Premises or the Estate nor allow the same to
be used as the premises of any public or local authority to which the public
have access or for any public meeting exhibition or entertainment or for any
illegal or immoral purpose or for the purpose of a club whether or not one where
intoxicating liquor is supplied to members or their guests not permit or suffer
any sale by auction or otherwise to be held thereon or any sound-producing
instrument or apparatus to be played or used thereon so as to be audible outside
the Demised Premises nor permit the Demised Premises to be used as a sleeping
place for any person and not to use the Demised Premises or the Estate or permit
or suffer the same to be used for the purpose of any betting transactions or for
gaming with or between persons resorting thereto and not to make or permit or
suffer to be made any application for a Betting Office Licence or a Licence or
Registration under the Gaming Acts 1963 to 1968 in respect of any part of the
Demised Premises or the Estate
4.19.2 PARKING SPACES
Not to use the car parking spaces specified in schedule 1 other than for the
parking of private motor cars and vans
4.19.3 HARD STANDING AREAS
Not to use that part of the Demised Premises shown hatched red on the Plan for
any purpose other than loading and unloading goods and equipment in connection
with the Tenant's business or for the purposes of obtaining access to or egress
from the Demised Premises and without prejudice to the generality of the
following not to park motor vehicles thereon save for so long only as shall be
required for such loading and unloading
4.20 ADVERTISING SIGNS AND POSTERS
Not without the previous written consent of the Landlord to place display permit
or suffer to be in or upon the Demised Premises or any part thereof or upon any
other part of the Estate any aerial
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signboard advertisement hoarding placard notice poster display of lights or
other object or notification whatsoever other than signboards displayed
immediately outside the Demised Premises showing the name and business of
the Tenant (provided they are of a reasonable size and appropriate to such
business) and on the expiration or sooner determination of the Term to
remove or efface the same to make good any damage caused thereby to the
satisfaction of the Landlord
4.21 NUISANCE
4.21.1 Not to do or allow to be done or to bring or allow to be brought
onto the Demised Premises or the Estate or any part thereof any
act matter or thing or a dangerous noxious noisome or offensive
nature or which may be or grow to be a danger nuisance annoyance
or disturbance to the Landlord or to other occupiers or residents
for the time being of the Estate or the Landlord's adjoining or
neighbouring premises or to the public nor to allow any
manufacturing operations or other processes to be carried on
otherwise than within the Demised Premises nor to retain litter
or refuse in the Demised Premises or to deposit litter or refuse
anywhere in the Estate otherwise than in accordance with the
Landlord's regulations and not to behave or permit any employee
or invitee of the Tenant to behave within the Demised Premises
or the Estate in any manner which shall be unreasonably
unneighbourly objectionable loud noisy unruly or unsightly and in
all matters to act in regard to the Demised Premises and the
Estate in a responsible manner so as to cause the least possible
interference with the use and employment of other occupiers of
the Estate or any adjoining or neighbouring premises of the
Landlord and so as to cause no additional expense for the upkeep
thereof and (without prejudice to the Tenant's obligation not to
do or permit anything which will be a breach of this clause) upon
receiving notice from the Landlord of anything done on or brought
onto the Demised Premises or the Estate which in the opinion of
the Landlord reasonably held shall be inconsistent with this
covenant forthwith to discontinue or remove the same and to take
to the reasonable satisfaction of the Landlord all steps
necessary to prevent any recurrence of the matter or matters
mentioned in any such notice and to keep the Landlord fully and
effectively indemnified against all actions proceedings damages
costs expenses claims and demands whatsoever arising in
consequence of any breach of this covenant
4.21.2 To take all necessary and reasonable precautions (whether by the
installation and maintenance of devices for consuming or
absorbing fumes noise or vibrations or for catching intercepting
or precipitating noise or dust or other particles or by some
other means) to reduce to a minimum the amount of noise
vibrations fumes dust and other matter emanating from the Demised
Premises into the surrounding atmosphere
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PROVIDED always that nothing in this sub-clause contained shall
be deemed to be an authorisation by the Landlord of the commission of a
nuisance.
4.22 TO CLEAN WINDOWS AND CLEAR REFUSE
4.22.1 To clean the windows of the Demised Premises as often as
occasion shall require but not less frequently than once in every calendar
month and at least once a week to remove all refuse rubbish and scrap which may
have accumulated on the Demised Premises and to keep the Demised Premises free
from vegetation.
