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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13606
SOLA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3189941
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2420 SAND HILL ROAD, SUITE 200, MENLO PARK, CA 94025
(Address of principal executive offices)
(zip code)
(650) 324-6868
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of January 30, 1998, 24,542,703 shares of the registrant's common stock, par
value $0.01 per share, which is the only class of common stock of the
registrant, were outstanding.
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<PAGE>
<TABLE>
SOLA INTERNATIONAL INC.
Table of Contents
Form 10-Q for the Quarterly Period
Ended December 31, 1997
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheet as of December 31, 1997 3
Consolidated Condensed Balance Sheet as of March 31, 1997
(derived from audited financial statements) 3
Consolidated Condensed Statements of Income for the three and nine month
periods ended December 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows for the nine month periods
ended December 31, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
PART II OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
SOLA INTERNATIONAL INC.
Consolidated Condensed Balance Sheets
(in thousands, except per share data)
<CAPTION>
March 31, 1997
(derived from
December 31, 1997 audited financial
(unaudited) statements)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 18,961 $ 24,401
Trade accounts receivable, net .................................................. 112,688 104,960
Inventories ..................................................................... 168,210 138,634
Other current assets ............................................................ 15,161 14,225
--------- ---------
Total current assets ......................................................... 315,020 282,220
Property, plant and equipment, net ................................................. 122,227 110,477
Debt issuance costs, net ........................................................... 1,031 2,773
Goodwill and other intangibles, net ................................................ 196,671 200,734
Other assets ....................................................................... 9,849 9,304
--------- ---------
Total assets ................................................................. $ 644,798 $ 605,508
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks and current portion of
long-term and bank debt ...................................................... $ 20,791 $ 19,413
Accounts payable, accrued liabilities and payroll ............................... 101,952 112,140
Income taxes payable ............................................................ 2,873 467
Deferred income taxes ........................................................... 842 1,261
Other current liabilities ....................................................... 7,458 9,134
--------- ---------
Total current liabilities .................................................... 133,916 142,415
Long-term debt, less current portion ............................................... 1,689 3,555
Bank debt, less current portion .................................................... 190,000 67,938
Senior subordinated notes .......................................................... -- 91,304
Other liabilities .................................................................. 15,400 15,998
--------- ---------
Total liabilities ............................................................ 341,005 321,210
--------- ---------
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;
24,491 shares (24,263 shares as of March 31, 1997) issued and outstanding........ 245 243
Additional paid-in capital ...................................................... 273,369 271,167
Equity participation loans ...................................................... (230) (270)
Retained earnings ............................................................... 41,082 12,904
Cumulative foreign currency adjustment .......................................... (10,673) 254
--------- ---------
Total shareholders' equity ................................................... 303,793 284,298
--------- ---------
Total liabilities and shareholders' equity ................................... $ 644,798 $ 605,508
========= =========
<FN>
The accompanying notes are an integral part of these condensed financial statements
</FN>
</TABLE>
3
<PAGE>
<TABLE>
SOLA INTERNATIONAL INC.
Unaudited Consolidated Condensed Statements of Income
(in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31, December 31, December 31,
------------ ------------ ------------ ------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ...................................................... $ 129,272 $ 119,721 $ 402,624 $ 357,451
Cost of sales .................................................. 66,905 62,597 211,591 195,731
--------- --------- --------- ---------
Gross profit ................................................ 62,367 57,124 191,033 161,720
--------- --------- --------- ---------
Research and development expenses .............................. 4,390 4,224 13,744 12,767
Selling and marketing expenses ................................. 22,999 24,723 72,529 67,133
General and administrative expenses ............................ 13,995 12,916 40,637 37,002
In process research and development expense .................... -- -- -- 9,500
--------- --------- --------- ---------
Operating expenses .......................................... 41,384 41,863 126,910 126,402
--------- --------- --------- ---------
Operating income ............................................ 20,983 15,261 64,123 35,318
Interest expense, net .......................................... (4,288) (4,150) (13,387) (11,692)
--------- --------- --------- ---------
Income before provision for income taxes,
minority interest and extraordinary item ................. 16,695 11,111 50,736 23,626
Provision for income taxes ..................................... (5,572) (3,444) (16,946) (6,655)
Minority interest .............................................. 112 173 312 --
--------- --------- --------- ---------
Income before extraordinary item ............................ 11,235 7,840 34,102 16,971
Extraordinary item, loss due to repurchase of
senior subordinated notes, net of tax ....................... (5,923) -- (5,923) --
--------- --------- --------- ---------
Net income .................................................. $ 5,312 $ 7,840 $ 28,179 $ 16,971
========= ========= ========= =========
Earnings (loss) per share:
Income before extraordinary item ............................... $ 0.46 $ 0.32 $ 1.40 $ 0.73
Extraordinary item ............................................. (0.24) -- (0.24) --
--------- --------- --------- ---------
Net income ..................................................... $ 0.22 $ 0.32 $ 1.16 $ 0.73
========= ========= ========= =========
Earnings (loss) per share - assuming dilution:
Income before extraordinary item ............................... $ 0.44 $ 0.31 $ 1.34 $ 0.69
Extraordinary item ............................................. (0.23) -- (0.23) --
--------- --------- --------- ---------
Net income ..................................................... $ 0.21 $ 0.31 $ 1.11 $ 0.69
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these condensed financial statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
SOLA INTERNATIONAL INC.
Unaudited Consolidated Condensed Statements of Cash Flows
(in thousands)
<CAPTION>
Nine Months Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net cash provided by (used in) operating activities .................................. $ (9,057) $ 12,511
--------- ---------
Cash flows from investing activities:
Acquisition of worldwide ophthalmic business of
American Optical Corporation, less cash and cash
equivalents of $3,365 ......................................................... -- (105,090)
Acquisition of Neolens Incorporated, less cash and cash equivalents of $12 ...... -- (16,848)
Capital expenditures .............................................................. (22,935) (18,898)
Other investing activities ........................................................ (2,109) 200
--------- ---------
Net cash used in investing activities ................................................ (25,044) (140,636)
--------- ---------
Cash flows from financing activities:
Sale of common stock .............................................................. -- 63,828
Net (payments)/receipts under notes payable to banks,
and long term debt .............................................................. 2,699 (3,100)
Borrowings on long term debt ...................................................... 5,093 5,181
Payments on long term debt ........................................................ (4,447) (3,149)
Proceeds from bank debt ........................................................... 117,374 64,626
Repurchase of senior subordinated notes ........................................... (93,152) --
Other financing activities ........................................................ 2,244 145
--------- ---------
Net cash provided by financing activities ............................................ 29,811 127,531
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents ....................................................................... (1,150) (304)
--------- ---------
Net decrease in cash and cash equivalents ............................................ (5,440) (898)
Cash and cash equivalents at beginning of period ..................................... 24,401 22,394
--------- ---------
Cash and cash equivalents at end of period ........................................... $ 18,961 $ 21,496
========= =========
<FN>
The accompanying notes are an integral part of these condensed financial statements
</FN>
</TABLE>
5
<PAGE>
SOLA INTERNATIONAL INC.
Notes to Consolidated Condensed Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying consolidated condensed financial statements of the Company
have been prepared without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The Company's financial statements presented herein
include the results of operations and cash flows of the worldwide ophthalmic
business ("AO") of American Optical Corporation ("AOC") for the six months and
ten days ended December 31, 1996 subsequent to the Company's acquisition of AO
on June 19, 1996, and the results of operations and cash flow of Neolens, Inc.
("Neolens") for the six months ended December 31, 1996 subsequent to the
Company's acquisition of Neolens on July 2, 1996. The consolidated condensed
balance sheet as of March 31, 1997 was derived from audited financial
statements. The accompanying consolidated condensed financial statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the
fiscal year ended March 31, 1997.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements and is
effective for fiscal years beginning after December 15, 1997. The Company has
not as yet addressed FAS 130 and determined its impact.
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 will change the way companies report selected segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial reports to
shareholders. FAS 131 is effective for fiscal years beginning after December 15,
1997. The Company is currently evaluating the impact of the application of the
new rules on the Company's consolidated financial statements.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
period. The results of operations for the three and nine months ended December
31, 1997 are not necessarily indicative of the results to be expected for the
full year.
6
<PAGE>
2. Inventories
December 31, 1997 March 31, 1997
(in thousands) (in thousands)
-------------- --------------
Raw Materials $ 15,746 $ 17,505
Work In Progress 6,664 6,948
Finished Goods 106,197 76,936
Molds 39,603 37,245
-------- --------
$168,210 $138,634
======== ========
Molds comprise mainly finished goods for use by manufacturing affiliates in
the manufacture of spectacle lenses.
3. 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. In March 1997 the EPA consented to the Company
curtailing clean-up activities for a six month period which ended in September.
The Company continued to monitor contamination levels during the curtailment
period. During the quarter ended December 31, 1997 a report on contamination
levels, and the impact of curtailed activities, was submitted to the EPA, and
such report is currently under review. The report indicates no significant
impact on the site from the curtailed activities, and the EPA has consented to
continued curtailment of activities until such time as they have concluded their
review of the report. The Company expects continued reduction of clean-up
activities due to relatively low levels of contamination existing at the site.
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 plc ("Pilkington"),
for the purchase of the Sola business in December 1993 ("Acquisition"),
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.
As of December 31, 1997 and March 31, 1997, the Company has provided for
environmental remediation costs in the amount of $0.9 million and $2.3 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.
7
<PAGE>
4. Bank Credit Agreement
In conjunction with the repurchase of its Senior Subordinated Notes (see
Note 6) the Company amended its bank credit agreement with The Bank of America
National Trust and Savings Association, for itself and as agent for a syndicate
of other financial institutions ("Amended Agreement"). The Amended Agreement
increased the Company's multicurrency revolving facility from $180 million to
$300 million. Borrowings are divided into two tranches. Tranche A permits
borrowings up to $30 million in either U.S. dollars or foreign currencies, to be
used for working capital and consummating certain permitted acquisitions.
Tranche B permits borrowings of up to $270 million and can be used for working
capital purposes, refinancing the term loans under the existing bank credit
agreement, repurchasing the Company's Senior Subordinated Notes, and
consummating certain permitted acquisitions. The Tranche A Facility matures on
October 31, 2000 and the Tranche B Facility matures on May 31, 2001. Among other
things the Amended Agreement amended certain financial covenants, removed the
requirement for foreign subsidiary guarantees under the Tranche A facility,
increased the basket for incurring other unsecured indebtedness to $150 million,
and deleted the term facility portion under the existing agreement.
