<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1996
REGISTRATION NO. 333-3645
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SOLA INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3189941
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
2420 SAND HILL ROAD JOHN E. HEINE
MENLO PARK, CALIFORNIA 94025 2420 SAND HILL ROAD
(415) 324-6868 MENLO PARK, CALIFORNIA 94025
(ADDRESS, INCLUDING ZIP CODE, AND (415) 324-6868
TELEPHONE NUMBER, INCLUDING AREA (NAME, ADDRESS, INCLUDING ZIP CODE,
CODE, OF REGISTRANT'S PRINCIPAL AND TELEPHONE NUMBER, INCLUDING AREA
EXECUTIVE OFFICES) CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
TIMOTHY E. PETERSON, ESQ. DAVID J. BEVERIDGE, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & SHEARMAN & STERLING
JACOBSON 599 LEXINGTON AVENUE
ONE NEW YORK PLAZA NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10004 (212) 848-4000
(212) 859-8000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, 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, please 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 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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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value.. 3,105,415 shares $29 11/16 $92,192,007 $31,791
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 300,000 shares of Common Stock that may be sold pursuant to the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(3) Previously paid.
---------------
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.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 June 25, 1996
2,805,415 Shares
[LOGO OF SOLA INTERNATIONAL APPEARS HERE]
COMMON STOCK
-----------
OF THE 2,805,415 SHARES OF COMMON STOCK OFFERED HEREBY, 2,000,000 SHARES ARE
BEING OFFERED BY THE COMPANY AND 805,415 SHARES ARE BEING OFFERED BY THE
SELLING STOCKHOLDERS. SEE "SELLING STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE
ANY PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDERS. THE COMMON
STOCK IS TRADED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "SOL." ON JUNE
24, 1996, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK
STOCK EXCHANGE WAS $28 3/4 PER SHARE.
-----------
SEE "RISK FACTORS" AT PAGE 9 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
-----------
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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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total(3)....................... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 300,000
additional Shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Shearman &
Sterling, counsel for the Underwriters. It is expected that the delivery of the
Shares will be made on or about , 1996, at the office of Morgan Stanley &
Co. Incorporated, New York, New York, against payment therefor in same day
funds.
-----------
MORGAN STANLEY & CO. MERRILL LYNCH & CO.
Incorporated
, 1996
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 3
Risk Factors....................... 9
The Company........................ 12
The AO Acquisition................. 12
Use of Proceeds.................... 13
Price Range of Common Stock and
Dividend Policy................... 14
Capitalization..................... 15
Selected Financial Data............ 16
Unaudited Pro Forma Condensed Com-
bined Financial Information....... 18
Selling Stockholders............... 25
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Capital Stock....... 26
Certain United States Federal Tax
Considerations for Non-U.S.
Holders of Common Stock........... 28
Underwriters....................... 31
Available Information.............. 32
Incorporation of Certain Documents
by Reference...................... 33
Legal Matters...................... 33
Experts............................ 33
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
----------------
No action has been or will be taken in any jurisdiction by the Company, any
Selling Stockholder or any Underwriter that would permit a public offering of
the Common Stock or possession or distribution of this Prospectus in any
jurisdiction where action for that purpose is required, other than in the
United States. Persons into whose possession this Prospectus comes are
required by the Company, the Selling Stockholders and the Underwriters to
inform themselves about and to observe any restrictions as to the offering of
the Common Stock and the distribution of this Prospectus.
In this Prospectus, references to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
----------------
The Company has a number of trademarks and trade names, including
Spectralite(R), VIP Gold(R), XL Gold(R), UltraGard(R), PermaGard Plus(R),
UTMC(R) and Matrix(R).
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto, set
forth elsewhere in this Prospectus or incorporated herein by reference, which
should be read in their entirety. Unless the context otherwise requires, all
references to the "Company" or "Sola" herein refer to Sola International Inc.
(or its predecessors) and its consolidated subsidiaries. References to the
"Acquisition" shall refer to the Company's purchase of the Sola business unit
(the "Predecessor Business") of Pilkington plc in December 1993, and references
to the "AO Acquisition" shall refer to the Company's acquisition of
substantially all of the worldwide ophthalmic business of American Optical
Corporation in June 1996. References herein to fiscal years are to the
Company's fiscal year which ends on March 31 of each year. For example, the
twelve months ended March 31, 1996 are referred to herein as fiscal 1996.
Unless otherwise indicated, the information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. References to the "IPO"
shall refer to the Company's initial public offering of the Company's Common
Stock in March 1995. References to the "Offering" shall refer to the offering
of the Company's Common Stock by the Underwriters named herein. Certain of the
information contained in this summary and elsewhere in this Prospectus are
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed under "Risk Factors."
THE COMPANY
Sola designs, manufactures and distributes a broad range of eyeglass lenses,
primarily focusing on the faster growing plastic lens segment of the global
lens market. Sola has manufacturing and distribution sites in three major
regions--North America, Europe, and Rest of World (comprising primarily
Australia, Asia and South America). The Company believes it ranks first or
second in unit sales of plastic eyeglass lenses in each of these geographic
regions (if the Japanese market is excluded from Rest of World).
Sola's market position is particularly strong in developing markets and
specialty lenses, which are markets and product categories that are
experiencing faster growth than the overall global lens market. The Company has
a leading position in developing markets such as South America and China, where
the Company estimates its share of the plastic lens market to be approximately
40% and 70%, respectively. In developed markets, Sola has successfully pursued
a strategy of building a leading market position in higher value-added, faster
growing product categories such as progressive lenses, lens coatings and
thinner and lighter plastic lenses, which typically generate an above average
gross profit per pair.
The Company's historical growth in sales and operating income reflects the
global market growth for plastic lenses and Sola's success in capturing strong
market positions worldwide as well as in key geographic regions and product
categories. From fiscal 1992 to fiscal 1996, the Company's net sales grew from
$258.8 million to $387.7 million and operating income grew from $29.4 million
to $60.8 million. During this period, net sales and operating income grew in
each year, including during the last global recession. For fiscal 1996, the
Company has experienced increases of 12.2% and 39.1% in its net sales and
operating income, respectively, as compared to its results in fiscal 1995
(fiscal 1995 operating income reflected on a pro forma basis excluding certain
charges relating to the Acquisition and the IPO).
The global market for plastic lenses is relatively young and has emerged
principally in the past 20 years. The Company estimates that this market is
currently in excess of $1.5 billion (based on wholesale prices) and has grown
at a compound annual growth rate of 8% during the past three years. The factors
driving market growth in developed markets differ from the factors driving
growth in developing markets. The growth in developed markets is driven by the
increasing average age of the population and consumer preference for higher
value-added products while the growth in developing markets is driven by
increasing usage of eyeglasses and a substitution of plastic lenses for glass
lenses. The Company believes that the following trends are likely to be
significant factors contributing to the growth in the eyeglass lens market for
the foreseeable future:
3
<PAGE>
The increasing average age of the population, primarily in the Company's two
largest markets--the United States and Europe. Demographic trends in the United
States and Europe are quite favorable for future revenue and margin growth in
the lens industry. The aging of the population increases the number of
consumers who are likely to require vision correction and the increasing
population group over the age of 45 is more likely to use higher value-added
lenses such as progressives and bifocals. The Optical Industry Association
estimates that over 90% of the U.S. population over the age of 45 requires
vision correction. In the United States, this group is estimated to increase by
over 20 million individuals during the next decade. Similar demographic trends
are evident in other developed countries.
A shift in consumer preference from lower-value plastic lenses toward higher-
value plastic lenses. Eyeglass wearers in the Company's most significant
markets, such as the United States and Europe, are increasingly replacing their
lower-value lenses with higher-value lenses due to the availability of thinner,
lighter plastic lenses, lens coatings and improved lens designs. For example,
enhanced coatings have permitted the introduction of eyeglasses that offer
improved durability, increased light transmission and better cosmetics.
Increases in wealth and literacy and, therefore, eyeglass use, in less
developed markets. Many first time purchasers of eyeglasses, particularly in
developing markets, are entering the market due to growth in income, a
population shift from rural to urban areas, higher literacy rates, the spread
of television and computers, and increasing employment in office or industrial
settings where vision correction is necessary.
The substitution of plastic for glass lenses. The Company estimates that in
the past 20 years, the penetration of plastic lenses has grown from an
insignificant amount to approximately 85% and 50% of all eyeglass lens sales in
North America and Western Europe, respectively. This trend can be attributed
largely to the lighter weight, greater impact resistance and tinting
flexibility of plastic as compared with glass lenses. The Company believes that
this trend will continue in these and other markets, particularly where the
percentage of plastic lens users is small. For example, in South America, the
Company estimates that plastic lenses constitute approximately 40% of the total
lens market, up from approximately 35% in 1991. The plastic lens market in
China is experiencing rapid growth, but still only represents approximately 5%
of total lens sales based on the Company's estimates.
BUSINESS STRATEGY
The Company has successfully implemented a business strategy that has enabled
it to achieve its leading market position and consistent growth in sales and
operating income. The Company intends to continue to pursue this strategy to
capitalize on the favorable industry trends discussed above. This strategy
includes the following:
Continual Introduction of Higher Value-Added, Technologically Advanced
Products. The Company believes that it is one of the technology leaders in the
plastic lens industry, especially with respect to the development of new lens
materials, and continues to devote significant resources to the development of
new products and technology. Over the last ten years, the Company has
successfully developed and marketed a number of innovative products. During
fiscal 1996, these value-added products accounted for over half of the
Company's net lens sales. The Company is a frequent winner of Optical
Laboratory Association awards for its products and has developed its own major
proprietary lens material, Spectralite. Sola has developed and successfully
marketed proprietary progressive lenses made from Spectralite, including VIP
Gold. These new products incorporate more complex design features and new
materials and coatings that differentiate them from competitors' products.
Sales of these new products generally experience a higher growth rate than the
growth rate of the plastic lens market as a whole and generate an above average
gross profit per pair. Sola's proprietary Matrix delivery system, which allows
the rapid delivery of lenses with anti-reflection coating, is also being
installed at an increasing number of United States and foreign locations.
4
<PAGE>
Expansion of Global Distribution Capabilities. Since its inception, the
Company has selectively expanded its global distribution capabilities. The
Company has 36 major distribution centers in 16 countries and its products are
currently sold to customers in over 50 countries worldwide.
Commitment to Customer Service and Product Quality. The Company continually
seeks to differentiate itself by providing its customers with improved delivery
timeliness, a wide range of product offerings, and a commitment to product
quality, technical support and product education. With manufacturing and
distribution facilities in each of its regions, the Company seeks to customize
its product mix to reflect local demands and to deliver products at a lower
cost and on a more timely basis than its competitors.
Emphasis on Efficient and Low Cost Manufacturing. Sola's manufacturing
strategy is to balance the benefits of local manufacturing with those of least-
cost sourcing. Each of the Company's three regions has its own manufacturing
facilities and is largely self-sufficient. The Company directs production of
some high volume, standard products to lower cost sites and produces newer,
more complex products at more experienced manufacturing sites located near the
Company's research and development centers.
The Company has implemented an on-going management program to reduce
manufacturing costs through (i) centralized purchase of certain raw materials
and improved supplies procurement, (ii) increased Company-wide use of best
internal demonstrated manufacturing practices and (iii) increased use of
automation at sites located in higher labor cost countries. This program
provides for a continual review of costs on a plant by plant basis and a
sharing of information and ideas across all of the Company's manufacturing
units. The Company believes that during the first three years of its operation
the program has been responsible for identifying significant cost savings,
primarily as a result of yield improvements, savings in the cost of supplies
and raw materials and higher asset utilization rates. The Company's emphasis on
reducing manufacturing costs has favorably impacted gross margins in fiscal
1994, fiscal 1995 and fiscal 1996.
RECENT DEVELOPMENTS
AO Acquisition. In June 1996, the Company acquired substantially all of the
worldwide ophthalmic business ("AO") of American Optical Corporation ("AOC")
for cash consideration of $107 million (together with the assumption of certain
liabilities), subject to post-closing adjustments (the "AO Acquisition"). AO
has its principal operations in the United States, Mexico, the United Kingdom,
France, Switzerland, Singapore and Zimbabwe. The AO Acquisition was funded
primarily through borrowings under the Company's New Credit Agreement (as
defined below), which borrowings will be repaid in part with the proceeds of
this Offering.
AO is a leading manufacturer and worldwide distributor of a broad range of
ophthalmic lenses used in prescription eyeware. Its product line includes
single vision, bifocal, trifocal and progressive lenses, many of which are sold
under the AO brand name. AO focuses on the production of plastic lenses, but
also offers value-added glass progressive lenses and glass executive bifocals.
The Company believes that approximately half of AO's sales during the 1996
fiscal year represented sales of value-added products. The Company estimates
that AO holds approximately 4% of the worldwide market for plastic spectacle
lenses (based on volume). AO generated $85.7 million of net sales and $11.9
million of operating income, after allocated corporate expenses, during the
fiscal year ended March 31, 1996. AO also provides value-added services through
five non-U.S. prescription laboratories which customize lenses to individual
customer prescriptions and preferences. More than 40% of AO's fiscal 1996 net
sales were generated from the services provided by these laboratories. See "The
AO Acquisition."
New Credit Agreement. Simultaneous with the closing of the AO Acquisition,
the Company entered into a new bank credit agreement (the "New Credit
Agreement"), replacing its existing credit agreement. The New Credit Agreement
is divided into three tranches which consist of: a five-year term loan of $30
million,
5
<PAGE>
a renewable three-year foreign currency revolving facility of $30 million, and
a five-year U.S. dollar revolver of $120 million. The New Credit Agreement is
unsecured. The Company believes that the New Credit Agreement will lower the
effective interest rate on its borrowings and provide it with greater operating
flexibility.
Neolens Acquisition. In May 1996 the Company announced that it had entered
into a definitive merger agreement which provides for the acquisition by the
Company of Neolens, Inc. ("Neolens"), a Florida corporation that manufactures
polycarbonate eyeglass lenses and has been a supplier to the Company (the
"Neolens Acquisition"). Pursuant to the merger agreement the Company has
commenced a cash tender offer for all outstanding shares of Neolens Common
Stock, Series A Preferred Stock and Series B Preferred Stock. The aggregate
purchase price will be approximately $16 million, including the assumption of
Neolens debt. Although there can be no assurance of consummation, the Company
expects to consummate the tender offer by August 1996. The Company believes
that the acquisition of Neolens will enable the Company to increase its
penetration of the fast growing polycarbonate market and will give the Company
access to certain technologies used in the production of single vision and
polycarbonate lenses.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered:
By the Company.................. 2,000,000 shares (1)
By the Selling Stockholders..... 805,415 shares
Total......................... 2,805,415 shares (1)
================
Outstanding Common Stock.......... 21,797,168 shares (2)
Use of Proceeds................... The Company expects to use the proceeds of
the Offering to repay certain indebtedness
incurred in connection with the AO
Acquisition. The Company will not receive
any proceeds from the sale of Shares by the
Selling Stockholders.
New York Stock Exchange Symbol.... "SOL"
</TABLE>
- --------
(1) Assumes the Underwriters' over-allotment option is not exercised. See
"Underwriters."
(2) As of May 31, 1996 and excludes 2,226,365 shares that may be issued upon
the exercise of options previously granted pursuant to the Company's stock
option plans.
6
<PAGE>
SUMMARY FINANCIAL AND PRO FORMA DATA
The summary historical financial data set forth below as of March 31, 1996
and for the fiscal year then ended has been derived from the audited
consolidated financial statements of the Company included elsewhere in this
Prospectus. The unaudited pro forma statement of operations data for the fiscal
year ended March 31, 1994 gives effect to the Acquisition and the IPO as if
they had occurred on April 1, 1993 and the unaudited pro forma statement of
operations data for the fiscal year ended March 31, 1995 gives effect to the
IPO as if it had occurred on April 1, 1994. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Form 10-K for the fiscal year ended March 31, 1996 (the "Form 10-K") for
additional information regarding the pro forma adjustments that have been
applied to the historical financial data. The unaudited pro forma statement of
operations data for the fiscal year ended March 31, 1996 gives effect to the AO
Acquisition, the Neolens Acquisition, the New Credit Agreement and the Offering
as if they had occurred on April 1, 1995. The pro forma financial data is
provided for informational purposes only and does not purport to be indicative
of the results which would have actually been obtained had the Acquisition, the
IPO, the AO Acquisition, the Neolens Acquisition, the New Credit Agreement and
the Offering, as the case may be, been completed on the dates indicated or
which may be expected to occur in the future. See "Selected Financial Data" and
the Company's Consolidated Financial Statements and notes thereto included
elsewhere in this Prospectus. The unaudited pro forma statement of operations
data for fiscal 1996 should be read in conjunction with the audited financial
statements of the Company and the unaudited pro forma financial information,
including the respective notes thereto, included elsewhere in this Prospectus
and the audited consolidated financial statements of AO contained in the
Company's Current Report on Form 8-K/A incorporated by reference herein.
<TABLE>
<CAPTION>
SOLA INTERNATIONAL INC.
-----------------------------------------
FISCAL YEAR ENDED MARCH 31,
-----------------------------------------
PRO FORMA PRO FORMA PRO FORMA
1996 (1) 1996 1995 (2) 1994 (3)
--------- -------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Net sales....................... $474,572 $387,709 $345,631 $306,055
Technology revenue.............. 1,450 -- -- --
Cost of sales................... 254,735 201,991 185,626 175,842
-------- -------- -------- --------
Gross profit................... 221,287 185,718 160,005 130,213
-------- -------- -------- --------
Research and development
expenses....................... 14,709 13,329 14,051 11,123
Selling and marketing expenses.. 81,155 66,345 61,143 52,629
General and administrative
expenses (including goodwill
amortization).................. 55,500 45,291 41,150 35,648
-------- -------- -------- --------
Operating expenses............. 151,364 124,965 116,344 99,400
-------- -------- -------- --------
Operating income............... 69,923 60,753 43,661 30,813
Interest expense, net........... (16,533) (12,141) (12,150) (12,674)
Foreign currency adjustments.... -- -- -- (645)
-------- -------- -------- --------
Income before provision for
income taxes, minority
interest and extraordinary
item.......................... 53,390 48,612 31,511 17,494
Provision for income taxes...... 15,091 13,623 6,933 7,219
Minority interest............... (401) (401) (933) (664)
-------- -------- -------- --------
Income before extraordinary
item(4)........................ $ 37,898 $ 34,588 $ 23,645 $ 9,611
======== ======== ======== ========
EARNINGS PER SHARE DATA
Earnings per share before
extraordinary item............. $ 1.52 $ 1.51 $ 1.05 $ 0.43
======== ======== ======== ========
Weighted average number of
shares outstanding............. 24,944 22,944 22,528 22,528
======== ======== ======== ========
</TABLE>
7
<PAGE>
SUMMARY FINANCIAL AND PRO FORMA DATA--(CONTINUED)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED(5)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Working capital....................................... $ 96,456 $135,362
Total assets.......................................... 416,849 558,519
Short-term debt....................................... 17,403 12,222
Long-term debt........................................ 97,890 175,070
Shareholders' equity.................................. 192,241 242,910
</TABLE>
- --------
(1) The pro forma statement of operations data for fiscal 1996 has been derived
from the unaudited pro forma condensed combined financial information
included elsewhere in this Prospectus and gives effect to (i) the AO
Acquisition and the Neolens Acquisition and the financings thereof,
including borrowings under the New Credit Agreement, and (ii) the Offering
and the application of the net proceeds therefrom as if those transactions
had occurred on April 1, 1995. See "Unaudited Pro Forma Condensed Combined
Financial Information."
(2) The pro forma statement of operations data for fiscal 1995 gives effect to
the IPO as if it had occurred on April 1, 1994. In connection with the IPO,
the Company recorded a non-recurring charge of $3.0 million for the
termination of the management agreement between AEA Investors Inc. ("AEA")
and the Company that was reflected in general and administrative expenses.
This charge has been excluded from the pro forma statement of operations
data for fiscal 1995 because it is non-recurring. In addition, the pro
forma statement of operations data for fiscal 1995 has been adjusted to
reflect (i) a $0.9 million decrease to general and administrative expenses
which relates to the elimination of the AEA management fee, (ii) a $6.4
million decrease in interest expense which relates to the repayment of
certain debt with the IPO proceeds and the reduced interest rate from the
bank credit agreement entered into at the time of the IPO (the "Old Credit
Agreement") and (iii) an increase in income tax expense as a result of the
pro forma adjustments.
(3) The pro forma statement of operations data for fiscal 1994 gives effect to
the Acquisition and the IPO as if they had occurred on April 1, 1993. For
fiscal 1994, the Company recorded two non-recurring, non-cash charges
associated with the Acquisition: (i) a $32.9 million charge for the
amortization associated with an inventory write-up to fair value that was
reflected in cost of sales; and (ii) a $40.0 million charge for the write-
off of in-process research and development that was reflected in in-process
research and development expense. These charges have been excluded from
this pro forma statement of operations data for fiscal 1994 because they
are non-recurring. In addition, the pro forma statement of operations data
for fiscal 1994 has been adjusted to reflect (i) a $1.6 million increase to
general and administrative expenses reflecting a full year of amortization
of goodwill and intangibles arising from the Acquisition as partially
offset by the elimination of the AEA management fee, (ii) a $3.4 million
increase to interest expense primarily resulting from increased borrowings
as a result of the Acquisition, partially offset by the decrease in
interest expense resulting from repayments of debt from the IPO proceeds
and the reduced interest rate from the Old Credit Agreement and (iii) an
increase in income tax expense as a result of the pro forma adjustments.
(4) During fiscal 1996 and 1995, the Company incurred extraordinary charges of
$0.9 million and $3.9 million, respectively.
(5) The as adjusted balance sheet data has been derived from the unaudited pro
forma condensed combined financial information included elsewhere in this
Prospectus and gives effect to (i) the AO Acquisition and the Neolens
Acquisition and the financings thereof, including borrowings under the New
Credit Agreement, and (ii) the Offering and the application of the net
proceeds therefrom as if those transactions had occurred as of March 31,
1996. See "Unaudited Pro Forma Condensed Combined Financial Information."
8
<PAGE>
RISK FACTORS
Before purchasing the Common Stock offered hereby, a prospective investor
should consider the specific factors set forth below as well as other
information included or incorporated by reference in this Prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" in the Company's Form 10-K for a description of
other factors affecting the business of the Company.
HIGHLY COMPETITIVE INDUSTRY
The eyeglass lens and coating industry is highly competitive. The Company
competes principally on the basis of customer service, the quality and breadth
of product offerings, and price. The eyeglass lens and coating industry is
characterized by price competition, which can be severe in certain markets,
particularly for standard products. Sola attempts, to the extent possible, to
counter competition on the basis of price by focusing on providing a rapid
response to orders, maintaining high fill rates, developing differentiated new
products, and educating processing laboratories and eyecare practitioners on
the benefits of Sola lenses and coatings. There can be no assurance, however,
that the Company's competitors will not develop products or services that are
more effective or less expensive than the Company's products or which could
render certain of the Company's products less competitive. Since recently-
developed products comprise a substantial portion of the Company's sales, the
Company's performance and future growth are dependent upon its continuing
ability to develop and market new products. Some of the Company's competitors
have significantly greater financial resources than the Company to fund
expansion and research and development. See "--Substantial Indebtedness" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" in the Company's Form 10-K. Within
a particular market, certain of the Company's competitors may enjoy a "home-
country" advantage over foreign competition. In addition, in certain markets
(primarily Europe), the Company also faces competition from a number of its
principal competitors which are vertically integrated with processing centers
to a greater extent than the Company, enabling them to customize prescription
lenses. This limits the number of independent lens processing customers to
which the Company can market its products.