4.22.2 To keep all waste refuse and rubbish within the buildings
forming part of the Demised Premises.
4.23 EASEMENTS
Throughout the Term to preserve unobstructed and undefeated all rights
of light and other easements appertaining to the Demised Premises and not to
permit or suffer but give notice to the Landlord of any act matter or thing
whereby a new easement or encroachment might come to be made into against over
or upon the Demised Premises and to do all such things as the Landlord may
reasonably require to prevent the same.
4.24 ALIENATION ETC.
4.24.1 COMPLETE BAR ON CERTAIN DEALINGS
Not to assign charge or underlet part only of the Demised
Premises and not to part with possession or part with or share occupation of the
whole or any part thereof save by way of an assignment of the whole or
underletting of the whole on the terms hereinafter permitted
4.24.2 CONDITIONS AS TO ASSIGNING THE WHOLE
Not to assign the whole of the Demised Premises:
(a) without the Landlord's prior written consent such
consent not to be unreasonably withheld or delayed PROVIDED THAT for the
purposes of section 19(A) of the Landlord and Tenant Act 1927 the Landlord
shall be entitled to withhold consent to a proposed assignment where
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(i) the proposed assignee is not a limited company
having a share capital and incorporated in England and Wales or Scotland or
(ii) in the reasonable opinion of the Landlord the
proposed assignee would not be a satisfactory tenant or
(iii) in the reasonable opinion of the Landlord there
is an outstanding material breach of any tenant's covenant of this Lease or any
rent or any sums which have fallen due under this Lease have not been paid or
(iv) the proposed assignee enjoys diplomatic or
state immunity (except where the proposed assignee is the Government of the
United Kingdom of Great Britain and Northern Ireland or any department thereof)
(b) and except to an assignee who shall first have:
(i) entered into a covenant with the Landlord to
observe and perform the covenants and conditions on the part of the Tenant
contained in this lease and
(ii) if reasonably so required by the Landlord
procured a covenant with the Landlord by an acceptable guarantor or guarantors
in the terms (mutatis mutandis) set out in schedule 3 or in such other form as
the Landlord may reasonably require and
(iii) entered into an Authorised Guarantee Agreement
in such form as the Landlord shall reasonably require and which shall conform
to the provisions of the Landlord and Tenant (Covenants) Act 1995
4.24.3 CONDITIONS AS TO UNDERLETTING THE WHOLE
Not to underlet the whole of the Demised Premises:
(a) without the Landlord's prior written consent not to be
unreasonably withheld or delayed
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<PAGE> 21
(b) except to an underlessee who shall first have:-
(i) entered into covenant with the Landlord to observe and
perform the covenants and conditions on the part of the
Tenant contained in this Lease (other than the covenant
to pay rent) and
(ii) if reasonably so required by the Landlord procured a
covenant with the Landlord by an acceptable guarantor
or guarantors in the terms (mutatis mutandis) set out
in schedule 3 or in such other form as the Landlord may
reasonably require
(c) in consideration of any premium
(d) without reserving a yearly rent payable in advance on the
usual quarter days equal to the greater of:-
(i) the then full current open market rental value of the
Demised Premises and
(ii) the rent currently payable under this Lease
reviewable on the same date and on the same terms as the
rent payable under this Lease
(e) except on similar covenants and conditions (which the Tenant
shall enforce) to those in this Lease and in particular:-
(i) for re-entry on breach of any covenant in the
underlease and
(ii) that the underlease will contain similar terms as to
carrying out or paying for repairs paying insurance
premiums and (if applicable) proper service charges
(f) without taking from the underlessee unqualified covenants
(which the Tenant shall enforce):-
(i) not to assign the whole of the Demised Premises without
the prior written consent of the Landlord (under this
Lease which shall not be unreasonably withheld or
delayed)
- 19 -
<PAGE> 22
(ii) not (save by way of charge of the whole) to deal
in any other way whatsoever with the Demised
Premises or any part thereof and
(iii) to obtain from any assignee of the
Demised Premises a covenant with the Landlord
(under this Lease) to observe and perform the
covenants and conditions on the part of the Tenant
contained in this Lease (other than the covenant
to pay rent)
(g) except by way of an underlease which is validly excluded
from the operation of sections 24-28 Landlord and Tenant
Act 1954
(h) except by way of an underlease which expires before the
sixth anniversary of the Term commencement date
4.24.4 BREACH OF COVENANT BY UNDERLESSEE
To enforce the performance and observance by every