Borrowings under the Tranche A and Tranche B revolvers (other than swing
line loans, which may only be Base Rate loans) may be made as Base Rate Loans or
LIBO Rate Loans. Base Rate Loans bear interest at rates per annum equal to the
higher of (a) 0.50% per annum above the latest Federal Funds Rate, or (b) the
Bank of America Reference Rate. LIBO Rate Loans bear interest at a rate per
annum equal to the sum of the LIBO Rate and a margin varying from 0.450% to
0.750% based on the Company's leverage ratio. Fixed rate borrowings in foreign
currencies bear interest at rates per annum equal to the referenced currency's
local IBOR plus a margin varying from 0.450% to 0.750% based on the Company's
leverage ratio. Local currency Base Rate Loans are also available at a spread
similar to US Base Rate Loans described above.
8
<PAGE>
5. Earnings Per Share
<TABLE>
The following table sets forth the computation of basic and diluted
earnings per share:
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary item ........................ $ 11,235 $ 7,840 $ 34,102 $16,971
Extraordinary item, loss due to repurchase
of senior subordinated notes, net of tax ................ (5,923) -- (5,923) --
---------- ------- ---------- -------
Net income .............................................. $ 5,312 $ 7,840 $ 28,179 $16,971
========== ======= ========== =======
Denominator:
Denominator for basic earnings per share-
Weighted average common shares
outstanding ........................................... 24,409 24,157 24,333 23,347
Effect of dilutive securities:
Employee stock options ................................ 1,145 1,395 1,171 1,387
Denominator for diluted earnings per share -
Weighted average common and common
equivalent shares outstanding ......................... 25,554 25,552 25,504 24,734
========== ======= ========== =======
Basic earnings per share:
Income before extraordinary item ........................ $ 0.46 $ 0.32 $ 1.40 $ 0.73
Extraordinary item ...................................... (0.24) -- (0.24) --
---------- ------- ---------- -------
Net income .............................................. $ 0.22 $ 0.32 $ 1.16 $ 0.73
========== ======= ========== =======
Diluted earnings per share:
Income before extraordinary item ........................ $ 0.44 $ 0.31 $ 1.34 $ 0.69
Extraordinary item ...................................... (0.23) -- (0.23) --
---------- ------- ---------- -------
Net income .............................................. $ 0.21 $ 0.31 $ 1.11 $ 0.69
========== ======= ========== =======
</TABLE>
6. Extraordinary Item
During the three months ended December 31, 1997 the Company repurchased all
of its 9 5/8% Senior Subordinated Notes due 2003. As a result of the repurchases
the Company recorded an extraordinary charge of $5.9 million for the three
months ended December 31, 1997 resulting from the write-off of unamortized debt
issuance costs and premium over accreted value, net of tax. The repurchase was
funded by borrowings under the Bank Credit Agreement (see Note 4).
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Company's consolidated
condensed financial statements and notes thereto included elsewhere herein.
On June 19, 1996 the Company acquired substantially all of the worldwide
ophthalmic business of American Optical Corporation pursuant to the terms of the
Purchase Agreement dated as of May 6, 1996 between the Company and AOC. The
Company consolidated the results of operations of AO from the date of
acquisition to December 31, 1996. The acquisition was accounted for using the
purchase method of accounting. As a result of the acquisition the Company
incurred two non-recurring charges in the nine months ended December 31, 1996:
(i) a $7.2 million charge to cost of sales for the amortization associated with
an inventory write-up to fair value; and (ii) a $9.5 million charge for the
write-off of in-process research and development. Neither of these charges
impacted the results for the quarter ended December 31, 1996.
Results of Operations
Three months ended December 31, 1997 compared to three months ended December 31,
1996
The results of operations of the Company for the three months ended
December 31, 1997 reflect net income of $5.3 million as compared to net income
of $7.8 million for the same period in the prior year. If the $5.9 million
extraordinary loss from the repurchase of senior subordinated notes is excluded
from net income for the three months ended December 31, 1997, then net income
would have been $11.2 million, and the increase in net income for the three
months ended December 31, 1997 over the three months ended December 31, 1996
would have been $3.4 million, or 43.3%.
Net Sales
Net sales totaled $129.3 million in the three months ended December 31,
1997, reflecting an increase of 8.0% over net sales of $119.7 million for the
same period in the prior year. Using constant exchange rates, the percentage
increase was 12.8%. The growth in net sales is principally attributable to the
growth in unit sales of higher priced products, offset in part by price erosion
in net sales of lower priced products. Higher priced products accounted for
approximately 65% of net lens sales in the three months ended December 31, 1997
compared to approximately 59% for the three months ended December 31, 1996. The
higher priced product growth was led by the growth in Spectralite, plastic
photochromic and polycarbonate products. Net sales increased by 13.0% in North
America, 4.0% in Europe and 3.6% in Rest of World. The lower net sales
performance in Europe and Rest of World is primarily a result of the strength of
the U.S. dollar compared to most world currencies. Using constant exchange rates
the regional increases were as follows: North America 13.0%, Europe 13.5% and
Rest of World 11.2%.
Gross Profit and Gross Margin
Gross profit totaled $62.4 million for the three months ended December 31,
1997, reflecting an increase of 9.2% over gross profit of $57.1 million for the
same period in the prior year. Gross profit as a percentage of net sales
increased to 48.2% for the three months ended December 31, 1997 from 47.7% for
the three months ended December 31, 1996. The margin growth was principally due
to sales mix and manufacturing improvements.
10
<PAGE>
Operating Expenses
Operating expenses in the three months ended December 31, 1997 totaled
$41.4 million, a decrease of $0.5 million, over operating expenses of $41.9
million for the same period in the prior year. Operating expenses as a
percentage of net sales were 32.0%, compared to 35.0% for the same period of the
prior year. Research and development expenses for the three months ended
December 31, 1997 increased $0.2 million to $4.4 million, or 3.4% of net sales,
compared to $4.2 million, or 3.5% of net sales, for the three months ended
December 31, 1996. Selling and marketing expenses for the three months ended
December 31, 1997 decreased $1.7 million to $23.0 million, compared to $24.7
million for the three months ended December 31, 1996 which represent 17.8% and
20.7%, of net sales for the three months ended December 31, 1997 and 1996,
respectively. The higher expenditures in the prior year primarily relate to
costs associated with the launch of the Company's new progressive lens,
Percepta, in the fourth quarter of fiscal 1997. General and administrative
expenses were $14.0 million, or 10.8% of net sales, for the three months ended
December 31, 1997, compared to $12.9 million, or 10.8% of net sales for the
three months ended December 31, 1996.
Operating Income
Operating income for the three months ended December 31, 1997 was $21.0
million, an increase of $5.7 million, or 37.5%, over the three months ended
December 31, 1996.
Net Interest Expense
Net interest expense totaled $4.3 million for the three months ended
December 31, 1997 compared to $4.2 million for the three months ended December
31, 1996, an increase of $0.1 million. The higher net interest expense reflects
increased borrowings to fund working capital growth, primarily inventory and
accounts receivable, offset by overall favorable interest rate improvements.
Provision for Income Taxes
The Company's combined state, federal and foreign tax rate represents an
effective tax rate projected for the full fiscal 1998 year of 33.4%. For the
three months ended December 31, 1996 the Company recorded an effective income
tax rate of 31%. The utilization of valuation allowances in the United States
resulted in the reduced effective tax rate for fiscal 1997. The Company has
deferred tax assets on its balance sheet as of December 31, 1997 amounting to
approximately $18.6 million. The ultimate utilization of these deferred tax
assets is dependent on the Company's ability to generate taxable income in the
future.
Extraordinary Item
During the three months ended December 31, 1997 the Company repurchased all
of its 9 5/8% Senior Subordinated Notes due 2003. As a result of the purchase
the Company recorded an extraordinary charge of $5.9 million for the three
months ended December 31, 1997 resulting from the write-off of unamortized debt
issuance costs and premium over accreted value, net of tax. The repurchase was
funded by borrowings under the Bank Credit Agreement.
Nine months ended December 31, 1997 compared to nine months ended December 31,
1996
The results of operations of the Company for the nine months ended December
31, 1997 reflect net income of $28.2 million as compared to net income of $17.0
million for the same period in the prior year. If the extraordinary item is
excluded from the nine months ended December 31, 1997, net income would have
been $34.1 million. If the the non-recurring charges associated with the
amortization of the inventory write-up to fair value and the write off of
in-process research and development, and the provision for taxes related
thereto, were excluded from net income for the nine months ended December
11
<PAGE>
31, 1996, the net income would have been $27.8 million. The increase in net
income for the nine months ended December 31, 1997, as adjusted, over the nine
months ended December 31, 1996, as adjusted, would have been $6.3 million, or
22.5%.
Net Sales
Net sales totaled $402.6 million in the nine months ended December 31,
1997, reflecting an increase of 12.6% over net sales of $357.5 million for the
same period in the prior year. Using constant exchange rates, the percentage
increase was 16.7%. The growth in net sales is principally attributable to the
AO Acquisition and growth in unit sales of higher priced products, offset in
part by price erosion in net sales of lower priced products. Higher priced
products accounted for approximately 66% of net lens sales in the nine months
ended December 31, 1997 compared to approximately 60% for the nine months ended
December 31, 1996. The higher priced product growth was led by the growth in
Spectralite, plastic photochromic and polycarbonate products. Net sales
increased by 19.4% in North America, 8.2% in Europe and 4.2% in Rest of World.
Using constant exchange rates, regional growth was as follows: North America
19.8%, Europe 17.2% and Rest of World 8.8%.
Gross Profit and Gross Margin
Gross profit totaled $191.0 million for the nine months ended December 31,
1997, reflecting an increase of 18.1% over gross profit of $161.7 million for
the same period in the prior year. Gross profit as a percentage of net sales
increased to 47.5% for the nine months ended December 31, 1997 from 45.2% for
the nine months ended December 31, 1996. Excluding the amortization of the
non-recurring inventory write-up to fair value associated with the AO
acquisition of $7.2 million, the gross margin for the nine months ended December
31, 1996 would have been 47.3%. The margin growth was principally due to sales
mix and manufacturing improvements.
Operating Expenses
Operating expenses in the nine months ended December 31, 1997 totaled
$126.9 million, an increase of $0.5 million, over operating expenses of $126.4
million for the same period in the prior year. Included in operating expenses
for the nine months ended December 31, 1996 is a non-recurring charge of $9.5
million for the write-off of in-process research and development arising from
the AO acquisition. If this charge were excluded from operating expenses the
growth over the nine months ended December 31, 1996 would be $10.0 million or
8.6%. Operating expenses for the nine months ended December 31, 1997 as a
percentage of net sales was 31.5%, compared to 32.7%, excluding the
non-recurring charge, for the same period of the prior year. Research and
development expenses for the nine months ended December 31, 1997 increased $1.0
million to $13.7 million, compared to $12.7 million for the nine months ended
December 31, 1996, which represent 3.4% and 3.6% of net sales, respectively.