INTERNATIONAL OPERATIONS
The Company operates manufacturing and distribution sites in all major
regions of the world--North America (including Mexico), Europe, and Rest of
World (comprising primarily Australia, Asia and South America)--and derived
approximately half of its net sales in fiscal 1995 from the sale of products
outside the United States. As a result, a significant portion of the Company's
sales and operations are subject to certain risks, including adverse
developments in the foreign political and economic environment, exchange rates,
tariffs and other trade barriers, staffing and managing foreign operations and
potentially adverse tax consequences. Although the Company and its predecessors
have been successfully conducting business outside of the United States since
its inception in 1960, there can be no assurance that any of these factors will
not have a material adverse effect on the Company's financial condition or
results of operations in the future.
The Company's interest expense is denominated predominantly in U.S. dollars;
its cash flow, however, is comprised of a variety of currencies. Although the
Company may enter into currency swap agreements with financial institutions to
reduce its exposure to fluctuations in foreign currency values relative to its
debt obligations, such hedging transactions, if entered into, will not
eliminate that risk entirely. As a result of the Company's worldwide
operations, currency exchange rate fluctuations tend to affect the Company's
results of operations and financial position. The Company has significant
operations in Brazil, which has, until recently, experienced a hyper-
inflationary environment and whose currency risk may not be effectively hedged.
The functional currency of the Company's operations in Brazil is the U.S.
dollar. Under U.S. generally accepted accounting principles for hyper-
inflationary countries, all translation and transaction adjustments of foreign
operations are reflected in the Company's statements of operations. The
Company's historical statements of operations reflect significant charges to
income primarily attributable to significant devaluations of the Brazilian
currency. There can be no assurance that hyper-inflationary conditions will not
return to Brazil or be present in
9
<PAGE>
other countries in which the Company has significant operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Currency Exchange Rates" and "--Inflation" in the Company's Form
10-K.
RESTRICTIONS ON PAYMENT OF DIVIDENDS FROM SUBSIDIARIES
The Company's foreign operations are conducted through its subsidiaries.
These operations contribute significantly to the Company's sales and
profitability. The payment of dividends and the making of loans and advances
to the Company by its subsidiaries may be subject to statutory restrictions,
are contingent upon the earnings of those subsidiaries and are subject to
various business considerations. Dividends and other payments to the Company
from subsidiaries in certain jurisdictions are subject to legal restrictions
and may have adverse tax consequences to the Company. The Company intends to
remit dividends from its foreign operations subject to local cash requirements
and legal restrictions. Management reviews the need for cash distributions to
the Company from its foreign subsidiaries on a case by case basis. If the need
for cash distributions from the subsidiaries should arise in the future, there
can be no assurance that the subsidiaries will be permitted to make such cash
distributions without legal restrictions or adverse tax consequences to the
Company. Commencing in fiscal 1996, the Company has provided for U.S. federal
and state income taxes on unremitted earnings of foreign subsidiaries.
SUBSTANTIAL INDEBTEDNESS
Although the Company's outstanding indebtedness was reduced by application
of the proceeds of the IPO in March 1995, the Company continues to have
substantial indebtedness. The Company's substantial indebtedness may limit its
capacity to respond to market conditions (including its ability to satisfy
capital expenditure requirements) or to meet its contractual or financial
obligations. In addition, pursuant to the debt instruments governing the
Company's indebtedness, the Company is subject to restrictive covenants that
could limit its ability to conduct its business. Furthermore, the ability of
the Company to satisfy its obligations will be dependent upon its future
performance, which will be subject to prevailing economic conditions and to
financial, business and other factors, including factors beyond the control of
the Company. Through and including December 15, 1998, interest on the
Company's 9 5/8% Senior Subordinated Notes due 2003 (the "Notes") will be
payable in cash semiannually at the rate of 6% per annum of the principal
amount at maturity of the Notes. After December 15, 1998, interest on the
Notes will accrue and be payable in cash semiannually at the rate of 9 5/8%
per annum of the principal amount at maturity of the Notes. Although the
Company believes that cash flow from operations will be sufficient to meet all
of its debt service requirements and to fund its capital expenditure
requirements, there can be no assurance that this will be the case.
RELIANCE ON KEY MANAGEMENT
The operation of the Company requires managerial and operational expertise.
Although all of the key management employees have employment contracts with
the Company, there can be no assurance that such individuals will remain with
the Company. If, for any reason, such key personnel do not continue to be
active in the Company's management, operations could be adversely affected.
RISKS IN THE OPERATION OF RECENTLY ACQUIRED FACILITIES
In June 1996 the Company acquired substantially all of AOC's worldwide
ophthalmic business. The future success of the AO Acquisition and the effect
of the AO Acquisition on the financial and operating results of the Company
will depend in part on the ability of the Company to operate AO successfully
as a stand-alone business and, where possible, to engage in cooperative and
joint activities with AO. The ability of the Company to accomplish its
objectives in connection with the AO Acquisition is, like any acquisition,
subject to certain risks including, among others, the possible inability to
retain certain AO personnel, potential negative effects of diverting
management resources and the possible failure to retain AO customers.
10
<PAGE>
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company has not declared or paid any cash dividends on any class of its
capital stock, and does not intend to pay dividends on its Common Stock in the
foreseeable future. The Company's Amended and Restated Bank Credit Agreement
with the Bank of Nova Scotia, and the Indenture governing the Notes (the
"Indenture"), restrict and limit the payment of dividends on the Common Stock.
See "Price Range of Common Stock and Dividend Policy."
ANTITAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation") and Amended and Restated By-Laws (the
"By-Laws") contain certain provisions that could make more difficult the
acquisition of the Company by means of a tender offer, a proxy contest or
otherwise. These provisions include advance notice procedures for stockholders
to nominate candidates for election as directors of the Company and for
stockholders to submit proposals for consideration at stockholders' meetings.
In addition, the Company is subject to Section 203 of the Delaware General
Corporation Law ("Delaware Law"), which limits transactions between a publicly
held company and "interested stockholders" (generally, those stockholders who,
together with their affiliates and associates, own 15% or more of a company's
outstanding capital stock). This provision of Delaware Law also may have the
effect of deterring certain potential acquisitions of the Company. See
"Description of Capital Stock."
11
<PAGE>
THE COMPANY
Sola designs, manufactures and distributes a broad range of eyeglass lenses,
primarily focusing on the faster growing plastic lens segment of the global
lens market. Sola has manufacturing and distribution sites in three major
regions--North America, Europe, and Rest of World (comprising primarily
Australia, Asia and South America). The Company believes it ranks first or
second in unit sales of plastic eyeglass lenses in each of these geographic
regions (if the Japanese market is excluded from Rest of World).
The principal executive offices of the Company are located at 2420 Sand Hill
Road, Menlo Park, California 94025; the Company's telephone number is (415)
324-6868.
THE AO ACQUISITION
THE PURCHASE AGREEMENT
The Company and AOC are parties to a Purchase Agreement dated as of May 6,
1996 (the "Purchase Agreement"). Pursuant to the Purchase Agreement, Sola has
purchased substantially all of the assets of AOC's United States ophthalmic
business and all of the shares of capital stock of certain foreign subsidiaries
which operate AOC's ophthalmic business in Mexico, the United Kingdom, France,
Switzerland, Singapore, Canada and Zimbabwe. The purchase price is $107 million
(together with the assumption of certain liabilities), subject to post closing
adjustments. The AO Acquisition was consummated in June 1996.
In connection with the AO Acquisition, Sola received a perpetual, royalty-
free license which generally provides for Sola's exclusive use of certain
trademarks and the AO and American Optical trade names in the ophthalmic
business worldwide, subject to certain limitations in connection with certain
specified geographic areas and products. Except as licensed to Sola, AOC
retains ownership and rights to use the licensed trademarks and trade names. In
connection with the AO Acquisition, the principal owner of AOC has agreed not
to compete with the acquired businesses for a period of seven years.
Pursuant to the terms of the Purchase Agreement, and subject to certain
exceptions, AOC has agreed to indemnify the Company for certain losses (i)
arising out of breaches of AOC's representations and warranties and covenants
contained in the Purchase Agreement, (ii) arising out of retained liabilities
or (iii) otherwise relating to environmental claims.
AO'S BUSINESS
AO is a leading manufacturer and worldwide distributor of a broad range of
ophthalmic lenses used in prescription eyewear. Its product line includes
single vision, bifocal, trifocal and progressive lenses, many of which are sold
under AO's brand names such as AOPro(TM), TruVision Omni(R), and Aspherlite(R).
AO focuses on the production of plastic lenses, but also offers value-added
glass progressive lenses and glass executive bifocals. The Company believes
that approximately half of AO's fiscal 1996 net sales represented sales of
value-added products such as progressive lenses and thinner, lighter weight
lenses made of high-index plastic, polycarbonate and other advanced materials.
AO also provides value-added services through five non-U.S. prescription
laboratories which customize lenses to individual customer prescriptions and
preferences. More than 40% of AO's fiscal 1996 net sales were generated from
the services provided by these laboratories.
AO sells its products to a diverse base of international and domestic
customers including retail chains, optical wholesalers and research
laboratories. AO's net sales and operating income, after allocated corporate
expenses, were approximately $85.7 million and $11.9 million, respectively,
during fiscal 1996. More than 70% of its fiscal 1996 net sales originated
outside the United States. AO has manufacturing operations in Massachusetts,
Mexico and the United Kingdom, and sales and distribution operations in the
United States, the United Kingdom, France, Switzerland, Mexico, Canada,
Singapore and Zimbabwe.
AO operates prescription laboratories in France, the United Kingdom, Mexico,
Singapore and Zimbabwe. The Company believes that AO's primary laboratory in
Fougeres, France is among the highest quality
12
<PAGE>
laboratories in Europe. Laboratory services provided by AO include fabrication,
the process of grinding a final prescription onto a semi-finished lens;
coating, which involves the application of scratch resistant hard coating,
anti-reflective coating or color tinting; and edging, the process of shaping
lenses to meet the specifications of a specific frame.
AO has approximately 1,200 employees, mostly at its Tijuana manufacturing
facilities and French prescription laboratory.
STRATEGY
The Company believes that the AO Acquisition will further its strategies of
introducing high value-added products, expanding worldwide distribution
capabilities and emphasizing low cost manufacturing. In particular, the Company
believes that it will benefit from the following factors:
Recognizable Brand Name. Tracing its roots back to the nineteenth century,
the AO name is one of the most widely known and respected brand names in the
ophthalmic industry. The Company believes that the AO name is especially well
known in developing markets such as China and Latin America, even though AO has
only limited sales in these markets at present. Sola hopes to benefit by
combining the strength of Sola's existing distribution channels in these
countries with the value of the AO name.
Low Cost Manufacturing. Substantially all of AO's manufacturing is conducted
at its glass lens plant and plastic lens plant in Tijuana, Mexico. The Company
hopes to improve the cost efficiency of AO's manufacturing operations in Mexico
by employing proven Sola technologies which the Company believes should allow
for a reduction in unit cost.
Broadened Customer Base. The Company believes that AO's customer base in the
value-added product market, including the progressive lens segment, complements
Sola's existing customer base. AO focuses on the economy segment of this
product market, which complements Sola's focus on the premium segment of this
product market. The Company also expects that AO's sales of middle index
materials, as well as plastic photochromic lenses, at economy prices will
further broaden Sola's customer base.
Strengthened European Distribution. The Company believes that the acquisition
of AO's modern prescription laboratory in France, as well as access to its
strong distribution network, will provide Sola with access to AO's lab
technology and the opportunity which the laboratory's distribution gives the
Company to work directly with eyecare practitioners.
Strong AO Management. Sola anticipates retaining all of the key members of
the AO management team, which Sola believes is experienced and talented. Sola
expects to operate AO as a stand-alone business, except where it believes that
both businesses can benefit from cooperative and joint activity.
USE OF PROCEEDS
The net proceeds from the sale of shares of Common Stock by the Company,
after deducting expenses of the Offering, including the discounts and
commissions paid to the Underwriters, are estimated to be approximately $58.4
million. The Company intends to use such net proceeds to repay indebtedness
which it incurred under the New Credit Agreement in order to pay a portion of
the purchase price for the AO Acquisition. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
The New Credit Agreement consists of a five-year term loan of $30 million, a
renewable three-year foreign currency revolving facility of $30 million, and a
five-year U.S. dollar revolver of $120 million. The term loan and the U.S.
dollar revolving line of credit bear interest at an initial rate of LIBOR plus
0.75% (approximately 6.5%) and the foreign currency revolving facility bear an
initial interest rate of the relevant local economy IBOR plus 0.75%. The term
loan was made in order to finance a portion of the AO Acquisition, and the
revolving line of credit generally will be used for working capital.
13
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has been listed on the New York Stock Exchange
since February 23, 1995 under the symbol "SOL." The following table sets forth
on a per share basis the closing high and low sales prices for consolidated
trading in the Common Stock as reported on the New York Stock Exchange
Composite Tape for the fiscal quarters indicated.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE RANGE
---------------
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year Ended March 31, 1995
Fourth Quarter (beginning February 23, 1995)................. $21 1/2 $16 1/2
Fiscal Year Ended March 31, 1996
First Quarter Ended June 30, 1995............................ 24 7/8 21 1/8
Second Quarter Ended September 30, 1995...................... 26 3/4 20 5/8
Third Quarter Ended December 31, 1995........................ 27 3/8 21 3/8
Fourth Quarter Ended March 31, 1996.......................... 32 1/4 25 1/2
Fiscal Year Ended March 31, 1997
First Quarter (through June 24, 1996)........................ 34 7/8 27 5/8
</TABLE>
For a recent reported last sale price for the Common Stock, see the cover
page of this Prospectus. As of May 31, 1996, there were 549 holders of record
of the Company's Common Stock, which excludes beneficial owners of Common
Stock held in "street name."
Since the Acquisition, the Company has not declared or paid any cash
dividends on its Common Stock. The Company's New Credit Agreement and the
Indenture generally restrict, subject to certain exceptions, the payment of
dividends, distributions and other payments. The Company does not anticipate
paying any cash dividends in the foreseeable future and intends to retain
future earnings for the development and expansion of its business. Subject to
such restrictions, any future determination to pay dividends will be at the
discretion of the Company's Board of Directors and subject to certain
limitations under the Delaware Law, and will depend upon the Company's results
of operations, financial condition, other contractual restrictions and other
factors deemed relevant by the Board of Directors.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted giving effect to the AO Acquisition, the Neolens
Acquisition, the Offering and the New Credit Agreement as if each transaction
had occurred as of March 31, 1996. The information presented below should be
read in conjunction with the Consolidated Financial Statements and the related
notes thereto and the unaudited pro forma condensed combined financial
information included elsewhere in this Prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in the
Company's Form 10-K.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
--------------------------
(DOLLARS IN THOUSANDS)
--------------------------
ACTUAL AS ADJUSTED
----------- -------------
<S> <C> <C>
Short-term debt, including current maturities of
long-term debt (1)................................. $ 17,403 $ 12,222
=========== ===========
Long-term debt:
Old Credit Agreement.............................. $ 6,000 $ --
New Credit Agreement (2).......................... -- 80,809
Senior Subordinated Notes (3)..................... 88,530 88,530
Other long-term debt (1).......................... 3,360 5,731
----------- -----------
Total long-term debt............................. 97,890 175,070
----------- -----------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued..................... -- --
Common stock, $.01 par value; 50,000,000 shares
authorized,
21,797,168 shares issued and outstanding (4)..... 218 238
Additional paid-in capital........................ 206,412 264,792
Equity participation loans........................ (421) (421)
Accumulated deficit............................... (17,993) (25,724)
Cumulative foreign currency adjustments........... 4,025 4,025
----------- -----------
Total shareholders' equity....................... 192,241 242,910
----------- -----------
Total capitalization................................ $ 290,131 $ 417,980
=========== ===========
</TABLE>
- --------
(1) See Notes 5 and 6 to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.
(2) At March 31, 1996, on a pro forma basis, the Company would have had $97.8
million of unused borrowing capacity under the New Credit Agreement.
(3) See Note 8 to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus.
(4) Excludes 2,226,365 shares that may be issued upon the exercise of options
previously granted pursuant to the Company's stock option plans as of March
31, 1996.
15
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below as of March 31, 1996 and 1995
and for the fiscal years ended March 31, 1996 and 1995, and for the four and
eight months ended March 31, 1994 and November 30, 1993, respectively, should
be read in conjunction with the audited financial statements and the notes
thereto included elsewhere in this Prospectus. The selected financial data as
of March 31, 1994, 1993 and 1992 and for the fiscal years ended March 31, 1993
and 1992 are derived from audited combined financial statements for such
fiscal years. The financial information for all periods prior to December 1,
1993, the date of the Acquisition, are those of the Predecessor Business. The
historical data of the Predecessor Business and the Company are not comparable
in all respects. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Company's Form 10-K
incorporated herein by reference and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SOLA INTERNATIONAL INC. PREDECESSOR BUSINESS
------------------------------------ -------------------------------
FOUR FISCAL YEAR
FISCAL YEAR FISCAL YEAR MONTHS EIGHT MONTHS ENDED
ENDED ENDED ENDED ENDED MARCH 31,
MARCH 31 MARCH 31, MARCH 31, NOV. 30, ------------------
1996 1995 1994 1993 1993 1992
----------- ----------- --------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA
Net sales............. $387,709 $345,631 $106,030 $200,025 $281,494 $258,764
Cost of sales......... 201,991 185,626 93,428(1) 115,319 157,159 143,089
-------- -------- -------- -------- -------- --------
Gross profit.......... 185,718 160,005 12,602 84,706 124,335 115,675
-------- -------- -------- -------- -------- --------
Research and
development
expenses............. 13,329 14,051 3,877 7,246 10,785 9,247
Selling and marketing
expenses............. 66,345 61,143 19,146 33,483 51,183 44,543
General and
administrative
expenses............. 42,089 41,912(2) 9,604 23,438 32,041 32,459
Goodwill
amortization......... 3,202 3,155 980 -- -- --
In-process research
and development
expense.............. -- -- 40,000(1) -- -- --
-------- -------- -------- -------- -------- --------
Operating expenses... 124,965 120,261 73,607 64,167 94,009 86,249
-------- -------- -------- -------- -------- --------
Operating income
(loss).............. 60,753 39,744 (61,005) 20,539 30,326 29,426
Interest expense,
net.................. (12,141) (18,522) (6,160) (3,071) (4,490) (4,695)
Foreign currency
adjustments.......... -- -- (167) (478) (814) (2,510)
-------- -------- -------- -------- -------- --------
Income (loss) before
provision (benefit)
for income taxes,
minority interest
and extraordinary
item................ 48,612 21,222 (67,332) 16,990 25,022 22,221
Provision (benefit)
for income taxes..... 13,623 6,649 (6,194) 5,833 8,507 7,302
Minority interest..... (401) (933) (256) (408) -- --
-------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item.. 34,588 13,640 (61,394) 10,749 16,515 14,919
Extraordinary item,
write-off of debt
issuance costs,
net................. (912) (3,915)(2) -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss).... $ 33,676 $ 9,725 $(61,394) $ 10,749 $ 16,515 $ 14,919
======== ======== ======== ======== ======== ========
EARNINGS PER SHARE DATA
(3)
Income (Loss) before
extraordinary item... $ 1.51 $ 0.78 $ (3.75)
Extraordinary item.... (0.04) (0.22) --
-------- -------- --------
Net income (loss)..... $ 1.47 $ 0.56 $ (3.75)
======== ======== ========
Weighted average
number of shares
outstanding.......... 22,944 17,516 16,353
======== ======== ========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
SOLA INTERNATIONAL INC. PREDECESSOR BUSINESS
-------------------------- ---------------------
AS OF MARCH 31,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital.............. $ 96,456 $ 76,595 $ 64,110 $ 53,849 $ 58,003
Total assets................. 416,849 383,457 360,631 246,944 235,076
Short-term debt.............. 17,403 11,078 12,524 45,627 44,789
Long-term debt............... 97,890 107,407 186,740 9,744 6,328
Parent company investment.... -- -- -- 117,129 120,810
Total Shareholders' equity... 192,241 159,443 63,495 -- --
</TABLE>
- --------
(1) For the four months ended March 31, 1994, the Company recorded two non-
recurring, non-cash charges associated with the Acquisition: (i) a $32.9
million charge for the amortization associated with an inventory write-up
to fair value that was reflected in cost of sales; and (ii) a $40.0
million charge for the write-off of in-process research and development
that was reflected in in-process research and development expense.
(2) For fiscal 1995, the Company recorded two non-recurring charges in
connection with the IPO: (i) a $3.0 million charge for the termination of
the AEA management agreement with the Company that was reflected in
general and administrative expenses; and (ii) a $3.9 million write-off of
debt issuance costs that was reflected in the historical financial
statements as an extraordinary item.
(3) Earnings per share are computed using the weighted average number of
common shares and common share equivalents outstanding during the period
after giving effect to the IPO.
17
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
In June 1996 the Company acquired AO for cash consideration of $107 million
(together with the assumption of certain liabilities), subject to post-closing
adjustments. The AO Acquisition was funded primarily through borrowings under
the New Credit Agreement, which borrowings will be repaid in part with the
proceeds of the Offering. In May 1996, the Company announced that it had
entered into a definitive merger agreement which provides for the Neolens
Acquisition. The Company intends to fund the Neolens Acquisition primarily
through borrowings under the New Credit Agreement.
The unaudited pro forma condensed combined financial information gives
effect to the AO Acquisition and the Neolens Acquisition and the financings
thereof, including the borrowings under the New Credit Agreement and the
Offering, as if they had occurred on April 1, 1995 for purposes of the
unaudited pro forma condensed combined statement of operations and as of March
31, 1996 for purposes of the unaudited pro forma condensed combined balance
sheet. The pro forma adjustments have been applied to the financial
information derived from the audited financial statements of the Company and
AO and the unaudited financial statements of Neolens and substantially all of
AO's Singapore ophthalmic operations ("AO Singapore") to account for the AO
Acquisition and the Neolens Acquisition as purchases; accordingly, assets
acquired and liabilities assumed will be recorded at their estimated fair
values which are subject to further refinement, including appraisals and other
analyses, with appropriate recognition given to the effect of current interest
rates and income taxes.
The AO Acquisition and the Neolens Acquisition will be accounted for using
the purchase method of accounting. The unaudited pro forma condensed combined
financial information has been prepared on the basis of assumptions described
in the notes thereto and includes assumptions relating to the allocation of
the consideration paid for the assets and liabilities of AO and Neolens based
on preliminary estimates of their fair value. The actual allocation of such
consideration may differ from that reflected in the unaudited pro forma
condensed combined financial information after valuations and other procedures
to be performed after the closings of the AO Acquisition and the Neolens
Acquisition have been performed. The Company does not expect that the final
allocation of the aggregate purchase price for the AO Acquisition and the
Neolens Acquisition will differ materially from the preliminary allocations.
In addition, the proceeds from the Offering, the interest rate on, and the
amount of, borrowings under the New Credit Agreement and actual fees and
expenses may differ from the assumptions set forth below. In the opinion of
the Company, all adjustments necessary to present fairly such unaudited pro
forma condensed combined financial information have been made based on the
proposed terms and structures of the AO Acquisition and the Neolens
Acquisition.