underlessee of the provisions of any time either
expressly or by implication to waive any breach of the
covenants or conditions on the part of the underlessee
or assignee of any underlessee nor without the consent
of the Landlord (such consent not to be unreasonably
withheld) to vary the terms or accept a surrender of any
underlease
4.25 TO REGISTER ANY DISPOSITION
To give notice in writing of every assignment assent transfer
underlease mortgage charge of devolution of or other instrument
relating to or affecting the Demised Premises and to produce a
certified copy of the same within 21 days after the execution or
grant thereof to the solicitors of the Landlord and to pay their
reasonable registration fee (and that of any superior lessor) in
respect of such instrument PROVIDED THAT registration of any such
document shall not require the Landlord to consider the terms
thereof and shall not be evidence that it has done so
4.26 NOT TO OVERLOAD DEMISED PREMISES NOR OBSTRUCT DRAINS
4.26.1 Not to overload or permit or suffer to be overloaded the
ceilings the floor or the structure of the Demised
Premises nor to impose a weight or strain in excess of
that which the Demised Premises are constructed to bear
with due margin for safety or which will in any way
strain or interfere with the main supports thereof
- 20 -
<PAGE> 23
4.26.2 Not to stop up or obstruct in any way whatsoever or permit oil
grease or other harmful or excessive matter or substance to enter
the washbasins or lavatory basins of the drains and sewers of the
Demised Premises or the Estate and to employ maintain and renew
such plant for treating any deleterious effluent before
permitting the same to enter such drains and sewers as may be
required by the Landlord from time to time in accordance with
best modern practice and to make good at the sole cost of the
Tenant all damage caused or cost incurred by reason of any such
stopping up or obstruction
4.27 TO COMPLY WITH REGULATIONS
To observe and comply with all regulations reasonably made by the Landlord
for the proper management of the Estate and the buildings thereon and
notified to the Tenant in writing from time to time AND to conform to all
such regulations and instructions as the Landlord may from time to time
make or give for the regulation of vehicular traffic through the Estate and
not to park or permit to be parked any vehicle upon any part of the Estate
or on any adjoining or neighbouring property of the Landlord without the
express written authority of the Landlord to do so
4.28 RESTRICTIVE COVENANTS
At all times during the Term to observe and perform the obligations on the
part of the Landlord contained in the deeds and documents referred to in
the schedule 4 insofar as the same relate to or affect the Demised Premises
and so far as the same are for the time being enforceable and are capable
of being enforced and to keep the Landlord fully and effectually
indemnified against all actions proceedings damages costs expenses claims
and demands whatsoever in respect of any breach thereof
4.29 VALUE ADDED TAX
4.29.1 Save that the context requires or as otherwise stated all
references to payments made in this Lease are references to such
payments exclusive of any Value Added Tax chargeable in respect
of the supply of goods or services for which the payment is
consideration and insofar as such payments fall to be made under
this Lease such Value Added Tax shall be added to the amount
thereof and paid in addition thereto
4.29.2 Without prejudice to and save as mentioned earlier in this clause
where any supply is made pursuant to this Lease the recipient of
such supply shall pay to the supplier any Value Added Tax
chargeable in respect thereof
-21-
<PAGE> 24
4.29.3 Where any payment is required to be made pursuant to this Lease
to reimburse the payee for any expenditure which the payee may
have incurred such payment shall include an amount equal to any
Value Added Tax comprised in that expenditure which is not
recoverable by the payee as input tax under section 25 of this
Value Added Tax Act 1994
4.29.4 Following the payment of any Value Added Tax by the Tenant to
the Landlord under this Lease the Landlord shall within 21 days
thereafter issue a Value Added Tax receipt to the Tenant
5. The Landlord HEREBY COVENANTS with the Tenant as follows:-
5.1 QUIET ENJOYMENT
That the Tenant paying the rents hereby reserved and observing and
performing the covenants conditions and agreements on the part of the
Tenant herein contained shall and may quietly hold and enjoy the
Demised Premises during the Term without any interruption by the
Landlord or persons lawfully claiming under the Landlord
5.2 TO INSURE
5.2.1 To insure or cause to be insured the Demised Premises and the
Landlord's fixtures and fittings therein or thereon of an
insurable nature (other than those which the Tenant or other
tenants may be entitled to remove) against loss or damage by
the Insured Risks in such sum (including any incidental