Selling and marketing expenses for the nine months ended December 31, 1997
increased $5.4 million to $72.5 million, compared to $67.1 million for the nine
months ended December 31, 1996 which represent 18.0% and 18.8%, of net sales for
the nine months ended December 31, 1997 and 1996, respectively. The increase in
sales and marketing expense is primarily due to the AO Acquisition and on going
marketing support for new products, such as Percepta. The higher expenditures,
as a percentage of net sales, in the prior year primarily relate to costs
associated with the launch of the Company's new progressive lens, Percepta, in
the fourth quarter of fiscal 1997. As a percentage of net sales, general and
administrative expenses declined to 10.1% for the nine months ended December 31,
1997 compared to 10.4% for the nine months ended December 31, 1996.
Operating Income
Exclusive of the non-recurring amortization of the inventory write-up and
the write-off of in-process research and development discussed above, operating
income for the nine months ended December 31, 1996 totaled $52.0 million.
Operating income for the nine months ended December 31, 1997 was $64.1
12
<PAGE>
million, an increase of $12.1 million, or 23.2%, over the nine months ended
December 31, 1996 operating income, as adjusted.
Net Interest Expense
Net interest expense totaled $13.4 million for the nine months ended
December 31, 1997 compared to $11.7 million for the nine months ended December
31, 1996, an increase of $1.7 million. The increase of $1.7 million is primarily
attributable to increased borrowings to fund the AO and Neolens acquisitions,
and increased borrowings to fund working capital growth, primarily inventory and
accounts receivable.
Liquidity and Capital Resources
Net cash used in operating activities for the nine months ended December
31, 1997 amounted to $9.1 million, compared to funds provided by operating
activities of $12.5 million for the nine months ended December 31, 1996. The
most significant causes of the increased usage are the growth in accounts
receivable and inventories supporting sales volume growth, and the reduction in
accounts payable associated with the decision by the Company to take advantage
of prompt pay discounts offered by suppliers in the United States, offset in
part by an increase in operating income, after adding back non-recurring
non-cash charges in the nine months ended December 31, 1996.
During the nine months ended December 31, 1997, using a three month net
sales annualized convention, inventories as a percentage of net sales were 32.5%
compared to 29.8% for the nine months ended December 31, 1996. The increase in
inventories is primarily as a result of building inventories to support new
product launches, growth in higher priced products as a percentage of net sales
and therefore of inventories, and the projected overall increase in business.
Accounts receivable as a percentage of net sales for the nine months ended
December 31, 1997 was 21.8% compared to 20.4% for the same period a year ago.
The increase in accounts receivable is primarily as a result of geographic sales
mix changes, primarily within Europe, and slower collections in Brazil and China
due to tightening of credit in those economies.
Cash flows from investing activities in the nine months ended December 31,
1997 amounted to an outflow of $25.0 million, compared to an outflow of $140.6
million for the nine months ended December 31, 1996. During the nine months
ended December 31, 1996 the Company acquired AO and Neolens, Inc., a Florida
Corporation. Cash outflows from these investing activities were $121.9 million.
Capital expenditures for the nine months ended December 31, 1997 amounted to
$22.9 million, compared to $18.9 million in the comparable period in the prior
year. Management anticipates capital expenditures of $40.0 million to $45.0
million annually over the next several years, of which approximately $5.0
million annually is viewed as discretionary.
Net cash provided by financing activities in the nine months ended December
31, 1997 amounted to $29.8 million, compared to $127.5 million in the same
period in the prior year. During the nine months ended December 31, 1997 the
Company repurchased all of its 9 5/8% Senior Subordinated Notes due 2003 (the
"Notes repurchase"). The notes repurchase was funded by borrowings under the
Bank Credit Agreement. The primary source of funds in the nine months ended
December 31, 1996 was from the sale of 2,320,000 shares of the Company's common
stock, and borrowings under the Company's bank credit agreement.
In conjunction with the Notes repurchase the Company amended its bank
credit agreement with The Bank of America National Trust and Savings
Association, for itself and as agent for a syndicate of other financial
institutions (the "Amended Agreement"). The Amended Agreement increased the
Company's multicurrency revolving facility from $180 million to $300 million.
Borrowings are divided into two tranches. Tranche A permits borrowings up to $30
million in either U.S. dollars or foreign currencies, to be used for working
capital and consummating certain permitted acquisitions. Tranche B permits
borrowings of up to $270 million and can be used for working capital purposes,
refinancing the term loans under the existing bank credit agreement,
repurchasing the Company's Senior Subordinated Notes, and
13
<PAGE>
consummating certain permitted acquisitions. The Tranche A Facility matures on
October 31, 2000 and the Tranche B Facility matures on May 31, 2001. Among other
things the Amended Agreement amended certain financial covenants, removed the
requirement for foreign subsidiary guarantees under the Tranche A facility,
increased the basket for incurring other unsecured indebtedness to $150 million,
and deleted the term facility portion under the existing agreement.
Borrowings under the Tranche A and Tranche B revolvers (other than swing
line loans, which may only be Base Rate loans) may be made as Base Rate Loans or
LIBO Rate Loans. Base Rate Loans bear interest at rates per annum equal to the
higher of (a) 0.50% per annum above the latest Federal Funds Rate, or (b) the
Bank of America Reference Rate. LIBO Rate Loans bear interest at a rate per
annum equal to the sum of the LIBO Rate and a margin varying from 0.450% to
0.750% based on the Company's leverage ratio. Fixed rate borrowings in foreign
currencies bear interest at rates per annum equal to the referenced currency's
local IBOR plus a margin varying from 0.450% to 0.750% based on the Company's
leverage ratio. Local currency Base Rate Loans are also available at a spread
similar to US Base Rate Loans described above.
The Company's foreign subsidiaries maintain local credit facilities to
provide credit for overdraft, working capital and some fixed asset investment
purposes. As of December 31, 1997 the Company's total credit available under
such facilities was approximately $30.0 million, of which $16.9 million had been
utilized.
The Company continues to have significant liquidity requirements. In
addition to working capital needs and capital expenditures, the Company has
substantial cash requirements for debt service. The Company expects that the
Amended Agreement and other overseas credit facilities, together with cash on
hand and internally generated funds, if available as anticipated, will provide
sufficient capital resources to finance the Company's operations, fund
anticipated capital expenditures, and meet interest requirements on its debt for
the foreseeable future. As the Company's debt (including debt under the Amended
Agreement) matures, the Company may need to refinance such debt. There can be no
assurance that such debt can be refinanced on terms acceptable to the Company.
Seasonality
The Company's business is somewhat seasonal, with fiscal third quarter
results generally weaker than the other three quarters as a result of lower
sales during the holiday season, and fiscal fourth quarter results generally the
strongest.
Inflation
Inflation continues to affect the cost of the goods and services used by
the Company. The competitive environment in many markets limits the Company's
ability to recover higher costs through increased selling prices, and the
Company is subject to price erosion in many of its commodity product lines. The
Company seeks to mitigate the adverse effects of inflation through cost
containment and productivity and manufacturing process improvements.
Approximately 7% of the Company's net sales during the nine months ended
December 31, 1997 were derived from its operations in South American countries,
which have experienced, or may experience, periods of hyper-inflation. In
hyper-inflationary environments, the Company generally protects margins by
methods which include increasing prices periodically at a rate appropriate to
cover anticipated inflation, compounding interest charges on sales invoices
daily and holding cash balances in U.S. dollar denominated accounts where
possible.
14
<PAGE>
Information Relating to Forward-Looking Statements
This quarterly report includes forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, including
statements regarding among other items, (i) the impact of inflation and (ii)
capital expenditures. These forward-looking statements reflect the Company's
current views with respect to future events and financial performance. The words
"believe", "expect", "anticipate" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Actual results could differ materially from the
forward-looking statements as a result of "Factors Affecting Future Operating
Results" included in Exhibit 99.1 of the Company's Form 10-K for the fiscal year
ended March 31, 1997, and the factors described in "Business-Environmental
Matters", also included in the Company's Form 10-K for the fiscal year ended
March 31, 1997.
15
<PAGE>
PART ll OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
During the quarter ended December 31, 1997 the Company commenced a
tender offer (together with a consent solicitation) to repurchase its
9-5/8% Senior Subordinated Notes due 2003 (the "Notes"). The offer was
accepted by all note holders and all of the Senior Subordinated Notes
were repurchased by the Company.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
In connection with the Company's tender offer to holders of the Notes
during the quarter ended December 31, 1997, the Company solicited
consents to amend the indenture governing the Notes. All of the holders
of Notes submitted consents.
Item 5. Other Information
Not applicable
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description Page Number
-------------- ----------- -----------
10.1 Amendment No. 1 to the Multicurrency 20
Credit Agreement, dated as of June 14,
1996, among Sola International Inc., and
the other Borrowers as the Borrowers, the
Subsidiary Guarantors, The Bank of
America National Trust and Savings
Association, as Agent and Letter of
Credit Issuing Bank, The First National
Bank of Boston and The Bank of Nova
Scotia, as Co-Agents, and the Other
Financial Institutions Party Thereto
10.2 Amendment No. 2 to the Multicurrency 33
Credit Agreement, dated as of June 14,
1996, among Sola International Inc., and
the other Borrowers as the Borrowers, the
Subsidiary Guarantors, The Bank of
America National Trust and Savings
Association, as Agent and Letter of
Credit Issuing Bank, The First National
Bank of Boston and The Bank of Nova
Scotia, as Co-Agents, and the Other
Financial Institutions Party Thereto
27 Financial Data Schedule 50
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sola International Inc.
(Registrant)
Dated: February 10, 1998 By:/s/Steven M. Neil
------------------- -----------------------
Steven M. Neil
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
18
<PAGE>
Exhibit Index
Exhibit Number Description Page Number
-------------- ----------- -----------
10.1 Amendment No. 1 to the Multicurrency 20
Credit Agreement, dated as of June 14,
1996, among Sola International Inc., and
the other Borrowers as the Borrowers, the
Subsidiary Guarantors, The Bank of
America National Trust and Savings
Association, as Agent and Letter of
Credit Issuing Bank, The First National
Bank of Boston and The Bank of Nova
Scotia, as Co-Agents, and the Other
Financial Institutions Party Thereto
10.2 Amendment No. 2 to the Multicurrency 33
Credit Agreement, dated as of June 14,
1996, among Sola International Inc., and
the other Borrowers as the Borrowers, the
Subsidiary Guarantors, The Bank of
America National Trust and Savings
Association, as Agent and Letter of
Credit Issuing Bank, The First National
Bank of Boston and The Bank of Nova
Scotia, as Co-Agents, and the Other
Financial Institutions Party Thereto
27 Financial Data Schedule 50
19
Exhibit 10.1
CONSENT AND AMENDMENT NO. 1
TO
MULTICURRENCY CREDIT AGREEMENT
THIS CONSENT AND AMENDMENT NO. 1 TO MULTICURRENCY CREDIT AGREEMENT,
dated as of March 31, 1997 (this "Agreement"), among Sola International Inc., a
Delaware corporation (the "Company"), Sola International Holdings Ltd.