As a result of the AO Acquisition, the Company expects to incur two
nonrecurring charges in fiscal 1997: (i) an estimated $7.0 million charge to
cost of sales for the amortization associated with an inventory write-up to
fair value; and (ii) an estimated $10.0 million charge for the write-off of
in-process research and development. These charges have been excluded from the
unaudited pro forma condensed combined statement of operations included herein
because they are nonrecurring. The Company also expects to record
approximately $71.8 million of goodwill in connection with the AO Acquisition
and the Neolens Acquisition, which will be amortized over 40 years.
The unaudited pro forma condensed combined financial information is not
necessarily indicative of what actual results would have been had the AO
Acquisition and the Neolens Acquisition occurred at the dates indicated nor do
they purport to project the future financial position or the results of future
operations of the Company.
The unaudited pro forma condensed combined financial information should be
read in conjunction with the accompanying notes and the audited financial
statements, including the notes thereto, of the Company, included elsewhere in
this Prospectus.
18
<PAGE>
SOLA INTERNATIONAL INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1996 (IN THOUSANDS)
The unaudited pro forma condensed combined balance sheet as of March 31,
1996 has been prepared by combining the historical consolidated balance sheet
of the Company as of March 31, 1996 with (i) the historical combined balance
sheet of the Worldwide Ophthalmic Group of American Optical Corporation as of
March 29, 1996, (ii) the historical balance sheet of AO Singapore as of March
31, 1996 and (iii) the historical balance sheet of Neolens as of January 31,
1996 and gives effect to the pro forma adjustments as described in the notes
hereto.
<TABLE>
<CAPTION>
SOLA AMERICAN
INTERNATIONAL OPTICAL AO NEOLENS, PRO FORMA
INC. CORPORATION SINGAPORE(I) INC.(II) ADJUSTMENTS COMBINED
------------- ----------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equiva-
lents................. $ 22,394 $ 2,220 $ 680 $ 3 $ (32)(1) $ 25,265
Trade accounts receiv-
able, net............. 74,845 15,798 1,300 452 (967)(2) 91,428
Inventories............ 100,707 19,450 1,205 902 7,000 (1) 129,264
Deferred income taxes.. 7,491 -- -- -- 7,491
Prepaids and other
current assets........ 1,861 3,861 295 61 (236)(2) 5,842
-------- ------- ------ ------ ------- --------
Total current assets.. 207,298 41,329 3,480 1,418 5,765 259,290
Property, Plant and
equipment, net......... 79,582 9,884 332 896 616 (1) 91,310
Deferred income taxes... 6,800 252 -- -- 3,248 (1) 10,300
Debt issuance costs,
net.................... 1,907 -- -- 240 660 (3) 2,807
Goodwill and other
intangibles, net....... 120,352 -- -- -- 73,335 (1) 193,687
Other assets............ 910 175 -- 40 1,125
-------- ------- ------ ------ ------- --------
Total assets.......... $416,849 $51,640 $3,812 $2,594 $83,624 $558,519
======== ======= ====== ====== ======= ========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
LIABILITIES
Current liabilities
Notes payable to
banks................. $ 13,722 $ 534 $ -- $1,066 $(1,066)(4) $ 7,601
(6,655)(5)
Current portion of
long-term debt........ 3,681 940 -- 300 (300)(4) 4,621
Accounts payable....... 39,415 5,477 839 1,180 46,911
Accrued liabilities.... 20,167 4,042 1,599 -- (1,203)(2) 24,605
Accrued reorganization
and acquisition
expenses.............. 9,746 -- -- -- 9,746
Accrued payroll and
related expenses...... 22,560 3,638 59 -- 26,257
Income taxes payable... 1,090 1,284 17 -- 2,391
Deferred income taxes.. 461 286 -- -- 1,049 (1) 1,796
-------- ------- ------ ------ ------- --------
Total current liabili-
ties................. 110,842 16,201 2,514 2,546 (8,175) 123,928
Long-term debt, less
current portion........ 3,360 2,371 -- -- 5,731
Bank debt, less current
portion................ 6,000 -- -- -- 74,809 (4,5) 80,809
Senior subordinated
notes.................. 88,530 -- -- 107 (107)(4) 88,530
Deferred income taxes... 4,990 -- -- -- 735 (1) 5,725
(1,086)(1)
Other liabilities....... 10,886 1,086 -- 125 (125)(4) 10,886
-------- ------- ------ ------ ------- --------
Total liabilities..... 224,608 19,658 2,514 2,778 66,051 315,609
SHAREHOLDERS' EQUITY
Parent company invest-
ment................... -- 31,982 1,298 (184) (33,096)(1) --
Common stock............ 218 -- -- -- 20 (6) 238
Additional paid-in capi-
tal.................... 206,412 -- -- -- 58,380 (6) 264,792
Equity participation
loans.................. (421) -- -- -- (421)
Accumulated deficit..... (17,993) -- -- -- (7,731)(7) (25,724)
Cumulative foreign
currency adjustments... 4,025 -- -- -- 4,025
-------- ------- ------ ------ ------- --------
Total shareholders'
equity/parent company
investment........... 192,241 31,982 1,298 (184) 17,573 242,910
-------- ------- ------ ------ ------- --------
Total liabilities and
shareholders'
equity............... $416,849 $51,640 $3,812 $2,594 $83,624 $558,519
======== ======= ====== ====== ======= ========
</TABLE>
- --------
(i) The financial information with respect to AO Singapore is derived from
unaudited internal financial data provided to the Company by AOC. This
information has not been independently reviewed or audited by the Company
or an independent accounting firm.
(ii) The financial information with respect to Neolens is based on unaudited
financial statements provided to the Company by Neolens. This information
has not been independently reviewed or audited by the Company or an
independent accounting firm.
19
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1996
The pro forma condensed combined balance sheet gives effect to the following
pro forma adjustments:
(1)The AO Acquisition and the Neolens Acquisition will be accounted for as
purchases pursuant to APB Opinion No. 16, "Business Combinations." The
respective purchase prices will be allocated to the assets and liabilities of
the acquired businesses based on their relative fair values. Such allocations
are subject to final determination based on valuations and other studies that
are not yet completed. The final values may differ from those set forth below.
<TABLE>
<CAPTION>
NEOLENS
AO ACQUISITION ACQUISITION TOTAL
-------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Estimated purchase price................. $107,000 $13,000 $120,000
Acquisition expenses..................... 2,500 565 3,065
-------- ------- --------
TOTAL ESTIMATED ACQUISITION COST....... $109,500 $13,565 $123,065
======== ======= ========
Historical net book value at March 31,
1996.................................... $ 33,280 $ (184) $ 33,096
Elimination of certain assets and liabil-
ities as per the agreement:
Elimination of U.S. cash balance........ (32) -- (32)
Elimination of U.S. Benefit Plan liabil-
ities not assumed...................... 1,086 -- 1,086
Elimination of current and deferred tax
liabilities in the U.S. (a)............ (221) -- (221)
-------- ------- --------
ADJUSTED BOOK VALUE ACQUIRED........... 34,113 (184) 33,929
Write-up of inventories (b).............. 7,000 -- 7,000
Write-up of property, plant and equip-
ment.................................... 616 -- 616
Goodwill................................. 58,086 13,749 71,835
In-process research and development...... 6,500 -- 6,500
Non-compete agreement.................... 1,500 -- 1,500
Net deferred tax effects of certain of
the above purchase accounting
adjustments (c)......................... 1,685 -- 1,685
-------- ------- --------
$109,500 $13,565 $123,065
======== ======= ========
</TABLE>
- --------
(a) The Company will be able to write-up the AO U.S. assets acquired,
including goodwill, for income tax purposes and accordingly, there will be
no initial differences between the tax bases and the fair values of the
U.S. assets upon acquisition. This will result in the elimination of the
following deferred tax amounts (in thousands):
<TABLE>
<S> <C>
Long term deferred tax asset...................................... $(252)
Current deferred tax liability.................................... 31
-----
$(221)
=====
</TABLE>
(b) The Company will write-up the value of certain AO inventory accounts in
connection with the purchase price allocation. The majority of this write-
up will be charged to cost of goods sold in fiscal 1997. This one-time
charge has not been reflected in the accompanying unaudited pro forma
condensed combined statement of operations due to its unusual, non-
recurring nature.
(c) Represents the deferred tax liability relating to the inventory and
property and equipment write-ups at the foreign locations for which there
is no change in tax basis, net of a deferred tax asset recognized in
connection with the in-process research and development charge. The net
deferred tax effect was calculated as follows (in thousands):
<TABLE>
<S> <C>
Current deferred tax liability relating to inventory write-up... $(1,335)
Long term deferred tax liability relating to property, plant and
equipment write-up............................................. (480)
Deferred tax asset relating to in-process research and develop-
ment........................................................... 3,500
-------
$ 1,685
=======
</TABLE>
20
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET--(CONTINUED)
MARCH 31, 1996
(2)Under the terms of the AO Acquisition, the Company has acquired
substantially all of AO Singapore's ophthalmic operations, which are
separately disclosed in the above unaudited pro forma condensed combined
balance sheet. Intercompany accounts reflected on the historical balance
sheets have been eliminated.
(3)Represents expenses incurred in connection with entering into the New
Credit Agreement, estimated at $0.9 million, offset by the write-off of
Neolens deferred bank issue expenses of $0.2 million. The existing Neolens
bank credit agreement will be repaid in full in connection with the Neolens
Acquisition.
(4)Represents borrowings of Neolens which will be replaced by bank
borrowings under the New Credit Agreement after the Neolens Acquisition.
(5)Represents borrowings of $52 million under the New Credit Agreement used
to partially fund the AO Acquisition, and borrowings of $14.5 million under
the New Credit Agreement used to fund the Neolens Acquisition. In addition,
$8.3 million of borrowings under the New Credit Agreement are assumed to
replace certain foreign currency borrowings of the Company ($6.7 million) and
certain obligations of Neolens ($1.6 million).
(6)Represents the issuance of approximately $62 million of Common Stock by
the Company in the Offering with net cash proceeds of $58.4 million.
(7)In accordance with generally accepted accounting principles, the Company
will allocate a portion of the AO purchase price to in-process research and
development and immediately write-off an estimated $10.0 million ($6.5 million
net of income taxes of $3.5 million) of in-process research and development of
AO as a charge to operations upon consummation of the AO Acquisition. This
will result in a corresponding charge to retained earnings. This one-time
charge is reflected in the unaudited pro forma condensed combined balance
sheet but not in the unaudited pro forma condensed combined statement of
operations due to its unusual, non-recurring nature.
21
<PAGE>
SOLA INTERNATIONAL INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The unaudited pro forma condensed combined statement of operations
information has been prepared by combining the historical consolidated
statement of operations of the Company for the fiscal year ended March 29,
1996 with (i) the historical combined statement of operations of the Worldwide
Ophthalmic Group of American Optical Corporation for the fiscal year ended
March 31, 1996, (ii) the historical statement of operations of AO Singapore
for the year ended March 31, 1996 and (iii) the historical statement of
operations of Neolens for the twelve months ended January 31, 1996 and gives
effect to the pro forma adjustments as described in the notes hereto.
<TABLE>
<CAPTION>
SOLA AMERICAN
INTERNATIONAL OPTICAL AO NEOLENS, PRO FORMA
INC. CORPORATION SINGAPORE(I) INC.(II) ADJUSTMENTS COMBINED
------------- ----------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $387,709 $81,623 $5,440 $ 2,441 $(2,641)(1) $474,572
Technology revenue...... -- 1,450 -- -- 1,450
-------- ------- ------ ------- ------- --------
Total revenue.......... 387,709 83,073 5,440 2,441 (2,641) 476,022
(2,641)(1)
Cost of sales........... 201,991 48,220 4,576 2,512 77 (2) 254,735
-------- ------- ------ ------- ------- --------
Gross profit........... 185,718 34,853 864 (71) (77) 221,287
Research and development
expenses............... 13,329 1,146 -- 234 14,709
Selling and marketing
expenses............... 66,345 13,755 816 239 81,155
2,002 (3)
General and
administrative
expenses............... 45,291 6,242 657 1,008 300 (4) 55,500
-------- ------- ------ ------- ------- --------
Operating expenses..... 124,965 21,143 1,473 1,481 2,302 151,364
-------- ------- ------ ------- ------- --------
Operating income....... 60,753 13,710 (609) (1,552) (2,379) 69,923
Corporate allocation.... -- (1,235) -- -- 1,235 (5) --
Interest expense, net... (12,141) (172) 12 (324) (3,908)(6) (16,533)
-------- ------- ------ ------- ------- --------
Income before provision
for income taxes,
minority interest and
extraordinary item.... 48,612 12,303 (597) (1,876) (5,052) 53,390
Provision for income
taxes.................. 13,623 3,768 (413) -- (1,887)(7) 15,091
Minority interest....... (401) -- -- -- (401)
-------- ------- ------ ------- ------- --------
Income (loss) before
extraordinary item.... $ 34,588 $ 8,535 $ (184) $(1,876) $(3,165) $ 37,898
======== ======= ====== ======= ======= ========
Earnings per share
before extraordinary
item.................. $ 1.51 $ 1.52
======== ========
Weighted average number
of shares
outstanding........... 22,944 2,000 (8) 24,944
======== ======= === ========
</TABLE>
- --------
(i) The financial information with respect to AO Singapore is derived from
unaudited internal financial data provided to the Company by AOC. This
information has not been independently reviewed or audited by the Company
or an independent accounting firm.
(ii) The financial information with respect to Neolens is based on unaudited
financial statements provided to the Company by Neolens. This information
has not been independently reviewed or audited by the Company or an
independent accounting firm.
22
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1996
The pro forma condensed combined statement of operations gives effect to the
following pro forma adjustments:
(1)Under the terms of the AO Acquisition, the Company has acquired
substantially all of AO's Singapore ophthalmic operations, which are
separately disclosed in the above unaudited pro forma condensed combined
statement of operations. During the year ended March 29, 1996, AO recorded net
sales of $1.4 million to the AO Singapore operation, which are included in the
historical financial statements used in the unaudited pro forma condensed
combined statement of operations. The pro forma adjustments eliminate the AO
sales to AO Singapore. In addition, Neolens recorded sales of $1.2 million to
Sola during the twelve months ended January 31, 1996. The pro forma
adjustments eliminate the Neolens sales to Sola.
(2)Represents amortization of the write-up of property, plant and equipment
over an estimate of its composite useful life. Amortization of the property,
plant and equipment write-up has been allocated to cost of sales as the most
significant write-ups relate to laboratory assets in France and manufacturing
assets in Mexico. The composite useful life assumed in these pro forma
financial statements is eight years.
(3)Represents the amortization of goodwill and other intangible assets
arising upon the AO Acquisition and the Neolens Acquisition, over 40 years for
goodwill, and over seven years for the non-compete agreement (in accordance
with the terms of the Purchase Agreement), reflecting an estimate of the
amortizable lives of such intangibles.
<TABLE>
<S> <C>
(IN THOUSANDS)
Amortization of goodwill................................... $ 1,787
Amortization of non-compete agreement...................... 215
--------------
Total amortization......................................... $ 2,002
==============
</TABLE>
(4)Reflects the Company's estimate of additional general and administrative
expenses that will be incurred after the AO Acquisition. The estimated costs
relate primarily to expenditures on treasury, legal and tax and accounting
expenses.
(5)Reflects the reversal of $1.2 million of corporate allocations from AOC,
which will not continue after the AO Acquisition. The corporate allocations
include legal, financial and administrative services primarily provided by
AOC.
(6)Represents the additional interest expense for the fiscal year ended
March 31, 1996 that would have been incurred had the AO Acquisition, the
Neolens Acquisition and the Offering taken place on April 1, 1995 computed as
follows (in thousands):
<TABLE>
<S> <C>
Reduction in interest expense due to reduced interest rate under
the New Credit Agreement......................................... $ (169)
Reduction in interest expense incurred by Neolens when converted
to
New Credit Agreement............................................. (233)
Interest expense on increased borrowings of $66.5 million at 6.94%
per annum........................................................ 4,615
Interest expense savings on additional borrowings of $66.5 million
due to reduced interest rate under New Credit Agreement.......... (499)
Amortization of bank issue expenses over the life of the New
Credit Agreement
(three to five years) ........................................... 194
------
Change in interest expense........................................ $3,908
======
</TABLE>
23
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS--
(CONTINUED)
FISCAL YEAR ENDED MARCH 31, 1996
A change of 1/4% in the interest rate payable on the outstanding balance
under the New Credit Agreement would change annual interest expense by
approximately $0.2 million before the effect of income taxes.
(7)Adjustment to reflect income tax effects assuming a combined state and
federal effective income tax rate of 35% for the companies acquired in the AO
Acquisition and the Neolens Acquisition. Interest payments on the acquisition
debt will be funded, in part, through interest received from the AO
subsidiaries that is attributable to that portion of acquisition debt which
can be allocated to foreign subsidiaries and through dividends remitted from
its subsidiaries. The Company anticipates that withholding taxes will be paid
on certain interest and dividend income on remittance to the Company and that
the deductibility of such taxes through foreign tax credits will be subject to
certain limitations. In addition, the AO and Neolens historical tax charges in
their statements of operations have benefitted from tax NOL's in certain
jurisdictions. Following the acquisition any benefit from such NOL's will be
charged directly to goodwill.
(8)Adjustment to reflect the issuance of 2.0 million shares of Common Stock
in the Offering.
24
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock (i) immediately prior to the Offering
and (ii) as adjusted to reflect the sale of the shares of Common Stock pursuant
to the Offering by each Selling Stockholder participating in the Offering.
Except as otherwise indicated, the persons or entities listed below have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them, except to the extent such power may be shared with
a spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING
--------------------- --------------------
NUMBER
OF SHARES
NAME NUMBER(1) PERCENT OFFERED NUMBER(1) PERCENT(2)
- ---- ------------ -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
SELLING STOCKHOLDERS:
AEA Investors Inc. ..... 355,278 1.6% 355,278 -- --
13 other Selling Stock-
holders, each of whom is
selling less than 50,000
shares in the Offering
or will beneficially own
less than 1% of the out-
standing Common Stock
after the Offering(3)... 1,118,708 5.1% 450,137 668,571 2.8%
</TABLE>
- --------
(1) Based on 21,797,168 shares of Common Stock outstanding prior to the
Offering and 23,797,168 shares of Common Stock outstanding after the
Offering.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Certain of the Selling Stockholders are former directors of the Company.
25
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following brief description of the Company's capital stock does not
purport to be complete and is subject in all respects to applicable Delaware
law and to the provisions of the Restated Certificate of Incorporation and the
By-Laws, copies of which have been filed with the Securities and Exchange
Commission (the "Commission").
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). All outstanding
shares of Common Stock are validly issued, fully paid and nonassessable. No
shares of Preferred Stock are issued and outstanding.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the Company's stockholders, including the election
of directors. Holders of Common Stock do not have cumulative voting rights,
and therefore holders of a majority of the shares voting for the election of
directors can elect all of the directors. In such event, the holders of the
remaining shares will not be able to elect any directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors of the Company out of
funds legally available therefor, after payment of dividends required to be
paid on outstanding Preferred Stock, if any, and subject to the terms of the
agreements governing the Company's long-term debt. See "Price Range of Common
Stock and Dividend Policy." In the event of the liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock then outstanding, if any.
The Common Stock has no preemptive, conversion or redemption rights and is
not subject to further calls or assessments by the Company.
PREFERRED STOCK
The Board of Directors of the Company is authorized without further
stockholder action to provide for the issuance from time to time of up to
5,000,000 shares of Preferred Stock, in one or more classes or series, with
such powers, designations, preferences and relative, participating, optional
or other special rights, qualifications, limitations or restrictions as will
be set forth in the resolutions providing for the issue of such classes or
series of Preferred Stock adopted by the Board of Directors of the Company.
The holders of Preferred Stock will have no preemptive rights (unless
otherwise provided in the applicable resolutions or certificate of
designation) and will not be subject to future assessments by the Company.
Such Preferred Stock may have voting or other rights which could adversely
affect the rights of holders of the Common Stock. In addition, the issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, under certain circumstances,
make it more difficult for a third party to gain control of the Company,
discourage bids for the Common Stock at a premium, or otherwise adversely
affect the market price of the Common Stock.
CERTAIN CHARTER AND BY-LAW PROVISIONS
The Restated Certificate of Incorporation, the By-Laws and Delaware Law
contain certain provisions that could make more difficult the acquisition of
the Company by means of a tender offer, a proxy contest or otherwise.
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals
The By-Laws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors, or to bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Company's Board of Directors, or by
a stockholder who has given timely written notice to the Secretary of the
Company prior to the meeting at which directors are to be elected, will be
eligible for election as directors of the Company. The Stockholder Notice
Procedure provides that at an annual meeting only such business may be
conducted as has been specified in the notice of the meeting given by, or at
the direction of, the Company's Board of Directors (or any duly authorized
committee thereof) or by a stockholder who has given timely written notice to
the Secretary of the Company of such stockholder's intention to bring such
business before such meeting.
26
<PAGE>
Under the Stockholder Notice Procedure, for notice of stockholder nominations
to be made or business to be conducted at an annual meeting to be timely, such
notice must be received by the Company not less than 60 days nor more than 90
days prior to the date of the annual meeting or, in the event that less than 70
days notice or prior public disclosure of the date of the annual meeting is
given or made to stockholders, not later than the close of business on the
tenth day following the day on which such notice was mailed or such public
disclosure was made, whichever first occurs. Under the Stockholder Notice
Procedure, for notice of a stockholder nomination to be made at a special
meeting at which directors are to be elected to be timely, such notice must be
received by the Company not later than the close of business on the tenth day
following the day on which such notice of the date of the special meeting was
mailed or public disclosure of the date of the special meeting was made,
whichever first occurs.
In addition, under the Stockholder Notice Procedure, a stockholder's notice
to the Company proposing to nominate a person for election as a director or
conduct certain business at an annual meeting must contain certain specified
information. If the Chairman of the Board of Directors presiding at a meeting
determines that a person was not nominated or other business was not brought
before the meeting in accordance with the Stockholder Notice Procedure, such
person will not be eligible for election as a director or such business will
not be conducted at such meeting, as the case may be.
Director's Liability
The Restated Certificate of Incorporation provides that to the fullest extent
permitted by Delaware Law as it currently exists, a director of the Company
shall not be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. Under current Delaware Law, liability
of a director may not be limited (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases and (iv) for any transaction from which the director
derives an improper personal benefit. The effect of this provision of the
Restated Certificate of Incorporation is to eliminate the rights of the Company
and its stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
In addition, the Restated Certificate of Incorporation provides that the
Company shall indemnify its directors, officers, employees and agents to the
fullest extent permitted by Delaware Law. The By-Laws provide additional
indemnification for the directors and officers of the Company.
Section 203 of Delaware Law
The Company is a Delaware corporation and is subject to Section 203 of
Delaware Law. In general, Section 203 prevents an "interested stockholder"
(defined as a person who, together with affiliates and associates, beneficially
owns (or within three years, did beneficially own) 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the date such person became an interested stockholder unless (i) before such
person became an interested stockholder, the board of directors of the
corporation approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding shares owned by persons who are both officers
and directors of the corporation and shares held by certain employee stock
ownership 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) following the transaction in
which such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least two-
thirds of the outstanding voting stock of the corporation not owned by the
"interested stockholder." A "business combination" generally includes mergers,
stock or asset sales and other transactions resulting in a financial benefit to
the "interested stockholder."
27
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF
COMMON STOCK
The following discussion concerns the material United States federal income
and estate tax consequences of the ownership and disposition of shares of
Common Stock applicable to Non-U.S. Holders of such shares of Common Stock. In
general, a "Non-U.S. Holder" is any holder of Common Stock other than (i) a
citizen or resident of the United States, (ii) a corporation or partnership
created or organized in the United States or under the laws of the United
States or of any State or (iii) any estate or trust whose income is includible
in gross income for United States federal income tax purposes regardless of
its source. The discussion is based on current law, which is subject to
change, possibly with retroactive effect, and is for general information only.