expenses) as shall be determined from time to time by the
Landlord to represent the reinstatement cost thereof as new
together with all professional and other fees and expenses and
the cost of site clearance and other incidental expenses and
the loss of three years' rent in some insurance office of
repute and to supply a summary of such insurance and evidence
of payment of the current premium to the Tenant on request once
yearly and in the case of destruction or damage to the Demised
Premises by any Insured Risk (unless payment of any money
payable under any policy of insurance shall be wholly or partly
withheld or refused either in consequence of any exclusion or
qualification imposed by insurers or of any act neglect or
default of the Tenant the Tenant's undertenants or their
respective servants agents or licensees) to ensure that all
insurance moneys received by the Landlord (other than for loss
of rent) are with all convenient speed (subject to the
necessary labour and materials being procurable and to all
necessary statutory consents being obtained) laid out and
applied in rebuilding repairing or otherwise reinstating the
Demised Premises
-22-
<PAGE> 25
5.2.2 Subject to the provisions for reinstatement contained in
clause 5.2.1 the building insurance proceeds shall belong to the
Landlord for its own use and benefit absolutely
5.3 SERVICES
Subject to the Tenant paying the Service Charge when due and unless
prevented or restricted by any circumstances beyond its control the
Landlord will so far as practicable provide or make available the
services set out in Part I of Schedule 5 hereto PROVIDED ALWAYS that the
Landlord may from time to time withhold discontinue increase or vary the
services or any of them or the times at which they are supplied if the
Landlord deems it reasonably necessary for the more efficient management
of the Estate
6. PROVIDED ALWAYS THAT and it is hereby agreed as follows:
6.1 PROVISO FOR RENT CESSER
If during the Term the Demised Premises or any part thereof or all
access thereto by the Estate Roads shall be destroyed or damaged by any
Insured Risk so as to make the Demised Premises unfit for occupation or
use and the policy of insurance effected by the Landlord shall not have
been vitiated or payment of the policy moneys wholly or partly withheld
or refused (by reason of any act neglect omission or default of the
Tenant) the rent as reserved in clauses 2.1 and 2.1 hereof or a fair
proportion thereof according to the nature and extent of the damage
sustained shall be suspended until the Demised Premises or the access
thereto by the Estate Roads shall again be fit for occupation and use or
until the expiration of three years from the date of the damage or
destruction whichever shall be the earlier and any dispute shall be
referred to the award of a single arbitrator to be appointed in default
of agreement upon the application of either party by the President for
the time being of the Royal Institution of Chartered Surveyors in
accordance with the provisions of the Arbitration Act 1996 or any
statutory modification thereof for the time being in force
6.2 FORFEITURE AND RE-ENTRY
That this lease is made upon the express condition that if (a) any
reserved rents shall be unpaid for twenty one days after the due dates
whether the same shall have been lawfully demanded or not or (b) any
Tenant's covenant shall not have been observed or performed or (c) if
the Tenant being an individual or firm shall become bankrupt or be the
subject of an interim order under Part VIII of the Insolvency Act 1986
or being a company shall go into either compulsory or voluntary
liquidation (except for the purpose of reconstruction or amalgamation)
or shall have an
-23-
<PAGE> 26
administration order made in respect of it under the Insolvency Act 1986
or if an administrative receiver or a receiver shall be appointed or (d)
the Tenant shall enter into any composition or arrangement with
creditors or shall suffer any distress or execution to be levied on the
goods of the Tenant then and in any of the said cases and at any time
thenceforth it shall be lawful for the Landlord or its authorised agent
to re-enter into or upon the Demised Premises and to repossess and enjoy
the same as if this lease had not been made but without prejudice to any
right of action or remedy of either party in respect of any antecedent
breach of any of the covenants by the other herein contained
6.3 DISPUTES
Any dispute arising as between the Tenant and the lessee or occupier of
any part of the Estate or any adjacent or neighbouring premises
belonging to the Landlord as to any easement right or privilege enjoyed
or used in common shall be decided by the Landlord or the Landlord's
Surveyor whose decision shall be binding upon all parties to the dispute
6.4 SERVICE OF NOTICES
Any demand or notice under this lease shall be properly served on the
recipient if left at or sent to the Landlord at Savills Commercial