(ACN007719708), a South Australian corporation, Sola Optical Holdings (U.K.)
Limited, an English corporation, Sola Optical S.A., a French corporation, Sola
Optical GmbH, a German corporation, Sola Hong Kong Limited, a Hong Kong
corporation, Sola ADC Lenses Limited, an Irish corporation, Sola Optical Italia
S.p.A., an Italian corporation, Sola Optical Japan Limited, a Japanese
corporation, Sola Optical Singapore Pte. Ltd., a Singapore corporation, American
Optical Corporation International AG, a Switzerland corporation (the Company and
such other Persons (such capitalized term and all other capitalized terms used
herein without being defined shall have the meanings provided for in the
Existing Credit Agreement (as defined below)), are each referred to as a
"Tranche A Revolving Borrower" and collectively as the "Tranche A Revolving
Borrowers"), the Persons named on the signature pages hereof as Subsidiary
Guarantors (each a "Subsidiary Guarantor" and collectively the "Subsidiary
Guarantors"), the several financial institutions parties to this Agreement,
including in their capacity as co-agents (collectively, the "Banks" and
individually a "Bank"), and Bank of America National Trust and Savings
Association, as agent (in such capacity, the "Agent") for the Banks.
W I T N E S S E T H:
WHEREAS, the Company, the Tranche A Revolving Borrowers, the Subsidiary
Guarantors, the Banks, the Co-Agents and the Agent are parties to the
Multicurrency Credit Agreement, dated as of June 14, 1996 (the "Existing Credit
Agreement"); and
WHEREAS, the Company, the Tranche A Revolving Borrowers and the
Subsidiary Guarantors have requested that the Banks amend the Existing Credit
Agreement as herein provided and approve the addition of Sola IFSC as an
additional Tranche A Revolving Borrower;
WHEREAS, Sola Holdings Ireland Ltd. ("Sola Ireland") has become a
Foreign Significant Subsidiary of the Company and is required, pursuant to
Section 7.13 of the Credit Agreement, to become a Foreign Subsidiary Guarantor;
and
WHEREAS, the Banks are willing, subject to the terms and conditions
hereinafter set forth, to amend the Existing Credit Agreement, approve the
addition of Sola IFSC, an Irish
<PAGE>
unlimited liability company, as an additional Tranche A Revolving Borrower and
enter into the other transactions contemplated hereby;
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto hereby agree as follows:
I
AMENDMENTS
Effective on (and subject to the occurrence of) the Effective Date (as
defined in Section 4.1), the Existing Credit Agreement is amended as follows
(the Existing Credit Agreement as so amended is herein referred to as the
"Amended Credit Agreement"):
I.1 . Amendment to Article I. The definition of Permitted Acquisition
in Article I of the Existing Credit Agreement is amended as follows:
(a) reference to $2,500,000 on line 2 of page 26 in clause
(b)(i) and on line 12 of page 26 in clause (b)(ii) is amended to read
"$5,000,000"; and
(b) clause (b)(iii) is amended by adding at the beginning
thereof on line 18 of page 26 the phrase "if the aggregate
consideration to be paid in connection with the Eligible Acquisition
exceeds $5,000,000,".
I.2 . Amendment to Section 5.03. Section 5.03 of the Existing Credit
Agreement is amended by inserting the word "not" after the word "is" and before
the word "an" on line 37 of page 71 of the Existing Credit Agreement.
I.3 . Amendment to Section 8.10. Section 8.10 of the Existing Credit
Agreement is amended by
(a) deleting "and" at the end of clause (v) on line 2 of page
91;
(b) deleting the period at the end of clause (vi) on line 24
of page 91 and inserting on lieu thereof a ";"; and
(c) adding a new clause (vii) as follows:
"(vii) purchase, redeem, acquire or retire
for value shares of capital stock of the Company or
options on any such shares or related stock
appreciation rights or similar securities, provided
that the aggregate amount of consideration paid for
all such purchases,
-2-
<PAGE>
redemptions, acquisitions or retirements shall not
exceed $30,000,000 since the Closing Date."
II
CONSENT TO ADDITIONAL BORROWER
Effective on (and subject to the occurrence of) the Effective Date, the
Majority Banks hereby consent to the addition of Sola IFSC, as an additional
Tranche A Revolving Borrower. Notwithstanding such consent, Sola IFSC may not
request the making of any Credit Extension, and the Tranche A Revolving Bank
shall not make any Credit Extension available to or on behalf of Sola IFSC,
unless and until Sola IFSC has executed and delivered with the Tranche A
Revolving Bank a Tranche A Revolving Supplement Agreement that is in form and
substance satisfactory to the Tranche A Revolving Bank and has satisfied the
other conditions set forth in Section 5.03 of the Amended Credit Agreement.
III
REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to make the amendments provided for in
Article I, provide the consent provided for in Article II, and provide the
waiver provided for in Section 5.8, each of the Company, the Tranche A Revolving
Borrowers and the Subsidiary Guarantors hereby (a) represents and warrants that
(i) each of the representations and warranties contained in the Existing Credit
Agreement and in the other Loan Documents (both immediately before and after
giving effect to the Joinder in Credit Agreement executed hereby by Sola IFSC
and Sola Ireland) is true and correct in all material respects as of the date
hereof as if made on the date hereof (except, if any such representation and
warranty relates to an earlier date, such representation and warranty shall be
true and correct in all material respects as of such earlier date), (ii) each of
Sola IFSC and Sola Ireland is a Wholly-Owned Subsidiary of the Company, all the
shares of capital stock of which are owned beneficially by the Company free and
clear of all Liens and (iii) both immediately before and after giving effect to
the provisions of this Agreement no Default or Event of Default has occurred and
is continuing and (b) agrees that the incorrectness in any material respect of
any representation and warranty contained in this Article III shall constitute
an immediate Event of Default.
-3-
<PAGE>
CONDITIONS TO EFFECTIVENESS; EXPIRATION
IV.1 . Effective Date. This Agreement shall become effective on
such date (herein called the "Effective Date" when the conditions set forth in
this Section 4.1 have been satisfied.
IV.1.1 . Execution of Agreement. The Agent shall have received
counterparts of this Agreement duly executed and delivered on behalf of the
Company, the Tranche A Revolving Borrowers, the Subsidiary Guarantors and the
Majority Banks.
IV.1.2 . Joinder in Credit Agreements. Each of Sola IFSC and Sola
Ireland shall have duly executed and delivered in favor of the Agent a Joinder
in Credit Agreement in which Sola IFSC and Sola Ireland shall have become a
Tranche A Revolving Borrower and Foreign Subsidiary Guarantor, respectively.
IV.1.3 . Ireland Resolutions: Incumbency, etc. Sola IFSC and Sola
Ireland shall have delivered to the Agent a certificate of its Secretary or
Assistant Secretary certifying, as of the Effective Date, the following:
(a) true and correct copies of board of directors resolutions
authorizing the execution and delivery of its Joinder in Credit Agreement and
the performance of its obligations thereunder, under the Amended Credit
Agreement and the other Loan Documents;
(b) the true signatures of the officers of each such Person
authorized to execute, deliver and perform its Joinder in Credit Agreement, the
Amended Credit Agreement and the other Loan Documents; and
(c) the articles or certificate of incorporation and the
bylaws of each such Person as in effect on the Effective Date.
IV.1.4 . Other Resolutions. The Company shall have delivered to the
Agent copies of the resolutions of its board of directors authorizing the
execution, delivery and performance of this Agreement, certified as of the
Effective Date by the Secretary or Assistant Secretary of each such Person.
IV.2 . Expiration. If the Effective Date shall not have occurred on
or prior to May 8, 1997, the agreements of the parties contained in this
Agreement shall, unless otherwise agreed by the Majority Banks, terminate
effective immediately on such date and without further action.
-4-
<PAGE>
IV.2
V
MISCELLANEOUS
V.1 . Cross-References. References in this Agreement to any
Article or Section are, unless otherwise specified, to such Article or Section
of this Agreement.
V.2 . Loan Document Pursuant to Credit Agreement. This Agreement
is a Loan Document executed pursuant to the Amended Credit Agreement, including,
without limitation, for purposes of construction as provided in Article I and XI
thereof. Except as expressly amended, waived and consented to hereby, all of the
representations, warranties, terms, covenants and conditions contained in the
Existing Credit Agreement and each other Loan Document shall remain unamended or
otherwise unmodified and in full force and effect. The amendment set forth in
Article I, the consent provided for in Article II and the waiver provided for in
Section 5.8 shall be limited precisely as provided for herein and shall not be
deemed to be a waiver of, amendment of, consent to or modification of any other
term or provision of the Existing Credit Agreement or of any term or provision
of any other Loan Document or of any transaction or further or future action on
the part of the Company, the Tranche A Revolving Borrowers, the Subsidiary
Guarantors which would require the consent of any of the Banks under the
Existing Credit Agreement, the Amended Credit Agreement or any other Loan
Document.
V.3 . Counterparts. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original
and all of which shall constitute together but one and the same agreement.
V.4 . Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
V.5 . Further Assurance. The Company, the Tranche A Revolving
Borrowers and the Subsidiary Guarantors shall execute and deliver, from time to
time, in favor of the Agent and the Banks, such documents, agreements,
certificates and other instruments as shall be necessary or advisable to effect
the purposes of this Agreement.
V.6 . Costs and Expenses. The Company, the Tranche A Revolving
Borrowers and the Subsidiary Guarantors jointly and severally agree to pay all
reasonable costs and expenses incurred by the Agent (including the reasonable
fees and out-of-pocket expenses of legal counsel of the Agent) incurred in
connection with the execution and delivery of this Agreement and the other
agreements and documents entered into in connection herewith.
V.7 . GOVERNING LAW; WAIVER OF JURY TRIAL; ENTIRE AGREEMENT. THIS
AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK.
-5-
<PAGE>
EACH PERSON A PARTY HERETO KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT OR DOCUMENT ENTERED INTO IN
CONNECTION HEREWITH. THIS AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING AMONG
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ANY
PRIOR AGREEMENT, WRITTEN OR ORAL, WITH RESPECT HERETO.