The discussion does not address all aspects of federal income and estate
taxation nor any aspects of state, local or foreign tax laws. The discussion
does not consider any specific facts or circumstances that may apply to a
particular Non-U.S. Holder (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers or certain U.S.
expatriates). Accordingly, prospective investors are urged to consult their
tax advisors regarding the United States federal, state, local and non-U.S.
income and other tax consequences of holding and disposing of shares of Common
Stock.
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a non-resident alien) by virtue of being present in the
United States for at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to tax as if they were U.S. citizens.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate (or lower rate as may be prescribed by an
applicable tax treaty, if applicable certification requirements are satisfied)
unless (i) the dividends are effectively connected with a trade or business
carried on by the Non-U.S. Holder within the United States or (ii) if a tax
treaty applies, the dividends are attributable to a U.S. permanent
establishment maintained by the Non-U.S. Holder. Dividends effectively
connected with such a trade or business will generally not be subject to
withholding tax (if the Non-U.S. Holder properly files an executed IRS Form
4224 with the payor of the dividend) and will generally be subject to United
States federal income tax on a net income basis at regular graduated rates. In
the case of a Non-U.S. Holder which is a corporation, such effectively
connected income also may be subject to the branch profits tax (which is
generally imposed on a foreign corporation on the repatriation from the United
States of effectively connected earnings and profits at a 30% rate). The
branch profits tax may not apply or may apply at a reduced rate if the
recipient is a qualified resident of certain countries with which the United
States has an income tax treaty. To determine the applicability of a tax
treaty providing for a lower rate of withholding, dividends paid to an address
in a foreign country are presumed, under the current Treasury regulations, to
be paid to a resident of that country, unless the payor has definite knowledge
that such presumption is not warranted. Proposed Treasury regulations, if
finally adopted, however, would require Non-U.S. Holders to satisfy certain
certification and other requirements to obtain the benefit of any applicable
tax treaty providing for a lower rate of withholding tax on dividends. A Non-
U.S. Holder that is eligible for a reduced rate of U.S. withholding tax
pursuant to a tax treaty may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the Internal Revenue Service. The
Company must report annually to the Internal Revenue Service and to each Non-
U.S. Holder the amount of dividends paid to, and the tax withheld with respect
to, each Non-U.S. Holder. These reporting requirements apply regardless of
whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns also may be made available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which the Non-U.S. Holder resides.
28
<PAGE>
SALE OF COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of such holder's shares of
Common Stock unless (i) the gain is effectively connected with a trade or
business carried on by the Non-U.S. Holder within the United States or, if a
tax treaty applies, is attributable to a permanent establishment maintained by
a Non-U.S. Holder in the United States (in either case
the branch profits tax described above may also apply to a corporate Non-U.S.
Holder); (ii) the Non-U.S. Holder is an individual who holds the shares of
Common Stock as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition, and either (a) such Non-
U.S. Holder has a "tax home," for federal income tax purposes, in the United
States (unless the gain from the disposition is attributable to an office or
other fixed place of business maintained by such Non-U.S. Holder in a foreign
country and such gain has been subject to a foreign income tax equal to at
least 10%), or (b) the gain from the disposition is attributed to an office or
other fixed place of business maintained by such non-U.S. Holder in the United
States; or (iii) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes (which the Company does not
believe that it is or is likely to become) at any time during the five year
period ending on the date of disposition (or such shorter period that such
shares were held) and, subject to certain exceptions, the Non-U.S. Holder held,
directly or constructively, more than five percent of the Common Stock.
ESTATE TAX
Shares of Common Stock owned or treated as owned by an individual who is a
Non-U.S. Holder at the time of death will be includible in the individual's
gross estate for the United States federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise, and may be subject to United
States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain required information) and
information reporting requirements apply to payments of dividends (actual and
constructive) made to certain non-corporate United States persons. The United
States backup withholding tax and information reporting requirements (other
than those described above under "--Dividends") will generally not apply to
dividends paid on Common Stock to a Non-U.S. Holder at an address outside the
United States. However, backup withholding and information reporting generally
will apply to dividends paid on shares of Common Stock to addresses in the
United States to beneficial owners that are not "exempt recipients" and that
fail to provide in the manner required certain identifying information.
The payment of the proceeds from the disposition of shares of Common Stock
through the United States office of a broker will be subject to information
reporting and backup withholding unless the holder, under penalties or perjury,
certifies, among other things, its status as a Non-U.S. Holder, or otherwise
establishes an exemption. Generally, the payment of the proceeds from the
disposition of shares of Common Stock to or through a non-U.S. office of a non-
U.S. broker will not be subject to backup withholding and will not be subject
to information reporting. In the case of the payment of proceeds from the
disposition of shares of Common Stock through a non-U.S. office of a broker
that is a U.S. person or a "U.S.-related person," existing regulations require
information reporting (but not backup withholding) on the payment unless the
broker receives a statement from the owner, signed under penalties of perjury,
certifying, among other things, its status as a Non-U.S. Holder, or the broker
has documentary evidence in its files that the owner is a Non-U.S. Holder and
the broker has no actual knowledge to the contrary. Proposed regulations state
that backup withholding will not apply to such payments (absent actual
knowledge that the payee is a U.S. person). For this purpose, a "U.S.-related
person" is (i) a "controlled foreign corporation" for United States federal
income tax purposes or (ii) a foreign person, 50% or more of whose gross income
from all sources for the three year period ending with the close of its taxable
year preceding the payment (or for such part of the period that the broker has
been in existence) is derived from activities that are effectively connected
with the conduct of a United States trade or business. The Internal Revenue
Service recently proposed regulations addressing certain withholding,
certification and information
29
<PAGE>
reporting rules which could affect the treatment of the payment of the
proceeds discussed above. Non-U.S. Holders should consult their tax advisors
regarding the application of these rules to their particular situations, the
availability of an exemption therefrom, and the procedures for obtaining such
an exemption, if available.
Any amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's United
States federal income tax liability and may entitle such holder to a refund,
provided that the required information is furnished to the United States
Internal Revenue Service. The backup withholding and information reporting
rules are currently under review by the U.S. Treasury Department and their
application to the shares of Common Stock is subject to change.
Non-U.S. Holders should consult their tax advisors regarding the application
of these rules to their particular situations, the availability of an
exemption therefrom and the procedure for obtaining such an exemption, if
available.
30
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Underwriters named
below have severally agreed to purchase, and the Company and the Selling
Stockholders have agreed to sell to them, the respective number of shares of
the Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
---------
Total....................................................... 2,805,415
=========
</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 of the shares of Common Stock offered hereby (other than those
shares covered by the Underwriters' over-allotment option described below) if
any such shares are taken.
The Underwriters initially propose to offer part of the Common Stock directly
to the public at the Price to Public set forth on the cover page hereof and
part to certain dealers at a price which represents a concession not in excess
of $ a share under the public offering price. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ a share to
other Underwriters or to certain dealers. After the initial offering of the
Common Stock, the offering price and other selling terms may from time to time
be varied by the Underwriters.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable at any time for 30 days from the date of
this Prospectus, to purchase up to 300,000 additional shares of Common Stock at
the Price to Public set forth on the cover page hereof, less underwriting
discounts and commissions. The Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, 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 by the
Underwriters hereby.
The Company has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated, it will not (a) 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
(b) enter into any swap or similar agreement that transfers, in whole or in
part, the economic risk of ownership of such Common Stock, whether any such
transaction described in clause (a) or (b) of this sentence is to be settled by
delivery of such Common Stock or such other securities, in cash or otherwise,
for a period of 90 days after the date of this Prospectus, other than (i) any
shares of Common Stock sold by the Company upon the exercise of any option
outstanding on the date of the Offering granted under the stock option plans of
the Company existing at the closing of the Offering and (ii) the issuance of
additional options to purchase 757,418 shares of Common Stock to employees of
the Company pursuant to any stock option plans existing at the closing of the
Offering (and the issuance of the shares of Common Stock issuable thereon). In
addition the Company's executive officers have agreed, subject to certain
limited exceptions, not to (a) offer,
31
<PAGE>
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 dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (b) enter into any swap or similar agreement that transfers,
in whole or in part, the economic risk of ownership of the Common Stock,
whether any such transaction described in clause (a) or (b) of this sentence is
to be settled by delivery of such Common Stock or such other securities, in
cash or otherwise, for a period of 90 days after the date of this Prospectus
without the prior written consent of Morgan Stanley & Co. Incorporated.
Because more than 10% of the proceeds of the Offering, not including
underwriting compensation, may be received by affiliates of members of the
National Association of Securities Dealers, Inc. (the "NASD") who are
participating in the Offering, the Offering is being conducted pursuant to NASD
Conduct Rule 2710(c)(8). This rule allows an NASD member to participate in an
offering in which an affiliate will receive more than 10% of the proceeds if
such offering is of a class of securities for which a "bona fide independent
market" (as defined) exists as of the date of the filing of the registration
statement.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
From time to time Morgan Stanley & Co. Incorporated and Merrill Lynch & Co.
have provided, and continue to provide, investment banking services to the
Company and its affiliates.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendment thereto) on Form S-3 under the Securities
Act with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement
and the exhibits and schedules thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. The
Registration Statement and the exhibits and schedules thereto filed by the
Company with the Commission, as well as such reports, proxy statements and
other information filed by the Company with the Commission, may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and should also be
available for inspection and copying at the regional offices of the Commission
located in 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. Copies of such material can also be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Copies of such material are
available for inspection at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
32
<PAGE>
SOLA INTERNATIONAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets as of March 31, 1996 and 1995................ F-3
Consolidated Statements of Operations for the years ended March 31, 1996
and 1995 and for the four months ended March 31, 1994................... F-4
Combined Statement of Operations for the eight months ended November 30,
1993.................................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended March
31, 1996 and 1995 and for the four months ended March 31, 1994.......... F-5
Combined Statement of Parent Company Investment for the eight months
ended November 30, 1993................................................. F-6
Consolidated Statements of Cash Flows for the years ended March 31, 1996
and 1995 and for the four months ended March 31, 1994................... F-7
Combined Statement of Cash Flows for the eight months ended November 30,
1993.................................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
Quarterly Financial Data (unaudited)..................................... F-26
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Sola International Inc.
We have audited the accompanying consolidated balance sheets of Sola
International Inc. as of March 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the years
ended March 31, 1996 and 1995 and for the four months ended March 31, 1994. We
have also audited the combined statements of operations, cash flows, and
parent company investment of the Predecessor Business for the period from
April 1, 1993 to November 30, 1993. These consolidated and combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the 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 consolidated financial position
of Sola International Inc. as of March 31, 1996 and 1995, and the results of
its operations and its cash flows for the years ended March 31, 1996 and 1995
and for the four months ended March 31, 1994, in conformity with generally
accepted accounting principles. Also in our opinion, the combined financial
statements of the Predecessor Business referred to above present fairly, in
all material respects, the results of its operations and its cash flows for
the period April 1, 1993 to November 30, 1993 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
May 6, 1996
F-2
<PAGE>
SOLA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
------------------
ASSETS 1996 1995
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 22,394 $ 16,148
Trade accounts receivable, less allowance for doubtful
accounts of $5,424 and $2,854 at March 31, 1996 and
1995, respectively..................................... 74,845 69,672
Inventories............................................. 100,707 85,676
Deferred income taxes................................... 7,491 7,548
Prepaids and other current assets....................... 1,861 2,019
Total current assets.................................. 207,298 181,063
-------- --------
Property, plant and equipment, at cost, less accumulated
depreciation and amortization............................ 79,582 71,432
Deferred income taxes..................................... 6,800 4,763
Debt issuance costs, net.................................. 1,907 2,613
Goodwill and other intangibles, net....................... 120,352 122,356
Other assets.............................................. 910 1,230
-------- --------
Total assets.......................................... $416,849 $383,457
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities
Current liabilities:
Notes payable to banks.................................. $ 13,722 $ 7,291
Current portion of long-term debt....................... 3,681 3,787
Accounts payable........................................ 39,415 28,190
Accrued liabilities..................................... 20,167 22,042
Accrued reorganization and acquisition expenses......... 9,746 13,856
Accrued payroll and related compensation................ 22,560 26,157
Income taxes payable.................................... 1,090 855
Deferred income taxes................................... 461 2,290
-------- --------
Total current liabilities............................. 110,842 104,468
Long-term debt, less current portion...................... 3,360 3,741
Bank debt, less current portion........................... 6,000 --
Senior subordinated notes................................. 88,530 103,666
Deferred income taxes..................................... 4,990 986
Other liabilities......................................... 10,886 11,153
-------- --------
Total liabilities..................................... 224,608 224,014
Commitments and contingencies............................. -- --
Shareholders' equity...................................... -- --
Preferred stock, $0.01 par value; 5,000 shares authorized;
no shares issued......................................... -- --
Common stock, $0.01 par value; 50,000 shares authorized;
21,797 shares (21,780 shares as of March 31, 1995) issued
and outstanding.......................................... 218 218
Additional paid-in capital................................ 206,412 206,353
Equity participation loans................................ (421) (1,095)
Accumulated deficit....................................... (17,993) (51,669)
Cumulative foreign currency adjustments................... 4,025 5,636
-------- --------
Total shareholders' equity............................ 192,241 159,443
-------- --------
Total liabilities and shareholders' equity............ $416,849 $383,457
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SOLA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSOR BUSINESS COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
SOLA INTERNATIONAL INC. BUSINESS
--------------------------------- ------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, NOVEMBER 30,
1996 1995 1994 1993
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales...................... $387,709 $345,631 $106,030 $200,025
Cost of sales.................. 201,991 185,626 93,428 115,319
-------- -------- -------- --------
Gross profit.................. 185,718 160,005 12,602 84,706
-------- -------- -------- --------
Research and development ex-
penses........................ 13,329 14,051 3,877 7,246
Selling and marketing ex-
penses........................ 66,345 61,143 19,146 33,483
General and administrative ex-
penses........................ 45,291 45,067 10,584 23,438
In-process research and devel-
opment expense................ -- -- 40,000 --
-------- -------- -------- --------
Operating expenses............ 124,965 120,261 73,607 64,167
-------- -------- -------- --------
Operating income (loss)...... 60,753 39,744 (61,005) 20,539
Interest income................ 544 470 67 149
Interest expense............... (12,685) (18,992) (6,227) (3,220)
Foreign currency adjustments... -- -- (167) (478)
-------- -------- -------- --------
Income (loss) before provi-
sion (benefit) for income
taxes, minority interest
and extraordinary item...... 48,612 21,222 (67,332) 16,990
Provision (benefit) for income
taxes......................... 13,623 6,649 (6,194) 5,833
Minority interest.............. (401) (933) (256) (408)
-------- -------- -------- --------
Income (loss) before extraor-
dinary item................. 34,588 13,640 (61,394) 10,749
Extraordinary item, repurchase
of senior subordinated notes
(1995--write-off of debt issu-
ance costs), net of tax....... (912) (3,915) -- --
-------- -------- -------- --------
Net income (loss).............. $ 33,676 $ 9,725 $(61,394) $ 10,749
======== ======== ======== ========
Earnings (loss) per share:
Income (loss) before extraor-
dinary item................. $ 1.51 $ 0.78 $ (3.75)
Extraordinary item........... (0.04) (0.22) --
-------- -------- --------
Net income (loss)............ $ 1.47 $ 0.56 $ (3.75)
======== ======== ========
Weighted average number of
shares outstanding............ 22,944 17,516 16,353
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SOLA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CURRENCY
FOREIGN
COMMON STOCK ADDITIONAL EQUITY CURRENCY TOTAL
---------------- PAID-IN PARTICIPATION ACCUMULATED TRANSLATION SHAREHOLDERS'
(SHARES) (VALUE) CAPITAL LOANS DEFICIT ADJUSTMENTS EQUITY
-------- ------- ---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
16,319 shares of $0.01
par value common stock
issued on December 1,
1993 for cash and eq-
uity participation
loans (restated)....... 16,319 $163 $124,779 $(1,304) $123,638
Cumulative translation
adjustments............ $1,251 1,251
Net loss................ $(61,394) (61,394)
------ ---- -------- ------- -------- ------ --------
Balances, March 31, 1994
(restated)............. 16,319 163 124,779 (1,304) (61,394) 1,251 63,495
58 shares of $0.01 par
value common stock is-
sued for cash and Eq-
uity participation
loans.................. 58 1 447 (86) 362
Repayment of Equity par-
ticipation loans....... 295 295
Initial Public Offering
of 5,403 shares of
$0.01 par value common
stock, net of
offering expenses...... 5,403 54 81,127 81,181
Cumulative translation
adjustments............ 4,385 4,385
Net income.............. 9,725 9,725
------ ---- -------- ------- -------- ------ --------
Balances, March 31,
1995................... 21,780 218 206,353 (1,095) (51,669) 5,636 159,443
17 shares of $0.01 par
value common stock is-
sued under stock option
plans.................. 17 59 59
Repayment of Equity par-
ticipation loans....... 674 674
Cumulative translation
adjustments............ (1,611) (1,611)
Net income.............. 33,676 33,676
------ ---- -------- ------- -------- ------ --------
Balances, March 31,
1996................... 21,797 $218 $206,412 $ (421) $(17,993) $4,025 $192,241
====== ==== ======== ======= ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SOLA INTERNATIONAL INC.
PREDECESSOR BUSINESS COMBINED STATEMENT OF
PARENT COMPANY INVESTMENT
(IN THOUSANDS)
PARENT COMPANY INVESTMENT
<TABLE>
<S> <C>
Balances, April 1, 1993............................................... $117,129
Net income.......................................................... 10,749
Net change in cumulative translation adjustments.................... (2,546)
Dividends declared.................................................. (1,046)
Net change in parent company investment............................. 5,868
--------
Balances, November 30, 1993........................................... $130,154
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SOLA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
PREDECESSOR BUSINESS COMBINED STATEMENT OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
SOLA INTERNATIONAL INC. PREDECESSOR BUSINESS
--------------------------------- --------------------
FOUR MONTHS
ENDED EIGHT MONTHS
YEAR ENDED YEAR ENDED MARCH 31, ENDED
MARCH 31, MARCH 31, 1994 NOVEMBER 30,
1996 1995 (RESTATED) 1993
---------- ---------- ----------- --------------------
<S> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income (loss)....... $33,676 $ 9,725 $(61,394) $10,749
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating ac-
tivities:
Depreciation and amorti-
zation................. 17,247 20,981 5,992 7,017
Inventory write-up...... -- -- 32,905 --
In-process research and
development............ -- -- 40,000 --
Provision for excess and
obsolete inventory..... 1,090 1,981 604 1,204
Provision for doubtful
accounts............... 2,846 2,442 412 1,223
Increase (decrease) in
net deferred taxes..... 1,657 (1,404) (3,522) 6
(Gain) loss on
disposal/sale of prop-
erty, plant and equip-
ment................... (73) 20 -- (22)
Changes in assets and
liabilities:
Trade accounts receiv-
able.................. (10,883) (8,941) (5,265) (2,994)
Inventories............ (16,222) (4,405) 6,254 (11,441)
Prepaids and other
current assets........ 127 (318) 545 (912)
Other assets........... 394 (151) 800 276
Accounts payable--
trade................. 10,010 (3,183) 6,150 (9,207)
Accounts payable--
Pilkington and affil-
iates................. -- -- (1,705) 294
Accrued and other cur-
rent liabilities...... (9,750) 2,657 298 1,417
Other long-term lia-
bilities.............. 643 (950) 8 1,005
------- ------- -------- -------
Net cash provided by
(used in) operating
activities.......... 30,762 18,454 22,082 (1,385)
------- ------- -------- -------
Cash flows from invest-
ing activities:
Acquisition of Sola
Group, less cash and
cash equivalents
of $7,117.............. -- -- (304,316) --
Additional investment in
Venezuela subsidiary... (3,561) -- -- --
Capital expenditures.... (17,580) (11,588) (4,309) (6,271)
Payments received on
notes receivable from
Pilkington
and affiliates......... 1,585 1,200 -- --
Proceeds from sale of
fixed assets........... 585 550 210 161
------- ------- -------- -------
Net cash used in in-
vesting activities.. (18,971) (9,838) (308,415) (6,110)
------- ------- -------- -------
Cash flows from financ-
ing activities:
Proceeds from acquisi-
tion debt.............. -- -- 187,737 --
Sale of common stock.... -- 81,838 123,638 --
Payments on equity par-
ticipation
loans/exercise of stock
options................ 733 -- -- --
Net receipts (payments)
under notes payable to
banks.................. 6,785 396 (4,290) 421
Decrease in notes pay-
able to Pilkington and
affiliates............. -- -- -- 4,340
Borrowings on long-term
debt................... 1,297 7,382 2,495 2,966
Payments on long-term
debt................... (1,735) (11,487) (5,973) (3,907)
Net receipts (payments)
under Bank debt........ 6,000 (82,195) (6,742) --
Repurchase of senior
subordinated notes..... (17,766)
Dividends paid to par-
ent.................... -- -- -- (4,562)
Net change in parent
company investment..... -- -- -- 6,286
------- ------- -------- -------
Net cash provided by
(used in) financing
activities.......... (4,686) (4,066) 296,865 5,544
------- ------- -------- -------
Effect of exchange rate
changes on cash and
cash equivalents....... (859) 913 153 (197)
------- ------- -------- -------
Net increase (decrease)
in cash and cash equiv-
alents................. 6,246 5,463 10,685 (2,148)
Cash and cash equiva-
lents at beginning of
period................. 16,148 10,685 -- 9,265
------- ------- -------- -------
Cash and cash equiva-
lents at end of peri-
od..................... $22,394 $16,148 $ 10,685 $ 7,117
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Sola International Inc. ("Company" or "SII") designs, manufactures and
distributes a broad range of eyeglass lenses, primarily focusing on the fast
growing plastic lens segment of the global market. All significant
intercompany transactions have been eliminated in the accompanying
consolidated and combined financial statements. The Company operates in one
business segment.
On October 5, 1995 the Company increased its investment in its Venezuela
joint venture, Sola de Venezuela Industria Optica, C.A. ("Sola Venezuela"),
from 45% to 80%, which was effective from March 31, 1995. In addition, in
March 1996, the Company exercised its option to acquire the remaining 20% of
the shares in Sola Venezuela. The purchase price for all the shares, including
the 20% option, and acquisition expenses, amounted to approximately $3.6
million and was paid in cash, $2.0 million in October 1995, and $1.6 million
in March 1996. In addition to the $1.6 million cash purchase price of the
final 20% of Sola Venezuela, there will be a contingent payment, if any, based
on the growth in the net income of Sola Venezuela in fiscal 1998 over the net
income of Sola Venezuela in fiscal 1995. Under certain circumstances the
contingent payment could be based on an earlier 12 month period. The
acquisition has been accounted for under the purchase method of accounting.
On February 23, 1995, Sola Holdings Inc. ("SHI"), SII's sole shareholder,
was merged with and into Sola Investors Inc., SHI's parent, with Sola
Investors Inc. being the surviving corporation. On the same day, Sola
Investors Inc. merged with its then wholly owned subsidiary, Sola
International Inc. with Sola International Inc. being the surviving
corporation ("Merger" or "Mergers"). The simplified corporate structure was
adopted to cause the Company's common stock to be more amenable to sale and
trading in public equity markets. The Mergers have been treated as a
reorganization of companies under common control and are accounted for similar
to a pooling of interests for accounting and financial reporting purposes. The
accompanying statements of shareholders' equity and cash flows for the four
months ended March 31, 1994 have been restated for the effects of the Mergers.