Limited 20 Grosvenor Hill Berkeley Square London W1X 0HQ (or such
substituted address as shall have been notified in writing) or (in the
case of the Tenant) the Demised Premises and without prejudice to the
aforesaid the provisions as to service by post as contained in section
196 of the Law of Property Act 1925 as amended by the Recorded Delivery
Service Act 1962 shall apply hereto
6.5 TENANT'S BREAK OPTION
The Tenant may determine this Lease on the sixth anniversary of the Term
Commencement date by giving to the Landlord not less than twelve months
prior written notice and upon the expiry of such notice and the Tenant
having paid the rents reserved by and substantially observed and
performed the Tenant's covenants contained in this Lease up to the date
of determination this Lease and the Term hereby granted shall
immediately cease and determine but without prejudice to the respective
rights of either party in respect of any antecedent claim or breach of
covenant
6.6 CLAUSE HEADINGS
The clause headings hereto shall not affect in any way the construction
of this lease
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<PAGE> 27
6.7 STAMP DUTY CERTIFICATE
It is certified that there is no Agreement to which this Lease gives
effect
IN WITNESS whereof this lease has been executed as a deed on the date first
above written
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<PAGE> 28
SCHEDULE 1
RIGHTS
PART 1
1. ACCESS
The rights of way at all times during the Term for the Tenant its
underlessees and their respective agents employees and licensees in
common with the Landlord and all other persons having a like right on
foot along the footpaths and with vehicles along the carriageway of the
Estate Roads at all times and for all purposes connected with the use and
enjoyment of the Demised Premises such right of way to cease and
determine as and when and to the extent that from time to time the Estate
Roads shall become adopted as a public highway PROVIDED ALWAYS that the
user of that part of the Estate Roads shown coloured brown and in part
hatched blue on the Plan shall (save in case of emergency only) be in one
direction only as shown by arrows on the Plan
2. PASSAGE OF UTILITIES
The right to uninterrupted passage and running of water soil drainage gas
electricity and telephone lines and other services (in common with the
Landlord and other tenants of the Estate and all other persons entitled
thereto) through the sewers pipes drains cables wires or other conducting
media in the Estate all such rights to cease and determine as and when
and to the extent from time to time that the said services shall become
adapted and maintainable at public expense and with the Landlord's prior
consent and upon reasonable prior notice being given to all persons
affected thereby the right to enter upon other parts of the Estate
(including the Estate Roads until the same shall have become adopted and
maintainable at public expense) to make any necessary connections thereto
or to cleanse repair and renew those serving the Demised Premises causing
as little inconvenience as possible and making good any damage thereby
caused
3. USE OF FIRE ESCAPE ROUTES
The right for the Tenant its agents employees and licensees in common
with the Landlord and all other persons similarly entitled or authorised
in case of emergency only to use such fire escape routes as the Landlord
shall from time to time designate
-26-
<PAGE> 29
4. RIGHT TO ENTER ADJACENT LAND
With the Landlord's prior consent and upon reasonable prior notice given to
the Landlord and all other persons affected thereby of access into and upon
the adjacent land forming part of the Estate as may be requisite to enable
the Tenant to comply with the Tenant's obligations herein contained subject
to causing as little inconvenience as possible and making good any damage
caused
5. CAR PARKING
The exclusive right to park not more than 58 cars in the 58 car parking
spaces allocated to the Tenant from time to time being the car parking
spaces shown coloured yellow on the Plan such vehicles to be of a size
reasonably contained within the allocated spaces PROVIDED THAT the Landlord
may temporarily relocate all or any of such car parking spaces as and when
and for as long as necessary to enable the repair maintenance renewal
inspection or replacement from time to time of such car parking spaces the
Estate Roads and/or any drains pipes cables wires or other conductive media
running through or under the Estate
6. SPRINKLER SYSTEM
With the Landlord's prior consent in writing and upon reasonable prior
notice being given to all persons affected thereby the right to enter upon
other parts of the Estate (including the Estate Roads until the same shall
have become adopted and maintainable at public expense) to make connections
to the central sprinkler system serving the Estate
7. ENCROACHMENTS
In respect of the works to be carried out by the Tenant as specified in a
licence for alterations of even date with but made after this Lease between