V.8 . Waiver. Each Bank executing this Agreement agrees to waive
compliance with the requirement of Section 7.13 of the Existing Credit Agreement
that Sola IFSC and Sola Ireland shall have executed a Joinder in Credit
Agreement within ten Business Days after each of them became a Significant
Subsidiary of the Company.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers hereunto duly authorized as of the day and
year first above written.
BORROWERS:
----------
SOLA INTERNATIONAL INC.
By: _________________________________
Name:
Title:
SOLA INTERNATIONAL HOLDINGS LTD.
(ACN007719708)
SOLA OPTICAL HOLDINGS (U.K.) LIMITED
SOLA OPTICAL S.A.
SOLA OPTICAL GMBH
SOLA HONG KONG LIMITED
SOLA ADC LENSES LIMITED
SOLA OPTICAL ITALIA S.P.A.
SOLA OPTICAL JAPAN LIMITED
SOLA OPTICAL SINGAPORE PTE. LTD.
AMERICAN OPTICAL COMPANY
INTERNATIONAL AG
By: _________________________________
Name:
Title:
-7-
<PAGE>
SUBSIDIARY GUARANTORS:
----------------------
SOLA OPTICAL HOLDINGS PTY. LTD.
(ACN0060836811)
SOLA CORPORATION LIMITED
(ACN008065905)
SOLA BRASIL INDUSTRIA OPTICA LTDA.
SOLA OPTICAL (U.K.) LIMITED
INDUSTRIES OPTIQUE SOLA S.A.
SOLA OPTICAL HOLDINGS S.A.R.L.
SOLA GROUP HOLDINGS GMBH
AMERICAN OPTICAL LENS COMPANY
SOLA OPTICAL HOLDINGS AUS. LTD.
SOLA OPTICAL HOLDINGS FR. LTD.
AO OUEST OPTIQUE S.A.
By: _________________________________
Name:
Title:
SOLA OPTICAL PARTNERS, a Limited
Partnership, by its Managing Partner,
Sola International Inc.
By: _________________________________
Name:
Title:
-8-
<PAGE>
AGENT:
------
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, as Agent
By: _________________________________
Name:
Title:
ISSUING BANK:
-------------
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, as Issuing Bank
By: _________________________________
Name:
Title:
BANKS:
------
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: _________________________________
Name:
Title:
-9-
<PAGE>
THE BANK OF NOVA SCOTIA
-----------------------
By: _________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By: _________________________________
Name:
Title:
DEUTSCHE BANK AG
Los Angeles Branch and/or
Cayman Islands Branch
By: _________________________________
Name:
Title:
LASALLE NATIONAL BANK
By: _________________________________
Name:
Title:
NATIONSBANK OF TEXAS N.A.
By: _________________________________
Name:
Title:
-10-
<PAGE>
SOCIETE GENERALE
By: _________________________________
Name:
Title:
BANQUE PARIBAS
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
COMMERZBANK AKTIENGESELLSCHAFT,
Los Angeles Branch
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
THE LONG-TERM CREDIT BANK
OF JAPAN, LTD.
By: _________________________________
-11-
<PAGE>
Name:
Title:
-12-
<PAGE>
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: _________________________________
Name:
Title:
-13-
Exhibit 10.2
AMENDMENT NO. 2
TO
MULTICURRENCY CREDIT AGREEMENT
THIS AMENDMENT NO. 2, DATED AS OF NOVEMBER 5, 1997, TO MULTICURRENCY
CREDIT AGREEMENT, DATED AS OF JUNE 14, 1996, AS AMENDED (this "Amendment"),
among Sola International Inc., a Delaware corporation (the "Company"), Sola
IFSC, an Irish unlimited liability company, Sola International Holdings Ltd.
(ACN007719708), a South Australian corporation, Sola Optical Holdings (U.K.)
Limited, an English corporation, Sola Optical S.A., a French corporation, Sola
Optical GmbH, a German corporation, Sola Hong Kong Limited, a Hong Kong
corporation, Sola ADC Lenses Limited, an Irish corporation, Sola Optical Italia
S.p.A., an Italian corporation, Sola Optical Japan Limited, a Japanese
corporation, Sola Optical Singapore Pte. Ltd., a Singapore corporation, American
Optical Company International AG, a Switzerland corporation (the Company and
such other Persons (such capitalized term and all other capitalized terms used
herein without being defined shall have the meanings provided for in the
Existing Credit Agreement (as defined below)), are each referred to as a
"Tranche A Revolving Borrower" and collectively as the "Tranche A Revolving
Borrowers"), the Persons named on the signature pages hereof as Subsidiary
Guarantors (each a "Subsidiary Guarantor" and collectively the "Subsidiary
Guarantors"), the several financial institutions from time to time party to the
Amended Credit Agreement (as defined below), including in their capacity as
co-agents (collectively, the "Banks" and individually a "Bank"), and Bank of
America National Trust and Savings Association, as agent (in such capacity, the
"Agent") for the Banks.
W I T N E S S E T H:
WHEREAS, the Company, the Tranche A Revolving Borrowers, the Subsidiary
Guarantors, the Banks, the Co-Agents and the Agent are parties to the
Multicurrency Credit Agreement, dated as of June 14, 1996, as amended by
Amendment No. 1, dated as of March 31, 1997 (the "Existing Credit Agreement");
WHEREAS, the Company, the Tranche A Revolving Borrowers and the
Subsidiary Guarantors have requested that the Banks amend the Existing Credit
Agreement as herein provided;
WHEREAS, the Banks are willing, subject to the terms and conditions
hereinafter set forth, to amend the Existing Credit Agreement, and enter into
the other transactions contemplated hereby; and
WHEREAS, the parties to the Existing Credit Agreement desire to add as
parties to the Existing Credit Agreement, as modified by this Amendment, certain
additional Banks;
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto hereby agree as follows:
AMENDMENTS
Effective on (and subject to the occurrence of) the Effective Date (as
defined in Section 3.1), the Existing Credit Agreement is amended as follows
(the Existing Credit Agreement as so amended is herein referred to as the
"Amended Credit Agreement"):
Amendments to Article I. Article I to the Existing Credit Agreement
shall be amended as follows:
<PAGE>
The definition of Applicable Margin in Article I of the
Existing Credit Agreement is amended in its entirety to read as follows:
<TABLE>
"'Applicable Margin' means (a) with respect to the unpaid
principal amount of each Base Rate Loan, the applicable percentage set
forth in the table below in the column entitled 'Applicable Margin for
Base Rate Loans'; and (b) with respect to the unpaid principal amount
of each LIBOR Rate Loan and Tranche A Revolving Loan that is a Fixed
Rate Loan, the applicable percentage set forth in the table below in
the column entitled 'Applicable Margin for LIBOR Rate Loans and Tranche
A Revolving Loans that are Fixed Rate Loans':
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Leverage Applicable Margin for Applicable Margin Commitment
Ratio LIBOR Rate Loans and for Base Rate Loans Fee Rate
Tranche A Revolving Loans
that are Fixed Rate Loans
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Less than or equal to) 3.00:1.00 0.750% Zero 0.225%
-----------------------------------------------------------------------------------------------------------------
(Less than or equal to) 2.50:1.00 0.625% Zero 0.175%
and
(Greater than) 3.00:1.00
-----------------------------------------------------------------------------------------------------------------
(Less than or equal to) 2.00:1.00 0.500% Zero 0.150%
and
(Greater than) 2.50:1.00
-----------------------------------------------------------------------------------------------------------------
(Greater than) 2.00:1.00 0.450% Zero 0.1375%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The Leverage Ratio used to compute the Applicable Margin and
the Commitment Fee Rate shall be the Leverage Ratio set forth in the
Compliance Certificate and relevant financial statements delivered by
the Company to the Agent on the Closing Date pursuant to subsections
5.01(g) and (l) and, after the Closing Date, in the Compliance
Certificate most recently delivered by the Company to the Agent
pursuant to subsection 7.02(b) with respect to each fiscal quarter and
the relevant financial statements relating to such fiscal quarter
required to be delivered pursuant to Section 7.01. If the Company shall
fail to so deliver such Compliance Certificate and financial statements
as required pursuant to such subsections, the Applicable Margin and
Commitment Fee Rate shall conclusively be presumed to equal, from the
date the Company was required to deliver such Compliance Certificate
and related financial statements until the date three Business Days
after the Company actually delivers to the Agent such Compliance
Certificate and financial statements, the highest Applicable Margin and
Commitment Fee Rate set forth in the above table. Any increase or
decrease in the Applicable Margin and Commitment Fee Rate as a result
of the delivery of a Compliance Certificate and related financial
statements shall become effective three Business Days after the date of
delivery of the same to the Agent. All of the above interest rates are
at a per annum rate. Notwithstanding the foregoing, through and
including June 30, 1998 the Applicable Margin and Commitment Fee Rate
shall not, in any event, be less than those rates resulting from the
Leverage Ratio being (Less than or equal to) 2.00:1.00 and (Greater
than) 2.5.0:1.00. The Applicable Margin with respect to the unpaid
principal amount of each Tranche A Revolving Loan that is a Floating
Rate Loan shall be specified in each applicable Tranche A Revolving
Supplement Agreement.
The definition of Arranger in Article I of the Existing Credit
Agreement is amended to read as follows:
"'Arranger' means BancAmerica Robertson Stephens, a Delaware
corporation."
-2-
<PAGE>
The definition of Available Net Equity Proceeds in Article I
of the Existing Credit Agreement is amended by deleting the comma after the
reference to subsection 8.04(c) and by deleting the reference to subsection
8.05(l) on lines 27 and 28, respectively, of page 4.
The definition of Bank in the Existing Credit Agreement is
amended by deleting the word "and" immediately before the phrase "each Issuing
Bank" and substituting in lieu thereof a comma and inserting the following
immediately after the phrase "each Issuing Bank":
"and the Designated Lenders, if any; provided, however, that the term
"Bank" shall exclude each Designated Lender when used in reference to a
Loan (except to the extent a Designated Lender is the obligee of a Loan
actually funded by it pursuant to subsections 2.01(e) or 3.03(a)
hereof), the Commitments or terms relating to the Loans (except as
noted above) and the Commitments"
The following definitions shall be inserted after the
definition of Default in the Existing Credit Agreement:
"'Designated Lender' means a special purpose corporation that
is provided liquidity and/or credit support by the Designating Lender
for such Designated Lender, is organized under the laws of any state of
the United States and that (a) shall have become a party to this
Agreement pursuant to subsection 11.08(f), and (b) is not otherwise a
Bank.
'Designated Lender Note' means a promissory note of the
Company, substantially in the form of Exhibit F-1, F-2 or F-4 hereto,
as applicable, evidencing the obligation of the Company to repay Loans
made by a Designated Lender, and "Designated Lender Notes" means any
and all such promissory notes issued hereunder.