Sola Investors Inc. and Sola Holdings Inc. had no net income (loss) prior to
the Mergers, thus the Mergers did not change previously reported consolidated
net income (loss) of the Company.
On December 1, 1993, the Company acquired the Sola business unit (the
"Predecessor Business" or "Sola Group") of Pilkington plc ("Pilkington")
pursuant to the terms of the Purchase Agreement (the "Purchase Agreement")
dated September 1, 1993 between Sola Holdings Inc., and Pilkington (the
"Acquisition"). The Acquisition has been accounted for under the purchase
method of accounting as of the closing date.
The accompanying consolidated and combined financial statements of the
Company and the Predecessor Business have been prepared in accordance with
U.S. generally accepted accounting principles. The Predecessor Business's
financial statements presented herein include the results of operations and
cash flows for the eight months ended November 30, 1993 as if the eyeglass
operations existed as a corporation separate from Pilkington during the
periods presented on a historical basis. The Company's financial statements
presented herein include the results of operations and cash flows for fiscal
1996 and 1995 and for the four months ended March 31, 1994, and the balance
sheets as of March 31, 1996 and 1995. The results of operations for the
Company reflect the impact of interest expense on indebtedness related to the
Acquisition and amortization and other expenses (inclusive of certain non-
recurring charges) arising from purchase accounting adjustments and,
therefore, the financial statements of the Company are not directly comparable
to those of the Predecessor Business.
The combined financial statements of the Predecessor Business include
transactions with Pilkington for treasury functions, tax services, internal
audit services and insurance costs. The Predecessor Business also had an
agreement with Pilkington for use of technology and the Pilkington logo in
which amounts totaling $1.0 million for the eight months ended November 30,
1993 have been treated as a dividend to Pilkington in the accompanying
financial statements.
F-8
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Combination:
The consolidated or combined financial statements include the accounts of
the Company and its wholly-owned and controlled foreign subsidiaries. All
significant transactions between the entities have been eliminated.
Cash and Cash Equivalents:
Cash equivalents consist primarily of short-term investments with an
original maturity of three months or less, carried at cost which approximates
market.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the related assets
(buildings--10 to 50 years; plant and office equipment--2 to 10 years).
Leasehold improvements and leased equipment are amortized over the lesser of
their useful lives or the remaining term of the related leases.
Impact of recently issued accounting standards:
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be disposed of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets carrying amounts. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of fiscal 1997 and based
on current circumstances does not believe the effect of adoption will be
material.
Intangible Assets:
Intangible assets, including trademarks, patents and licenses, are stated at
cost and amortized on a straight-line basis over their estimated useful lives
of 2 to 17 years. Legal costs incurred by the Company in defending its patents
are capitalized to patent costs and amortized over the remaining life of the
patent. Goodwill is amortized over 40 years. As of March 31, 1996 and 1995
accumulated amortization was $7.3 million and $4.1 million, respectively.
Debt issuance costs are being amortized to interest expense over the
respective lives of the debt instruments which range from six to ten years. As
of March 31, 1996 and 1995, accumulated amortization was $1.1 million and $1.3
million, respectively. As a result of repurchasing $19.9 million of the
Company's 9 5/8% Senior Subordinated Notes in fiscal 1996 (see Note 8), the
Company wrote off $0.4 million of debt issuance costs reflected on the
statement of operations, together with the premium over accreted value, as an
extraordinary item, net of tax. In fiscal 1995, associated with the Company's
initial public offering ("IPO") (Note 9) and renegotiation of the Bank Credit
Agreement (Note 7) the Company wrote off $3.9 million of debt issuance costs,
net of related income tax benefit of zero, reflected on the statement of
operations as an extraordinary item.
F-9
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Foreign Currency Translation:
The assets and liabilities and revenue and expense accounts of the Company's
foreign subsidiaries operating in non-highly inflationary economies have been
translated using the exchange rate at the balance sheet date and the weighted
average exchange rate for the period, respectively.
The net effect of the translation of the accounts of the Company's
subsidiaries has been included in equity as cumulative foreign currency
translation adjustments. Adjustments that arise from exchange rate changes on
transactions denominated in a currency other than the local currency are
included in income as incurred and are not material.
The Company has operations in Brazil, a hyper-inflationary country until
recently, for which the functional currency is the U.S. dollar. All
translation and transaction adjustments are included in determining net income
(loss). For fiscal 1996 and fiscal 1995 no translation adjustments were
necessary. For the four months ended March 31, 1994 and the eight months ended
November 30, 1993, foreign currency adjustments attributable to the Brazilian
operation totaled $0.2 million and $0.5 million, respectively.
Revenue Recognition:
Sales and related cost of sales are recognized upon shipment of product. The
Company's principal customers are wholesale distributors and processing
laboratories, retail chains, superoptical retail stores, independent eyecare
practitioners and sunglass manufacturers. No individual customer accounts for
more than 10% of net sales. The Company generally does not require collateral
from its customers, but performs on-going credit evaluations of its customers.
Advertising and Promotion Costs:
The Company's policy is to expense advertising and promotion costs as they
are incurred. The Company's advertising and promotion expenses were
approximately $9.4 million, $9.1 million, $2.1 million and $2.4 million for
fiscal 1996, fiscal 1995, the four months ended March 31, 1994 and the eight
months ended November 31, 1993, respectively.
Income Taxes:
The accompanying financial statements of the Company and the Predecessor
Business reflect the provisions of FASB 109.
Income taxes have been provided in the Predecessor Business statements of
operations as if the Predecessor business was a separate taxable entity. Since
the United States ("U.S.") and United Kingdom ("U.K.") operations within the
Sola group were not separate taxable entities but were included in the
consolidated income tax returns of other Pilkington group companies, the
current provision for U.S. federal and state income taxes and for U.K. income
taxes was assumed to be payable to Pilkington in the period presented.
However, in accordance with the Pilkington tax allocation agreement with its
U.S. and U.K. subsidiaries, the benefit of a reduction in taxes payable due to
the utilization of net operating losses on a consolidated federal tax return
and U.K. tax filing could reduce the payable to Pilkington. Such benefits were
reflected as a capital contribution as of each fiscal year end. The current
provision for all other combined foreign entities was assumed to be payable to
the applicable taxing authority.
Appropriate U.S. and foreign income taxes have been provided on the portion
of the accumulated earnings of the Predecessor Businesses foreign subsidiaries
which were intended to be remitted to Pilkington within the foreseeable
future.
F-10
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Investment tax credits and research and development credits are accounted
for by the flow-through method.
Use of Estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risks:
Cash and cash equivalents are invested in deposits with major banks in the
United States and in countries where subsidiaries operate. Deposits in these
banks may exceed the amount of insurance provided on such deposits. The
Company has not experienced any losses on its deposits of cash and cash
equivalents.
Financial Instruments With Off-Balance-Sheet Risk:
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to reduce its exposure to market and interest
rate risk. Gains and losses due to rate fluctuations on such transactions are
recognized currently. Cash flows related to these gains and losses are
reported as operating activities in the accompanying consolidated statements
of cash flows. As of March 31, 1996, certain of the Company's foreign
subsidiaries had entered into forward contracts for intercompany purchase
commitments in amounts other than their home currency. The carrying amount of
the foreign exchange contracts approximates fair value, which has been
estimated based on current exchange rates. The forward exchange contracts
generally have varying maturities up to 9 months. Unless noted otherwise, the
Company does not require collateral or other security to support financial
instruments with credit risk.
Earnings (Loss) Per Share:
Earnings (loss) per share have been computed based upon the weighted average
number of common and common equivalent shares outstanding, when dilutive.
Common equivalent shares result from dilutive stock options, using the
treasury stock method. Pursuant to Securities and Exchange Commission (SEC)
rules, common and common equivalent shares issued by the Company at prices
below the public offering price during the twelve months immediately preceding
the Company's initial public offering (IPO) in March 1995 are included in the
calculation (using the treasury stock method and the initial public offering
price) as if they were outstanding for all periods prior to the offering date.
F-11
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Supplemental pro forma earnings per share (unaudited), calculated as if the
Acquisition, Mergers and IPO, had taken place at the beginning of fiscal 1995,
and excluding Acquisition and IPO related non-recurring charges from net
income, was $1.05 for fiscal 1995, calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1995
----------------------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C>
Net income, as reported................................................ $ 9,725
Pro forma adjustments, primarily interest and AEA fees, assuming that
the IPO occurred at the beginning of the period....................... 13,920
=======
Net Income used for supplemental pro forma earnings per share calcula-
tion.................................................................. $23,645
=======
Weighted average number of shares outstanding, as reported............. 17,516
Adjustment necessary assuming shares issued in the IPO were outstanding
for the full period................................................... 5,012
=======
Shares used in supplemental pro forma earnings per share calculation... 22,528
=======
Supplemental pro forma earnings per share.............................. $ 1.05
=======
</TABLE>
Stock-Based Compensation:
The Company accounts for its stock option plan in accordance with the
provisions of the Accounting Principles Board's Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees". In 1995, the Financial Accounting
Standards Board released the Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation". SFAS 123 provides
an alternative method of accounting for stock-based compensation to APB 25 and
is effective for fiscal years beginning after December 15, 1995. The Company
expects to continue to account for its stock-based compensation in accordance
with the provision of APB 25. Accordingly, SFAS 123 is not expected to have
any material impact on the Company's financial position or results of
operations.
3. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
----------------
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.................................................. $ 10,595 $10,208
Work in progress............................................... 4,782 4,882
Finished goods................................................. 59,595 50,767
Molds.......................................................... 25,735 19,819
-------- -------
$100,707 $85,676
======== =======
</TABLE>
Molds comprise mainly finished goods for use by manufacturing affiliates in
the manufacture of spectacle lenses.
F-12
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31,
----------------
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and leasehold improvements.................... $ 26,599 $21,720
Machinery and office equipment................................ 78,882 63,782
Equipment under capital leases................................ 874 910
-------- -------
106,355 86,412
Less accumulated depreciation and amortization................ 26,773 14,980
-------- -------
$ 79,582 $71,432
======== =======
</TABLE>
At March 31, 1996 and 1995, equipment acquired under capital leases had
related accumulated amortization of approximately $176,000 and $169,000,
respectively.
5. NOTES PAYABLE TO BANKS
Notes payable to banks at March 31, 1996 represent borrowings generally
denominated in foreign currencies under several foreign credit agreements with
lenders at interest rates ranging from 1.63% to 11.50%, and 54.00% for
Brazilian Real based borrowings. The Brazilian Real based borrowings were
$124,000 at March 31, 1996. The weighted average interest rates as of March
31, 1996 and 1995 were 8.47% and 8.07%, respectively. As of March 31, 1996,
the Company had total unused lines of credit amounting to $23.3 million. As of
March 31, 1996, the Company was in compliance with minimum net worth
requirements of agreements with certain foreign banks.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Uncollateralized term loans, interest rates varying from 5.70%
to 6.35% at March 31, 1996, principal and interest payable
through December 2002......................................... $3,547
Uncollateralized term loans, interest rates varying from PIBOR
plus .50% to plus .75%, (PIBOR was 4.23% at March 31,1996)
principal and interest payable through January 1998........... 2,185
Loans collateralized by equipment and other assets, interest
rates varying from 8.0% to 16.6% at March 31, 1996, principal
and interest payable through March 1998....................... 590
Loans collateralized by equipment and other assets in Brazil,
interest rates varying from 29.0% to 52.94% at March 31, 1996,
principal and interest payable through April 1998............. 188
Loan collateralized by guarantees over Company assets, interest
13.27% at March 31, 1996, principal and interest payable
through June 1996............................................. 359
Other.......................................................... 172
------
7,041
Less current portion........................................... 3,681
------
$3,360
======
</TABLE>
F-13
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT--(CONTINUED)
Aggregate annual maturities of long-term debt over the next five years and
thereafter are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING MARCH 31, (IN THOUSANDS)
- ----------------------- --------------
<S> <C>
1997........................................................... $3,681
1998........................................................... 1,437
1999........................................................... 791
2000........................................................... 401
2001........................................................... 341
Thereafter..................................................... 390
</TABLE>
The Company believes that as of March 31, 1996, the fair value of its long-
term debt approximates the carrying value of those obligations. The fair value
of the Company's long-term debt is estimated based on quoted market prices for
similar issues with the same interest rates that would be available to the
Company for similar debt obligations.
7. BANK CREDIT AGREEMENT
On March 2, 1995 the Company entered into an Amended and Restated Bank
Credit Agreement with The Bank of Nova Scotia, for itself and as agent for a
syndicate of other financial institutions, covering an aggregate amount of $85
million (the "Revised Bank Facility"). The Revised Bank Facility consists of a
revolving credit facility (the "Revised Revolver") with the amount thereunder
equal to the lesser of (i) $85 million or (ii) 75% of eligible accounts
receivable and 45% of eligible inventory of the Company and its subsidiaries,
as defined. Up to $20 million of capacity under the Revised Revolver is
available for the issuance of letters of credit and up to $15 million of
capacity is available for swing line advances. The Revised Revolver terminates
on December 1, 1999. As of March 31, 1996 total availability under the Revised
Revolver was $85 million, of which $6.0 million had been utilized and a
further $1.4 million had been used for letters of credit issued with varying
maturities. Revised Revolver terminates on December 1, 1999. As of March 31,
1996 total availability under the Revised Revolver was $85 million, of which
$6.0 million had been utilized and a further $1.4 million had been used for
letters of credit issued with varying maturities.
Borrowings under the Amended and Restated Bank Credit Agreement's Revised
Revolver (other than swing line loans, which may only be Base Rate loans) can
be made in both Base Rate and LIBO Rate Loans. Base Rate Loans bear interest
at rates per annum equal to the sum of the Scotiabank Alternate Base Rate and
a margin varying from nil to 1/4%, based on the Company's consolidated debt to
EBITDA Ratio, as defined. LIBO Rate Loans bear interest at a rate per annum
equal to the sum of the LIBO Rate and a margin varying from 3/4% to 1 1/2%,
based on the Company's consolidated debt to EBITDA Ratio. In addition a
commitment fee on the unused portion of the Revolver is payable quarterly in
arrears at a rate varying from 0.25% to 0.5% per annum based on the Company's
consolidated debt to EBITDA Ratio.
The Amended and Restated Bank Credit Agreement contains a number of
covenants, including among others, covenants restricting the Company and its
subsidiaries with respect to the incurrence of indebtedness (including
contingent obligations), declare, make or pay dividends or other distributions
in excess of prescribed levels, the creation of liens, the making of certain
investments and loans, engaging in unrelated business, transactions with
affiliates, the consummation of certain transactions such as sales of
substantial assets, mergers or consolidations and other transactions. The
Company and its subsidiaries are also required to comply with certain
financial tests and maintain certain financial ratios. The Company has pledged
the shares in its domestic subsidiaries and has pledged 65% of the shares of
certain significant foreign subsidiaries, as defined in the Amended and
Restated Bank Credit Agreement as collateral for the Revised Facility.
F-14
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. SENIOR SUBORDINATED NOTES
The Company's 9 5/8% Senior Subordinated Notes ("Notes") were issued under
an indenture dated December 1, 1993, among the Company and Bank of New York,
as Trustee (the "Indenture"). The Notes are unsecured senior subordinated
obligations of the Company, limited to $116.6 million aggregate principal
amount at maturity, and will mature on December 15, 2003. Prior to December
15, 1998, interest will accrue on the Notes and is payable in cash
semiannually at the rate of 6% per annum of the principal amount at maturity
of the Notes on June 15 and December 15 of each year. In addition, prior to
December 15, 1998, original issue discount will accrete on the Notes such that
the yield to maturity will be 9 5/8% per annum, compounded on the basis of
semiannual compounding. From and after December 15, 1998, interest on the
Notes will accrue and be payable in cash semiannually at the rate of 9 5/8%
per annum of the principal amount at maturity of the Notes on June 15 and
December 15 of each year, commencing June 15, 1999.
The Notes may be redeemed at the option of the Company, in whole or in part,
at any time on or after December 15, 1998, initially at 104.813% of their
principal amount at maturity and declining to 100% of such principal amount at
maturity on or after December 15, 2000, in each case plus accrued interest. In
addition, at the option of the Company at any time prior to December 15, 1996,
the Company may redeem up to $40.75 million aggregate principal amount at
maturity of the Notes from the proceeds of one or more Public Equity Offerings
following which there is a Public Market, at a redemption price of 109.625% of
the Accreted Value of the Notes, plus accrued interest.
The Indenture contains certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to incur indebtedness, pay
dividends, redeem capital stock and make other restricted payments, issue
capital stock of subsidiaries, create liens, permit dividend restrictions
affecting subsidiaries, engage in transactions with stockholders and
affiliates, sell assets and engage in mergers and consolidations.
The Notes are subordinated to all Senior Indebtedness, as defined in the
Indenture, of the Company and effectively subordinated to all liabilities of
the Company's subsidiaries. The Company believes that as of March 31, 1996,
the fair value of its Senior Subordinated Notes approximates the carrying
value of those obligations.
During fiscal 1996 the Company repurchased approximately $19.9 million
principal amount at maturity of the Notes. As a result of the repurchases the
Company recorded an extraordinary charge of $0.9 million for fiscal 1996
resulting from the write-off of unamortized debt issuance costs and premium
over accreted value, net of tax. The repurchase was partly funded by
borrowings under the Bank Credit Agreement and partly from excess cash arising
from the IPO. The Company may from time to time purchase additional Notes in
the market or otherwise subject to market conditions.
9. COMMON STOCK
The Company's common stock comprises 50 million authorized shares at a par
value of $0.01 each.
During February and March 1995, the Company sold 5,403,305 shares of common
stock at $16.50 per share through its initial public offering (IPO). The net
proceeds (after underwriter's discounts and commissions and other costs
associated with the IPO) totaled $81.2 million.
The Company has entered into loan agreements with certain members of the
Company's management to enable them to invest in the Company's common stock.
As of March 31, 1996 and 1995, loans amounting to $0.4 million and $1.1
million, respectively, which bear interest at 7.5% per annum, payable
quarterly, and mature
F-15
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMON STOCK--(CONTINUED)
on December 1, 1998, were outstanding under this plan. These loans are secured
by the common stock and have been reflected as a reduction in shareholders'
equity on the consolidated balance sheet.
Sola Investors Inc. adopted the Sola Investors Inc. Stock Option Plan (the
"Existing Option Plan"), pursuant to which certain key employees and/or
directors of the Company and its subsidiaries and affiliates (each an
"Optionee") were eligible to receive non-qualified stock options (the
"Existing Options") to acquire shares of the non-voting common stock of Sola
Investors Inc...... Existing Options granted to an Optionee are evidenced by an
agreement between the Optionee and Sola Investors Inc. which contains terms
not inconsistent with the Existing Option Plan which the committee appointed
to administer the Existing Option Plan deemed necessary or desirable (the
""Existing Option Agreement'').
Upon consummation of the Mergers, the Existing Option Plan and the Existing
Option Agreements were assumed by the Company and all Existing Options which
were outstanding at such time were converted into options to acquire shares of
the Company's Common Stock, with the number of shares subject to such option
and the exercise price thereof adjusted appropriately. The Existing Option
Plan has been amended to provide that effective upon the consummation of the
Mergers, no new options will be granted thereunder.
The Company adopted the Sola International Inc. Stock Option Plan
("International Plan"), effective February 15, 1995. The maximum number of
shares of Common Stock with respect to which options may be granted under the
International Plan is 855,868 shares plus, subject to the requirement of rule
16b-3 of the Securities Exchange Act of 1934, if applicable, the number of
shares of Common Stock subject to existing options under the Existing Stock
Option Plan, which expire or terminate without exercise for any reason, which
number of shares underlying Existing Options shall not exceed 1,645,219. Under
the International Plan certain key employees and/or creditors of the Company
and its subsidiaries and affiliates (each an "Optionee") were eligible to
receive non-qualified stock options (the "International Options") to acquire
shares of common stock of the Company. International Options granted to an
Optionee are evidenced by an agreement between the Optionee and the Company
which contains terms not inconsistent with the International Plan which the
committee appointed to administer the International Plan deemed necessary or
desirable (the "International Option Agreement").
Pursuant to the Existing Option Plan and the International Plan ("Plans"),
unless otherwise set forth in an Existing Option Agreement or an International
Option Agreement, 20% of the Options granted to an Optionee vest on the date
of grant, with an additional 20% vesting on each successive one-year
anniversary of the date of grant. Options not previously vested become fully
vested in the event of a sale or other disposition of 80% or more of the
outstanding capital stock or substantially all of the assets of the Company,
or upon a Merger or consolidation of the Company and its subsidiaries and
affiliates unless the merger or consolidation is one in which the Company is
the surviving corporation or one in which control of the Company and its
subsidiaries and affiliates does not change (a "Termination Event"). However,
Existing Options which are not exercised on or prior to a Termination Event
lapse upon the closing of a Termination Event. All non-vested Options of an
Optionee lapse upon such Optionee's termination of employment for any reason.
An Optionee's vested Options lapse 45 days after termination of such
Optionee's employment with the Company and its subsidiaries and affiliates for
any reason other than death or disability, in which case such options
terminate 180 days after such termination; provided, however, that such
options lapse immediately in the event an Optionee's employment with the
Company and its subsidiaries and affiliates is terminated for cause.
F-16
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMON STOCK--(CONTINUED)
The following table contains information concerning the options under the
Plans after giving effect to the Merger:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING EXERCISE PRICE
OPTIONS ($/SHARE)
---------------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Options granted during fiscal
1995............................ 905 $ 9.71--$16.50
Options outstanding as of March
31, 1995........................ 2,166 $ 9.71--$16.50
Options exercisable as of March
31, 1995........................ 685 $ 9.71--$16.50
Options available for grant as of
March 31, 1995.................. 335 --
Options granted during fiscal
1996............................ 113 $ 21.13--$25.25
Options outstanding as of March
31, 1996........................ 2,227 $ 9.71--$25.25
Options exercised in fiscal
1996............................ 17 $ 9.71--$16.50
Options cancelled in fiscal
1996............................ 35 $ 9.71--$16.50
Options exercisable as of March
31, 1996........................ 1,119 $ 9.71--$25.25
Options available for grant as of
March 31, 1996.................. 257 --
</TABLE>
10. DEFINED CONTRIBUTION PLANS
The Company sponsors several defined contribution plans covering
substantially all U.S. and U.K. employees. The plans provide for limited
Company matching of participants' contributions. Contributions to all defined
contribution plans charged to operations were $0.9 million and $0.8 million
for fiscal 1996, $0.3 million and $0.5 million fiscal 1995, the four months
ended March 31, 1994 and the eight months ended November 30, 1993,
respectively.
11. DEFINED BENEFIT RETIREMENT PLANS
Prior to the sale by Pilkington, the Predecessor Business participated in a
non-contributory Pilkington defined benefit pension plan covering
substantially all full-time domestic employees. As of the Acquisition,
Pilkington retained responsibility for all assets and liabilities of this
plan. The domestic employees participation in the plan was curtailed as of the
closing date and all employees were fully vested as of that date.
Costs incurred and charged to the Predecessor Business's operations for its
portion of the Domestic Pension Plan were $1.1 million for the eight months
ended November 30, 1993.
The Company implemented a new Sola Optical defined benefit pension plan
("Domestic Pension Plan") with substantially the same pension benefits as the
Pilkington plan. The new plan offers pension benefits from December 1, 1993.