the Landlord (1) and the Tenant (2) to maintain in position those parts of
such works as encroach beyond the extent of the Demised Premises for so
long as such parts remain in existence
PART 2
1. To go pass and repass along over and upon Premier's Estate roads and
footpaths which are now or will prior to 15 June 2068 be constructed by
Premier Investments Limited and its successors in title and giving access
to and egress from the Estate from and to a publicly maintained highway
-27-
<PAGE> 30
2. The free and uninterrupted passage and running of water soil and
effluent drainage gas water and electricity telephone or any other
service or supply to or from the Estate through the sewers drains
watercourses conduits wires and cables which are now or may prior to
15 June 2068 be in on over under or upon Premier's Estate until such
time as they shall become adopted and maintained at public expense
-28-
<PAGE> 31
SCHEDULE 2
RESERVATIONS
1. SUPPORT
The right of support and protection from the Demised Premises for any
adjoining or neighbouring buildings of the Landlord as require such
support and protection
2. PASSAGE OF UTILITIES
The right to uninterrupted passage of water soil drainage gas
electricity and telephone lines through the sewers pipes drains cables
wires or other conducting media for the time being belonging to or
running through or under the Demised Premises or any land and premises
over which the Tenant enjoys rights hereunder from and to the remainder
of the Estate or any adjoining or neighbouring premises of the Landlord
and the right to enter upon the Demised Premises or other land aforesaid
at all reasonable times for the purpose of making connections thereto or
to inspect cleanse repair and renew the same making good any damage
thereby caused to the Demised Premises
3. RIGHT OF ENTRY
The right at reasonable times and on reasonable notice (except in
emergency) to enter the Demised Premises for the purposes of:
3.1 inspecting the condition and state of repair thereof
3.2 carrying out any works (whether of repair or otherwise) for which
the Landlord or the Tenant is liable under this Lease
3.3 carrying out any works (whether of repair or otherwise) to any property
adjoining the Demised Premises or to any party structure sewer drain or
other thing used by the Tenant in common with others subject to making
good any physical damage to the Demised Premises caused by such entry
4. RIGHT TO ALTER
The right at any time without making any compensation to build on alter
add to extend erect demolish or redevelop all or any part of the Estate
save for the Demised Premises provided that
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<PAGE> 32
the use and enjoyment of the Demised Premises by the Tenant as provided
for in this Lease is not substantially affected
5. MISCELLANEOUS
(Without prejudice to the generality of the foregoing) the rights
reserved and excepted in favour of Premier Investments Limited in
5.1 Part II of the First Schedule to a conveyance dated 23 June 1988 and
made between (1) Premier Investments Limited (2) London & Bristol
Developments plc and (3) Abbey Park Management Limited (as varied by a
Deed of Exchange dated 13 January 1989 and made between (1) IMFC
Properties Limited (2) London & Bristol Developments plc (3) Premier
Investments Limited and (4) Abbey Park Management Limited)
5.2 Part II of the First Schedule to a Conveyance dated 15 June 1988 and
made between (1) Premier Investments Limited (2) London & Bristol
Developments plc and (3) Abbey Park Management Limited
5.3 A conveyance dated 13 January 1989 and made between (1) Premier
Investments Limited (2) London & Bristol Developments plc and (3) Abbey
Park Management Limited
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<PAGE> 33
SCHEDULE 3
SURETY COVENANTS
1. That the Tenant will throughout the Term hereby granted and also during
such period as the Tenant remains in occupation of the Demised Premises pay
the rents hereby reserved on the days and in the manner aforesaid and shall
duly perform and observe all the covenants hereinbefore on the Tenant's
part contained and that in the event of the Tenant failing to do so the
Surety will indemnify and keep indemnified the Landlord from and against
all actions claims demands costs losses and expenses which may be brought
or made against or sustained or incurred by the Landlord howsoever arising
directly or indirectly out of or in connection with such failure PROVIDED
ALWAYS and it is hereby agreed that any neglect or forbearance of the
Landlord in endeavouring to obtain payment of the several rents when the
same become payable or to enforce performance or observance of the Tenant's
covenants and any time which may be given by the Landlord to the Tenant
shall not release or exonerate or in any way affect the liability of the
Surety under this covenant
2. That if for any reason the Term hereby granted shall be prematurely