'Designating Lender' shall mean each Bank that shall designate
a Designated Lender pursuant to subsection 11.08(f) hereof.
'Designation Agreement' means a designation agreement in
substantially the form of Exhibit L attached hereto, entered into by a
Bank and a Designated Lender and accepted by the Company and the
Agent."
The following definition shall be inserted after the
definition of Domestic Subsidiary Guarantor in the Existing Credit Agreement:
"'EBIT' means, for any period, the sum (without duplication)
of
(a) Net Income;
plus
(b) the amount deducted, in determining Net Income, of all
income taxes (whether paid or deferred) of the Company and its
Subsidiaries;
plus
(c) Interest Expense (including amortization of debt
discount);
plus
-3-
<PAGE>
(d) the amount deducted, in determining Net Income, of all
non-recurring, noncash charges for which no cash outlays have been made
at the time of such noncash charges or will be made thereafter."
The definition of Existing Credit Documents in Article I of
the Existing Credit Agreement is deleted in its entirety.
The definition of Fixed Charge Coverage Ratio in Article I of
the Existing Credit Agreement is deleted in its entirety.
The definition of Foreign Obligations in Article I of the
Existing Credit Agreement is amended by deleting the phrase "and each Foreign
Subsidiary Guarantor" on lines 44 and 45 of page 13.
The definition of Foreign Subsidiary Guarantor in Article I of
the Existing Credit Agreement is deleted in its entirety.
The following definition shall be inserted after the
definition of Intercompany Subordinated Indebtedness in the Existing Credit
Agreement:
"'Interest Coverage Ratio' means, at the end of any fiscal
quarter, the ratio of EBIT to Interest Expense."
The definition of L/C Commitment Amount in Article I of the
Existing Credit Agreement is amended to read as follows: the reference to
$10,000,000 on line 23 of page 18 is amended to read "$75,000,000."
The definition of Loan in Article I of the Existing Credit
Agreement is amended by inserting the phrase "or a Designated Lender"
immediately after the word "Bank" on line 36 of page 20.
The definition of Tranche B Revolving Commitment Amount in
Article I of the Existing Credit Agreement is amended to read as follows: the
reference to $120,000,000 on line 6 of page 33 is amended to read
"$270,000,000."
Amendments to Section 2.01. Section 2.01 of the Existing Credit
Agreement shall be amended as follows:
Subsection 2.01(a) of the Existing Credit Agreement shall be
amended by adding thereto the following provisions at the end thereof:
"It is agreed that the 'Term Loans' under the Existing Credit Agreement
shall, upon the Effective Date of Amendment No. 2 to this Agreement, be
repaid, together with accrued interest thereon, with the proceeds of
Tranche B Revolving Loans under the Amended Credit Agreement made in
accordance with the terms and provisions of subsection 2.01(c).
Promptly after the Effective Date, each Term Loan Bank shall return its
Term Loan Note to the Agent which shall deliver the same to the Company
for cancellation."
Section 2.01 of the Existing Credit Agreement shall be amended
by inserting the following new subsection 2.01(e) immediately after subsection
2.01(d):
"(e) Loans by Designated Lenders. For any Bank which is a
Designating Lender, any Loan to be made by such Bank may from time to
time be made by its Designated Lender in such Designated Lender's sole
discretion, and nothing herein shall constitute a commitment to make
Loans by such Designated Lender; provided that if any Designated Lender
elects not to, or fails to, make any such Loan, its Designating Lender
hereby agrees that it shall make such Loan
-4-
<PAGE>
pursuant to the terms hereof. Any Loan actually funded by a Designated
Lender shall constitute a utilization of the applicable Tranche A
Revolving Commitment, Tranche B Revolving Commitment, Swing Line
Commitment and/or L/C Commitment of its Designating Lender for all
purposes hereunder."
Amendments to Section 2.14. Section 2.14 of the Existing Credit
Agreement shall be amended as follows:
Subsection 2.14(a) of the Existing Credit Agreement is amended
by inserting the phrase "or in the case of a Domestic Bank that is a Designating
Lender, its Designated Lender" immediately after the word "Bank" on line 26 of
page 50, by inserting the phrase "or Designated Lender, as the case may be,"
immediately after the word "Bank" on line 28 of page 50, by inserting the phrase
"or Designated Lender" immediately after the word "Bank" on lines 31 and 33 of
page 50, and by inserting the phrase "or Designated Lender's" immediately after
the word "Bank's" on line 37 of page 50.
Subsection 2.14(b) of the Existing Credit Agreement is amended
by inserting the phrase "or Designated Lender" immediately after the word "Bank"
on lines 45 and 46 of page 50 and lines 1 and 2 of page 51.
Amendments to Section 3.03. Section 3.03 of the Existing Credit
Agreement shall be amended as follows:
Subsection 3.03(a) of the Existing Credit Agreement is amended
as follows:
(i) By inserting the following immediately after the end of
the first sentence on line 37 of page 55:
"For any Tranche B Revolving Bank which is a Designating
Lender, any such purchase of a participation in a Letter of
Credit and each drawing thereunder to be made by such Bank may
from time to time be made by its Designated Lender in such
Designated Lender's sole discretion, and nothing herein shall
constitute a commitment to make such purchases by such
Designated Lender; provided that if any Designated Lender
elects not to, or fails to, make any such purchase, its
Designating Lender hereby agrees that it shall make such
purchase pursuant to the terms hereof."; and
(ii) By deleting the reference to subsection 2.01(c) on line
37 of page 55 and inserting in lieu thereof the reference "subsections
2.01(c) and (e)".
Subsection 3.03(b) of the Existing Credit Agreement is amended
by inserting the phrase "or their Designated Lenders, as the case may be,"
immediately after the word "Banks" on line 5 of page 56.
Subsection 3.03(c) of the Existing Credit Agreement is amended
by inserting the phrase "or its Designated Lender, as the case may be,"
immediately after the word "Bank" on line 12 of page 56, by inserting the phrase
"or its Designated Lender, as the case may be," immediately after the word
"notified" on line 18 of page 56, by inserting the phrase "or Designated
Lender's" immediately after the word "Bank's" on line 21 of page 56, and by
inserting the phrase "or Designated Lender" immediately after the word "Bank" on
line 25 of page 56.
Subsection 3.03(d) of the Existing Credit Agreement is amended
by inserting the phrase "or Designated Lender's" immediately after the word
"Bank's" on line 33 of page 56.
Subsection 3.03(e) of the Existing Credit Agreement is amended
by inserting the phrase "or any Designated Lender" immediately after the word
"Bank" on line 43 of page 56.
-5-
<PAGE>
Amendment to Subsection 7.12(a). Subsection 7.12(a) of the Existing
Credit Agreement shall be amended in its entirety to read as follows:
"(a) The Borrowers shall use all proceeds of
(i) the Tranche A Revolving Loans for (A) working
capital purposes of the Borrowers and (B) consummating Permitted
Acquisitions; provided, however, that notwithstanding the foregoing,
the proceeds of the Tranche A Revolving Loans to Sola Optical Singapore
Pte Ltd. shall only be used for the purpose of financing direct exports
from and imports into Singapore and economic activities in Singapore,
and not any activities which would violate the guidelines of the
Monetary Authority of Singapore as set forth in the Notice to Banks,
MAS 621, dated July 18, 1992;
(ii) the Tranche B Revolving Loans for (A)
refinancing the Term Loans as provided in subsection 2.01(a), (B)
repurchasing the Subordinated Notes, (C) working capital purposes of
the Borrowers and (D) consummating Permitted Acquisitions; and
(iii) the Swing Line Loans for working capital
purposes of the Borrowers."
Amendment to Section 7.13. Section 7.13 of the Existing Credit
Agreement shall be amended by inserting the clause "which is incorporated in any
State of the United States or the District of Columbia" immediately after the
word "Person" on Line 20 of page 82, by inserting the word "Domestic"
immediately after the word "such" on Line 21 of page 82 and by deleting the
phrase "subject to the first sentence of this Section 7.13," on lines 28 and 29
of page 82.
Amendment to Subsection 8.05(l). Subsection 8.05(l) of the Existing
Credit Agreement shall be amended in its entirety to read as follows:
"(l) other unsecured Indebtedness in an aggregate amount not
to exceed at any time $150,000,000."
Amendment to Section 8.10. Section 8.10 of the Existing Credit
Agreement shall be amended by deleting the period at the end of clause (vi) in
line 24 of page 91 and inserting in lieu thereof a semi-colon and by adding
thereafter the following additional proviso:
"provided, however, that the limitations in the immediately preceding
proviso shall not apply to the repurchase of Subordinated Notes
outstanding at September 30, 1997 effected otherwise in accordance with
the terms and provisions of this subsection 8.10(vi)."
Amendment to Subsection 8.12(a). Subsection 8.12(a) of the Existing
Credit Agreement shall be amended in its entirety after the caption thereof to
read as follows:
"The Company shall not permit the Leverage Ratio to be greater than
3.20:1.00 as of the last day of each fiscal quarter occurring on
September 30, 1997 and thereafter."
Amendment to Subsection 8.12(b). Subsection 8.12(b) of the Existing
Credit Agreement shall be amended in its entirety to read as follows:
"(b) Interest Coverage Ratio. The Company shall not
permit its Interest Coverage Ratio to be less than 1.50:1.00 as of the
last day of each fiscal quarter ending on September 30, 1997 and
thereafter."
-6-
<PAGE>
Amendment to Subsection 8.12(c). Subsection 8.12(c) of the Existing
Credit Agreement shall be amended as follows: the references to the Closing Date
on lines 10, 12 and 16 of page 92 are amended to read "June 30, 1997".
Amendment to Article X. Article X of the Existing Credit Agreement
shall be amended as follows:
Section 10.03 of the Existing Credit Agreement is amended by
inserting the phrase "or Designated Lender" immediately after the word "Bank" on
line 6 of page 98.
Subsection 10.04(a) of the Existing Credit Agreement is
amended by inserting the phrase "or Designated Lenders" immediately after the
word "Banks" on line 20 of page 98, and by inserting the phrase "and Designated
Lenders" immediately after the word "Banks" on line 26 of page 98.
Subsection 10.04(b) of the Existing Credit Agreement is
amended by inserting the phrase "and each Designated Lender" immediately after
the word "Agreement" on line 29 of page 98, by inserting the phrase "or such
Designated Lender's Designating Lender" immediately after the word "Bank" on
line 31 of page 98 and by inserting the phrase "and such Designated Lender's
Designating Lender" immediately after the word "Bank" on line 32 of page 98.