The plan provides prior service benefits to employees for years of service
completed under Pilkington ownership, and a liability reflecting the
difference between Projected Benefit Obligation and Accumulated Benefit
Obligation as of December 1, 1993 has been provided in the financial
statements as of the Acquisition date.
Benefit payments under the new plan are based principally on earnings during
the last five- or ten-year period prior to retirement and/or length of
service. New employees are eligible to participate in the plan within one year
of employment and are vested after five years of service. The Company's policy
is to fund such amounts
F-17
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. DEFINED BENEFIT RETIREMENT PLANS--(CONTINUED)
as are necessary, on an actuarial basis, to provide for the plan's current
service costs and the plan's prior service costs over their amortization
periods.
The Company also participates in a contributory defined benefit pension plan
covering certain Australian employees ("International Pension Plan"). Benefits
are generally based on length of service and on compensation during the last
three years of service prior to retirement. The Company's policy is to fund
such amounts as are necessary, on an actuarial basis, to provide for the
plan's current service costs and the plan's prior service costs over their
amortization periods.
The following table provides information on the status of the Domestic
Pension Plan and the International Pension Plan.
Net periodic pension cost included the following:
<TABLE>
<CAPTION>
FOUR MONTHS EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, NOVEMBER 30,
1996 1995 1994 1993
---------- ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Domestic Pension Plan:
Service cost-benefits earned
during the period.......... $1,370 $1,252 $469
Interest cost on projected
benefit obligation......... 509 377 127
Actual return on plan as-
sets....................... (180) 1 --
Net amortization and defer-
ral........................ 25 (1) --
------ ------ ----
Total net periodic pension
costs...................... $1,724 $1,629 $596
====== ====== ====
International Pension Plan:
Service cost-benefits earned
during the period.......... $1,539 $1,299 $428 $ 856
Interest cost on projected
benefit obligation......... 684 579 187 375
Actual return on plan as-
sets....................... (1,454) 134 (533) (1,067)
Net amortization and defer-
ral........................ 583 (938) 231 461
------ ------ ---- ------
Total net periodic pension
costs...................... $1,352 $1,074 $313 $ 625
====== ====== ==== ======
</TABLE>
The significant actuarial assumptions for the following tables, as of the
period-end measurement dates, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Domestic Pension Plan:
Discount rate............................... 7.0% 7.5%
Expected long-term rate of return on plan
assets..................................... 8.0% 8.0%
Rate of increase in future compensation lev-
els........................................ 5.0% 5.0%
International Pension Plan:
Discount rate............................... 8.0% 7.5% 7.5%
Expected long-term rate of return on plan
assets..................................... 8.5% 8.0% 8.0%
Rate of increase in future compensation lev-
els........................................ 5.5% 5.5% 5.5%
</TABLE>
F-18
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. DEFINED BENEFIT RETIREMENT PLANS--(CONTINUED)
The change in the actuarial assumptions for fiscal 1996 and 1995 have not
had a significant effect on the funded status of the Domestic or International
Pension Plans.
At March 31, 1996, the Domestic Pension Plan and International Pension Plan
assets include cash equivalents, fixed income securities and common stock.
The funded status as of the year-end measurement dates was as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic Pension Plan:
Actuarial present value of benefit obligations:
Vested benefit obligation......................... $ 2,776 $ 968 $ 313
======= ====== ======
Accumulated benefit obligation.................... $ 3,091 $1,262 $ 408
======= ====== ======
Projected benefit obligation...................... $ 9,603 $6,566 $5,023
Plan assets at fair value......................... 3,733 58 --
------- ------ ------
Projected benefit obligation in excess of plan as-
sets............................................. 5,870 6,508 5,023
Unrecognized net loss............................. (1,179) (13) (18)
Unrecognized prior service cost................... -- -- --
Unrecognized transition asset, net................ -- -- --
------- ------ ------
Accrued pension cost.............................. $ 4,691 $6,495 $5,005
======= ====== ======
International Pension Plan:
Actuarial present value of benefit obligations:
Vested benefit obligation......................... $10,480 $3,518 $7,439
======= ====== ======
Accumulated benefit obligation.................... $10,486 $8,524 $7,442
======= ====== ======
Projected benefit obligation...................... $10,827 $9,069 $7,857
Plan assets at fair value......................... 12,032 9,546 8,966
------- ------ ------
Projected benefit obligation less than plan as-
sets............................................. (1,205) (477) (1,109)
Unrecognized net gain............................. 947 208 828
Unrecognized transition asset, net................ 258 269 281
------- ------ ------
Accrued pension cost.............................. $ -- $ -- $ --
======= ====== ======
</TABLE>
Employees in the U.K. participated in the Pilkington Superannuation Scheme
which is a defined benefit pension plan with employee and employer
contributions. The employees remained covered under this plan through March
31, 1994 and the Company contributed $0.1 million to the plan for the four
months ended March 31, 1994. Subsequent to March 31, 1994, employees in the UK
ceased to participate in the Pilkington Superannuation Scheme and are eligible
to participate in a new, defined contribution pension plan (see Note 10).
F-19
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES
The domestic and foreign components of income (loss) before taxes are as
follows:
<TABLE>
<CAPTION>
FOUR MONTHS EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, NOVEMBER 30,
1996 1995 1994 1993
---------- ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Domestic......................... $27,158 $ 9,746 $(44,930) $ 5,683
Foreign.......................... 21,454 11,476 (22,402) 11,307
------- ------- -------- -------
$48,612 $21,222 $(67,332) $16,990
======= ======= ======== =======
</TABLE>
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, NOVEMBER 30,
1996 1995 1994 1993
---------- ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal................. $ 2,912 $ 28 $ -- $2,907
State................... 844 129 -- 322
Foreign................. 8,210 7,896 (1,377) 3,555
Deferred:
Federal................. 7,020 5,695 (573) (957)
State................... 2,161 1,675 -- --
Foreign................. 1,134 (4,795) (4,244) 6
Valuation allowance ad-
justment............... (8,658) (3,979) -- --
------- ------ ------- ------
$13,623 $6,649 $(6,194) $5,833
======= ====== ======= ======
</TABLE>
A reconciliation between income tax provisions computed at the U.S. federal
statutory rate and the effective rate reflected in the statements of
operations is as follows:
<TABLE>
<CAPTION>
FOUR MONTHS EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, NOVEMBER 30,
1996 1995 1994 1993
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Provision (benefit) at statutory
rate........................... 35.0% 34.0% (34.0)% 34.0%
State tax provision............. 3.6 2.7 -- .6
Valuation allowance............. (12.7) 4.5 28.6 --
Income (loss) of foreign subsid-
iaries tax provision or benefit
at differing statutory rates... 9.3 (4.6) (3.8) (.3)
Tax benefit from NOL utiliza-
tion........................... (5.1) -- -- --
Other........................... (1.5) 1.8 -- --
----- ---- ------ ----
28.6% 38.4% (9.2)% 34.3%
===== ==== ====== ====
</TABLE>
F-20
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
MARCH 31,
----------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowances for
doubtful accounts......................................... $ 3,008 $ 3,264
Inventories, principally due to reserves................... 8,626 3,819
Property, plant and equipment, principally due to differ-
ences in depreciation..................................... 2,687 765
Accruals for employee benefits............................. 8,788 11,398
In-process research and development........................ 10,809 11,477
Other assets............................................... 4,554 8,755
Net operating losses....................................... 3,685 4,507
------- -------
Total gross deferred tax assets............................ 42,157 43,985
Less valuation allowance................................... (15,294) (25,155)
------- -------
Net deferred tax assets.................................... $26,863 $18,830
======= =======
Deferred tax liabilities:
Property, plant and equipment, principally due to differ-
ences in depreciation..................................... $ 9,264 $ 6,735
Inventories................................................ 2,252 1,818
Unremitted income of foreign subsidiaries.................. 2,400 --
Other...................................................... 4,107 1,242
------- -------
$18,023 $ 9,795
======= =======
</TABLE>
For balance sheet presentation, deferred tax assets and liabilities have
been netted for each separate tax jurisdiction.
The net changes in the total valuation allowance for fiscal 1996, 1995 and
1994 were $(9.9) million, $(6.8) million and $30.9 million, respectively, and
relate primarily to movements in certain foreign and U.S. net operating
losses.
For tax purposes, the Company, at March 31, 1996, utilized net operating
loss ("NOL") carryforwards for U.S. Federal income tax purposes of
approximately $7.0 million. The Company's Australian subsidiary had available,
as of March 31, 1996, NOL carryforwards for Australian tax purposes of
approximately $9.8 million which do not expire. The deferred tax assets
reflected in the Company's accounts as of March 31, 1996 before valuation
allowances reflect these NOLs.
A valuation allowance of approximately $15.3 million, comprising $9.2
million against U.S. and $6.1 million against Australian deferred tax assets
has been established for those tax assets which may not be realized. Of the
$7.0 million of valuation allowances provided in fiscal 1994 against deferred
tax assets arising from the Acquisition, $1.2 million was applied to reduce
goodwill, in fiscal 1996 and $2.8 million in fiscal 1995. The remaining
valuation allowances of $3.0 million will be applied first to reduce remaining
goodwill, and if no goodwill remains, then will reduce income tax expense.
The Company has not provided for U.S. federal income and foreign withholding
taxes on $5 million of non-U.S. subsidiaries' undistributed earnings as of
March 31, 1996 because such earnings are intended to be reinvested
indefinitely. If these earnings were distributed, foreign tax credits should
become available under
F-21
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES--(CONTINUED)
current law to reduce or eliminate the resulting U.S. income tax liability.
Where excess cash has accumulated in the company's non-U.S. subsidiaries and
it is advantageous for tax or foreign exchange reasons, subsidiary earnings
are remitted.
13. COMMITMENTS
The Company leases certain warehouse and office facilities, office equipment
and automobiles under non cancelable operating leases which expire in 1996
through 2006. The Company is responsible for taxes, insurance and maintenance
expenses related to the leased facilities. Under the terms of certain lease
agreements, the leases may be extended, at the Company's option, and certain
of the leases provide for adjustments of the minimum monthly rent.
Future minimum annual lease payments under the leases are as follows (in
thousands):
<TABLE>
<CAPTION>
PERIOD ENDING MARCH 31,
-----------------------
<S> <C>
1997............................................................. $4,185
1998............................................................. 3,391
1999............................................................. 2,461
2000............................................................. 1,359
2001............................................................. 439
Thereafter....................................................... 3,264
</TABLE>
Rent expense for fiscal 1996, fiscal 1995, the four months ended March 31,
1994, and the eight months ended November 30, 1993 was $5.4 million, $5.1
million, $1.0 million and $3.6 million, respectively.
14. CONTINGENCIES
The Company is subject to environmental laws and regulations concerning
emissions to the air, discharges to surface and subsurface waters and the
generation, handling, storage, transportation, treatment and disposal of waste
materials.
The Company is currently participating in a remediation program of one of
its manufacturing facilities under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and the Superfund Amendments and
Reauthorization Act of 1986. The Company estimates that, based on an
independent feasibility report prepared in accordance with an EPA 1991 Consent
Order, additional clean-up costs of approximately $100,000 per annum for up to
17 years may be incurred. Under the current remediation program, the EPA has
established that re-evaluation of the program be performed every five years,
with the next scheduled review by the EPA being in fiscal 1998.
The Company is also involved in other investigations of environmental
contamination at several U.S. sites. Some clean-up activities have been
conducted and investigations are continuing to determine future remedial
requirements, if any.
Under the terms of the sale agreement with Pilkington, Pilkington has
indemnified the Company with regard to expenditures subsequent to the
Acquisition for certain environmental matters relating to circumstances
existing at the time of the Acquisition. Under the terms of the
indemnification, the Company is responsible for the first $1 million spent on
such environmental matters, Pilkington and the Company share equally the cost
of any further expenditures between $1 million and $5 million, and Pilkington
retains full liability for any expenditures in excess of $5 million.
F-22
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. CONTINGENCIES--(CONTINUED)
As of March 31, 1996 and March 31, 1995, the Company has provided for
environmental remediation costs in the amount of $2.5 million and $2.7
million, respectively, which is included in the balance sheet under other
long-term liabilities.
In the ordinary course of business, various legal actions and claims pending
have been filed against the Company. While it is reasonably possible that such
contingencies may result in a cost greater than that provided for in the
financial statements, it is the opinion of management that the ultimate
liability, if any, with respect to these matters, will not materially affect
the consolidated operations or financial position of the Company.
15. SIGNIFICANT RELATED PARTY TRANSACTIONS
Notes Payable to Pilkington and Affiliates:
Interest expense on notes payable to Pilkington for the eight months ended
November 30, 1993, was $1.5 million.
Payables to Affiliated Companies and other Activities:
Pilkington charged the Predecessor Business for services and shared costs
relating to treasury functions, tax return preparations, internal audit
service and risk management services. For the eight months ended November 30,
1993 the Predecessor Business expensed $0.4 million relating to Pilkington
services and shared costs. In addition, Pilkington facilitated the Predecessor
Business purchases of certain outside services, such as legal, worker's
compensation and other insurance premiums.
Arrangements with AEA Investors Inc.:
In connection with the Acquisition and in consideration of services
performed by AEA Investors Inc. ("AEA"), in arranging, structuring, and
negotiating the terms of the Acquisition and the related financing
transactions, the Company paid AEA a transaction fee of $5 million.
Prior to the IPO, AEA and the Company were parties to an agreement pursuant
to which AEA provided management, consulting and financial services to the
Company. In consideration for such services, the Company paid AEA a management
fee for the first nine months of fiscal 1995 and the four months ended March
31, 1994 of $750,000 and $250,000, respectively. Subsequent to the IPO the
agreement was terminated and the Company paid AEA a fee of $3.0 million in
connection therewith.
F-23
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. WORLDWIDE OPERATIONS
The Company operates in the ophthalmic industry in the design and
manufacture of eyeglass lenses.
A summary of information about the Company's geographic areas is as follows
(in thousands):
<TABLE>
<CAPTION>
NORTH REST OF
AMERICA EUROPE WORLD ELIMINATIONS TOTAL
-------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
SOLA INTERNATIONAL INC.
YEAR ENDED MARCH 31, 1996
Revenue:
External............... $190,785 $106,726 $ 90,198 $ -- $387,709
Internal............... 12,414 57,300 38,950 (108,664) --
Operating income (loss).. 35,318 16,645 9,612 (822) 60,753
Identifiable assets...... 204,733 115,205 105,096 (8,185) 416,849
YEAR ENDED MARCH 31, 1995
Revenue:
External............... $169,316 $100,045 $ 76,270 $ -- $345,631
Internal............... 13,357 52,524 37,180 (103,061) --
Operating income (loss).. 18,391 12,443 9,010 (100) 39,744
Identifiable assets...... 192,425 106,916 90,281 (6,165) 383,457
FOUR MONTHS ENDED MARCH
31, 1994
Revenue:
External............... $ 54,880 $ 27,643 $ 23,507 $ -- $106,030
Internal............... 2,759 14,889 9,226 (26,874) --
Operating income (loss).. (41,033) (5,774) (11,778) (2,420) (61,005)
Identifiable assets...... 187,083 96,624 80,897 (4,155) 360,449
PREDECESSOR BUSINESS
EIGHT MONTHS ENDED NOVEM-
BER 30, 1993
Revenue:
External............... $100,230 $ 56,095 $ 43,700 $ -- $200,025
Internal............... 5,265 28,874 24,044 (58,183) --
Operating income......... 10,222 3,554 6,070 693 20,539
</TABLE>
Internal sales represent intercompany sales between regions at a mark-up
from cost, the elimination of any profit arising from such sales is reflected
in eliminations in determining operating income (loss).
Included in the operating loss for the four months ended March 31, 1994 for
North America, Europe, and Rest of World were charges of $15.1 million, $8.6
million and $6.3 million, respectively, representing the reversal of write-up
of inventories to fair value at the Acquisition date, and amortization of
goodwill. In addition, write-off of in-process research and development
expenses in North America and Australia (included in Rest of World) amounted
to $32 million and $8 million, respectively.
For fiscal 1996 and 1995, the four months ended March 31, 1994 and the eight
months ended November 30, 1993 the corporate headquarters costs of $7.7
million, $11.7 million, $0.8 million and $4.2 million, respectively, are
included in the North American geographic area. Included in fiscal 1995
corporate headquarters costs are the AEA management fees and management
agreement termination fee totaling $3.9 million.
F-24
<PAGE>
SOLA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SUPPLEMENTARY CASH FLOW DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
SOLA INTERNATIONAL INC. PREDECESSOR BUSINESS
--------------------------------- --------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, NOVEMBER 30,
1996 1995 1994 1993
---------- ---------- ----------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Supplemental disclosures
of cash flow informa-
tion:
Interest paid......... $11,220 $19,264 $2,389 $3,211
======= ======= ====== ======
Taxes paid............ $11,486 $ 6,233 $ 439 $4,223
======= ======= ====== ======
Supplemental disclosures
of noncash investing
and
financing activities:
Capital expenditures
accrued but not
paid................. $ 1,646 $ 2,541 $2,236 $ 930
======= ======= ====== ======
Dividends previously
declared subsequently
cancelled............ $ -- $ -- $ -- $3,304
======= ======= ====== ======
</TABLE>
18. SUBSEQUENT EVENTS (UNAUDITED)
In June 1996 the Company acquired substantially all of the worldwide
ophthalmic business ("AO") of American Optical Corporation (the "AO
Purchase"). The purchase price was approximately $107.0 million, excluding
acquisition costs, and assumption of certain debt and liabilities, subject to
adjustment for certain financial conditions as of closing. The AO Purchase
will be accounted for under the purchase method of accounting. AO's worldwide
ophthalmic business recorded net sales and operating income, after allocated
corporate expenses, of approximately $85.7 million and $11.9 million,
respectively, for its fiscal year ended March 31, 1996.
Simultaneous with the closing of the AO Acquisition, the Company entered
into a new bank credit agreement (the "New Credit Agreement"), replacing its
existing credit agreement. The New Credit Agreement is divided into three
tranches which consist of: a five-year term loan of $30 million, a renewable
three-year foreign currency revolving facility of $30 million, and a further
five-year U.S. dollar revolver of $120 million. The New Credit Agreement is
unsecured. The Company believes that the New Credit Agreement will lower the
effective interest rate on its borrowings and provide it with greater
operating flexibility.
In May 1996 the Company announced that it had entered into a definitive
merger agreement which provides for the acquisition by the Company of Neolens,
Inc. ("Neolens"), a Florida corporation that manufactures polycarbonate
eyeglass lenses and has been a supplier to the Company. Pursuant to the merger
agreement the Company has commenced a cash tender offer for all outstanding
shares of Neolens Common Stock, Series A Preferred Stock and Series B
Preferred Stock. The aggregate purchase price will be approximately $16.0
million, including the assumption of Neolens debt. Although there can be no
assurance of consummation, the Company expects to consummate the tender offer
by August 1996.
F-25
<PAGE>
SOLA INTERNATIONAL INC.
QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1995 1995 1995 1996
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales................................ $95,922 $95,866 $91,329 $104,592
Gross profit............................. 45,740 45,404 43,557 51,017
Operating income......................... 13,668 15,565 11,461 20,059
Income before extraordinary item......... 7,355 9,000 5,958 12,275
Net income............................... 6,443 9,000 5,958 12,275
Earnings per share:
Income before extraordinary item....... 0.32 0.39 0.26 0.53
Extraordinary item..................... (0.04) -- -- --
Net income per share..................... 0.28 0.39 0.26 0.53
<CAPTION>
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1995 1995 1995 1996
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales................................ $83,741 $84,420 $82,854 $ 94,616
Gross profit............................. 35,900 38,931 39,374 45,800
Operating income......................... 8,149 10,511 7,631 13,453
Income before extraordinary item......... 2,373 4,347 1,332 5,588
Net income(1)............................ 2,373 4,347 1,332 1,673
Earnings per share:
Income before extraordinary item....... 0.14 0.25 0.08 0.32
Extraordinary item..................... -- -- -- (0.22)
Net income per share..................... 0.14 0.25 0.08 0.10
</TABLE>
- --------
(1) The quarter ended March 31, 1995 net income reflects an effective tax rate
of 36% compared to the previous three quarters reflecting an effective tax
rate of 28%. The increase in effective tax rate for the quarter ended March
31, 1995 is caused by non-recurring charges associated with the IPO.
F-26
<PAGE>
LOGO
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following table shows the expenses, other than underwriting discounts
and commissions, to be incurred in connection with the sale and distribution
of securities being registered by the Company.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 31,791
NASD Fee........................................................... 9,719
New York Stock Exchange Listing Fee................................ 7,000
Blue Sky Fees and Expenses......................................... 20,000
Legal Fees and Expenses............................................ 150,000
Accounting Fees and Expenses....................................... 135,000
Printing Expenses.................................................. 100,000
Miscellaneous Expenses............................................. 46,490
--------
Total............................................................ $500,000
========
</TABLE>
- --------
* Except for the SEC registration fee and the NASD fee, all of the foregoing
expenses have been estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant, as a Delaware corporation, is empowered by Section 145 of
the Delaware General Corporation Law (the "DGCL"), subject to the procedures
and limitations stated therein, to indemnify any person against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any threatened,
pending or completed action, suit or proceeding in which such person is made
or threatened to be made a party by reason of his being or having been a
director, officer, employee or agent of the Registrant. The statute provides
that indemnification pursuant to its provisions is not exclusive of other
rights of indemnification to which a person may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors, or otherwise. The
Registrant's Restated Certificate of Incorporation provides for
indemnification by the Registrant or of its directors and officers to the full
extent permitted by the DGCL. Pursuant to Section 145 of the DGCL, the
Registrant has purchased insurance on behalf of its present and former
directors and officers against any liability asserted against or incurred by
them in such capacity or arising out of their status as such.
Pursuant to specific authority granted by Section 102 of the DGCL, the
Registrant's Amended and Restated Certificate of Incorporation contains the
following provision regarding limitation of liability of directors and
officers:
"To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or may hereafter be amended, a Director of the Corporation
shall not be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a Director."
In addition, the Company's By-Laws provide for indemnification of directors
and officers, including indemnification of directors and officers that are a
party to a proceeding in whole or in part attributable to (a) the fact that he
is or was a director or officer of the Company or was serving at the request
of the Company or (b) anything done or not done by such person in any such
capacity against losses if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Company, and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful.
The undersigned registrant has entered into agreements to provide
indemnification for its directors in addition to the indemnification provided
for in the Registrant's Restated Certificate of Incorporation and By-laws.
These agreements, among other things, indemnify the directors, to the fullest
extent provided by Delaware law,
II-1
<PAGE>
for certain expenses (including attorneys' fees), losses, claims, liabilities,
judgments, fines and settlement amounts incurred by such indemnitee in any
action or proceeding, including any action by or in the right of the
Registrant, on account of services as a director or officer of any affiliate
of the Registrant, or as a director or officer of any other company or
enterprise that the indemnitee provides services to at the request of the
Registrant.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement
2.1. --Purchase Agreement between Sola International Inc. and American
Optical Corporation, dated as of May 6, 1996 (Filed as Exhibit 2 to
the Form 8-K of the Company, dated May 6, 1996, and incorporated
herein by reference)
4.1 --Specimen Form of Company's Common Stock Certificate (Filed as
Exhibit 4.1 to the Registration Statement, as amended, on Form S-1 of
the Company (File No. 33-87892) and incorporated herein by reference)
4.2 --Amended and Restated Certificate of Incorporation of the Company
(Filed as Exhibit 3.1 to the Annual Report on Form 10-K of the
Company, dated June 7, 1995, and incorporated herein by reference)
4.3 --Amended and Restated By-Laws of the Company (Filed as Exhibit 3.1 to
the Quarterly Report on Form 10-Q of the Company for the quarter
ended September 30, 1995 and incorporated herein by reference)
5.1 --Opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel to the
Company, as to the legality of the securities being registered
23.1 --Consent of Fried, Frank, Harris, Shriver & Jacobson (included in
Exhibit 5.1)
23.2 --Consent of Ernst & Young LLP, independent auditors, with respect to
the consolidated financial statements of Sola International Inc.