determined or if the same shall be disclaimed in circumstances releasing
the estate of the Tenant from liability the Surety will (if so required by
the Landlord) accept from the Landlord the grant of a new lease of the
Demised Premises from the date of such determination or disclaimer for the
residue of the Term then unexpired at the same several rents hereinbefore
reserved and subject to the like covenants and provisos as are herein
contained and at the expense of the Surety and on the execution of such
further lease the Surety shall execute and deliver to the Landlord a
counterpart thereof or (as the case may be) the Surety shall accept the
vesting in it of this Lease
3. That if the Landlord shall not require the Surety to take a lease of the
Demised Premises pursuant to paragraph 2 above the Surety shall
nevertheless upon demand pay to the Landlord a sum equal to the rent and
to all other payments that would have been payable under this lease but for
the disclaimer in respect of the period from the date of the said
disclaimer until the expiration of 12 months therefrom or until the Demised
Premises shall have been relet by the Landlord whichever shall come first
-31-
<PAGE> 34
SCHEDULE 4
Deeds
Part 1
<TABLE>
<CAPTION>
Date Deed Parties
<S> <C> <C>
23.06.1988 Conveyance (1) Premier Investments Limited
(2) London & Bristol Developments plc
(3) Abbey Park Management Limited
13.01.1989 Deed of Exchange (1) IMFC Properties Limited
(2) London & Bristol Developments plc
(3) Premier Investments Limited
(4) Abbey Park Management Limited
15.06.1988 Conveyance (1) Premier Investments Limited
(2) London & Bristol Developments plc
(3) Abbey Park Management Limited
13.01.1989 Conveyance (1) Premier Investments Limited
(2) London & Bristol Developments plc
(3) Abbey Park Management Limited
</TABLE>
Part 2
The deeds and documents referred to in Entries 1 2 3 and 4 of the Charges
Register to title number HP389670
An agreement dated 3 August 1987 and made between (1) Premier Investments
Limited and (2) The Borough Council of Test Valley
-32-
<PAGE> 35
SCHEDULE 5
SERVICES
PART I
1. The lighting of any common part of the Estate
2. The repair maintenance renewing rebuilding and replacement from time to
time of the roads and paths and the car parking areas and the lorry parking
areas on the Estate any Estate name boards any party walls or structures or
walls or fences enclosing the Estate and any drains pipes cables wires or
other conducting media running through the Estate the central sprinkler
system including the housing tank and operating equipment and all parts of
the Estate not let or intended to be let to a tenant
3. The cultivation of any planted or grassed areas of the Estate that are not
demised to tenants
4. The provision of suitable refuse bins in the common parts of the Estate and
the collection and removal of refuse
PART 2
1. Discharging all rates taxes assessments duties and impositions payable in
respect of the common parts of the Estate
2. All costs charges expenses whatsoever (including surveyors' solicitors' and
other professional fees and disbursements) properly and reasonably incurred
by the Landlord in relation or incidental to the assessment of the rateable
value of the Estate or any part thereof including any negotiations with the
District Valuer and any appeal to the Court or to the Lands Tribunal or to
the Valuation and Community Charge Tribunal
3. Managing the Estate by the Landlord's Surveyor
4. Complying with the Landlord's obligations under the deeds and documents
referred to in schedule 4 insofar as they are not by this lease expressly
assumed by the Tenant including without prejudice to the generality of the
foregoing paying the Rent Charge (as defined in the conveyances and deed
referred to in schedule 4
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<PAGE> 36
5. Employing managing agents to manage the Estate and discharging all
proper fees salaries charges and expenses payable to such agents
including the cost of computing and collecting the rents and all other
monies due to the Landlord from the Tenants of the Estate
6. Employing such surveyors builders architects engineers tradesmen
accountants or other professional persons as may be necessary or
desirable for the maintenance safety and administration of the Estate
7. Taking all steps deemed desirable or expedient by the Landlord for
complying with making representations against or otherwise contesting
the incidence of the provisions of any regulation by-law notice
legislation order or statutory requirements concerning town planning
public health highways streets drainage or other matters relating or
alleged to relate to the Estate or any part of it
8. Preparing making and recovering any insurance claim in respect of the
Estate including the fees of any loss adjustor or assessor
9. Insuring any other part of the Estate except the other Units (numbered 1
to 9 inclusive and 11)
10. Providing such other services or carrying out any other work which the