Section 10.06 of the Existing Credit Agreement is amended by
inserting the phrase "and Designated Lender" immediately after the word "Bank"
on line 1 of page 99, by inserting the phrase "or Designated Lender" immediately
after the phrase "any Bank" on line 4 of page 99, by inserting the phrase "and
Designated Lender" immediately after the phrase "Each Bank" on line 4 of page
99, by inserting the phrase "and Designated Lender" immediately after the word
"Bank" on line 11 of page 99, and by inserting the phrase "or Designated Lender"
immediately after the word "Bank" on line 18 of page 99.
Section 10.07 of the Existing Credit Agreement is amended by
inserting the phrase "and Designated Lenders" immediately after the word "Banks"
on line 24 of page 99, and by inserting the following immediately after the word
"misconduct" on line 29 of page 99:
"; and provided further that no Designated Lender shall be liable for
any payment under this Section 10.07 so long as, and to the extent
that, its Designating Lender makes such payments".
Section 10.08 of the Existing Credit Agreement is amended by
inserting the phrase "and Designated Lenders" immediately before the word
"acknowledge" on line 43 of page 99.
Amendment to Section 11.01. Section 11.01 of the Existing Credit
Agreement shall be amended by inserting the following at the end thereof:
"Each Designating Lender may act on behalf of its Designated Lender
with respect to any and all rights of its Designated Lender to grant or
withhold any consent hereunder to the fullest extent it has been so
delegated to act by its Designated Lender pursuant to its Designation
Agreement, including, without limitation, any rights to approve any
amendment to, or any consent or waiver with respect to, this Agreement
or any other Loan Document, which amendment, consent or waiver would
require unanimous consent of the Banks as described in the first
proviso to this Section 11.01."
Amendment to Section 11.08. Section 11.08 of the Existing Credit
Agreement shall be amended by inserting the following new subsections 11.08(f)
and (g) immediately after subsection 11.08(e):
-7-
<PAGE>
"(f) Any Bank may at any time designate not more than one
Designated Lender to fund all, or any portion, of such Bank's Pro Rata
Share of Loans on behalf of such Designating Lender subject to the
terms of this subsection 11.08(f), and the provisions of subsections
11.08(a), (b) and (c) hereof shall not apply to such designation. No
Bank may have more than one Designated Lender at any time. Such
designation may occur only by the execution by such Bank and Designated
Lender of a Designation Agreement. The parties to each such designation
shall execute and deliver to the Agent and the Company for their
acceptance a Designation Agreement. Upon such receipt of an
appropriately completed Designation Agreement executed by a Designating
Lender and a designee representing that it is a Designated Lender and
consented to by the Company, the Agent will accept such Designation
Agreement and will give, within five (5) Business Days of receipt of
such Designation Agreement, written notice thereof to the Company and
the other Banks, whereupon, upon the Agent's receipt from the
Designating Lender of such Designating Lender's Note for cancellation
and the Agent's confirmation of such receipt to the Company, (i) the
Company shall execute and deliver to the Agent for forwarding to the
Designating Lender a Designated Lender Note payable to the order of the
Designated Lender, (ii) from and after the effective date specified in
the Designation Agreement, the Designated Lender shall become a party
to this Agreement with a right to make Loans on behalf of its
Designating Lender pursuant to subsections 2.01(e) and 3.03(a), and
(iii) the Designated Lender shall not be required to make payments with
respect to any obligations under this Agreement except to the extent of
excess cash flow of such Designated Lender which is not otherwise
required to repay obligations of such Designated Lender which are then
due and payable; provided, however, that regardless of such designation
and assumption by the Designated Lender, the Designating Lender shall
be and remain obligated to the Company, the Agent and the Banks for
each and every of the obligations of the Designating Lender and its
related Designated Lender with respect to this Agreement, including,
without limitation, any indemnification obligations under Section 10.07
hereof and any sums otherwise payable to the Company by the Designated
Lender. Each Designating Lender, or a specified branch or affiliate
thereof, shall serve as the administrative agent of its Designated
Lender and shall on behalf of its Designated Lender: (i) receive any
and all payments made for the benefit of such Designated Lender, (ii)
give and receive all communications and notices hereunder and under the
other Loan Documents, including, without limitation, furnishing to such
Designated Lender copies of all financial statements, certificates and
other information furnished by the Company to the Agent for the Banks
hereunder, and (iii) take all actions required or permitted to be taken
by a Designated Lender hereunder, including, without limitation, votes,
approvals, waivers, consents and amendments under or relating to this
Credit Agreement and the other Loan Documents, including, without
limitation, the exercise of any rights to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other Loan
Document which amendment, consent or waiver would require unanimous
consent of the Banks as described in the first proviso to Section
11.01. Any such notice, communication, vote, approval, waiver, consent
or amendment shall be signed by a Designating Lender, or specified
branch or affiliate thereof, as administrative agent for its Designated
Lender and need not be signed by such Designated Lender on its own
behalf. The Company, the Agent and the Banks may rely thereon without
any requirement that the Designated Lender sign or acknowledge the
same. Without limiting the generality of the foregoing two sentences,
the signature of the Designating Lender on any such notice,
communication, vote, approval, waiver, consent or amendment shall be
deemed to bind irrevocably the Designated Lender. Notwithstanding any
designation hereunder, the Agent, the Company and the Issuing Lender
may continue to deal solely and directly with the Designating Lender in
connection with any and all matters relating to such designation and
the Designating Lender's and the Designated Lender's respective rights
and obligations hereunder and under the other Loan Documents,
including, without limitation, voting rights, and, except as expressly
set forth herein with respect to processing Designation Agreements, the
Agent shall have no duties or responsibilities of any type to the
Designating Lender, the Designated Lender or any other Person with
respect to any designation hereunder, including, without limitation,
duties of record keeping, monitoring, tracking, identification,
notification or payment or other handling of funds
-8-
<PAGE>
directly or indirectly on behalf of the Designated Lender. No
Designated Lender may assign, transfer or otherwise dispose of its
interest hereunder or under any other Loan Document, other than to its
Designating Lender. The Designating Lender shall provide prompt written
notice of any such assignment, transfer or other disposition to the
Agent.
(g) Each of the Company, the Banks and the Agent agrees that
it will not institute against any Designated Lender or join any other
Person in instituting against any Designated Lender any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding under
any federal or state bankruptcy or similar law, for one year and one
day after the payment in full of the latest maturing commercial paper
note issued by such Designated Lender."
Amendments to Section 11.09. Section 11.09 of the Existing Credit
Agreement shall be amended as follows:
Subsection 11.09(a) of the Existing Credit Agreement is
amended by deleting the word "Borrowers" on line 27 of page 105 and inserting in
lieu thereof the word "Company", by deleting therefrom all of clause (ii) and by
deleting the phrase "each Borrower and Subsidiary Guarantor" on line 17 of page
106 and inserting in lieu thereof the phrase "the Company and each Subsidiary
Guarantor".
Subsection 11.09(b) of the Existing Credit Agreement is
amended by deleting the phrase "Each Borrower and Subsidiary Guarantor" on line
23 of page 106 and inserting in lieu thereof the phrase "The Company and each
Subsidiary Guarantor", by deleting the subsection reference "(i)" on line 27 of
page 106 and by deleting the comma, the word "and" immediately before the
subsection reference (ii) and all of clause (ii) on lines 30 through 34 of page
106 and inserting in lieu thereof a period.
Subsection 11.09(c) of the Existing Credit Agreement is
amended by deleting the phrase "each Borrower and Subsidiary Guarantor" on lines
38 and 39 of page 106 and inserting in lieu thereof the phrase "the Company and
each Subsidiary Guarantor", by deleting the phrase "Each Borrower and Subsidiary
Guarantor" on line 40 of page 106 and inserting in lieu thereof the phrase "The
Company and each Subsidiary Guarantor", by deleting the phrase "Borrower and
Subsidiary Guarantor" on line 41 of page 106 and inserting in lieu thereof the
word "Person", by deleting the phrase "each Borrower and Subsidiary Guarantor"
on lines 44 and 45 of page 106 and inserting in lieu thereof the phrase "the
Company and each Subsidiary Guarantor", and by deleting the phrase "each
Borrower and Subsidiary Guarantor" on line 40 of page 107 and inserting in lieu
thereof the phrase "the Company and each Subsidiary Guarantor".
Subsection 11.09(d) of the Existing Credit Agreement is
amended by deleting the phrase "Each Borrower and Subsidiary Guarantor" on line
4 of page 108 and inserting in lieu thereof the phrase "The Company and each
Subsidiary Guarantor" and by deleting the phrase "Borrower and Subsidiary
Guarantor" on line 7 of page 108 and inserting in lieu thereof the word
"Person".
Subsection 11.09(e) of the Existing Credit Agreement is
amended by deleting the phrase "Each Borrower and Subsidiary Guarantor" on line
11 of page 108 and inserting in lieu thereof the phrase "The Company and each
Subsidiary Guarantor" and by deleting the phrase "Borrower and Subsidiary
Guarantor" on line 13 of page 108 and inserting in lieu thereof the word
"Person".
Subsection 11.09(f) of the Existing Credit Agreement is
amended by deleting the phrase "Each Borrower and Subsidiary Guarantor" on line
18 of page 108 and inserting in lieu thereof the phrase "The Company and each
Subsidiary Guarantor", by deleting the phrase "any Borrower and Subsidiary
Guarantor" on line 28 of page 108 and inserting in lieu thereof the phrase "the
Company or any Subsidiary Guarantor", by deleting the phrase "Borrower and
Subsidiary Guarantor" on line 29 of page 108 and inserting in lieu thereof the
word "Person", by deleting the phrase "Borrower and Subsidiary Guarantor, as the
case may be" on line 32 of page 108 and inserting in lieu thereof the word
"Person", by deleting the references to Sola Optical Partners, Sola Corporation
Limited and Sola Optical Holdings Pty.
-9-
<PAGE>
Ltd. on lines 34 and 35 of page 108, by deleting the phrase "Borrower and
Subsidiary Guarantor, as the case may be" on lines 36 and 37 of page 108 and
inserting in lieu thereof the word "Person", and by deleting the phrase "Each
Borrower and Subsidiary Guarantor" on line 37 of page 108 and inserting in lieu
thereof the phrase "The Company and each Subsidiary Guarantor".
Subsection 11.09(g) of the Existing Credit Agreement is
amended by deleting the references to Sola Optical Partners, Sola Corporation
Limited and Sola Optical Holdings Pty. Ltd. in clause (iii) on lines 21 through
23 of page 109.
Amendment to Section 11.10. Section 11.10 of the Existing Credit
Agreement shall be amended by inserting the following at the end thereof:
"The provisions of this Section 11.10 shall be binding upon each
Designated Lender to the same extent as if it were a Bank hereunder."