23.3+ -- Consent of Ernst & Young LLP, independent auditors, with respect to
the combined financial statements of the Worldwide Ophthalmic Group
of American Optical Corporation
24.1+ --Powers of Attorney
</TABLE>
- --------
+ Previously filed.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 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 Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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
of 1933, 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-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN MENLO PARK, CALIFORNIA ON THE 25TH DAY OF JUNE, 1996.
Sola International Inc.
/s/ Ian S. Gillies
By: _________________________________
IAN S. GILLIES
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman of the
- ------------------------------------- Board June 25, 1996
IRVING S. SHAPIRO
* President and Chief
- ------------------------------------- Executive Officer June 25, 1996
JOHN E. HEINE (Principal Executive
Officer), Director
/s/ Ian S. Gillies Vice President,
- ------------------------------------- Finance, Chief June 25, 1996
IAN S. GILLIES Financial Officer,
Treasurer and
Secretary (Principal
Financial and
Accounting Officer)
* Director
- ------------------------------------- June 25, 1996
DOUGLAS D. DANFORTH
* Director
- ------------------------------------- June 25, 1996
HAMISH MAXWELL
* Director
- ------------------------------------- June 25, 1996
RUBEN F. METTLER
* Director
- ------------------------------------- June 25, 1996
LAURENCE ZA YU MOH
* Director
- ------------------------------------- June 25, 1996
JACKSON L. SCHULTZ
/s/ Ian S. Gillies
By: _________________________________ June 25, 1996
IAN S. GILLIES ATTORNEY-IN-FACT
II-4
<PAGE>
EX 1
2,805,415 Shares
SOLA INTERNATIONAL INC.
COMMON STOCK, $.01 PAR VALUE
UNDERWRITING AGREEMENT
June __, 1996
<PAGE>
June __, 1996
Morgan Stanley & Co. Incorporated
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs:
Sola International Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to the several underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 2,000,000 shares of its common stock, $.01 par
value, and the persons named in Schedule II hereto (the "Selling Shareholders")
severally and not jointly propose to sell to the Underwriters an aggregate of
805,415 shares of the Company's common stock $.01 par value (the shares to be
issued and sold by the Company and the shares to be sold by the Selling
Shareholders, collectively being referred to as the "Firm Shares"), each Selling
Shareholder selling the number of Firm Shares set forth opposite such Selling
Shareholder's name in Schedule II. Morgan Stanley & Co. Incorporated and
Merrill Lynch, Pierce, Fenner & Smith Incorporated shall act as representatives
(the "Representatives") of the several Underwriters.
The Company also proposes to issue and sell to the several Underwriters not
more than an additional 300,000 shares of its common stock, $.01 par value (the
"Additional Shares"), if and to the extent that the Representatives shall have
determined to exercise, on behalf of the Underwriters, the right to purchase
such shares of common stock granted to the Underwriters in Article III hereof.
The Firm Shares and the Additional Shares are hereinafter collectively referred
to as the "Shares." The shares of common stock, $.01 par value, of the Company
to be outstanding after giving effect to the sales contemplated hereby are
hereinafter referred to as the Common Stock.
On May 6, 1996, the Company and American Optical Corporation, a Delaware
corporation ("American Optical"), entered into a Purchase Agreement (the
"Purchase Agreement") pursuant to which the Company agreed, subject to the
satisfaction or waiver of certain conditions customary to a transaction of this
nature, to purchase substantially all of the world-wide ophthalmic business of
American Optical (the "AO Acquisition"). On May 30, 1996, the Company and
Neolens, Inc., a Delaware corporation ("Neolens"), entered into a merger
agreement (the "Merger Agreement") pursuant to which
<PAGE>
2
the Company agreed, subject to the satisfaction or waiver of certain conditions
customary to a transaction of this nature, to acquire Neolens through a cash
tender offer for all outstanding shares of Neolens common stock and preferred
stock (the "Neolens Merger").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (Registration No. 333-3645)
relating to the Shares. Such registration statement, as amended at the time it
becomes effective, including all documents incorporated by reference therein and
the information (if any) deemed a part of such registration statement at the
time of effectiveness pursuant to Rule 430A under the Securities Act, is herein
called the "Original Registration Statement." The Company may also file,
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), one or more registration statements in connection with the
Original Registration Statement, which would become effective upon filing with
the Commission (a "Rule 462(b) Registration Statement"). The Original
Registration Statement together with any Rule 462(b) Registration Statement (if
any) is herein called the "Registration Statement." The prospectus first used
to confirm sales of Shares (the "Prospectus Supplement") is hereinafter referred
to as the "Prospectus." All references to the Registration Statement or the
Prospectus include the documents filed by the Company with the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that are incorporated by reference therein. The terms "supplement,"
"amendment" and "amend" as used herein shall include all documents deemed to be
incorporated by reference in the Prospectus that are filed subsequent to the
date of the Prospectus.
I.
The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) The Original Registration Statement has become effective, and, if
the Company has elected to rely upon Rule 462(b) under the Securities Act,
the Rule 462(b) Registration Statement shall have become effective not
later than the earlier of (i) 10:00 p.m. Eastern time on the date hereof
and (ii) the time confirmations are sent or given, as notified to the
Company by the Representatives, as specified by Rule 462(b) under the
Securities Act; no stop order suspending the effectiveness of the
Registration Statement is in effect, and to the knowledge of the Company,
no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied or
will comply when so filed in all material respects with the Exchange Act
and the applicable rules and
<PAGE>
3
regulations of the Commission thereunder, (ii) each part of the Registration
Statement, when such part became effective, did not contain and each such part,
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 misleading, (iii) 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 (iv) 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 paragraph (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 State of Delaware, 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.
(d) As used herein, the "Material Subsidiaries" of the Company are Sola
Optical Holding Aus. Ltd., a Delaware corporation, Sola Optical Partners, an
Australian limited partnership, Sola Optical Holdings Pty. Ltd., an Australian
corporation, Sola Corporation Limited, an Australian corporation, Sola
International Holdings Ltd., an Australian corporation, Sola Optical Italia SpA,
an Italian corporation, Sola Brazil Industria Optica Ltda., a Brazilian
corporation, and AO Ouest Optique S.A., a French societe anonyme, and no other
------- -------
subsidiary of the Company had, at March 31, 1996, assets in excess of 5% of the
consolidated assets of the Company and its subsidiaries in each case excluding
intangibles as at that date or had, for the fiscal year then ended, net sales
(excluding internal intercompany sales) in excess of 5% of the consolidated net
sales of the Company and its subsidiaries for such period. In making this
determination, (i) any subsidiary acquired after March 31, 1996 shall be deemed
to have been acquired as of such date and (ii) the AO Acquisition and the
Neolens Merger shall be deemed to have occurred as of such date. Each Material
Subsidiary of the Company has been duly organized, 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
<PAGE>
4
conduct its business as described in the Prospectus and is, to the extent
applicable under foreign law, 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;
and, except for directors' qualifying shares, the Company beneficially owns,
directly or indirectly, 100% of the shares of capital stock of its Material
Subsidiaries and, with respect to such shares, the Company has good and
marketable title, free and clear of all liens, charges, encumbrances or
restrictions of any kind.
(e) The capital stock of the Company conforms in all material respects to
the description thereof contained in the Prospectus.
(f) The Shares to be issued and 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
of any stockholder of the Company arising by operation of law, under the charter
or by-laws of the Company or under any agreement to which the Company or any
subsidiary of the Company is a party.
(g) All the outstanding shares of Common Stock (including the Shares to be
sold by the Selling Shareholders) have been duly authorized and are validly
issued, fully paid and non-assessable.
(h) This Agreement has been duly authorized, executed and delivered by the
Company.
(i) 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 by-laws of
the Company 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 agency is required for the performance by the Company of
its obligations under this Agreement, except such as have been obtained under
the Securities Act and as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the Shares.
<PAGE>
5
(j) 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 its
subsidiaries, taken as a whole, from that set forth in the Prospectus.
(k) Except as described in the Prospectus, there are no legal or
governmental proceedings pending or, to the knowledge of the Company, 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.
(l) Each of the Company and its subsidiaries has all necessary consents,
authorizations, approvals, orders, certificates and permits of and from, and has
made all declarations and filings with, all federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts and
other tribunals, to own, lease, license and use its properties and assets and to
conduct its business in the manner described in the Prospectus, except to the
extent that the failure to obtain, declare or file would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(m) The AO Acquisition has been consummated in accordance with the terms of
the Purchase Agreement.
(n) The preliminary prospectus issued June 17, 1996, and filed as part of
the Original Registration Statement complied when so filed in all material
respects with the Securities Act and the rules and regulations of the Commission
thereunder.
(o) The Company is not an "investment company" nor an entity "controlled"
by an "investment company," as such terms are defined in the Investment Company
Act of 1940, as amended.
(p) Ernst & Young LLP, who has reported on the audited financial statements
and schedules included or incorporated by reference in the Registration
Statement, are independent public accountants as required by the Securities Act
and the regulations thereunder with respect to the Company and American Optical.
(q) The consolidated financial statements [of the Company which are
included in the Company's Report on Form 10-K for the fiscal year ended March
31, 1996 and in the Registration Statement and the combined financial
statements of the Worldwide Ophthalmic Group of
<PAGE>
6
American Optical Corporation which are included in the Company's Report on Form
8-K dated as of May 6, 1996 and incorporated in the Registration Statement by
reference] [included or incorporated by reference in the Registration Statement]
present fairly the consolidated financial position and stockholders' equity and
the consolidated results of operations and consolidated statements of cash flows
of the entities purported to be shown thereby at the indicated dates and for the
periods specified. Such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved. The financial statement schedules, if any,
included or incorporated by reference in the Registration Statement present
fairly the information required to be stated therein. The selected financial
data included or incorporated by reference in the Prospectus present fairly the
information shown therein and have been compiled on a basis consistent with that
of the audited consolidated financial statements incorporated by reference in
the Registration Statement. The pro forma financial statements and other pro
forma financial information included or incorporated by reference in the
Prospectus present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro forma
financial statements, have been properly compiled on the pro forma bases
described therein, and, in the opinion of the Company, the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(r) Except as disclosed in the Prospectus, to the knowledge of the Company,
the Company and 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).
(t) The Shares are listed on the New York Stock Exchange (the "NYSE")
subject to official notice of issuance.
<PAGE>
7
(u) Each of the Acquisition Agreement and the Merger Agreement is in
full force and effect. The Company has obtained all regulatory and
contractual consents and approvals necessary to consummate the AO
Acquisition and the Neolens Merger except to the extent that the failure to
obtain any consent or approval would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
(v) The execution and delivery by the Company of each of the
Acquisition Agreement and the Merger Agreement, the consummation by the
Company of the transactions contemplated therein and compliance by the
Company with the terms of each of the Acquisition Agreement and the Merger
Agreement have been duly authorized by all necessary corporate action on
the part of the Company and do not and will not result in any violation of
the certificate of incorporation or by-laws of the Company or any of its
subsidiaries, and do not and will not conflict with, or result in a breach
of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries under
(A) any contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which the Company or any subsidiary is a party
or by which it may be bound or to which any of its properties may be
subject (except for such conflicts, breaches or defaults or liens, charges
or encumbrances that would not have a material adverse effect on the
condition (financial or otherwise), earnings or business affairs of the
Company and its subsidiaries, taken as a whole) or (B) any existing
applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any subsidiary or any of their
respective properties (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not have a material adverse
effect on the condition (financial or otherwise), earnings or business
affairs of the Company and its subsidiaries, taken as a whole).
II.
Each of the Selling Shareholders, severally and not jointly, represents and
warrants to each of the Underwriters and the Company that:
(a) This Agreement has been duly authorized, executed and delivered by
or on behalf of such Selling Shareholder.
(b) The execution and delivery by such Selling Shareholder of, and the
performance by such Selling Shareholder of its obligations under, this
Agreement and the Custody Agreement and Power of Attorney (the "Power of
Attorney and Custody Agreement") between such Selling Shareholder, the
Company, Boston Equiserve, as Depositary and Alan W. Wilkinson, as
Attorney-in-Fact for the Selling Shareholders (the "Attorney-in-Fact")
relating to the deposit of the Shares to be sold by such Selling
Shareholder and appointing the Attorney-in-Fact as such Selling
Shareholder's
<PAGE>
8
attorneys-in-fact to the extent set forth therein, relating to the transactions
contemplated hereby and by the Registration Statement, will not contravene any
provision of applicable federal or state law, or the certificate of
incorporation or by-laws of such Selling Shareholder (if such Selling
Shareholder is a corporation), or any material agreement or other instrument
binding upon such Selling Shareholder or any judgment, order or decree of any
federal or state governmental body, agency or court having jurisdiction over
such Selling Shareholder, and no consent, approval, authorization or order of or
qualification with any federal or state governmental body or agency is required
for the performance by such Selling Shareholder of its obligations under this
Agreement or the Power of Attorney and Custody Agreement of such Selling
Shareholder, except such as may be required by the securities or Blue Sky laws
of the various states in connection with the offer and sale of the Shares.
(c) Such Selling Shareholder has, and on the Closing Date (as defined
below) will have, valid and marketable title to the Shares to be sold by such
Selling Shareholder and the legal right and power and all authorization and
approval to enter into this Agreement and the Power of Attorney and Custody
Agreement and to sell, transfer and deliver the Shares to be sold by such
Selling Shareholder.
(d) The Shares to be sold by such Selling Shareholder pursuant to this
Agreement are owned, and, in the case of shares of Common Stock to be issued
upon the exercise of existing stock options, will be owned, by such Selling
Shareholder free and clear of any security interests, claims, equities and other
encumbrances.
(e) The Power of Attorney and Custody Agreement has been duly authorized,
executed and delivered by such Selling Shareholder and is a valid and binding
agreement of such Selling Shareholder.
(f) Assuming that the Underwriters purchase the Shares to be delivered at
the Closing Date for value, in good faith and without notice of any adverse
claim as such term is used in Section 8-302 of the Uniform Commercial Code as in
effect in the State of New York, delivery of the Shares to be sold by such
Selling Shareholder pursuant to this Agreement will pass valid title to such
Shares free and clear of any adverse claims.
(g) All information furnished by or on behalf of such Selling Shareholder
expressly for use in the Registration Statement and Prospectus is, and on the
Closing Date will be, true, correct and complete in all material respects, 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.
<PAGE>
9
(h) Such Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Common Stock (provided that such Selling Shareholder does not make any
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representation as to any actions that may be taken by any Underwriter); and
such Selling Shareholder has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Shares other than any preliminary prospectus filed with the
Commission or the Prospectus or other material permitted by the Securities
Act.
III.
The Company and each Selling Shareholder, severally and not jointly, hereby
agree 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 the Company and the Selling Shareholders the respective numbers of Firm
Shares set forth in Schedule I hereto opposite their names at U.S.$____ per
share, the purchase price.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company 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 300,000 Additional
Shares at the purchase price. Additional Shares may be purchased as provided in
Article V 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 the Representatives may 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 I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not (1) 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 of the Company or any securities convertible into or
exercisable or exchangeable for such Common Stock (except through gifts to
persons who agree in writing to be bound by the restrictions of this paragraph)
or (2) enter into any swap or similar agreement that transfers, in whole or in
part, the economic risk of ownership of such Common Stock, whether any such
transaction described in clause (1) or (2) of this paragraph is to be settled by
delivery of such Common Stock or such other securities, in cash or otherwise,
for a period of 90 days after the date of the Prospectus,
<PAGE>
10
other than (i) the Shares to be sold hereunder, (ii) any shares of Common Stock
sold by the Company upon the exercise of any option outstanding on the Closing
Date granted under the stock option plans of the Company existing on the Closing
Date and (iii) the issuance of additional options to purchase 757,418 shares of
Common Stock to employees of the Company pursuant to any stock option plans
existing on the Closing Date (and the issuance of the shares of Common Stock
issuable thereon).
IV.
The Company and the Selling Shareholders 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 Company and the Selling
Shareholders are further advised by you that the Shares are to be offered to the
public initially at U.S.$____ a share (the public offering price) and to certain
dealers selected by you at a price that represents a concession not in excess of
U.S.$____ a share under the public offering price, and that any Underwriter may
allow, and such dealers may reallow, a concession, not in excess of U.S.$____ a
share, to any Underwriter or to certain other dealers.
V.
Payment for the Firm Shares to be sold by the Company and the Selling
Shareholders shall be made by wire or bank transfer of same day funds to the
Company, in the case of Shares to be sold by the Company, and to the Selling
Shareholders (or such other person as may be designated pursuant to the Power of
Attorney and Custody Agreements), in the case of shares to be sold by the
Selling Shareholders, at Shearman & Sterling, 599 Lexington Avenue, New York,
New York at 10:00 A.M., local time, on ______, 1996, or at such other time on
the same or such other date 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 wire or bank transfer of
same day funds to the Company at Shearman & Sterling, 599 Lexington Avenue, New
York, New York, at 10:00 A.M. local time on such date (which may be the same as
the Closing Date but shall in no event be earlier than the Closing Date nor
later than ten business days after the giving of the notice hereinafter referred
to) as shall be designated in a written notice from the Representatives to the
Company of their determination, on behalf of the Underwriters, to purchase a
number, specified in said notice, of Additional Shares, or on such other date,
in any event not later than _______, 1996, as shall be designated in writing by
the Representatives. The time and date of such payment are hereinafter referred
to as the Option Closing Date. The notice of the determination to exercise the
option to purchase
<PAGE>
11
Additional Shares and of the Option Closing Date may be given at any time within
30 days after the date of this Agreement.
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 two full business days 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.
VI.
The obligations of the Company and the Selling Shareholders and the several
obligations of the Underwriters hereunder are subject to the condition that the
Registration Statement shall have become effective not later than the date
hereof.
The several obligations of the Underwriters hereunder are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and on
or 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, 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) You shall have received on the Closing Date a certificate from the
Company, dated the Closing Date and signed by an executive officer of the
Company,
<PAGE>
12
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 on or before the Closing
Date.
The officer signing and delivering such certificate may rely upon the best
of his knowledge as to proceedings threatened.
(c) No stop order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall be
pending before or, to the knowledge of the Company or the Underwriters,
threatened by the Commission.
(d) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Company and the Selling Shareholders, substantially in the form of Exhibit A
attached hereto.
(e) You shall have received on the Closing Date an opinion, dated the
Closing Date, of the General Counsel for AEA Investors Inc. ("AEA") acceptable
to counsel for the Underwriters, substantially in the form of Exhibit B attached
hereto.
(f) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Shearman & Sterling, counsel for the Underwriters,
substantially in the form of Exhibit C attached hereto.
(g) You shall have received, on each of the date hereof and the Closing
Date, a letter from Ernst & Young LLP, independent public accountants with
respect to both the Company and American Optical, dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to you,
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; and you shall have received, on the Closing Date,
a letter from BDO Seidman, independent public accountants with respect to
Neolens, dated the Closing Date, in form and substance satisfactory to you,
containing statements and information that you and BDO Seidman shall have agreed
shall be contained therein.
(h) The "lock-up" agreements between you and the executive officers of the
Company relating to sales of shares of Common Stock of the Company or any
securities convertible into or exercisable or exchangeable for such Common
Stock, delivered to you on or before the date hereof, shall be in full force and
effect on the Closing Date.
<PAGE>
13
(i) The Underwriters shall have received on the Closing Date
certificates dated the Closing Date and signed by the Selling Shareholders
or by an attorney in fact of the Selling Shareholders, to the effect that
the representations and warranties of each Selling Stockholder contained in
this Agreement are true and correct as of the Closing Date and that each
Selling Stockholder 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.
(j) On the Closing Date, the closing contemplated by the Purchase
Agreement shall have been consummated in accordance with the terms thereof
in all material respects (except to the extent any conditions precedent
shall have been waived); and the Company shall allow you and your counsel
to review copies of all closing documents delivered to the parties to the
transactions contemplated by the Purchase Agreement as you or your counsel
shall reasonably request.
(k) The Company shall have authorized, executed and delivered its new
bank credit agreement as described under the caption "Recent Developments"
in the Prospectus; and the Merger Agreement shall be in full force and
effect.
At the Closing Date, counsel for the Underwriters shall have been furnished
with all such other documents, certificates and opinions as they may reasonably
request for the purpose of enabling them to pass upon the issuance and sale of
the Shares as contemplated in this Agreement and the matters referred to in
paragraph (f) of this Article VI and in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company and the Selling Shareholders, the performance of any of the covenants of
the Company and the Selling Shareholders, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company and the
Selling Shareholders at or prior to the Closing Date in connection with the
authorization, issuance and sale of the Shares as contemplated in this Agreement
shall be satisfactory in form and substance to the Underwriters and to counsel
for the Underwriters.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the delivery to the Representatives on the Option
Closing Date of such documents as they 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 issuance of the Additional
Shares.
VII.
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:
<PAGE>
14
(a) To furnish to each of you, without charge, one signed copy 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, 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.
(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 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; provided that if the date of
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any such amendment or supplement is more than 270 days after the date hereof,
the preparation, filing and furnishing of such amendment or supplement shall be
at the expense of the Underwriters.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such U.S. jurisdictions as you shall reasonably
request (provided, however, that the Company shall not be required to register
-------- -------
or qualify as a foreign corporation or to take any action which would subject it
to general service of process in any jurisdiction where it is not now so
subject) and to pay all expenses (including reasonable fees and disbursements of
counsel) in connection with such qualification and in connection with (i) the
determination of the eligibility of the Shares for investment under the laws of
such jurisdictions as you may designate and (ii) any review of the offering of
the Shares by the National Association of Securities Dealers, Inc.
<PAGE>
15
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period beginning on the day after the date hereof that satisfies the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
(f) If the Company elects to rely on Rule 462(b) under the Securities
Act, the Company shall file the Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) under the Securities Act no later
than the earlier of (i) 10:00 P.M. Eastern time on the date hereof and (ii)
the time confirmations are sent or given, as notified to the Company by the
Representatives, as specified by Rule 462(b)(2) under the Securities Act,
and shall pay the applicable fees in accordance with Rule 111 under the
Securities Act.
(g) To pay all expenses incident to the performance of the Company's
and the Selling Shareholders' obligations under this Agreement, including
(i) the preparation and filing of the Registration Statement and the
Prospectus and all amendments and supplements thereto, (ii) the fees and
disbursements of the Company's and the Selling Shareholders' counsel and
accountants, (iii) the qualification of the Shares under state securities
or Blue Sky laws in accordance with the provisions of paragraph (d) of this
Article VII, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection therewith, (iv)
the printing and delivery to the Underwriters, in quantities as hereinabove
stated, copies of the Registration Statement and all amendments thereto and
of each preliminary prospectus and the Prospectus and any amendments or
supplements thereto, (v) the printing and delivery to the Underwriters of
copies of any Blue Sky Memoranda, (vi) the filing fees and expenses, if
any, incurred with respect to any filing with the National Association of
Securities Dealers, Inc., made in connection with the offering of the
Shares, (vii) any expenses incurred by the Company in connection with a
"road show" presentation to potential investors in accordance with past
practice and (viii) the listing of the Common Stock on the NYSE.