Landlord shall from time to time consider necessary or desirable for
the benefit of the Estate
11. The fees of the Landlord or any company within the same group of
companies as the Landlord for the management of the Estate and the
administering of the services provided being initially a yearly sum
equal to ten per cent of the said costs incurred by the Landlord
12. Any irrecoverable Value Added Tax charged in respect of any of the
items mentioned in part 1 or part 2 of this schedule
13. Any interest charges incurred on expenditure in respect of any of the
items mentioned in part 1 or part 2 of this schedule
PART 3
1. The Service Charge to be paid by the Tenant shall be such fair
proportion (which may if appropriate be the whole amount) of the
actual or anticipated Service Costs for each Service Charge Year which
shall be assessed by the Landlord or the Landlord's Surveyor according
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<PAGE> 37
to a reasonable and proper basis for apportionment applicable from time to
time to the Demised Premises and the rights hereby granted
2. The Landlord may make and send to the Tenant notice in writing of the
Landlord's estimate of the anticipated Service Costs and the Service Charge
applicable to the Demised Premises for the coming Service Charge Year and
the Tenant shall pay such estimate of the Service Charge by equal quarterly
instalments in advance on the usual quarter days
3. The Landlord will (unless prevented by causes beyond its control) prepare
and send to the Tenant a statement of the actual Service Costs and Service
Charge for each Service Charge Year as soon as practicable after the end of
such year and in the event of the Service Charge for the Demised Premises
exceeding the aggregate amount paid by the Tenant for such year the Tenant
will pay the balance due to the Landlord forthwith and in the event of the
aggregate amount being greater the excess will be credited by the Landlord
by way of set-off against the next instalment of Service Charge due from
the Tenant
4. The Landlord will not charge the Tenant any part of the Service Costs as
shall be attributable from time to time to such parts of the Estate as
shall be designed and available for letting but which remain unlet or which
are occupied by the Landlord (save for the common parts of the Estate and
any staff accommodation) during the whole or proportionately for any part
of the relevant Service Charge Year
5. In the event of the Estate being altered added to or extended the Service
Charge may be adjusted by the Landlord in such manner as the Landlord shall
deem to be just and equitable
SEALED with the COMMON SEAL of THE )
ROYAL BANK OF SCOTLAND plc and )
subscribed for them and on their behalf by:- )
[SIG]
Authorised Sealing Officer
[SIG]
Authorised Sealing Officer
-35-
<PAGE> 38
EXECUTED as a DEED by )
OCULAR SCIENCES LIMITED in )
the presence of )
Director
Director/Secretary
- 36 -
<PAGE> 39
[LAYOUT OF GROUNDS]
<PAGE> 1
Exhibit 11.01
OCULAR SCIENCES, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE (BASIC AND DILUTED)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1996 1997
---- ----
<S> <C> <C>
Net income per share (basic):
Net income $10,094,000 $20,584,000
=========== ===========
Weighted average common shares outstanding 16,445,404 18,721,749
=========== ===========
Net income per share (basic) $0.61 $1.10
=========== ===========
Net income per share (diluted)
Net income (diluted) $10,176,000 $20,633,000
=========== ===========
Weighted average common shares outstanding 16,445,404 18,721,749
Weighted average shares of stock options
under the treasury stock method 2,757,717 2,247,828
Weighted average shares issuable upon conversion
of the Series A Preferred Stock 236,336 137,863
Additional weighted average shares of stock
options under the treasury stock method
issued one year prior to initial filing
of the registration statement dated
8/4/1997 87,528 6,022
----------- -----------
Weighted average number of common and
dilutive potential common shares outstanding 19,526,985 21,113,462
=========== ===========
Net income per share (diluted) $0.52 $0.98
=========== ===========
</TABLE>
<PAGE> 1
Exhibit 21.01
LIST OF SUBSIDIARIES
Entity Jurisdiction of Incorporation
- ------ -----------------------------
Ocular Sciences Puerto Rico, Inc. Delaware
Ocular Sciences Canada, Inc. Province of New Brunswick
Ocular Sciences Limited United Kingdom
(formerly Precision Lens
Laboratories Ltd.)
Ocular Sciences Hungary Ltd. Budapest, Hungary
<PAGE> 1
EXHIBIT 23.02
CONSENT OF KPMG PEAT MARWICK LLP, INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Ocular Sciences, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
San Francisco, California
February 20, 1998
<TABLE> <S> <C>
<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 51,191
<DEPRECIATION> 9,531 14,943
<TOTAL-ASSETS> 63,503 129,735
<CURRENT-LIABILITIES> 21,147 20,197
<BONDS> 0 0
0 0
1 0
<COMMON> 8 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>