Amendments to Exhibits. The following schedules and exhibits to the
Existing Credit Agreement are revised to read as indicated in the revised
schedules and exhibits attached to this Amendment and new Exhibit L in the form
attached to this Amendment is added to the Credit Agreement:
Revised Schedule 2.01 Commitments
Revised Schedule 6.15 Subsidiaries
Revised Schedule 11.02 Lending Offices; Payment Offices;
Addresses for Notices
Revised Exhibit C Form of Compliance Certificate
Revised Exhibit F-2 Form of Tranche B Revolving Note.
Revised Exhibit G Form of Tranche A Extension Request
Revised Exhibit H Form of Joinder in Credit Agreement
Exhibit L Form of Designation Agreement
Fees. The Company shall pay to the Agent the fees described in
the letter from the Company to the Arranger dated October 2, 1997.
REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to make the amendments provided for in
Article I, each of the Company, the Tranche A Revolving Borrowers and the
Subsidiary Guarantors hereby (a) represents and warrants that (i) each of the
representations and warranties contained in the Existing Credit Agreement and in
the other Loan Documents is true and correct in all material respects as of the
date hereof as if made on the date hereof (except, if any such representation
and warranty relates to an earlier date, such representation and warranty shall
be true and correct in all material respects as of such earlier date), (ii) both
immediately before and after giving effect to the provisions of this Amendment,
no Default or Event of Default has occurred and is continuing and (b) agrees
that the incorrectness in any material respect of any representation and
warranty contained in this Article II shall constitute an immediate Event of
Default.
-10-
<PAGE>
CONDITIONS TO EFFECTIVENESS; EXPIRATION
Effective Date. This Amendment shall become effective on such date
(herein called the "Effective Date") when the conditions set forth in this
Section 3.1 have been satisfied.
Execution of Amendment. The Agent shall have received counterparts of
this Amendment duly executed and delivered on behalf of the Company, the Tranche
A Revolving Borrowers, the Subsidiary Guarantors and all of the Banks listed on
the signature pages hereof.
Resolutions. The Company shall have delivered to the Agent copies of
the resolutions of the Company's and each Subsidiary Guarantor's board of
directors authorizing the execution, delivery and performance of this Amendment,
certified as of the Effective Date by the Secretary or Assistant Secretary of
each such Person.
Organization Documents; Good Standing. The Company shall have
delivered to the Agent with copies for each of the Banks: (i) the articles or
certificate of incorporation and the by-laws of the Company and each Subsidiary
Guarantor as in effect on the Effective Date, certified by the Secretary of
State (or similar applicable Governmental Authority) of its jurisdiction of
incorporation as of a date reasonably near to the Effective Date as being true
and correct and by the Secretary or Assistant Secretary of the Company or each
such Subsidiary Guarantor, as the case may be, as being true and correct as of
the Effective Date; and (ii) a good standing and tax good standing certificate
for the Company and each Subsidiary Guarantor from the Secretary of State (or
similar applicable Governmental Authority) of its state or other jurisdiction of
incorporation and a good standing certificate in each jurisdiction where the
Company or each such Subsidiary Guarantor is qualified to do business as a
foreign corporation as of a recent date, together with a bring-down certificate
by facsimile, dated the Effective Date.
Certificate. The Agent and the Banks shall have received a
certificate signed by a Responsible Officer, dated as of the Effective Date, as
to matters set forth in Article II of this Amendment.
Notes. The Agent shall have received for Banque Nationale de Paris
and The Dai-Ichi Kangyo Bank, Limited, San Francisco Agency new Tranche B
Revolving Notes executed by the Company and reflecting to the satisfaction of
the Agent and the Banks the transactions hereby contemplated.
Legal Opinion. The Agent shall have received an opinion, dated as of
the Effective Date, of Fried, Frank, Harris, Shriver & Jacobson, counsel to the
Company, the Subsidiary Guarantors and the Tranche A Revolving Borrowers, and
addressed to the Agent and the Banks, substantially in the form of Exhibit A
hereto.
Banks' Fees. The Company shall have paid to the Agent for the account
of the Banks the participation fee described in the letter from the Company to
the Agent dated October 2, 1997.
Accrued Interest and Fees. The Company shall have paid to the Agent
for the account of the Banks all accrued and unpaid interest on Tranche B Loans
and Term Loans outstanding on the Effective Date and all accrued and unpaid
commitment fees and letter of credit fees payable by the Company in respect of
each Bank's Tranche B Revolving Commitment and L/C Commitment, calculated for
the period ending on the Effective Date.
Repayment of Certain Tranche B Revolving Loans. The Company shall
have repaid the Tranche B Revolving Loans made by Deutsche Bank AG Los Angeles
Branch and/or Cayman Islands Branch and The Long Term Credit Bank of Japan, Ltd.
outstanding on the Effective Date, together with accrued interest thereon.
-11-
<PAGE>
Arranger Fee. The Company shall have paid to the Arranger the
arrangement fee described in the letter from the Company to the Arranger dated
October 2, 1997.
Expiration. If the Effective Date shall not have occurred on or prior
to November 15, 1997, the agreements of the parties contained in this Amendment
shall, unless otherwise agreed by the Banks, terminate effective immediately on
such date and without further action.
MISCELLANEOUS
Cross-References. References in this Amendment to any Article or
Section are, unless otherwise specified, to such Article or Section of this
Amendment.
Loan Document Pursuant to Credit Agreement. This Amendment is a Loan
Document executed pursuant to the Amended Credit Agreement, including, without
limitation, for purposes of construction as provided in Article I and XI
thereof. Except as expressly amended, waived and consented to hereby, all of the
representations, warranties, terms, covenants and conditions contained in the
Existing Credit Agreement and each other Loan Document shall remain unamended or
otherwise unmodified and in full force and effect. The amendments set forth in
Article I, shall be limited precisely as provided for herein and shall not be
deemed to be a waiver of, amendment of, consent to or modification of any other
term or provision of the Existing Credit Agreement or of any term or provision
of any other Loan Document or of any transaction or further or future action on
the part of the Company, the Tranche A Revolving Borrowers or the Subsidiary
Guarantors which would require the consent of any of the Banks under the
Existing Credit Agreement, the Amended Credit Agreement or any other Loan
Document.
Counterparts. This Amendment may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement.
Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
Further Assurance. The Company, the Tranche A Revolving Borrowers and
the Subsidiary Guarantors shall execute and deliver, from time to time, in favor
of the Agent and the Banks, such documents, agreements, certificates and other
instruments as shall be necessary or advisable to effect the purposes of this
Amendment.
Costs and Expenses. The Company, the Tranche A Revolving Borrowers
and the Subsidiary Guarantors jointly and severally agree to pay all reasonable
costs and expenses incurred by the Agent (including the reasonable fees and
out-of-pocket expenses of legal counsel of the Agent, including allocated costs
of in-house counsel) incurred in connection with the execution and delivery of
this Amendment and the other agreements and documents entered into in connection
herewith.
-12-
<PAGE>
GOVERNING LAW; WAIVER OF JURY TRIAL; ENTIRE AGREEMENT. THIS AMENDMENT
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK. EACH PERSON A PARTY HERETO KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
ARISING UNDER OR IN CONNECTION WITH THIS AMENDMENT OR ANY AGREEMENT OR DOCUMENT
ENTERED INTO IN CONNECTION HEREWITH. THIS AMENDMENT CONSTITUTES THE ENTIRE
UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND SUPERSEDES ANY PRIOR AGREEMENT, WRITTEN OR ORAL, WITH RESPECT HERETO.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers hereunto duly authorized as of the day and
year first above written.
BORROWERS:
----------
SOLA INTERNATIONAL INC.
By: _________________________________
Name:
Title:
SOLA IFSC
SOLA INTERNATIONAL HOLDINGS LTD.
(ACN007719708)
SOLA OPTICAL HOLDINGS (U.K.) LIMITED
SOLA OPTICAL S.A.
SOLA OPTICAL GMBH
SOLA HONG KONG LIMITED
SOLA ADC LENSES LIMITED
SOLA OPTICAL ITALIA S.P.A.
SOLA OPTICAL JAPAN LIMITED
SOLA OPTICAL SINGAPORE PTE. LTD.
AMERICAN OPTICAL COMPANY
INTERNATIONAL AG
By: _________________________________
Name:
Title:
-13-
<PAGE>
SUBSIDIARY GUARANTOR:
---------------------
AMERICAN OPTICAL LENS COMPANY
By: _________________________________
Name:
Title:
AGENT:
------
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Agent
By: _________________________________
Name:
Title:
ISSUING BANK:
-------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Issuing Bank
By: _________________________________
Name:
Title:
BANKS:
------
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: _________________________________
Name:
Title:
-14-
<PAGE>
THE BANK OF NOVA SCOTIA, as Co-Agent
and as a Bank
By: _________________________________
Name:
Title:
BANKBOSTON N.A., as Co-Agent and as a
Bank
By: _________________________________
Name:
Title:
NATIONSBANK OF TEXAS N.A., as
Co-Agent and as a Bank
By: _________________________________
Name:
Title:
LASALLE NATIONAL BANK
By: _________________________________
Name:
Title:
SOCIETE GENERALE
By: _________________________________
Name:
Title:
-15-
<PAGE>
BANQUE PARIBAS
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
COMMERZBANK AKTIENGESELLSCHAFT,
Los Angeles Branch
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By: _________________________________
Name:
Title:
BANQUE NATIONALE DE PARIS
By: _________________________________
Name:
Title:
-16-
<PAGE>
THE DAI-ICHI KANGYO BANK, LIMITED,
SAN FRANCISCO AGENCY
By: _________________________________
Name:
Title:
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SECOND QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,941
<SECURITIES> 20
<RECEIVABLES> 117,137
<ALLOWANCES> 4,449
<INVENTORY> 168,210
<CURRENT-ASSETS> 315,020
<PP&E> 161,301
<DEPRECIATION> 39,074
<TOTAL-ASSETS> 644,798
<CURRENT-LIABILITIES> 133,916
<BONDS> 202,718
0
0
<COMMON> 245
<OTHER-SE> 303,548
<TOTAL-LIABILITY-AND-EQUITY> 644,798
<SALES> 402,624
<TOTAL-REVENUES> 402,624
<CGS> 211,591
<TOTAL-COSTS> 211,591
<OTHER-EXPENSES> 126,910
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,387
<INCOME-PRETAX> 34,102
<INCOME-TAX> 16,946
<INCOME-CONTINUING> 34,102
<DISCONTINUED> 0
<EXTRAORDINARY> (5,923)
<CHANGES> 0
<NET-INCOME> 28,179
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.11
</TABLE>