VIII
Each Selling Shareholder, severally and not jointly, agrees to pay or cause
to be paid all taxes, if any, on the transfer and sale of the Shares being sold
by such Selling Shareholder.
<PAGE>
16
IX.
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 Exchange Act, from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred by any Underwriter
or any such controlling person 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 that the foregoing indemnity agreement with respect to
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any preliminary prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling any Underwriter, 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 losses, claims, damages or liabilities.
The Company will indemnify and hold harmless each of the Selling
Shareholders to the same extent that the Company indemnifies and holds harmless
each Underwriter pursuant to the preceding paragraph; provided, however, the
Company shall not be liable under this paragraph to the extent any losses,
claims, damages or liabilities described in the preceding paragraph arise out of
or are based upon an untrue statement or omission or alleged untrue statement or
omission based upon information relating to such Selling Shareholder furnished
in writing by or on behalf of such Selling Shareholder expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
Each Selling Shareholder agrees, severally and not jointly, 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 Exchange Act and 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, from and against any and all
losses, claims, damages and liabilities (including, without limitation,
<PAGE>
17
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 Shareholder furnished in writing by or on behalf of
such Selling Shareholder expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements thereto,
provided that no Selling Shareholder shall be liable for any untrue statement,
alleged untrue statement, omission or alleged omission of any other Selling
Shareholder.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, the Selling Shareholders, the directors of the Company,
the officers of the Company who sign or have their attorney-in-fact on their
behalf sign the Registration Statement and each person, if any, who controls the
Company or any Selling Shareholder within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to such Underwriter, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
In case any proceeding (including any governmental investigation) shall be
instituted involving any person in respect of which indemnity may be sought
pursuant to any of the four preceding paragraphs, 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 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 in writing 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 (a) the fees and expenses of more than one
separate firm (in addition to any local counsel) for all
<PAGE>
18
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, (b) the fees and expenses of more than one separate firm (in addition to
any local counsel) for 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 (c) the fees and expenses of more than
one separate firm (in addition to any local counsel) for all Selling
Shareholders and all persons, if any, who control any Selling Shareholder 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 Underwriters, such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated. 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 Shareholders and such
controlling persons of Selling Shareholders, such firm shall be designated in
writing by the majority in interest of the Selling Shareholders. 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 90
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 (other than
with respect to requests for reimbursement of an indemnified party contested in
good faith). 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.
If the indemnification provided for in the first, second, third or fourth
paragraphs of this Article IX 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
<PAGE>
19
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 Selling Shareholders 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 the Company and each Selling Shareholder 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 the Company and the Selling
Shareholders on the one hand and of the Underwriters on the other hand 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 the Company, the Selling
Shareholders 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 Article IX are several in proportion to the respective number of Shares
they have purchased hereunder, and not joint. The Selling Shareholders'
respective obligations to contribute pursuant to this Article IX are several in
proportion to the respective number of Shares they have sold hereunder, and not
joint.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just or equitable if contribution pursuant to this Article IX 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 the immediately preceding
paragraph. 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 Article IX, 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 Article IX 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.
<PAGE>
20
The indemnity and contribution provisions contained in this Article IX and
the representations and warranties of the Company and the Selling Shareholders
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, by
or on behalf of any Selling Shareholder or any person controlling any Selling
Shareholder, or by or on behalf of the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Shares.
The liability of each Selling Shareholder under this Article IX shall not
exceed an amount equal to the initial public offering price of the Shares sold
by such Selling Shareholder, less the applicable underwriting discounts and
commissions.
X.
This Agreement shall be subject to termination by notice given by you to
the Company and the Selling Shareholders, 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.
XI.
This Agreement shall become effective upon the later of (x) execution and
delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Original Registration Statement by the Commission.
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
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
<PAGE>
21
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Firm Shares set forth opposite the names of all such
nondefaulting 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 Article
III be increased pursuant to this Article XI 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 or the Option Closing Date, as the case may be, any Underwriter
or Underwriters shall fail or refuse to purchase Shares and the aggregate number
of Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to you and the Selling Shareholders for the purchase of such 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 Shareholders. In any such case either you or the Selling
Shareholders shall have the right to postpone the Closing Date or the Option
Closing Date, as the case may be, 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. 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 the Company or any Selling
Shareholder to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Company or any Selling Shareholder shall be
unable to perform its obligations under this Agreement, the defaulting party or
parties 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.
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.
<PAGE>
22
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York.
Very truly yours,
SOLA INTERNATIONAL INC.
By:______________________
The Selling Shareholders named in
Schedule II hereto, acting severally
By:______________________
Attorney in Fact
Accepted, June __, 1996
MORGAN STANLEY & CO.
INCORPORATED
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Acting severally on behalf of themselves
and the several Underwriters
named in Schedule I hereto.
By: Morgan Stanley & Co.
Incorporated
By:____________________
<PAGE>
SCHEDULE I
Underwriters
------------
<TABLE>
<CAPTION>
============================================================
Number of
Firm Shares
Underwriter to Be Purchased
----------- ---------------
- ------------------------------------------------------------
<S> <C>
Morgan Stanley & Co. Incorporated
- ------------------------------------------------------------
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
============================================================
- ------------------------------------------------------------
Total Firm Shares...........................................
============================================================
</TABLE>
<PAGE>
SCHEDULE II
Selling Shareholders
--------------------
Number of Shares
Name to Be Sold
- ---- ----------------
<PAGE>
EXHIBIT A
Opinion of Counsel
for the Company
The opinion of counsel for the Company and the Selling Shareholders to
be delivered pursuant to Section (d) of Article VI of the Underwriting Agreement
shall be to the effect that:
(A) the Company is validly existing as a corporation in good standing
under the laws of the State of Delaware, 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 U.S. jurisdiction set forth in an Officer's Certificate to
the opinion (it being understood that in giving such opinion with respect
to jurisdictions other than Delaware such counsel will rely solely upon
certificates of public officials of such jurisdictions);
(B) the authorized capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization";
(C) the issuance of the Firm Shares issued and sold by the Company
pursuant to the Underwriting Agreement has been duly authorized and, when
such shares of Common Stock are issued and delivered in accordance with the
terms of the Underwriting Agreement, such shares of Common Stock will be
validly issued, fully paid and non-assessable, and the issuance of such
shares of Common Stock will not be subject to any preemptive or similar
rights of stockholders arising under the Delaware General Corporation Law,
the Certificate of Incorporation or By-Laws of the Company, as amended and
restated, or any of the agreements, contracts or instruments that is listed
as an exhibit to (a) the Registration Statement or (b) the Company's Annual
Report on Form 10-K for the fiscal year ending March 31, 1996, as amended;
(D) all the outstanding shares of Common Stock (including the Shares
to be sold by the Selling Shareholders) have been duly authorized and are
validly issued, fully paid and non-assessable;
(E) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(F) the execution and delivery by the Company of, and the performance
by the Company of its obligations under, the Underwriting Agreement will
not (i)
<PAGE>
A-2
contravene any provision of the Amended and Restated Certificate of
Incorporation or Amended and Restated Bylaws of the Company, (ii) contravene any
agreement or other instrument binding upon the Company or any of its
subsidiaries that is listed as an exhibit to (a) the Registration Statement or
(b) the Company's Annual Report on Form 10-K for the fiscal year ending March
31, 1996 (excluding Exhibits 10.12 and 10.13), or (iii) violate (x) any present
statute, rule or regulation of any governmental agency or authority of the
United States of America or the States of New York or Delaware (as it relates to
the General Corporation Law of the State of Delaware) applicable to the Company
or any Material Subsidiary, or (y) any judgment or decree or order of any court
or governmental agency or body of the United States of America or the States of
New York or Delaware (as it relates to the General Corporation Law of the State
of Delaware) set forth in an Officer's Certificate to the opinion; provided,
--------
however, that such counsel shall express no opinion with respect to any
- -------
violation, breach or default not ascertainable from the face of any such
agreement or order, or arising under or based upon any cross-default provision
insofar as such violation relates to a default under an agreement that is not an
exhibit to the Registration Statement or under the agreements set forth under
Exhibits 10.12 and 10.13 or such violation arises under or is based upon any
covenant of a financial or numerical nature or which requires arithmetic
computation;
(G) no consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency of the United States
of America or the States of New York or Delaware (as it relates to the General
Corporation Law of the State of Delaware) is required for the performance by the
Company of its obligations under the Underwriting Agreement, except such as have
been obtained under the Securities Act or such as may be required under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Shares by the Underwriters;
(H) the statements made in the Prospectus under the captions
"Description of Capital Stock", "Certain United States Tax Considerations For
Non-U.S. Holders of Common Stock" and "The AO Acquisition - The Purchase
Agreement", to the extent such statements constitute summaries of legal matters
and documents or legal conclusions, have been reviewed by such counsel and
fairly present the information disclosed therein in all material respects;
(I) (1) each document filed pursuant to the Exchange Act and
incorporated by reference in the Prospectus (other than the financial
statements, notes and schedules thereto and other financial information and
financial data schedules included in or omitted from such document as to which
such counsel need express no opinion), when filed, appeared on its face to be
responsive as to form in all material respects with the requirements of the
Exchange Act and the applicable rules and regulations of the Commission
thereunder and (2) the Registration Statement and the Prospectus and
<PAGE>
A-3
any further amendments and supplements thereto made by the Company prior to the
Closing Date (other than the financial statements, notes and schedules thereto
and other financial information included in or omitted from the Registration
Statement or Prospectus as to which such counsel need express no opinion), as of
their respective effective or issue dates, appeared on their face to be
responsive as to form in all material respects with the requirements of the
Securities Act and the rules and regulations thereunder; and such counsel does
not have actual knowledge of any contracts or other documents of a character
required to be filed as an exhibit to the Registration Statement which are not
filed as required;
(J) the Company is not an "investment company" [nor an entity
"controlled" by an "investment company"] as such term[s are] defined in the
Investment Company Act of 1940, as amended;
[(K) each of the Purchase Agreement and the Merger Agreement has been
duly executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
the respective terms of such agreements;]
[(L) the execution and delivery by the Company of the Purchase
Agreement and the Merger Agreement, and the performance of its obligations
thereunder, (i) has been authorized by all necessary corporate action on the
part of the Company, (ii) does not contravene any provision of the Certificate
of Incorporation or By-Laws of the Company, (iii) does not require under any
present statute, or present regulation of any governmental agency or authority,
of the United States of America, known by us to be applicable to the Company, or
under the Delaware General Corporation Law, any filing by it with, or any
approval or consent of, any governmental agency or authority of the United
States of America or the State of Delaware, that has not been made or obtained
and (iv) does not violate (A) any present statute, or present regulation of any
government agency or authority, of the State of New York or the United States of
America known by us to be applicable to the Company, or the Delaware General
Corporation Law (except for the securities or blue sky laws of the various
states, as to which such counsel may express no opinion,), in either case that,
in our experience, are normally applicable to transactions of the type
contemplated by the Purchase Agreement and the Merger Agreement or (B) any
material agreement, court decree or order binding upon it or its property, in
each case, that has been identified to us in an Officer's Certificate attached
hereto, except, in each case, for such contraventions, breaches, defaults or
violations that would not have a material adverse effect on the condition
(financial or otherwise), earnings or business affairs of the Company and its
subsidiaries, taken as a whole; provided however, that such counsel shall
express no opinion with respect to any violation, breach or default not
ascertainable from the face of any such agreement or order, or arising under or
based
<PAGE>
A-4
upon any cross-default provision insofar as such violation relates to a default
under an agreement that is not an exhibit to the Registration Statement or under
the agreements set forth under Exhibits 10.12 and 10.13 or such violation arises
under or is based upon any covenant of a financial or numerical nature or which
requires arithmetic computation;]
(M) in addition, such counsel shall state that in the course of the
preparation by the Company of the Registration Statement and the Prospectus,
such counsel participated in conferences with certain of the officers and
representatives of, and the independent public accountants for, the Company, at
which the Registration Statement and the Prospectus were discussed. Between the
date of effectiveness of the Registration Statement and the time of delivery of
such opinion, such counsel attended additional conferences with certain of the
officers and representatives of the Company, at which the contents of the
Prospectus were discussed to a limited extent. Such counsel shall state that,
given the limitations inherent in the independent verification of factual
matters and the character of determinations involved in the registration
process, they shall not pass upon or assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, except as set forth in clause (G) above. Subject
to the foregoing and on the basis of the information gained in the performance
of the services referred to above, including information obtained from officers
and other representatives of, and the independent public accountants for, the
Company, such counsel shall state that no facts have come to their attention
that cause them to believe that, as of its effective date, the Registration
Statement contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading. Such counsel shall state that they express
no view or belief, however, with respect to financial statements, notes or
schedules thereto or other financial information included in or omitted from the
Registration Statement. Also, subject to the foregoing, such counsel shall
state that no facts have come to their attention that caused them to believe
that the Prospectus, as of its date, contained, and no facts have come to their
attention in the course of proceedings described in the second sentence of this
paragraph that cause them to believe that the Prospectus, at the Closing Date,
contained an untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading. Such counsel shall state that they
express no view or belief, however, with respect to financial statements, notes
or schedules thereto or other financial information included in or omitted from
the Registration Statement or Prospectus;
(N) assuming that the Power of Attorney and Custody Agreement of each
Selling Shareholder has been duly authorized, executed and delivered by such
Selling
<PAGE>
A-5
Shareholder, the Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Shareholders;
(O) assuming that the Power of Attorney and Custody Agreement of each
Selling Shareholder has been duly authorized, executed and delivered by such
Selling Shareholder, the Power of Attorney and Custody Agreement of each Selling
Shareholder constitutes a valid and binding agreement of such Selling
Shareholder, subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws affecting creditors'
rights generally, (ii) general principles of equity (whether considered in a
proceeding at law or in equity) and (iii) limitations imposed by federal or
state securities laws or principles of public policy to enforcement of rights to
indemnification and contribution;
(P) the execution and delivery by each Selling Shareholder of, and the
performance by such Selling Shareholder of its obligations under, the
Underwriting Agreement and the Power of Attorney and Custody Agreement of such
Selling Shareholder will not contravene any provision of the laws of the State
of Delaware (as it relates to the General Corporation Law of the State of
Delaware), the State of New York or the federal laws of the United States
applicable to each Selling Shareholder, provided that the foregoing opinion is
limited to such laws which, in our experience, are normally applicable to public
offerings of securities of the type contemplated by this Agreement excluding
laws that are applicable to any Selling Shareholder solely because of its
specific status (including regulatory status), other than its status as a
selling shareholder;
(Q) no consent, approval, authorization or order of or qualification
by the State of Delaware (as it relates to the General Corporation Law of the
State of Delaware), State of New York or any federal governmental body or agency
is required for the performance by each Selling Shareholder of its obligations
under the Underwriting Agreement or the Power of Attorney and Custody Agreement
of such Selling Shareholder, except such as have been obtained under the Act or
such as may be required by the securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the U.S. Underwriters, provided
that the foregoing opinion is limited to such consents, approvals,
authorizations, orders or qualifications which, in our experience, are normally
applicable to public offerings of securities of the type contemplated by this
Agreement excluding consents, approvals, authorizations, orders or
qualifications that are applicable to any Selling Shareholder solely because of
its specific status (including regulatory status), other than its status as a
selling shareholder;
(R) assuming that the Power of Attorney and Custody Agreement of each
Selling Shareholder has been duly authorized, executed and delivered by such
Selling
<PAGE>
A-6
Shareholder, and assuming that the Underwriters purchase the Shares to be
delivered at the Closing Date in good faith and without notice of any
security interests, claims, liens, equities, encumbrances and other adverse
claims as such term is used in Section 8-302 of the Uniform Commercial Code
as in effect in the State of New York, the delivery of certificates
representing such Shares, duly endorsed to the Underwriters or in blank,
will pass to the Underwriters valid title to such shares free and clear of
all security interests, claims, liens, equities, encumbrances and other
adverse claims.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than United States federal and
New York law and the Delaware General Corporation Law. Such opinion also may
include certain other customary exceptions that are acceptable to counsel for
the Underwriters.
Such counsel may state that its opinions (including, without
limitation, opinions (K) and (L)) are subject to the following qualifications,
among others:
(a) the opinions are subject to (i) bankruptcy, insolvency,
reorganization, moratorium, or other similar laws of general application
affecting creditor's rights and remedies generally and (ii) general
equitable principles (including, without limitation, standards of
materiality, good faith, fair dealing and reasonableness, equitable
defenses and limits on the availability of equitable remedies), regardless
of whether considered in a proceeding in equity or at law; and
(b) Such counsel may express no opinion as to the validity, binding
effect or enforceability of any provision of the Purchase Agreement and the
Merger Agreement related to choice of governing law to the extent that the
validity, binding effect or enforceability of any such provision is to be
determined by any court other than a court of the State of New York or a
federal district court sitting in the Sate of New York and applying the law
of the State of New York.
Such counsel may assume that the parties to all agreements other than
the Company have the power to enter into and perform their obligations under
such documents and to consummate the transactions contemplated thereby and that
such documents have been duly authorized, executed and delivered by, and (other
than those described in opinions (N) through (R) above) constitute legal, valid
and binding obligations of, such parties.
The opinion of counsel for the Company shall be referred to the
Underwriters at the request of the Company and shall so state therein.
<PAGE>
EXHIBIT B
Opinion of General Counsel for AEA
The opinion of the General Counsel of AEA to be delivered pursuant to
Section (e) of Article VI of the Underwriting Agreement shall be to the effect
that:
(A) the Power of Attorney and Custody Agreement of AEA has been duly
authorized, executed and delivered by AEA.
(B) the execution and delivery by AEA of, and the performance by AEA
of its obligations under, the Underwriting Agreement and the Power of
Attorney and Custody Agreement of AEA will not contravene the certificate
of incorporation or by-laws of AEA, or, to the best of such counsel's
knowledge, without independent investigation other than inquiry of AEA, any
material agreement or other material instrument binding upon AEA or, to the
best of such counsel's knowledge, without independent investigation other
than inquiry of AEA, any material judgment, order or decree of any
governmental body, agency or court having jurisdiction over AEA.
The opinion of counsel for AEA shall be referred to the Underwriters
at the request of the Company and shall so state therein.
<PAGE>
EXHIBIT C
Opinion of Counsel
for the Underwriters
The opinion of counsel for the Underwriters to be delivered pursuant
to Section (f) of Article VI of the Underwriting Agreement shall be to the
effect that:
(A) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(B) the statements in the Prospectus under the captions "Description
of Capital Stock" and "Underwriters", in each case insofar as such
statements constitute summaries of the legal matters, documents and
proceedings referred to therein, are in all material respects accurate
summaries; and
(C) such counsel (1) is of the opinion that (i) the Registration
Statement and Prospectus (except for the financial statements, notes and
schedules thereto and other financial information included in or omitted
from the Registration Statement and Prospectus, as to which we express no
opinion), excluding the documents incorporated by reference therein, as of
their respective effective or issue dates, appear on their face to be
appropriately responsive in all material respects to the requirements of
the Securities Act and the rules and regulations of the Commission
thereunder and (ii) each document filed by the Company pursuant to the
Exchange Act and incorporated by reference in the Prospectus (except for
the financial statements, notes and schedules thereto and other financial
information included in or omitted from the Registration Statement and
Prospectus, as to which we express no opinion), appeared on its face to
have been appropriately responsive in all material respects with the
Exchange Act and the applicable rules and regulations of the Commission
thereunder on the date such document was filed with the Commission, (2)
believes that (except for financial statements, notes and schedules thereto
and other financial information included in or omitted from the
Registration Statement or Prospectus as to which such counsel need not
express any belief) the Registration Statement and the prospectus included
therein at the time the Registration Statement became effective did 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 misleading and (3) believes that (except for financial
statements, notes and schedules thereto and other financial information
included in or omitted from the Registration Statement or Prospectus as to
which such counsel need not express any belief) the Prospectus as of the
Closing Date does not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
<PAGE>
C-2
statements therein, in the light of the circumstances under which they were
made, not misleading.
With respect to paragraph (C) above, such counsel may state that its
opinion and belief are based upon its participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification except as specified.
<PAGE>
Exhibit 5.1
[LETTERHEAD OF FRIED,FRANK,HARRIS,SHRIVER & JACOBSON APPEARS HERE]
212-859-8000
June 24, 1996 (FAX: 212-859-4000)
Sola International Inc.
2420 Sand Hill Road
Menlo Park, California 94025
Ladies and Gentlemen:
We are acting as special counsel to Sola International Inc., a
Delaware corporation (the "Company"), in connection with the registration under
the Securities Act of 1933, as amended (the "Act"), of an aggregate of up to
3,105,415 shares (the "Shares") of the Company's common stock, par value $.01
per share (the "Common Stock"), including (i) up to 2,300,000 shares of Common
Stock which will be offered to the public by the Company (the "Company Shares"),
including up to 300,000 shares of Common Stock which may be sold upon the
exercise of an overallotment option granted to the Underwriters and (ii) up to
805,415 shares of Common Stock (the "Stockholder Shares") which will be offered
to the public by certain of the Company's stockholders (the "Selling
Stockholders").
For purposes of this opinion, we have examined the originals, or
certified, conformed or reproduction copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinions hereinafter expressed. In all such examinations, we have
assumed the genuineness of all signatures on original or certified copies and
the conformity to original or certified copies of all copies submitted to us as
conformed or reproduction copies. As to various questions of fact relevant to
such opinions, we have relied upon certificates and statements of public
officials and officers or representatives of the Company, the Selling
Stockholders and of others. For purposes of the next succeeding paragraph, the
terms "Shares" and "Company Shares" shall include any additional shares of
Common Stock to be sold by the Company, including shares of Common Stock which
are registered pursuant to a registration statement filed under Rule 462(b) of
the Securities Act of 1933, as amended ("Rule 462(b)").
<PAGE>
Sola International Inc. -2- June 24, 1996
Based upon the foregoing and subject to the limitations set forth
herein, it is our opinion that the Shares have been duly authorized and, (i) in
the case of the Company Shares, assuming that the Company Shares have been
issued, delivered and paid for in accordance with the terms of the Company's
Registration Statement on Form S-3, as amended (Registration No. 333-3645) (the
"Registration Statement"), and the terms of the proposed form of Underwriting
Agreement previously reviewed by us between the Company and Morgan Stanley & Co.
Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
representatives of the several Underwriters, will be validly issued, fully paid
and nonassessable, and (ii) in the case of the Stockholder Shares, have been
validly issued and are fully paid and non-assessable.
This opinion is limited to the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming part of the Registration Statement.
In giving such consent, we do not hereby admit that we are in the category of
such persons whose consent is required under Section 7 of the Securities Act of
1933, as amended. In addition, we consent to the incorporation by reference of
this opinion in a subsequent registration statement filed pursuant to Rule
462(b) for the purpose of registering additional securities to be issued by the
Company.
The opinion expressed herein is solely for your benefit and may not be
relied upon in any manner or for any purpose except as specifically provided for
herein.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Timothy E. Peterson
------------------------------------------
Timothy E. Peterson
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 6, 1996, in Amendment No. 2 to the Registration
Statement (Form S-3 No. 333-3645) and related Prospectus of Sola International
Inc. for the registration of shares of its common stock.
We also consent to the incorporation by reference therein of our report with
respect to the financial statement schedule of Sola International Inc. included
in its Annual Report (Form 10-K) for the year ended March 31, 1996, filed with
the Securities and Exchange Commission.
Ernst & Young LLP
Palo Alto, California
June 24, 1996
